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X-3083 · FEDERAL RESERVE ST.ATD~T BOARD FOR THE 'f!RESS For release in afternoon papers, Friday • .April·l, 1921. CONDITION OF TRE ACCEPT.ANCE MARKET The following reports hav'e been received from the Federal Reserve Banks concerning the condition of the acceptance market in their respec~ tive Districts: District No. 1 (Boston) ''The acceptance market dnring the month has been somewhat spotty. In the latter part of February there was a fair demand, which, however, subsided as the date for payment of the first installment of the Federal income tax approached. ~his eaused tates to strengthen to 6 per cent; thereby developing a fair volume of buying, the demarrl coming largely from savings banks and corporations. The heavy demand from commercial banks, both out-of-town and in Boston, is rather surprising in view of provision which these institutions had to make for tax paymentspresent time the bill market is improving, a rate of prime bills becoming more common. very few bills as ~irect At the 5-7/S per cent for The Federal Reserve Bank is holding purchases in its own portfolio, nearly 50 per cent of its present total holdings being carried for bill brokers on short term agreements." X-3083 - 2- Di§trict No. 2 (New Yo~k) In the last week of February. a comparatively light supply of bills, particularly of· the 9o-day ma.turi ties, coupled with a. broad demani, caused dealers to lower their rates. Rates on New York memlter bank 90-·da,y bills, which had been offered at 6 per cent, declined to 5-3/4 or 5-7/8 per cent~ This action resulted in a. reduction of sales and an increase in dealers 1 bill portfolios. Subsequently most of the dealers restored their rates to 6 per cent. Fluctuations in buying occurred chiefly in New York City, as demand from interior banks was generally well maintained, and the mrket continued to broaden to include new buyers. The reduced volume of New York City purr chases led to a. slight reduction in aggregate sales as compared with the total for the thirty days prior to February 20. District No. 4 (Cleveland) "Although there were outward indications of i~roved conditions in the District, the acceptance market for the month was weak and erratic. The volume of acceptance transactions decreased to a level as low as that of December of last year- In spite of this inactivity, the rates fluctuated back and forth 1/8 of 1 per cent in an endeavor to bring about a balanced market. The changing of rates, however, had no noticeable effect in bring- ing more bills into the ~Arket or increasing the demand. In the early part of the month the weak demand for prime paper exceeded the supply. rt indicated that transactions culminating in the creation of bankers ' acceptances seemed almost at a standstill, but as the month Jlrogressed, more bills came into the market. However, the demand fell off. due to the anticipated withdrawals of Federal income tax payments and to the issuing of block of United States Certificates of Indebtedness. another Thus fnr the first time in several months the acceptance market felt the pressure of Government borrowing. X-3083 - 3 ... The increased supply of bankers 1 acceptances during the latter part of the month gives encouraging indications of renewal of business. the first During six weeks of this year the supply of bills came from the comple- tion of expiring acceptance agreements, and the lull in the market, which we have just passed through during this month, seems to have marked the bottom, for already new names are appearing on the bills against domestic shipments, warehouse receipts, and foreign transactions. as Although the volume is not/great. it indicates new business is developing. The present rates for prime bills are as follows: Und.er 30 days 30 to 6o days Eb to 90 days 5- 3/l~lfl to 5-7/5% 5-7/8% to 6f, ffJ, to 6-1/81> During the past rrDnth, some few import bills from the Orient have again been seen in the market but the principal volume of new paper has been drawn against imports of sugar, silk, coffee, wool and burlaps, and exports of cotton, grain, packers' products, other food stuffs, and tobacco. Also finance bills for providing dollar exchange for South America have been offered in rather substantial volume. The minimum buying rate of the Federal Reserve Bank remained unchanged at 5-3/4 to 6 per cent, according to maturity, for indorsed New York member bank bills. 367 -4- X-3083 District No. 7 (Chicago). 11 The market for acceptances has widened considerably. Reports from one large firm show an increase of 200 per cent in. the number of customers, over February were Feb~ry, 5t to 6 per 1920. The range of rates reported for cent. Conmdential inquiry in Chicago re- garding volume and rates on bankers' acceptances Shows that five lead- ing banks and one dealer handled during February the following: Total bankers acceptances b~t luring month -------$25,887,409 Total bankers acceptances sold during month --------- 24;763, 067 Total bankers acceptances held during month --------- 4,142,013 Selling Rates of Prime Bills: 30 day maturity -------~--------60 day maturity ----------------90 day maturity ----------------- High Low 5i% si'fo 5-7/8% 6% 5-5/s% ~ Trade acceptances have not as yet developei as an operi market factor. ~ey are mostly discounted by the b.older 1 s banker and retained by the bank. n District No. 8 (St. Louis) "'lhe marke1; for bankers' acceptances wnich had been very liroi ted until toward. tb.e end of February a.tld the first week of Maret., developed a change for the better, a brisk demand appearing. !lhis demand came from St. Louis financial institutions, scattering country banks, and · ... corp9rations having surplus funds to invest. fue market continu.ed. active for two or three weelr..s but during the past ten days lost its spontaneity~· Rates for uneniorsed prime bills range from cent, according to maturity." Bi% to 6-!- per -5- X-3083 District No. 10 (Kan§as City). "Considerable interest is being awakened. among bankers of the Sou~west . in trade financing, witL particular reference to promoting foreign demand for the products of this District. There are also some eviiences of interest displayed by bunkers in bankers 1 acceptances, but the heavy demands on this District for a large production and marketing of necessities are absorbing their available funds; and thus at present ~eir institutions are not in position to ance market. in~~st heavily in ~e accept- Tne Federal Reserve Bank dt tLis time has only coropara- tively small holdings of bills, due mainly to the fact that rrember banks• requirements are heavy. 11 District No. ll (Dallas) "Offerings of bankers' acceptances on very limited for some time. t~is th~ At the close of local market llave been Feb~ry our investment in type of paper amounted to only $38,924.43, ;vhich comparas with a total of $1,?54~000.00 at the close of February, 1920. On account of the fact that the banks of District No. 11 (Dallas) ha.ve found it necessary to carrt over a large proportion of the indebtedn3ss of their customers maturing last fall, >vhiCh, but for tbe d~pression in demand for farm and ranch products, would probably have been retired at that time, there has been no surplus of funds available for investment in the open acceptance market. cial paper, tion. The same condition is tX"'Ue wi tb. respect to commer- A year ago conditions were just the reverse of this situa- The sale of 1919 farm products at his;P. prices had enabled the ·, -6- X·3083 farmers to retire tr.eir indebtednass, and, in addition, to build up substantial deJ?osi ts with their banks. A part of tl:.e excess funds tl=.us ac- cumulated in banks found an inves ti::.ent outlet in the form of a.ccept;mces and bills bought in open market. A large proportion of tl.:.is paper, of course, originated in the North and East. coniitions in the Southwest is Wl:.en tl:.e restoration of normal accomplisl~ed, a resunption of investment operations in tr.e acceptance market by banks in a ~~dium of financing ~~o ~ovement District (a practice w.lidh of ~eretofore ~~e Dallas District as co~odities wi~in and into this Las been locally followed in only a. very limited. way) will steadily increase as our banks become better acquainted with the advantages of tl:.is type of paper as an instrument of credit. ~e number of accepting banks in this District is sma.ller just now than usual, due largely to the fact tl:.at farm products r.ave moved so slowly during past fall and winter ~at ordinary forms of bank credits generally been preferred as a means of financing commodity movements.• ~ave
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