The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Preliminary draft of
Review of the Month
March B u l l e t i n
February 25, 1938
Treasury gold policy
On February 14 the Secretary of the Treasury, after conferring
with the Board of Governors, announced a suspension of the operation
of the procedure i n i t i a t e d i n December 1936 of absorbing the effects
of acquisitions of gold on bank reserves by placing newly acquired
gold i n an inactive account.
The present policy w i l l be to permit
gold received at the mints and assay offices up to a maximum of $100,000#000 i n any one quarter to increase member bank reserves.
Gold
acquired i n excess of t h i s amount i n any quarter w i l l be added to
the inactive account.
Gold exports w i l l not enter into t h i s calcu-
l a t i o n and w i l l continue to be met out of the inactive account. The
policy was made retroactive to the f i r s t of t h i s year and approximately
$30#000,000 of gold acquired since January 1 has been released.
Treasury announcement to the press followss
,f
0n December 22, 1936, the Secretary of the Treasury
stated that, after conferring with the Board of Governors
of the Federal Reserve System, he proposed to take appropriate action with respect t o net additional acquisitions
or releases of gold by tho Treasury Department whenever i t
was deemed advisable and i n the public interest to do so.
"In pursuance of that policy, the Secretary of the
Treasury, after conferring with the Board of Governors of
the Federal Reserve System,, today announces that gold
acquired by the mints and assay offices after January 1,
1938, w i l l be included i n the Inactive Gold Account only
to the extent that such acquisitions i n any one quarter
exceed $100,000,000. No change i s being made i n the 'procedure whereby any gold released by the mints and assay
o f f i c e s i s taken from the Inactive Gold Account.11
The
Reserve position of member banks
In recent weeks excess reserves of member banks have been
approximately $1,400,000,000, or nearly $500,000,000 larger than they
were last May after the Board's f i n a l increase i n reserve requirements*
Excess reserves now amount to about 24 percont of required reserves®
The percentage i s 15 at Chicago banks, 20 at New York City banks, 25
at reserve c i t y banks, and 36 at country banks.
Changes i n excess
reserves at the different classes of member banks are shown i n the
chart.
Since last May excess reserves have increased at central re-
serve and reserve c i t y banks but have shown l i t t l e change at country
banks*
I n addition to required and excess reserves, country banks i n
the aggregate have balances of about $1,600,000,000 with c i t y correspondents.
These balances are considerably larger than the customary
amount i n previous years and appear to be i n excess of requirements
for operating purposes.
Since these balances can be withdrawn on
demand, the part of them above current needs i s i n effect tin addition
to the excess reserves of country banks and a potential deduction fi*om
those of c i t y bonks.
The fact that the recent additions to excess
reserves have been at c i t y banks, c h i e f l y i n New York City where most
of the bankers1 balances are held, represents a d i s t r i b u t i o n of reserve
funds more i n accordance with the probable needs of the different
classes of member banks#
EXCESS RESERVES OF MEMBER BANKS
On the basis of a recent survey of the reserve position of individual
member banks made by the Board and from other information currently available, the present reserve position of member banks may be summarized as
follows:
1#
Excess reserves of member banks are better distributed now
than last spring after the f i n a l increase i n reserve
requirements. The recent growth i n excess reserves has
been entirely at c i t y banks, chiefly i n New York City,
where excess reserves were previously the lowest.
2,
Although excess reserves of c i t y banks have recently increased
and those of country banks have shown l i t t l e change, excess
reserves are s t i l l r e l a t i v e l y larger at country banks than
at c i t y bankst
3.
Correspondent balances of country bonks are as large as they
, were l a s t March.
4t
Relatively few member banks appear to be pressed for reserves*
Banks with limited free funds
According t o the Board1s recent survey, approximately a quarter
of a l l member banks i n the middle of January had excess reserves equal
to less than 10 percent of required reserves.
Most of the 1,639 banks
i n this position, however, had large balances with correspondents.
Half
of these banks had such balances larger than their required reserves,
and three-fourths had balances amounting to at least 50 percent of required reserves*
The group of member banks that would include a l l those
whose free funds are limited i s the group that has excess reserves of
less than 10 percent and at the same time balances due from domestic banks
of less than 50 percent of required reserves.
The following table gives
the d i s t r i b u t i o n of the 383 member banks i n t h i s group.
MEMBER BANKS TOTH LIMITED RESERVE FUNDS l /
(Week ended January 14, 1938)
A l l member
banks,
number
Central reserve c i t y banks:
New York
Chicago
Reserve c i t y banks
Country banks i n places with
population of:
100,000 or more
15,000 - 100,000
Under 15,000
Total
Banks with limited
reserve ifunds 1/
Percentage
Number
of a l l banks
i n class
37
11
6
1
1655
9
338
17
5
188
896
4,864
8
57
294
4
6
6
6,334
383
6%
l / Banks with excess reserves of less than 10 percent and balances due
from domestic banks of less than 50 percent of required reserves.
Among the central reserve banks i n New York City and Chicago, about
15 and 10 percent, respectively, had excess reserves of less than 10 percent and balances due from banks of less than 50 percent of required reserves.
Among reserve c i t y banks and country banks i n larger c i t i e s about 5 percent
were i n t h i s group, and at other country banks the proportion was 6 percent.
The central reserve c i t y banks i n t h i s group customarily carry only small
balances with other banks but have substantial amounts of short-term openmarket assets.
For reserve c i t y banks, and especially for country banks,
these figures indicate that about 95 percent of the member banks appear
to be adequately supplied with reserve funds, when account i s taken both
of excess reserves and of correspondent balances*
D i s t r i b u t i o n of excess reserves
I n the middle of January about 4,695 member banks, or three
quarters of the 6,334 member banks, had excess reserves amounting t o
10 percent or more of required reserves.
For h a l f the banks the per-
centage was 25 percent or more, and approximately 10 percent of the
banks had excess reserves as large as or larger than t h e i r required
reserves.
As indicated by the following table, a higher proportion
of country banks than of c i t y bonks had high r a t i o s of excess reserves.
Among country banks 25 percent had excess reserves amounting to 50 percent or more of required reserves, while among c i t y banks 14 percent
were i n t h a t position.
MEMBER BAMS DISTRIBUTED ACCORDING TO PERCENTAGE
OF EXCESS TO REQUIRED RESERVES
(Week ended January 14, 1938)
Percentage
of excess t o
required
reserves
Percentage d i s t r i b u t i o n
Number of banks
Central
reserve and Country
reserve
banks
o i t y bank
All
member
banks
Gentral
reserve and
reserve
c i t y bonks
Country
banks
1,639
117
1,522
26$
30$
26$
10 - 25$
1,767
125
1,642
28
32
28
25 - 50$
1,366
91
1,275
22
24
21
50 - 100$
893
35
858
14
9
14
100$ or more
669
18
651
10
5
11
6,334
386
5,948
Under 10$
Total
l/
All
member
banks
100$
100$
l / Includes banks with reserves temporarily below requirements*
100$
Banking developments i n 1957
During 1937 member banks showed a substantial increase i n their
loans and a decrease i n their holdings of investments.
Total deposits
at a l l banks, excluding interbank balances, declined s l i g h t l y i n 1937
after increasing r a p i d l y i n the preceding three years.
Interbank
balances were reduced i n the early part of the year but remained much
larger than at any time prior to 1935.
Other demand deposits also
declined, as a result i n large part of purchases by depositors of
securities sold by banks, while time deposits continued to increase*
Important developments during the year at the various classes of
member banks are summarized i n the following tablej
CONDITION OF MEMBER BAFKS ON DECEMBER 31, 1937,
AND CHANGES WRING YEAR
(In millions of dollars)
Condition
of a l l
member
banks
Dec. 31,
1937
Loans
Investments
Total loans and
investments
Required reserves
Excess reserves
Balances with domestic banks
Demand deposits — adjusted 2 j
Time deposits — adjusted 3/
TJ, S. Government and Postal
Savings deposits
Interbank deposits*
Domestic banks
Foreign banks
All
member
banks
Changes during 1937
New York
Other
central
reserve
city
reserve
city
banks
banks
1/
Country
banks
13,958
17,794
+598
-1,846
-182
-785
+411
-990
+368
-69
31,752
-1,248
-967
-580
+ 299
5,793
1,212
3,414
+1,161
-727
-652
+395
-315
-13
+492
-253
-355
+273
-159
-284
20,387
11,288
-1,260
+562
-818
+53
-372
+202
-71
+307
876
-110
+ 157
-159
-108
5,565
463
-990
+26
-385
+26
-538
-66
• • •
1{ Including Chicago central reserve c i t y banks.
2/ Demand deposits other than interbank and Ut S# Government, less cash items
reported as i n process of collection*
3 ! Time deposits other than Postal Savings and interbank deposits.
• • •
Most of the decline i n investments i n the f i r s t half of 1937
was at New York City banks, which showed the largest reduction i n
excess reserves, resulting i n part from withdrawals of balances by
out-of-town banks.
Toward the end of the year New York City banks gained
reserves and increased t h e i r holdings of securities.
Loans of these
banks increased substantially u n t i l autumn, when brokers 1 loans declined
sharply and commercial loans also decreased. About two-thirds of the
for
year's decline i n adjusted demand deposits Jail member banks was i n New
York City.
At reserve c i t y banks security holdings declined through-
out the year and loans increased u n t i l the f i n a l quarter.
Demand
deposits at these banks declined, p r i n c i p a l l y i n the l a t t e r part of
the year, while time deposits increased*
At country banks a substantial
increase i n loans and a slight increase i n holdings of United States
Government obligations more than offset a decline i n holdings of other
securities.
Country banks continued to gain deposits, r e f l e c t i n g a
growth i n time deposits, while demand deposits showed l i t t l e change*
Country banks met a part of the increase i n t h e i r required reserves
i n the f i r s t h a l f of the year by drawing on balances with correspondents*
These balances showed a slight increase i n the l a t t e r part of the year*
Total volume of deposits and currency
The rapid expansion i n the t o t a l volume of deposits at a l l commerc i a l and savings banks and of currency outside banks that characterized
the period 1933-1936 came to a halt at the beginning of 1937.
As i s
shown by the chart on the following page, i n the past year t o t a l deposits
and currency continued at the exceptionally high level reached at the end
TOTAL BANK DEPOSITS AND CURRENCY
call report
BILLIONS OF DOLLARS
dates
BILLIONS OF DOLLARS
TO
70
60
60
T O T ; !VL D E F>OSITS
A N C ) CURR:ENCY
50
50
40
40
30
TIME
^ ^
DEP<3 S I T S
30
1
20
20
ADv J U S T E C
[) E M A N 1 D
D E P (3 S I T S
10
10
C U F ?RENCYr 0UTS1D E B A NIKS
i
1929
1931
1933
1935
1937
Note: F i g u r e s cover d e p o s i t s i n e l l banks i n the U n i t e d S t a t e s end are partlyestimated.
Interbank and U n i t e d S t a t e s Government d e p o s i t s are excluded
and demand d e p o s i t s are a d j u s t e d f o r " f l o a t . "
D e p o s i t s i n P o s t a l Savings
System and i n mutual savings banks are i n c l u d e d i n time d e p o s i t s .
- 9 of 1936,
Time deposits increased by an estimated #850,000,000 during
1937, while adjusted demand deposits declined by about #1,350,000,000*
I t appears that the volume of bank deposits remained substantially
unchanged i n the f i r s t two months of 1938*
Demand deposits are now
greater by about $1#500,000*000, or 7 percent, than i n 1928 and 1929,
While the volume of deposits i s above predepression levels, the turnover of deposits remains comparatively low, r e f l e c t i n g the large amount
of deposits held i d l e by business enterprises and by i n s t i t u t i o n a l and
individual investors*
Discontinuance of the growth i n bank deposits during 1937 was due
largely to the fact that the purchase by banks of United States Government securities, the principal cause of the previous increase i n deposits,
did not continue during t h i s period.
After more than f i v e years of
growth, the volume of Government and other securities held by a l l banks
i n the United States decreased by about #1,500,000,000 i n 1937.
The
effect of sales of securities by banks i n reducing deposits held by
the general public, however, was i n .large part offset by a further
growth i n bank loans of $700,000,000 and by the Treasury 1 s release of
#300,000,000 of gold from the "inactive" account.
Withdrawals of bankers1 balances
One of the p r i n c i p a l banking developments i n 1937 was the sharp
decline i n tho volume of domestic bankers1 balances during the f i r s t
half of the year*
This decline represented mainly the withdrawal by
- 10 -
country banks of substantial amounts of t h e i r balances from c i t y banks,
i n part for the purpose of meeting higher reserve requirements prescribed
by the Board o f Governors and i n larger part for use i n expanding loans
and investments*
Correspondent balances of domestic banks had expanded rapidly i n
1934, 1935, and 1936f
In the f i r s t h a l f of 1937 they were reduced to
the l e v e l of the l a t t e r part of 1935,
During the remainder of 1937
they showed l i t t l e change and at the beginning of 1938 they increased
somewhat.
Notwithstanding the withdrawals i n 1937, which amounted to
about $1,100,000,000, the volume of member bank deposits due to domestic
banks was s t i l l i n excess o f $5,400,000,000 at the close of the year,
compared with a level of about $3,500,000,000 i n 1928 and 192$>#
The decrease i n bankers* balances, l i k e the previous increase,
was to a large extent a cumulative process.
A large part of these
balances represent the redeposit by banks with t h e i r correspondents of
balances placed with them by other banks.
As a consequence, funds with-
drawn by banks from t h e i r correspondents were to a great extent obtained
by these correspondents by drawiiig
banks*
upon their own balances at other
New York City banks do not maintain any considerable balances
with correspondents, and when funds are withdrawn from these banks they
have to use t h e i r reserves, liquidate assets, or borrow.
During the
f i r s t half of 1937 they resorted t o a l l three of these courses of action*
For the year as a whole, country banks reduced their balances with other
banks by about $280,000,000, New York City banks showed a decline i n
domestic bankers1 deposits of nearly $400,000,000, and banks i n other
- 11 -
c i t i e s lost somewhat more i n bankers' deposits than they withdrew
from t h e i r own correspondents.
Nonmember banks, which were not
affected by the raising o f reserve requirements, withdrew about $350,000,000 of balances from member banks during the year.
Increase i n loans at member banks
In 1937 there was a further marked increase i n loans at member
banks, as shown by the chart on the following page.
The growth i n the
demand for bank accommodation on the part of commercial, i n d u s t r i a l ,
and agricultural borrowers, which began i n most of the larger c i t i e s
early i n 1936, became more general i n the f i r s t half of 1937, when
there was a larger demand for loans at country banks as w e l l as at
c i t y banks.
At both country and city banks the increase i n such loans
was larger i n the f i r s t h a l f than i n the last half of the year.
At
c i t y banks these loans declined i n the f i n a l quarter, partly i n r e sponse to seasonal influences, and they declined further i n January
of t h i s year.
In February they showed l i t t l e change.
Taking 1937 as a whole, the growth i n commercial, i n d u s t r i a l , and
agricultural loans at a l l member banks, as measured by so-called
loans, amounted to about $950,000,000#
,f
other,f
The table shows that the growth
was widespread; increases at reserve c i t y banks and for country banks
are shown for each of the 12 Federal Reserve d i s t r i c t s .
amounted to $285,000,000 at central
The increase
reservo c i t y banks i n New York,
$400,000,000 at other reserve c i t y banks (including Chicago), and
$265,000,000 at country banks.
The t o t a l amount of such loans at member
MEMBER BANK LOANS
c a l l r e p o r t dates
B I L L I O N S OF D O L L A R S
BILLIONS OF DOLLARS
12
12
10
10
8
8
1929
1931
1933
1935
1937
- 12 banks at the end of 1937 was at the highest level since the summer
of 1932 and was about two-thirds o f the level of the 1920*s.
"OTHER" LOANS AT MEMBER BANKS, 1937
l/
( i n millions of dollars)
Federal
Reserve
distriet
Country banks
Reserve c i t y banks 2/
Increase durOutstanding on
Increase dur- Outstanding on
Deo* 31, 1937
ing 1937
ing 1937
Dec. 31, 1937
Boston
New York 3/
Philadelphia
Cleveland
240
67
206
253
27
8
34
32
195
363
231
167
22
26
6
17
Richmond
Atlanta
Chicago 2/
St. Louis
109
204
607
179
13
38
36
35
184
148
190
111
15
25
38
20
Minneapolis
Kansas CityDallas
San Francisco
119
194
179
674
10
38
30
101
95
152
162
146
17
23
37
19
3,031
401
2,145
265
Total
\ J Includes a l l loans other than loans to banks, loans on securities and on
real estate, and holdings of acceptances and open-market commercial
paper.
2/ Central reserve c i t y banks i n Chicago included i n table among reserve
c i t y banks.
3f "Other" loans for New York central reserve c i t y banks, not shown i n t h i s
table, amounted t o $1,809,000,000 on December 31, 1937, showing an
increase of $284,000,000 for the year*
- 13 Loans by banks to customers i n 1937 carried the lowest interest
rates ever reported.
Although open-market rates for money advanced
somewhat i n the f i r s t quarter of 1937 from the extreme low levels o f
1936, t h i s s t i f f e n i n g i n open-market rates was not reflected i n rates
charged by bonks to t h e i r customers.
Rates on customer loans as re-
ported by banks i n 36 leading c i t i e s continued i n 1937 near the low
level reached i n the previous year.
In 1929 customer rates i n leading
c i t i e s were almost universally close to 6 percent.
In 1937 rates i n
New York City averaged near 2 l/2 percent, i n 8 other northern and
eastern c i t i e s about 3 3/8 percent, and i n 27 southern and western
c i t i e s about 4 l / 8 percent.
I n addition to the expansion i n loons to customers for business
purposes, during 1937 there was an increase of $150,000,000 i n r e a l
estate loans of member banks, mostly at country banks.
Holdings of
open-market paper and loans to customers on securities showed l i t t l e
change.
In the l a t t e r part of the year a large reduction at New York
City banks i n loons to brokers and dealers i n securities more than wiped
out a considerable growth i n such loans i n the f i r s t half of the year.
Repayment of credit used for carrying securities i n t h i s period accompanied
a sharp drop i n stock prices.
In the early weeks of 1938 there was some
further l i q u i d a t i o n of loans to security brokers and dealers by New York
banks.
At the end of 1937 t o t a l borrowings by New York Stock Exohange
members from bonks and from others amounted to about $700,000,000 as compared w i t h a maximum of about $8,500,000,000 i n 1929 and a low figure of
about $250,000,000 i n 1932,
- 14 Decline i n investments at member banks
I n 1937 the investment p o r t f o l i o of member banks declined by about
$1,900,000,000, or nearly 10 percent,
This was the f i r s t reduction i n
t o t a l investments of member banks i n any year since 1929 and followed a
period of rapid increase t o the largest amount ever held.
At nonmember
banks, i n c l u d i n g mutual savings banks, preliminary figures indicate
that security holdings increased considerably i n 1937#
Holdings of United States Government s e c u r i t i e s by member banks
declined during the year by #1,175,000,000 and holdings of other securit i e s by $675,000,000#
The decline i n holdings of United States Govern-
ment s e c u r i t i e s at member banks i n 1937 was e n t i r e l y at c i t y banks*
The following t a b l e shows that most of i t occurred i n the f i r s t h a l f
of the year;
i n f a c t , the largest part of t h i s decline was during the
month o f March*
UNITED STATES GOVERNMENT SECURITIES HELD BY MEMBER BANKS,1937
(In m i l l i o n s of d o l l a r s )
Amount held
Dec. 31, 1937
A l l member banks
12,371
Change during
Second
First
half
half
-318
-856
Now York central reserve
c i t y banks
3,595
-579
-35
Other reserve c i t y banks 2 f
5,607
-421
-294
Country banks
3,168
+142
+13
l / Includes direct and f u l l y guaranteed obligations*
2{ Includes Chicago central reserve c i t y bonks*
- 15 Holdings of securities other than obligations of the United
States Government showed l i t t l e change i n the opening quarter, but i n
the last three quarters of the year there was a substantial reduction
which affected a l l of the main c l a s s i f i c a t i o n s of securities at both
c i t y and country member banks.
At New York and other reserve c i t y
banks, holdings of State and l o c a l government securities declined the
most, as shown by the table, while at country banks the decline was
c h i e f l y i n holdings of public u t i l i t y securities*
MEMBER BANK HOLDINGS OF SECURITIES OTHER THAN UNITED STATES
GOVERNMENT OBLIGATIONS, 1937
( i n millions of dollars)
Amount
held byall
member
banks
Dea 31,3937
Domeatio securities*
State and l o c a l governments
Railroads
Public u t i l i t i e s
Other domestic securities
Foreign securities
Total
All
member
banks
Change during 1937
New York
Other
central reserve
reserve
oity
banks
oity
banks
Country
banks
-83
-29
-29 •
-7
-91
-42
-71
-51
-3
-36
-108
-67
-55
-25
-20
-9
-674
-173
-275
-223
2,032
886
794
1,529
-177
-107
-207
-128
181
5,422
@FedFRASER