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BOARD OF GOVERNORS
OF

THE

FEDERAL RESERVE

SYSTEM

Office Correspondence
To

Chairman E c c l e s

Vrnm

Date Nvme is, 117
oe br
9+
S u b j e c t ; E x p a n s i o n i n bank c r e d i t

W o o d l i e f Thomas

The Federal Advisory Council states t h a t : "For the past year t h e
t o t a l volume of bank c r e d i t ( i * e * the a v a i l a b l e amount of bank money) as
measured by adjusted demand deposits has been p r a c t i c a l l y l e v e l * As bank
loans have increased* the banks have decreased t h e i r investments* 11
As shown on the attached t a b l e and c h a r t s , -which are being publ i s h e d i n the November B u l l e t i n , t o t a l deposits and currency h e l d by
i n d i v i d u a l s and businesses (excluding U* S* Government and i n t e r b a n k
deposits) increased by 5*5 b i l l i o n d o l l a r s i n the 12 months ending
September 30# I n t h e t h i r d quarter of 1947 t h i s increase tos 2*3 b i l l i o n
d o l l a r s , or an annual rate of over 9 b i l l i o n d o l l a r s .
The p r i n c i p a l f a c t o r s accounting f o r t h i s growth i n bank c r e d i t
•were an expansion of bank loans i n the 12-month p e r i o d of 7 b i l l i o n d o l l a r s
and an i n f l o w i n g o l d of 2,7 b i l l i o n d o l l a r s * Banks, i n c l u d i n g Federal
Reserve and mutual savings banks, reduced t h e i r holdings of Government
s e c u r i t i e s by n e a r l y 11 b i l l i o n d o l l a r s , but a t the same time there -was
a decrease i n U* S* Government deposits of n e a r l y 8 b i l l i o n d o l l a r s »
During the t h i r d q u a r t e r of 1947 the large l o a n expansion of 2.3 b i l l i o n
d o l l a r s m s the p r i n c i p a l f a c t o r accounting f o r the f u r t h e r growth i n
deposits*
The Council f s statement i s apparently based upon f i g u r e s f o r
•weekly r e p o r t i n g member banks, -which have shorn only a moderate increase
i n demand deposits a d j u s t e d d u r i n g the l a s t f o u r or f i v e months f o l l o w i n g
a sharp increase i n t h e second q u a r t e r of the year* I n recent months,
however, deposits a t country member banks, and no doubt also a t nonmember
banks, have increased s h a r p l y , r e f l e c t i n g a seasonal f l o w of funds t o
a g r i c u l t u r a l regions "which has been p a r t i c u l a r l y great t h i s year because
of t h e h i g h p r i c e s of farm products*
C i t y banks have c o n t r i b u t e d t o the o v e r a l l growth i n deposits
by the sharp increase o f over 2*5 b i l l i o n d o l l a r s i n t h e i r loans since
June* They have been able t o increase these loans i n p a r t because of the
g o l d i n f l o w and i n p a r t because of an increase i n i n t e r b a n k balances, as
•well as t h r o u g h a d e c l i n e of about a b i l l i o n d o l l a r s i n t h e i r holdings of
U* S* Government s e c u r i t i e s *
So i t i s not t r u e , even i n the case of c i t y
banks, as i s i m p l i e d i n the C o u n c i l f s statement, t h a t banks have decreased
t h e i r investments corresponding t o the increase i n loans*

3
Attachment




d

,

COMMERCIAL

BANK

BANK DEPOSITS AND CURRENCY

DEPOSITS

BY CLASS OF BANK

Figures are partly estimated. Deposits are for all banks i n
the U n i t e d States. Demand deposits adjusted exclude U . S.
Government and interbank deposits and items i n process of
collection. T i m e deposits include deposits i n the Postal Savings
System and in mutual savings banks. Figures are for June and
December, 1941-1942; end of month, 1943-1946; last Wednesday
of month, 1947. Figures subsequent to December 1946 are
p r e l i m i n a r y ; latest figures are f o r September.

T o t a l of demand deposits (adjusted to exclude U . S. Government and interbank deposits and collection items) and time
deposits.
Figures for nonmember banks are partly estimated
throughout; p r e l i m i n a r y estimates f o r 1947. A l l data are for
call report dates, 1942-1945; end of month, 1946; last Wednesday of month, 1947. Latest figures are f o r September.




FACTORS IN EXPANSION OF DEPOSITS AND CURRENCY HOLDINGS
OF INDIVIDUALS AND BUSINESSES

)

[ I n billions of dollars, p a r t l y estimated]

Factor in deposit change

1947
Sept.30,
1946Sept.30, F o u r t h First Second T h i r d
quar
quar- quar- quar1947
ter
ter
ter
ter

Expansive factors
B a n k loans
( +7.0
Batitrholdings of State and
local gov't securities. . .
+1.1
$ a n k holdings of U. S.
Government securities:
Federal Reserve Bank;
Commercial and m u t u a l
savings banks
Gold . c e r t i f i c a t e s ^ ^ — .
.
S. Government d e p o s i t ^
Other factors, net

+1.3

+1.2

f2.3

+0.3

+2.2

+0.3

+0.5

+0.8

+0.6
+0.7

+0.5
+0.3
6.9

+0.9

-0.1

-4.0

Contractive factors
Bank holdings of U . S."
* Government securities:
Commercial and muV
tual savings b a n k s . .
^ - - - F e d e r a l Reserve Banks
U . S. Government deposits.
Other factors, net,..
!
\

Change i n deposits anH
currency held b y i n d i - )
viduals and businesses/

1(Demand deposits,

Suited
[ Time depositor

^8.9
f~1.7
+1.8

-5.2
-0.7

-2.2
-0.8
+2.3

+0.3

+5.5, +3.

-2.7

-2.0
-0.7
+0 9

+0 8 + 1 . 4

+2.8 +2

ad-)

J. +2.8

+1.9

+2.9
-0.2

+1.0
+0.2

J Currency outside banks.

2.9
+0.9
•0.7

+2.1
+0.7

NOTE.—Figures cover all commercial banks, Federal Reserve
Banks, m u t u a l savings banks, and the Postal Savings System; interbank items are excluded.