The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
The Papers of Charles Hamlin (mss24661)
362 07 001-
Hamlin, Charles S., Scrap Book — Volume 196, FRBoard Members
205.001 - Hamlin Charles S
Scrap Book - Volume 196
FRBoard Members
BOARD OF GOVERNORS
•
OF THE
•
FEDERAL RESERVE SYSTEM
Office Correspondence
To
The Files
From
Mr. Coe
Date July 31, 1941
Subject:
))1/K.
After correspondence with Mrs. Hamlin (see letters of May
25 and June 4, 1941) the items attached hereto and listed below,
because of their possible confidential character, were taken from
Volume 196 of Mr. Hamlin's scrap book and placed in the Board's
files:
Y2
19
•
Page 22
Memo to Mr. Hamlin from Mr. Smead re Ratio of total deposits to
combined capital and surplus.
Page 23
Memo to Board from Mr. McClelland attaching preliminary memo on
credit conditions considered by Open Market Inv. Committee.
Page 24
Letter to Mr. Hamlin from Mr. Wyatt.
Page 33
Letter to Mr. Hamlin from Gov. Young re Preliminary Memorandum for
the Open Market Investment Committee, September 24, 1929.
Page 45
Memo to Board from Mr. Smead re Branches of member and nonmember
banks.
Page 47
Memo to Gov. Young from Mr. Goldenweiser re Effects of security
purchases.
Page 57
Reserve Bank Credit - Factors in Changes. (Memo of Mr. Goldenweiser to Mr. Hamlin.)
Page 97
Memo to Board from Mr. Wyatt re Ownership of Bank Stocks by
•
Holding Companies.
Page 99
Earnings & Expenses of F.R. Banks, September 1929.
Page 135
Memo to Mr. Goldenweiser from Mr. Gardner - "The Present Gold
Situation".
5,44, 134
Form No. 131.
Office Correspondence
To
__
Mr. Hamlin
FEDERAL RESERVE
130ARD
Dabitt_September 20,
Subject: Ratio
1929 _
of total deposits to corn-
bined capital and surplus
Mr. Smead
S406
I have examined the condition reports of the large banks in New York City
and find that on June 29, 1929 their deposits in the majority of oases run about
five or six times their combined capital and surplus. I am listing below 11 of
the larger member banks in New York City showing their capital and surplus, total
deposits, and the ratio of deposits to capital and surplus:
Capital
and
Total
aurplus
Deposits
(In thousands of dollars)
Trust Companies
Bankers Trust Company
Central Hanover Bank and Trust Co.
Equitable Trust Company
Guaranty Trust Company
Irving Trust Company
Manufacturers Trust Company
75,000
81,000
50,000
160,000
115,000
55,000
Ratio
471,923
463,587
332,409
897,622
6.3 to
5.7
6.6
534,308
376,671
4.6
6.8
1
5.6
National Banks
Bank of America, N. A.
Chase National Bank
Chatham Phenix National Bank
First National Bank
National City Bank
71,275
122,000
22,500
100,000
220,000
249,245
812,992
236,600
340,917
1,137,901
3.4 to 1
6.7
10.5
3.4
5.2
When it comes to the smaller banks in New York City I find that several of
them have deposits equal to slightly more than 10 times their capital and surplus
but none of them as much as 12 times. For example, the deposits of the Amalgamated
Bank ($11,700,000) are 11.7 times the bank's combined capital and surplus, of the
Fidelity Union Trust Company ($128,500,000) 10.7 times, and of the Fifth Avenue
Bank ($26,100,000) 10.4 times.
We made a brief examination of the reports for some of the other banks and I
am giving below a table showing figures for five banks in the Minneapolis and San
Francisco districts each of which have deposits equal to more than 20 times their
capital and surplus.
Capital
and
Total
Surplus
Deposits
Ratio
(In thousands of dollars)
Metals Bank & Trust Co.
Daly Bank and Trust Co.
Anglo-Calif. Trust Co.
First Security Bank
First Security Bank
VOLUME 196
PAGE 22
Butte, Mont.
1,000
Anaconda,Mont.
200
San Francisco,Cal. 3,500
Pocatello, Ida.
150
29
Bingham Canyon,Utah
21,852
5,228
70,262
3,027
848
21.9 to 1
26.1
20.1
20.2
29.2
Form No. 131.
Office Correspondence
To
BAMIOVAI Bead (Individually)
FEDERAL RESERVE
BOARD
Date-Sopteinber 25,- 1929
Subject:
La.. Hamlin.
From_meg lisClelland•
There is attached hereto copy of the preliminary memorandum
on credit conditions (charts not included) which was considered by
the Open llarket Investment Committee at its mooting yesterday, together with a copy of the recomnendation which the Committee made to
the Board.
VOLUME 196
PAGE 23
2--8496
The Committee. has reviewed a preliminary nomorandham and current credit conditions.
During the past eighteen months interest rates in this country have Grad-
ually risen and moneys especially for new undertakings, has become more difficult
to obtain.
While business continues at a high level, there are some indications of
a possible impendino recession.
Rates in many foreign centers have risen even more markedly and the loss of
reserves of central banks threaten further increases in rates and probable curtailment of
irope's capacity to buy this country's products.
In accordance with the System policy adopted on August 8th seasonal requirements
for Federal iieserve credit have been net by bill purchases, and in fact such purchases have been sufficient to reduce rediscounts to some extent.
For the purpose of avoiding any increase and, if possible, facilitating some
further reduction in the total Volume of member bank discounts during the fall season, if this can be done without stimulating unnecessary or abnormal expansion of
nenber bank credit, the Committee favors a further increase of the open market hold-
/
1
ins:a of the 2ederal reserve banks.
It favors an increase of these holdings by the
continued purchase of bills if they can be obtained in sufficient amounts to accomplish this purpose.
j
,
If bills cannot be Obtained in sufficient amounts without
interfering with the present desirable distribution, it favors the purchase of Governmont certificates of the short maturities.
The Committee therefore recommends that it be authorized to purchase not to
exceed 45,000,000 a week of such certificates, for account of such banks as care
to participate, with the understanding that such purchases be made only unaer the
conditions above stated, and with the further understanding that there be careful
current review of the consequences of such purchases, in order that there may be
another meeting with the Board at any time that that may seem advisable either to
the 3oard or to the Committee. In any event, the Committee feels that there should
be another such meeting not later than November 1.
(4th Draft - S
. 23, 1929)
(reliminary Memorandum for the Open Mnrket Investment Comnittee
September 24, 1929.
At a meeting of the Governors of all Federal reserve banks at Washington,
D. C., on August 7 and 8, the following resolution was adopted:
"It is the judgment of the kov.rnors that the demand for
increased credit incident to the autumn requirements of crop
moving and business should be met, so far as possible, by an
increase of the bill portfolio of such banks as c,Ire to participate in bill purchases.
"The Governors are also of the opinion that this procedure
can best and most safely be undertaken, and with least risk of
abuse in the use of Federal Reserve credit, under the protection
of an effective discount rate in the New York district.
"They are further led to this conclusion by the expressed
belief that an increase in the discount rates of the Federal
Reserve Bank of New York would necessitate increases in few, if
any, of the other Federal reserve banks during the period of
seasonal business demand; and the desire of the directors and
officers of all other Reserve banks to avoid increases, if
possible. It is, therefore, recommended that the Reserve Board
act favorably- on any application that may be made by the Federal
for an increase in its existing rate.'
Reserve Bank of New
This resolution was approved by the Federal Reserve Board and on August
8 the Federal Reserve Bank of New York raised its discount rate from five to six
8 per cent.
per cent and reduced its buying rate for bills from 5 1/4 to 5 1/
In the six weeks which have elapsed since the adoption of the program,
increases
seasonal demands for Federal reserve credit have been entirely met by
in holdings of bankers acceptances by the Federal reserve banks.
the statement of
In fact, from
7 to that of September 18, the total amount of Federal
reserve credit outstanding has icreased $57,000,000, the amount of bankers
have deacceptances held has increased 8162,000,000, discounts of member banks
ed
creed W0,000,000, and holdings of government securities have increas
20,000,000, due to an increase in holdings of securities under sales contrf'.ct.
0,000,
The statement for September 18 shows total bills discounted of $934,00
$1,084,000,000
equivalent to 88.5% of total bills and securities, compared with
on August 7, equal to 81% of total bills and securities.
- 2The accompanying diagram shows that the increase in the total of Federal
reserve credit since the last week of July, when the seasonal expansion normally
begins, has been almost in accordance with the normally to be expected inerer.se
on the basis of previous experience.
A second diagram slows the changes in System holdings of bankers acceptances
for the past three years, and shows that during August System holdings increased
more rapidly than last year, but since then have about kept pace with the figures
for the past two yenrs.
During current week, however, there appears to have been
a noticeable decline in the rate of increase in bill holdings.
It is still early to pass judgment fuliy on the effects of the policies
adopted.
The immediate psychological effect of the rate change passed quickly.
Since then there has been some evidence that the economic o-msequences of these
policies may be of considerably greater importance.
Effects on Money Rates.
The following table compares open market money
rates on September 23 with corresponding rates in the first week of August and
indicates that except for a slightly firmer tendency in commercial paper and in
time money there has been no appreciable change in interest rates.
Money Rates at New York
First 1.eek
1929Sept. 20, 1929
August
-y-
,___
m
Stock Exchange call loans
Stock Exchange 90 day loans
Prime commercial paper
Bills - 90 day unindorsed
Customers' rates on commercial loans
Treasury certificates and notes
Mhturing December 15
Maturing March 15
Fed.Pes.Bk. of New York rediscount rate
Fed.Res.Bk. of New York
buying rate for 90 day bills
9
8 3/4 - 9
1/4
66
5 1/8
5 1/8
6.07
*6.00
4.79
4.56
6
4.54
4.51
6
5 1/4
5 lA
*Average rate of leading banks at middle of August; July rate 5.80
- 3-
An analysis of the rates actually charged by commercial banks to
their commercial customers in the second district indicates practically no change
in the rates charged by banks outside of New York City which are generally uniform
at 6 per cent.
In the cities 65'J is the commonest rate.
A slight movement upward
is shown in the fact that fewer loans are made at 5 1/2 and 5 3/4 per cent, and
possibly a few more are made at rates above 6 per cent.
Thus the average of rates
is fractionally higher on that account, continuing an upward tendency which has
been reflected in an increase month by month from 5.50 per cent in February to
6.07 in September, as indicated by reports of ten New York City banks.
Effect on Member Bank Position.
Since the rate increase there has been
little net change in the total loans and investments of reporting member banks,
in spite of an increase of $230,000,000 in commercial loans. This increase has
been about offset by a decline of 0140,000,000 in collateral loans and $110,000,000
In investments. Brokers loans have continued to expand and are now ;14 549,000,000
higher than they were early in August When the discount rate was increased. But
this increase has been largely in loans for account of others and in fact of a
decline in the total loans on collateral by reporting member banks.
In a number of ways the statistics appear to reveal an attitude on the
part of member banks generally.
The following points are interesting.
1. Bank loans on collateral have declined during a period when
brokers loans were rising steadily.
2. Funds made available to member banks by Federal reserve
acceptance purchases in excess of seasonal needs were
used entirely to reduce indebtedness at the Reserve
banks. There was no increase in bank credit.
3.
Decreases in rediscounts have not yet been reflected in any
easing in money rates, although, as illustrated by the
attached chart, we might expect that a continued reduction in total volume of discounts will ultimately tend
to decrease interest rates.
All these appear to show an unwillingness of the banks to continue in
debt and a vigorous and general attempt to liquidate this debt.
-4Effect on Movement of Funds.
Following the increase of discount rate
at New York a considerable flaw of funds from other districts was a possible
danger which might have forced other Reserve banks to protect their reserves.
In the week immediately following the rate change there was some movement to
New York, but this was of short duration and was followed by a loss of funds
following much the usual seasonal course.
This result is probably ascribable to the fact that the discount rate
was already so far below market rates that the increase had little effect on
market rates.
On the other hand funds made available by the purchase of acceptances
have largely gone to liquidate discounts at the New York Reserve Bank and
discounts at other Reserve barks have followed much the usual seasonal course.
The rate change has apparently had little effect on the movement of funds between the United States and Europe.
Confidential reports to the New York bank
indicate a slight increase in foreign balances between the end of Yuly and the
end of August, but this increase cannot be attributed to higher rates in this
market, for it took altogether the form of an increase in holdings of bankers
acceptances and Treasury certificates the yields on which have not increased.
There was, moreover, a decrease of $24,000,000 in the amount of foreign funds
employed on time or call in this market, the first decrease that has occurred
in this account for some time.
It is perhaps significant that it accompanied a
level of call money rates slightly lower than had prevailed for some months
previous.
The European Situation. The flow of gold from Europe has continued
at about the same rate as before the policies of August 3 were adopted.
Since
that time the Bank of England has lost an additional $22,000,000 (Mostly to
France and Germany) of gold and its reserves have been reduced from 4141,400,000
to 4136,900,000.
While there have been no market changes in European money ,
- 5rates, the indications are that the pressure upon Europe due to
high money rates,
is becoming constantly more ini;ense and is tending to retard industrial and business ievelopment.
August figures show an unseasonal decline in United ;
.tates
exports, though a single month's figures are not sufficient to indicate a trend.
There is evidence of u banking up of wheat in shipping centers which is probably
attributable in part at least to a restraint on the part of foreign buyers.
The Domestic Business Situation.
Business is still operating at a
high level, above any of the computed "normal" lines based on previous years
experience and allowing for growth.
In recent weeks, however, there has been a
declining tendency in a number of basic industries.
Building activity has been
reduced still further; automobile production has been receding, and steel production has reflected these tendencies.
These recessions have not, however,
progressed far enough to warrant definite conclusions as to the trend.
Alirioultural Conditions.
The size of the year's crops is expected to
be generally smaller than a year ago.
With higher prices the total return to
the farmer may be not short of a year ago, but certain sections of the country
have suffered severely through the drought.
The continued press-lre on the credit
situation has also been reflected by increasing reports from some localities
of difficulties of agriculture in securing an adequate supply of credit.
4+‘
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
September 20, 1929.
Honorable C. S. Hamlin,
Washington, D. C.
My dear Mr. Hamlin:
I have read hastily, but with much enjoyment,
your very delightful and appropriate review of Professor
Lawrencess book "Wall Street and Washington". I shall not
venture to offer any suggestions, because I am the last
person in the world who would undertake to"paint a lily".
However, I am enclosing for your information a copy of the
opinion of the United States Circuit Court of Appeals in
the Raichle case with the thought that possibly you might
find some additional ammunition in that opinion. I don't
think you need any additional ammunition and do not know
where any reference to this case would be appropriate in
your review, except possibly in connection with the discussion of the question whether member banks are entitled
to rediscount with the Federal reserve bank without any restrictions whatever and in connection with the question
whether the member barks are the masters of the Federal reserve banks. I have marked certain portions of the opirion
which may be of especial interest to you and call your particular attention to the statement on page 18 that,as to the
matters complained of in that case, the Federal reserve bank
Is a Governmental agency under the direction of the Federal
Reserve Board.
Hastily, but with all best regards, I am
Cordial
ter Wy t,
General
nsel.
Enclosure
VOLUME 196
PAGE 24
4,
•
FEDERAL RESERVE BOARD
WASHINGTON
OFFICE OF GOVERNOR
September 27, 1929.
Dear Governor Hamlin:
I am sending you. herewith (1) Preliminary memorandum of the
Open Market Investment Committee; (2) Statement and recommendation
of the ()Jen Market Investment Comittee and (3) Letter which I have
dictated to Governor Harrison.
I would appreciate it very much if you would read the preliminary report bearing in mind that the conclusions arrived at by
some of the figures which are furnished are debatable. I do not
mean by that that the figures are erroneous, but I do mean that
similar figures taken a week earlier or a week later might show
quite a different picture. Please also bear in mind that my
letter to Governor Harrison has not yet been acted upon by the Board,
or despatched to Governor Harrison.
I intend to present the letter to the Board just as soon as I
can get an expression from various members. The Secretary of the
Treasury has approved the letter; also the Comptroller of the Currency
and Mr. Platt.
Mr. James is opposed to buying any Government
securities and Mr. Cunningham has not as yet committed himself. I
was able to c2;et Dr. Miller on the telephone but I was limited in
what I could say over the phone and, therefore, I have no expression
from him.
I do not want to ask you to make an unnecessary trip to
Washington and I would therefore appreciate it very much if you
would call me as soon as you can tomorrow morning and let me have
your views.
I have deliberately postoned action on the Committee's
recommendation because / did not want to take advantage of anyone's
long, it will subject
absence, but I an afraid if it is delayed t
us to just criticism.
With kind personal regards to both :rnd Mrs.
be
to
me
Yours sin
. A. Y
VOLUME 196
PAGE 33
Hon. Charles S. Hmilin,
Mattapoisette, Massachusetts.
mlin, believe'
kFrom:
MR. HAULIN
Federal Reserve BOO
SUBJECT:
Mr. Smead
member banks, June 30, 1.925.
Branches •member and non-
st. 6335
Following the usual practice the Federal reserve agents were
requested
to furnish the Board with a complete statement of
changes in branch banking during the fiscal year ending June
,S
Reports from the agents have been received and tabulated and this Division now has on file
a list of all banks ope II
1
ating branches II
as of June 30, 1929, together with
the location of the branches.
Branch Banking Since June 30, 1?2.
During the 12 month period between June 30,
192S, when the last report on branches of member and nonmem
ber banks was submitted to tho Board, and June
the
presen
year
t
the
number
of banks oper•I
ating branches declined from 835
to S18 or by 17, while the number of branches .
in operation increased from 3,230 to
•a by 210. Although as
just stated
there was a decrease during the year of 17 in
the numoer of banks operating
branches, there wore 56 banks operating branches
on June 30, 1528, which had no
branches in operation a year earlier. This is accoun
ted for by the fact that 51
banl:s which were operatinc branches in June 192S
went out of existence during
the year through mercer with other banl,:s, 5 banks suspen
ded operation on account
of financial difficulties, and 17 abolished their
branches. Of the 3,230 branches
that were in operation on June 30, 192C, 96 were
discontinued (luring the year,
81 were abolished or merged with other branches,
and 15 went out of existence as
a result of suspension of the parent bahk. There
were 306 branches in operation
on June 30, 1929 that wore not in existence
on June 30, 1928, including 171 established de novo, and 135 that suckriiceeded independent
banks. The,qe chanos in
branch banking as well as the changes since the
passage of the McFadden Act -Are
summarized as follows:
Total number of banks operating branches
Total nuMber of branches in operation
June 30
1929
June 30
1928
818
3,440
g35
3,23o
Junc 1928
tI
June 1929
Change in nunber of banks operating branch
es
Banks not previously operating branches
Banks (operating branches) that went aut of
existence through Mergers (net)
Suspensions
Banks which discontinued all branches
Net change
Chanes in nunber of branches in operation
De novo branches established
Banks converted into branches
Branches abolished or merged with other
branches
Branches discontinued through suspension
of parent
bank
VOLUME 196
PAGE 45
Net change
Feb. 25
1927
779
2,9oo
February 1927
to
June 1929
- 51
- 17
+
- 15
+210
39
23
+
•
2
Large size Branch Bank Systems. At the end of June 1929 there were 17 banks
which had 30 or more branches in operation as compared with 14 a year earlier.
Owing to mergers, four banks which appeared in the list last year are not on
the present list. The United Security Bank and Trust Company of San Francisco
with 53 branches and the Merchants National Trust and Savings Bank of Los
Anzeles with 34 branches merged to form the Bank of America of Califo
onqi
nonmember which had 140 branches on June 30. The Los Angeles-First/Trust &
Savings Bank with 97 branches merged with the Security Trust and Savings Bank
of Los Angeles with 53 branches to form the Security First National Bank Which
reports 144 branches on June 30. The Bank of United States, New York, which
was operating 14 branches last year is now operating 56, having taken over the
Municipal Bank of Brooklyn with 19 branches, the Colonial Trust with 15 branches,
and the Cosmopolitan Bank with 3 branches. The Manufacturers Trust Company,
National City Bank, Public National Bank and the Bank of America, N. A., appear
in the list for the first time.
Below is a list of the banks that had 30 or more branches on
June 30, 1929:
Number of branches
285
96
144
140
54
94
31
Location and name of parent bank
San Francisco
Los Angeles
Detroit
31
66
61
56
46
33
33
32
52
33
New York
Cleveland
Buffalo
Bank of Italy Nat. Tr.& Say. Assn.
American Trust Company
Security-First National Bank
Bank of America of Calif.(nonmember)
California Bank (nonmember)
Peoples-Wayne County Bank
First National Bank
Peninsular State Bank
*Corn Exchange Bank
Bank of Manhattan Company
Bank of United States
Manufacturers Trust Company
*National City Bank
Public National Bank
Bank of America, N. A.
Cleveland Trust Company
Marine Trust Company
*Corn Exchange Bank to be taken over by National City Bank
about DecemIr 1929.
Branch Banking Since the Passa_ge of the McFadden Act. The first reasonably
complete figures we have regarding branch banking are as of June 30, 1924,
We shall therefore briefly refer to the chan6es in branch banking from that
date up to the passage of the McFadden Act, February 25, 1927, and since
that
time, bringing out two important points in connection with the development
of branch banking since the passage of that act, that is the location
of the
branches and the method of their establishment.
St.6335
•
- 3
The following table shows by clasees of banks the number of banks
operating branches and the number of branches in operation on June 30, 1929
with changes during the pElst year, since February 25, 1927, the date of the
passage of the McFadden Act, and since June 30, 1924.
June 30
1929
Number of banks operating branches
Total
National banks
State bank members
State bank nonmembers
Mutual savings banks •
Private banks
Increase
June 1928 Feb. 1927
to
to
June 1929 June 1329
June 1924
to
Feb. 1927
81Z
*17
39
65
164
190
*
19
37
1
11
12
*2
39s
62
4
5
4
*17
4
*3
*4
**
3,440
210
540
607
993
52
78
603
142
*262
423
73
183
*4
10
20
22
Number of branches
Total
National banks
State bank members
State bank nonmembers
Mutual savings banks
Private banks
1,298
1,046
96
7
*3
**
**
*4
*Decrease.
**Not tabulated separately - included with state bank nonmembers.
In the number of banks operating branches there has been a growth of
since the passage of the McFadden Act as compared with an increase of 65
for the 32 months preceding its enactment. The smaller increase during the
recent period was due largely to mergers between banks operating branches, the
merger movement actually resulting in a decrease in the number operating
branches during the past year. Fifty-one banks with branches have merged with
other banks since June 30, 1928 and 90 banks since Feb. 25, 1927.
39
It is noteworthy that the number of branches in operation increased
by 607 from June 1924 to February 1927 and by 540 from February 1927 to June
1929, indicating that the rate of growth of branch banking in the United States
has not increased since the passage of the McFadden Act. However, there has
been an increase of 603 in the number of branches of National banks since the
passage of thatAct as compared with an increase of but 142 from June 1924 to
February 1927. This is principally accounted for by the fact that a few of
the larger state bEmk members operating a considerable number of branches converted into or merged with national banks, the outstanding cases being the
Bank of Italy which had 278 branches at the time of its conversion into a
national bank and the Pacific Southwest Trust & SaviAgs Bank of Los Angeles,
Which at the tice of its merger with the First National Bank of Los Angeles
had about 100 branches.
St. 6335
•
4
•
Location of 'branches. The conversion of state member banks into national
banks also accounts for thc large increase since the passage of the McFadden
Act in the number of outside branches operated by national banks. The number
of such branches increased by 315, while the number operated by state bank
members declined by 355, a net decrease of 50 in the number of outside branches
operated by member banks. There was during this 25 month period an increase
of 183 in the number of branches operated by state bank nonmembers of which
155 were outside the head office city. Changes in the mutual savings end
private 'banks were relatively small.
Number of
branches
Change since
June
Feb. 25
June
1929
1927
1928
National - total
+52
+603
393
In head office city
+47
65o
+288
Outside head office city
343
+ 5
+315
State members - total
In head. office city
Outside head office city
1,298
1,155
143
+78
+96
-15
-262
+103
-365
Nonmembers - total
In head office city
Outside head office city
l046
477
+73
-2
+75
+28
Mutual Savings - total
In head office city
Outside head office city
96
so
16
+9
+1
Private - total
In head office city
Outside head office city
7
7
-3
-2
-1
Total - all banks
In head office city
Outside head office city
569
+183
+155
+ ao
+18
+10
+
2
- 4
- 4
-
3.440
+540
+210
2,362+
+14s 433
1,078
+ 62
+107
Method of establishing branches. At the end of June 1929 there were 3,440
branches in operation, for 153 of which the method of establishment has not
been reported. Of the remaining 3,287, 2,329 or about 70 per cent were
established de novo and 958 or 30 per cent represent independent banks taken
over and converted into branches. Since the passage of the McFadden Act
there has been an increase of 333 de novo branches of which 263 are maintained
by member banks, and an increase of 223 converted branches of lihich 90 are
maintained by member banks. These changes are summarized in the following
statement.
(St.
6335)
•
5
•
Yuliber of
branches
June
1929
•
National
De novo (as branches)
Independent banks purchased
Not reported
_9E_
614
354
25
Change since
June
Feb. 25
1922
1927
+ 52
+ 26
+ 28
- 2
+ 603
+ 335
+ 266
+
2
State members
De novo (as branches)
Independent banks purchased
Not reported
1,298
962
295
41
+ 78
+ 61
+ 19
- 2
- 262
- 72
- 176
- 14
Nonmember state banks
De novo (as branches)
Independent banks purchased
Not reported
1 o46
676
307
63
+
+
-I-
+ 133
+ 49
+ 133
+
1
Mutual savins banks
De novo (as branches)
Independent banks purchased
Not roDorted
—
96
74
2
20
Private banks
De novo (as branches)
Independent banks purchased
Not reported
7
3
4
Total - all banks
De novo (as branches)
Independent banks purchased
Not reported
3,)1)10
2,329
953
153
73
20
57
4
+ 10
+ 9
+ 1
_
+
+
-
_
20
21
1
3
1
- 2
-
4
-
-
-4
+210
+115
+105
- 10
+540
+333
+223
- 16
Attached hereto are the following tables:
1. A sum ry for the United States as a *hole
2. Number of banks in each state which were operating branches
and the number of branches in operation as of Juno 30, 1929,
June 30, 1928, February 25, 1927 and June 30, 1924
3. Number of banks, b7 classes and by states, operating branches
on June 30, 1929, and the number of branches in operation
Establishment of "outside" branches in States in which branches are
restricted by law is permitted within the county in which the head office
is loc-,ted in Louisiana and Tennessee, within the same county and adjoinin counties in Maine, within contivaas territory in Ohio, and within
15 miles of the parent bank in 1:assachusetts in the case of mutual sav.;raap •Is well as branches
in,s banks. Other "outside" branches in this (
in oneration in States in which branch banking is prohibited wore either
established prior to the restrictive or prohibitory 1e3is1ation or are
branches of private banks not under State supervision.
DIVISIOY OF E_L.NY OFFRATIO75
OCTOFER 1, 1929
•
TABLE 1. - SUARY OF BRANCH BANKING IN TIE UNITED STATES
St. 6321
June 30 1 June 30J Fob. 25
1929
1923
1 1927
June 30
1924
NUMBER OF BANKS
Total
Operating branches
By classes of banks:
National banks
State bank members
State bank nonmembers • •
• • •
Mutual savings banks • . • • . •
Private banks . . 4 4
By location of branches:
Only in head office city
u
Only outside "
"
Both in and outside head
office city
•• •
. • •
25,115
gla
25,950
535
164
190
39s
62
169
186
415
55
7
4
•
*26,973
779
25,996
714
145
189
357
50
5
108
191
357
28
(a)
6
518
6
25?
526
262
476
261
391
283
48
47
42
40
By population (in 1920) of cities
in which. parent banks are located:
100,000 or more
50,000 to 100,000
25,000 to 50,000
Less than 25,000
359
84
70
305
372
81
66
316
353
65
61
300
By size of branch systems:
1 branch
2 branches
3-5 branches
6-10 branches
Over 10 branches .
)0!.3
153
130
37
55
469
150
126
35
55
446
127
124
35
47
3,440
2,362
1,075
3,230
2,214
1,016
2,900
1,929
971
2,293
1,505
755
993
1,295
1,046
96
7
941
1,220
973
56
10
390
1,560
563
76
11
245
1,137
905
(a)
(a)
2,329
2,214
1,996
95s
153
553
163
735
169
.
NUNBER OF BRANCHES
Total
In head office city
Outside head office city
By classes of banks
National banks
State bank members
State bank nonmembers
Mutual savings banks
Private banks . . • •
.
• • • • •
Method of establishment:
De Novo (as branches) . . . . ,
Independent banks purchased
and converted into branches .
Not reported
.
t:7
*march 1927.
(a)Not separately tabulated; included with "state bank nonmembers."
* TABLE 2 - NUMBER OFAVS OP2RA
TI n BRANCHES ETD Nur*: BRANCHES
IN OPE
N, JU= 1924 - JUNE 1929, BY
Numr;er of banks
June i June
30 1
30
1929
1928
UNITED ST.L.77IS
Total
National
State member
State nonmember
Mutual savings
Private
818
164
190
398
169
186
415
b2
58
835
4
St 6-i21
Number of branches
June
June
Feb,
June
25
30
30
30
1929
1927 J 1924
1928
operating, branches
1 Feb.
June
! 25
30
1 1927
1924
779
145
189
387
50
714
108
191
387
28
7
3,44o
*
3,230 2,900 2,293
941
248
390
993
1,298
1,220
1,560
1,137
1,046
96
7
973
86
10
863
76
908
11
State wide 'iranch banking permitted
Total
Arizona
California
Delaware
Dist of Col.
Maryland
North Carolina
Rhode Island
South Carolina
Virginia
22'd
7
5)4
7
11
.133
63
5
72
12
32
10
43
11
12
11
15
38
39
No branches in operation:
226
35
140
11
37
237
6
99
5
11
27
4o
9
0
31
1,12E1
22
661
12
23
125
77
35
50
6o
1 21_5_ 1,120
23
23
826
762
13
14
22
20
120
113
835
79
33
36
63
74
29
25
6o
66
21
20
45
20
538
18
19
88
West Vi2ginia, Wyoming.
Branches restricted as to location
Total
Kentucky
Louisiana
Maine
Massachusetts
Michigan
Mississippi
New Jersey
New York
Ohio
Pennsylvania
Tennessee
562
9
561
0
426
4
2,087
1,921
26
25
1,687
13
1,3)11 1
12
42
505
5
43
22
81
41
24
34
23
108
61
111
54
106
54
79
66
61
63
154
433
141
422
133
401
93
47
98
332
24
86
C1
64
11
11
11
11
53
50
14
25
103
25
82
25
21
25
21
106
112
106
,-,-,
.,,,
53
682
259
607
250
517
231
362
58
14
77
51
81
814
27
82
22
67
21
169
67
145
61
131
55
98
53
2
93
19
3
114
19
3
31
203
Branch bankin 'prohibited by law**
Total
Alabama
Arkansas
Florida
Georgia
Indiana
Minnesota
Nebraska
Oregon
Washington
Wisconsin
41
5
46
5
4csz
5
2
51
5
2
2
1-6
19
21
2
1
21
4
4
4
2
2
2
2
2
2
1
3
6
1
14
7
1
14
7
No branches in operation:
_
88
19
3
19
314
37
9
6
39
53
8
0
2
1
2
1
2
1
11
2
1
5
9
6
9
0
9
7
9
4
3
2
1
5
7
3
Colorado, Connecticut, Idaho, Illinois, Iowa, Missouri,
Montana, Neada, New Mexico, Texas, UtAltiL
No provision in State law regrding branch banking
No branches in operation:
Kansas, New Hampshire, Vermont, North Dakota,
South Dakota, Oklahoma
*Not separately tabulated.
**Branches reported were establiShed prior to prohibi
tory legislation.
1
T.A.-BLE 3
B.ANKS OP4IITG DOEES:IC I-RANCHES O
Number of banks operating
branches
Stat2s
UNITI:D STATES
NaTotal tiona
l
818
164
I
State
Non- To tal
memmembers
burs
190
464
3,14140
JUlTE
•
1929 - BY STATE
St. 6321
Number of branchs
,
Operated b7,
..ocation
State
In
OutNabank
Non- head
side
tional mem- member office H.O.
banks bers banks
cit:r city
993
1,298
1,149
2,362
1,078
485
180_
22
531
State wide branch banking -permitted
To tel
Arizona
California
Delaware
Dist of Col.
Maryland
North Carolina
Rhod.e I slE;nd
South Carolina
Virginia
2 5 4_ 38
7
54
13
7
11
5
33
3
142
14
11
2
12
3
38
No branches in operation:
26
2
0
2
2
5
4
2
3
151
5
35
5
6
26
33
5
7
27
_1,265_
22
851
12
23
125
77
35
ro
6o
194
12
109
2
488
11
22
10
26
2
11
6
2
12
536__
10
264
10
12
95
61
7
40
37
330
3
23
9
36
57
66
19
)43
33
11
16
7
27
West Virginia, '77yoming
Branches restricted
Total
Kentucky
Louisiana
Maine
Massachusetts
Michizan
Mississippi
New Jersey
New York
Ohio
Pennsylvania
Tennessee
535_
5_62_
1114
9 ----14—
42
1
24
86
16
61
10
1
11
17
53
lo6
31
g
58
81
18
31
g
155
2
7
1
16
30
19
40
24
16
-
233
3
34
23
54
21
10
17
35
26
47
23
as
to location
2,08_y_
26
108
61
1514
1433
25
103
632
259
169
67
10
5)4
69
1
33
172
13
42
23
Q5_9_ _
13
)4o
3
32
306
39
446
177
33
60
58
6g
58
24
31
64
69
94
44
24
52
6
135
1430
1
93
681
228
161
26
_ 2_48 _
2
56
55
19
LeA.
10
1
31
8
39
Branch bankinbl -prohibited by_ law*
Total
Alabama
Arkansas
Georgia
Indiana
Minnesota
Nebraska
Oregon
Washington
Wisconsin
41
12
),
5
2
16
4
2
2
1
3
6
1
2
2
1
1
1
No branches in operation:
9
1
3
1
1
3
20
4
2
9
2
1
2
88
19
3
34
9
6
2
1
5
9
33
16
2
6
2
1
2
4
15
1
4
5
4o
18
3
14
2
18
11
19
3
23
1
6
2
2
3
1
2'
3
1
2
1
Colorado, Connecticut, Florida, Idvho, Illinois, Iowa,
Missouri, Montana, Nevada, New Mexico, Texas
Utah
No -orovision in State Law regarding branch banking
No branches in operation:
Kansas, New Hampshire, Vermont, North Dakota,
South Dakota, Oklahoma
*Branches reported were established prior to prohibitory legislatio
n.
NOTE: Of the 2,362 branches located in head-office
cities, 650 were operated by
national banks, 1,155 by state bank members, and
557 by nonmember banks.
Of the 1,078 branches located outside head-office citie
s, 343 were operated
by national banks, 143 by state bank members,
and 592
nonmember banks.
W.
A for FRASER
Digitized
•
September 16, 1929
To:
Governor Young
Prom:
Mr. Goldenweiser
SUBJECT:
Effects of security purchases.
I transmit herewith a memorandum prepared by Mr. Riefler, in Which he
presents an analysis of the effects of large-scale security purchases by the
reserve banks on the credit situation.
It must be borne in mind that at no
time was the situation entirely dominated by the system's open-market operations.
There were always other factors either reinforcing or counteracting
the effects of the purchases of securities.
In the three periods described,
security purchases have in each case been accompanied or followed by a decrease in money rates, a rise of security prices, and an expansion of bank
credit.
These developments, however, were much more accentuated in 1924 than
in either 1922 or 1927.
I believe that the principal reason for that is that
member bank indebtedness was much larger in 1922 and in 1927 than in 1924, when
discounts for the system were down to $200,000,000 and when New York City banks
were entirely out of debt.
It is when money placed in the market by the reserve
banks through purchases is not used to pay up indebtedness but is incorporated
in member bank reserve balances that purchases have the greatest effect.
At the
present time, with discounts around $1,000,000,000, security purchases, in
order to have an important immediate influence on money rates, would have to
be
on an extremely large scale.
On the other hand, as an indication of a reversal
of Federal reserva policy of restraint the purchases might and probably
would
give a strong stimulus to speculation.
It might also be noted that large-scale
Open-market operations on earlier occasions were always undertaken at a time
when business was slackening or going through a pronounced recession, while at
the present time business continues to be in record volume.
VOLUME 196
PAGE 47
(4th Draft - S
23, 1929)
Committee
Preliminary Lemorandum for the Open Ytlrket Investment
September 24, 1929.
al reserve banks at Washington,
At a meeting of the Governors of all Feder
ution was adopted:
D. C., on August 7 and 8, the following resol
demand for
"It is the judgment of the Governors that the
of crop
ts
remen
n
requi
autum
the
to
increased credit incident
by an
ble,
possi
as
far
so
met,
be
d
moving and business shoul
particito
care
as
banks
such
of
olio
increase of the bill portf
pate in bill Purchases.
on that this procedure
"The Governors are also of the opini
with least risk of
and
,
taken
can best and most safely be under
under the protection
t,
abuse in the use of Federal Reserve credi
district.
York
of an effective discount rate in the New
the expressed
They are further led to this conclusion by
the Federal
of
belief that an increase in the discount rates
increases in few, if
Reserve Bank of New York would necessitate
g the period of
any, of the other Federal reserve banks durin
of the directors and
seasonal business demand; and the desire
ases, if
officers of all other Reserve banks to avoid incre
d that the Reserve Board
Possible. It is, therefore, recommende
by the Federal
act favorably on any application that may be made
existing rate."
Reserve dank of New York for an increase in its
Reserve Board and on August
This resolution was approved by the Federal
d its discount rate from five to six
8 the Federal Reserve Bank of New York raise
bills from 5 1/'4 to 5 1/8 per cent.
per cent and reduced its buying rate for
adoption of the program,
In the six weeks which have elapsed since the
t have been entirely met by increases
seasonal demands for Federal reserve credi
Federal reserve banks.
in holdings of bankers accentances by the
In fact, from
18, the total amount of Federal
the statement of August 7 to that of 3eptember
000,000, the amount of bankers
reserve credit outstanding has increased .$57,
discounts of member banks have deacceptances held has increased .?162,000,000,
nment securities have increased
creased ,$130,000,000, and holdings of gover
of securities under sales contract.
•20,000,000, due to an increase in holdings
total bills discounted of $934,000,000,
The statement for September 18 shows
securities, compared with $1,064,000,000
equivalent to 68.55 of total bills and
and securities.
on August 7, equal to 815 of total bills
- 2 The accompanying diagram shows that the increase in the total of Federal
reserve credit since the last week of July, when the seasonal expansion normally
begins, has been almost in accordance with the normally to be expected increase
on the basis of previous experience.
A second diagram shows the changes in System holdings of bankers acceptances
for the past three years, and shows that during August System holdings increased
more rapidly than last year, but since then have about kept pace with the figures
for the past two years.
During current week, however, there appears to have been
a noticeable decline in the rate of increase in bill holdings.
It is still early to Pass judgment fully on the effects of the policies
adopted.
The immediate psychological effect of the rate change passed quickly.
Since then there has been some evidence that the economic consequences of these
Policies may be of considerably greater importance.
Effects on Money Rates.
The following table compares open market money
rates on September 23 with corresponding rates in the first week of August and
indicates that except for a slightly firmer tendency in commercinl paper and in
time money there has been no appreciable change in interest rates.
Money Rates at New York
Stock Exchange call loans
Stock Exchange 90 day loans
Prime commercial paper
Bills - 90 day unindorsed
Customers' rates on commercial loans
Treasury certificates and notes
Maturing December 15
Maturing March 15
Fed.Res.Bk. of New York rediscount rate
Fed.Resak. of New York
buying rate for 90 day bills
First Week
August 1929
8 - -rz --8 3/4 - 9
6
5 1/8
*6.00
Sept. 20, 1929
4.79
4.56
5
4,54
4.51
6
5 1/4
5 1/8
*Average rate of leading banks at middle of August; July rate 5.80
9
6 1/4
5 1/'8
6.07
3
An analysis of the rates actually charged by commercial banks to
their commercial customers in the second district indicates practically no change
the rates charged by banks outside of New York City which are generally uniform
In the cities 6% is the conmonest rate.
at 6 per cent.
A slight movement upward
Is shown in the fact that fewer loans are made at 5 1/2 and 5 3/4 per cent, and
possibly a few more are made at rates above 6 per cent.
Thus the average of rates
tendency which has
is fractionally higher on that account, continuing an upward
cent in Februilry to
been reflected in an increase month by month from 5.50 per
6.07 in September, as indicated by reports of ten New York City banks.
Effect on ljember Bank Position.
Since the rate increase there has been
little net change in the total loans and investments of reporting member banks,
in spite of an increase of .;230,000,000 in commercial loans.
This increase has
been about offset by a decline of ,A40,000,000 in collateral loans and .110,000,000
in investments.
Brokers loans have continued to expand and are now ,549,000,000
higher than they were early in August when the discount rate was increased.
But
a
this increase has been largely in loans for account of others and in fact of
decline in the total loans on collateral by reporting member banks.
attitude on the
In a number of ways the statistics appear to reveal an
part of member banks generally.
The following points are interesting.
1.
Bank loans on collateral have declined during a period when
brokers loans were rising steadily.
2.
FUnds made available to member banks by Federal reserve
acceptance purchases in excess of seasonal needs were
used entirely to reduce indebtedness at the Reserve
banks. There was no increase in bank credit.
3.
Decreases in rediscounts have not yet been reflected in any
easing in money rates, althoun, as illustrated by the
attached chart, we might expect that a continued reduction in total volune of discounts will ultimately tend
to decrease interest rates.
in
All these appear to show an unwillingness of the banks to continue
debt and a vigorous and general attempt to liquidate this debt.
- 4Effect on 1:ovament of Funds.
Following the increase of discount rate
at New York a considerable flow of funds from other districts was a possible
ves.
danger which might have forced other Reserve banks to protect their reser
to
In the week immediately following the rate change there was some movement
funds
New York, but this waa of short duration and was followed by a loss of
following much the usual seasonal course.
This result is probably ascribable to the fact that the discount rate
t on
was already so far below market rates that the increase had little effec
market rates,
of acceptances
On the other hand funds made available by the purchase
Reserve Bank and
have largely gone to liquidate discounts at the New York
the usual seasonal course.
discounts at other Reserve banks have followed much
t on the movement of funds beThe rate change has apparently had little effec
tween the United States and Europe.
Confidential reports to the New York bank
between the end of July and the
indicate a slight increase in foreign balances
attributed to higher rates in this
end of August, but this increase cannot be
rs
of an increase in holdings of banke
market, for it took altogether the form
yields on which have not increased.
acceptances and Treasury certificates the
gn funds
.A4,000,000 in the amount of forei
There was, moreover, a decrease of
occurred
t, the first decrease that has
employed on time or call in this marke
panied a
perhaps significant that it accom
in this account for some time. It is
srme months
lower than had prevailed for
level of call money rates slightly
previous,
The European Situation.
nued
The flow of gold from Europe has conti
Since
policies of August 8 were adopted.
at about the same rate as before the
additional .22,000,000 (mostly to
that time the Bank of England has lost an
E141,400,000
reserves have been reduced from
France and Germany) of gold and its
money
no market changes in European
to U36,900,000. While there have been
- 5rates, the indications are that the pressure upon Europe due to high money rates,
is becoming constantly more intense and is tending to retard industrial and business development*
August figures show an unseasonal decline in United States
exports, though a single month's figures are not sufficient to indicate a trend.
There is evidence of u. banking up of wheat in shipping centers which is probably
attributable in part at least to a restraint on the part of foreign buyers,
The Jamestic Business Situation*
Business is still operating at a
high level, above any of the computed "normal" lines based on previous years
experience and allowing for growth.
In recent weeks, however, there has been a
declining tendency in a number of basic industries*
Building activity has been
reduced still further; automobile production has been receding, and steel production has reflected these tendencies.
These recessions have not, however,
progressed far enough to warrant definite conclusions as to the trend.
Agricultural Conditions,
The size of the year's crops is expected to
be generally smaller than a year ago*
With higher prices the total return to
sections of the country
the farmer may be not short of a year ago, but certain
have suffered severely through the drought.
The continued pressure on the credit
reports from some localities
situation has also been reflected by increasing
an adequate supply of credit,
of difficulties of agriculture in securing
The Committee has reviewed a preliminary memorandum and current credit conditions.
During the past eighteen months interest rates in this country have grad-
ually risen and money, especially for new undertakings, has became more difficult
to obtain.
While business continues at a high level, there are Some indications of
a possible impending recession.
sates in many foreign centers have risen even more markedly and the loss of
reserves of central banks threaten further increases in rates and probable curtailment of Europe's capacity to buy this country's products.
In accordance with the System policy adopted on August 8th seasonal requirements
for Federal Reserve credit have been met by bill purchases, and in fact such purchases have been sufficient to reduce rediscounts to some extent*
For the purpose of avoiding any increase and, if possible, facilitating same
seafurther reduction in the total volume of member bank discounts during the fall
expansion of
son, if this can be done without stimulating unnecessary or abnormal
the open market holdmember bank credit, the Co:Imittee favors a further increase of
ings of the Federal reserve banks.
It favors an increase of these holdings by the
sufficient amounts to accontinued purchase of bills if they can be obtained in
complish this purpose.
without
If bills cannot be obtained in sufficient amounts
favors the purchase of Govinterfering with the present desirable distribution, it
ernment certificates of the short maturities.
ed to purchase not to
The Committee therefore recommends that it be authoriz
of such banks as care
exceed 425,000,000 a week Of such certificates, for account
s be made only under the
to participate, with the understanding that such purchase
understanding that there be careful
conditions above stated, and with the further
s, in order that there may be
current review of the consequences of such purchase
that may seem advisable either to
another meeting with the Board at any time that
the Board or to the Committee.
there should
In any event, the Committee feels that
be another such meeting not later than November 1.
September 25, 1923.
Dear Governor liarrison:
The Yederal heserve J.;ord. h's reviewed the ra1. Art nnd
of
recoendntion of the ".`pen ,arket Investment Committee as
September 24, 1939.
sing
The Brrard apprwes of your :;rogrnza to continue the purcaa
m by purc.T-sing
of bills, and if necessary wupAenent the 7.4r1gra
es
mentioned in your
pur.om
tns
for
ties
securi
short-time qovernomnt
g my increase
avAlin
of
e
purpoa
tao
reeomf,enUation, to-wit:- 0For
in the total
ion
r
reduct
furtae
**me
end. if .2osaib1e. faci1it-tin4
if this can
son,
se,
fall
the
•iuring
volume of me-aper bank discounts
ion of
11
exv:ns
abn)r.1.
or
unnecesaary
be aone without
izaautnIr
the
grants
end,
member bank credit." The BoPrd, to tuis
nit
at
ties
securi
tion requestel ta purchase short-time Government
to exceed twenty-five million a week.
wanly
In autncrizing ouch purclInzes, the Bolrd is apLroving
as
for seasonal reasms val such 1,tproval should not be interpreted
a raveraal of former policies.
fhe llord welcomes ;in.! Iots tie sta‘ezti,n cont:Ined in the
t review
recommendation of tae Committee that theirs be careful carren
1 promotbe
advize(
will
you
mod
ses,
purchp
of the c)nsequences of such
be
should
ses
tnat
purcha
es
believ
ly by the J.)-rd if at pny time it
.
diLcantinivad or the procedure owed
meet with
It is also agreeable to the tioard thst the Committee
than
later
not
'out
it A-:Jan at SOMO date, later to be determined,
November lot.
Very truly yours,
A. A.. Young.
Governor.
!:r. George L. narrison, Chairman,
Open kiarket Investment Cowmittee.
Federal eserve Bank,
New Y)rk, N. Y.
Jo(Ar
Form No. 131.
Office Correspondence
To
MU1ir
From
Mr. Goldenwe
FEDERAL RESERVE
BOARD
Date_
Septembgy_23, 1929
Subject_
.3 7
I transmit herewith a table giving the items you requested
for certain periods mentioned in my memorandum to Governor Young.
VOLUME 196
PAGE 57
ILA
2--81116
•PO
RESERVE BANK CREDIT - FACTORS IN CHANGES
(Monthly averages.
Jan.
June
1922
Change
Reserve bank credit:
Discounts
962
Acceptances
98
U. S. securities
238
Other Federal Reserve Credit
28
Total
1,326
Treasury currency
1,551
Gold stock
3,672
437
136
591
28
1,192
1,600
3,776
Money in circulation
4,527
Member bank reserve balances 1,707
Nonmember clearing balances
29
Unexpended capital funds
286
4,429
1,820
34
285
1122
tn millions of dollars)
Nov.
1924
Change
- 525
799
+ 38
265
+ 353
83
0
57
- 134 1,204
+ 49 1,757
+ lo4 4,182
228
268
588
51
1,135
1,771
4,517
- 571
+ 3
+ 505
- 6
- 69
+ 14
+ 335
- 98 4,953
+ 113 1,875
+ 5
31
- 1
284
4,970
2,164
30
259
Nov.
1923
May Dec.
1927 1927
Jan.
Change , 1922
June
1928
Change
529
373
6o6
56
1,041 1,569
1,768 1,796
4,651 4,416
+ 56
+ 145
+ 315
+ 12
+ 528
+ 28
- 275
962
98
238
28
1,326
1,551
3,672
1,019
244
232
37
1,532
1,791
4,119
+ 57
+ 146
- 6
+ 9
+ 206
+ 240
+ 447
+ 17 4,860 5,048
+ 289 ' 2,262 2,399
-.. 1 i
39
27
- 25
299 306
+ 188
+ 137
- 12
+ 7
4,527 4,736
1,707 2,355
29
28
286
322
+ 209
+ 648
- 1
+ 36
41/
•
473
233
29].
•
September 14, 1929
To:
Mr. Goldonweiser
From: Mr. Riefler
SUBJECT:
Security purchases.
There have been three periods since 1920 in the history of the
reserve
system when it has embar'zed upon a program of security purcha
ses amounting
to $100,000,000 or more, namely, from January to Juno, 1922,
from November,
1923 to November, 1924, and from May to December, 1927.
The increase in
security holdings in these three periods were $353,000,000
, $505,000,000,
and $315,000,000, respectively.
All three periods were accompanied by de-
velopments which subsequently inJuced the reserve system
to dispose of a
large part or all of the securities which had previo
usly been purchased.
In all three periods, also, other influences were at work
which either
accentuated or offset the effect in part of these
purchases.
In the fol-
lowing analysis of those periods the net effect of change
s in these other
factors (gold stock, Treasury currency, changes in
reserve bank acceptances,
float, etc., money in circulation, nonmember cleari
ng balances and unexpended capital) is measured.
January - Juno, 1922
From January to June, 1922 the reserve banks purcha
sed United States
securities to the amount of $353,000,000.
At the same time since gold im-
ports were arrivinz, in volume and currency was
returning from circulation,
the effect of other factors was to accentuate these
purchases by $285,000,000.
Total accessions to themarl:et consequently amounted to
$638,000,000.
Of
this amount $525,000,000 was absorbed by liquid
ation of discounts at the
reserve banks and $113,000,000 went into increased
reserve balances of member banks.
The liquidation of discounts reduced member
bank indebtedness
from $962,000,000 in January to $437,000,000
in June.
•
Changes in money rates, et-;., which acLompanied this movement are
shown on the following table.
In the case of exports and imports, the table
shows the change between the average monthly exports or imports during the
perioa and the correspondlnAz period of the precedin
year.
In the case of
common stock prices, the table shows, in parenthesis, the percentage increase
during the period as well as the number of Points changed.
TABLE I.
January, 1922-June, 1922
January
1922
Money rates:
Call loans, renewal
Time loans
Commercial paper
Customers (weighted average)
Bond prices (S.S. Co. 6o bonds)
Stock prices (S.S. Co. 410 stocks)
Total loans and investments of all
member banks 2
./
June
1922
Per cent
Change
4.52
3.72
- .80
6.02
5.46
,r
89.3
92.4
+ 3.1
$23,482
$24,182
+ $700
International trade:
Change as compared with same months
in preceding year in:
Exports (monthly average)
Imports (monthly average)
1/
2/
7
57
- $119 11
+
17
Percentage chan,Te
Measured to the neare3t call in millions of dollars
In millions
As the table shows, money rates declined and bond prices rose in response to
there accessions of funds to the market.
Stock prices also advanced by 16 per
cent and member bank loans and investments incrcased by $700,000,000.
The
response of foreign trade was less consistent, exports during this period
averaging $119,000,000 less 2er month than in the corresponding
and im-Dorts averaging $17,000,000 more.
nth of 1921
Both of these reflected business more
strongly than credit developments — exports having been exceptionally large in
the first half of 1921 and imports small.
1924
From November, 1923 to November, 1924 the reserve banks purchased $505,000,000 of United States secui-ities, which together with $355,000,000 from various
other sources (chiefly gold) placed $860,000,000 at the disposal of the money
markets in all.
Of this amount $571,000,000 was absorbed by a decrease in dis—
counts and $289,000,000 was added to the reserve balances of member banks.
In
this case discounts for member banks decreased from $799,000,000 in November,
1923 to $228,000,000 in November, 1924.
tions are shown in Table II.)
(Accompanying changes in credit condi—
•
TABLE II
November, 1923 — Novembr, 1924
November
192-i
Money rates:
Call loans renewal
Time loans
Commercial paper
Customers (weighted averaze)
1
November
1924
4.so
2.42
5
5.6o
&g14-31
Bond prices (60 bonas S.S. Co.)
Stock prices (410 stocks S.S. Cc.)
91.4
66.6
94.s
77.6
Total loans and investments of all
member banks 2/
$26,4s7
S28,746
Change
— 2.38
li-1 5/8
— 11-1 3/4
— .82
3.4
11-1-11.0(+3.6%
42,259
International trade:
(as compared with preceding year)
Exports (mnthly average)
Imports (monthly average)
1/
2/
3/
Percentage change
Measured to the nearest call in millions of dollars
In millions
In this case, also, money rates fell rapidly, bond pricer, rose, stock
prices advanced and member bank credit underwent great expansion
The expan—
sion of exports was partly attributable to forei= loans but also reflected a
large American crop at a time when European crops were small, while the de—
crease in imports reflected business recession in this country.
41.11
5
1927 - December, 1927
In June, 1927 the Federal reserve system again embarked on a policy
of purchasing United States securities and by December had increased their
holdings by $315,000,000.
In this case, however, gold exports were large
with the result that all counter factors together offset these purchases
to the extent of $22*,000,000.
Net accessions to the market from security
purchases, therefore, amounted to $c,000,000.
In addition the market in-
creased its borrowing by means of member bank discounts to the extent of
$0,000,000 from $473,000,000 to $529,000,000, and funds from these two
sources permitted member banks to expand their reserve balances by $137,000000.
The accompanying credit developments are shown on Table III.
TABLE III
May, 1927 - December, 1927
1_
Money rates:
Call loans, renewal
Time loans
Commercial paper
Customers (weighted average)
Bond prices (60 bonds S.S. Co.)
Stock prices (410 stocks S.S. Co.
Total loans and investments of all member
banks 2/
International trade:
(As compared with preceding year)
Exports (monthly average)
Imports (monthly average)
1/
2/
a/
May,
1927
December
1927
Change
4.26%
4 3/6
4-4 1/4
5.02
99.1
114.2
100.0
133.1
_
7,)2,750
$314,247
A
+ .9
1 + 15.9 (+17%,
+
$1,491
5-
Percentage change
Measured to the nearest call in millions of dollars
In millions
•
•
-6-
In this case money rates and bond prices showed relatively
little change.
Credit again expanded rapidly, however, and stock
prices again advanced by about 17 per cent.
Changes in imports
and exports, as compared with the preceding year were both negligible.
Period from January, 1922 to June, 192S as a whole
Certain relevant comparisons for the period as a whole are
shown in Table IV.
As the effect of an easing money policy on
such things as stock prices, bond prices, credit expansion and
foreign trade do not end automatically when the reserve banks cease
purchasing securities, this table summarizes also developments during the six months following each of the above periods, namely, from
June to December 1922, from
cember 1927 to June 192g.
November 1924 to May 1925, and from De-
The period covered therefore is the 78
months between January 1922 and June 192g.
Of these 78 months, 26
were included in the three periods of large scale purchases of securities by the reserve banks, and lg were included in the
following each of these periods.
6 months
•
- 7
TA.= IV
January
1922
lember bank reserve bal. 1/
Hember bank credit: 1/
Total loans and invest.
1,707
23,482
136941'r
1928
$
Total
2,355 +
35,061
Average monthly increase
Bond prices (S. S. Co.)
S9.3
98.5
Stock prices: (S. S. Co.)
Monthly average increase
5S•7
145.3
648
+ 539
-
+11,579
+4,450
+2,883
+14,2)46
+
+
171
+
160
+ 125
+ 7.4
+
.7
+ 1.1
+
+ 1-3-
143
9.2
56
+ 165
+ 86.6
+
Foreign trade: 1/
Average monthly
Exports
Imports
Net Changes
During 3
During 3 During
periods
following other
covering
periods of 34
open-market 6 months
mo.
operations
each
(26 mo.) (18 ma.)
1.1
1.5
+
.7
$379
$371
$382
$383
326
298
313
354
34E(
mt.s1/ Millions of dollars
The summaries on this table are rather interesting.
of $648,000,000 in member bank reserve balances during the
Of the total net increase
78
months, $539,000,000
occurred while the reserve banks were purchasing United States securities, and of
the total increase of 9.2 points in bond prices, 7.4 points occurred at the same
time.
The average monthly increase in total loans and investments of all member
banks was $148,000,000.
During the three periods in which the reserve banks were
purchasing United States securities heavily, however, it was $171,000,000, during
the three periods of
6
months each following these purchases it was $160,000,000,
while during the remainder of the
78
months it was $125,000,000.
Similarly, the
average monthly increase in stock prices for the period as a whole was 1.1 points,
but during periods of security purchases it was 1.5 points, during periods following
such purchases -__-1-.-3"-points, while during the remaining months it
was only .7 points.
Exports appear to have averaged about the same volume in all
three periods, while imports were lighter when securities were being purchases and heavier when they were not.
This does not mean
that security purchased on the part of the reserve banks led to
decreased imports but merely that these purchases took place during periods of sluggish business activity when American industry
had less need for foreign raw materials.
S
COPY
X-6383
October 8, 1929.
TO
The Federal Reserve Board
FROM
Mr. Wyatt, General Counsel
SUBJECT: Ownership of Bank Stocks
by Holding Companies.
There is attached. hereto for the Boardts information
a copy of an Act recently enacted in the State of Wisconsin
regulating the ownership of stocks in banks and trust companies by holding comoanies. The provisions of this statute may
be summarized briefly as follows:
(1) No corporation organized under the laws of Wisis
permitted to hold more than 10% of the stock of any
consin
bank or trust company, unless 75% of the stockholders of both
corporations vote in favor thereof at a meeting especially
called for that purpose.
(2) No State bank or trust company may vote to
authorize a foreign corporation to purchase stock in such State
bank or trust company, unless such foreign corporation shall
have qualified to do business in Wisconsin.
(3) Whenever the ownership or control of a majority
of the stock of any State or National bank doing business in
Wisconsin is held by any foreign corporation which has not
qualified to do business in the State, such bank shall be disqualified to act as a depositary for any public funds of the
State or any subdivision thereof, or as a depositary for reserve funds of State banks until such foreign corporation Shall
have qualified to do business in the State.
(4) Any domestic corporation or any foreign corporation qualified to do business in Wisconsin which owns or controls
a majority of the stock of any bank or trust company, Shall be
deemed to be engaged in the business of banking and shall be
subject to the supervision of the State Banking Department.
(5) Such corporations are required to file reports
of condition with the Commissioner of Banking and are subject to
examination by him.
(6) Whenever, in the opinion of the Commissioner of
Banking, the condition or management of such holding company endangers the safety of such bank or trust company, the Commissioner may order the holding company to remedy such condition within
ninety days; and, upon its failure to do so, the Commissioner
shall have power to direct the operation of such banks or trust
companies until his orders are complied with and may withhold all
VOLUME 196
PAGE 97
1'1
14.0
X-6383
-2dividends from oudh holding cumpanies in the meantLie.
(7) Domestic corporations and foreign corporations
authorized to do business in the State which own or control the
stock of a State bank or trust company Shall be held liable for
any assessment made against the stodtholders of ouch bank or
trust company to the par valuo of the stock so owned or controlled; and sudh holding corporations are required to deposit with
the State Treasurer securities equal to fifty per cent of the
par value of the stocks of State banks or trust companies owned
or controlled by such holding companies, except that the aggregate amount of ouch securities shall not exceed the largest amount required to be deposited by Wisconsin trust companies.
(8) If the stockholders' liability of any ouch holdinG
company is not fully paid, the stockholders of ouch holding
company are liable for an assessment sufficient to cover the
deficit.
(9) All of these provisions apply not only to corporations,but also to associations, investment trusts, or other
organized forms of trusts; but they are not to be construed to
prohibit any trust company or State or National bank exercising
trust powers from carrying out the provisions of any personal
trusts within certain prescribed limitations.
Respectfully,
Walter Wyatt,
General Counsel.
Copy of Act
attached.
vcib
X-6383-a
COPY
(EEPARTMENT OF STATE
Published
Aug. 30, 1929
Wisconsin)
(No. 460, s.)
CHAPTER
445
, LAWS OF 1929.
AN
ACT
To amend. subsection (9) of section 182.01 and to create subsection
(6) of section 14.44 and section 221.56 of the statutes, relating to bans and holding companies.
The people of the state of Wisconsin, represented in senate and
assembly, do enact as follows:
SECTION 1. Subsection (9) of section 182.01 of the statutes
is amended to read: (132.01 (9) Any corporation organized under
chapter 180 of the statutes may subscribe for, take or hold stock
in any other corporation except as herein provided. The consideration for such purchase may be paid in the stock or bonds, or both,
of the purchasing company, but no corporation organized under chapter 180 of the statutes may subscribe for, take or hold more than
ten per cent of the capital stock of any state bank or trust company, unless seventy-five per cent of the stock of both corporations shall vote in favor thereof at a meeting especially called
for that purpose, but no state bank or trust company may vote to
authorize a foreign corporation to purchase stock in such bank or
trust company unless such foreign corporation shall have filed
its articles of incorporation with the secretary of state and is
authorized to do business in Wisconsin as provided in section
226.02 of the statutes.
SECTION 2. A new subsection is added to section 14.44 and a
new section is added to the statutes to read: (14.44) (6) Whenever
the ownership, control or power to vote a majority interest in the
stock of any state or national bank doing business in Wisconsin
shall be held or in any manner exercised by any foreign corporation,
association or trust which shall not have filed its articles of incorporation and obtained authority to do business in this state as
provided in section 226.02, such bank shall not be qualified to act
as depository for any public funds of the state of Wisconsin or of
any subdivision thereof, nor as a depository for reserve funds of
state banks until the provisions of section 226.02 shall be complied with by such foreign corporation, association or trust.
221.56 (1) Any domestic corporation, investment trust, or other
--2-
X-6333-a
form of trust which shall own, hold or in any manner control a
majority of the stock in a state bank or trust company Chan
be deemed to be engaged in the business of banking and shall
be subject to the supervision of the state banking department.
It shall file reports of its financial condition when called
for by the commissioner of banking, and the commissioner may
order an examination of its condition and solvency whenever
in his opinion such examination is required, and the cost of
such examination shall be paid by such corporation or association. Whenever in the opinion of the commissioner of banking the condition of such corporation or association shall
be such as to endanger the safety of the deposits in any bank
or trust company which is owned or in any manner controlled
by such corporation, or the operation of such corporation,
association or trust shall be carried on in such manner as to
endanger the safety of such bank or trust company or its depositors, the commissioner may order such corporation or
trust to remedy such condition or policy within ninety days
and if such order be not complied with, the commissioner shall
have power to fully direct the operation of such banks or
trust companies until such order be complied. with, and may
withhold all dividends from such corporation or trust during
the period in which the commissioner may exercise such authority.
(2) The provisions of subsection (1) Shall apply to any
foreign corporation, association, investment trust, or other
form of trust which shall be authorized to do business in Tisconsin.
(3) Every domestic corporation and every foreign corporation authorized to do business in this state which shall purchase,
own or in any manner control the voting of any stock in a state
bank or trust company Shall be liable to the creditors of such
bank or trust company for any assessment made against the stockholders of such bank or trust company to the par value of the
stock so purchased, owned or controlled in the same manner as is
provided for individual stockholders of such banking corporation
under the provisions of section 221.42. Any such domestic or
foreign corporation shall deposit with the state treasurer seaurities such as are required to be deposited by trust company
banks by section 223.03 equal in amount to fifty per cent of the
par value of the stocks of state banks or trust companies which
Shall be held, owned or controlled by such domestic or foreign
corporation, but not exceeding in the aggregate the largest amount
required to be deposited by a Wisconsin trust company. In case
the double liability of any such corporation against which an assessment may be made as provided herein shall not be fully paid
by such corporation, then the stockholders of such corporation
Shall be liable for an assessment sufficient to cover the full
amount of the assessment against such corporation.
(4) All of the foregoing provisions of this section relating
to corporations shall apply equally to associations, investment
X.-6383-a
-3A.
trusts, or other forms of organized trusts, whether so specifically stated or not, but nothing contained in this section
shall be construed to prohibit any trust company bank, or
state or national bank, authorized to administer or execute
trusts, to accept and carry out the provisions of any personal
trust, or any trust created by will where the owner of bank
stock shall create a trust for his wan benefit during his lifetime, or shall provide by will a trust in bank stock for the
benefit of his heirs, and trusts so created shall not be deemed
to come within the provisions of this section.
SECTION 3. It is the intent of the legislature that
provisions of this act are separable and the holding of any
provision hereof unconstitutional shall not affect the remai
thereof.
SECTION 4.
publication.
This act shall take effect upon passage
Ayes 28; Noes 1.
Senate:
Assembly:
Ayes 82; Noes C.
PRESIDENT OF 1E SENATE.
SPEAKER OF THE ASSEMBLY.
This act originated in the Senate.
s
CHEF CLERK.
11;4110piwp
Approved
, 1929.
GOVERNOR.
CONFIDENTIAL
Not for publication
St. 5351
ERTINGS AT
Feueral
Reserve
•
Bank
, oston
York
Philadelphia
Cleveland
Richmond
Ohicao
St. Louis
.Anneapolis
-7"as
City
-Thi
,
4 Francisco
Discounted
bills
'!..onth
'arnings from
_
.PurU. S.
chased
securibills j ties
_
MISE
of
Total
295,347
1,149,755
375,545
332,109
z:i89,946
406,685
,476
,293
$17,254
182,313
59,277
86,787
248,795
288,323
422,585
298,614
6,538
53,151
98,307
277
4,565
10,..-)95
8c,467
5,147
9,642
39,132
1,275
141,242
161,266
172,481
314,044
17,283
29,309
34,369
101,335
30,036
6,258
26,536
39,874
15,154
22,614
3,685
4,354
$5,398 z$407,945
61,681 1,800,434
3,184
489,482
15,453
489,642
SEPTEV1BgR 1929
Se-Itembor
TNCurrent exionses
Exclusive
of cost of i
1
F.R.currencyl
Nit
- September 102
Available for
Current Dividends reserves
net
accrued surplus and
earnings
franchise
tsx*
Jan.
Current net
earninLs
['Ratio to
Amount pai6_-in
1 capital
Per cent
$231,309 25.2
1,245,314 23.6
322,852 23.8
270,794 21.3
$155,317
519,558
155,679
206,444
$176,635
555,120
166,630
218,848
285,045
361,711
648,587
301,923
120,034
113,286
297,872
105,387
127,677
141,160
324,726
109,930
157,368
220,51
323,861
191,993
31.1
49.4
19.8
44.7
1,192,376
1,961,720
4,031,875
1,430,222
277,902
240,982
870,940
240,533
850,051
1,681,997
3,067,805
876,976
203,715
219,447
237,071
459,507
73,980
142,762.
109,081
108,950
77,872
146,570
109,666
190,301
125,843
72,877
127,405
269,305
50.1
20.8
34.5
28.8
560,199
643,002
763,586
1,851,842
137,921
192,386
159,493
1499,130
403,912
508,572
534,523
1,309,117
TOTAL
Sept. 1929
4,200,206 963,969
553,715 186,719 5,904,609 2,188,350 2,345,136
4,573,150 542,575
11.1g. 1929
524,277 190,324 5,830,326 2,245,005 2,427,474
Sept. 1928
4,285,918 824,211
755,649 122,939 5,988,71
21 80
2 1821_211
Jan.-Sept.1929 36,629,628 8,049,395 5,222,208 1,842,407 51,743,638 19,916,911 22,470,063
1928 26,355,172 7,975,918 8,335,996 1,265,707 43,932,193 1 ,508,0_99 20,184,79
----_,DERAL RESERVE BOARD
DIVISION OF BANK WERkTIONS
OCTOBER 9, 1929..
C.
1929
3,559,473
3,402,852
3,806,486
29,273,575
23,747,397
$2,543,944 467,896- $2,037,980
8,793,226 2,569,621
6,163,241
2,021,228
2,775,536 690,531
2,726,047 675,752
1,998,247
26.0
24.2
32.0
24.9 29,273,575 7,063,087 21,453,649
22.8 231747,997 6,260,946 15,960,500
*After adjustment for current
profit and loss entries, purchases
of furniture and equipment, etc.
VOLUME 196
PAGE 99
orm No. 131
Office'Correspolence
FEDERAL RESERVE
BOARD
Subject: The present gold situation.
Goldenweiser
To
From ____
Date September 16, 1929.
Mr. Gardner
Alto
2-8495
The average monthly production of gold in the world is about $34,000,000.
Of this amount some $21,000,000 monthly has been going into
monetary use in 1929.
The growth of monetary gold is of course more fluctuating thAn the production
of the mines; but except for the technical and temporary disappearance of gold
from the records while in transit from one central bank to another, the advance
of total monetary gold holdings month by month has been persistent, ranging
between fifteen to thirty million dollars.
$250,000,000.
The probable growth for the year is
This will come almost wholly from mined gold as the large special
sources which have characterized previous years are nearly exhausted.
The fig-
ure indicates the competitive power of central banks as against Indian and industrial demand.
A world in which central banks in gold standard countries are
striving to build up their gold resources is not one favorable to the development
of large non-monetary takings.
This is important to remember because it is so
often assumed that the banks play a merely passive 2.81e receiving only what
remains after Indian and industrial demanes have been met.
Of the new gold produced by the mines almost half or $14,000,000 on a
monthly average comes to London from Africa for distribution.
Except for the
small portion sold to the trade this gold must either be shipped out again
or accumulate in the Bank of England.
It is a normal thing, therefore for
London to be a shipper of gold to foreign central banks to the extent of $10,000,000 or more monthly.
For the four months following the increase of tts discount rate to
5 1/2 per cent on February 7 the Bank of 11nEland was able to prevent this
VOLUmE 196
PAGE 135
2.
•
•
September 16, 1929.
Mr. Goldenweiser
normal outflow and to divert the African gold to its own vaults.
In addition
it drew one substantial shipment from the Netherlands Bank amounting to $14,000,000 and smaller shipments from Australia and Argentina.
Altogether it
increased its holdings during the four months to June 12 by $70,000,000.
The
Bank was further aided in maintaining its reserve position by the fact that
the volume of currency in circulation during the first half of the year was
well under the level of a year ago.
Partly this was due to the return of some
$25,000,000 of notes from Ireland where a new Irish currency has been placed
in circulation.
But to a larger extent it appears to be traceable to the
Industrial situation in England which was very bad toward the end of 1928.
Fol-
lowing the improvement of this situation the level of currency in circulation
has drawn much closer to that of a year ago and it now appears probable that
not even the seasonal drop of money in circulation in the autumn will bring
much relief this year.
Gold required j, which on February 27 after the increase
of discount rate was $200,000,000 less than at the beginning of the year, was
on September 11 $80,000,000 higher than in February.
Movements of this sort
are of a magnitude quite comparable with the international movements of gold,
large as the latter have been.
It is therefore significant that the Bank can
hardly expect much relief in the immediate future by reason of a reduction in
the liabilities against which reserves are bald.
Meanwhile since June 12 the Bank has been losing gold heavily.
The
$799,000,000 held on that date have shrunk to holdings of $669,000,000 on
lj
In calculating required gold, I have taken the gold legally required against
notes in circulation (i. e. outside the Bank of England) and added to it an
amount equivalent to 40% of deposits. As no reserve is legally required against
deposits, the selection of 40% is somewhat arbitrary; it is close, however, to
the practical norm which has become almost a tradition in England. In the present
case it rinkes very little difference what ratio against deposits is chosen, as
three fourths of the fluctuation in gold required has occurred in the gold legally
required against notes in circulation.
• Mr. Goldenweiser
September 16, 1929.
September 11; and the theoretical excess gold of $94,000,000 (allowing a 40 per
cent reserve against deposits) has become a theoretical gold deficiency of
$70,000,000
gj.
This dericiency began toward the end of July at which time the
mystic figure of 1150,000,000 for total holdings was also violated.
Each suc-
ceeding weekly report since that time has shown smaller gold holdings; ana the
autumn season is imminent; yet Bank rate remains unchanged.
That the Bank of
England is trying a wholly new experiment (perhaps in collaboration with a
Labor Government) is only too evident.
The experiment being new there is no
basis for determining when it will end.
The Bank has never before had to con-
sider how mudh gold it really needed to insure the exchange stability of the
British pound; and we can only guess what operating limits it has in mind now
that tradition has been broken.
To be sure for seven weeks now the reserve
ratio has been below 30 per cent and it might be anticipated that the usilal
autumn drain would be the signal to increase the rate.
But instead the Bank
may let gold go and ask for permission to increase its fiduciary issue, thereby
preserving the ratio from shrinIfnge.
Or a credit may be arranged.
In any case
the bulk of the burden of autumn financing will be borne by the New York market
supported by the Federal Reserve Banks, a fact tending to throw the heaviest
nressure on London forward into 1930.
The Bank may hold on as it did last fall
waiting developments of the year to come.
To pull through the rest of this year
would be something of a tour de force by traditional standards; but quite possible if a radically new approach is being tried.
Tne gold which England has lost in the last three months has gone
largely to France ($87,000,000) Germany ($764000,000) and the United States
21 The greater change in "excess" gold than in total gold is, of course, due
to the growth of liabilities.
S
4.
Mr. Goldenweiser
($23,000,000).
September 16, 1929.
During this period gold holdings of the Bank of France in-
creased by $96,000,000.
But previous to June the Bank of France had been
steadily building up its gold, its holdings having increased $181,000,000
during the first five months of the year making a total of $277,000,000 for
the year to date.
This enormous acquisition is not to be explained on the
grounds of increase of requirements.
Requirements continue to increase in
France to be sure; but their growth has rendered necessary not more than
$50,000,000 of additional reserves.
It would be easy to say that the Bank
of France is merely building up a hoard as in the pre-war days.
Undoubtedly
the Banlr is not averse to accumulating gold; but I suspect that the present
process differs somewhat from blind hoarding.
The Bank has felt (not without
some justification) that its foreign exchange holdings were disproportionate.
These holdings have continued disproportionate in the face of a discount
policy which has maintained Paris as one of the two easiest short-term money
markets in the world.
The Bank has therefore been anxious to expedite the
slow shrinkage of its foreign portfolio by converting it into gold.
During
the first half of the year it was on the lookout for favorable opportunities
to purchase gold.
Such opportunities presented themselves at the time of
our post-Christmas return of money from circulation and again at the period
of heavy German gold shipments to this country.
Following the second wave of
gold purchases, however, foreign exchange of the Bank was left at an amount
which the Bank appears willing to regard as reasonable -- at least for the
time being.
The amount is roughly $1,000,000,000.
For the last four months
111
5.
September 16, 1929.
Ur. Goldenweiser
it has haraly varied.
Apparently the heavy imports from England during this
period represented wholly the initiative of private banks seeking the profits
to be made on the shipment.
The Bank of France stood aside.
It was responsi-
ble only in the sense that it was unwilling to vary its holdings of foreign
exchange in order to prevent the movement of gold.
It is, of course, amazing that in the face of the low rates prevailing
for money in Paris there should be a net inflow of funds on international balance
This net inward flow has, to be sure, developed only at the height
of the tourist season.
Furthermore the slowness of the previous outflow might
be at least partially explained by the fact that the French short-term open
money market is still undeveloped and not really available for financing the
world's international trade; that French bankers, irrespective of interest
differentials, set very cautious limits to the volume of funds they are willing
to hold abroad; and finally that the long-term security markets have not eased
comparably with the short-term markets and in any case are severely restricted
by various prohibitions and by heavy taxation.
But the flow of funds to and
from France still remains an enigma concerning which prediction is almost impossible.
With the passing of the tourist season, however, I should expect a
considerable breathing spell before further French takings of any magnitude
develop.
I do not in any case look for an outflow of gold from France even
though the excess is now in the neighborhood of $350,000,000.
The Bank may
refrain from touching its billion dollars of foreign exchange either for the
jj The increased reparations payments must be set off against the greater
excess of merchandise imports in 1929.
F
. .
-
411
110
6.
September 16, 1929.
Mr. Goldenweiser
purpose of preventing or inducing a gold inflow; but it certainly will not
hesitate to use it to prevent an outflow of the gold it already has acquired.
Holding gold subjects the Bank to relatively little criticism.
It is the
acquisition which excites hostility.
The gold taken by Germany has/ as in the case of France resulted from
a net inflow of funds combined with an unwillingness on the part of the central bank to build up its holdings of foreign exchange.
Schacht has operated
more in the foreign exchange market than appears on the surface.
His holdings
of unreported devisen are known to have been large and to have gone through
large fluctuations in 1929.
But by far the greatest changes have occurred in
the gold holdings of the Reichsbank in accordance with Senachtts theory that
under the gold standard adjustments should be made in gold.
Germany began the year with $650,000,000 about $175,000,000 of Which
was in excess of legal requirements ij.
Following the reduction of the Reichs-
bank rate there was a gradual melting down of this holding.
Then during the
Paris conference a sudden spread of alarm led to tremendous demands for foreign
funds.
In five weeks time (March 31 - May 7) the Reichsbank lost more than
$200,000,000 of gold, the excess disappearing entirely.
In the face of this
movement the Reichsbank raised its discount rate to 7 1/2 per cent (April 25)
and adopted the severe and eftective measure ot rationing its loans.
Almost as
quickly as it had arisen the storm blew over, confidence returned, and uermary,
left with a 7 1/2 per cent discount rate, began presently to draw gold.
From
4
In calculating required gold I have included Rentenbank notes with Reichsbank notes as liabilities against which gold must be held. The Reichsbank has
publicly accepted responsibility for these Rentenbank notes, which are in
process of retirement. Strictly, however, reserves are required by law only
against Reichsbank notes, on which basis the excess gold held at the beginning
of 1929 was $225,000,000.
September 16, 1929.
Mr. Goldenweiser
June 23 to September 15 the Reichsbank acquired $100,000,000.
At the same time
foreign exchange was appreciably replenished, but in general SchaChtts policy
has been to let gold move in response to discount policies.
The only difficulty
in this case is that the April episode forced the Reichsbank onto a higher rate
level and threw such a scare into the bank that it has not since dared to relax -- although the emergency measure of rationing loans has been discontinued.
At present the Reichsbank has a surplus of gold of more than $100,000,000.
Yet
such are the uncertainties of the immediate future that it is unlikely that
any rate reduction will occur before the new year; and even then Schacht may be
deterred by memories of What happened after a similarly justified reduction in
January 1929.
It would not be surprising if Germany with reduced payments
under the Young Plan, a continually growing voluge of exports, and a tight
money market continued to attract gold even in the face of the difficulties of
borrowing at long-term abroad.
Meanwhile I am inclined to think that the time is rapidly approaching
when a prolific source of gold to other countries during 1929
cease to flow.
will
The Bank of the Nation in Argentina has just about exhausted
its surplus gold if one regards cash holdings of 20 per cent against deposits
as a minimum.
The Bank has come a long way since last September when its
holdings were near their peak.
Since that date about $115,000,000 V of gold
has been lost and the Bank Which had risen to a dominant reserve position is
now back with the crowd.
If the drain continues I should anticipate some sort
W This figure was given as $125,000,000 in the original copy of this memo
owing to an error in published figures, since corrected.
•
•
•
8.
September 16, 1929.
Mr. Goldenweiser
of measures of restriction to prevent it -- whether in the form of higher interest rates, or rationing of loans, or something more drastic I do not know.
But once alarmed I should expect the Argentinians to take severe measures to
It may well be that such measures will not prove necessary.
save their gold.
This discussion of the four foreign countries Which have accounted for
most of the gold movements of 1929 (i. e. England, France, Germany, and Argentina) makes it appear that, despite the heavy reduction of our foreign longterm lending and the attraction of our short-term markets and of the stock
market itself, our further acquisitions of gold are not likedly to be drqmatic.
France will give us none; the Argentine supply is becoming exhausted; Germany
is for the time being committed to exceptionally high rates backed by an
proving export trade; and England is in an anomalous position with nothing to
spare by traditional standards and yet perhaps most likely of all to send us
gold in the fall.
I expect that our gradual and steady accumulation of gold
will continue -- if only from new gold produced by the mines.
We have in any
case experienced only one period of rapid acquisition in 1929.
was losing $200,000,000 of gold we acquired $100,000,000.
While Germany
Over the whole year
to date we have accumulated about $250,000,000 or at an average rate of roughly $30,000,000 a month.
This is considerably more than the monthly increase
of total monetary gold in the world; and in view of the situation in the other
important countries I do not look for it to continue.
But While our present
credit policy lasts our share of the new monetary gold made available should
be large.
•
..•••••••••••••e•••••t•r-05•••4..Q.--..
Rdpji
t '/2
r
C
0C
eetl
,4.t
4.4, 4, ('
„A...0.4• 04.
"
r
tOMMUM
=7:
)677
1.
'
@FedFRASER