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R-280 BOARD OF GOVERNORS OF THE j [ 5 FEDERAL RESERVE SYSTEM WASHINGTON ADDRESS July 18, 1938. 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 ty 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, Chester Morrill, Secretaiy. Inclosure. TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS OFFICIAL C O R R E S P O N D E N C E TO THE BOARD R-280-a To: The Board of Governors From: Mr. Hammond, Division of Bank Operations. J.6 July 14, 1958. Subject: 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. Several of the Reserve banks mention member bank comments upon the recent revision of examination rules. The comments indicate a skeptical attitude on the part of member banks. Although there is disposition to find fault with the judgment of examiners, it does not appear to follow that liberalization of the examination rules is welcomed nor that bankers feel tempted by it to change their lending policy. Their attitude is apt to be that they are already meeting every legitimate credit demand. In this connection, the report from St. Louis includes comment of a member banker - not quoted in the excerpts from the St. Louis report to the effect that every time there is publicity from Washington in favor of easy credit, bankers receive fresh requests for loans that are without a sound credit basis. The reports indicate a continuance of good crop prospects in agricultural regions, and reflect a much better feeling in many places regarding business. Comment upon the dearth of demand for commercial loans, the difficulty of pursuing a profitable investment policy, and governmental programs in the field of relief, crop control, soil conservation, etc., is about the same as in previous reports. Excerpts from the reports follow: attached to the original hereof.) (The reports themselves are Boston During June this bank was represented at the annual meetings of the Connecticut Bankers Association, the Vermont Bankers Association and the Maine Bankers Association, and forty-four member and ten nonmember banks in Vermont and New Hampshire were visited. In addition visits were had with the officers of a number of savings banks affiliated with and occupying banking quarters jointly with certain member banks in New Hampshire. The communities served by the banks visited are mostly small retail trade centers in a section of the district devoted mainly to farming, dairying, lumbering and catering to the summer vacationist. Here and there throughout the section are small textile and knitting mills, shoe factories, machine shops, woodworking plants and pulp mills, all -2- R-280-a of which are operating part time and several of which (woolen and knitting mills) are about to shut down permanently. No large money crops are raised and with the shrinkage of factory payrolls, the principal source of new money is the summer tourist and camp trade. The feeling generally is that this trade will not measure up to the past two seasons. The banks as a whole report the seasonal demand for loans to be only fair, but as great as the demand a year ago, A few member banks were obliged to borrow during the spring, loans being placed about equally with the Federal Reserve Bank and Boston correspondents; correspondents lending at the prevailing Federal Reserve Bank rate. In most cases the borrowing was brought about by towns coming in for their seasonal requirements. The prevailing rate to individual borrowers is 6 percent with some well collateraled loans made at 5 percent. Loans made to municipalities carry rates from 2-g percent to 4 percent. Among the banks visited the depreciation in bond lists ranged from 5 percent to 25 percent and averaged around 10 percent. While there was disposition at some banks to comment unfavorably upon the policies of certain governmental agencies, no direct criticism was made of the administration of the Federal Reserve System or of this bank. At the banks visited during the last few days of the month interest was manifested in newspaper accounts of the new examining rules. While certain features - notably the change in the method of appraising bond values - were commented upon favorably, the view was expressed by practically every banker who had anything to say on the subject that greater liberalization of authority to loan and invest commercial bank funds would not influence him to change the prevailing lending policy of his bank. Bankers express the view that all those in their communities entitled to and applying for commercial bank credit have been taken care of and deplore the fact that the demand upon them is not greater than it is • New York Albany. Fulton, Hamilton. Montgomery, Rensselaer, Schenectady, and Schoharie Counties. New York. Business activity in these seven counties, except in the cities of Albany and Canajoharie, has decreased more than usual at this season of the year chiefly because of lower industrial operations, and the closing down of a large carpet mill and several glove manufacturing plants and tanneries due to labor troubles. Bankers report that the retail merchants are complaining and that some have gone out of business. Conditions in Albany remain fairly stable because of the large number of people steadily employed by the State of New York in its various departments and bureaus. In Canajoharie, the Beechnut Corporation is operating at normal capacity, having 1,100 people on its payroll. 18 -3- R-280-a Erie and Niagara Counties (Buffalo Branch Territory) Security accounts of the banks have increased in total about 4 percent during the past year and now aggregate $163,594,000 while holdings of United States governments now amounting to $85,522,000 have increased almost 20 per cent. Depreciation which is confined chiefly- to railroad securities ranges up to a high of 15 per cent. Demand for commercial credit is very limited and loan portfolios continue to decrease. Considerable amounts of funds have been placed in mortgages originating under the provisions of the National Housing Act. One nonmember banker stated that his bank has developed $500,000 of this type of mortgage and is at present receiving a return of 3/4 of 1 per cent as a service charge on $350,000 of these mortgages sold to other financial institutions. In order to partially offset the Federal Deposit Insurance Corporation assessment on deposits, increasing amounts of idle cash are being placed on the call money market although the return is at a minimum. The recent reduction in reserve requirements was favorably received but in almost all instances no material beneficial effects will be noticed at this time as loanable funds are at a maximum with but little demand, A further downward movement in factory employment and payrolls occurred in the Buffalo area during the month of May 1938. Very recently evidences of a broadening demand for steel have been received by local steel mills and plans for a further cut in production have been abruptly abandoned. Herkimer, Madison, and Oneida Counties. New York. The majority of commercial banks have a depreciation in their security portfolios ranging from nominal amounts to as high as 20 percent in the case of one small institution, while the officers of seven banks report some appreciation. The institutions which have smaller depreciation and those reporting an appreciation are for the most part banks with substantial blocks of United States government obligations. A number of bankers remarked that the activity in their bond accounts during the last several months has been in the direction of selling long term corporate bonds (and governments in some instances) and reinvesting in short term United States government securities and municipal issues. The cashier of one national bank gave as his opinion that when the Government floats large blocks of bonds this fall, which he thinks will be necessary on account of the contemplated spending program, it will affect adversely the price of all outstanding long term government bonds and he believes that the drop in prices will not be brought about by any firming up of money rates. A number of banks in the rural sections have been experiencing quite a good demand for seasonal loans for farming purposes and several also report that there has been some demand for funds by local and neighboring -4- R-280-a villages and school districts. In addition to the increased demand for credit, it is said that the State Comptroller has withdrawn funds on deposit with banks throughout the State in preparation for payment of obligations maturing in early July and also some of the villages have reduced their bank balances on account of funds being used for relief and other purposes. These circumstances have reduced the amount of previously idle funds in some of the smaller banks and four of them have found it necessary to borrow on bills payable. Loans, in general, command a 6 percent rate with the exception of those granted to municipalities and other public units where the rate in the majority of cases is fixed at 5 percent, or lower, in order to meet competition. The president of one bank complained that he recently lost the opportunity of making a loan to a neighboring village, which territory is served by his institution, because one of the Utica banks agreed to take the paper at 3^ percent whereas he could not go below 4 percent. Summary of Preferred Capital Issues In the twenty counties visited (in New York and New Jersey) there are 190 commercial banks, of which 136 issued preferred stock, capital notes, or debentures aggregating $45,280,000 par value. Up to the present time 33 institutions have redeemed their entire issues amounting to $15,112,500, 70 have paid off a part aggregating #4,428,787 and 34 have not retired any - leaving 104 banks with a total retirable at $26,013,713. Philadelphia The area visited (Eastern Pennsylvania and Southeastern New Jersey) reflects a lower level of business activity than that existing a year ago. There are, however, some communities where the decline in payrolls has been as much as 50 percent or more. The removal of industry from Pennsylvania to other states to take advantage of a more favorable tax or labor situation is still in progress. Bank deposits have declined during the year. In agricultural sections this is seasonal, reflecting the farmers' need for funds to finance spring planting and in the urban communities it reflects the need for funds by corporations and individuals as a result of lessened business activity. Credit demand is not good, although some banks report that they appear to have reached their mean, as the total of loans is no longer declining. One banker stated that with the normal loan level known he is now in a position to determine income fairly accurately and fix expenses accordingly. The banks appear to be utilizing all means to extend sound credit and it is believed that the credit needs of the several communities are receiving proper attention. The prevailing rate of interest paid on deposits is 2 percent, although a few banks still pay 2-|- percent. There are, however, a greater number paying a rate lower than 2 percent than there are paying a higher rate. There are also many graduated scales where the rate paid is less -5- R-280-a on the larger balances than on the small ones. Collateraled loans and good mortgage loans in most cases command a lower rate than 6 percent but that rate prevails on most other credit extended. Numerous complaints were received as regards examinations and examiners. Several National bank officers state that efforts to comply with the examiners' insistence upon financial statements have resulted in loans, which they consider highly desirable, being paid off. The executive officers of two National banks criticized National bank examiners for allegedly advising bankers as to changes in their investment accounts. One of these officers attributes the present heavy depreciation in securities at his institution to his having yielded to the examiner's criticism of a concentration in utility issues as compared to a relatively small investment in railroad bonds. Certain bankers in a county which had several institutions closed or restricted during the banking crisis, stated that there was still some evidence of hoarding and that some depositors were inclined to doubt the ability of the F.D.I.C. to stand the strain of a severe and prolonged crisis such as was experienced from 1929 to 1933. There has been some amelioration of public feeling toward banks in one part of this county as the result of a prompt "pay off" by the F.D.I.C. of deposits in a nonmember institution recently closed. Recent information shows that a greater number of inquiries for iron and steel products have been received from consuming industries, but actual orders have not yet materialized in any considerable volume. While the market for building materials has broadened somewhat in late months, new business has not measured up to expectations and is much smaller than a year ago. The decrease since last year in contemplated construction, as indicated by the value of permits issued for new building, repairs and alterations, is due in large part to the depressed industrial situation. Demand for commercial and manufacturing space continues quiet and the market for dwellings has not expanded as much as it usually does during spring and early summer. Cleveland Generally speaking there appears to be a rising tide of confidence which seems to center around increased activity and higher quotations in the securities markets. A substantial number of bankers visited during the past month appear more optimistic than at any time within the past year. Many report substantially increased earnings for the first six months of 1938. In many cases it is reported that earnings for the period -6- R-280-a 2 1 are higher than they have been for similar periods in any recent year. In a number1 of instances dividends have been increased. There is evidence of a substantially increased demand for real estate mortgage loans, and many banks are granting substantial lines of credit on IHA insured mortgages. A number of institutions have inaugurated small loan departments, or have extended their operations in this particular field. This has been an important factor in the increased earnings of many institutions. Practically ho comment has been heard concerning the change in regulations governing the purchase and holding of investment securities, and such statements as have been made were generally to the effect that no change in present policies and practices would likely be made. Many banks continue to maintain a high cash position rather than to invest in securities, in sections where there is no local demand for loans. The plan of accepting for collection par checks sent by member banks on a two-way sort basis has been in operation long enough to appraise some of the results. Approximately twenty banks hitherto not using our check collection facilities are now collecting checks through us. Thirty-four banks using photographic equipment are now sending items to us under an agreement which provides that the film need not be sent to us but that a description of any item will be furnished upon request, or the film covering a specific letter will be sent to us on request. The daily average increase in items, exclusive of government checks, has been in the neighborhood of twenty thousand. Richmond Western Maryland and Mineral County. West Virginia. Crop conditions in western Maryland are in general veiy good. Conditions in Allegany County, Maryland, and Mineral County, West Virginia, have been adversely affected by the decline of lumber, coal mining, and the activity of railway shops. On the other hand, this region has been favored by the development of paper and rayon industries. Thus, the plant of a large pulp and paper company is reported to be working on a full-time basis and employing about 1,700 persons. Carroll County, Maryland, has a highly developed agriculture which is fairly prosperous. Crops are quite diversified and this has lessened the impact of the depression. Manufacturing centers in western West Virginia experienced a decline in production and this has been accompanied by a growth of unemployment. Unemployment also prevails throughout the coal-mining regions in the state, and the banks in these regions report a decline in loans and discounts, with some tendency for deposits to decline. -7- R-280-a Westmoreland. Richmond, and Lancaster Counties. (Northern Neck) Virginia. Mixed farming prevails in this region and, generally speaking, the farmers have not felt the ill effects of the depression. Farming activities are somewhat supplemented by fisheries and the canning of fruits and vegetables. Southwestern Virginia Wise County is quite dependent upon the coal-mining industry, and this industry is relatively inactive at this time, Practically all mines are operating only one or two days in the week. As a result business is also very inactive. Banks in Wise County are in general charging 6 percent on local loans and are paying 2^ percent on time deposits. Some 4 percent loans have been made, and certain banks graduate the rate on time deposits from Ej- percent downward. Lee, Russell, Scott, and Tazewell counties are largely dependent on agriculture and live stock for their prosperity. General speaking, these counties are in a rich agricultural region with rather well-developed mixed farming, supplemented by the live stock industry. In consequence , conditions are relatively good, though the purchasing power of farmers has declined considerably within the past year. Lee. Kershaw. Williamsburg. Georgetown, and Florence Counties South Carolina. In general, crop conditions have been favorable, though some allowance must be made for injury to cotton crops, because of the boll weevil and root lice. These conditions have been stimulated by wet weather and cool nights. The cotton mill and cotton-seed mill at Kershaw (Kershaw County) have been operating on a full-time basis. Lynchburg (Lee County) reports too much rain and injury to cotton crops. Kingstree (Williamsburg County) also complains of boll weevil injury to cotton. On the other hand, the tobacco crop in Florence County seems to have been injured somewhat by drought. In general, banks in the regions visited charge 6 percent on loans and pay 2^ percent o$ deposits. Atlanta Southeast Georgia. Our representative visited a number of banks in a territory devoted principally to the raising of cotton, c o m , and other Agricultural products. Prospects appear to be excellent. The condition of the corn crop was reported as- unusually good. -8- R-280-a At the banks visited deposits were uniformly less than last year. The demand for loans was reported generally as satisfactory. No complaints were made concerning the Federal Reserve System, nor was there any criticism of the activities of Governmental loan agencies. Louisiana Visits were made to a number of banks located on the west side of the Mississippi River, between New Orleans and Donaldsonville, This section is ariohagricultural area, devoted principally to growing sugar cane, corn, Irish potatoes and truck crops. The bankers interviewed were in good spirits and appeared optimistic. Their institutions are enjoying a good volume of business, with deposits, loans and earnings comparing favorably with the same period of 1937. Collections are reported as being unusually good. The bankers in this territory were to a remarkable extent free from any disposition to complain about conditions over which they have no control. Visits were made also to a group of banks located on the east side of the River, between New Orleans and Baton Rouge. The banks in this section reported that their volume of loans is somewhat less than it was at the same time in 1937, although earnings are somewhat better, due to revenue now being derived from service charges which were not in effect during the first six months of last year. The handling of finance paper of local dealers in automobiles and household equipment has been a source of considerable profit to the banks. A number of sugar refineries are located in this section, which give employment to large numbers of people, and whose payrolls serve to stimulate trade. The banks in Baton Rouge are reported to be enjoying excellent business. Retail trade is holding up remarkably well and the general recession in business has scarcely been felt. No complaints were made concerning the services rendered by the New Orleans Branch. At the nonmember banks visited our representative was advised that the collection of exchange on incoming cash letters was an important source of revenue, with the result that membership in the System could not be seriously considered. Mississippi Gulf Coast Banks located on the Mississippi Gulf Coast are experiencing a seasonal decline in business. The plants that can oysters and shrimp have discontinued operations until August. The resort hotels and rooming houses are reported to be enjoying a very good tourist season. Deposits and loans show a seasonal decline. pare favorably with last year. Earnings, however, com- -9- R-280-a Chicago During June calls were made on 186 member and 74 nonmember banks, principally in Indiana, Iowa, and Michigan. The general feeling, particularly among rural banks, is optimistic, as the prospects are favorable for big yields in wheat, oats, and hay, although some doubt is expressed regarding the price. While in some sections the c o m crop is backward due to excessive rains, generally it is well advanced and clear of weeds. In most communities retail trade is reported as having been satisfactory, but having shown a falling off during the month of June. Other reports indicate a reduction of from 10 to 25 percent compared with 1937. Demand for credit continues light. Most banks report no F.H.A. loans, although at some points, such as Fort Wayne and South Bend, Indiana, there is considerable activity in this type of loan. Some residential construction is being undertaken, but practically no large building activity is reported. No improvement is indicated in the employment or relief situation. In one industrial town, one out of every three people formerly employed is either on direct or work relief. Nonmember banks visited with few exceptions express a friendly feeling toward the System, Some evidence interest in membership, and while various reasons are offered for not joining, one important one given by banks otherwise eligible is the fact that they now have branches or anticipate establishing them. St. Louis Conversations with business men and bankers during the month of June indicated no decided change in mercantile lines. The trend toward reduction in stocks of goods continues, there being an increase in special retail sales. These have resulted in maintenance of volume of sales, although profits as well as inventories have been sharply reduced. Communities most adversely affected are those in the industrial class, with no increase in employment noted. Coal mining suffered a considerable decline in production during the past year, resulting in reduced earnings and employment. No disposition is manifested by manufacturing lines to operate beyond the filling of actual orders received. A member bank officer continues to be quite irritated about the numerous non-par items which originate in the immediate vicinity of his town, and made the statement that some means should be found to compel state banks that are F.D.I.C. members to remit at par. -10- R-280-a 25 Officers of a member bank are again considering placing funds on deposit with other banks in interest bearing c/d's, which was the practice adopted a few years ago, but was abandoned when they thought investment opportunities presented themselves. The bonds purchased, however, now show a depreciation. The cashier of a nonmember bank reported that profits for the first six months of this year were the best in a number of years due primarily to the making of loans which they had previously declined or did not look for. Our officer was shown the bank's files on several real estate loans which appeared to be made on a conservative basis. Reference to comments in the press regarding the controversy between supervisory agencies with respect to bank examinations was made by a nonmember banker who expressed the view that he had declined making some loans for fear of comments on the part of examiners. A nonmember cashier stated that at the time the bank was licensed for membership in the F.D, I.C., the examiner compelled him to collect a number of loans aggregating a substantial amount, which loans were quite desirable. They had run for some length of time but when demand was made the makers had no trouble in getting the money elsewhere. They were 6 percent loans and would be of great value to the bank now. Conversation with a nonmember cashier disclosed the fact that there was more demand for loans than he could supply, and that he had to turn over some very fine feeder loans to the Production Credit Corporation. When inquiry was made as to the reason why the bank did not rediscount temporarily to take care of such loans he stated that the examiners criticised him for showing any bills payable. It was quite apparent that this cashier does not want to borrow money and is disposed to charge the responsibility for not taking these loans to the bank examiners. Minneapolis Northern Half of Montana The majority of the banks visited had most of their excess funds invested in United States Government bonds and high grade municipals; consequently, the matter of depreciation was not mentioned except at two points. Through the advice of a bond service company, one bank disposed of its government bonds two years ago and purchased a considerable amount of railroad bonds, with the result that after the slump in those bonds the bank shows a heavy bond oepreciation^at the present time. A state member bank at another point, which opened for business in 1936 with a capital of #25,000, now shows a depreciation of $9,000 in its bond list. Its managing officer was formerly a national bank examiner and induced several businessmen to provide capital for a bank. -11- R-380-a 26 The price of government bonds is naturally the main topic of conversation. Although the bankers are, of course, greatly elated over the increase in the price of government bonds, nevertheless they feel that some day in the not too distant future, they will go the other direction. A number of bankers stated they felt the price of United States Government bonds was at, or near, its peak, and were frank in admitting they thought it would be a good policy on their part to take their profit at once even though they had to "sit on the cash". Some of the bankers felt that their investment in government bonds was part of their investment program, and, therefore, ignored any fluctuations in bond prices. These same bankers usually keep their bonds until maturity and subscribe to new issues. The exchange situation in Montana is more or less unimportant except in the northeastern section of Montana, where no crops have been raised for years and where exchange is more or less vital to the bank's existence. One bank in the northeastern section of the state showed $8,000 of net profit in 1937, and admitted that $7,300 of that amount came from exchange. However, a number of bankers (some of whom resided quite a distance from this particular point) said that although the bank in question was following unfair practices in connection with exchange charges, and expressed the opinion that it was gouging its customers, nevertheless if they did not make these excessive charges, the bank could not exist. Naturally the business houses in that town felt they had to take it and like it. East Central South Dakota Very few of the smaller member banks route their cash collection items through us. Most of the bankers interviewed stated that they sent their items to their correspondents in order to avoid the additional clerical work required when sending them to us. Some of them said, "Why should we bother to sort our items when our correspondent is willing to do it for us?" It became evident during the interviews that "immediate credit" was important under present circumstances only because of greater ease in making reconcilements at the end of each month. The pressing need of some of the country banks for additional earnings was sharply indicated by the avidity with which some of them stepped out of what might be termed a "purely banking" field. So many bankers were devoting every spare moment of the day and evening to writing hail insurance that it was quite difficult for them to find time for even a brief visit. One banker asked to be excused from a five o'clock appointment Friday afternoon and said he would rather make the appointment for Sunday morning. Another banker had set a quota of $50 per day from hail commissions and when he was invited to dinner shortly after six o'clock he begged off, saying that he still had to make $19 in hail commissions that evening. -12- R-280-a 2 7 * While both float and exchange charges are usual in this section, a few bankers have established reputations for making excessive exchange charges and other bankers are showing some concern over the complaints being made. One small town banker has doubled his income from exchange in the last few years by convincing his customers that it is to their advantage to use checks in place of currency. His campaign has been so successful that he now carries less than half as much currency in his vault as he did just a few years ago. One of the bankers with n rather large bond account reported earnings of $27,000 from trading and selling municipals last year and 1938 earnings from the same source at only a little lower rate. On the whole, bankers reported that earnings were as good as, or better than, in the first five and one-half months last year. A few stated that their earnings were well above the 1937 level and expected them to continue to show an increase. Southern Montana With almost no exception loans and discounts are higher than a year ago. There are very few real estate loans, but on those held, the bank receives 5$ to 6%. The great bulk of loans are on livestock, sheep, and beets. This is a borrowing season. Beet growers whose allotment checks have been delayed have borrowed heavily to pay for hand labor. In most of the banks there exists a condition where loans are up in about the same percentage that deposits are down. In a few banks both loans and deposits are definitely up, and in one or two banks loans and deposits are down. Agricultural paper draws between 8% and 10%, 8% being the lowest rate charged by practically all of the banks, with exception granted to large borrowers at rjo. Some of the larger banks are working into personal loan business with rates from 8% to 11%, or at a slightly lower rate on a discount basis. The Montana banks carry very little automobile paper. Kansas City During the month of June, representatives of this bank made calls on numerous banks—especially in Colorado and Wyoming—and attended a number of important bankers' conventions. In general the agricultural situation is the best in years. With the exception of New Mexico, the heavy rains continued throughout June. In some parts of the District excessive moisture damaged wheat and delayed corn. At the beginning of the month it appeared that Kansas might raise 200 million bushels of wheat. Harvest, however, has shown that the heavy freeze in early April did more damage than was anticipated. Excessive rains, rust damage, and hail will also reduce materially the Kansas crop. -13- R-280-a 28 For a time there was much anxiety about Nebraska wheat because of the danger of rust. But latest reports are that, while the early June estimate of more than 70 million bushels was too high, an unusually good crop will be harvested. Both Colorado and Wyoming have good lamb crops and producers are hoping for 5^. to 6 cents a pound. The ranges of Wyoming are in the best condition in years and cattlemen are talking of 8 or 9 cents a pound for fat steers off the grass, although such prices are regarded as somewhat optimistic. With present feed supplies Wyoming is short of cattle but this is regarded as not unfavorable in that it will give the ranges an opportunity to recuperate from the preceding years of drought. The sugar-beet crop of Colorado is in good condition although there has been considerable hail damage in the northeastern part of the state. Colorado bankers report a tendency of loans to expand and it appears there may be some rediscounting. Conditions in New Mexico are least favorable. In sharp contrast to the rest of the District, this state lacks moisture and large areas in the northeastern part are badly infested with grasshoppers. In northeast Nebraska where a fair corn crop was produced last year bankers report an increase in the number of cattle and hogs on the farm. Deposits are said to be on the increase and the demand for loans is a little more active. About half of the farmers in that region are cooperating with the Government crop program, but there is much criticism of the severity of the acreage reduction feature. Farmers who are cooperating are doing so more as a hedge against lower prices than from a desire to cooperate. The question of personal loans is receiving growing attention. In the same bank there is often a sharp difference of opinion among officers, but there appears to be an increasing number of bankers who are convinced that times have changed and that banks must cultivate this type of business. In some cases banks are sending officers to the larger city banks to study their experience with these loans. In regard to membership in the Federal Reserve System, it appears that capital requirements are a deterrent to some banks. Few banks are willing to increase their capital under present conditions in order to become members. Some nonmember banks also express the opinion that member banks in the not too distant future may be required to purchase Government securities on a quota basis. There is little sentiment among banks for any relaxation in bankexamination standards. Banks are sympathetic with the endeavor of the Government to loosen credit and make capital available to worthy borrowers. But at the same time they take the position that the banker is the best judge of credit risks and that every incentive now urges him to make sound 29 -14- R-280-a loans. The proposal to permit banks to deal in local investments even though these securities are not listed on well-known exchanges is commented on favorably. The feeling is expressed that the classification of so-called slow paper is a matter of opinion and that some such classification has much to be said for it as it gives the banker the outside judgment of the bank examiner. Sentiment in this region is better, but operating results are little changed. Retail sales in recent weeks have been erratic due probably to weather conditions. Wholesale and retail inventories are down sharply from a year ago. Rather drastic proration agreements are holding down the production of oil, a condition that is limiting the capacity of this industry to consume steel. The outlook for construction is, on balance, probably bettor. Dallas Northwest Texas Fifteen member banks and three nonmembers were visited in the tier of ten counties extending along the northern boundary of Texas and into the Texas Panhandle. Cotton, wheat, cattle and oil are the important economic mainstays of this region. Suffering from the most destructive invasion of grasshoppers that this section of Texas has experienced in thirty-seven years, agricultural producers are faced with the double task of saving their own crops (already curtailed by voluntary acreage reduction under the government's farm program for 1958) and of preventing the grasshoppers from migrating to other sections of the State which have not yet been attacked. Poisoning on a huge scale has been resorted to with fair success as a means of halting their depredations in this area, and in this war of extermination the farmers have had the benefit of liberal assistance both from local banks and from, the federal government., Complaints ing all crops with well as cotton and with fully matured were heard that the grasshoppers this year are attackequal voracity - including wheat and other grains as row crops. In many wheat fields the ground is strewn wheat heads, mowed off, as with a knife. The demand for agricultural credit in the section covered by this report is about the same as, or slightly greater than, a year ago. Calamities like floods, storms and insect infestations usually augment the demand, and these influences may account for the sustained flow of loans in this territory where otherwise such factors as reduced plantings, government payments and the like would be expected to cause a diminution in the need for bank credit. Investment policies of the banks in the visited area showed wide divergences, ranging from the policy of purchasing no investment securities -15- R-880-a 3 0 whatever to that of employing equal amounts of funds in bonds and loans. Generally, however, the smaller banks carry only nominal investments in securities, finding it necessary to keep employable funds loaned out in order to maintain their earnings at the required levels. As a group the banks covered by this report show a substantial appreciation in their bond accounts. A few of them are selling a portion of their holdings, partly for profit-taking purposes but principally in order to switch from long maturities. Fewer complaints than usual were heard in regard to bank earnings. New fields of revenue are being developed in some communities, such as automobile loans and other types of installment paper, FHA title II loans, tractor notes, etc. In other cases the demand for agricultural credit has increased, and not a few banks were found to be carrying large investments in cotton producers' notes eligible for purchase by the Commodity Credit Corporation. North Louisiana Banks report that they are reluctant to make further investments at this time in high-priced government bonds. There is a general tendency to switch from the long-term issues to the shorter maturities, due to a feeling that current market prices of the former are too high to justify their retention. Southwest Texas The only complaint heard was a mild one in regard to reserve requirements. Considerable interest was manifested in the revised examination procedure recently adopted by the various supervisory agencies - particularly with respect to the treatment of assets heretofore classified as slow. Every banker who discussed the subject felt that quality should be the determining factor in appraising and classifying loans. A heavy per-acre yield of cotton is in prospect. Weather conditions have been ideal for the growth of the plant and parasitic attacks have been light. Producers are uncertain and confused as to the method to be used by the government in collecting penalties for excess production. They are also uninformed and apprehensive as to the government's plan for making loans against the new cotton crop. San Francisco Puyallup Valley. Washington Conditions in the Puyallup Valley, which is an area devoted principally to berry raising, small fruits, hops, and dairying, are not entirely satisfactory. It was reported that, while a normal crop of cherries, raspberries, and blackberries is anticipated, prices are expected -16- R-280-a to be poor owing to the fact that there was a large carry-over of canned berries from last season. A normal crop of hops is expected in the valley, but owing to the unsatisfactory prices offered for contracts many of the growers, hoping that later in the season better prices may obtain, have refused to sign up. The dairymen are somewhat discouraged by the low prices for butter fat. A few industries which are operating at Puyallup and Sumner, such as a large yeast plant, box factories, and small mills, are in a satisfactory condition, and their payrolls have been steady, adding to the prosperity of these communities. Snoqualmie Valley. Washington Conditions in the Snoqualmie Valley, which includes Buvall, Carnation, and Issaquah, are not entirely satisfactory. Logging operations are continuing on a small scale. Most of the timber in the valley has been logged, and payrolls have consequently been materially reduced. Otherwise, dairying is the principal industry and is at present in an unsatisfactory condition owing to the poor price of butter fat. Utah and Southern Idaho General business conditions in the area visited are less satisfactory than they were one year ago, particularly due to lower prices prevail ing for agricultural crops in general (except sugar beets and green peas), wool, butter fat, and eggs, and to the outlook for definitely lower prices for lambs from the ranges next fall. Metal mining is relatively inactive, with some of the important producers completely shut down, and in the coal mining region of Central Utah the activity is estimated at 80% of the usual activity at this season of the year. Retail sales are said to have been showing a material decline recently over the same period one year ago, with the exception of sales of foodstuffs, the volume of which, though under last year, has been fairly well maintained. The outlook for agricultural production is very favorable for maxi mum. yields. The growing season has been favorable for satisfactory growth with above average frequency of rainfall, and supplies of water in storage for irrigation purposes are adequate, in fact better than for some years. The production of berries and soft fruits has been above normal, and the outlook is for large crops of the later maturing fruits, also. Livestock ranges are in excellent.condition, and there has been a fairly substantial increase in the number of cattle, both dairy and range, during the past two years, largely in refilling herds depleted during the preceding drouth period. Last estimates are that an average lamb crop will be marketed next fall, and some beef, carried over from last winter's feed lots, will be marketed early commencing in the month of August. BAM. RELATIONS ACTIVITIES OF FEDERAL RESERVE BASKS JUNE, 1938 Federal Reserve Bank Visiibs to Banks NonTotal Member member Meetings Attended Number Attendance * Addresses Made Number Boston New York Philadelphia Cleveland 44 146 82 62 10 69 26 12 54 215 108 74 3 10 1 8 Richmond Atlanta Chicago St. Louis 33 23 186 97 33 16 74 120 66 59 260 217 6 None 4 5 4,974 2,025 2 None 1 5 Minneapolis Kansas City Dallas San Francisco 125 27 87 36 146 17 13 18 271 44 100 54 8 5 2 20 3,715 1,509 260 5,074 1 1 None None ^Attendance not reported ^Attendance at one not reported 3,560 1,500 3,054# 1,675 — — None 3 1 1 Attendance — 955 50 59 515 — — 27 1,400 500 1,000 — — — —
@FedFRASER