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BOARD OF G O V E R N O R S F.-33 OF THE FEDERAL RESERVE SYSTEM WASHINGTON ADDRESS OFFICIAL C O R R E S P O N D E N C E TO THE BOARD July 17, 1937. SUBJECT; Monthly Report of Bank and Public Relations Activities. Dear Sir; There is inclosed for your information a summary of the bank relations reports submitted by the Federal reserve banks for the month of June in response to the Board's letter of August 25, 1936 (X-9680). Very truly yours, r Y ) r v u £ f Chester Morrill, Secretary. Inclosure. TO PRESIDENTS OF ALL F. R. BANKS July 14, 1037. TO The Board FROM SUBJECT: Mr. Hammond, Division of Bank Operations Summary of Bank Relations Reports Reports of bank relations as requested in the Board's letter of August 25, 1936 (X-9680) have been received for the month of June and excerpts therefrom will be found on the following pages. A table showing for all twelve banks the number of visits made, meetings attended, and addresses delivered has also been prepared and follows the quotations. The attitude toward the Federal Reserve System In addition to the familiar reasons for remaining outside the Federal Reserve System which have been noted in previous summaries, recent reports indicate that many bankers are now influenced by anticipation that radical changes in the structure of banking and of bank supervision are imminent. This anticipation appears to be based in part upon measures such as the Patman and McAdoo bills. It will be recalled that other objections to membership have related principally to exchange charges, capital requirements, multiplicity of reports, charge-offs, and surrender of branch offices. Banking conditions The present reports mention little if anything that is new with respect to banking conditions. There arc frequent complaints, from small banks, of the increased reserve requirements, There arc also complaints that it is difficult to find profitable employment for funds. There is some tendency for interest rates to decline, especially in the East. General economic conditions Remarkable improvement in farming conditions is reported by Minneapolis, Kansas City, and Dallas. In those portions of the West which in recent years have been afflicted with drouth, grasshoppers, and other misfortunes, there have now been normal rains, and favorable growing conditions prevail. There is in consequence a spirit of the utmost optimism. Atlanta reports promising agricultural conditions also, but the present year in the South does not differ so much from previous years as it does in the West, In contrast to the remarkably encouraging prospects in farm regions, banks in industrial regions report sluggishness in real estate and uncertainty as to labor. Excerpts from the reports follow; tached to the original hereof.) (The reports themselves are at- 1 0 E-55-a Boston Thirty-one member banks were visited during the latter part of June, (25 in western Vermont, 7 in the vicinity of Boston and 1 in New Hampshire. ) On the whole, there is a far better feeling among bankers visited than was found to be the case a year ago. Business conditions in the several communities were reported to bo good and the indications are that summer trade, to which these sections cater, promises to be even better than last year. With one or two exceptions, the earning position of the banks shows improvement, and there is a noticeable increase in the demand for commercial loans, this increase ranging from 10 to 20 percent above that of a year ago, according to most of the bankers interviewed. In Vermont, throughout the State generally, banks have lowered their lending rates since January 1st, this action having been taken in face of agitation in the State Legislature to reduce the legal rate from 6 per cent to 5 percent. Well secured collateral loans and most mortgage loans arc now being made at 5 percent, though most non-member banks are advertising mortgage money at 4 g percent. The rates on loans to the -small municipalities range from 5% percent to 4? percent, and bankers report that outside city banks are not competing with them for this class of business as was the case a year ago, competition at the present time coming from private individuals. Brokers are offering the Vermont banks particularly, FHA (Title II) loans on Long Island and New Jersey properties at a yield of about 4^ percent. Some of the banks are buying these mortgages, though for the most part the bankers interviewed expressed themselves as not caring to go so far afield. Those of the banks which have bought in substantial amounts have done so after sending committees of officers and directors to inspect the mortgaged properties. On the part of some of the smaller banks, particularly those located in agricultural communities where the principal loan demand comes in the spring of the year, there is a feeling that the recent increase in the reserve requirement worked a decided hardship on this type of bank, and inquiries were made by several bankers as to what has been accomplished by increasing the reserve, and what is the likelihood of the reserve requirement being reduced before next spring. Several of these banks were obliged to borrow to meet their spring demand, some from the Federal Reserve Bank and others from their correspondents. In this connection New York and Boston banks are quoting their correspondent banks rates from lgto 1 3/4 percent. In one instance a member banker stated that he had switched his loan from the Federal Reserve Bank to his Boston correspondent at the lower rate. 11 -5- New York "Southern Tier" Counties Many bankers indicate that they are still favorably inclined toward government bonds and have increased their holdings of these securities $1,825,000 since the first of the year whereas the total of other bonds has declined about a million dollars. Loans and discounts of the commercial banks in this area aggregate $28,072,000, representing an increase of . 175,000 since December 31, f 1936, due largely to loans on real estate. Most of the Federal Housing mortgage loans granted in this section have been made by six commercial banks located in the cities of Binghamton, Johnson City and Endicott, which have loaned in all approximately $1,500,000 on new homes in these cities. The president of the savings bank in one of these cities states that because of the difficulty in obtaining good local mortgages, they recently purchased $130,000 Title II mortgage loans in the New York market, all on homes located on Long Island. Only one bank has made plans to continue making modernization loans now that the Federal Housing Insurance is no longer available. Some of the bankers indicate that they have made quite a number of small loans to farmers this year, ranging from $20 to $500, for the purchase of seed and lime to enable these farmers to participate in the Agriculture1 Conservation Program for 1937. Several bankers mention that they have sent some of their farm borrowers to the Production Credit Association at Ithaca as they did not want to make loans to them because of the risk. Only two banks in this territory have made any effort to develop personal loan departments, the former having loaned $480,000 and the latter $79,000 on this type of paper. Columbia and Ulster Counties. New York Demand for accommodation in general is said to be fair to good, and loan and discount lists for the most part show a tendency to increase slightly or, at least, to remain at levels which are normal for recent years. Many bank officers, however, are inclined to be scmev/hat discouraged because current loan lists do not compare favorably in size with those of the years 1928 and 1929. The loaning rate is usually 6 per cent although some banks reduce this to 5 per cent, or lower, in the case of amortized mortgages or loans secured by exceptionally good collateral. A lower rate is generally granted on loans made to municipalities and school districts, but two banks made no exceptions whatever. One bank has established 5 per cent as its customary rate with 4§- per cent applying to loans secured by prime collateral. 12 —4— " R-5o-a Erj.e and Niagara Counties. New York The demand for loans, both for commercial and agricultural purposes, is reported to be light except for a few isolated cases in the agricultural districts. In an effort to stimulate loan accounts, some of the banks in the larger communities have established personal loan departments, although they express themselves as being somewhat disappointed with the results obtained. Rochester, New York While Rochester has six commercial banks, two of these do only a small commercial business. Twenty-one branches are operated by three banks, of which fifteen are within the corporate limits of the city and six outside. Branches have been established in various communities in this district where formerly independent banks were located. Interest rates in Rochester vary, some banks paying 2 per cent on deposits up to *7,500, with lower rates on amounts in excess? of this; other banks pay the 2 per cent rate on balances as high as $15,000, and others place no limit but will take large deposits at 2 per cent as long as they feel they can employ the funds profitably. Loan rates range between 3 and 6 per cent. Saratoga. Warren, and Washington Counties. New York Deposits generally are steady or slightly higher than a year ago, only two banks reporting material decreases. Time deposits throughout this area average approximately 66 per cent of total deposits. A number of bank officers express the opinion that they owe it to their depositors to pay 2 per cent as long as it can possibly be justified by earnings, since many of them have been accustomed for years past to rely upon this as an important, and in some cases their chief, source of income. Philadelphia Luzerne County. Pennsylvania The prevailing rates of interest are 2 per cent on deposits and 6 per cent on loans. One banker has suggested to his local clearing house that a deposit rate of lj per cent be adopted and that the loaning rate be reduced to 5 per cent. Although the clearing house was friendly to this proposal, no action has as yet been taken. Some of the bankers are complaining of the competition being offered by a large insurance company, which is placing mortgages in this county at a 4 g per cent rate. Apparently the banks concerned have not - 13 —5— II—00~*cl Philadelphia continued made much effort to meet this competition by departing from the prevailing 6 per cent rate. Six Counties in Northeastern Pennsylvania Conditions in the area covered by this report show an improvement over those of a year ago in all but a few communities. However, the unsettled labor conditions either present or prospective are a matter of concern to officers of the banks visited. Many of them believe that it will be necessary for the National administration to take a definite stand in this matter in the near future and that nothing chort of that will have a stabilizing influence. The general attitude of the officers of non-member banks interviewed during the month was favorable toward the System and no specific comments were received as to why these institutions had not applied for admission. It is believed, however, that at least ten of the institutions visited might have some difficulty in being accepted due to the condition of assets. The officers of four other institutions stated, frankly that they were not interested in joining the System. Two of these were officers of banks which had withdrawn from membership since the bank holiday. The officer of another institution stated that his bank was really a "back-door" member,' inasmuch as it was able to dispose of its rather large supplies of excess currency by shipping it at the expense of the reserve bank in payment for cash letters, thus obtaining what he considers to be the chief savings to be gotten through membership. One• institution hopes to convert to a National bank sometime in the future and two others are ineligible for membership due to insufficient capital. Largely as a result of improved industrial conditions, the public relief problem has been less acute this year than last. Total expenditures for direct relief in Columbia, Luzerne, Mountour and Monroe Counties in the week ended June 19 were about 25 per cent smaller than a year ago, while in Northumberland and Pike Counties the amount increased. The amount of public money spent in connection with work relief also has been reduced in the past few weeks, although it continues to be an important factor in all counties under consideration. Larger incomes from such sources as wages, salaries and dividends, as well as from continued public expenditures have had a stimulating effect on trade in general. For example, retail trade sales in the first five months of this year in these counties exceeded those for the same period last year by nearly 7 per cent. Sales since May appear to have been well maintained, although seasonal recessions are in evidence. 14 "-0— r.-oc -3. Philadelphia continued Sales of new passenger automobiles this year have shown substantial increases over the previous years. The number of cars sold in the six counties during the first five months of this year was 20 per cent larger than in the same period last year and 96 per cent larger than in 1955. Compared with a record, volume in 1929, however, sales still were about 10 per cent smaller. Cleveland (The Cleveland report contains only statistical information as to visits to banks, meetings attended, and addressee made. The schedule of regular visits will probably be resumed in September.) Richmond. At conventions, group meetings and individual visits, our representatives report a very decided trend in favor of continuing to operate local unit banks as opposed to further supervision of banking from Washington or by outside capital. The officer of one nonmetnber State bank, which is also a non-par institution, told our representative that its revenue from exchange charges will average from $9,000 to $10,000 per annum and that without this revenue his bank could not make the grade. This officer feels that there are too many duplicating agencies and supervising authorities, and frankly said he would not consider membership in the System until "pushed in" by statutory requirements. This particular community is prospering at this time, taking advantage of a growing tourist trade. The active officer of another noma ember bank told our representative that while he has a high regard for the Federal Reserve System, he will undertake no move toward membership at this time as he believes important changes in the entire banking structure are imminent. Still another officer of a nonmember bank informed our representative that in his opinion membership in the System would be associated locally with the National banking system, end in view of the suspension of a National bank in the same town sometime ago, he held that State bank membership would be of doubtful value. This same officer expressed tc our representative the thought that some consideration is being given by his bank to withdrawal from the F.D.I.C. He contends that the insurance is not considered of sufficient importance locally to justify the cost. • Richmond continued Our representatives report that in sections visited by them in June, the impression was gained that business was moving at a slower rate than in the preceding months. However, they also report that the agricultural outlook appears improved and that there is considerable expansion throughout the district in construction work, especially residential construction in and near larger communities. Our representatives report that weather conditions during June were favorable for crops, which improved materially in all sections visited by them in this district. Atlanta Seven banks in the City of Savannah were visited on June 16th. The bankers, without exception, stated that earnings for the current period are in excess of those shown for the year 1956 and all appeared to be optimistic regarding the- earning record for the current year. They reported an increase in the loan portfolios and a substantial revival of business conditions in general. The record shows that receipts of naval stores are about the same as of the same period last year, but that the stocks on hand are smaller. Prices of rosin are higher than last year, but quotations on turpentine are slightly less. Two member and six nonmember banks located within a radius of 75 miles from Atlanta, in the northwest portion of the state, were also visited. The bankers advised that crop conditions have been unusually favorable and that present prospects indicate a production much in excess of that for 1936. The main money crop in the section visited is cotton and farmers have increased their acreage from ten to fifteen per cent over last year. As a rule, the farmers used fertilizer in generous proportions, purchasing the same with cash obtained from their local banks, which resulted in good business for local merchants and a saving to the farmers on interest. All of the banks reported an excellent demand for loans, and the member banks stated that in all probability they would avail themselves of the rediscount privilege for short periods. On June 24 and 25 fourteen banks and one branch in the territory located in the northern part of middle Tennessee were visited. In this section the main money crops are dark fired tobacco, wheat, and corn. Revenue is also derived from forage crops, cattle, lambs, and wool. Farming conditions were found to be excellent, as the weather has been favorable since early spring. Tobacco acreage will equal or exceed that of last year and unless damaged by insects it is reasonable to expect a greater production than that of last year. Bankers of this section 1 6 -8- R-52 a Atlanta continued advise that good prices are being received from live stock and that the market is very active. The activity of Governmental loan agencies as a general rule appeared to have offered no competition to the bankers in this section. Chicago (The Chicago report contains only statistical information as to visits to banks, meetings attended, etc.) St. Louis A State bank in Missouri wishes to join the System because it is having some difficulty with the F.D.I.C. and believes that joining the Federal Reserve System would overcome the Corporation's objections. Another nonmember has given no further consideration to membership since the outcome of its initial application, and states that it has no intention whatever of taking the matter up again, although its attitude toward the System is friendly. Time appears to have softened the attitude of one Illinois banker toward the increase in reserve requirements, which thus far has caused his bank no inconvenience whatever. However, he hopes a reduction will be made should a bona fide local demand for accommodations materialise. In connection with the recent closing of a nonmember bank, the opinion was expressed that it might be the policy of the F.D.I.C. to center all banking facilities in county seat towns. A national bank in Missouri referred to the suggestion of the F.D.I.C. in connection with the ratio of 1 to 10 between capital and deposits, and stated that if this requirement is put into effect, it will reduce its deposits rather than increase its capital. The president of an Illinois bank commented on the relatively low earnings of the bank, and stated that the problem was becoming more acute each year. He says he sometimes wonders what the future has in store for country banks. Minneapolis Southeastern South Dakota is in the best condition it has been for years. Widely extended rains have greatly improved the pastures and live 17 R.-33-a Minneapolis continued stock feed outlook; and as a direct result, this year promises increased business activity. Rye, barley, and oats are well advanced and show a normal development and growth. Although the cool wet weather may have retarded the growth of the corn to some extent, nevertheless with favorable warm weather soon and a reasonable amount of moisture, there is every chance of a record crop. Some hatching of grasshoppers has been reported in South Dakota, but the present cool weather has been the best deterrent to their growth. Water levels, lakes, wells, and rivers are high. At every bank visited there was a definite feeling of optimism. Farmers generally are in much better spirits because of the bright crop prospects. Conditions have never looked more promising than at present. But if the rains continue to too great an extent, the former dust bowls of South Dakota may become mud bowls. However, even if the record crop that is anticipated is not produced, it will look good against the drouth years of 1934-1936. Virtually all the bankers had just received a copy of the Patman Bill sent to them by the Independent Bankers' Association of Minnesota for their perusal and comments. The only unfavorable comment heard concerning this bill was the opinion expressed that politics would eventually creep into the System, and that if this occurred it would result in an unhealthy banking situation. Business in general is on the upgrade; there is a prevailing optimism; the banks visited have sufficient funds available to take care of all legitimate demands for loans; it is difficult to get the proper kinds of loans; many banks do not anticipate very much of a demand now until harvest time; there is a marked trend on the part of some of the banks to seek an outlet for their available funds in installment paper; and there is a general tendency for lower rates on loans brought on by competition with government agencies. Automobile sales have increased; and some of the dealers1 orders for automobiles were held up through the strike situation. There is an increase in the sale of tractors and farm machinery; and some wholesalers have bought heavily this winter to protect their dealers from increased prices. Western Central Wisconsin Bank deposits have held up very well considering the amount of money spent for feed. A number of bankers could not account for an increase in their deposits over last fall. Farmers are very hopeful and are now willing to make expenditures for paint and repairs, and other improvements around their farms which have been neglected during the past few years. 18 -10- R-3S-8 Minneapolis continued Mercantile stores have reported an increase in sales. If the crop comes through as anticipated, conditions will be far better than normal. It was reported that offices established by the bonks in this territory are all on a paying basis, and that the State Banking Department, in conjunction with the Federal Deposit Insurance Corporation, is about ready to force consolidations in communities where a bank cannot operate profitably. They will, it was said, suggest the establishment of offices at some points so as to continue banking facilities. The executive officers of one nonmember believe the examiners for the F.D.I.C. are exceedingly severe, and in the course of our conversation asked vthat steps could be taken to become a member, therety eliminating examinations by that corporation. They did not, however, care to give up their office now being operated in a nearby town to become a member of the System, so no application will'be filed at this time. A number of the bankers mentioned the Patman Bill. All of them were opposed to government ownership of the Federal Reserve Banks. Kansas City Contacts with banks during the month serve to emphasize the fact that the breaking of the drouth in the Tenth District is the outstanding recent banking development. The growing season is still young and many things may happen before Fall, but the month of June witnessed distinct improvement. Rains were general throughout the District and while they were too late to save the wheat crop in regions adjacent to the "Dust Bowl", the feed situation in those sections is grteatly improved. Indications are that a considerably better than normal wheat crop will be harvested and the prospects for corn are promising. Reserve stocks are so short because of protracted crop failures that bumper crops may easily be sold at prices much above the average. It is difficult to overestimate the bearing of such a favorable development on the banking situation. In drouth section^ large numbers of people have been on relief and many bank loans have been frozen for years. Good crops and good prices may be the means of a clean-up of bank loans such as has not been seen for years. Even the better situated farmers have been compelled to buy feed at very high prices to keep intact their herds and to produce dairy and poultry products. As a rule the prices farmers have received for these products have not justified the purchase of the necessary feed. But if rains continue another six weeks farmers will again be raising their own feed and it is almost impossible to overestimate the importance of this fact alone on farm morale. Wyoming A serious problem confronting banks in Wyoming at the present time is that of financing the restocking of the ranges. Moisture conditions in Wyoming this year have been good and bankers report that ranges in many -11- Kansas CXzy R-55-a 1 9 Con, cinued sections are in the best condition in ten years. shortage cf cattle. The problem now is the In making loans to restock ranges, banks are disturbed about two other things. One of these is the relatively high price of cattle. Furthermore, while the ranges at present are in good shape, no one can be certain this has any degree cf permanence. The drouth of recent years in west central states was so sensational and protracted that it will take some years of better moisture conditions to give assurance that the dry cycle is actually at an end. During the past month called on all of the State It cannot be said that the especially promising under representatives of the Omaha Branch of this bank banks in Wyoming that are eligible for membership. prospects for new membership from that State are the conditions that now exist. The problem of par collection in Wyoming is not an important one and other considerations than the desire to make exchange charges are the dominating ones. Probably the most important factor bearing on the membership question is that of indifference. Most eligible State banks are in an easy cash position and they do not expect to borrow money. However, at the present time quite a number of eligible State banks appear not to be in condition for membership. Some of them are having considerable trouble with the F.D.I.C. examiners, and many are so heavily stocked with real estate loans that they fear their condition will be criticized by the examiners of this bank. In a good many cases, banks will not be interested in membership until a number of uncertain conditions are more clear. Some are not making money and they prefer to wait until conditions are more settled and they can make money or liquidate their institution. Judging by present conditions, certain communities seem over-banked and there is reported to be considerable pressure from the F.D.I.C. in the direction of consolidation. Naturally banks will not consider membership until it is determined which ones will survive. Another matter working against membership is the increased reserve requirements. Some bankers expressed the opinion that the uncertainty attending a policy of fluctuating reserve requirements will be intolerable. Many of them do not understand that changing reserve requirements is an instrument of credit control that can be used only at infrequent intervals; that the maximum reserve requirements have already gone into effect and that probably this matter has now been stabilized for some time. However, this uncertainty regarding legal reserves is an important factor causing banks to hesitate about membership. In a number of cases banks expressed the opinion that should they decide to become members they "ould prefer to take out national charters. Dallas West Texas Abundant rainfall and high prices of cattle, sheep, wool and mohair have this year transformed the plains and plateaus of Rest Texas from a distressed drought-stricken region into a land overflowing with prosperity, according to the reports of our representatives. The bankers interviewed were more optimistic than they have been in many years over the -12- R—33--a Dallas continued improved state of the agricultural and livestock industries and the resultant bright outlook that faces their communities. The interviewed bankers said that the feeling of discouragement and gloom that has been almost universal among their clients for the past several years is gone. Barnes report a steady growth of deposits, and a continued accumulation of idle funds whose employment presents a problem of steadily increasing complexity. Except in the larger centers the banks have not heretofore invested to any substantial extent in Government bonds or other securities. This is due chiefly to the fact that in normal years the demand for loans from stockmen and farmers is sufficient to keep their funds well employed at profitable interest rates. There is evidence, however, that the banks this year are turning to the government bond market in increasing numbers. One interviewed member banker complained rather sharply that country banks with funds to invest do not always have a fair chance to submit their subscriptions for the new government issues offered by the Treasury Department from time to time. As an example, he cited the Treasury note offering of June 15, saying that he received a notice of the offering and in the same mail received a bulletin announcing that the Treasury Department's subscription books for the offering had been closed. A surprising number of bankers praised recent banking legislation in the highest terms and expressed gratitude for the great benefits it had contributed to the banks as well as to the public. Such generous and benevolent expressions by bankers in regard to the various restrictive and reformative laws with which the government has in recent years encompassed their operations are so unusual that they perhaps call for some explanation. The answer may probably be found in the happy and jovial mood which prosperous times, like the present, bring to people in all walks of life, including even such confirmed pessimists as bankers are known to be as a class. In any event, this seems to be true of the bankers of West Texas. The officers of a National bank in Texas took occasion to commend the industrial loan facilities created by Section 13b. They were particularly gratified over the constructive results of a large industrial loan which we made in conjunction with their bank to a local wholesale hardware firm which at the time was threatened with bankruptcy due to the "squeezing" tactics of some of the firm's impatient creditors. The loan not only relieved the situation but enabled the firm to take advantage of a strong upswing in general business conditions in that section of the State, and the company is now not only back on its feet, but its business has increased so rapidly that it has been able to prepay more than twenty monthly installments of its obligation to our bank. San Francisco Southern and Western Idaho and Northern Utah Although the growing season in the area visited during the month was somewhat retarded, approximately two weeks late, all crops generally were reported to be in good condition. Moisture conditions are excellent at -15- R—33—a San Francisco continued irrigation water in the principal reservoirs is above normal and greater than at any similar time in the past five years, The larger farming sections in Southern Idaho reported a wider diversification of crops being planted, with a heavy planting of beans, potatoes and sugar beets. There has been some damage by pests to the sugar beets in isolated sections, which at present is not considered serious. Conditions on the lower livestock ranges during the late spring months were excellent. However, forage on the higher ranges did not mature normally, due to a backward spring season. Livestock were held on the lower ranges two or three weeks later than usual before entering the higher ranges. It is reported that winter moisture conditions with late spring rains on the higher ranges gives assurance of ample forage conditions prevailing all through the late summer. Early lambs in Southern Idaho were marketed this month at weights averaging between 80 and 90 pounds. The price received for the earlier shipments was 12$ per pound. The wool clip in Southern and Western Idaho was normal, most growers contracting last fall at prices between 34 and 570. There is a small percentage of all wools still unsold, and of that practically all now has been consigned. PUBLIC RELATIONS ACTIVITIES OF FEDERAL RESERVE BANKS JUdE. 1337 Federal Reserve Bank Boston Mew York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas CityDallas San Francisco Visits to ba iiks iiionMember icember Total Number Attendance Addresses made Number Attendance # 6* 2,920 330 960 None 4 1 3 5 2 2 5 2,075 700 850 2,100 None None None None __ 32 40 68 296 96 68 71 15 3 3 16 8,581 541 1,550 1,356 3 3 None 3 525 251 31 132 88 15 None 55 17 16 31 187 35 51 5 8 2 56 9 10 48 52 23 53 20 88 157 67 59 61 139 29 9 10 § Attendance not reported Attendance at 1 not reported Meetings attended 355 250 170 — 386
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