View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK
OF N EW YORK
C Circular No. 3 2 8 9 "I
November 26, 1947 J

BANK CREDIT POLICY DURING THE INFLATION

To all Banking Institutions in the
Second Federal Reserve District, and Others Concerned:

For your information there is reproduced below a joint statement by Federal and State
bank supervisory agencies, which was released for publication on November 25, 1947.
B A N K C R E D IT P O L IC Y D U R IN G T H E IN F L A T IO N
Our country is experiencing a boom of dangerous proportions. The volume of bank credit has been
greatly inflated in response to the needs for financing the war effort. Domestic and foreign demands for
goods and services are exerting a strong upward pressure on prices in spite of the high volume of our
physical production. These demands would be inflationary without any further increase in the use of
bank credit, but the demand is being steadily increased through continued rapid expansion in bank loans,
in addition to other factors outside the control of the banking system.
A substantial increase in production, agricultural as well as industrial, would be highly beneficial.
However, increases can only take place slowly and to a limited degree. In industry, they are dependent
upon corresponding increases in the available supply of basic raw materials, plant capacity, and the
number and productivity of the labor force. Therefore a further growth of outstanding bank credit tends
to add to the already excessive demand and to make for still higher prices.
The Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the F ed­
eral Deposit Insurance Corporation, and the Executive Committee of the National Association of Super­
visors of State Banks are unanimously of the view that present conditions require the bankers of the
country to exercise extreme caution in their lending policies. It is at times such as these that bad loans
are made and future losses become inevitable.
It is recognized that a continued flow of bank credit is necessary for the production and distribution
of goods and services. The banks of the country have adequately met this important need in the reconver­
sion period. Under existing conditions, however, the banks should curtail all loans either to individuals
or businesses for speculation in real estate, commodities or securities. They should guard against the
over-extension of consumer credit and should not relax the terms of installment financing. A s far as
possible extension of bank credit under existing conditions should be confined to financing that will help
production rather than merely increase consumer demand.
The bank supervisory authorities strongly urge directors to see that their banks follow these policies
and maintain adequate capital in relation to risk assets.

Additional copies of this circular will be furnished upon request.




A

llan

S

proul,

President.

3

FEDERAL RESERVE BANK
OF N EW YORK

December 3, 1947.

To all Banking Institutions in the
Second Federal Reserve District:

We are pleased to announce that Security Trust Company
of Rochester, Rochester, New York, has become a member of
the Federal Reserve System effective December 3, 1947.




A lla n

S p r o u l,

President.

if?


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102