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X-3157
FEDERAL
RESERVE
BO.\RL'
S'l'A'I.'MN!' FOR THE "DRESS
. For Release in Morning pap~rs.r
Friday, July g) 1921~
I.
The following is a review ot the 13.X.}erience
and developmen~ of the Federal Reserve System
during the year ending June 30J 1921 . . which is
to appear in the forthcoming (July) Federal
Reserve Bulletin :1s part of the usual "mid·yaar
Statistical Review".
MID-YEAR STATISTIC4¥ ISSUE. For tha third successive saason the
Federal Reserve Board presents in the currant {July) isst.le of th~
Bulletin a mid·year statistic.al lll.lmber.
Th~ purpose. this year, a.s in
previous statistical numbers, is to continue the review of cu.rrent
financial history, bringing it down tc, June 30, 1921.
As notod on
former occasions; the annual tJport of th-:3 Board suppli~s a g~ner3.l
description and outline of existing ~ondi tione by calandar years. lt
has been thought best; however, to furnish a eriticu analysis from
the statistical standpoint, covering the intermediate p&riods ending
June
30.
The analyais published a ye!l.r ago m JW.y, ).920, revie••ed
the development of conditions up to
w~t
has since turned out to b&
ptac'tically the "peale" of the post-war e.<pansion in ba.nk.ing. currency 1
financs, and business.
Developments during the past ye:lr carry U1e
so-called "deflationt' movement to what seems to be pra.ctically :Us
limit, at least for the time, and exhibit in their full
effe~t
the
factors whose consequences were seen only in an imcomplete form at the
time of the Board's last annU3.l report..
The figures
here'<~ith
submitted
show the character of the conditions which ha·re developed during, the
past. year and illustrate the situation as affected by the process of
X-3157
-2restoring banking and financial soundness.
Five main periods in the history of the Federal Reserve System
were recognized at the outset of the last
November,~ 19llJ-December1 1916: Janllary 1
annu~l
statistic~l
review;
1917-April, 1917; M~y, 1917-
November 11., 1918; November 12) 1918- June, 1919; and July, 1919-June 1
1920..
The better perspective in which past events can now be viewed
would apparently indica.te that the last period should be merged with
the f earth or preceding epoch, rra.Jcing the dates November 12,~ 1918 1
to 1v.lay, 19201 while the .fifth period in the history of the system now
appears as
1920, to the present date 1 or later as subsequent events
June,~
may determine,
The fourth period is thus an "expansion" or "infla.tion11
:eeriod, within which my be recognized, if desired., certain subperiods
marking changes in credit control, while the fifth period is a time of
readjustment.
Characteristics of this latest period have
been~
on
the banking side, red!lction of loans and bills held., retiren:ent of r.ote
Circulation~
~in
ingold1 and liquidation of investments; while on the
business side they have been lowering of production, growth of ur.employment,
falling off of foreign trade. and reaction of prices.
A TURNING POINT IN TRADE AND INDUSTRY.
Although the fact
w~s
not
at the time realized in its full significance, prices, phyaical volume of
production trade and. business in general had reached their peak during
1
May and June, 1920.
As is usually the case, the l1igh point in banking
accommodation came somewhat later.
divided into three
subperiods~
middle of 1920 to early autumn.
the
The year 1920... 21 may, in fact, be
fir~t
extending from shortly before the
During these months there was hes.Ltation,
reluctance to recogniae the fact that a time of recession had a.rrived 1 and
-3-
X-3157
a strong effort to hold prices .. wages, a.nd values in general at the
level which had then been reached.
From early autumn until practica.lly
the opening of spring (1921) there was a steady recession of prices 1
values and wagesl and a period of corresponding readjustment throughout
almost all branches of industry and in almost all countries of the world.
In fact, the downward movement had set in earlier in some foreign coun·
tries than in the United States, many persons re§lrding Japan as having
been the first country to feel the effect of the new business factor$
which were later to make themselves felt elsewhere.
The spring m011ths
of 1921 would seem, in the light of inf oma tion now availa ble 1 to be a
period of approach to equilibrium in certain lines of business and of
preparation for recovery from the
depr~ssed
conditions that had developed.
The changes referred to have# in fact, been practically world wide.
If
anything, they have been less extreme or violent in the United States
than elsewhere 1 not only in
trade generally.
~nking
and credit 6 but in production and
The year 1920-21 has been a period of reorganization.
This reorganization, with its effects, has, like all great business changes,
been dir$ctly reflected in our banking position and in the corresponding
position of banking systems the world over.
While it would appear at the
present time that the period of readjustment is drawing to a close, this
does not necessarily mean that there will be no further movement or recession or that the readjustment process has completed itself.
On the
contn.ry, there are xuany' factors which seem to ll".ake it sure that still
further work in the direction of readjustment must be accomplished before
even
approximat~ ~tability
can be arrived at.
The facts now available,
hcwever. would indica:ta that the main elsments in business and industrial
rece~sion
have made their effects manifest, and that there have been in
810
-4the majority of lines fairly
X-3157
ext~nsive
realignmonts of relationships.
In all this process there has been nothing more m;oteworthy than th.::
effect of readjustment upon our banking institutions.
CHANGE IN RESOURCES..
Comparison betwe;en conditions e.dstir.g during
1920 with those which have been attained at the close of JuneJ 1~21 1
exhlbit the following results:
·Reserves, earning assets, and total resources of Federal Resorve
Banks .
.
(In thousand~ o! dollars)
June 25,
1920.
Oct. 15,
I
I
June 29,
I
1920. - L:_921.
Total reserves I 2,108,605 2,154,911 21 625,458
Total earning
assets....... ),183, 275 3, 421; 976 2~ o6o, 495
Total resourees 6,074,713 6,610,250 5,242,041 ,
Percen~ge change.
June
251
Oct. 15,
Oct. 15,
19201920.
June 29~
--------~ ~19~21~·----+2.2
+24.5
+7.5
-35·3
-13.7
+8.8
As stated a year ago, the capital of the FGderal Rosarve Banks
was figured. as $94,500,000 and total resources as $6, 075~ 000,.000, wheNas
at the present time the corresponding figurJs are $102,l84,000 and
$5,242,041,000.
The change in capita.l for the year has th\.\6 amounted
to S per cent, reckoning the condition at the close of June 1 1920, as a
~sis, whil~
per cent.
tho grad.ual
the aggregate of resources has fallen by
The advance in capital has, as in former years, b0en due to
1
growth of the actual capitalization of the
F.$deral Reserve System already
of new mombers into the system.
admitt~d,
memb~rs
of the
and in part to the movcmJnt
The n3t numbor of new m.tiona.l-bank
·•OIIl>ars admitted during th3 y;,ar endin&
appro~imatelil4
June~
192l, has b(.)en appro.daately
-5251) while their contribution to capital stock may
$813#050.
1'o this
may
b~
Iigur3d as
bo aad.::.d the sum of t1~11~: .. 900 5 abscriL.:l
;.n'>l
i:y
268. . newly admitted State bank and trust company membora, th0 r.:nn::linJ,~r
of the increase in capital of Federal Reserve Banks being due to the
a~tgmatic
enlargement of the stock ownership of former members
du~
to
additions to their capital stock and surplus.
The fact that the system
~s
steadily incr3ased in
numbe~s
and
in strength is in striking contrast with the decline in total resources
which, although moderate, shows, as already remarked}
the peak level.
This decline in rosources has
reduction of the amount of reserve bank
b~~n
adv~nces
th~
raaction from
dl.le to the gradual
and is bsst
refle~tod
in the change in the item of total earning assots, which was roportGd
at the clase of June, 1920, as $3,183 1 275,000, a figure whieh must bo
compared with a figure at the present time of approximately $2,CS0~495 . . ~~0.
The decline of approxi.zrately $1,120,000,000, thus reflected as th0
outgrowth of the year's operations in connection with earning assets
shoUld be compared with the increase in the same item during the year
~nded
June 30, 1920, amounting to $8291 000,000.
The volume of earning
asset$ is therefore now very little less than it was at the close ·of
June,
1919. It is an interesting fact that the rate of reduction during
the second half of the two-year period in question has been fi>O neady.
of the p3riod
identical with the rata of expansion during the first hal~. The pos~tion
of the system pas 'thus been brought well back toward the point at which
it stood ·when the war restrictions upon financial and productive activity
be~n
to be eliminated, not long after the armistice.
in this connection i5 the fact 1 to be
mor~
fully referred to
point, that the redlolction in the amol.lnt of bills held
Of special
bY,·tbe
~t
a
int~rJst
l~ter
Federal
-6Reserve System has been so noteworthy.
X-3157
Bill holdings at tha
clos~
oi
June} 1920~ were not far from $3,000,000,000, while the situation ~t.
the close of June, 1921, showed slightly more than $1 1 800,000,0CO in
A falling"off in round numbers of over one-thir~, or
held
$1,200,000,000, in bills/represents the results of operations during
bills on hand.
the past year.
Included in this reduction 1 it should be noted, has
been a decline in the bills secured by Government obligations, wh1ch
have fallen from approximately $1 1 3001 000,000 at the close of Jun3,
1920, to approximately $648,000,000 a year later:
Other bills dis-
counted amount, at the present moment, to a little less than they
did a year ago, the net conclusion being, therefore, trat to date
tbe process of credit accammodation, so far as the Federal Reserve
Ba.nks are . concerned, has al t.ered but little the amount of commercial
paper discounted, but has taken effect primarily in the restriction
of the loans collateralled by
Gove~ent
war
obli~tions.
X-3157
-7NOTES JND DEPOSITS.
C' .;, "'
t_;_x_r}
Of special interest to the general student
of banking in connection with the operations of the Federal Reserve
System during the past year are the changes in the volume of outstanding Federal Reserve notes as contrasted with changes in the deposit
liabilities of the Federal Reserve Janks.
Comparing the figures given
a year ago with those now corr.piled, it will be found that whereas at the
end of June
1920,
a~proximately
proximately
of over
the volume of Federal Reserve notes in circulation, wa3
$3,117,0CO,OCO, the total now in actual circulation is ap-
t2,634,coo,ooo-
~48o,ooo,oco.
a falling off in round numbers, therefore,
As contrasted with this reduction in the airculat-
ing currency of the system is to be noted a fall in total deposits from
auproximately
1921.
$1,916,oco,ooo
a year ago to
$1,686,oco,ooo
on June
29,
Since there has been but l1 ttle change in the volume of Government
deposits during the year, the reduction which is thus shown to have occurred has taken place priiTArily in member bank reserve deposits and may
be regarded
as
~ounting
to about
~l9l,OOO,OCO.
The remainder of the
decrease is partly due to the withdrawal of foreign government deposits.
This should be contrasted with a growth
in deposits during the precedine
year amounting to about $14,000,000 and a growth in notes of
~617,000,000.
approxim~tely
Attention was called a year ago to the faet that the i~
mense increase in the note circulation during the year 1919-1920 was un·
doubtedly due in some
mea~ure
to the fact that a larger amount of circu-
lating currency was required because of the gr~at advance in prices and
the
~onsequent
necessity of carrying a larger supply of money in pocket
"lith which to meet ordinary requirements.
~ount
of notes in circulation may be
:parallel but opposite in direct.ion.
The recession in the total
~scribed
to a movement exactly
/Is :prices have fallen the factors
alre8.dy referred to have lost in intensity. while other factors '~r-.ichhad
X... 3157
tended to enlarge the circulation of Federal Reserve notes • such as the
them in large
a~ounts
procesa of substituting them for gold and silver and exporttns/to South
~merican and
West Indian countries - have ceased to operate.
same cases the reverse flow has doubtless $et in.
Indeed, in
The significance, there-
fore of the situation is found in the fact that the reduction in 0\lhta.nd..
ing circulation which has occurred represents a correspond.ing change
the aetuel-1 use of notes by the public.
in
The movement of the items "notes"
and "deposits" may be followed to good advantage in the brief table wh'ich
is herewith submitted.
(In thousands of dollars.)
Federal
Reserve
notes in
Dates.
actual
circulation
Total
deposit& of
Federal
Reserve
:Banks.
Net
demand
de:posit$ of
reporting
membet
banks,:__
June 25, 1920 ••
Oct. 22, l920 * •
June 29, 1921 ••
.
.
.,
..
3 116,718
3 356,199
1,91f;, os6
1,816,289
11,347,0111
ll.240,5SS
1, 685,788
9,9S9, 313
J
f
2, ~34.4i5
.Althcugh tendencies in trade and prica·.;
:::'~
foreign countries have been in many respects parallel to those which haw
been observed in the United States, the situation
in respect to banking and credit.
t~s
been widely different
Foreign banking institutions have nQt
•.
shown the reduction either in notes or in deposits which has been Observed.
in the United
States, a.nd such changes as have occurred have apparently
been sporadic and in- a. far less degree governed by
def~ite
influences.
This is probably due to the fact that in many EuroJ>em•-eourttrles 1. t ha.s
been necessary for the Governments to rely far more steadily and rnore largely
on banki~ aid then haa been true in the United StateG, so that the cond.it.i~
r . . ·'" ,.__.. .
{~. ~ ":'-_:, -}
-9prevailing in the c.entral banks of those c ountrie~ have not, as in this
country, directly reflected the condition and needs of
b~siness.
The
two items Which stand out in foreign bank reports as of special interest
to observers in trds country are those of notes and deposits.
The considerable reduction in the circulation of bank notes amounting
to more than 15 per cent in the case of Federal Reserve notes between
June ?5, 1920, and June 29, 1921 , already observed has not been paralleled
abroad.
In England, currency notes to the extent of some t 15,0CO,OCO
have been withdrawn in the course of the year. but bank notes have been
increased
by~
5,000,000, with a resulting net
2 per cent in the total
pa~r
circulation.
decreas~
of ; 10,000,000, or
In France and ttaly there has
been an increase in the circulation during the year, amounting to g per cent
in the first-named and 11 per cent in the last-named country.
In
~rmany
the total of Reiohs-und-Darlehnska.ssensche'lne in circulation amounted to
~3,600,000,000 marks at the end of ~~ay, 1920, and 80,900,0CO,OOO marks on
~ay2S,
1921, or an increase of 27 per
c~t
for the year.
Note circulation- England, France, Italy, Germany.
---------------------·---------·-·,-~
End of-
l1J!!land
:Currency
:and Bank
~of Eng-
. land
Ita}.y
Fra~ ~---..e...::.=.=:.t.---=----.:::-"'Ge·
:
rrr&tiL---
Notes of
Bank of
France
:··.
: notes
:OOO,OCO 1.: 000,000
francs
:
May, 1920 • . · • • • · ·
•·
Ma:y, 1921 . . • · • • • • • · ·
452
442
37,915
'Reiehs··
Notes of
three
und-Dar~
banks of
issue.
lehnskiis~
senscheine ..
-ooo,oco-~·
oco,coo
:
lire
16,861
marks
:
63 ,5Bl~
:_} s ,213_.;_:-----.;lS=-',_,_765~<*""-l)~:_ _o.so=-'.,__3.;c.;.82- - · -
X- 3157
-10-
The note circulation is a more significant factor in the study of
credit conditions on the Continent than in England or the United States.
During the past year deposits of member banks reporting to the Federal
Reserve
Boa~ have decreased almost 12 per
the Federal Reserve Banks 35 per cent.
cent and earning assets of
In England no reduction is
shown betwe~n the end of May, 1920, and W~, 1921, in the deposits at the
Pank of England, while governmem. and other securities held have been
inereased by almost
De~osits
~
ll,OOO,OCO-
- England, France, Italy, Germany.
Eng-
land.l
Tle-nosi ts
""""'~
t:~'f
wi.tb
-
1"n <Z1 ~nd •
,,.,.,.,. ,
Uav~
(1)
(*)
-
,
-
I
Italy
ne'T'Osi ts
wit"h 3
r.a,..,ks of
M'rl!nce.
is~ue-
oco,ooo
ooo,oco
francs ..
lire.
3,751
2,2!.~
I? J 4~1
1
many.
De-nosi ts
wi t'l-t the
'Reict> sn:mk.
000,000
rrarks.
-
. .. . . -. - . ..
...
1C!21 ... •
1021"'
:t
~"00,0('"
.-
"'"'-·----~·---
GerFrancel
'De~osi ts
with
1Ja,..,1< oi"
o""
l:l::~nl.,..
l
118
»
~.041
12~
·..
17,024
1!:_, 09~--'"-
bclul'tes Govcrnrrent and privc>.te de-c-osits
End of ~!arch, 1921
DISCOTM OF wJ\R "Pf.Plffi,
P.s alna.dy observed, :'erha:cs tt.e
rros t int ""resting elerrant of change in the portfGlios o! reserve banKs
i·uring the ::92-st year has been the lessening of
v- e volu..,e
of vva.r ;.:Japer'
or. to u;:;e t:'le tect.nical ex:·pression, "bills discounted secured "ty Uni t:c',
Stetes Governrrent
obliga.ticns~"
These, as alr·cady seen, have fallsn
off to a·t-proxima.tely iF4S,OC;C,OOO.
I
c:,ratifyin.; fe~ture of the :cost-'':s.r
development of the nation's invest-rrent ?end fi.nanc ial rr.ecLanisD"' has b2sn the
ability
t•~at
he.s been shown on -the yart of the put lie to absorb the out-
sta.r"ding obli~:otions
of the nation,
t
oth in s1-,ort and len=- term ferro.
r
X-3157
-11 ...
The existence of substantial investm0nt capacity has laid the foundation"for the absorption of Government bonds and certificates~ while the
policy
of the Treasury Dopartmont in meeting market rates of intorest
has &nabled both member and reserva bants, which had become large holders
of "war
paper"~
ial degree.
to reduce this element ot their portfolios in very mater-
The situation has been well
illustr~ted by
the statement
made by the Secretary of the treasury on Juno g in which he
sh~tad
trat
the amo'Ullt of Treasury certificatee pledged vfith Federal Reserve Banks
was only $55,000,0COJ
while of a tota-l oi
over· $4,000,000,000 of Victory
notes only $1881 000., 000 were in the hands of member banks in leading
cities.
The wholesale transfer of the evidences of Government indebted-
ness from the banks to the people has b3en aided by the Federal Reserve
System, which no longer encourages th& carrying of such paper by
ontial treatment of loans collater.aled by public
obii~tions.
prefer~
During the
year such preference_, originally granted in aid of the placement of Liberty bonds_, has practically disappeared.
The
d.i~position
of investors to absorb and lldigest" Government
obligations. taken in conjunction with the policy of the Federal Reserve
Syst•m already referred to, has tended strongly to curtail the large holdings of paper collateraled by Government obligations which had been built
up
during the war and post-war expansion period in the Federal Reserve Banks.
!'be progress during the year 1920-21 may be contrasted with cb;inges during
the year 1919-20.
At the close of June, 1919,
tn~
total ??lume of paper
secured by Government war obligations held by Federal Reserve Banks was about
$1,.573.~
0001 000_, and operations during the following year had reduced the
amcunt 'by only $300, 000, 000..
mor-e than twice as rapid.
Progress during the past year has thus 'been
The situation is reflected in
·
141
'----'-;
the following table:
X- 3157
-12-
Holdings of :Bills Discounted by Fede!'al neserve Eanks.
(In thousands of dollars}
June 25,
1920.
Secured by Governl'!"ent war o~ligations •...........• 1,277,950
All other
1,153,814
••••
l From Sept ..
#
•••
3.
Sept. 3.
1920.
Dec.
1,332,892
1,412,035
1,160, 685
647 '761 .2 51.4
1, 616,116 1,123. 80lt
3G·5
1920.
June 29, 1 'Pe rctm tA.ge dec rea.se
1921.
l
·---------
J ..
2 From Dec. 3
RESERVE CH.PN<gi$. As during the year 1913-20, so during the :past
year, the primar.y changes in the reserve situation of the United States
have been due to alterations in gold holdings.
The s trildng feature of
the year has been the resumption of gold movement into this country,
·~ith
the result that the gold reserves of Federal Reserve Banks have
been increased to the extent of about
~493,000,000.
The following brief
table shows the movement of reserves as between the close of June, 1921,
and the
corresponding date a year eatlier.
(CCC omitted)
June 2.9,
121.
Total gold reserves...........
$2, 1,931
-L~e~a~l~t~e~n;d~e~r~n~o~t~e~s~~~~~~~~~~~~----1~6~3~--
Per eent of
increase.
25-0
17-5
-..-
Changes in the gold position of the United States were of such
significant importance as to call for special review in the June. 1921,
issue of the Bulletin, where they were fully set forth, and they n;ed
receive only brief trea.tn:ent at this point.
specie history of the United States
As was then explained, the
since the end of November. 1916,
approximately the date of the armistice, may be divided into two periods,
the first extending from that date through August, 1920; the seeond frcm
the close of August, 1920, to approximately the present
titt~.
During the
.
.
X- 31'57
-13first of these periods gold was moving
~argely
out of the United
States, although from April to .August, 1920, the mo•1ement was sorH!...
what irregular, while during the second of the periods the movement
has been reversed.
Roughly speaking, therefore, the year now under
consideration coincides with the dates within which the reversal of
this gold movettsnt has occurred.
The total net importations of
gold from the close of June, 1920, to June 10, 1921, may be stated
as
$483,6o7,Z13.
Imports and
Ex~orts
of Gold.
E'.xports
Imports
-Excess of~exports (-} o:r
importsj_-1-).
-~315,880,40b
July 1. 1919-June 30, 1920
July 1 1 20-June 10 1 21
Corrected to June 10, 1921.
+ 483 6cih?JJ._
1
Speaking of the entire period since the arrristice, the survey in
the June issue of the Bulletin stated the situation as follows:
For the ~eriod as a whole, the United States imported ~744,oco,ooo
of gold and exported $700,000,0CO, so ·that the net adiition to the
country's stock of gold is
$44,coo,oco.
It should be noted that this is
a COTI'l.Paratively small amount; that the gains in gold since the recent
gold movement set in have not much more than offset the losses of gold
be.tween the removal of the gold embargo in June, 193.9, and September,
1920.
It should further be noted that imports of gold: have come from
one group of countries, while exports have gone to another group.
the armistice tc· August, 1920,
~375,0CO,OOO
From
of gold (net) left t,he United.
States, going largely to Japan, ftrgentina., China, British India, Hongkon.;,
\~exieo.
Spain, and
(net) was
i~crted,
From September, 1920, to the present time, $.419 ,OOO,OCO
largely from England, France. Sweden, and Canada.
. ..
r..,,-..
t:
~'--..
:"";~)
X-3157
These figures require some modHication 1 due to the !act that two
!llonths have elapsed since the fin:tl data to which they refer..
Making
this allowance, it n;,ay J:,e said that the net 21.ddi tion to the countrY 1 s
of gold from the armistice to June
10~
stoc~
1921, is approximS~.tely $120, 000,. C'CO.
As will be seen from comparison wlth figurzs alreaC.y given, the bulk c.f the
importation of gold during the past year has been added to the re.server;:; oi
the Federal Re$erve Banks, and since the:.:e has been but little demand
f.:l~~
geld for actual circ'!.UatiOn1 it has re.rrajned there.
The great shipments of gold to the United States have been the result
of the slackening and disorganization of trade anJ
ancial relationships.
-~he
disturbance of fin-
In consequence of these influences it has been neccs-
sary to find some means of making settlement for the most necessary ship-
ments of commodities, and gold shipments have proved to be the most available method of liquidating a part at least of current obligations.
tba inward gold movement will go can not now be
predicted~
How far
but it should be
noted t.hat such iinportations, even when entirely de:.,osi ted in the FederJ..l
Reserve Banks} are by no means the sole maasure of their increasing liquidl t}'.
The improvement in the reserve ratio resulting !rom such deposits ot
shows a technical increase in banking strength} since it results in
largement
~old
th~
en-·
of the supply of specie available for maeting, any demands that
my be brought ·.to bear upon the reserve b::1nks..
In the following table are
shown the average monthly reserve r,=ttios during tha last six months of 1920
and the first six months cf 19Zl,. with figures computed for
parison an<i !fesigned to show. the
move~ent
of com·-
of the ratio as it viould have been
had no increase in reserves taken place since June 25, 1920:
~urposas
"
.
X-3157
-15-
Average Monthly Reserve Patio.
Actual
1920
O~tober
43.7
43.7
43 .. 3
43 .. 1
November
43·7
J~y
August
September
December
. 1921
Ja.rnary
February
March
April
May
June
(*)
HYPothetical { *)
43 .. 5
43.3
42.7
42t0
42.2
44.7
42.5
47.5
43.8
44.6
44,.0
49.6
50.2
53.6
45.6
56.4
'·~6.:'8
59-1
47 .. 9
With reserves remaining uneha..JlB,ed. at the June
total of $2#1 08., 605, 000.
25, 1920
@FedFRASER