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Twenty-fifth cAnnual deport
of the

FEDERAL RESERVE BANK
OF PHILADELPHIA
1939

Third Federal Reserve District

Directors
as of 1\Iay 1,1939
Croup
Cl: l, n A:
Joseph

11ayne,. 1r
President, ...................................
Philadelphia
National
Philadelphia,
I'cnnsykania.

George WC. lteily
President, .....................................
National
I Iarrisbarg

Ilarrisbarg,

Term expires

I

I911

Bank,

_°

Bank,

193()

Pennsylvania.
1940

I. li. Il(. nning
... .3....................................
PresidenL,
National

Rank,
AVwaoinR
Tunkhannuek, Penns)h ania.

Class B-.
1

19111

Harry L. Cannon
..................................
11. P. Cannon
& Son, Inc.,
Bridgeville, Delaware.

.,

1911

J. Carl I)e La Cour
.................................
Vice President,
Win. S. Scull Company,
Camden, New Jersey.

3

1939

f,... f
John It. Evans and Company,
Camden, New Jersey.

..

(]aa: K C:

Thomes B. McCabe, Chairmann and Federal
Reserve
Agent
President, ......................................
Scott Paper Company',
Chester, PennsýIvania.

Alfred

19: 59

1911

If. Williams
.................................
Dean, Al harlon
School, l lni%ersit ý of
PennsSIvania,
I'hiladelphia.

11) 11)

Officers
JOIIN
FRANK

First

5. S' IXCL:

J. DRINNEN,

C. A. MZCILIIENNY,

Vice President and Cashier
\V. J. DAVIS,
Vice President
ERNEST C. HILL,

C. A. SIENK 1w1CZ
Assistant
Vice President

JAMES DI. Toy,
Assistant Cashier
GLENN K. Monius,
Assistant Cashier

Vice President

Assistant

President
L. E. DONAI LEON,
Assistant
Vice President

Vice President

\\'ILLIAm

V It,

G. MCCREEDY,

ARTItuR

Vice President
PHILIP

E. Pos'r,

Secretary
M.

POORMAN, Auditor

FEDERAL

RESERVE

OF PHILADELPHIA

BANK

CONTENTS

Page
I
Business

conditions

...........

.

..............

3

Industry

l

Income

15

...........................
Distribution
.......................................
Prices

17
.........

....

Ranking and credit conditions
..............................
Rank reserves
.... ................
......
Federal Reserve Rank
..................
Member banks
.....................................
Condition of member banks
.................................
Deposits
...
.............
...................
Loans and discounts.
..... * ..............
......
.....
investments

funds
Capital

........

Earnings and expenses

...........

.

20
20
20

.....

22
26
26
27

30
37

.

3rß

......................

40

Analysis of member bank investments .......................

52

Money rates
................................

Federal ReserveBank
......................
Reservebank credit
.................

57
59

...........

60

Industrial advances
..........................
.........
Volume of work
....................................
Earnings and expenses...............
..........

62
63
65

Membership

.... .......................................
Changes in officers and directors
.........................

.

66

FEDERAL RESERVE BANK
OF PHILADELPHIA

April 30,1940.

To the Stockholders of the
Federal Reserve Bank of Philadelphia:

For your information there is presented herewith the twenty-fifth annual report of this bank.
It contains a review of the operations of the
bank and a survey of developments in business, banking and credit conditions in the
Third Federal Reserve District during 1939.
It also gives a brief analysis of investments of
member banks in this district.

JOHN

S.

SINCLAIR

President

Business Conditions

Industrial and trade conditions in the Third Federal Reserve District improved substantially during 1939, and by the end of the
year activity approached the high levels reached in 1937. The expansion occurred in the second half of the year, as in the first five months
the sharp upward trend which began in the middle of 1938 was temporarily halted. Buyers had been cautious throughout the earlier
expansion period, and after the turn of the year the volume of purchases
declined somewhat further
as domestic business slackened, apparently
to appraise the outlook following the sustained advance. The most unsettling feature of the situation at that time was the growing possibility
of war in Europe in addition to that in the Orient. During the first five
months, the seasonally adjusted index of industrial production in this
district declined
for the
about 2 per cent and the production index
country, published by the Board of Governors of the Federal Reserve
System, dropped 12
per cent.

I

In June 1939, however, business activity resumed the advance that
was in evidence during the second half of 1938. Consumer incomes had
been fairly
well sustained and provided a backlog of purchasing power;
inventories throughout
trade and industry continued near the low levels
reached at the end of the liquidation period in the middle of 1938; increased production had stimulated the demand for new industrial
equipment and replacements; the volume of foreign buying was beginning to increase; and domestic credit conditions continued easy.
The general
expansion was well under way by the end of the
summer when war broke out in Europe. While the threat of war had
been
an unsettling influence and its effects on business generally regarded
as unpredictable the
actual outbreak occasioned an unprecedented wave
of buying in domestic
markets, and prices increased sharply. Industry
I

Annual Report, Federal Reserve Bank of Philadelphia

Twenty-fifth

anticipated large foreign orders in addition to active local demand, and
the current high operating levels gave rise to widespread anxiety with
respect to prompt deliveries. The effects were particularly apparent in
the markets for imported goods including many essential materials,
owing to the possibility of interrupted ocean shipments. Industrial
activity increased sharply as a result of these large orders, especially in
such lines as machine tools, airplanes, chemical products, railway equipment, and automobiles. Between May and December the adjusted index
of production in the Third District advanced 21 per cent, nearly twothirds of the gain occurring after the middle of September.
The expansion began to taper off in December, and in January
and February 1940 activity declined. The war demand which had been
anticipated was not generally in evidence. Costs of production had increased sharply in several industries, and inventories had been expanded. The volume of goods on hand was not unusually large in
relation to the level of business, but supplies were adequate to assure
reasonably prompt deliveries. The volume of new orders declined sub-

INDUSTRYAND TRADE
PHILADELPHIA

FEDERAL

RESERVE

DISTRICT

PERCENT

1923-23ývG

"ý00

INDUSTRIAL
PRODUCTION

WHOLESALECOMMODITYPRICES
win

UT

SE-NAI..

IUSTIEIT

40
'ýDiDSi[D
ý

.

...

1932

ýaq
.

ScýSOqýc
.....
...

1933

výqlýTioq
.........

1934

_...

'.
I...

__......

1935

ý..........,

1936

2

ýi
ý..............................

1937

_. _...

1936

1939

194

Qý

I

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

stantially from the unusually high level reached in the middle of October, and by the end of the year operating rates were being reduced
toward levels more consistent with incoming business.
The outlook for industry and trade in 1940 was regarded as generally favorable at the turn of the year, although some decline from
the December highs was in prospect for the first quarter. Consumer
incomes were large and a substantial unsatisfied demand was still in
evidence for such durable goods as dwellings, household equipment,
and automobiles, as well as for clothing and other nondurable items.
inIndustrial purchases
of equipment and expansion of plants were
creasing somewhat and a larger volume of foreign orders for war materials was beginning to appear. Shipments of peacetime goods to
other nations on the whole were well sustained.
The heavy backlogs of orders accumulated in the fall were largely
worked off by the end of January but were still high in industries with
long fabricating
Canprocesses, such as machinery and equipment.
cellations on the heavy commitments made in previous months continued small, specifications were being received in substantial volume
and an increase in orders later in the first quarter of 1940 was in prospect in some important lines.
Prices continued weak after the turn of the year, following declines in several raw materials in November and December. The
greater stability in quotations on finished goods last fall as compared
with the sharp rise in raw and semi-finished materials tended to restrict profit margins somewhat, but the high level of operations had
more than offset this influence in most lines. Basic unsettling conditions, however, continued to prevail, the principal problems being uncertainty as to various aspects of the domestic outlook and the unpredictably
nature and duration of the wars abroad.
Industry

Industrial production in this district during 1939 averaged
17 per cent above the level of the preceding year, reflect-

ing a sharp
expansionin the output of manufactures,coal, and electric
3

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Construction activity
power. Production of crude oil declined slightly.
Employment in general
averaged 19 per cent above the level of 1938.
industry during the year was 3 per cent higher and income to wage
earners was 14 per cent larger than in the preceding year.

Productive
Philadelphia

Annual averages of monthly
indexes

activity
Federal

Reserve District
(1923-25 average = 100)
Industrial

production

11
ý!
Dec.
Iýý'I
1929 1932 1936 1937 1935 1939
1935

.

-ii-

Coal mining
Anthracite ..................
Bituminous .................
................
Crude oil
.....................
Electric power output..........
Building

contracts

92
91
98
230
191

awarded

Total
........................
Residential
.................
Nonresidential...
*...
Public works and -.utilities
Agricultural
marketing
Cash income (1932 avg.

111
110
112

* ...
...

= 100).

132
104
160
146

181

i',

Dec.
1939

86

91

70

82

79

94

61
39
77

84
77
91

89
88
91

68
55
77

80
72
87

76
62
87

93
95
92

60
62
=1

68
67
75

65
64
76

56
56
53

63
63
63

66
67
62

61
59
76

295

433

498

445

437

437

479

177

228

242

238

263

248

269

34
17
41
66

56
36
58
108

1 110 11 63

.........

Manufacturing......
Durable goods.............
Nondurable
goods...........

Monthlv

100 Ij 149

54
35
66
87

65
57
50
124

166 'I 152

152

57
38
71
84

60`
44*
72"
95*
141

53"
52*
45"
85'

148

'Three-month
moving

average

Retail and wholesale trade salesby December were well above December 1938,and for 1939as a whole averaged 8 and 10 per cent higher
than the year before. The volume of freight shipments by rail increased
22 per cent from 1938 to 1939.
The general level of wholesale commodity prices averaged lower
for 1939 than for 1938, despite marked increases in September and October. After August, prices of staple industrial materials rose sharply
and continued substantially higher than in 1938; agricultural staples
also advanced but by the end of the year they were not much higher
than the average level in the previous fifteen months.
4

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
Manufacturing activity in the first five months of 1939 declined

about 2 per cent from the relatively high level reached in the preceding
December. The output of nondurable goods was reduced about 5 per
cent, the sharpest contraction being in the production of textiles. The
output of silk goods, hosiery, and woolens and worsteds showed particularly large declines in this period. The production of durable manufactures, on the other hand, continued the advance which started in
September 1938 and by May 1939 was 3 per cent above the level at the
end of the previous year. The output of railway and electrical equipment expanded substantially in the five months ended in May.
During the balance
of the year manufacturing activity advanced
considerably, increasing 24 per cent from May to December, on a
seasonally adjusted basis. The output of durable goods rose 49 per
cent, the largest gains among the major groups being in the production of metals and metal products, building materials, and transportation equipment. Production
of pig iron more than doubled, that of
crude steel increased 90 per cent, and iron and steel castings advanced

MANUFACTURINGACTIVITY
PHILADELPHIA

FEDERAL

RESERVE

DISTRICT

PERCCNT

vNJ

\1

".;

\I

V.
40

:, .,;..
,.'_

_I.
`,
ý

I
zo'

.ý-.

ý, ý ý.

ACIIVITY

' ý"

..

_.

ý
DURABLE
UUUUJ
GOODS

,,,

""

'

ý.
,- IyJZ., ýoýoAs1933__ ...aý,,oý
1934

__.......:
1935

!'ýI
_..
1936. __ý. _.......
1937

)

1938

1939

_..... 1940
___..

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

lines, the
close to 60 per cent. In finished and semifinished metal
largest gains were in locomotives and cars, motor vehicles, automobile
bodies and parts, ships, and electrical apparatus.
The greatest improvement in the output of durable goods occurred
in October, following the heavy wave of buying that started in the
middle of September. In the final quarter of the year production of
these materials increased 31 per cent.
Activity in consumers' goods industries turned up slightly in June
and more sharply in July and August, increasing 11 per cent between
May and the end of the year but only 5 per cent in the final quarter.
The only marked expansion was in the output of textiles, the weaving
of carpets and rugs, woolens and worsteds, and cotton products showing
particularly large gains. Much of the increase in the output of consumers' materials in the fi. 11 quarter was in woolens and worsteds,
owing primarily to widespread fears that the supply of wool would be
curtailed and that prices would advance further.

ACTIVITYIN STEEL AND TEXTILE INDUSTRIES
PENNSYLVANIA
PERCENT

TOTAL

EMPLOYEE-HOURS

PER

WEEK

.13--oo

160

160

140

120

40

................
1932

...

1933

......
.......

1934

......

1935

1936

6

... .............

1937

.....

...
193 .8..

'.

. ....

.....

1.939

.....

1940.

I

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
Index: 1935 average = 100

Employee-hours
in Pennsylvania factories
1936
All manufacturing

First quarter...........
Second quarter
....................
Third quarter
Fourth quarter ............
....................

Average

......................

Metal products
First quarter
......................
Second quarter
Third quarter ....................
Fourth quarter.....................
....................
Average
.......................
Textile products
First quarter
......................
Second quarter
Third quarter ....................
.....................
Fourth
quarter . ..................
Average

......................

..

1

1938

1937
149,2
153.3
144.7
119.4

108.4
124.0
131.9
144.8

ý
I

1

1939

91.1
85.5
87.6
101.2

104.3
103.7
110.0
139.1

127.3

141.6

91.4

114.3

112.7
137.2
144.8
160.5

170.1
178.0
169.6
130.5

94.5
87.0
84.6
101.1

107.6
108.9
114.3
157.0

138.8

162.0

91.9

121.9

100.6
97.7
107.6
118.4

121.6
112.0
101.6
85.6

79, g
75.4
87.9
97.4

100.4
90.7
98.0
106.0

106.1

1

105.2

1

85.1

1

98.9

For the year as a whole the output of manufactures in this district
1938
increased in all major lines. The
average gain of 19 per cent over
was due to an increase of 32 per cent in the durable lines and 12 per
cent in industries producing nondurable goods. Among the specific
groups, the greatest improvements were in transportation equipment,
metals, textiles, and building materials.
Mining activity in this district also increased substantially. Production of anthracite
amounted to 50,800,000tons, or 10 per cent above
19.37.The
low
the record
of 46,100,000 in 1938 but 2 per cent below
principal factors in the anthracite situation during 1939 were the shutdown of bituminous mines in April, which resulted in an increase in
the production of anthracite of 1,7(X),000 tons in that month, and the
outbreak of war, which contributed to an increase of 1,000,000tons in
September. Agreement
was reached in January 1940 upon the problem
of allocating production among the so-called line and independent
companies.
7

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Despite the six weeks' shutdown in bituminous mines, when production declined from 8,600,000tons in March to 137,000 tons in April,
90,
the output of bituminous coal for the year as a whole aggregated
in
1938
800,000 tons, or 18 per cent more than the 77,000,000 produced
but 18 per cent less than the seven-year high in 1937. Following the
curtailed operations in the spring, production increased more than
seasonally through November, partly to replenish stocks and partly as
a result of improved industrial conditions.
The output of crude oil in the Bradford Field fluctuated irregularly in the first three-quarters of the year but increased substantially
in the final quarter, contrary to the usual tendency. The expansion
foreign and
appeared to be due primarily to an anticipated increase in
domestic demand for lubricants, as stocks of finished petroleum products were accumulated. Production for the year totaled 14,700,000
barrels, or 2 per cent less than in 1938 and 12 per cent below 1937, when
a record of 16,700,000barrels was reached.

I

The output of electric power in this district followed an irregular
upward trend to a record peak in October and for the year as a whole
averaged 10 per cent above 1938. Total sales by companies representing about 95 per cent of the aggregate sales in this district declined in
the early part of the year but advanced thereafter to an all-time high of
708,000,000kwh. in December. Total sales for the year were 7,782,
000,000 kwh. or 11 per cent more than in 1938. Sales to industry
amounted to about 3,850,000,000kwh. or 13 per cent more than a year
before, and, at a record high in December, were 16 per cent above a
year earlier.
Awards of construction contracts in the district in 1939 amounted
to $196,900,000 or 19 per cent more than in 1938 and 13 per cent above
1937. The total was the largest since $329,200,000 was awarded in 1930.
Activity expanded irregularly in the first ten months of the year;
on a
seasonally adjusted basis, the peak was reached in September and was
the highest since 1931.

Residential building increased 64 per cent in the year to $81,
350,000, the highest since 1929. Awards for family houses
totaled
8

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia

ACTIVITY
CONSTRUCTION
PHILADELPHIA

FEDERAL

RESERVE

ý

, .:

DISTRICT

ý"/

,.

I

...
p

ý 'ý

ý. oýus*co ron susoa..
1932
1933

` `"! ý'
,,
!
vený.noý
1934

I

ý

.......
1935

ýi

ýRESIDENTUL

li

i`ý
II

L_.
1936

........
1937

...................
1938

1939

'...............
ýol ý
1940

$61,400,000 46
being
or
per cent more than in 1938, the peak in activity
financing
facilireached in October. The gain was due in part to the
ties of the Federal Housing Administration. The local office of the
FHA reported that in 1939
commitments for insurance on mortgages
on new construction amounted to $30,878,600 and on existing properties totaled $7,074,000as against $17,500,000for new construction and
$11,000,000
on existing dwellings in 1938. These figures cover 38
counties in Eastern Pennsylvania and the State of Delaware. Contracts
for nonresidential
$55,structures declined 24 per cent in the year to
700,000,
owing to a reduced volume of construction on educational and
miscellaneous buildings. Awards for commercial and factory buildings
increased 38 per
cent to nearly $26,900,000, about 19 per cent below
1937but, except for that
year, the highest since the $102,400,000each
in 1929
in
1930.
This
and
type of construction was unusually active
October and November
be
Contracts
declines
were to
expected.
when
for public
works and utilities increased 43 per cent in the year to 4e59,
900,00(),the highest
since 1931.
Income

Employment and consumers' income in 1939 improved
substantially as a result of the sharp expansion in industrial activity in the
second half of the year. In twelve lines of trade
and industry, employment and payrolls in Pennsylvania declined in
the first four months
of 1939, but in the last eight months of the year
9

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

EMPLOYMENTIN PENNSYLVANIA
PERCENT
ioýz "ioa

PERCENT
0
zz

II

Ii4O

io0
FAC70RY

50

-.

ý',

'". :'

.ý1

_

60

-ý1OO

80
100

80

60

40

.. _ ._......
. 1932
1933

! lý
ý

,.

1934

i .........:...
1935
1936...__:...
1937
_

1936

ý...
1940
_. __..
__...

1939

employment increased 20 per cent and wage disbursements expanded
33 per cent, over two-thirds of this gain occurring after August. By
December, employment was 8 per cent and payrolls 19 per cent above
the previous year. The principal gains were at factories and quarries.
Factory employment in Pennsylvania increased 16 per cent from
low
in the late spring to the peak at the end of the year, and wage
the
payments expanded 33 per cent. For 1939 as a whole employment
averaged about 869,000 workers, or 8 per cent above the 801,000 employed in 1938 and 12 per cent below 1937. Employment in the peak
year 1929 averaged over 1,000,000workers. Wage payments in 1939
averaged $20,500,000a week, reaching a peak of about $24,000,000 in
ln

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
Index of general employment and payrolls

Relative
impor-

-Pennsylvania.
(1732 avg. = 100; indexes
are annual averages. )

tance°,% of
total

General
index*.......
M: unilacturing......
Anthracite...........
Bituminous
coal......
Quarrying
............
Crude petroleum......
Public utilities.......
.
Retail trade.........
.
Wholesale trade.....
.
I Iotels
.............
..
Laundries...........
Dyeing and cleaning. .

100.0
48.9
6.9
5.7
0.6
0.2
4.4
15.8
4.7
1.1
0.7
0.2

I; mplocnunt
1936

II

PayroIIs

1937 11938 11939 111936 1937 1938 1939

117 125 105 108
135 147 120 129
70
67
84
81
89
121 123 102
119
94
101
107
178 161 145 132
94
91
96
95
113 119 107 106
111 118 113 116
106 112 110 106
98
99 105 100
96
100 105 104

146
180
85
199
1&1
160
97
117
107
111
105
108

172
217
81
217
228
171
104
130
119
123
119
120

129 146
152 184
67
66
158 167
154 186
164 155
103 105
122 123
114 119
123 119
121 125
126 117

'Includes building and construction.

December. Total
in Pennsylvania in
wage income of factory workers
the year amounted to over $1,000,000,000,or 21 per cent more than in
1938 but 15 per
cent less than in 1937. In 1929 the total was about
$1,380,000,000.
Employment in the manufacture of durable goods increased almost
steadily throughout the year and in December was 31 per cent above
January. Most of the
gain occurred after May and nearly two-thirds
increase
of the
was in the final quarter. Wage disbursements in durable
declines
industries
goods
also expanded steadily except for fractional
in April and May,
and in December were 56 per cent above the year's
low in January, 52
Sepper cent above May, and 34 per cent above
tember. The level in December was the highest in two and one-half
years. In consumers' goods lines, employment declined from February to June but recovered to a peak in October, about 9 per cent above
the year's low. Wage disbursements at these plants were the smallest
for the year in May but by October had
expanded 15 per cent to the
highest level
1937.
since the spring of
The largest increase in
wage payments from the low point of the
year was 58 per cent in iron
and steel lines. Transportation equipment followed, with an expansion of 36 per cent from April to December, reflecting principally gains at establishments producing loco11

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

motives and cars and at railroad repair shops. Large advances also
occurred in the nonferrous metal; lumber; stone, clay and glass; and
Wage disbursements
coke industries, and in certain chemical industries.
13
increased
about
per cent from May to
at textile and clothing mills
December but at the end of the year were about the same as in December 1938, despite sharp gains at mills turning out cotton products,
hosiery. Wage payments
carpets and rugs, and knit goods other than
hosiery
21
in
December
to
per cent below a year
workers
were about
earlier.
Average hourly earnings of factory workers in Pennsylvania during 1939amounted to 69 cents, about the same as in 1938 and in 1937
but 10 cents an hour above 1936,21 cents an hour above 1932 and
1933, and 11 to 12 cents an hour above 1929-1930. The peak for the
year was 71 cents in December.

;iý
ý
,
'4

1I.

Weekly earnings of factory workers in 1939 averaged $25.08 compared with only $22.31 in 1938. The peak for the year of $27.36 in December was more than double the depression low in early 1933 and in
the past ten years was exceeded only in April and May 1937. The
average work week at factories in 1939 was 36.3 hours compared with
32.5 in 1938 and 37.9 in 1937. In 1929, when weekly earnings were
only $1.89 more, work weeks averaged 121/, hours longer. The cost of
living for wage earners and lower salaried workers in Philadelphia
was 1 per cent lower in 1939 than in 1938, about 2 per cent below 1937,
and 18 per cent below 1929.
Total farm cash income in Pennsylvania, New Jersey, and Delaware was estimated at $388,535,000in 1939 or 2 per cent more than
in 1938. Receipts from the sale of crops increased about 10 per
cent to
$125,100,000,while income from sales of livestock products declined
3 per cent to $255,200,000.Government benefit payments were
more
than doubled from $4,000,000to $8,200,000.The increase in farm cash
income, however, was partially offset by a small decline in the buying
power of the agricultural income dollar, calculated by taking the ratio
of prices received to prices paid by farmers.
11)

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

INCOME
PHILADELPHIA

FEDERAL

DISTRICT

RESERVE

125

J
150
ib.,...

evc. ion

I

125

AVERAGEHOURLY
EARNINGS
Ifliý

. "'o ýI

ýý

__

- -7S-

50

,--.
r: ^:

.ý

Wr

i

AVERAGEWEEKLY
EARNINGS

"ý, ý

II

2ý
1932

. r--

1933

1934

1935

............
19'3

1 º...........
i
...
...........
1937

1938

1939

1940

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia

Farm cash incomePenna., New Jersey, Delaware
(In millions of dollars)
1929
--1930 .............................

Livestock
products

Crops

Government
rental and
benefit

Total

payments

i

1931 .............................
1932 .............................
1933 .............................
1934 .............................
1935 .............................
1936 .............................
1937 .............................
1938 .............................
1939 .............................
.............................

$1535
13 2.9
101.7
80.2
105.6
96.6
111.3
137.8
136.0
114.2
125.1

$266.4
244.8
194.0
152.4
151.0
176.4
214.2
248.6
269.4
261.9
255.2

s...
.s
2.3
1.8
3.0
3.2
4.0
8.2

$419.9
377.8
295.7
232.0
257.5
275.4
327.3
389.4
408.6
380.1
388.5

Source: United States Department of Agriculture.

Expenditures by the Federal government for emergency relief
continued substantial,as shown in the following table.

Under

Expenditures during fiscal years in
Pennsylvania, New Jersey and Delaware

Federal

Emergency
Relief Appropriation
(In thousands of dollars)

Department
of Agriculturc"*
Other executive departments** ..............................
.............................
Civilian
Conservation
Corps
Public Works Administration ...............................
(housing, loans and grants
to states. etc. )
..........
. ..............................
Works Progress Administration"
Other independent
establishments*" .........................
........................
letal
.............................................
Pennsylvania
............................................
New Jersey
..............................................
Delaware
................................................

Total
1935-1939

Acts*

.

1939

$21,188
30,806
43,590

(Cr.) 15

27,451
674,786
184,413

694
287,938
12,359

$982,234

$313,384

$ 709,909
262,647
9,678

$221,289
89,026
3,069

$4,594
7,914

"Prom Report of the President of the United States to the Congress, January
15,1940.
''Allocation
of expenditures
revised according to departmental
reorganisation.

Relief expenditures in Pennsylvania declined about $20,000,000 to
$260,000,000from 1938 to 1939, reflecting decreasesin expenditures for
old-age assistanceand the Federal works program. General assistance
and aid to dependent children and the blind increased.
14

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Average number
of persons
(in thousands)

Public assistance
in Pennsylvania
by type
Direct relief
I'ederal work ...............
relief.........
Old-age assistance.........
Pensions for the blind......
Aid to dependent
children

l otal....

.
..

Amount
spent
(in millions)

1937

1938

1939

744
694
83
12
93

S57.8
134.1
22.6
3.8
6.1

$76.0
169.5
23.5
4.2
7.2

$91.6
132.7
20.3
4.4
10.9

1,564*

$224.4

$280.4

$259.9

1937

1938

1939

463
700
86
10
37

642
897
91
11
61

1,296

1,672*

'Adjusted to eliminate duplication.
Source: Pennsylvania Department of Public Assistance.

Distribution

Retail trade sales increased less than usual in the first half
of 1939 and the seasonally adjusted index declined 7 per
howcent from January to June. Sales advanced sharply,
June
December
exever, after the mid-summer lull, and between
and
panded 20 per cent more than usual. The adjusted index in the final
month of the year reached the highest level since January 1937 and
was 12 per cent above December 1938. Total sales at retail for the year
as a whole were 8 per cent larger than in 1938 and only 3 per cent less
than in 1937. Reflecting increased consumer incomes, the principal
increases
over the preceding year were in such durable consumers'
goods as radios, refrigerators, furniture, and other household equipment. At department and men's apparel stores the gain in the year
amounted to about 8 per cent, while at shoe and women's apparel
stores the increases were 3 and 2 per cent, respectively.
Inventories at retail
half of the
establishments during the first
year continued at the lowest level since 1936, following the period of
heavy liquidation in late 1937
and early 1938. Stocks were increased
somewhat more than usual in the fall, when stores expected active
business,but
were sharply reduced as a result of large holiday sales in
I)ccember. At
the end of the year retail inventories were at the same
level
in
December
as
1938, when the volume of business was substantially smaller. Stock turnover in 1939
was 10 per cent above the year
before,
which in turn was only slightly below 1937.
15

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Sales of new passenger automobiles in the district in 1939 infor the 217,800
creased 38 per cent over 1938 to 160,600 units. Except
in 1937 and the 200,800 in 1936 the volume of registrations was the
highest in the past ten years.
Wholesale trade sales were well sustained, despite the continued
cautious attitude on the part of retailers. The unusually small volume
of inventories at retail stores necessitated extensive reordering throughout the year. Following the summer lull, buying in the wholesale
markets became very active and in September was 24 per cent above
that in the previous year, reflecting prospective increases in consumer
purchases and possibilities of delayed deliveries. Total sales at wholesale during the year were 10 per cent above 1938, gains being particularly large in sales
of electrical supplies, hardware, paper, and jewelry.
Inventories at wholesale establishments at the end of the year were
about 12 per cent above the same period in 1938.
Freight shipments by rail in the Allegheny District declined in the
first four months
of the year, after allowing for seasonal changes, but

DISTRIBUTION
PHILADELPHIA

FEDERAL

RESERVE

DISTRICT

PERCENTI

75

"(]

ýj

100

FREIGHT CAR LOADINGS,
IAERCMANbiSl
.ý,

AY?

Id$(. IILA',!

OVS

1
S0

25 i'. °.'.
... .......
1932

o....

1933

1934

1035

1936

16

1937

1938

1939

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

expanded almost steadily thereafter to a level which in December was
34 per cent above a year ago and the highest since January 1937. Car
loadings for the year averaged about 563,000 cars a month or 22 per
cent above 1938 but 11 per cent below 1937. The largest gains in the
year were in shipments of ore and coke, reflecting increased activity
in the steel industry. Loadings
of merchandise and miscellaneous
in Decemfor
goods, accounting
nearly two-thirds of total shipments,
ber reached the highest level
for
the year as a whole
since 1930 and
averaged 21 per cent above 1938. Freight shipments originating in
Philadelphia,
13 per
comprising chiefly manufactured goods, increased
cent from 1938but were 6 per cent below 1937.

Distribution
1'hiladclphia Federal
Reserve District
W)23-25 average
= 100)

Annual

II
1929

Retail
trade
Sales
100
. .....
Stocks....
. .......
94
....
. ..............
New passenger
131
automobiles....
Commercial
hotels (1934 = 100)
pa ne v
................
Incornc
- Total ..............
F
.
loadings

Allct; hcTIN,Uist
riet-total.......
\lerch;
uulise, urdmiscellancous
1'1li1-u1cip1lia industrial
Port of Philadelphia

area.....

I. Xports (1935-37
= 100).......
mports (1935-37 = 100)
.......
'Aldjnsted

averages of monthly
indexes

Monthly

II
1933

1936 1937 1938 1939

59
59
62

SO
72
12d

83
83
136

75
78
73

81
77
lOl

86
82

119
124

123
129

117
122

114
111)

107

55
56
58
62

70
70
70
68

74
74
71
70

54
55
55
61

GG
66
64
62

170
156

66
58

8`)
101

127
122

121
69

106
112
92

127
84

Dec.
1938

Dec.
1939

so"
77"

89"
»"
122

122
101
124
G2"
G2"
G2'
G4"
136
69

106
136
R-4"
Ka"
71"
72"
177
85

for seasonal variation.

Exports through the Philadelphia
in 1939
customs district
amounted to $92,840,000, about the same as in 1937 and 5 per cent
larger than in 1938. Imports
22 per cent
aggregated $131,885,000or
1938
but
,ihuve
31 per cent below 1937.
Prices

Prices of commodities continued to decline somewhat
during the first eight months of the year but advanced
sharply after the outbreak of war. The index of wholesale prices of
17

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

813 commodities, published by the United States Bureau of Labor Statistics, decreasedfrom 76.9 per cent of the 1926 average in January to
75.0 in August, advanced to a peak of 79.4 in October and declined
slightly in November and December.
Prices of farm and food products showed the greatest declines in
the first eight months and the sharpest recovery in September. Quotations on raw materials and semifinished goods also declined to August,
advanced sharply in September and October, and receded toward the
end of the year. Prices of finished goods were more stable and the
spread between raw and finished goods narrowed appreciably in the
latter part of the year.

PRICES
UNITED

STATES

PERCENT

FINISHED

so

RAW MATERIALS

1932

1933

1934

1935

___ ............
1937
.....1938......:.....
_-...:. -1940
1939
-- ý

1936

In the markets for staple commodities, prices of industrial
materials were weak in the first five months, especially in the case of hides,
steel scrap, and copper. From May to October quotations advanced
sharply, steel scrap rising from $14.08 to $22.50 a ton, copper from 10
cents a pound to 121/2 cents, wool from 72 cents a pound to $1.10,

Twenty-filth Annual Report, Federal Reserve Bank of Philadelphia
hides from 10 cents a pound to
16/2 cents, and rubber from 16.2
cents to 21'/2 cents a pound.
These sharp gains, particularly
in imported materials, reflected
the expectation of heavy war demand, increased domestic pur-

PRICESOF 15 STAPLE COMMODITIES
STATES

UNITED

fAR ý00

II

ii
ý ----...
INOUSI Kin`
ýI

i:

i.
t
ý '.;
',
ý '

chases,and the possibility of interrupted shipments. Quotations
on most industrial staple commodities declined somewhat to-

:ý..'V,
.:

ward the end of the year, the
principal exception being silk,
which advanced almost steadily
throughout 1939 from $1.90 a
pound in January to $4.65 in December. In the first quarter of
1941)the price
of silk dropped
more than $2.00 a pound.

i

I ndustrial

.................
...................

\y

~'

I

,`

i"
I

Iv

40
1937

1936

1938

1939

1932

1940

Monthly

averages of monthly
indexes

1936 1937 1938 1939

Dcc.
1938

Dec.
1939

77 11 77

79

85 1 72
85 1 75
82
87

70 II
77

71
75

80

ao

73
82
82

81
82
80

86
69
86
74
ý
82
85

68
(,5
73
70
81 1 80

77
68
72

84 , 62
71 i 52
87 I 65

65
52
75

95

65

81

86

98
94
95

55
59
70

80
76
82

48
61
70
39

105
100
92
.
.
.

iý ýP.

50

1929

4t3ple
commodities-........
Agriculnlral

ýI

1i

:.

Annual

..............
Raw materials
................
Semifinished
articles......
Finished goods.
'. *.'. *.*
. .. .
.......
Farm products...............
Foods,
. "....
" ................
(), her commodities............

I

'ýý
AGRICULTURALý,

Commodity
prices
(1926 average
= 100)

All commodities"

ý-

,

79

61
49
70

68
72
84
72
5G
86

'United States Bureau Labor Statistics index
of wholesale prices of 813 commodities.
of
fotal-Moody's
index of prices of 15 staple commodities.

19

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Quotations on agricultural staples were generally steady until SepThe
tember, when anticipation of war buying forced prices up sharply.
largest advances were in so-called war commodities such as sugar, hogs,
cocoa, wheat, and corn. The price of cotton continued to rise until
11.4 cents a pound as against
about the middle of December, reaching
8.8 cents in January, owing to increased foreign and domestic purfiber for burlap in
chases and to some extent to the substitution of the
fibers
in
heavy bagging and for other high-priced
various textile lines.
The price of wheat also continued to rise until the end of the year,
belt.
owing to unfavorable growing conditions in the winter wheat
The price reached $1.30 a bushel in December compared with 86.5
cents in January. Quotations on livestock products, on the other hand,
declined sharply in the year, despite a temporary abrupt rise in September following the outbreak of war. After the turn of the year prices
of practically all staple commodities weakened.

Banking and Credit Conditions
Bank Reserves

Federal
Reserve

The cash reserves of the Federal Reserve Bank of Philadelphia increased by $296,700,000during 1939 to a record
Bank
high of $873,600,000,an expansion of about 50 per
cent
during the year. The aggregate cash holdings of the
twelve Federal Reserve banks, which comprise the basic monetary reserves of the banking system, expanded 28 per cent to $15,524,000,000,
reflecting principally the large volume of gold received in this country
in payment for goods or services or as transfers
of capital occasioned
by disturbed conditions abroad. Much
this
of
gold was used in payment of trade balances, thus tending to increase bank reserves in
all
sections of the country. Short term bank balances held on foreign
account were concentrated primarily in New York City.

20

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Funds gained by member banks in commercial and financial
transactions with other districts, were the principal source of the increasein the cash reserves of this bank. Only $52,000,000 represented
Treasury deposits of gold certificates in the interdistrict settlement fund
for the account of this bank or transfers on Treasury account from
other districts. Smaller amounts were derived from payments made to
this bank as a result of reduced participation in System holdings of government securities and increased balances held for foreign central
banks. The
aggregate gain of $296,700,000 in cash reserves was the
largest for any
Reserve Sysyear since the establishment of the Federal
tem. The increase was entirely in the form of gold certificates. HoldStates notes,
ings of other cash, including
silver certificates, United
coin, and other types of Treasury currency, declined slightly.
The expansion in the
cash reserves of this bank was substantially
larger than the increase in
held against larger
reserves required to be
volumes of deposits and of Federal Reserve notes in circulation. At the
close of the year, reserves were considerably more than double legal
requirements, as shown in the accompanying table, and would have
been adequate
to support twice the volume of notes in circulation and
deposits held
at that time. These deposits at the Reserve banks consist
primarily of member bank reserves.
Cash reserves
the
Federal Reserve ofbanks
(Ell d of year,

in millions)

Total

reserves

All Federal
Reserve banks

Philadelphia

.................

1938

1939

1938

1939

$576.9

$873.6

$12,165.8

$15,524.2

kcquircd

reserves:
Against Federal Reserve
notes..
(40% in
gold
Against depositscertificates)
( 35% in
.............
gold certificates or
lawful money)

'T'otal required............
M,
ICessreserves
................
Proportion
of total to required

...

128.2

139.6

1,780.7

1,983.4

160.6

251.9

3,530.8

4,529.3

$288.8

$391.5

$5,311.5

$6,512.7

$288.1

$482.1

$6,854.3

$9,011.5

200%

223%

229%

21

238r;%o

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Reserve balances of all member banks increased 34 per
cent in 1939 to $11,653,000,000at the end of the year, of
in excess of legal rewhich more than $5,200,000,000was
district expanded
quirements. The reserves of member banks in this
60 per cent in 1939to $598,600,000and in the middle of January 1940
reached a record high of $641,700,000.These balances totaled more than
twice the amount required by law.

Member
banks

The sharpest increase was at banks in Philadelphia, where average
reservesin the first half of January 1940 were 110 per cent in excess of
banks.
requirements as against only 80 per cent in the case of country
Reserves

with
Federal
Reserve Bank

Member
banks
Phila. Fed. Res. District

(Dollar figures
in millions)
Philadelphia
banks
1938-Jan.: 2nd week
1939-Jan.: Ist half
July: Ist half
1940-Jan.: Ist half

Held

Required

Due
from

Excess

domestic
banks

Per cent of
required reserves
Excess
reserves

27%
40
84
111

Due from
banks
64 °Jo

X238.3
243.6
345.2
444.6

$187.4
174.3
187.(,
210.8

33.3
40.4
39.4
40.9

27.7
23.5
23.8
25.0

5.6
16.9
15.6
15.9

33.2
52.7
63.5
83.1

20
72
66
64

120
224
267
332

49.5
47.4
53.7
60.2

37.1
31.6
31.0
32.3

12.4
15.8
22.7
27.9

26.8
35.4
46.1
50.6

33
50
73
86

72
112
149
157

2nd week
Ist half
Ist half
Ist half

61.8
60.3
64.0
74.6

49.4
41.4
40.4
40.5

12.4
18.9
23.6
34.1

47.8
58.0
70.1
92.2

25
45
58
84

97
140
174
228

All member banks
1938-Jan.: 2nd week
1939-Jan.: Ist half
July: Ist half
1940-Jan.: Ist half

$382.9
391.9
502.3
620.5

$301.6
270.8
282.8
308.6

$81.3
121.1
219.5
311.9

$228.5
286.2
346.7
400.7

27%
45
78
101

1060/,
123
130

Country banks
Cities with population of
100,000 or more
1938-Jan.: 2nd week
1939-Jan.: Ist half
July:
1940-Jan.:

Ist half
Ist half

Cities with population
of
15,000 to 100,000
1938-Jan.:
2nd week
1939-Jan.:
Ist half
July: Ist half
1940-Jan.:
Ist half

$50.9
69.5
15 7.6
234.0

$120.7
140.1
167.0
174.8

80
89
83

Cities with population
under 15,000

1938-Jan.:
1939-Jan.:
July:
1940-Jan.:

22

Taventy-fifth Annual Report, Federal Reserve Bank of Philadelphia
A year earlier Philadelphia banks and country banks respectively held
excessreserves of 41 and 53 per cent.
The percentages of deposits, which member banks are legally required to hold as reserves,were unchanged throughout the year at the
levels established in April 1938 when requirements were reduced. On
net demand deposits these proportions were respectively 22%, 17'/Z,
and 12 per cent at central reserve city, reserve city and country banks,
and on time deposits 5 per cent at all member banks regardless of
location.
Balances carried by member banks with correspondents also increased substantially, rising from $286,200,000 a year ago to $400,700,000after the turn
of the year. In the first half of January 1940 the
combined total of reserves and amounts due from banks was equal to
331 per cent of
required reserves as against 251 per cent early in 1939.
While the capacity
of member banks for the extension of credit was
greatly expanded, actual increases in loans during 1939 were moderate
and investment portfolios were somewhat reduced, with the result that
the aggregate amount of their cash increased further. The preceding
figures
show the reserve positions of member banks in this district by
location.
The principal
source of the increase of $224,000,000 in member
bank reserves during 1939
in commercial
was a gain of $219,000,000
and financial transactions with other districts which followed a moderate loss sustained in the previous year. Although in most instances
the exact character of the transactions
responsible for this gain cannot
be determined,
available records indicate that it was caused in part by
payments from other districts for
new public and private securities of
local origin
for
and
other securities sold by banks, including a portion
of new government issues
received on allotment. The sharp increase
in business
activity, particularly in the heavy manufacturing industries, also resulted in
an increased flow of business payments to this
district.

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Treasury operations
contributed substantially to the increase in reserve funds, as government disbursements were $66,000,000 greater
than local receipts. The excessof disbursements was somewhat smaller
than in 1938, owing in part to a reduction in payments for work re-

MEMBER BANK RESERVES
BILLIONS

ßi

161-F15I
iI -----14 'i
I3
12
II

10
9
8
7
6
5
4
3
2
0
MILLIONS
5

700

PHILADELPHIAFEDERAL RESERVEDISTRICT
600
500
400

300
11200
100
29 30

31 32

33

34 35

36

37 38

24

939

1940

1941

Twenty-fifth

Annual Report, Federal Reserve Bank
of Philadelphia

lief. Expenditures by
the Treasury included heavy payments in connection with the shipbuilding and
armament programs which involve
particularly large purchases from the industries in this district. The
amount of unemployment trust funds
paid into the Treasury for investment was considerably larger than the total
amount withdrawn by
the states for benefit payments.
Demand for
currency in this district in 1939 increased $53,000,000,
offsetting in part the large
volume of funds gained through the interdistrict
settlements and Treasury transactions. The need for additional
currency was met chiefly through increased issues
of Federal Reserve
notes and silver certificates.
This demand for
currency was occasioned primarily by the sharp
expansion in industrial
payrolls and in trade activity, but it also reflected
some increase in amounts held by individuals. Figures for
the
country as a whole
showed that about $330,000,000of the increase of
$790,000,000in
money in circulation during the year was in
notes of
$50 and higher denominations.
A substantial volume of currency moved
abroad in the spring,
and later, during the period of smaller shipments, additional
currency withdrawn was probably held in this
country for foreign
account.
Mferttber bank
and related items
Philadelphia reserves
Federal Reserve District
(Millions

Sources

of dollars)

1937

1938

1939

-f- 2
+118
-}- ý
-131

_ 39
+ 74

4- 2
+219
+,
-{- 61

ý

35

+287

+

22

+ 53
+224
+ lo

of fund

Reserve bank
credit extended in district....
Interdistriet
constncrcial transfers..........
Mint
gold
purchases,
I reasury
net
..................
operations
.........
............
Total......
Uses of funds:

.

.......................

-

Currency demand
Member bank
....
...............
"Other deposits°reserve .d.eposits
Oil ,! -r Federal

+
-

..............
at reserve bank..........
Reserve
accounts..........

.

12
16

+3
}-

i

-1

Total......

-5

25

+ 35

+287

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

The influence of other factors upon member bank reserves was
less marked. An increase of $10,000,000in unclassified deposits with
issued in
this bank was due chiefly to an increase in officers' checks
bank
Reserve
connection with special transactions. The volume of
but
slightly.
credit extended directly within the district expanded

Condition

Deposits

of Member Banks

The volume of depositsat member banks in this district
in 1939 increasedby $370,000,000
to $3,231,000,000,the

largest on record. This expansion was due principally to funds gained
through business or security transactions with other districts and
through Treasury operations. The amount of deposits arising from increased loans and investments was comparatively small.
Over 97 per cent of the increase was in demand deposits, most of
this being to the credit of individuals, partnerships, and corporations. This was in contrast with the trend in 1938, when the growth in
deposits reflected chiefly interbank and government balances. In 1939,
interbank deposits also expanded more sharply than in 1938 and by the
end of the year they were at the highest level on record.
The volume of time deposits continued practically unchanged,
and for all banks was 34 per cent of total deposits as compared with
an average of 44 per cent in the period from 1927 to 1929.
Nearly three-fourths of the total expansion in deposits was at
member banks in Philadelphia, where a sharp increase in demand balances of individuals, partnerships, and corporations was supplemented
by heavy receipts of funds to be held for other banks. Proportionately
the increase in individual demand deposits at country banks approached
that reported by the city institutions, but the gain in the dollar amount
was much smaller. Nearly one-half of the deposits of country banks
are in savings balances, and these registered a comparatively small increase from 1938to 1939.
26

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
Deposits at member banks
Phila. Fed. Res. District
(Millions of dollars)

Actual-end

of year

1 1938

1937

1 1939

Changes in1938

1939

+ 27.7
+ 42.3
5.3
+ 52.3
4.0
-

+220.5
1.0
+
+ 20.0
+117.1
+
2.4

+113.0

+361.0

Demand:
Individuals,

partnerships,
and corporations
U. S. Government
................
States and political ................
subdivisions....
Interbank
.......................
Other
...........................

Total
Time:
Individuals,

demand............

1,204.5
34.5
109.2
270.0
24.4

1,452.7
77.8
123.9
439.4
22.8

1,642.6 11,755.6 12,116.6

partnerships,

and corporations
................
Postal savings,
...................
States and
political
subdivisions....
Interbank
.......................
't'otal time
................
'T'otal deposits............

1,232.2
76.8
103.9
322.3
20.4

1,037.4
16.3
35.7
17.6

1,056.5
1,046.2
10.2*
12.1*
31.0
34.9
12.1
17.1

+
-

8.8
4.2

+ 10.3
1.9
.83.9
5.5 +
5.0

1,107.0

1,105.3

1,114.8

-

1.7

2,749.6

2,860.9

3,231.4

+111.3

+

9.5

+370.5

'Includes U. S. Treasurer's
time deposits, open account.

Despite the substantial improvement in business conditions during
1939, the use
made of bank deposits, as indicated by check payments,
did not measure
These deup to the expansion in demand deposits.
posits at all member banks in the district averaged 15 per cent above
1938, while the
8 per
aggregate amount paid by checks expanded
cent, as shown by the records of hanks in leading cities of the district.
Deposits at
in
all member banks averaged 25 per cent larger than
1929, while
40
per cent
check transactions in large cities were about
smaller. The turnover of individual and corporate demand deposits
at weekly reporting member banks in 1939 was only 18 times, a rate
which was much lower than that prevailing in the Nineteen Twenties.
Loansand
The loans and discounts of member banks expanded from
disc°""sS
$905,600,000at the end of 1938 to $945,400,000at the end
of 1939, owing principally to increases in commercial and
real estate credit. This
represented an increase of about 4 per cent,
whereas industrial
activity expanded 17 per cent during the same
Period. The proportion
banks
of loans to total credit extended by these
continued to reflect changed
conditions with respect to the general type
27

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

of bank credit, as indicated by the fact that total loans at the end of
1939 constituted only 40 per cent of loans and investments combined
as against almost 70 per cent in 1929.
About one-half of the increase in total loans was in the form of
business loans extended to commerce, industry and agriculture. That
borrowing for current productive purposes increased only about 7
per cent in the face of expanding activity was due partly to the fact
that inventories on the whole were controlled and that the resources of
many enterprises continued adequate to finance the volume of current
business at prevailing price levels. A further evidence of ample work-

ALL MEMBER BANKS
PHILADELPHIA

FEDERAL

RESERVE

DISTRICT

MILLIONS

3000

2500

2000

INVESTMENTS

1500

ý°"
,i

i

_-

-`

-'

ýi
.,

.\i
i/
ýý

ý.

ý-ýr-ýýý`

`ýº

i

500

1929

1930

1931

..

1932

1933

I

CASH ASSETS

II

oý

/

r1000
__--

- ...

...

1934

28

LI..
1935

1936

1937

1938

1939

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

ing capital is found in the sharp expansion in demand deposits of individuals, firms and corporations.
The increase of about 7 per cent in real estate loans occurred solely
due
at member banks outside of Philadelphia. Most of this gain was
to mortgage loans on residences,many of which are insured by the Federal Housing Administration, and on business properties. The increase
in loans on farms was relatively small.
Changes in other short term credit, including open market paper,
brokers' and security loans, and loans to banks were of minor importance. The so-called "other loans", which include small personal
loans, declined at Philadelphia banks but increased somewhat at country banks.
The following data
loans
show changes in various categories of
between 1938
and 1939:

Actual-December
Loans of member banks
Phila. Fed. Res. District
(Millions ofdollars)
Commercial.

Open market .paper.....
irokers' loans...........
Other loans to
carry securities
Rcal estate loans......
1-alls
... .
hanks............
to
Other loans........
Total

loans

.........

Philadelphia
hanks

Country
banks

Changes in 1939

30,1939
All
member

banks

Philadelphia
banks

Country
banks

+13.. S
+ 1.3
+ 4.3
+
.2
.3

.2
170.4

326.4
37.1
25.7
61.2
245.0
1.0
249.0

+ 7.2
+ 2.6
+
.4
- 4.9
{-1(i. 4

4.4

+ 4"4

576.2

945.4

+ 13.9

188.0
18.6
21.1
22.4
39.7

138.4
18.5
4.6
38.8
205.3

.8
78.6
369.2

-

+25.9

All
member

banks

+20.7
+ 3.9
+ 4.7
- 4.8
+16.2

0
+ 39.8

Probably the
bank
most important development in the field of
loans has been the
loans,
magradual expansion in the so-called term
turing in one year or more, to commercial and industrial enterprises.
For example, outstanding loans
of this type by the weekly reporting
banks in April
amounted to about $16,200,000 or 4 per cent of total
1

29

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

loans. The original amounts of such loans aggregated $20,400,000, of
for three years or longer.
which nearly two-thirds had been made
Loans averaging less than $100,000 predominated in number.
Another evidence of the activity of banks in the lending field is
Association in
shown by the survey made by the American Bankers
Pennsylvania, New Jersey and Delaware. Reports from 763 of the
1,504 commercial banks in these states show that 459,279 new business and personal loans for an aggregate amount of $592,069,000, or
an average of $1,289, were made in the first six months of 1939. Renewal loans in the same period numbered 1,326,101 and amounted to
$1,352,770,000,the average being $1,020. In addition, 12,444 new mortgage loans were made, showing a dollar total of $53,384,000or an average of $4,290.This survey also showed that customers of 129 banks as
of June 30,1939 were using only 27 per cent of the lines of credit that
were made available to them.
The trend toward more diversified types of loans, longer term
credit, and the purchase of insured mortgages on an amortized basis
reflects (a) an adaptation of banking to changing business requirements, (b) a changed attitude of the bankers in their interpretation
of short and long term credit, with a consequent recognition of the
part that banks must play in meeting varied business needs, and (c) an
effort to employ idle funds in order to serve business communities and
sustain bank earnings. These factors in the lending situation appear to
have been in greater evidence during 1939 than in previous years.
Invest-

Changes in the investments of member banks during 1939
reflect diverse trends. At the end of the year banks in
Philadelphia held in their portfolios almost $15,000,000
more in securities while banks in other parts of the district held
$40,000,000less in securities than at the
end of 1938. As a result, the
total investments of all member banks in this district declined to $I,
396,000,000on December 30,1939 as compared
with $1,421,000,000 a
year before.

tuents

30

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

INVESTMENTS
OF ALL MEMBERBANKS
PHILADELPHIA

FEDERAL

RESERVE

DISTRICT

MILLIONSi

OBLIGATIONS
US GOVERNMENT
uirea

800

-ý.

. ---ý-

01

anu ýuo

-j

ý/

i
29

30

31

32

33

34

35

36

37

38

39

Banks sold
first
substantial amounts of their holdings during the
half of 1939
high
bonds
to
record
when prices of
were advancing
grade
levels. But in the
second half of the year member banks in PhiladclPhia increased their investments, despite some liquidation early in
September when the European
war broke out, while member banks
outside of that city continued to reduce their holdings to the end of
the year, reflecting in part the influence of disturbed world conditions
and in part domestic uncertainties with respect to the trend of businessand money markets.
The most
striking developments to be noted are the changes in
composition, type and maturity of holdings by member banks in Philadelphia and by those in
other parts of this district. These changes are
indicated in general by the accompanying analysis of investments held
by these two
classesof banks.
31

DIRECTORS, PRESIDENT AND FIRST VICE-PRESIDENT
FEDERAL RESERVE BANK OF PHILADELPHIA

Joseph Wayne, Jr.
Class A Director-—Group 1

George W. Reily
Class A Director—Group 2

Thomas B. McCabe
Chairman, Class C Director

Warren F. Whittier
Class C Director

John B. Henning
Class A Director—Group 3

C. Frederick C. Stout
Class B Director—Group 1

Harry L. Cannon
Class B Director—Group 2

Alfred H. Williams
Deputy Chairman—Class C Director

Ward D. Kerlin
Class B Director—Group 3

John S. Sinclair
President

Frank J. Drinnen
First Vice-President

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ý

Twwcnty-fifth Annual Report, Federal Reserve Bank
of Philadelphia

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34

!'wenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Member banks in Philadelphia generally increased their holdings
)f direct and guaranteed obligations of the United States, but showed
banks,
little change in their portfolios
of all other securities. Country
direct
in
hand,
investments
gov-)n the other
reduced noticeably their
ernment obligations and corporate bonds, but increased holdings of

guaranteed and nonguaranteed obligations of government corporations
and credit agencies and of securities issued by states and political subdivisions. At the close
investments of
of the year 63 per cent of the
Philadelphia banks and 49 per cent of the securities of country banks
were in United States Government obligations.
An equally interesting development is the fact that banks in Philadelphia lengthened the
holdings of direct
average maturity of their
holdings of
banks
government obligations, while country
reduced their
longer maturities
from 5
and increased those of governments running
to 10 years.
Of their total investments
amounting to $674,400,000, member
banks in Philadelphia
at the end of 1939 held $127,600,000or 18.9 per
cent in securities maturing within five years. The investments of the
country banks in securities of similar maturities amounted to $174,$721,800,0(X).
000,000 or 24.1 per cent
of total holdings aggregating
Such increases in
banks
reflect
short maturities as are apparent at all
in kart purchases
by
issues
the
of municipal
and securities guaranteed
United States Government
and the approach to maturity of securities
already in bank portfolios.
The trend toward
shortened maturities in portfolios, especially
among smaller banks, obviously accentuates the problem of bank earnings becauseof the lower
yields on short than on long maturities and
low
interest
levels prevailing generally. Closely related to the
of the
question of maturity and earnings is the quality of investment assets,
but no data on this
aspect arc available in the usual call reports on
member bank condition. An analysis of the type, maturity and quality
of bank investments in this district is given on pages 40 to 51 of this
report.
ý"

35

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia

ALL MEMBERBANKS
PHILADELPHIA

RESERVE

FEDERAL

DISTRICT

PERCENTOf CAPITAL ACCOUNTS

TO DEPOSITS
25J

-ýI

ýf-

ý

,

. --.

"N

-'ýý, ` ýýýý.

PERCENTOF CAPITALACCOUNTS
TO LOANS,INVESTMENTSAND
REAL ESTATEASSETS

o!

27

28

29

'30

'31

,

'32

'33

36

'34

'35

'36

37

'38

40

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
Capital
funds

Member banks in 1939increasedtheir capital accountsby
$2,900,000
to $490,000,000
at the closeof the year. This in-

in deposits,
crease was much smaller than the expansion
from
so that the proportion of capital accounts to deposits declined
17 to 15.2 per cent. In 1929, when deposits were smaller, the percentage
was 26.3.

While the cushion of capital has been reduced, cash assets have
increased sharply from an average of 13V2 per cent of total assets in
the period from 1927to 1933 to 32 per cent at the close of 1939. Assets
been
subject to depreciation-loans, investments, and real estate-have
The
reduced from an average of 85 to 67 per cent of total resources.
1939
proportion of capital accounts to depreciable assetsat the close of
was 19.5 per cent, about the same as in the previous three years.
Real estate assetsdeclined $8,600,000during 1939 to $172,400,000
35
or
per cent of capital accounts as against 37 per cent a year earlier.
Federal Reserve
This ratio was 24
per cent for all member banks of the
System.

Federal
Philadelphia
Reserve District

All member banks
Lud of year

Capital
Percentage ofaccounts:
I)eposits...........
Loans, investments
and real estate
Investments....

Investments
Government

assets'.....

.....

...........................
other than 17. S.

..

obligations......

Surplus,
Percentage undivided
ofLoans, investments,
Investments.....

profits

...

and real estate

assets'.....

representing

.
..

nvesttnents other than
S.
Government
obligations......
.
Banking house,
equipment
and other
real estate-: Percentage
ofCapital accounts...
. .........................
assets indirectly

1938

1939

1939

17.0%
19.4
34.3

15.2%
19.5
35.1

11.2%
15.7
27.6

75.(,

79.6

97.7

11.9
20.9

12.0
21.6

9.0
15.8

46.1

49.0

55.9

and reserves:

.........................
U.

*IncIndes

United
States

37.2
real estate.

A

37

1

35.2

1

24.3

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

The net profits of member banks in this District more
from $10,000,000
and
than doubled from 1938 to 1939, rising
due
principally to
to approximately $21,200,000.This was
expenses
increased profits from security sales in the first half of the
$600,000 to $17,400,000.
year. Dividend payments were reduced by

Earnings

As in other recent years, the volume of the principal earning assets
and the sources of bank earnings are in striking contrast to the
Nineteen Twenties. In general, the amount of and income from loans
declined drastically, but holdings of investments expanded greatly,
while income from this source decreased,owing largely to the changed
composition of security portfolios and to generally lower yields on
bonds. The following data indicate these diverse trends:

All member banks
Philadelphia Federal Reserve District
Deposits
Loans

..............................

................................
Earnings
therefrom ...................
Investments
...........................
Earnings therefrom
...................
Earnings from other sources
.............
Total current earnings
..................

1927-29
(average)

1939

Per cent
change

$2,434,000,000

$3,047,000,000

1,718,000,000
95,501,000

925,000,000
42,099,000

- 46
-56

924,000,000
46,773,000

1,394,000,000
44,772,000

+S1
-4

16,007,000

21,012,000

+31

158,281,000

107,883,000

-32

+25%%a

Gross earnings from current operations declined from $108,400,000
in 1938 to $107,900,000in 1939. Increased income was reported from
loans, service charges, and from miscellaneous sources, but these
gains
were more than offset by a smaller amount of interest on securities and
lower earnings from trust departments.

I

Current expenseswere reduced more than earnings, declining from
$73,100,000in 1938 to $72,000,000in 1939. This was due to a decrease
of $1,900,000or about 10 per cent in the interest paid on time and savings deposits. On the basis of combined dollar totals for all
member
banks, the rate paid on these deposits in 1939 was 1.5 per cent,
which
38

Twenty-fifth

Annual Report, Federal Reserve Bank
of Philadelphia

compared with 4.6 per cent earned on loans and 3.2 per cent on investments. In the years 1927-29,when the rate paid on time deposits was
about 3.2 per cent, the average returns
on loans and investments were
respectively 5.6 and 5.1 per cent.
Earnings from
current operations remaining after the payment of
expenses have been rising slowly in late years, $35,900,000 being reported in 1939, as against $35,300,000in 1938 and $34,500,000in 1937.
In recent years the
amounts available for final distribution have been
Earnings

and expenses

banks
I'hiladclpluaof member
Federal Reserve
(000's omitted)

District

1937

1938

1939

$42,790
47,680
8,943
2,034
9,508

$41,501
46,007
9,168
2,317
9,399

$42,099
44,772
8,827
2,501
9,684

$110,955

$108,392

$107,3N3

Current

Interest earnings:
and discount
loans..........
Interest and dividends on
on securities......
't'rust department
Service
.....................
charges on deposits
All other
..............
............
. .................

.
.

't'otal

............................
Current expenses:
Salaries
and wages
....................
pterest on tinge
and savings deposits.....
I: Ixcs-real
estate
I:

All

.

.....................

lxt5--(>ther

....................

other..
.......

total...
Net earnings

.

.............

...................

......

.

from

current operations.
Recoveries
and
profits
Recoveries
on sales:
Recoveries on loans. .
....
on securities ..............
Profits
on security sales ................
All other
................
.....
........................
Total...
.

.
.

.........................
house
and e.quipment.......
. .........................

.

Toral
.............................
Net addition

to profits

Gash dividends declared................
......

$27,498
18,474
2,738
4,754
19,612

$27,616
16,557
2,795
5,149
19,863

$76,409

$73,076

$71,980

K34,546

$35,31(

$35,903

S3,139
3,293
9,270
1,696
$17,398

...................
Posies
and depreciation:
on luaus
.................
(I1securitics
.
tln banking
All other....

$27,207
19,583
2,737
6,166
20,416

. ...

39

10,523
11,94 7
2,951
2,'995

$1,449
3,007
10,(31
1,109

Kl, tic,7
6,21R

16,631)
1,27')

M6,686

$25,994

X10,625
22,067

$12,167
19,706
3,053
6,773

2,70.3
6,631

$28,446

$42,028

S40,699

$23,498

$9,974
17,')82

$21,198

19,597

i7,;ý;

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

depreciation have exsmaller than net current earnings, as losses and
ceeded recoveries and profits on sales.
Recoveries and profits on sales increased sharply from $16,700,000
in 1938 to $26,000,000in 1939. This was due chiefly to heavy profits
from security sales. Recoveries on securities also increased materially,
figure.
the amount realized from this source being double the 1938
Losses and depreciation declined $1,300,000from 1938 to 1939, but
in the latter year were still in the heavy volume of $40,700,000. A small
part of this is accounted for by the charging off of premiums on securities and on insured mortgages.

Analysis of Member Bank Investments
In view of the increased importance of investments in the earning
assetsof commercial banks and the accompanying change in the nature
of credit problems, the Federal Reserve Bank of Philadelphia undertook
studies of the bond portfolios of member banks in 1937 and again in
1939. The sharp decline in the proportion of bank loans and the expansion in investments have reflected several influences and created
new problems of earnings and management.
This change in the character of bank assetshas been due primarily
to an increasing tendency on the part of business to finance operations
through the open security market rather than by direct private borrowing, to the substantial reduction in the use of credit after 1930, and to
the growth in public financing during the past decade. The effect of
these changed conditions has been accentuated by the inflow of over
$10,000,000,000in gold from abroad, which was primarily the
result
of disturbed world conditions. In consequence, the funds available to
banks and the reservesof banks have expanded sharply, while the
traditional medium for the use of bank funds in commercial lending has
been less in evidence, and banks generally have found it increasingly
necessaryto employ their funds in the investment market.
40

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Constant study of bond portfolios is essential in view of recurring

uncertaintiesin money markets, the increasein unpredictable elements
in businessand finance, and the widespreadindustrial obsolescence
occasionedby the introduction of new products and methods.
The purpose of the analysis of bond portfolios in 1939 was to ascertain the character of the investments of member banks in the Third
Federal Reserve District and the extent to which the composition of
investments is
consistent with the general and specific operating conditions of the institutions. The data
from
used in the study were taken
during
reports of examinations of 652 banks made, for the most part,
the first eight months of the year, prior to the outbreak of war in
Europe. As these
reports were not available for all institutions at any
date,
given
the statistics were not strictly comparable throughout, but
this technical limitation may be minimized by the fact that investment
positions were relatively stable during the period. In making the
analysis, percentage distributions were computed covering the general
nature of assetsand liabilities, the quality, type, and maturity of investment holdings, the quality of loans, the composition of the capital
accounts, and the relation of capital to liabilities and to depreciable
assets.These data were further distributed to show variations occasioned by differences in size, location, and types of assetsand liabilities.
The analysis
showed certain broad changes from the investment
position of member banks in 1937. The average volume of investments
in 1939 was
about $1,400,000,000as against approximately $1,450,000,000 in 1937.The
difnature of the investments in 1939 was somewhat
ferent from
form
the earlier period. The proportion of portfolios in the
of direct and guaranteed obligations of the United States increased
from 50
per cent in 1937 to 55 per cent in 1939. Holdings of state,
municipal and other local
governmental obligations and of corporate
securities of the first three grades declined from 34 per cent to 25 per
cent of total investments,
while the proportion of corporate securities
rated in the fourth grade
was unchanged and that of lower grade bonds
increased.The
average maturity of portfolios was somewhat shorter in
1939than in 1937,
as bonds maturing in over ten years, defaulted issues,
41

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

58 per cent of the total, while
and stocks declined from 64 per cent to
from 13 per cent to
securities due in from five to ten years increased
23 per cent. Proportions of shorter term securities declined somewhat
in the period. The proportion of earning assetsin the form of investments was unchanged at 60 per cent, but the cushion of capital against
deposits and substandard investments declined.
Funds available for investment by banks are traditionally regarded
as being supplied by time deposits and by that portion of capital which
is not utilized in fixed assets. In the period of the study, 39 per cent
of the total dollar volume of deposits was in the form of time deposits,
and the average proportion of time to total deposits among the individual banks was 65 per cent. Of the volume of capital funds, 42 per
cent was in fixed assets,the average proportion among the banks being
38 per cent. Although 60 per cent of earning assetswas in the form of
investments, only 80 per cent of the volume of funds available for the
extension of this long term credit was used for this purpose. The banks
on the average used scarcely more than one-half of their so-called investment funds in securities.
Owing to the lack of profitable outlets for lendable funds the
banks held large proportions of unused cash. At the end of the year,
32 per cent of member bank assetswas in the form of cash or its
equivalent, and during the period of the study over 88 per cent of the
banks held from 10 to 30 per cent of their assetsin this form.
On a dollar basis the quality of member bank investments in the
aggregate was generally high, over one-half or 55 per cent being in
direct and guaranteed obligations of the United States, about 11
per
cent in state, county, and municipal obligations, and 14 per cent in
corporate securities of the first three grades, a total of 80 per cent in
high grade issues. Of the remaining 20 per cent in lower quality
securitics, 7 per cent comprised holdings of fourth grade corporate bonds, 9
per cent was in lower grade bonds, 3 per cent in stocks, and 1 per cent
in defaulted issues. The average holdings of individual banks, however, showed only 69 per cent in the high grade issues,reflecting smaller
42

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

proportions of government securities and larger holdings of all grades
of corporates. Variations among individual banks and groups of banks
were pronounced, and in many cases substantial proportions of inferior assetswere in evidence. The quality of aggregate investments of
member banks is shown in the accompanying table and chart.

Quality

Total
dollar
VUILI nC

bank investments
of member
(Per cent of total
investments)

l'. S. Government
obligations, direct and guaranteed.........
State, county
and municipal obligations, etc. ... -.. ----------.
Corporate securities
of the first three grades .................
orporare securities
fourth grade
Lower grade bonds of the
....................
Defaulted issues
.......................................
.........................................
Stocks
..................................................
Total

Average

.

of
ratlos

7.0
9.1
1.4
2.7

39.7%
10.2
19.1
11.3
16.8
1.7
1.2

100.0%

100.0%

54.6%
11.3
13.9

.

.............................................

I

QUALITY OF MEMBER BANK INVESTMENTS
PCP,r,[ hi

THIRD

FEDERAL

RESERVE
--

DISTRICT
výnceýr or oo. un

*ouý

1,

U
CPST,
SCCONý
cnýicnTOýSP[TC

"

TninDnýTirW1

inOn the basis types
of
of securities, 66 per cent of the volume of
vestments was in obligations of Federal and other governmental bodies.
Holdings
of corporate issuestotaled about 28 per cent of the aggregate
portfolio, comprising 12
10 per
per cent in obligations of railroads,
cent in public utilities,
Foreign
and 6 per cent in industrial bonds.
obligations comprised only 2 per cent of member bank investments.
On the average, however,
the individual hanks held about 50 per cent
in public
obligations, with 18 per cent in railroads, 16 per cent in
public utilities, and 10
per cent in industrials. The following table
shows the holdings of
various types of securities on a dollar basis and
43

Annual Report, Federal Reserve Bank of Philadelphia

Twenty-fifth

on the basis of the average proportion
dual banks:

of each type held at indivi-

'T'otal
dollar
volume

Types of securities in member bank portfolios
(Per cent of total investments)
U. S. Government
direct and guaranteed........
obligations,
State, county and municipal
obligations
.................
Railroads
................................................
Public utilities
......
....................................
Industrials
...............................................
Foreign
.................................................
Miscellaneous
............................................
Defaulted
issues
..........................................
Stocks
.....
............................................

Total

.
.

54.6%
11.9
11..5
9.6
5.9
1.9
0.5
1.4
2.7
100.0%

.............................................

100.0%

The average maturity of investments in individual banks was
somewhat longer than that of the composite portfolio for all banks together. Average holdings of securities maturing in over ten years
amounted to 61 per cent of total investments as against only 54 per
cent in the dollar total.

Maturities
of member bank investments
(Per cent of total investments)
Up to 5 years
S to 10 years ........................................

Over 10 years ............................................
............................................
Defaulted
issues
and stocks ................................

Dotal

............................................

Total
dollar
volume

Average
of
ratios

19.3%
22.6
54.0
4.1

16.0%
20.0
61.1
2.9

100.0%

100.0%

The aggregate capital position of member banks in this district was
relatively strong in some respects.The figures in many instances, however, indicate need for considerable improvement, particularly in the
case of certain individual banks and groups of banks, where variations
were wide. Total deposit liabilities amounted to less than six time!
capital accounts comprising capital stock, surplus, profits, and reserves
The total of substandard loans and investments, including fourtl
44

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

grade corporate securities, however, was equal to 85 per cent of capital
funds, substandard investments alone being equal to 55 per cent of
invested
stockholders' equity. But after deducting the amount of capital
in fixed assets,substandard investments represented 95 per cent of the
remaining capital funds, and substandard loans and investments combined were nearly one-half again as much as net available capital. The
following table shows the aggregate capital position of the banks.
Ratios in
per cent

Capital position of member banks
(Based upon aggregate dollar volume)

541iä
42

It
sits to capital account
Fixed assets to
......................................
capital account ...................................
Substandard
assetsl'o capital account
............................................
1'o capital
account minus fixed assets ............................
Substandard
investments-

1,55
o capital account
...........................................
.

o capital account minus fixed assets
l. onK term investments
...........................
fo capital
fo capital account ......................................
.
..
account min us fixed assets............................

4$
1'15

.
.

95
164
282

While these figures
showing the aggregate investment Position of
all member banks are significant, large variations were shown among
various banks and groups of banks, reflecting broad differences in
operating conditions. For example, as between national and state
member banks, the quality of investments was the same, but the average maturities at the state banks were shorter and the proportion of
substandard to total loans was smaller. The state banks had more capital
invested in fixed
assets but also held larger cushions of total capital
against both substandard and long term bonds.
Wide variations
were also apparent in the composition of Portfolios among banks
of different sizes. The small banks held somewhat
larger proportions
of defaulted securities and of corporate issues, espcdally those
lower
of
ratings, than was the case in larger institutions.
Isanks with deposits
less
ranging up to $2,000,000on the average lield
than 40 per cent
of their investments in the form of direct and guarantec(l obligations
of the United States, while banks with $10,000,000or
45

Annual Report, Federal Reserve Bank of Philadelphia

Twenty-fifth

form. Conversely,
more in deposits held from 60 to 70 per cent in this
23
held
from
19
to
per cent of their portthe group of smaller banks
issues, as against
in
defaulted
folios in bonds below the fourth grade and
Differences in the quality
only 6 to 8 per cent at the larger institutions.
in the following
of investments in banks of varying size are shown
table:
Deposits in millions of dollars
Quality of investments
by size of banks
U. S. Government
obligations,
direct and guaranteed.......
State, county
and municipal
obligations,
etc.. **'*......
Corporate
securities
of the
first three grades...........

Subtotal
Corporate

of
fourth grade
...............
Lower grade bonds...........
Defaulted
issues
..............
Stocks
......................
'I'ot 11
. .....

. .....

39%

the

510

ý_
_,

1020

2050

46%

G7°Jo 61 %
10

14

50 &
over

-59ýö
15

6

9

9

12

10

12

18

21

20

20

19

17

12

10

11

64ý-, 69%

72%

75%

89%

85 (J

85 !';,

13
20
2
1

11
15

4

4

;
i
i

>
t
ý

4
6
2
3

13
20
3
1

13
19
2
1

I100
....

I2

35`7e 35% 37% 43ýc

1 63% 65`;

.............

securities

%1

%Y2

o-

11
17
2
1

9
12

2
2

1

JoI100% 100%, 100oa 100% 100% 100% 100% 100%
ý

.

DISTRIBUTIONOF HIGH GRADE SECURITIESBY SIZE OF BANK
PERCENT

THIRD

FEDERAL

RESERVE

DISTRICT

100

m
m

m

m
m

ME

o
1., výýii..

irv uiLýioHS

or

oOýýýRS

ýi5r

ý
innCC

I

Convon&iCS-

//SiAiC

ETC,

5 LovCnnuCni

Among the corporate securities, banks
with deposits up to $2,000
.
held
from 17 to 20 per cent of total investments in
000
railroad bond!
46

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

and the same proportion in public utility bonds, while banks with
$10,000,000or more in deposits held from 6 to 10 per cent in each of
these types of securities. Holdings of industrial issues ranged from 10
to 13 per cent in the group of smaller banks as compared with 3 and 4
per cent in the larger banks.
Maturities of investments also varied widely among the banks of
different sizes.The proportion
of portfolios in securities maturing up to
five years increased from 9
less than
per cent at institutions with
$250,000in deposits to 30 per cent at banks with $10,000,000to $20,000,000 in deposits. There was little variation in holdings of medium
term securities, but in the caseof bonds maturing in over ten years the
smallest banks held about 70 per cent of their portfolios in this form
while the largest, with $20,000,000or more in deposits, held only about
40 per cent.
The proportion
banks conof substandard loans at the smallest
stitutes 7 per cent of total loans, while they were as much as 18 per
cent in some groups of larger-sized banks. The following data show the
varying quality of loans at banks of different size.

Quality of loans
by size of banks
Class 11
..............
('lass 111
.
Cl ass...................
lV
....................
Total-substandard
loans..
.... .......

Deposits in millions of dollars
0--4
G%
1

0

77

%-

Y21125

10%
1

9%
1

0

0

11%
1
0

212%
I
0

510
15%
2
1

11% 10% 12% 13ofo 18%

1020

2050

11%
3

14'J

UVCC

10%
3

1ý1

I
15';;

SO &

ý

18`7,

14`iä

The large banks held larger
a
proportion of their earning assetsin
the form of investments, had
smaller proportions of time deposits, and
had substantially lower
rates of earnings on both loans and investments.
With respect
to capital positions, large banks generally had heavier
investments in fixed
assets, higher ratios of deposits to capital, and
larger
cushions of capital against substandard investments.
47

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
Deposits in millions of dollars

Capital position
of member banks

%Y40Y2
174

by size of banks

Ratio of
Deposits to capital
Fixed assets to

i

account.

capital account..........
Substandard investments
to capital

account........

352ö 4S5% 523

12

25

5-

10

517% 523% 549

0

50 &
over

1020

2050

643

G00'/¢ G87%

30

28

37

37

38

57

51

56

71

84

74

66

62

31

71

37

34

47

The variation in the amount of capital in relation to substandard
investments among banks of varying size is further illustrated in the
following table.
Percentage of substandard investments to capital
accounts by
of banks
Deposit
(Thousands

Nunn
ber
of
banks
anks

1204080039.9% 799% 119.9`% 159.9';

160', ',
and
over

Total

ranges
of dollars)

Up to
249
25
250499
96
500999
156
1,000- 1,999
162
2,000- 4,999
140
5,000- 9,999
41
10,000-19,999
15
20,000-49 999
8
50,000 and ,over... I91.4
Tocal..........
---

Per
cent
of
banks

' 652
-- --

3.8%% 40.0%
14.7
29.1
21.1
23.9
19.7
24.9
21.5
27.8
6.3
31.7
2.3
73.3
1.2
75.0
33.3

36.016.0'jß
28.1
27.1
26.3
30.1
40.1
27.8
40.0
22.9
43.9
17.1
20.0
6.7
25.0
0
55.6
11.1

8.0%
14.6
1(i. 7

9.9
6.4
4.')
0
0
0

0
1.1
5.8
2.5
2.9
2.4
0
0
0

100.0`%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

1100.0%

-

The size of the communities in which banks operate naturally has
bearing upon the size of the banks themselves, and differences
direct
a
in population are also reflected in the composition of the portfolios of
banks serving the areas. Banks in cities of 50,000 or more population
held over 50 per cent of their portfolios in the form of direct and
guaranteed obligations of the United States as against proportions of
lessthan 40 per cent in towns with population up to 3,000. Holdings of
these obligations ranged from 35 per cent of total portfolios at banks
in towns with less than 1,000 in population to 55 per cent at Philadelphia banks. Investments in bonds of state and local governments also
4S

Trventy-fifth

Annual Report, Federal Reserve Bank of Philadelphia

CAPITALPOSITIONS
BY SIZE OF BANK
PERCENT
100"

THIRD FEDERAL

FIXED

ASSETS

RESERVE

DISTRICT

TO CAPITAL

ACCOUNTS

75

DEPOSITS

TO CAPITAL

ACCOUNTS

i
SUBSTANDARD

INVESTMENTS

49

TO CAPITAL

ACCOUNTS

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

increased as population increased, and conversely, holdings
porate obligations declined.

of cor-

Banks in larger centers held portfolios with shorter maturities than
did institutions in smaller centers. Banks in towns having populations
in five
under 1,000 had only 10 per cent of their investments maturing
50,000
banks in cities of
or
years or less as against nearly 30 per cent at
23
Philadelphia,
the
proportion
was
where
more population, excluding
bonds
in
ten
over
years varied
maturing
per cent. The proportion of
from a high of 68 per cent at banks in the smallest towns to a low of 44
per cent in cities over 100,000,excluding Philadelphia.
The banks in larger centers also showed lower rates of current
deposits
earnings on both loans and investments, had larger volumes of
fixed
invested
in
in relation to capital, and had more capital
assets.
These conditions reflect broad differences in the nature of bank operations in rural and urban sections. In the larger cities, financial operations are generally more competitive than in less industrialized sections;
correspondent balances held for other banks are concentrated in larger
centers; and proportions of demand deposits are larger in cities, where
manufacturing and primary distribution require frequent and substantial outlays of cash.

I

Banks with large proportions of earning assetsin the form of bonds,
as compared with banks concentrating upon a commercial lending
business,showed investments of somewhat higher quality, had smaller
proportions of capital invested in fixed assets,had smaller holdings of
capital in relation to substandard and long term investments, and
showed lower rates of current earnings on both loans and investments.
Banks with large proportions of time deposits had relatively
smaller holdings of public obligations and larger proportions of all
grades and types of corporate securities, especially those below the
fourth rating, than did banks whose deposits were primarily
of the
demand type. As would be expected, because of the lower
rate of turnover in deposits at banks holding substantially larger proportions
of
time and savings accounts, average maturities of portfolios at these
50

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

institutions were longer than at banks doing a primarily commercial
business. Because
bank credit,
of the limited demand for short term
had
have
to resort to
commercial banks as well as savings institutions
the investment market for the employment of their funds, so that on
the whole no great differences appeared with respect to the proportion of earning assetsin the form of securities at banks with heavy
demand deposits
as against those with heavy time deposits.
In general, banks
high quality
with loans and investments of
showed substantially different investment and capital positions from
those found at institutions with larger proportions of substandard and
borderline loans
and securities. Average maturities of portfolios at
banks with higher
larger proportions of
a
grade of assetswere shorter,
earning assetswere in the form of investments, rates of current earnings
on investments were lower and on loans were higher, proportions of
time to total deposits were smaller, cushions of capital against deposits
and substandard assetswere larger, holdings of cash were larger, and
the relative amounts of capital utilized in the form of fixed assetswere
smaller than at banks where the quality of assetswas lower.
The general investment position of the member banks in the
Third Federal Reserve District,
be
as shown by this analysis, appears to
fairly
well adapted to current operating conditions. Wide variations in
the composition of portfolios
and in the nature of other assets and
liabilities, however,
exist among individual banks and groups of banks.
These variations in
the quality and types of security holdings and
in their relations
to capital and liabilities reflect in part the changes in
credit positions and ratings of bonds occasioned by the wide fluctuations
in business
activity in recent years. But in many casesinvestment positions suggest the
absenceof an effective portfolio policy and program.
The adaptation of the
policies of banks to the changed and changing financial
requirements of the communities they serve is necessarily
and properly a matter of evolution. Recent developments indicate that
the sweeping changes in the
nature of bank credit have been recognized
by the banks
increasing
and that
attention is being given to the management of investments in
order to meet the new credit problems.
51

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Money Rates
Money rates in 1939 continued the irregular downward trend
Disturbed political and economic
which has prevailed since early 1932.
flow of gold to
conditions throughout the world sharply stimulated the
billion
dollars,
swelling
this country to a record volume of over three
bank deposits and reservesto new high levels. The demand from busidespite
ness for new capital was even less than in the preceding year,
Such new issues of
rapidly improving industrial and trade conditions.
both corporate and government securities as were marketed were well
idle funds were
received, as investors under the continuing pressure of
low
willing to accept unprecedentedly
returns.
Yields on investment securities in the middle of the year declined
to the lowest levels on record, and short-term funds continued virtually
unchanged from the low levels of the previous two years. During the
summer, when international relations were growing increasingly
strained, rates advanced somewhat, and immediately after the outbreak
of war in September the investment market was subjected to considerable selling pressure chiefly from smaller banks and non-institutional
investors. In this period of sharp decline in the bond market, the Federal Open Market Committee of the Federal Reserve System purchased United States Government obligations amounting to about
$470,000,000from August 28 to September 25 to aid in maintaining
orderly conditions in the market. Some banks in large money centers
and investing institutions generally bought securities on the decline.
As the bond market subsequently showed strength and demand for
high grade bonds again became active, the Committee
sold securities.
As a result of the active demand for securities,
yields by the end of the
year declined to prewar levels.

i

Rates on new 91-day Treasury bills fluctuated considerably during
the year, varying from a slight negative yield on a few issues which
were purchased for tax purposes to a discount rate as high as 159 per
.
cent on the issue offered in the first week of the war. The average place_
52

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

nient rate for the year on new issues,however, was only .022 per cent,
compared with .053 per cent in 1938. The average rate on outstanding
91-day bills was 05 per cent, or 02 points below the year before.
.
.
The supply of commercial paper during the year was again extremcly limited, and the demand continued active. Offerings by dealers
were allocated among customers, who were seeking a liquid form of
assetin which to employ their large volume of cash. The average rate
on this type of paper was only 59 per cent in 1939 as against .81 per
.
cent in 1938 and 95 in 1937.
.
The return on Treasury
in 3 to 5 years averaged
notes maturing
59 per cent during
in the
the year, and reached a low of .35 per cent
.
early summer. The average yield for 1938 was 83 per cent.
.

The yield on long-term Treasury bonds declined to a record low
2.07
of
per cent early in June and for the year as a whole averaged 2.36,
the lowest on record and more than 1 per cent under the 3.42 per cent
which prevailed in the period from 1927 to 1929. In the case of municipal bonds, average returns reached a new low of 2.52 per cent in
December
and for the year averaged below the level in 1938. The rates
highest
on the
grade of corporate bonds also reached a new low in the
summer, these bonds selling to yield 2.88 per cent. After advancing to
a temporary peak in the early fall, returns again declined, reaching 2.91
issues, reflecting
per cent at the end of the
year. Speculative corporate
more fully the uncertainties in the international and domestic business
situations, sold at rates substantially above the lows of early 1937. The
average yield for the year, however, was below 1937 and 1938.
The demand for
new money in the capital market was sustained
primarily by federal
and local government issues. New obligations of
the United States Government
offered to the public in 1939 amounted
to about $1,600,000,000
excluding savings bonds. Issues of states and
municipalities to obtain
new capital totaled $931,000,000. Flotations of
new corporate
securities, on the other hand, aggregated only $371,000,000,
compared with $872,000,000in 1938, about $1,225,000,000 in
1937,
and an average of $6,000,000,000in the years 1927-29.
53

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Annual averages of money and security rates and the levels prein the following table.
vailing at the end of the past two years are shown
Annual

Money rates and yields
Commercial
paper, prink
Bankers' acceptances, 90 ............
days........
Call money renewals, New York....
Treasury
bills, 91-dayY().......
(dealers)
Treasury
notes, 3-5 year.. ...........
Treasury
bonds, over 12 years........
Municipal
bonds (Stand. Statistics)..
Corporate
bonds (Moody):

Rating-Aaa
Aa .....................
A ......................
.......................
Baa
.....................
TypeIndustrials
Public
Rails

...............
utilities...........

....................

1937

1 1938

95`/0
. 43
.
1.00
"2S
1.40
2.68
3.10

3.26
3.46
4.01
5.03
3.55
3.93
4.34

End

averages

1

1939

of }'car

11 1938

1

1939

S1%
44
.
1.00
07
S3
.
2.56
2.91

59°iä
. 44
.
1.00
05
. 59
.
2.36
2.76

62%0
. 44
.
1.00
05
. 69
.
2.48
2.71

56 %.
. 44
.
1.00
04
. 46
.
2.30
2.52

3.19
3.56
4.22
5.80
3.50
3.87
5.21

3.01
3.22
3.89
4.96
3.30
3.48
4.53

3.05
3.39
3.99
5.17
3.36
3.61
4.73

2.91
3.10
3.72
4.89
3.15
3.36
4.44

Average rates of interest paid to customers on time and savings
deposits continued below the returns on the highest grades of securities. Although the legal maximum rate that member banks generally
are allowed to pay is 2'/Z per cent, the trend of rates actually paid on
such deposits has been downward. In the case of New Jersey the
legal maximum for banks was reduced to 1 per cent in July 1939. The
spread between interest rates paid on deposits and yields on securities
has widened since 1935.Average yields on long-term governments and
Aaa corporate bonds in 1939 were respectively 2.36 and 3.01 per cent,
showing declines of .43 and .59 per cent from 1935. The rate paid by
member banks on time and savings deposits, calculated from dollar
totals, showed a reduction of %4per cent in this period to approximately
111/Z
per cent.
The continued easy money conditions in the investment markets
caused by increasing supplies of idle funds and limited demand for
capital and credit were also reflected in the market for commercial
loans. The volume of loans made by large Philadelphia banks
at low
rates increased substantially toward the end of the year. The average
54

i

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

BOND YIELDS AND INTEREST ON DEPOSITS
PERCENT

II
ioý

6

5

4

3

ýýý....
RATE PAID ON TIME DEPOSITS
PHILADELPHIA DISTRICT
ALL MEMBER BANKS
COUNTRY BANKS

2

0

27

28

'29

'30

'31

'32

.33

'34

35

v2

ý

I
'36

'37

'38

'39

40

rate on the dollar
volume of new and renewed loans with maturities
of 30 days or
more, declined to 2.7 per cent in the first half of Dccember. '1'he
corresponding; rate in September was 3.4 per cent and in June
55

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

and March, 3.6 per cent. From 80 to 90 per cent of the total number of
loans made by these banks in 1939 bore from 4 to 6 per cent interest.
The quarterly reports for 1939 arc summarized below.
loans
Commercial
and industrial
in 30 days or more
maturing
banks
made by seven Philadelphia
(D( llar figures in thousands)
Rate
I percent....
.................
Between 1 and 1! , per
cent..........
112 per cent
................
........
Between 112
2
and
per cent..........
2 percent....
Between 2 and 3 per cent. ...........
.... .......
3 per cent
Between ............................
3 and 4 per cent
.............
4 per cent
Between ............................
4 and 5 per cent............
i per cent
Between .............................
5 and 6 per cent
............
6 per cent
Between ............................
6 and 7 per cent
.............

Total, dollar amount...........
Total number
...................

Mar"
16-31,
1939

J
1-15,
1939

U

$211
250
2,080
150
332
548
3,096
1,265
2,147
1,767
1,350
250
1,547
0

$15,960
1,117

$14,993
991

0
0
$2,040
200
1,524
1,011
2,520
437
2,059
1,749
2,239
607
1,575

.

.

.
.

.

Dec.
1-15,
193`)

Sep.
1-15,
1939
0
x70()
3,3; 0
197
1,234
514
1 SI
'9
_;
1,129
2,2(2
1,527
1,(Q
243
1,505
0
$17,108
1,184

51,1(, 7
500
10,151
115
754
2,2(. 0
2,460
2,824
2,550
948
1,614
249
1,179

$26,780
1,115

The rate of discount charged by this bank on advances to and
rediscounts for member banks under sections 13 and 13a of the Federal Reserve Act has continued since September 1937 at a record low
of 1% per cent. Rates on advances to member banks under section

Discount and interest rates
Federal Reserve Bank of Philadelphia

I

Discounts for member banks (Sections 13 and 13a)
...................
Advances to member banks tinder Section 10(b)
.
Advances secured by U. S. Government
direct .................
for indi-I
obligations
victuals,
last paragraph
partnerships
and corporations
tinder
of
I
Section 13:
To banks
To others ...........................
.........
.......
Rates on industrial
131): ...............
advances-Section
Advances direct to industrial
or commercial
organizations..........
Advances to fitiancin g institunons
On portion for which institution - is obligated
....................
On remaining
portion ........................................
Commitments
to make advances ................................
'Same

as to borrower;

minimutn

of 'ý(,,o.

56

December
1939
iö
ßf'1

I t
2!
4-6
21
1; -2

31,

Twenty-fifth

Annual Report, Federal Reserve Bank
of Philadelphia

10(b) and
on industrial advances under 13b were also unchanged in
the year. On advances to individuals,
partnerships, and corporations
securedby direct obligations
Federal
Government, the rate was
the
of
reduced as of September 1 from 4 per
per cent'in the case
cent to 111/Z
of nonmember banks and 2'/2 per cent for
others. The preceding table
shows the schedule of rates in
effect at the close of 1939.

Federal Reserve Bank
Total resources
of the Federal Reserve Bank of Philadelphia increased substantially during 1939,
reaching at the end of the year
$1,176,000,000
as compared with $870,000,000at the same time in 1938.
This
expansion of about 35 per cent in resources was due to gains in
cash reserves.
As the
rise in cash reserves materially exceeded increased requirements against Federal Reserve
note and deposit liabilities, the capacity
for the
extension of credit was greatly
enlarged. But the volume of
credit outstanding declined. Loans
and advances to member banks
continued small
Reserve
bank
and the
credit outstanding was principally in the form
of government securities, comprising 98 per cent of
the earning assets.
Federal Reserve
Bank
of Philadelphia
Dollar figures
in millions)
Tülls discounte(

Bills boo
in(InsSSItllýt....
I nite<I Staus

....

.......
""......

government
obligations..
ther securities.....
.
Total bills
securities

Annual averages of daily figures

.
.

1936

1937

1938

$0.4

$1.4
0.3
4.0

$1.6

0.4
5.4
193.8
0

208.9
0

219.1
0

214.5
0

20.4
0.5

$200.0

$214.7

$223.9

$217.9

$122.9

323.1
494.8
86.9
708.2

1-17.0

1939

X0.5

3.2

1929
KRR.9
13.1
0

and

1'edcrtI Reserve
Member bank
nute circulation
tither deposits...reserve d eposits.
focal
Rcscrvecash reser.ves..,,,,..
ratio...

299.4
324.6
27.1
464.0
72.4%

57

313.1
341.2
32.6
534.4
73.5%

303.3
375.1
43.2
530.5
72.5'J
ý

75.3 ýý,

131
(1.5
191.5
07. (, '';

Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia
Statement of Condition
End of year

Federal Reserve Bank of Philadelphia
(000's omitted in dollar figures)
RESOURCES
Gold certificates on hand and due from U. S.
Treasury

Redemption ..............................
fund-Federal
Other cash
..............................

Reserve

notes ..

Total reserves
..................
Bills discounted:
Secured by U. S. Government obligations*
Other bills discounted
.
.................
Total bills discounted.........
Bills bought in open market
...............
Industrial
advances ......................
United Status Government
securities......

1937

1938

1939

$474,891
500
26,940

$546,461
1,236
29,221

$S-t6,062
1,071

$502,331

$576,918

$873,603

1,498
655

704
473

$2,153
293
3,627
216,853

$1,177
56

3,120
222,761

$222,926
is
1,662
54,588
4,826
5,067

$227,114
17
2,OS1
54,506
4,699
4,637

$216,442

$791,418

$869,972

$1,176,352

$318,036

$320,562

.

.

Total
bills and securities......
.
Due from foreign banks
...................
Federal Reserve
notes of other F. R. banks.
Uncollected
items
........................
Bank premises
...........................
All other resources
.......................

Total resources
.................
LIABILITIES
Federal
Reserve notes in circulation....
Deposits:
Member bank reserve account..........
U. S. Treasurer-general
account.......
Foreign bank
Other deposits ..........................
.........................

)

365,046

.
.

1,092
17,002
2,269

Total deposits
..................
Deferred availability
sterns ................
Other liabilities
..........................

$385,409
53,747
1,092

Total liabilities
CAPITAL

1

$791,418

Ratio of total reserves to deposit and Federal
Reserve note liabilities
combined.........
Contingent
liability
on bills purchased for
foreign correspondents
..................
Commitments
to make industrial
advances .
fully

71.4 %

58

$663
0
3,084
212,69$
5
1,945
73,955
4,572
5,830

$348,938

374,231
58,155
19,545
6,899

598,597
65,043
39,41(,
16,821

$458,830
57,591
664

$719,877
73,866

$837,647

$869,972

`)6
$1,143,646

12,11 i
14,19tt
4,393
2,000
$1,176,352

74.0%,

S 1.711';.

S7
1,525

Y+0
930

SiGC,
173
guaranteed

1 i0
513

12,213
13,696
4,41(;
2,000

12,255
13, i66
4,ý111
2,999

Total liabilities
and capital
accounts .....................

bills secured by obligations

ý

$758,284

.................
ACCOUNTS

Capital
paid in
Surplus-Section ..........................
7
.......................
Surplus-Section
136
..........
Other capital accounts ..........
....................

'Includes

26,470

by United

States

Government

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Moderately increased earnings and reduced expenses contributed
to a rise in net earnings available for distribution. Statements of the
earnings and expensesfor the years 1938 and 1939 are given on page 64
of this report.
The table on page 57 shows the types of Reserve bank credit outstanding and the items which are used in determining the reserve position of the bank.

Reserve
bank
credit

Bill and security holdings of the Federal ReserveBank
of Philadelphia at the end of 1939 amounted to $216,400,000as compared with $227,100,000
at the same time

in 1938. The largest reduction and accompanying fluctuations occurred in holdings
of United States Government obligations,
although bills and industrial advances also declined.

Holdings
of government securities, which represent a participation in the System Open Market Account, declined from $222,800,000
to $212,700,000.The dollar
volume varies in accordance with changes
in total holdings
of the System and the proportion allocated quarterly
to this bank. At the lowest
point of the year this bank held $205,200,000,
while the peak was $243,500,000 in September, following active purchases by the Federal Open Market Committee in the disturbed
markets immediately preceding
in
and following the outbreak of war
Europe. The
sharp changes in composition shown in the accompany11" S. government
securities
held
14der: d keserve
(Bank of YhiLtdclpltia
I'. nd of vcar

Dollars (000's
omitted)
1)3C"
1937*
" "... .......................
1`)3H............................
1)39. .......
...........
.... .........................
I'crccntame
1)36".. (list rihution:
1)37
..,.........................
1938...
.................
'
1)39
.............................
....................

Runds

42,193
63,561
73,057
115,673
20.2%
29.3
32.8
54.4

59

Notes

Bills

115,317
97,685
100,515
97,022

51,479
55,607
49,189
U

55.2
45.0
45.1
45.6

24.6,;
25.7
22.1
0

Total

208,989
216,853
222,761
212,695
100.0%
100.0
100.0
100.0

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

ing table reflect three principal factors: purchases of securities late in
holdAugust and in September; the exchange of a portion of the note
ings for bonds under the terms of Treasury refunding offers; and the
maturity of Treasury bills without replacement.
In view of the increasing volume and wide distribution of surplus
funds, member bank borrowing continued almost negligible, declining
further during 1939 from $1,177,000 to $176,000. At the close of the
year total holdings of bills discounted by this bank amounted to
$663,000.
Discounts for member banks dropped as low as $30,000 in November. Comparatively few banks were borrowing at any one time; only
86 banks borrowed during the year as against 143 in 1938. Advances
under section 10(b) at the highest points reached in January and February amounted to $495,000 and for half of the year no bank was borrowing under this provision. There was no demand for loans by individuals, partnerships, or corporations under the provisions of the last
paragraph of section 13 of the Federal Reserve Act, even though interest
rates were reduced in the late summer.
Industrial

Outstanding industrial advances by this bank to provide
working capital maturing in up to five years to established business concerns declined from $3,120,000 at the
1938
to less than $2,500,000in the summer of 1939, but by the
close of
end of the year had increased to $3,084,000. Outstanding commitments
to make industrial advances at the end of the year amounted
to
$930,000as compared with $1,525,000at the end of 1938.

advances

The number of inquiries for industrial loans has been declining
in recent years. In 1939 only 89 inquiries were received and many
of
these did not reach the stage of formal application. Applications were
received from 27 prospective borrowers seeking advances in the aggregate amount of $5,051,000as compared with 27 applicants asking for
$6,065,000in 1938. In 12 casesthe applicants had previously borrowed
from this bank.
60

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

Approval was
given to 17 applications for a total amount of $4,013,000. Most
of these were from manufacturers. Eight applications
calling for an aggregate of $948,000 were rejected because of unsatisfactory financial
condition, inadequate management, uncertain businessprospects, insufficient collateral, or because the credit was available
elsewhere. In several instances applications were withdrawn or the
amount of credit requested was reduced before action was taken by
this bank.
The following
table shows the disposition of applications received
during 1939
and since June 1934.
Applications
for industrial
loans
f edcral Reserve Bank
of Philadelphia

1939

June 30,1934Dec. 30,1939

Number
Approved.....
...............................
dts
Witithdr
hd r:, ......................................
o ..................................
Total
Dollar

number

.

.........................

.

17
ti
2

208
422
49

27

679

$}, 013,000
949,000

$32,828,000
15,853,000
2,4 59,000

amount

\pproved_,...
Rrjrrtcd...

11'it hd

" .............

........

........

..............................
rnt n.................................

Total

..
amount

...................

.

90, ()()0
$5,051,000

$51,170,000

The daily
average of loans and commitments
outstanding over the
period from June 30,1934,
when industrial advances first were authorized, to December 30,1939
was $4,182,000. Income totaled $1,143,000,
ýigainst which were
charged expenses of $328,000 and losses and reserves for losses in
the amount of $155,000. This leaves net income of
X60,000 from
these operations. Of this amount $366,000 has been retained and
added to the surplus accounts of this bank and $294,000
has been
paid to the Secretary of the Treasury as a return on funds
transferred to this bank for
the purpose of making industrial loans.

1n view
of the risk implicit in this form of credit, the volume of
advances still
outstanding, and the number of actual and potential
"trouble"
cases,the amount of $366,000 in
net income which was added
(, 1

I
Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

further
to surplus accounts should be viewed in the light of possible
be
loans
predicted
losses, as the final outcome of outstanding
cannot
at this time.

Volume
of work

The volume of work done by this bank during the year
increasedfurther. The number of ordinary checks handled
in 1938to 97,232,000in 1939, reflectrose from 91,762,000

ing the expansion in business. The aggregate dollar volume of these
for
checks was $23,467,000,000.In recent years the number of checks
in
1929
For
ordinary
example,
smaller amounts has been increasing.
dollar total
checks handled by this bank numbered 70,234,000,but their
While the daily average of checks handled
amounted to $39,123,000,000.
in 1939 numbered 325,000, operations on individual days were considerably greater, reaching a new high point of nearly 700,000 on June 15.
In addition to the items handled individually, 16,370,000 checks received in packages were distributed by the automobile run service to
banks which are not members of the local clearing house.
Transfers of funds increased from $2,813,000,000 in 1938 to $3,
197,000,000in 1939, but the number of items declined somewhat. Collection items handled, including notes, drafts and coupons, decreased
slightly in number but increased in amount.
In 1939approximately 167,000,000pieces of currency and 1,300 tons
of coin were received and counted. These figures show some decline
from 1938. Money tended to stay in
circulation as the public demand
increased and banks continued to cooperate
with this bank in restricting return shipments to currency unfit for further use.
As fiscal agent of the United StatesGovernment, this bank received
subscriptions totaling over $1,100,000,000for direct and guaranteed
obligations and allotted $77,000,000for cash and $146,000,000on an exchange basis. Securities numbering about 246,000 pieces were handled
in issue, redemption and exchange transactions,
as compared with
200,000pieces in 1938.The volume
of work relief checks dropped from
6,971,000to 5,613,000,but the number
of other government checks received increased from 3,055,000to 3,117,000.
62

ý

Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia
The number of discountsfor and advancesto member banks and

advances for working capital to industry declined in 1939 to 434 and
the dollar amount to
about $11,000,000. This was in contrast with
$43,000,000in 1938.

An average of $640,000,000
for
of securities was held in custody
banks,
member
chiefly for those outside of Philadelphia. In connection
with this service, 490,000 coupons
This
were clipped during the year.
bank held
in
5,117
for
also
custody
purchasers at the end of the year
United States
savings bonds. During the year, the bank handled for
member banks 16,089
security transactions amounting to $315,000,000.

Volume of work
Federal Reserve
Bank
of Philadelphia

Pieces or transactions handled
(000's omitted)
1939

1938

1939

171,726
280,876
91,762

166,629
273,429
97,232

$43
698
26
21,666

$11
677
26
23,467

15,819
3,05.;
6,971

16,370
3,117
5,613

554
213

669
160

1,233
350
61

1,230
337

49

1938
Discounts
Currency

and advances.
............
counted

("I's counted

..................

Ordinary
.......................
checks ............
('becks handled
in. packages .by ......
automobile run service
lJ S. Government
..............
checks
Work
............
relief checks
('ollection items:
..................
.
Coupons
U.
S.
Government
of
;'I'd agencies.......
All other (notes drafts,
hrinsfers
and coupons)
of funds......
Issues,
.
redemptions
by
and
fiscal
department:exchanges
11, S. agency
(overnnunt
direct obligations
All other
................

Dollar amounts
(000,000's
omitted)

2

182
18

56

2,513

50
197
3,197

194
S2

d69
47

396
122

181)

*I "%Sth: 500.
m

Earnings
and

Total

earnings of this bank increased from $3,151,000 in
111 to a
..
--- in
. 1939.
-----..
1y38 to X63,164,000
This
was due principally

-Pvnses

gain of $134,000 in the income from participation in System holdings of government securities, which provided
about 94 per cent
of the bank's earnings. Income from miscellaneous
sourcesalso expanded,
while earnings from discounts and advances declined. Net expenses
were reduced $57,000 to $2,341,000, chiefly
through lower
in
costs
connection with Federal Reserve note issues.
63

I
Annual Report, Federal Reserve Bank of Philadelphia

Twenty-fifth

Increased income and reduced expenses were reflected in an exSupplemenpansion from $753,000to $923,000in current net earnings.
decreased sharply, but there
tary income from profits on security sales
from current income. The
was also a substantial decline in deductions
for
largely
deductions reported in 1939 were
the setting up of reserves
for losseson industrial loans.
Net profits, after additions to and deductions from net current
$152,000 over 1938
earnings, amounted to $1,205,000, an increase of
Profit and loss account
Federal Reserve Bank of Philadelphia
(000's omitted)
Earnings

1939

from:

Current
Additions

to current

$3,264

$2,078
152
168

$2,080
103
158

$2,398

$2,341

net earnings:

Profits on sales of U. S. Government
Other additions
....................................

Deductions

$3,151

...............................
securities

........

$753

$923

$697
24

Wo
37

$721

$4o7

$387
34

So
125

I

from

current net earnings:
Prior service contributions
to Retirement
Other deductions
...................................

.

System.......

$421

Net additions

to current
available

Distribution

of net earnings:

for distribution

..............

Paid to Treasury
of United States, Sec. 136............
Dividends
paid to member banks .....................
Transferred
to surplus (Sec. 13b) .....................
Transferred
to surplus (Sec. 7)
......................
"After

penses.

deducting
"Transfers

reimbursements
received for
from surplus (Section 136).

64

certain

$125

$300

$282

$1,053

$1,205

net earnings ...............

Net earnings

i

i; ý
3,070
54

2,936
21

.

net expenses ..............................

net earnings

$7

168

Expenses:
Operating
expenses* ................................
Cost of Federal Reserve
currency
Assessment for expenses of Board .....................
of Governors........
Total

1939

$26

Bills discounted
....................................
Bills bought
.......................................
Industrial
advances. .....
: ...................
United States Government .......
securities ................
Other sources
.............................
Total earnings
.....
..........................

i

.
fiscal

$84
73+

so
725

230

_22..
502

agency

and

other

ex-

Twenty-fifth Annual Report, Federal Reserve Bank
of Philadelphia
and the largest since 1932. The disposition of these profits included
payment of $725,000 in dividends to member banks and the transfer
of the remaining $480,000to the regular surplus account of this bank.
In addition, an
amount of $22,000 was transferred from the surplus
held separately
under Section 13b to the regular surplus. No payments
to the Treasury of the United States
under Section 13b were necessary
as reservesset aside against lossesexceeded net earnings from this source.
The preceding
statement shows the profit and loss account of this
bank for 1938
1939.
and
Membership During
1939 the number of member banks in this district declined from 655 to 652. No banks were admitted
to membership, but two
national banks were absorbed by a member
trust company and third
a
national bank was liquidated. As a result,
the number of national banks
was reduced from 589 to 586, while the
number of state bank
members remained at 66.
The combined
assets of all banking institutions in the district
increased by $433,000,000
during the year to $5,217,000,000. Member
bank assets
expanded $373,000,000to $3,746,000,000,or 72 per cent of
the assetsof all banks.
The following
table shows by states the number and the assets of
member banks
compared with all banks in the district.
Banks in Philadelphia
Federal Reserve District
December 30,1939
(Dollar figures in
millions)
umber of banks
focal...
Member banks......
Pruportion
member of total........
'T'otal
assets
total
Mcmher...........................
hanks
I'r

)Portion

...................
IMntI)er of total........

"I'ortinn
of the state in
tlcludes
n-Philadelphia
9 branches
of nonmember

Pennsvlvania;

New
Jersey'

769
550
7?'%,
$4,497

$427

3,260
7270%
Federal
banks.

65

109
83
77%

Reserve

300

District.

Delaware

55t
19
35°Jý
$293
186
63°Jo

District
totals

932
652
70%,
$5,217
3,746
72°'io

Twenty-fifth

Annual Report, Federal Reserve Bank of Philadelphia

No additional grants of fiduciary powers were made to national
banks in this district during 1939. The number possessing trust powers
banks which
was reduced from 255 to 252 by the absorption of two
had full powers and the termination of restricted powers held b}
another bank.
The terms of George W. Reily and J. Carl Dc La Cour'
officersand as directors of this hank expired December 31,1939. Mr.
directors
Reily was reelected in November by the banks in Group
2 as a Class A director for a term of three years. Ward D,
Kerlin, Secretary and Treasurer of the Camden Forge Company of
Camden, New Jersey, was nominated and elected by the banks if
Group 3 to serveas a Class B director, succeeding Mr. De La Cour, who
had requested that his name not be proposed for renomination.
Changesin

By appointment of the Board of Governors of the Federal Reserve
System, Thomas B. McCabe served as Chairman of the Board of this
bank and Federal Reserve Agent during 1939. He was reappointed to
serve in these capacities during 1940, and his term as a Class C director
was extended for three years from January 1,1940.
A vacancy among the Class C directors was filled by the appoint,
ment in March 1939 of Alfred H. Williams, Dean of the Whartoi
School of Finance and Commerce of the University of Pennsylvania
His term expires December 31,1941.

Francis C. Biddle, Deputy Chairman
of the Board of this bank.
resigned as a Class C director in April 1939 to take office as a judge of
the United States Circuit Court of Appeals for the Third District.
Early in December, Warren F. Whittier, farmer, dairyman,
and cattle
breeder of Lonicera Farms, Douglassville, Pennsylvania,
was appointe
by the Board of Governors to
complete Mr. Biddle's unexpired term
Dean Williams was designated Deputy Chairman for the
year 1940
Howard A. Loch, Chairman
of the Board of the Tradesmens Na
tional Bank and Trust Company of Philadelphia, who has represente
66

''zventy-fifth Annual Report, Federal Reserve 73anlZ of Philadelphia

Ills bank
on the Federal Advisory Council since 1930, served during
1939and
was chosen again for 1940. He continued in office as VicePresident the Council during 1939
for 1940.
of
and was reelected

President John S. Sinclair represented the Federal Reserve Banks
of Philadelphia and Cleveland on the Federal Open Market Committee
for a period
of two years ended March 1939. Thereafter, M. J. Fleming,
President the Federal Reserve Bank
of
of Cleveland, served as the representative and Mr. Sinclair as the alternate. Mr. Sinclair was elected
to serve on the Committee for the
year ending March 1941.
The only
change in the official staff during 1939 was the appointment in March of Philip M. Poorman as Auditor. Early in 1940 Glenn
K. Morris,
an Assistant Cashier, resigned to become Vicc-President of
hc
. National Bank of Germantown and Trust Company, Philadelphia.
On December 31,1939
this bank had 769 employees other than officcrs as compared with 772 the
at
close of 1938.

ýr,ý ý

n
n: , a-4r"`°ý';

ý "'-n,.
_i nrý
D.

67

Directors
as of March 30,1940
Group

Term expire;
Dec. 3l

Class A:
T,.,,....

Jacl,

1. \x)....

«

T_

_..
yr avut,,
President,

IF ..............
Philadelphia

I

.......

.........................
National
Bank,

IJ'II

Philadelphia, Pennsylvania.
George W. Reily
National
President, ........................................
Harrisburg
Harrisburg,
Pennsylvania.

I'M 2
Bank,

J. 13. penning
...........................................
]'resident,
Wyoming National Bank,
'I unkhannock, Pennsylvania.

31

.

940

Class ß:
(" c.,,, i_:. i, f,

c.,....

Camden,

New

.J';

1

R. IZvans and Company, ......
Jersey.

I tarry

L. Cannon
.......................................
II. P. Cannon
& Son, Inc.,

Ward

I). Kerlin
Secretary-i .........................................
reasurcr, Camden Forge

Bridgeville,

1940

..
.

1941

Delaware.
.

Company,

1942

Camden, New Jersey.

Class C:
Thomas

B. McCabe, Chairman
and Federal
President, Scott Paper Company,
Chester, Pennsylvania.

Reserve

1942

Agent...

1941

Alfred It. Williams, Deputy Chairman
......................
Dean, Wharton School,
University of I'cnnsvlvania, Philadelphia.
\Varren

F. Whittier
.......................................
Lonicera Farms,
DosClassvilIe,
Pennsylvania.

19.10

Officers
S. SINCLAIR,

JoHN
FRANK

J. DRINNEN,

First Vice-President
C. A. MCILHENNY,
Vice-President and Cashier

President
L.

E. DONALDSON,

Assistant Vice-President
C. A.

SIENKIEWICZ,

Assistant Vice-President

W. J.DAVIS,
Vice-President

JAMES

ERNEST

ARTHUR

C. HILL,

Vice-President
WILLIAM G. MCCREEDY,
Assistant Vice-President

M.

Toy,

Assistant Cashier
E. POST,

Secretary
PHILIP

M.

Auditor

POORMAN,

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