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FEDERAL RESERVE BOARD 278 X-4578 WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD A p r i l 6, SUBJECT: 1926. Member Banks Borrowing Continuously a t F e d e r a l Res e r v e Banks. Dear S i r : In o r d e r t h a t t h e r e p o r t s s u b m i t t e d i n r e s p o n s e to t h e B o a r d ' s l e t t e r S t . 4 6 4 5 of September 15, 1925, showing member banks which were borrowing from t h e F e d e r a l r e s e r v e banks cont i n u o u s l y f o r one y e a r or more, may be brought up t o December 31, 1925, i t w i l l be a p p r e c i a t e d i f you w i l l k i n d l y f u r n i s h t h e Board w i t h a s t a t e m e n t showing t h e i n f o r m a t i o n c a l l e d f o r by t h e a t t a c h e d form f o r a l l member banks which were borrowing c o n t i n u o u s l y from your bank d u r i n g 1925. The d a t a r e c e i v e d i n r e s p o n s e t o t h e B o a r d ' s l e t t e r of September 15 show t h a t f o r t h e System a s a whole t h o r e were 588 member b a n k s which on August 31, 1925, had been borrowing cont i n u o u s l y from t h e F e d e r a l r e s e r v e banks f o r a t l e a s t one y e a r , and r e p o r t s s u b s e q u e n t l y r e c e i v e d from t h e r e s e r v e b a n k s i n d i c a t e t h a t 150 of t h e c o n t i n u o u s borrowing banks were i n (••&. o v e r - e x t e n d e d o r u n s a f e c o n d i t i o n on November 1, 1925. This l e a v e s 438 banks which were n o t m a t e r i a l l y o v e r - e x t e n d e d , b u t which had been borrowing f r o m t h e F e d e r a l r e s e r v e banks c o n t i n u o u s l y f o r a t l e a s t a y e a r , and of t h i s number 129 had been borrowing c o n t i n u o u s l y s i n c e 1920. While t h e Board r e a l i z e s t h a t e x c e p t i o n a l c i r c u m s t a n c e s may i n some c a s e s e x p l a i n t h e continuous borrowing of banks f o r a year o r more, good banking p r a c t i c e d i c t a t e s t h a t e v e r y member bank should o b t a i n t h e c a p i t a l i t r e q u i r e s f o r c a r r y i n g on i t s b u s i n e s s from i t s s t o c k h o l d e r s and t h a t n o r m a l l y i t should r e s o r t t o borrowing f o r s e a s o n a l p u r p o s e s o n l y . With t h i s i n mind i t w i l l be a p p r e c i a t e d i f you w i l l k i n d l y f u r n i s h u s w i t h i n f o r m a t i o n supplementing t h a t r e q u e s t e d above, showing (a) t h o s e banks borrowing c o n t i n u o u s l y d u r i n g 1925 which i n t h e o p i n i o n of t h e F e d e r a l r e s e r v e bank o f f i c i a l s w i l l p r o b a b l y b e a b l e t o l i q u i d a t e t h e i r i n d e b t e d n e s s d u r i n g t h i s y e a r , (b) banks which a r e a p p a r e n t l y o p e r a t i n g w i t h too small a c a p i t a l a c c o u n t , t h u s making i t n e c e s s a r y f o r them to r e s o r t to borrowing f o r t h e p u r p o s e of c a r r y i n g on t h e i r normal b u s i n e s s , and ( c ) banks which - 2 - X-4578 O c a r r y a f a i r l y s u b s t a n t i a l amount of United. S t a t e s s e c u r i t i e s or of' o t h e r bonds and s t o c k s in t h e i r p o r t f o l i o s , or which make s u b s t a n t i a l l o a n s i n o t h e r ccarauriities, and a p p a r e n t l y borrow from t h e F e d e r a l r e s e r v e bank f o r tne purpo'ge of making a l a r g e r p r o f i t than would be o b t a i n e d i f t h e s e c u r i t i e s or o u t s i d e l o a n s were l i q u i d a t e d and t h e borrowings p a i d o f f . The above i n f o r m a t i o n may be f u r n i s h e d by i n d i c a t i n g on t h e s t a t e m e n t c a l l e d f o r i n t h e f i r s t p a r a g r a p h the group to which each bank b e l o n g s by t h e u s e of symbols appended to t h e names of t h e b a n k s . The Board would a l s o l i k e to know i n a g e n e r a l way to what e x t e n t t h e w i t h d r a w a l of d e p o s i t s has been t h e cause of member banks becoming c o n t i n u o u s borrowers d u r i n g t h e p a s t two or t h r e e y e a r s , and e s p e c i a l l y whether t h e withdrawal of p u b l i c d e p o s i t s , t h a t were used in making l o a n s to l o c a l customers, has been an i m p o r t a n t f a c t o r therein. By d i r e c t i o n of t h e F e d e r a l Reserve Board. Very t r u l y y o u r s , J . C. H o e l l , Assistant Secretary. LETTER TO CHAIRMEN OF ALL F.R.BANKS. Enclosure: X-l+578-a MEMBER BANKS BORROWING CONTINUOUSLY DURING 1925 FROM THE FEDERAL RESERVE BANK OF Name and. l o c a t i o n of bank Capital -s; and Surplus Dec. 31, 1925 Net demand and time d e p o s i t s on d a t e of Minimum Maximum borrowing borrowing Borrowings from F . Date of R.bank d u r i n g 1925 Maximum I Min imum ftporimum | Minimum borrowing)borrowing borrowing(borrowing 10 or:
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