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P B O A R D O F G O V E R N O R S OF THE FEDERAL RESERVE SYSTEM Office Correspondence To__________ The From________Mr. Date August 6. 1941 Files________________ Subject:_____________________________ Coe__________________ ____________________________________ After correspondence with Mrs. Hamlin (see letters of May and ^une 4> 1941) the items attached hereto and listed below, because of their possible confidential character, were taken from Volume 232 of Mr. Hamlin's scrap book and placed in the Board's files: 25 VOLUME 232 Page 3 Memo to Mr. Hamlin from Mr. Wyatt re revised circular re discounts for individuals, partnerships and corporations. Page 4 Memo to Board from Mr. Yfyatt re liability of directors of national bank for losses on loans made while reserves are deficient. Page 17 Memo to Mr. Morrill from Mr. Van Fossen re direct loans to in dividuals, etc. Page 63 Memo to Gov. Meyer from Mr. Goldenweiser re Credit Situation. (CONFIDENTIAL) Page 65 Memo to Mr. Morrill from Mr. Van Fossen re direct loans to in dividuals, etc. (CONFIDENTIAL) Page 113 Memo to Mr. Morrill from Mr. Van Fossen re direct loans to in dividuals, (CONFIDENTIAL) Date. July 21 f 1932* T o __ Mr. Hamlin... ............ From Mr. Wyatt#______________ _ O Subject: Revised circular re discounts for individuals, partnerships and corporations. ___ . . ro 2— 8405 Suggestions and comments have now been received from all of the Federal reserve banks regarding the tentative draft of a circular on the above subject which was sent to them on July 16; and there is at tached for your information a revised draft of the circular and alter native drafts of Sections II and III, thereof. The Board may wish to consider this matter at its meeting tomorrow, in view of the fact that the President signed the Bill containing this amendment today. The most important question to be determined is whether this business shall be confined to discounting for individuals, partnerships, and corporations eligible paper of their customers actually ov/ned by them or whether the Federal reserve banks should be permitted to make advan ces direct to individuals, partnerships and corporations on their promis sory notes indorsed and otherwise secured to the satisfaction of the Federal reserve banks.Another question upon which there is considerable difference of opinion is whether Federal reserve banks should be forbidden to dis count paper for individuals, partnerships and corporations if the pro ceeds are to be used to pay off existing indebtedness to o cher banking institutions. The revised regulations provide that this may not oe done, "except with the permission of the Federal Preserve Board. 11 Especial attention is also invited to Section YI of the circular which deals with the rate of discount. A summary of the suggestions received from the various Fed eral reserve banks is being prepared and I hope to have it ready for distribution early tomorrow morning. *’£k 4 I VOLUME 232 PAGE 3 X-.7207 July 21, 1932. SUBJECT: DISCOUNTS FOB INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS. TO ALL FEDERAL RESERVE BANKS: The third paragraph of Section 13 of the Federal Reserve Act, as amended hy the Act of July 21 , 1932, provides as follows: '•In unusual and exigent circumstances, the Federal Reserve Board, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount for member banks under other provi sions of this Act when such notes, drafts, and bills of exchange are indorsed and otherwise secured to the satis faction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal re serve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe.” In view of the fact that the power conferred by this provision can be exercised only in "unusual and exigent circumstances”, the Fed eral Reserve Board has not prescribed any formal regulations governing the exercise of this power; but the requirements of the law and the procedure which the Federal Reserve 3oard will expect to be followed are outlined below for the information of the Federal reserve banks and any individuals, partnerships or corporations that may contemplate applying to them for discounts. X-7207 - 2 - I. LEGAL REQUIREMENTS. It will be observed that, by the express terms of the law: 1. The power conferred upon the Federal Reserve Board to authorize Federal reserve banks to discount eligible paper for in dividuals, partnerships or corporations may be exercised only: (a) In unusual and exigent circumstances, (b) By the affirmative vote of not less than five members of the Federal Reserve Board, and (c) For such periods as the Federal Reserve Board may determine; 2* When so authorized, a Federal Reserve Bank may discount for individuals, partnerships or corporations only notes, drafts and bills of exchange of the kinds and maturities made eligible for discount for member banks, under other provisions (Sections 13 and 13(a)) of the Federal Reserve Act. (Such paper must comply with the applicable requirements of Regulation A of the Federal Reserve Board); 3. Paper discounted for individuals, partnerships or corporations must be both (a) indorsed and (b) otherwise secured to the satisfaction of the Federal reserve bank; 4. Before discounting paper for any individual, partnership or corporation, a Federal reserve bank must obtain evidence that such individual, partnership or corporation is unable to secure adequate credit accommodations from other banking institutions; 5. Such discounts may be made only at rates established by the Federal reserve banks, subject to review and determination by the Federal Reserve Board; and X-7207 6. All discounts for individuals, partnerships or corporations are subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe. II• PERMISSION OF TEE FEDERAL RESERVE BOARD. 1. The Federal Reserve Board will not pass upon specific applications for discounts by individuals, partnerships or corporations; but will consider applications by Federal Reserve Banks for general permission to discount eligible paper for individuals, partnerships and corporations, and will base its decisions on the question whether in its judgment there are unusual and exigent circumstances which justify the granting of such permission. 2. Permission of the Federal Reserve Board to discount eligible notes, drafts, and bills of exchange for individuals, partnerships and corporations must be applied for by a Federal reserve bank in writing or by telegram, and the application must contain a full statement of the unusual and exigent circumstances which, in the judgment of the Board of Directors of the applying Federal reserve bank, justify such action. 3, Such permission, when granted, will be for periods specified by the Federal Reserve Board, not exceeding six months. 4. Requests for renewals or extensions of such permission must be made in the same manner as an original application. III. FOR WHOM PAPER MAY BE DISCOUNTED. When authorized by the Federal Reserve Board, the Federal reserve banks may discount for individuals, partnerships or corporations, eligible commercial, industrial and agricultural paper actually owned X-7207 - 4 - "by such individuals, partnerships or corporations and hearing their indorsement. The term "corporation”, as used in this circular, includes live stock loan companies, agricultural credit corporations, finance companies and similar corporations; and eligible paper owned by such corporations may be discounted with their indorsement. No paper may be discounted for nonmember banks under the terms of this circular. A Federal reservo bank should not discount paper for individuals, partnerships or corporations unless it appears that the proceeds of such discounts will be used to finance current business operations and not for speculative purposes, for permanent or fixed investments, or for any other capital purpose. Except with the permission of the Federal Reserve Board, no such paper should be discounted if it appears that the proceeds will be used for the purpose of paying off existing indebtedness to other banking institutions. K vm VC<Ua v -< IV. APPLICATIONS FOB DISCOUNT. Each application of an individual, partnership or corporation for the discount of eligible paper by the Federal reserve bank must be made in writing on a form furnished for that purpose by the Federal reserve bank and must contain, or be accompanied by, the following: 1. A statement of the circumstances giving rise to the applicatior and of the purposes for which the proceeds of the discount are to be used; 2. A statement of the efforts made by the applicant to obtain adequate credit accommodations from other banking institutions/including the names and addresses of all other banking institutions to which appli cation for such credit accommodations has been made, the dates upon which such applications were made, whether such applications have been definitely X-7207 * 5 - refused and the reasons, if any, given for such refusal; ^ 3# A list of all hanks with which the applicant has had banking relations, either as a depositor or as a borrower, during the preceding yeari with the approximate date upon which such banking re lations commenced and, if such banking relations have been terminated, the approximate date of their termination; ^ 4. Financial statements of the applicant and the principal debtors on the paper offered for discount; 5. Evidence sufficient to satisfy the Federal reserve bank as to (a) the legal eligibility of the paper offered for discount under Section 13 or Section 13(a) of the Federal Reserve Act and Regulation A of the Federal Reserve Board and (b) its acceptability from a credit standpoint; 6. A list and description of the collateral or other security offered by the applicant; 7. An agreement by the applicant, in form satisfactory to the Federal reserve bank, (a) to furnish to the Federal reserve bank, when requested, additional financial statements, copies of recent auditors reports, or other credit information, (b) to submit to audits, credit investigations or examinations by representatives of the Federal reserve bank at the expense of the applicant, whenever requested by the Federal reserve bank, and (c)/to furnish additional security whenever requested to do so by the Federal Reserve Bank; and ^ 8. Any additional information or assurances which the Federal reserve bank, in its discretion, may require X-7207 - 6V. GRANT OH REFUSAL OF APPLICATION. Before discounting notes, drafts, or tills of exchange for any individual, partnership or corporation, the Federal reserve hank shall ascertain to its satisfaction by such means as it may deem appropriate? 1. That the financial condition and credit standing of the applicant justify the granting of such credit accommodations; 2. That the paper offered for discount is acceptable from a credit standpoint and eligible from a legal standpoint; 3. That the security offered is adequate to protect the Federal reserve bank against loss; 4. That there is a reasonable need for such credit accommoda tions; and 5. That the applicant is unable to obtain adequate credit accommodations from other banking institutions, A special effort should be made to determine whether the banking institutions with which the applicant ordinarily transacts his banking business or any other bank to which the applicant ordinarily would have access is willing to grant such credit accommodations. In discounting paper for individuals, partnerships or corporat ions, a Federal reserve bank should not make any commitment to renew or extend such paper or to grant further or additional discounts. VI. RATES OF DISCOUNT. When authorized by the Federal Reserve Board to discount eligible paper for individuals, partnerships and corporations, a Federal reserve X-7207 - 7 - bank, subject to the review and determination of the Federal Reserve Board, shall establish special rates for such discounts. Ordinarily such rates should be slightly higher than the rates charged on similar classes of paper by commercial banks to which applicants ordinarily would have access. Ci^» VII. LIMITATIONS. Except with the permission of the Federal Reserve Board, no Federal reserve bank shall discount for any one individual, partnership or corporation paper amounting in the aggregate to more than one per cent of the paid-in capital stock and surplus of such Federal reserve bank. VIII. ADDITIONAL REQUIREMENTS. Any Federal reserve bank which obtains permission from the Federal Reserve Board to discount eligible paper for individuals, partnerships and corporations may prescribe such additional requirements and procedure respecting such transactions as it may deem necessary or advisable; pro vided that such requirements and procedure are not inconsistent with the provisions of the law and the Board’s regulations and with the terms of this letter. By order of the Federal Reserve Board. Chester Morrill, Secretary. (Alternative for Section III) X-7207 III FOR WHOM PAPER MAY BE DISCOUNTED. When authorized by the Federal Reserve Board, a Federal reserve hank may discount for individuals, partnerships or corporations: (a) Eligible commercial, industrial and agricultural paper actually owned by such individuals, partnerships or corporations, bearing their indorsement, and otherwise secured to the satisfaction of the Federal reserve bank; or (b) The promissory- notes of such individuals, partnerships or corporations bearing satisfactory indorsements by parties other than / the makers and otherwise secured to the satisfaction of the Federal reserve bank; provided, that the Federal reserve bank is given satisfactory assur ances that the proceeds will be used by the makers in their own business for commercial, agricultural or industrial purposes within the meaning of the Federal Reserve Act and Regulation A of the Federal Reserve Board. The term ,,corporationn, as used in this circular, includes live stock loan companies, agricultural credit corporations, finance companies and similar corporations; but it does not include either member or nonmember banks. The promissory notes of live stock loan companies, agricultural credit corporations, finance companies and similar corporations would not ordinarily be eligible for discount, because the proceeds ordinarily would be used in the first instance for finance purposes and not for commercial, agricultural, or industrial purposes within the meaning of the Federal Reserve Act and the Board*s Regulations; but eligible paper owned by such corporations may be discounted with their indorsement. A Federal reserve bank should not discount for individuals, partner ships or corporations either their own promissory notes or paper owned by them, unless it appears that the proceeds of such discounts will be used to finance current business operations and not for speculative purposes, for permanent or fixed investments, or for any other capital purpose* Except with the permission of the Federal Reserve Board, no such paper should he discounted if it appears that the proceeds will he used for the purpose of paying off existing indebtedness to other hanking institutions* (NOTE: If the Board decides to permit Federal reserve hanks to make f direct advances to individuals, partnerships and corporations, another alternative would he to omit Section III of the circular altogether and allow the circular to remain silent on this point. This would have the advantage of not inviting applications for direct advances, hut it pro bably would increase materially the number of inquiries which the Federal Reserve Board and the Federal reserve hanks would have to answer.) # (Alternative for Section II of Circular Letter) X-7207 II, AUTHORIZATION BY THE FEDERAL RESERVE BOARD The Federal Reserve Board, being satisfied that there are in all Federal reserve districts unusual and exigent. circumstances which justify * such action, hereby authorizes all Federal reserve banks for a period of six months from the date of this letter to discount eligible notes, drafts and bills of exchange for individuals, partnerships and corpora tions, subject to the provisions of the law, the Board*s regulations, and this circular. Sept* 6,1932 The Federal He serve Board kr. Wyatt, General Counsel, Liability of directors of national bank for losses on loans made while reserves are deficient* For the Board’s information, there is attached hereto a copy of an opinion on the above subject rendered August 23, 1932, by tho United States District Court for the Western District of Michigan in the case of Holman v. Cross, wherein the Court held that the directors of a national bank are not liable for losses sustained on loans made while the reserves of the bank were deficient, if there was no actual negligence in the of such loans; because it could not be said that such losses were sustained "in consequence of* such violation of the law* Another question of interest to the !Pederal Reserve Board, which was raised in this case but which w&s not decided by the Court, was whether the sixth paragraph of section 2 of the Federal Reserve Act is still in force or whether it expired by limitation oneeyear after the e.-acteaent of the Federal Reserve Act* The Division of Insolvent National Banks of the Office of the Comptroller of the Currency is considering the question whether to appeal this case to the Circuit Court of Appeals; and this office will keep in touch with the matter, render such assistance as may be possible, and keep the Board advised of all important developments. Copy of opinion attached* WW sad W ? 232 Individuals, partnership* and coroorattons for loans not grant ad by the Fed eral reserve banks to September 3» 1932, including a tabulation of the . t reasons for not granting the loans applied for. It will be noted that the Federal reserve banks of Cleveland, Chicago, Dallas and San Francisco have not reported any applications refused because of ineligibility of the paper offered which, of oovrte, indicates that these banks have eliminated such applications from their reports (board's letter of August 30 requested Chicago to include such applications in the future). The federal Reserve Bank of Cleveland also has not reported any applications for loans not granted for the reason that the loans were placed with other banks, *& though Mr. DeCansp in his letter of August 27 states "thus far our best results have been ob tained through our ability to effect banking contacts." It will be noted that of 277 applications refused, as shown in the attached statement, lHo were because of unsatisfactory security; 122, paper not eligible; U, loans placed with other banks; 3* present credit deemed adequate; and 2, denial of credit by other banks not shown. Direct loans to individuals, partnerships and corporations granted by the Federal reserve hanks to September b are as follows: gftLgflL Miller-Cunnings Company Mew York, *. Y. Mew Jersey Flour Mills Company Clifton, H, J. $75tOOO 25,000 • kr. Morrill - f2 r«d«ral nm sik of MlnttoanolU Fiddle Gym Company Minneapolis H. C. Frvin * Company S t . Cloud Bricelyn Canning Company Bricelyn, telnn. 17 .5 0 0 5,680 60,000 Following is a eunomry of correspondence received during the week from the various Federal reserve banks regarding their activities and those of the Banking and Indui trial Committees in connect ion with the surrey to ascertain the extent to which there Bay b e demands for loans which are not being met by other banking institutions and A i c h could be granted properly by the Federal reserve beaks under the crovisione of the amendment to Section 13 of the Federal Bee errs let. preliminary summary of surrey concerning arailability of credit to industrial concerns from banks show that: (1) 391 of **50 replies state no unusual difficulty has b e e n experienced in borrowing sufficient working capital required for the production and narketli^ of goods. (2) 2^9 of 329 state they are not aware of deserring applicants being unable to secure credit. (3) 7^ of 127 state that In their Judgment the applicants rsfused loans were not entitled to receire the credit desired. (U) 133 of l&S state the general line of credit has not been re duced by a larger b i o ant than the decline in the wo lame and prices of goods would warrant. (5) 61 of 10$ stats that the reduction in credit has not resulted in curtailment of business activity. (6) 2t# of 29b state that banking facilities have bsen adequate to take care of all reasonable requests for loans. (7 ) 27 b of 32h would not buy additional raw materials in advance of needt if credit were available. Mr. Morrill - #3 (8) 255 of 332 have no out-of-date equipment wbidi they would nor mally replace. (9 ) 195 of 298 report no Improvements and additions that would nor mally he undertaken. (10 ) 253 0 ^ 278 state such Improvements have not been delayed for lack of credit. , (1 1 ) 12*4 of 1*48 state that availability of credit would not cause them to proceed with replacements, improvements or additions. CI.syy.LA.i~J)4 It is believed that bankers in some of the Ohio counties In which cattle raising and feeding is largely carried on are beooming more disposed to handle cattle loans . If this wore liberal attitude Is assumed by banksrt throughout the cattle section, it would probably involve the acceptance, by the Reserve bon* of nonmember bank paper through member banks. fflCB&KD: Replies to questionnaire received to September } show that of a total of 52 concerns only b believe that they or others known to then are likely to make application within the next few months for direct loans ftoi the reserve bank* and only J report knowledge of specific cases within the oast 6o days of refusals by local banks to meke similar loans. Replies from ®est Virginia and Korth Carolina indicate that mortgage loans and resumption of normal lending by commercial banks are especially needed. Submits report by states of survey conducted by Federal reserve aft bank. The principle facts brought out are: 1. Banks In cities of Sew Orleans, Jeanerette, La., lew Iberia, La., tferedlsa, Hattiesburg, Miss., Vicksburg, Biloxi, Blrmin^iam, Montgomery, Mobile, Annie ton, Ala., Atlanta, Macon, Rome, Columbus, Augusta, Albany, Savannah, Athens, Griffin, Ga., Jacksonville, Miami, Taapa, Pensacola, Up . Morrill - Sashville sad Chattanooga, are generally speaking in position to take ear# of all legitimate demand* and are eo doing. 2. Localities mentioned as not offering adequate banking and credit facilities ere: Lake Charles, Heraraond, Lafayette, lelsh and Jennings In Louisiana; Jackson, kiss.; Orlando, fort pierce, Fort Myers and Melbourne in Florida; and Knoxville and Bristol in Tennessee. Ihe conclusion# d r a w from the results of the surrey are stated ae follows: w w ag. 1. That in most o f the cities in our district the banks will handle all paper oaceeeary up to the requirement• of the amendment. 2. That in some o f our cities the Reserve Bank could well supplement in large lines the credit facilities of the banks of those cities. 3 . That in some cities, due to individual banking situations, there are not proper credit facilities and the Reserve Bank can be of real service in suck cities t h r o a t operation of the amendment. U. That In certain Industries credit requirements may be too large to be handlsd lbolly by locel banks and that tha Reserve Bank oould well supplement this credit. 5. That the demands of commerce are largely being cared for end it will bs only in exceptional cates tfcmre Reserve Bank facilities will b e required. b. That the demands of agriculture for the present season are practically at an end, except in the m t t e r of marketing commodities, and in this respect the Reserve Bank facilities can bs advantageously used. 7. That the requirements of the amendment are such that paper of the class authorised will generally be handled by the banks of this district. S. That requirements of the district are for capital rather than credit of the character authorised by the amendment. 9. That the majority of loans offered the Reserve Bank will not measure up to the tests of eligibility and acceptability required. Mr. Merrill - #5 10. That proper credit requirement# under the act will b e fully met by the Heserv© Bank idiere banking facilities for such loans are lacking. 11. That the general limitation* upon general credit named in thie report exiat in thie district and the correction of them would be of advantage to industry and commerce in this district, and it ia felt that the Industrial and Banking Commit tee can b e of great aid in this respect. Federal reserve bank is expecting a call from an official of the First National Bank of Tarpon Springs, Florida, and a representative of the sponge industry relative to extension of credit to individuals, atc.t engaged in that industry, as the outcome of correspondence on the subject with Senator Fletcher and Congressman Brane. CHICAGO: Anticipates that the Regional Agricultural Credit Corporations when they begin to function will extend necessary feeder loans the need for which ia becoming imminent. Banking and Industrial Committee has taken steps to designate individuals to head the various aub-conmdttees of the general organisation, as outlined in the f^shington Conference. It is probable that through these committees further effort will be made to discover demands for credit among merchants sad manufacturers that ars not being satisfied, but general opinion is that many legitimate and worthy demand* will not be found. A great deal of interest is being manifested in the new Home loan Banks and it is anticipated that there will be a good deal of disappointment o n the part of those ifco have mortgages coming due and which are in danger of forealosure. because of inability to obtain anywhere near enough funds under a present appraisal to liquidate the existing mortgages. There is still a good deal of idle money in the larger banks, particularly in Chicago • and It is certainly understood in this district that there is ample money available for legitimate enterprise. iir. Horn 11 - #6 iSffort* in connection with feeder loans are being continued and between the resources of the Reserve Bank, the Intermediate Credit brm.'d, the Regional Agricultural Credit Corporation and outside efforts it appears that tha situation will be taken care of. Vo other soecial unsatisfied demands for credit itoich is justified hare been disclosed. ST. LOUIS: Expresses opinion that credit is not being denied at this time by banks in St. Louis, Louisville, Svansville, Little Rock snd Merachis to parties Mhere loans could be made directly by the Reserve 3&nk. Apparently the best of the applications received by the Reserve Bank could not be classed higher than ^business risks.* There is a distinctly better feeling in the district in respect to business in the past 30 days, particularly in the past week. miKEAPCLISt 3^7 replies received to questionnaire sent out July 29 to 2,220 business firms in Minneapolis, St. Paul and Buluth. 208 replies made no criticism of credit supplies affecting themselves, their customers, or the trade in general, and 5U others had no comolaint to offer regarding their own credit supply. Of the regaining 85 replies, most of which were from small firms, In the majority of Instances the data furnished indicated that loans had been refused for legitimate reasons. On the basis of replies received to this questionnaire, adequate commercial bank credit is available for nearly ■-•*!1 firms having a legitimate claim upon it In all three of these cities. A deficiency in capital of many smaller business houses is apparent which cannot be met by ordinary means. Tha constract Ion industry complained of the shortage of city mortgage money, and automobile dealers and distributors U r » Morrill - #7 of oil heaters, electric washing machines and refrigerators complained about the difficulty of financing installment sales. Minutes of the August lb and 22 Meetings of the dunking and Industrial Comaittee Include the following: According to Congressman Johnson of South Dakota, 2U national labor union leaders have agreed to a five-day week with five d^rs» pay. It is estimated that this will furnish part time employment to H,000,000 men. Governor of Federal reserve bank states that Reserve Bank is taking no action on applications for loans in the farming country where bankli^ facilities are insufficient because the regional Agricultural Credit Corporation will be able to make suds loans on a more satisfactory basis. Statement that railroads have mere equipment in good order than they need and are unwilling to pay the 5 per cent interest on borrowed money for additional equipment, repairs, etc., not necessary at the present time, with a view to stimulating business. owed Agreement to urge amortisation plan by northwestern farmers. for repayment of seed loens Discussion of oroposed "Allotment Plan* in connection with suggestion that steps be taken to improve prices of farm products. Agreement to urge a tariff on imports from the Philippines in order to protect domestic producer# of sugar, butter, fats, etc. yiTY: There Is a growing tendency for banks to avoid borrowings or to keep borrowings at the lowest possible level. This policy is probably not restricting credit to a great extent at this time, but it is feared that it may have a restrictive influence during the next two or three months, when many farmers normally bqy livestock for feeding or for wintering. SAITAI: UfU«0 to jpMtaMWlm received to September 3 ex -re s s od inion that there will be no occasion for direct loans by the Reserve dank since Mr. Morrill - #8 prospective borrower* who can meet the conditions imposed can obtain credit locally, alto that general feeling is that commercial banks are fairly liberal considering the business situation. SJL*f TRJL*CISCO* Industrial and Banking Comaittee*e letter to similar committees in other Reserve districts describes organisation set up in the San Francisco district to Induce employers through personal contact to adopt the policy of "work sprestding.* / ■ / * eok ending August 2 7 . # Approximate; amounts sometimes not stated. September 17, 1932 To: Governor Meyer From: Mr. Goldenweiser CONFIDENTIAL THE CREDIT SITUATION Demand and supply of reserve funds . During the past year this country lost $900,000,000 of gold that went aoroad and in addition $ 630,000,000 of currency was withdrawn, largely for hoarding. Both the demand for gold from abroad and for additional currency at home constituted demands on the member banks for reserve bank funds. These demands were met by the use of funds derived from the following sources: $ 1,100,000,000 from an increase in Federal reserve credit, all of which was supplied through the purchase of Government securities by the reserve banks; $ 200,000,000 from a decrease in deposits of foreign central banks with the reserve banks; ances.^ and $ 150,000,000 from a decrease in member bank reserve bad These figures indicate that the increase in reserve bank credit during the year restored to the member banks somewhat less than the total amount of reserve funds employed in meeting the gold and currency drains, and that the difference was met by the member banks by .drawing on their re serve balances to the extent of $ 150,000,000. Notwithstanding this de crease in reserve balances, however, the member banks on September 7 had excess reserves of over $300,000,000, because their reserve requirements had diminished much more than their reserves, owing to the great reduction in deposits. Decrease in net demand plus time deposits of member banks for VOLUME. 232 PAGE 63 # 2. the past year approximated $ 6,000,000,000 and required reserves diminished sufficiently to enable member banks to reduce their reserves by $ 150,000,000 and still have over $300,000,000 of excess reserves. A table follows showing factors of demand for reserve bank credit both for the last year and for the three-year period of the depression. If the three-year entire/period be considered, the decrease in the monetary gold stock was only $250,000,000, since during the first two years of the depression there was a growth in the stock of gold that was exceeded by the loss during the RESERVE 3 A M CREDIT AND PRINCIPAL FACTORS IN CHANGES (In millions of dollars) Sept. 7, 19^2 Reserve bank credit Monetary gold stock Money in circulation Foreign deposits at reserve banks Member bank reserve balances Excess reserves past year by this amount. Change from — A year ago 1Three vears ago 2,319 ^,105 5,725 + _ + 323 + 11 2,1^2 1,103 895 633 195 + + + iUs 253 905 259 93)+ 1+ 218 + 288 When this three-year period is considered as a whole, the growth in reserve bank credit of about $ 900,000,000 has been ap proximately equal to the growth in money in circulation, which represents primarily hoarding, while the decrease in member bank reserves has been approximately equal to the decline in the stock of gold. During this period member bank indebtedness diminished by $ 550,000,000 and the reserve banks* holdings of bills by $ 190,000,000, while security holdings of the reserve banks increased by $1,700,000,000. It would appear, therefore, that funds arising from security purchases of the reserve banks since the depression began have been used to the extent of $ 750,000,000 in the reduc tion of the reserve banks 1 holdings of discounted and purchased bills and * 3. to the extent of $ 950*000,000 in meeting the increased demand for currency. Prom the point of view of appraising the effects of Federal reserve credit policy since the autumn of 1929, the significant fact is that at a time of abnormal demands for gold from abroad and for currency at home openmarket purchases by the reserve banks have enabled the member banks to meet these demands and at the same time to reduce their indebtedness to the re serve banks from the high level prevailing in the autumn of as to build up a considerable volume of excess reserves. 1929, as well All of these de velopments have been in the direction of easing credit conditions and, therefore, of facilitating for the member banks the financing of business recovery. Change in direction of gold flow Improvement in financial conditions has become pronounced in recent months. Since the middle of June, when the large outflow of gold came to an end, there has been a return of gold amounting to about $200,000,000, shown by countries below: ADDITIONS TO UNITED STATES GOLD STOCK: JUNE l6 TO SEPTEMBER lU, 1932 l/ (In thousands of dollars) Total From: France Czechoslovakia China Canada Belgium Mexico Japan England Australia Switzerland All other $ 219,250 108,854 22,519 14,110 14,013 10,021 ^ ,4 5 1 ^ ,1 9 7 3.9^8 2,947 2,032 32,152 l/ Including net imports and releases from earmark. The accompanying chart shows the stock of gold in the United States since the removal of the war embargo. The course of gold holdings indi cates that whenever there were losses of gold to this country they were fol lowed by an import movement which not only restored the amount lost but continued for some time beyond that point. gold in 1919- 1920, That was true of the loss of which represented accumulations of balances by the Orient and South America during the period of the gold embargo; of the loss in 1925, which represented chiefly takings by the Eeichsbank of a part of the proceeds of the Dawes loan in gold; of the loss of $600,000,000 in I927- 192S, following upon an extremely easy money policy in this country and a large volume of foreign loans. The recent inflow of about $200,000,000 of gold, after a loss of about $1,100,000,000, indicates that 5 the forces that tend to "bring gold to this country are still at work, Withdrawals from this country have represented repatriation of funds by a few special interests, chiefly central banks, while at other times commercial and financial transactions of this country with the outside world have steadily resulted in an inflow of gold. This inflow is due to the fact that on balance of both visible and invisible items this country receives more from abroad than it pays out; and that as a safe place for keeping funds and as a place to invest funds with a chance of an increase in value this country offers greater opportunities than any other. Confidence in the dollar was temporarily shaken last September and October and again last June, but this lack of confidence has not survived for long the certainty that the financial position of this coun try is stronger than that of others. It is probable that gold will con tinue to come to this country, and with the reduction of foreign bal ances to a level probably below actual needs, there is nothing on the horizon to indicate a possibility of large-scale gold exports. Decrease of hoarding Another item of improvement has been the return flow of currency from hoarding. A chart showing the amount of money in circu la tio n , adjusted for seasonal variation , is attached. The r is e in money in circu lation from the autumn of I 9 3 O to th is summer, with seasonal influences elim inated, amounted to something lik e $ 1 , 5 0 0 , 0 0 0 , 0 0 0 , notwithstanding a decrease in the volume of business and in the le v e l of p r ic e s. Much of th is currency went into hoards, although an indeterminable amount represents increased need for cash by communities that are deprived of banking services, and an increased use of cash resu ltin g from charges fo r small accounts and from the tax on checks. The increase in hoarding has not been continuous. There was an improvement in the early part of 1931 and again in the la te part of that year a fte r the P resident’ s program o f reconstruction was an 7. nounced, A large return flow , amounting to about $25 0,0 0 0,0 0 0 , began la s t February when the Reconstruction Finance Corporation got under way, Eut th is summer the heavy lo ss of gold and banking disturbances in Chicago and elsewhere once more led to a c r is is of confidence, so that hoarding increased again and reached a maximum in the third week in July, Since that time there has been a decrease of about $ 1 ^ ^ , 0 0 0 , 0 0 0 in the estimated amount of hoarded money. Decrease of bank fa ilu r e s The recent return flow from hoards has accompanied a d e fin ite decline in the number of bank fa ilu r e s . From an average of 36 a week during the f i r s t three weeks of July the number of bank fa ilu r e s has gradually declined, and for the la st week for which figures are available the number of banks that fa ile d was 12, The decrease in bank fa ilu r e s from about 75 per week la s t January represents the e ffe c ts of the work of the Reconstruction F i nance Corporation, as well as of agreements in numerous lo c a lit ie s between banks and depositors to refrain from rapid withdrawals. Liberal p o lic ie s pursued by the Comptroller o f the Currency and State banking authorities in permitting banks to carry their p o rtfo lio s at better prices than current marmet quotations also have been a fa c to r . The decline in bank fa ilu r e s , tnerefore, is in part based on conditions that are temporary in nature. Whether the decline w ill be permanent depends on whether a genuine improve— ment in underlying conditions w ill develop. such condition which has already occurred. The r ise in bond values is one The advance in commodity p rice s, scattered widely over d ifferen t classes of commodities, is another such element, Tno banks are not yet out of the woods, but there appears to be the p o s s ib ilit y of consolidating the gains that have been achieved and of substituting permanent elements fo r the temporary devices that have been keeping the banks a flo a t, Laf: in business and volume of credit There are, however, a number of elements in the business and credit situ ation which so far have not shown marked improvement. Industrial ac t i v i t y , a fte r the largest decline in the h istory of the country— from 125 per cent of the I 923 - I 925 average in June, I 929 to ^8 per cent in July, 1932 — advanced by about 2 points in August, r e fle c tin g c h ie fly substantial increases in the t e x t ile in d u stries. Sales of t e x t ile products to d is t r i butors increased sharply in July and August, accompanying price increases for raw m aterials, and production in the woolen, s ilk , cotton, and rayon industries increased considerably from the unusually low le v e ls prevailing in the spring. Reports indicate that there was an upswing in shoe produc tio n in August, but that i t was only of a seasonal character. In the automobile industry a further decline in output was reported and in the s te e l and lumber industries output in August showed none of the usual sea sonal increase. In the f i r s t h a lf of September a c tiv ity at ste e l m ills increased s lig h t ly . In the building industry changes in the to ta l value of contracts have been la rg ely of a seasonal character since early in the year, r e fle c tin g some further decline in residen tial building o ffs e t by an increase in public works. During August the volume of freigh t t r a f f ic handled by the railroads showed a seasonal increase, which is in contrast to tu is period la s t year. In July the number of employees at fa c to r ie s , coal mines, and on the railroads was smaller than in e a rlie r months of the 9 year. Figures on employment in August are not yet available for the United States as a whole, but reports on factory employment in New York State show a greater than seasonal increase in that state during the month. Indecisive progress in business a c tiv ity has been p a ra lleled by a lack of marked growth in bank c r e d it. Bank loans have continued to decline, though there has been some increase in bank investments. Total loans and investments of banks in leading c it ie s show a r is e from the low point reached on July 20, the increase being en tirely at banks in New York C ity, The de clin e of bank deposits has been arrested and of la te there has been some increase in deposits, r e fle c tin g c h ie fly an increase in balances held by banks with other banks and, therefore, not re fle c tin g a growth in loans and investments. Comparison with 192*+ Notwithstanding the great decline in bank credit during the past two years, the volume of member bank loans and investments at this time is about the same as eight years ago in 192 *+, while practically all the other ele ments in the economic picture show a drastic reduction since that time. This is brought out by the follow ing chart: 10. M E M B E R B A N K CREDIT A N D B U S I N E S S - 1932 C O M P A R E D W I T H 1929d e c r e a s e - PER TO Lo ans In v e s t m e n t s L 50 UO 30 CENT 20 INCREASE-PER CENT 10 o io 20 30 UO 50 In v e s t m e n t s a n d o a n s 60 ------------------- --------------------------------- D e P O S / T S - E X C L U S /V E OF I N T E R B A N K D E P O S I T S ------- Ch R e c k Pa y m e n ts e s e r v e s In d u s t r i a l P B r o d u c t i o n Contracts uilding -- Fa c t o r y E m p l o y m e n t Fa c t o r y P a y r o l l s To tal Ca M d s e . Ca F o r e i g n W S r l o a d r l o a d Tr hol e s a l e t o c k Co s t P a d e P iving g s /n — --------- g s ....... — .......— - rices r i c e s or L /n ......... .................... (b .l .s .)- It is apparent from th is comparison that the to ta l outstanding volume o f "bank credit is adequate for the present needs of business and for finan cing a considerable recovery. I t is the in a c tiv ity of cre d it, as shown b low v e lo city of turnover, that r e fle c ts the extreme low le v e l of business a c t iv ity and the u nsatisfactory functioning of the credit machinery. 11 Money rates Member banks in the fin an cial centers have been out of debt to the Fed eral reserve banks for a number of months and indebtedness of banks in other leading c it ie s and outside has been declining in recent weeks. member banks have had a large volume of excess reserves. In addition, The reserve posi tion of member banks, therefore, has been such as to o ffe r no obstacles to business recovery. market. Money rates have been low, p a rticu la rly in the open Sates charged to customers have also shown some decline in New in the North and East, and above 5 l / 2 per cent in the Southern and Western c itie s . These i^igh le v e ls of customer rates should be viewed in connection with the many reports received by the reserve system indicating in a b ility of many business enterprises to obtain credit for legitim ate needs. chart on customer rates compared with open-market rates is attached. A 12, Sources of reserve funds Viewing the situ ation from the point of view of immediate developments that are lik e ly to a ffe c t member bank reserves, there are at present bhree sources of reserve bank funds available to member banks independent of addi tio n a l use of Federal reserve cre d it. These sources are: gold imports, return flow of currency from circu lation , and issue of national bank notes. From these three sources member banks have derived more than $300,000,000 of reserves since the beginning of July. Gold imports are lik e ly to con tinue, the issuance of additional national bank notes is also lik e ly to con tinue on a moderate scale, and i t is to be hoped that the flow of currency ' from hoards w ill not be interrupted. It is p o ssib le, however, that the seasonal demand fo r currency between now and the end of the year w ill absorD a large part of the money released from hoards. The situ ation , there fo r e , is one in wnich in the immediate future the reserves of member banks aie lik e ly to be fed by moderate amounts of gold imported from abroad and by issues of national bank notes. These reserves are lik e ly at f i r s t to accumulate as excess reserves, although some diminution of member bank in debtedness, which is about $ ^ 0 0 ,0 0 0 ,0 0 0 , may also be expected. It would seem probable from the evidence at hand that in the absence of any action by the Federal reserve banks member banks in the next few months w ill have excess reserves of not le ss than $ 3 5 0 , 0 0 0 , 0 0 0 , tending to increase from week to week. Excess r e s e r v e s i n tim es o f d e p r e s s io n Accumulation of excess reserves "by commercial banks, p articu larly in New York C ity, has been usual during periods of business depression in the United States, with the exception of the depression of 1920-21, when liquida tion of indebtedness to the reserve banks absorbed the funds derived from the return flow of currency and from gold imports. A chart is inserted showing the re la tio n of excess reserves to the course of business in times of depression. It shows for the pre-war de pressions of I 88 U-8 5 , IS 93 - 9U, and 190 S, excess reserves of clearing house banks in New York City, the course of bond p rices, and the course of bank clearings in seven c itie s outside New York, For the post-war depressions o f 1 9 2 0 -2 1 and 1930 ~ j 2 the chart shows excess reserves, bond prices, indus t r ia l production, and building contracts, EXCESS RESERVES DURING BUSINESS DEPRESSIONS • In the depression of I 88 U—85 and again in 1893-9^ banks in New York City accumulated reserves that were 60 per cent above requirements and in 19 O8 the excess amounted to 20 per cent for several months. The excess reserves # IK of 22 per cent held by New York City banks at the present time and of 15 per cent held by banks outside New York City are not unusually large in compariY son with reserves held during pre-war depressions. Before the establishment of the reserve system, however, bank reserves * * functioned in a different way. In the depression years at that timlyNew York ’v •. * banks, which performed the functions of central banks for the country,:*‘could not obtain funds in any considerable amount from outside sources, and when the panic was over they had no indebtedness to repay. Consequently, im ports of gold and the return of currency as business a c tiv ity declined both went to increase the banks* reserves. They accumulated very large excess reserves for b r ie f periods, and as fin an cial markets and business became more a ctive, these reserves were quickLy drawn down. With the reserve sys tem in operation the periods of expansion that have preceded depressions have caused a growth in member bank indebtedness, so that when funds began to flow to the banks because of diminished demand, as was the case in 1 9 2 1 , they were absorbed in the reduction of indebtedness to the reserve banks. In the present depression there was no return flow of funds, however, be cause of gold exports and hoarding. In these circumstances the funds both fo r the reduction of indebtedness and for the accumulation of excess reserves were made availab le to the member ^banks through open-market purchases by the reserve banks. Z*A-(U September 17, 3-8^2 1932 CONFIDENT IAL TO: Mr. Morrill FROM: Mr. Van Fossen SUBJECT: D irect Loans to Individuals, e tc . Attached hereto is a statement showing the number o f applications of individuals, partnerships and corporations fo r loans not granted by the Federal reserve banks to September 10, 1932, including a tabulation of the reasons for not granting the loans applied fo r . It w ill be noted that of 37& applications refused, as shown in the statement, 188 were because of unsatisfactory secu rity; 1 7 6 , paper not e lig ib le ; 6 , loans placed with other banks; 3 , present credit deemed ade quate; and 3 , denial o f credit by other banks not shown. D irect loans to individuals, partnerships and corporations granted by the Federal reserve banks to September 1 6 are as fo llo w s: Federal Reserve Bank o f New York Friedman & Sons, Neckwear Co., Joseph H. Meyer Brothers Miller-Cummings Co., Inc. New Jersey El our M ills Co. Scaramelli & Co., Inc. S. Shuff Sons, Inc. Inc. New York, New York, New York, C lifton , New York, New York, N.Y. N.Y. N.Y. N. J. N.Y. N.Y. $2 5 ,0 0 0 1 0 ,0 0 0 1 0 0 ,0 0 0 2 5 ,0 0 0 1 0 ,0 0 0 5 ,0 0 0 Federal Reserve Bank of Atlanta Richmond Hosiery Company R o ssv ille , Ga. Federal Reserve Bank of Minneapolis Bricelyn Canning Co. H. C. Ervin Co. Kiddie Gym Co. VOLUME 232 PAGE 65 Bricelyn, Minn. St. Cloud, Minn. Minneapolis, Minn. 5 0 ,0 0 0 - 2 Following i s a summary o f correspondence received during the past week or 10 days from the various Federal reserve banks regarding th e ir a c t iv it ie s and those o f the Banking and Industrial Committees in connection with the survey to ascertain the extent to which there may be demands for loans which are not being met by other banking in stitu tio n s and which could be granted properly by the Federal reserve banks under the provisions o f the amendment to Section 13 o f the Federal Reserve Act; PHILADELPHIA; Preliminaiy summary of survey concerning a v a ila b ilit y of cred it to industrial concerns from banks based on 1 , 2 8 3 re p lie s to the bank’ s questionnaire shows that: ( 1 ) 1 ,0 0 4 of 1 , 2 0 7 concerns report no unusual d if f ic u lt y has been experienced in borrowing s u ffic ie n t funds fo r working capital required fo r the production and marketing o f goods. ( 2 ) 750 of 953 concerns stated that they are not aware of deserving applicants being unable to secure credit. ( 3 ) 184 of 3 7 2 concerns state that in their judgment the ap p li cants refused loans were not en titled to receive the credit desired. (4 ) 3 S7 of 580 concerns state that the general lin e of credit has not been reduced by a larger amount than the decline in the volume of prices of goods would warrant. (5 ) 199 of 36k concerns state that the reduction in credit has not resulted in curtailment o f business a c t iv ity . ( 6 ) 729 of 836 concerns state that banking f a c i l i t i e s have been adequate to take care of a l l reasonable requests fo r loans. ( 7 ) 681 of 836 concerns state they would not buy additional raw m aterials in advance of needs i f credit were a v a ila b le . (8 ) 635 o f S$k concerns state they have no o u t-o f-d a te equip ment which they would normally replace. (9 ) 5 1 0 o f 7 8 1 concerns report no improvements and additions that would normally be undertaken, (10 ) 61+2 of 7 2 7 concerns state such improvements have not been delayed fo r lack o f c r e d it. (3-81+2) 3 (li) would not 286 cause of 3 5 5 them to concerns proceed state, with that availability replacements, of credit inprovements or additions. CLEVELAND: Reserve hank is carrying on quite a successful campaign among hanks in d is t r ic t as to what can and what cannot he done- under the pro visions o f the amendment. Arrangements are being made fo r a reserve hank o ffic e r to v i s i t group meetings of the various state bank associations at which he w ill he given an opportunity to make a b r ie f discussion of and to answer questions in connection with operations under the amendment. RICHMOND: Replies to the August 4 questionnaire received to September 1 0 show that out o f a to ta l o f 5 ^ concerns only 6 believed that they, or others known to them, are lik e ly to make application within the next few months for direct loans from reserve banks and only 7 reported knowledge o f sp e cific cases within the past 60 days of refusals by lo c a l banks to make sim ilar loans. CHICAGO: Applications for d irect loans are decreasing and now la rg ely con s i s t of in q u iries r e la tiv e to the Home Loan Sank or fo r loans fo r in e lig ib le purposes. A number of requests have been received which appear to be worthy from the standpoint of furnishing employment but the only basis for credit is predicated on the operating plan ts and the paper is d is t in c tly in e lig ib le at the Reserve bank. Generally speaking, confidence in the banks is gradually returning and th eir defensive attitu d e i s changing to a more hopeful one and banks in many lo c a lit ie s are showing more w illingness to take care o f legitim ate credit demands. Member banks in the d is t r ic t now have something over $1 0 0 , 0 0 0 ,0 0 0 in excess reserves, the larger part of (B-gl+2) - which is in Chicago. k - A good deal of in te re st is being manifested in the Home Loan Discount Bank and also in the Regiohal A gricultural Credit Cor porations and both w ill probably find a large number o f applications awaiting them when th eir organizations arc announced. Delay in organization of the Regional Agricultural Credit Corporations is unfortunate in view of in a b ility o f feeders to obtain loans from banks in certain communities. The survey by personal interview with banks in the liv estock sections in regard to feeder loans has been completed for the States of Iowa and I llin o is and i s now being made in Indiana and Wisconsin. Of 68 banks inter viewed in Iowa, 52 stated that they would take care of legitim ate demands for stock lo a n s, lU o f these banks an ticipatin g that i t would be necessary to borrow from the Federal reserve bank in order to accommodate the demand. Of the remaining banks, 3 impose very s t r ic t requirements on feeder loans; probably w ill be unable to make such loans, depending upon circumstances such as the trend of th e ir deposits, e t c .; and 9 are reported as not being able or w illin g to make additional loans. Of 40 banks interviewed in I llin o is , 23 stated that they would take care of a l l legitim ate demands, 5 o f the banks expressing a w illingness to borrow from the Federal reserve bank for the purpose, and 1 7 of the banks were reported as being unable or unwilling to grant additional loans. Preliminary reports from Wisconsin indicate that there w ill be l i t t l e demand for feeder loans and of 23 banks interviewed in Indiana 12 expect to meet a ll reasonable demands while most of the others sta te demand w ill be met by contract feeding, firm s. government agencies, or through liv estock commission In a number o f instances, Iowa banks also stated that the demands of c a ttle feeders for credit would be met by arrangements fo r contract feeding (B-gl+2) 5 or by loans from commission merchants, the Federal Intermediate Credit Bank or the Regional A gricultural Credit Corporations. Similar comments in the case o f I l l i n o i s Fere much more numerous. ST. LOUIS: expressed, Further evidence received confirms the b e l i e f , as previously that no credit i s being denied which could properly be granted by the banks in the d is t r i c t . Bankers in L o u isv ille are reported to have had a verbal agreement that each should take care o f i t s share of border lin e cases, whenever i t could be done with a reasonable degree of conservatism--, and in their e ffo r t to be a help in this respect some accounts were acquired that have proven u n satisfactory. The manager of the L i t t l e Rock 3ranch c ite s a number of instances in which member banks extended credit to customers on assurance that the Federal reserve bank would rediscount the paper. In a number of these instances the manager sta tes the loans would not have been made d irect by the Federal reserve ban]1: without propur security. KANSAS CITY: Following is a summary o f 157 rep lies received up to September 1 0 to the bank's questionnaire addressed to a selected l i s t of bankers and business men: (1 ) llU re p lie s state banks are meeting demands fo r sound loans of a liq u id character, i . e . , loans reasonably certain of payment within 6 to 9 months; while 2 7 replies sta te such demands are not being met and, 1 6 state that they are being met only p a rtly . (2 ) P ra ctica lly a l l rep lie s stated that demands are now being met fo r loans which are sound as to security or cred it base but which may have to be carried past the next crop harvest or which are la rg e ly or en tire ly dependent on resu lts of crops tc be planted. (3 ) 1 2 3 repl ies state that banks are not requiring borrowers to s e ll productive li v e stock in order to liq u id a te loans which, although slow, are reasonably certain of eventual payment. 3 1 rep lies sta te that banks are fo rcin g liquidation in th is manner and 3 state that instances of such forced se llin g have occurred but that the p ractice is not general. (B-8^2) (4 ) 90 repl ie s state that the lo ca l banks, c ity correspondents, liv e stock loan agencies, e t c ., w ill be able to supcly f a l l demands fo r liv e stock feeding credits, 50 sta te that lo c a l banks w ill not be able to supply such demands, and 1 7 indicate that there w ill be no feeding demand in the respective communities. ( 5 ) Repl ie s indicate that in p ra c tic a lly a l l cases loans fo r taxes, mortgage in te r e st, and amortization payments are being met with out question when reasonably certain o f payment within a few months. De mands for such loans which are not certain of payment are not being met. ( 6 ) Repl ie s indicate that l i f e insurance companies and other holders o f real estate mortgages that have matured or on which in terest has not been paid are doing everything possible to cooperate with the borrowers to the end that they may continue to operate their farms and eventually place th e ir loans in a satisfactory condition. (7) 1 0 5 re p lie s state there i s no demand for loans which the banes are either unw illing or unable to handle which might be properly made by the Federal reserve bank; 1 1 replies stated there is a demand for such loans; and 4l replies are in d e fin ite or indicate there might be some demand fo r such loans. "The rep lies received to the sp e cific questions presented, and the com ments submitted with the re p lie s, indicate that demands fo r thoroughly sound and liquid loans are being met w ell. Some banks, however, are making no new loans, or p r a c tic a lly none, and a substantial number o f banks are making new loans only to established customers. Consequently, i t i s apparent that some worthy borrowers are being refused credit, and also that the attitude of the banks is undoubtedly influencing possible borrowers not to ask for credit which would be available, and thus in d ire ctly preventing the carrying on of constructive operations. "A substantial number o f banks are in the market for good loans, but as a general thing the banks of the D is tr ic t have suffered such declines in deco s its and are so loaded ur> with loan$ which they have had to carry over and on which they can a n ticip ate no reduction for some time to come, that they arv. pursuing a very cautious p o licy . Several Oklahoma points report a decidedly changed outlook since the recent improvement in cotton p rice s, end many reports from a ll sections of the D is tr ic t comment on the necessity for b etter prices fo r farm co mnodities. The most urgent cred it needs indicated # _ 7 _ ♦ "by reports from a ll sections o f the D is tr ic t are for farm loans, both in renewals and fo r new loans, and for the carrying of loans o f fanners and ranchmen which, by reason o f low prices and unprofitable operations, have changed from current loans having a reasonable degree o f liq u id ity to loans so frozen that they are a burden, and in many cases a menace, to the b e r k s.1’ DALLAS: "The process of c ir c u la r izin g the members o f the various trade associations is a tedious one, and i t s completion w ill require some l i t t l e time. Up to th is time, however, the preliminary returns have shown that those individuals, partnerships and corporations that are in a position to meet the requirements of the law are not in need of additional sources of credit, while those who have indicated such need seem, without exception so fa r , to be in e lig ib le to use our d irect loans, due to the le g a l re str ic tio n s that govern them." * (B-g>42) APPLICATIONS OP INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS FOR LOANS NOT GRANTED BY THE FEDERAL RESERVE BANKS - TO SEPTEMBER 10, 1932 \ lu . W tember 3 0 . 1 9 3 2 B-SU3 CONFIDENTIAL TO: Mr. M orrill FROM: Mr. Van Fossen SUBJECT: Direct Loans to Individuals, e tc .. Attached hereto is a statement showing the number of applications of individuals, partnerships and corporations for loans not granted by the Federal reserve banks to September 2U, 1932* including a tabulation of the reasons for not granting the loans applied f o r . . I t w ill be noted that of U38 applications refused, as shown in the statement, 2 3 3 were because of unsatisfactory security; I 9 3 paper not e lig ib le ; 6, loans placed with other banks; 3» present credit deemed ade quate; and 3 1 denial of credit by other banks not shown. Direct loans to individuals, partnerships and corporations granted by the Federal reserve banks to September 23 are as follow s: Federal Reserve Bank of New York Dorman Brothers Friedman & Sons, Neckwear Co., Inc Joseph H. Meyer Brothers Mi Her-Cummings Co., Inc. New Jersey Flour M ills Co. Scaramelli & Co., Inc. S. Shuff Sons, Inc. A storia, N. Y. New York, N. Y New York, N. Y New York, N. Y C lifto n , N. J. New York, N. Y New York, N. Y $5 ,0 0 0 2 5 ,0 0 0 1 0 ,0 0 0 1 1 5 ,0 0 0 5 0 ,0 0 0 1 5 ,0 0 0 10,000 Federal Reserve Bank of Philadelphia J. F. Apple & C o., Inc. J. B. Henke In (Henke In & McCoy) Lancaster, Pa. Philadelphia, Pa, Uoo 3 .^ 2 7 Federal Reserve Bank of Atlanta Richmond Hosiery Qompany M ississippi Cotton Seed Products Co R o ssv ille , Ga Jackson, Miss 5 0 ,0 0 0 US, 000 Federal Reserve Bank of Minneapolis Bricelyn Canning Co H. C. Ervin Co. Kiddie Gym Co. VOLUME 232 PAGE 113 Bricelyn, Minn. St. Cloud, Minn. Minneapolis, Minn. 90,9^7 - 2 - Following is a summary of correspondence received since September 17 from the various Federal reserve banks regarding their activities and those of the Banking and Industrial Committees in connection with the survey to ascertain the extent to which there may be demands for loans which are not . ,ing . being met by other bank/ institutions and which could be granted properly by the Federal reserve banks under the provisions of the amendment to Section 13 of the Federal Reserve Act: FF7? YORK: Preliminary report on replies to the Banking and Industrial Committee questionnaire on availability of credit, indicates that there is some concentration of unfilled credit needs in real estate, building materials, and affiliated lines. Of 186 replies ll+3 indicated no lack of credit and the 1+3 remaining reported unfilled demands for credit as follows: purchases of merchandise and raw materials and employment of labor; 20 for 11 to pay dects,. taxes, etc,; 5 for fixed capital purposes; and 7 for miscellaneous purposes. In somewhat over half of the cases credit was desired for periods in excess of 6 months, probably indicating that the would-be borrowers desired funds to tide them over until their working capital can be restored out of an ticipated profits. In nearly half of the cases the amounts needed were not over $10,000 and in only 3 cases over supporting the conclusion, in dicated by other data, that it is largely the small borrower who is finding difficulty in obtaining credit -qpder present conditions, PHILADELPHIA: Preliminary summary of survey concerning availability of credit to industrial concerns from banks based on 1,96 0 replies to the banlc’s questionnaire shows that: ^ (1) 1 ,36 U of 1 ,691+ concerns report no unusual difficulty has been experienced in borrowing sufficient funds for working capital required for the production and marketing of goods. (B-3 U3 ) - 3 - PHILADELPHIA: (Cont»d) (2 ) 1,0 26 of 1,32 9 concerns stated, that they are not aware of deserving applicants being unable to secure credit. (3 ) 266 of 5 U 6 concerns state that in their judgment the appli cants refused loans were not entitled to receive the credit desired. (10 527 of 797 concerns state that the general line of credit has not been reduced by a larger amount than the decline in the volume of pricos of goods v/ould warrant. (5 ) 270 of 502 concerns state that the reduction in credit has not resulted in curtailment of business activity. (6 ) 1 ,0 1 1 of 1 ,1 7 2 concerns state that banicing facilities have been adequate to take care of all reasonable requests for loans. (7 ) SS8 of 1 ,1 1 1 concerns state they would not buy additional raw materials in advance of needs if credit were available. (3 ) 837 of 1 ,1 6 1 concerns state they have no out-of-date equipment which they would normally replace. (9 ) 665 of 1 ,05 ^ concerns report no improvements and additions that would normally be undertaken. (10 ) 851 of 982 concerns state such improvements have not been delayed for lack of credit. (1 1 ) 398 of 520 concerns state that availability of credit would not cause them to proceed with replacements, improvements or additions. RICHMOND: Of 18 replies received from Maryland county agents to the Banking and Industrial Committee questionnaire, all, with the exception of one inde finite reply, indicate that they know of no probable applications within the next few months for direct loans from the reserve bank and also know of no specific refusals by loaal banks within the past 60 days to make similar loans. DALLAS: Of 99 replies to the Banking and Industrial Committee questionnaire, 81 state they do not find it difficult to secure «. adequate credit accommo dation; only 12 indicate that they would be interested in the direct loan (B-8U3 ) DALLAS: (Cont'd) facilities of the Reserve bank; and 59 state that there has been a recent improvement in their own business. The Chairman of the local Banking and Industrial Committee has advised the Central Executive (B. and I.) Committee at Washington that local banks are talcing care of all reasonable demands for feeder loans and indicates that they are prepared to lend assistance, if needed, to the St. Louis, Minneapolis, and San Francisco districts. Feeder business in Dallas dis trict is in infancy and the number of operators who have acquired the necessary experience and technical knowledge of the business to insure success is still quite limited. The Agricultural Credit Corporation will undoubtedly receive numerous loan applications from cattlemen in the Southwest who want to experiment in the feeder business, but whose exper ience and knowledge are in many cases so inadequate : that the loans if granted will result in disastrous losses to the government. Replies to Governor Meyer’s September l6 telegram regarding business conditions. Wholesale trade in paper, hardware, drugs, groceries, shoes, dry goods and paint and oil is reported by two or more of the Federal reserve agents to be on the increase, while leather goods, women's readyv to—wear clothing, hats, textiles, furniture and lumber are so reported singly. Wholesale trade in jewelry, electrical supplies and implements, as well as groceries and hardware, is reported to show no improvement. General comments by districts follow:: BOSTOl'T - Cotton manufacturers than July but considerably below a urers still running at higher rate manufacturing and distribution are continue activity, as in August, greater year ago. Woolen and worsted manufact of activity than in July. Rug and carpet slow. (B-SU3 ) - 5 - PHILADELPHIA- Seasonal improvement in wholesale, jobbing and retail trade. CLEVELAND - Sentiment in both wholesale and retail lines better than a month ago, RICHMOND - Most of reporting firms mention marked improvement in mental attitude of public, which is expected to reflect itself in gradual but steady growth of business. ATLANTA - Representative group of wholesale and retail merchandise dealers report an increased volume in business during past ten days except those dealing in hardware. CHICAGO - Noticable improvement in retail stores running from 5 to 20 per cent over last year, particularly in consumables. Mail order, some improvement in nature of less percentage of decline. ST. LOUIS - Trend of business activity in Eighth district in past 30 days distinctly upward. MINNEAPOLIS - Representative general merchandise wholesaler reports August business 15 per cent over August last year, September 6 per cent over last year. DALLAS - Thirty-three firms report improvement varying from slight to very marxed, while 17 report slump in their business which they attribute to reaction that occurred in cotton market on September S following announce ment of government crop estimate. Despite recent set back in cotton values, mental attitude of business leaders and farmers is still marked by a strong spirit of confidence. SAN FRANCISCO - Slight evidence of improvement other than seasonal in retail or wholesale sales. Most firms interviewed renort better sentiment. (b -s ^3) APPLICATIONS OF INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS FOR LOANS NOT GRANTED BY THE- FEDERAL RESERVE BANKS - TO SEPTEMBER 24, 1932 4' • - % Number Week Total ending to Sept. 24 Sept. 24 Boston New York Philadelphia Cleveland 7 2 Ri chmond A-tlanta Chicago St. Louis 1 2 K s 1 40 100 83 28 2 1 11 17 7 6 21 438 Minneapolis Kansas City Allas ^Btn Francisco To tal - - 7 95 39 5 Reasons for not granting loans applied for Paper Paper not Denial of Present credit Loans not satisfactorily credit not placed with deemed secured shown eligible other banks adequate - - 3 17 25 - - - 4 73 14 5 12 44 38 22 2 . 3 1 - 1 - 28 55 45 5 - 4 li - - 1 - 6 3 7. 5 — _ 1 6 3 193 . 233 - - - - — Amount of loans declined# $19,240 2,864,400 799,600 15,00 0 820,295 1 ,666,328 1 ,0 3 3 ,7 5 0 259,800 _ 162,000 41,172 5 7,0 0 0 68,250 3 7,806,835 3
@FedFRASER