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X-3236 FEDERAL RESERVE BOARD STATEMENT FOR TEE PRESS For r e l e a s e i n a f t e r n o o n p a p e r s , Wednesday, November 2, 1921. CONDITION OF THE ACCEPTANCE MARKET The f o l l o w i n g r e p o r t s have "been r e c e i v e d from t h e F e d e r a l Res e r v e Banks c o n c e r n i n g the c o n d i t i o n of the a c c e p t a n c e market i n their respective Districts: DISTRICT NO. 1 (BOSTON) The r a t e b a s i s a t which Bankers' Acceptances s e l l r e f l e c t s a f u r t h e r s o f t e n i n g of the market, the r u l i n g r a t e f o r prime 90-day unendorsed a c c e p t a n c e s now b e i n g 4^ p e r c e n t . Active demand h a s sprung up f o r t h i s c l a s s of p a p e r , corporations' 1 w i t h i d l e money, owing t o b u s i n e s s s t a g n a t i o n , b e i n g l a r g e b y e r s . For such, bank- e r s ' a c c e p t a n c e s o f f e r an e x c e l l e n t form of l i q u i d investment pending business r e v i v a l . X-3236 11 g DISTRICT NO. 2 (NEW YORK) D e a l e r s ' "bid r a t e s f o r priire b i l l s were lowered l / 4 of one p e r c e n t t o 4 5/8 p e r cent e a r l y i n October r e f l e c t i n g e a s i e r t e n d e n c i e s i n money markets, i n c r e a s e d investment demand and moderate supply. D e a l e r s 1 s e l l i n g r a t e s were lowered i n p r o p o r t i o n and prime b i l l s from 30 t o 120 days m a t u r i t y s o l d a t 4 l / 2 p e r c e n t d u r i n g the l a s t t h r e e weeks of October, a s compared w i t h 4 3 / 4 p e r cent a month ago. Pruchases by i n t e r i o r banks were somewhat r e s t r i c t e d because of the lower r a t e b u t s a l e s to these banks and f o r f o r e i g n account cont i n u e d t o c o n s t i t u t e a s u b s t a n t i a l p o r t i o n of t o t a l s a l e s . Large New York banks purchased f a i r amounts of b i l l s g i v i n g p r e f e r e n c e i n some c a s e s t o the s h o r t e r m a t u r i t i e s . B i l l s drawn a g a i n s t export shipments of c o t t o n and g r a i n were, a s l a s t month, the most numerous of t h e new o f f e r i n g s , w i t h c o t t o n b i l l s i n c r e a s i n g s l i g h t l y d u r i n g October. B i l l s c o v e r i n g imports of raw sugar mainly of 30 t o 60 day m a t u r i t y , were n e x t i n importance, and because of t h e e a r l y m a t u r i t y were i n good demand. Dealers r e p o r t e d somewhat l a r g e r supply of b i l l s drawn f o r t h e purpose of f u r n i s h i n g d o l l a r exchange. The number of i n v e s t o r s i n b i l l s continued to expand. Two d e a l e r s who maintained r e c o r d s of new names added to t h e i r l i s t s of acceptance b u y e r s r e p o r t e d 24 a d d i t i o n a l p u r c h a s e r s w i t h i n a p e r i o d of t h r e e weeks. lias - 3- x-3236 DISTRICT NO. 3 (PHILADELPHIA) fi further easing in the selling rates of bankers 1 acceptances has been noted during the past month, and rates novv average l / 4 per cent lower. Rates on prime b i l l s of member banks are 4g per cent for maturities up to 90 days, and 4-5/8 per cent for ISO days. cent above these rates. Non members 1 "bills as a rule are l / 4 per The general improvement in monetary conditions is said to be mainly responsible for this change. One dealer makes the follow- ing comment: "The lowering of the discount rate by several of the Federal Reserve Banks has confirmed the tendency toward lower rates for acceptances in the open market rather than served as a factor in causing such decline. The decline in rates has been brought about primarily by the easing money situation and the decreased supply of b i l l s . " Other letters lend support to this view, and i t i s further stated that the security market has not been sufficiently active to absorb the large amounts of money that have been loanable on c a l l . The issues of United States certificates of indebtedness combining a slightly higher yield with the unquestioned security of the Government have tended to restrict sales of acceptances, but judging by the enormous oversubscriptions to such issues, they have evidently not absorbed the entire available supply of short-term investment funds. Bankers' acceptances are finding a ready market; in fact, dealers state that they are not available in s u f f i c i ent amounts to satisfy the demand. Sales by four dealers in this District during September were 16 per cent below those of .August. principal purchasers. City banks are the A large amount of buying for foreign account is also reported, and this i s being handled through private banking houses and the Federal Reserve Bank of New York. 1189 - k x-3236 - # • The f i n a n c i n g of f o r e i g n t r a d e i s r e s p o n s i b l e f o r t h e h u l k of the acc e p t a n c e s executed l a t e l y , h u t no a u t h o r i t a t i v e d a t a a r e y e t a v a i l a b l e r e g a r d i n g the d i s t r i b u t i o n of t h e s e r i n s t r u m e n t s over the v a r i o u s c l a s s e s of t r a n s a c t i o n s - f o r e i g n t r a d e , d o l l a r exchange, warehousing, and domestic shipments# I t i s s t a t e d , however, t h a t warehousing b i l l s have remained p r a c - t i c a l l y unchanged i n volume. Cotton, g r a i n , tobacco and s u g a r b i l l s have > formed a l a r g e p a r t of r e c e n t t r a n s a c t i o n s covered b y a c c e p t a n c e s . Reports f r o m twelve member banks i n t h i s F e d e r a l Reserve D i s t r i c t show a d e c r e a s e i n the volume of a c c e p t a n c e s executed d u r i n g t h e month ending Oct o b e r 10, b u t a c o n s i d e r a b l e g a i n i n the amount o u t s t a n d i n g over t h a t of the p r e c e d i n g month: 1921 - March 10 .April 10 May 10 June 10 J u l y 10 August 10 September 10 October 10 Executed d u r i n g •preceding month Outstanding on d a t e given $5,325,000 4,558,000 5,611,000 2,795,000 3,121,000 4,852,000 5,312,000 4,507,000 $14,127,000 13,234,000 12,892,000 10,798,000 9,286,000 8,756,000 9,009,000 9,902,000 DISTRICT TfQ« 4 (CLEVELAND) Of twenty r e p o r t i n g a c c e p t i n g b a n k s , seven i n d i c a t e a c c e p t a n c e s executed f o r customers d u r i n g September, $2,865,122, and e l e v e n banks r e p o r t acceptances p a i d d u r i n g the same:period, $3*561,964. Predominating c l a s s i f i c a t i o n s a r e c o a l , o i l , and t r a c t o r s f o r domestic shipment* B a n k e r s 1 a c c e p t a n c e s bought by the F e d e r a l Reserve Bank of Cleveland d u r i n g September, 1921, amount t o $3,168,127, and the amount p a i d t o $2,808,507« The a c c e p t a n c e market was i n a c t i v e throughout t h e month. B i l l s were s c a r c e , and t h e r a t e s s t e a d i l y d e c l i n e d to t h e i r p r e s e n t l e v e l of 4g p e r cent* 11G . 5 . T-3236 This was p a r t l y due t o the s c a r c i t y of b i l l s and t o the lower l e v e l of c a l l money r a t e s i n New York. I n d i c a t i o n s through t h i s c r e d i t i n s t r u m e n t show a g e n e r a l l i q u i d a t i o n of f r o z e n c r e d i t s w i t h domestic shipments b e i n g s o l d i n 11 spot" and otherwise being taken c a r e of through the c h a n n e l s of s t r a i g h t l o a n Few b i l l s o r i g i n a t e d a g a i n s t domestic shipments and on warehouse r e c e i p t s The m a j o r i t y of b i l l s , accepted by the banks i n the D i s t r i c t , were p a r t i c i p a t i o n s of old s y n d i c a t e s and a few b i l l s a g a i n s t f o r e i g n t r a n s a c t i o n s * The demand throughout the month has remained p r a c t i c a l l y t h e same as i n t h e p r e v i o u s month. f a l l , t h e r e was a moi In the f i r s t 55ntarv week o r so, when the r a t e s f i r s t began t o "but as the month p r o g r e s s e d and i d l e funds accumulated, the c a l l f o r b i l l s became strong* As the market could n o t supply t h e need f o r prime b i l l s , t e m p o r a r i l y i d l e f u n d s were d i v e r t e d i n t o o t h e r channels. The r a t e s f o r prime e l i g i b l e b i l l s a r e as f o l l o w s : Under 30 days 30 t o 60 days 60 t o 90 days 4il t o 41 p e r c e n t 4 i t o 4§ p e r c e n t 4 i t o 4% p e r c e n t d i s t r i c t #0. 6 (atlawt.a) Reports from a c c e p t i n g member banks i n t h e D i s t r i c t r e f l e c t l i t t l e a c t i v i t y i n acceptance market c o n d i t i o n s . acceptances * Most of t h e banks r e p o r t no d e a l i n g s i n A few of the r e p o r t s show domestic a c c e p t a n c e s executed d u r i n g September t o b e somewhat l a r g e r than during August, w h i l e f o r e i g n a c c e p t a n c e s executed d u r i n g September were, i n the a g g r e g a t e , about t h r e e tiroes t h e amount d u r i n g the p r e c e d i n g month. Acceptances purchased i n the open market b y the F e d e r a l Reserve Bank d u r i n g September> however, were approximately 577 P e r cent l a r g e r than d u r i n g August, and i n t u r n were l a r g e r than f o r any month s i n c e F e b r u a r y 1920 ~6 - X-3236 DISTRICT NO. 7 (CHICAGO) Revised s t a t i s t i c s , comriled so t h a t banks do n o t i n c l u d e i n p u r c h a s e s b i l l s which t h e y themselves have a c c e p t e d , n<r p u r c h a s e s and s a l e s of b i l l s f o r account of s p e c i f i c c u s t o m s r s , a r e a s f o l l o w s : ( I n Thousands of D o l l a r s ) Twenty-nine banks B i l l s bought B i l l s sold . . Held a t c l o s e of month . . . . Amount a c c e p t e d . . - . . . . . . September August July 7,858 16,525 6,728 11,800 8,685 23,763 5»77^ 20,729 11,847 24,571 22,651 Included i n t h e s t a t i s t i c s a r e t h e s e of -one bank which does a l a r g e brokerage business in bankers' acceptances. These r e p o r t s from banks i n the Seventh F e d e r a l Reserve D i s t r i c t show a c o n t i n u e d d e c r e a s e s i n c e J u l y 1, i n b i l l s a c c e p t e d , bought and s o l d . The only item t o show i n c r e a s e i s b i l l s h e l d a t the c l o s e of t h e month. DISTRICT NO. g (ST. LOUIS) During t h e p a s t t h i r t y days the acceptance market has b e e n c o n s i d e r a b l y more a c t i v e than f o r some time p r e v i o u s - The l a r g e r banks of t h e D i s t r i c t have d i s p l a y e d more i n t e r e s t , i n v e s t i n g r a t h e r f r e e l y and r a t e s of d i s c o u n t have d e c l i n e d . Prime unendorsed b i l l s a r e now s e l l i n g a t about 4^ p e r c e n t , which i s the l o w e s t q u o t a t i o n f o r many months. DISTRICT NO. 9 (MIMMPOTIS) During t h e month of September more than $169,OCX) w o r t h of t r a d e a c c e p t ances were d i s c o u n t e d by t h e Minneapolis F e d e r a l Reserve Bank;« This i s i n c o n t r a s t w i t h t h e t o t a l of $329,000 i n t r a d e a c c e p t a n c e s d i s c o u n t e d d u r i n g • the month of August. Last y e a r between .August and September, t h e r e was a l s o a d e c l i n e i n the amount of t r a d e acceptances d i s c o u n t e d from $289,000 to $166,000 1 1 9 0 - 7 - 7s.-y.jjG During September, t h i s bank d i s c o u n t e d more than $10,000 w o r t h of bankers ' acceptances. September was t h e f i r s t month s i n c e June i n which t h i s Bank d i s c o u n t e d any b a n k e r s ' a c c e p t a n c e s d u r i n g 1921. There were no purchases durinp September of b a n k e r s ' a c c e p t a n c e s , t r a d e a c c e p t a n c e s , or d o l l a r exchange.- The r a t e s f o r the d i s c mint and purchase of a c c e p t a n c e s remained unchanged d u r i n g September. DISTRICT WO* 10 (KANSAS CITY) During the p a s t 10 t o 60 d&y$ the acceptance market i n t h i s D i s t r i c t has been q u i e t , due l a r g e l y t o the d e c l i n e i n f o r e i g n t r s i e a c t i v i t y * The F e d e r a l Re- s e r v e Bank i s c a r r y i n g something over $1,000,000 of bank a c c e p t a n c e s based on Oklahoma c o t t o n , b u t a t t h i s d a t e i n October i s c a r r y i n g p r a c t i c a l l y no a c c e p t a n c e s b a s e d on wheat and f l o u r f o r e x p o r t DISTRICT NO. 11 (DIT.TJR1 I n q u i r i e s d i r e c t e d t o a c c e p t i n g banks d e v e l o p the f a c t t h a t t h e r e was a. s u b s t a n t i a l i n c r e a s e i n September of o u t s t a n d i n g a c c e p t a n c e s c r e a t e d i n t h i s D i s t r i c t , the t o t a l on September 30th b e i n g $2,486,000. an i n c r e a s e of $1,530,000 s i n c e August 31st* which r e p r e s e n t s Most of t h e s e a c c e p t a n c e s were based on domestic shipments and s t o r a g e of goods. DISTRICT NO. 12 (SAN FRANCISCO) The noteworthy f e a t u r e of t h e san F r a n c i s c o b i l l market d u r i n g the month ending October 1 0 t h was the s t e a d y d e c l i n e i n r a t e s - From 5$> a t which f i g u r e i t had remained f o r ove r a month, t h e r a t e f e l l s u c c e s s i v e l y t o 4 - 7 / 8 $ , 4 - 3 / 4 $ 4 - 5 / 8 $ , and f i n a l l y 4 - 1 / 2 $ on October 1 1 t h . This decline i s a t t r i b u t e d to the pronounced e a s i n g of t h e c a l l money and b i l l r a t e s i n the E a s t . In s p i t e of % t h i s d i m i n u t i o n of r e t u r n on a c c e p t a n c e s , demand i s r e p o r t e d t o have been f a i r l y w e l l m a i n t a i n e d throughout the month. N o r t h e r n C a l i f o r n i a and t h e P a c i f i c Northwest c o n t i n u e t o accept over 90$ of the b i l l s drawn i n t h i s D i s t r i c t , and * > • 1133 — &— t o buy 80# of a l l acceptances sold h e r e . X-5336 B i l l s of 120 and 150 day m a t u r i t i e s have become more p o p u l a r , d o u b t l e s s due t o a n t i c i p a t i o n of f u r t h e r r a t e dec l i n e s i n the immediate f u t u r e . M a t u r i t i e s of b i l l s purchased d u r i n g the month ending October 11th were d i v i d e d roughly as f o l l o w s : 30 60 90 120 150 day day day day day - 26.0# - 25-0# - *42 *5# - 6.0# - 0.5# B i l l s o r i g i n a t i n g i n t h i s D i s t r i c t a r e s t i l l somewhat l a r g e r i n t o t a l amount than they were during the summer months, d o u b t l e s s due t o cont i n u a t i o n of crop m a r k e t i n g . The t h i r t y - s e v e n p r i n c i p a l a c c e p t i n g banks of the D i s t r i c t r e p o r t e d t o t a l September purchases of a c c e p t a n c e s of $5 »99^»OCO compared w i t h $2,996,000 i n August* Of the $ 5 » 9 9 0 0 0 p u r c h a s e d , $2,118,000 r e p r e s e n t e d b i l l s drawn i n t h i s D i s t r i c t , based p r i m a r i l y upon canned goods, wheat, s u g a r , and c o f f e e . These t h i r t y - s e v e n banks r e p o r t e d a t o t a l of $11,480,000 acceptances held a t t h e c l o s e of September compared w i t h $4,075,000 on hand at the end of August. Rates i n the open d i s c o u n t market at the end of the p e r i o d were as follows: E l i g i b l e member banks E l i g i b l e non-members 30 days 4-1/2# 4-3/4# 60 days 4-1/2# 4-3/^# 90 days 4-1/2# 4-3/^
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