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Circular No. 20

F E DE R A L R ESERVE B A N K

Series of 1921

OF DAL LAS

March 26, 1921.

IM P O R T A N C E O F FU RN ISH IN G N E W F IN A N C IA L
STATEM ENTS O F BO RR O W ERS.
TO THE MEMBER BANK ADDRESSED:
Changes in credit conditions and an almost universal shrinkage of values make it
most important that our member banks realize the urgent necessity, at this particular
time, of obtaining from their borrowing customers new financial statements which will
be based upon a recent inventory and a current valuation of assets.
We are calling this matter to your attention for the reason that our Executive Com­
mittee cannot continue to rely upon the showing of financial statements which are out
of date in passing upon paper offered for rediscount. Many of the statements which
have been furnished in the past, and which are coming to hand every day, are somewhat
incomplete, and the valuations shown appear to be incorrect in the light of altered eco­
nomic conditions.
In considering credit commitments it is imperative that the grantor of credit have
before him as many facts as possible in connection w ith the condition of the borrower’s
T
affairs, and it, therefore, seems to us most essential that member banks require from
those who solicit accommodation, a complete credit statement in the form suggested
by the Federal Reserve Bank of Dallas, instead of being satisfied with a plain statement
of assets and liabilities unsupported by other vital information as to the conduct of the
borrower’s business, without which it is very difficult, if not impossible, to form an
accurate opinion of the credit risk involved in the transaction.
The practice of requiring borrowers to furnish financial statements at regular periods
is gaining steadily, and there.seems to exist no good reason for not requesting renewal
statements at least annually, in order that comparisons and analyses may be made by the
member bank receiving the statement, and its files revised.
Some of our member banks seem to be under the impression that we are requiring
statements certified to by public accountants. While we are always glad to have state­
ments of this character, they are not required, except in special cases. The borrower
should make a full signed statement to the member bank and the member bank should
furnish us with a complete copy on which some officer certifies that it is a copy of a
signed statement in the possession of the bank.
However, this letter is not written primarily in the interest of a revision of our
own credit files. It is intended to bring to your attention the wisdom of requiring and
obtaining accurate and dependable credit data upon which to base your loan policy.
Your co-operation in the matter will be very much appreciated.
Very truly yours,

Governor

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