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Twenty-first Annual Report

Federal Reserve Bank
of New York
For the Year Ended December 31, 1935

Federal Reserve Agent
Second Federal Reserve District

Twenty-first Annual Report

Federal Reserve Bank
of New York
For the Year Ended December 31, 1935

Federal Reserve Agent
Second Federal Reserve District

CONTENTS
PAGE

Letter of Transmittal
The Money Market in 1935.

4
.....

Increase in Monetary Gold Stock and Excess Reserves

Revival of the Capital Markets

Further Recovery in Business

Member Bank Credit

Member Bank Deposits

Member Bank Position at the End of 1935

Credit Policy and Operations of the Bank During 1935___

Credit Policy

Volume of Operations—...

Industrial Loans

Foreign Exchanges and Gold Movements

Foreign Relations

Membership Changes in 1935_.

„

Financial Statement
Statement of Condition
Income and Disbursements
Changes in Directors and Officers

40
41

—

41
43
44

Member of Federal Advisory Council

Changes in Officers

List of Directors and Officers...

FEDERAL RESERVE BANK
OF NEW YORK

New York, March 19, 1936
SIRS:

I have the honor to submit herewith the twenty-first annual report of
the Federal Eeserve Bank of New York,
covering the year 1935.
Eespectfully yours,
J. HERBERT CASE,

Chairman and Federal Reserve

BOARD OF GOVERNORS OF THE FEDERAL EESERVE SYSTEM,

Washington, D. C.

Agent.

Twenty-first Annual Report
Federal Reserve Bank of New York
The Money Market in 1935
The supply of funds in the New York money market, which
previously had risen to a volume greatly in excess of the effective
demand, was increased much further during 1935. The principal
cause, as in the preceding year, was a heavy inflow of gold from
abroad, which raised the dollar value of the monetary gold stock
of the United States to approximately two and one-half times
the average amount of the decade from 1924 to 1933. Net receipts of gold at New York during 1935 amounted to about
$1,690,000,000, as compared with a little over $1,000,000,000 in
1934. Changes in the monetary gold stock of this country during
recent years are shown in the accompanying diagram.
BILLIONS
OF DOLLARS
KLUATION
3LD STOCK

***

n r —N

^ ^

0
1919 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 *34 '35
Monetary Gold Stock of the United States

Movements of funds between New York and other parts of
the country during 1935 were very large, and in the aggregate
resulted in some net withdrawal of funds from the New York
money market. The principal outward movement of funds was

TWENTY-FIRST ANNUAL REPORT

through Treasury transactions. A substantial part of the excess of Government expenditures over receipts continued to be
financed through the New York market, and Treasury withdrawals of funds from this district were somewhat in excess of
the inflow of gold from abroad. On the other hand, there was
a large return flow of funds to New York from other parts of
the country, which represented in part the transfer of idle funds
of banks in other districts to their balances with New York City
correspondent banks, and in part a substantial inward movement of other funds, presumably for commercial accounts and
for investment. The principal gains and losses of funds to the
New York money market during 1935 are summarized in the
following table.
(In millions of dollars)
Gain through gold movement at New York
Loss through Government transactions
Gain through commercial and financial transactions

Net loss through other transactions
Net gain through all transactions

+1,692
—1,848
+1,238
— 84
+

998

For the country as a whole the increase in the monetary gold
stock, including newly mined gold and recoveries of scrap gold
as well as gold imports, amounted to $1,887,000,000 during 1935.
In connection with Treasury purchases of silver about
$315,000,000 of additional silver coin and silver certificates was
issued in the course of the year. On the other hand, the amount
of currency of all kinds in circulation increased nearly
$350,000,000. The net effect of all changes in factors affecting
the basic money supply and demand was an increase of about
$1,500,000,000 in member bank reserves to a volume far above
existing requirements. At the end of 1935 the reserve balances
of all member banks in the Federal Reserve Banks were close
to $5,600,000,000, as compared with an average of less than
$2,400,000,000 in 1928 and 1929, and with current reserve requirements of about $2,700,000,000. The reserves of the principal New York City banks alone were about $2,450,000,000 at the
end of 1935, an amount which was about $1,300,000,000, or 113
per cent, in excess of reserve requirements. For the country as
a whole total member bank reserves were about $2,850,000,000,
or 104 per cent, in excess of current requirements. The high
point of the year for excess reserves was reached just before
the middle of December, when the New York City banks had

FEDERAL RESERVE BANK OF NEW YORK
BILLIONS
OF DOLLARS
7

ALL MEMBER BANKS

NEW YORK CITY
MEMBER BANKS

1926

1929

1930

1931

193Z

1933

1934

1935

Reserve Balances of New York City Member Banks and of All Member Banks

more than $1,500,000,000 and the total for the country as a whole
was $3,300,000,000. During the December tax period a reduction of $600,000,000 occurred, due to cash payments into Treasury account at the Reserve Banks for new Government securities sold at that time, as well as to tax payments. Treasury
balances in the Reserve Banks remained large through the balance of the year. At the end of the year, however, excess
reserves showed a renewed increase, due largely to the seasonal
retirement of currency that began immediately after Christmas.
In view of the fact that the accumulation of excess member
bank reserves during the past two years is attributable almost
entirely to the inflow of gold and silver from abroad, the character of these movements is of particular interest. The inflow
of gold appears to have been due largely to an inflow of capital
to the United States from foreign countries. In 1934 there was
a net amount due this country on merchandise trade and services
of nearly $500,000,000, but in 1935 the balance of payments due
this country on such transactions was greatly reduced, and was
probably more than offset by payments for silver purchased
abroad, net silver imports during 1935 amounting to $336,000,000.
The inflow of capital in 1934 was due in part to a return movement to this country of funds which had been transferred abroad

TWENTY-FIRST ANNUAL REPORT

during 1933. This return movement continued in 1935 and was
accelerated during the period when the gold clause cases were
pending before the Supreme Court in January and February,
and the amount of American funds on deposit abroad was considerably reduced. Monetary uncertainties and war fears abroad
led to a substantial further increase in the amount of European
funds held on deposit in the New York market. The movement
of such balances to this country was particularly heavy during
April and May, when the devaluation of the Belgian monetary
unit gave rise to doubts concerning the stability of the remaining European gold exchanges, and the flow again reached large
proportions in the final quarter of 1935, owing to the uncertainty
created by the hostilities in East Africa and to the renewed
difficulties of the French fiscal situation. In addition, foreign
working balances in this country, which had fallen to unusually
low levels during the banking and exchange crises here and
abroad, were restored to a more adequate level, and there was a
marked revival of foreign investment interest in American securities during the second half of the year, stimulated chiefly
by the further progress towards recovery in business volume
and business profits in this country. Factors other than temporary transfers of foreign funds to this country have accounted
for a considerable part of the gold inflow of the past two years,
and tend to limit the amount of any reversal of the gold movement which may occur in the event of the development of more
settled conditions abroad.
In the case of silver, the inward movement represents
Treasury purchases of foreign silver under the Silver Purchase
Act of 1934. This country, during the past year even more than
in the previous year, has been the principal market for silver,
especially in view of the fact that China, which in the past has
usually been a large buyer of silver, became a heavy seller, and
that India made no net purchases in 1935.
The supply of funds in the money market at the beginning
of 1935 was already so large that the further accumulation during the year appears to have had comparatively little effect on
short term money rates. Competition for the available call loan
business resulted in the spring in a break in the rate on call loans
on Stock Exchange collateral from the 1 per cent rate which
had been maintained for a number of months to y^ per cent, but
in the autumn the rate was advanced to % per cent and main

FEDERAL RESERVE BANK OF NEW YORK

tained there. Yields on short term Government securities and
rates on loans to customers declined slightly further, but rates
on open market commercial paper and bankers acceptances were
practically unchanged. The greatest change was in longer term
rates which respond more slowly to a large supply of funds.
Kates prevailing in the New York money market at the end of
1934 and at the end of 1935 were as follows:
Money Rates at New York
Dec. 31, 1934
Stock Exchange call loans
Stock Exchange 90 day loans
Prime commercial paper—4 to 6 months
Bills—90 day unindorsed
Customers' rates on commercial loans
Average rate on latest Treasury bill sales
182 day issue
274 day issue
Average yield on Treasury notes (1-5 years)..
Average yield on Treasury bonds (more than
5 years to earliest call date)
Average yield on Aaa corporation bonds
Federal Reserve Bank of New York rediscount
rate
Federal Reserve Bank of New York buying
rate for 90 day indorsed bills

Dec. 31, 1935
*1 *

tl.96

tl.75

0.10

0.08
0.73

2.83
3.80

2.50
3.71

* Nominal, t Average rate of leading banks at middle of month.
REVIVAL OF THE CAPITAL MARKETS

The chief effect of the large volume of surplus funds available for employment during 1935 appears to have been in the
market for securities, though it cannot be stated with assurance
that the further accumulation of funds had much greater effect
in this regard than would the maintenance of conditions such as
those prevailing at the end of 1934. There was a strong rise in
prices of high grade bonds—corporation as well as Government
—in the first few months of the year, which carried them to the
highest levels in many years. A moderate setback occurred in
the third quarter of the year, but there was a renewed advance
in the last quarter. On the whole, the net rise in prices of such
securities and the corresponding declines in their yields during
1935 were considerably less than in the preceding three years,
due perhaps to the fact that in 1933 and 1934 the influence of
low short term money rates and a large supply of available funds
was supplemented by the effect of the beginning of business

TWENTY-FIRST ANNUAL REPORT

in.

A a * CORPORATION
BONDS

.B«.» CORPORATION!
^—rBONDS

\ ;
V

14
1927

1926

1929

1930

1931

1932

1933

1934

1935

Average Yield on Various Groups of Bonds (Moody's Investors Service average
yields for Aaa and Baa corporation bonds, and Federal Reserve Bank of New
York average yield on U. S. Treasury bonds; scale inverted to show movement
of prices)

recovery. The influence of the business situation was again
clearly evident in the movement of prices of lower grade securities during 1935, but apparently was not so large a factor in
price movements of the highest grade securities.
The persistent strength in the market for high grade securities was favorable to the flotation of high grade new securities
at low rates of interest, a condition which not only facilitated
Government financing, but also promoted a resumption of refunding issues by corporations on a large scale. As the accompanying table indicates, a substantial volume of refunding was
done also by States, municipalities, and other public bodies, including farm loan agencies, but a much larger proportion of total
security flotations than in any other recent year represented
refunding operations by corporations. These operations had
the effect of materially reducing interest charges and thus reduced to some extent the cost of doing business for corporations
which were able to avail themselves of the opportunity. Refunding of indebtedness through new security flotations was,
therefore, an influence of some importance in facilitating a
return to more profitable business operations.

FEDERAL RESERVE BANK OF NEW YORK

Domestic Capital Issues
(In millions of dollars)'
Refunding

New capital
Year

Corporate
issues*

State and
municipal**

1926
1927
1928
1929
1930
1931
1932
1933
1934
1935

3,626
4,393
4,490
5,716
4,150
1,536
324
160
159r
402

1,435
1,562
1,443
1,418
1,498
1,309
827
541
881r
934

Total

Corporate
issues*

State and
municipal**

820

62
127
36

5,061
5,955
5,933
7,134
5,648
2,845
1,151

1,842
1,580
1,373

13
76
72
193
69
478r
979

474
820
318
219
312

701

l,040r
1,336

1,860

Total
882
1,969
1,616
1,386
550
892
511
288
790r
2,839

* Excludes investment trust issues, etc. **Includes Federal Land Bank and Federal
Intermediate Credit Bank issues, r Revised.
Source: Commercial and Financial Chronicle (adjusted)".

To this factor of lower interest costs is attributed a considerable part of the moderate upturn in aggregate profits of public utility companies in 1935, following a continued decline in
profits in 1933 and 1934 despite a substantial increase in the
8,520

6.789
STATE, MUNICIPAL,
& FARM LOAN
NEW CAPITAL

111!
,175
3.737
CORPORATE
NEW CAPITAL

STATE, MUNICIPAL,
& FARM LOAN
REFUNDING

CORPORATE
REFUNDING

1925-28 1929

1930

1931

1932

1933

1934

1935

AVERAGE

Offerings of Domestic Securities in 1935 Compared with Preceding Years
(Commercial and Financial Chronicle data—investment trust issues excluded;
in millions of dollars)

TWENTY-FIRST ANNUAL REPORT

volume of business. A number of industrial companies also lowered their interest costs materially by refunding operations during the past year, but for a considerable part of the year the
market for railroad securities was such as to discourage efforts
by the railroads to reduce interest charges. Most of the large
railroad refunding operations that occurred in 1935 were undertaken with the support of the Reconstruction Finance Corporation. The prospects for railroad refinancing in the market, at
least for the stronger roads, were considerably improved by
increased net earnings toward the end of the year.
As the table shows, there was a moderate increase in amount
of new capital obtained by domestic corporations through security issues in 1935. The volume of new capital issues was the
largest for any year since 1931, but was less than one tenth of
average volume in the preceding five years.
There was also some improvement in the mortgage situation
during the past year. Payments of interest and taxes on mortgaged property were reported to have improved considerably;
foreclosures became less numerous; and the supply of funds in
the hands of mortgage lenders increased. There was a downward tendency in interest rates on outstanding mortgages, and
mortgage funds for conservatively financed new construction
projects were available at moderate rates in increased volume.
The stock market was rather weak during the early months
of the year. Railroad stocks declined to the lowest prices since
the spring of 1933, public utility stocks reached new low points
for many years, and industrial stocks, although they held well
above the lowest levels of the depression, were also rather weak.
Beginning in the latter part of March, however, a rise in stock
prices got under way which continued without material interruption to the end of the year. At the end of December the general
average of stock prices was about 65 per cent above the lowest
point of the year, and was the highest since the spring of 1931.
Industrial stocks in general were above their average prices in
1926, but public utility stocks remained somewhat below the
average price level of that year, and the average price of railroad stocks remained less than half that of 1926.
There was little evidence during 1935 of any tendency on
the part of industry to seek new capital through the flotation of
additional stock issues, despite the substantial rise in stock
prices during the year.

FEDERAL RESERVE BANK OF NEW YORK
FURTHER RECOVERY IN BUSINESS

Among the outstanding developments in the business situation during 1935 were the acceleration of activity in industries
producing industrial equipment and a marked revival in privately financed construction although such building still remained at an abnormally low level. A conspicuous example was
the increase in orders for machine tools, which for a few months
in the summer and early autumn reached the highest levels since
the closing months of 1929. There was also a further increase in
orders for other types of industrial equipment.
Reflecting rather unsatisfactory earnings during the first
eight months of the year, railroad purchases of rolling stock and
track supplies were in small volume during 1935, but after a
strong upturn in railroad earnings in the later months of the
year it was reported that a considerable increase in expenditures for such purposes was in prospect at the close of the year.
Changes in the volume of business in some of these lines are
shown in the following table.
(In percentages of 1923-1925 averages)

Machine tools, orders*
Foundry equipment, orders*
Boilers, production
Pumps, orders*
Electric overhead cranes, shipments
Wood working machinery, shipments
Factory construction, contracts*....
Railroad track work, production....
Freight cars, shipments
Locomotives, shipments

1929

1932

1933

1934

1935

223
160
92
122
124
89
169
91
71
44

28
16
39
30
5
12
16
15
1
8

39
30
39
40
7
13
34
17
1
6

66
49
50
43
13
12
32
27
16
13

123
84
60
50
35
15
29
24
7
13

* Indexes based on dollar values.

Another encouraging development in the business situation
was a substantial upturn in contracts for residential building.
After the first few months of the year the volume of such contracts, after allowance for the usual seasonal movements, showed
a steady increase, and in the latter part of the year was more
than double the volume of a year previous, although it remained
far below pre-depression levels. The increase in the volume of
residential building contracts was supplemented by a strong upturn in contracts for publicly financed projects in the latter part
of the year, the volume of such contracts reaching the highest

TWENTY-FIRST ANNUAL REPORT

level since the year-end of 1933-1934, when the Public Works
Administration program was at its height.
In general, the progress of recovery in 1935 was more pronounced in the durable goods industries than in industries producing nondurable goods, although the latter in general operated at high levels during the year. An important factor in
the expanding production of durable goods, however, was in the
general category of consumers' goods, rather than producers'
goods—the substantial increase in the production and sales of
passenger automobiles. During the year 3,286,000 passenger
automobiles were produced, the largest number for any year
since 1929. This industry contributed largely to business recovery, especially in the later months of the year when the introduction of new models two months earlier than usual was responsible for unusual activity, not only in the automobile industry, but in industries that supply materials or parts, and also
in related movements of freight.
This district, with its wide variety of industries, participated
in the further recovery in industrial activity, and factory employment in New York State at the end of 1935 had recovered
about half its depression loss, a slightly smaller recovery than
in the United States as a whole.
PER CENT
120

100

1V
H YORF

^AT

1928*29 '30 '31 '3 2 '33 '34 '35
1928'29 '30 '3\ '32 '33 '3A '35
Indexes of Factory Employment in New York State and in the United States
(Adjusted for seasonal variations; 1923-25 average = 100 per cent)

General business in this district apparently has not shown
as rapid a recovery as industrial activity. "White collar" employment is of especially great importance in this district, due
to the concentration of certain activities such as the security

FEDEEAL RESERVE BANK OF NEW YORK

markets, banking, advertising, insurance, foreign trade, and the
central offices of many large corporations in New York City and
vicinity. Thus far it appears that there has been no such revival of employment opportunities for "white collar" workers
as for factory operatives in this district, and, furthermore, the
volume of construction in the district, although it expanded considerably during 1935, remained far below pre-depression levels,
and opportunities for employment on privatelyfinancedconstruction projects remained quite limited. Under these circumstances, the number of people dependent upon relief or publicly
financed employment in this district continued at a high level.
Retail trade, as reflected in department store sales, showed
some further improvement during 1935. The recovery in this
district has been more gradual than for the country as a whole,
but the preceding decline from 1929 to 1933 also had been less
abrupt. For the year as a whole, department store sales showed
an increase of less than 2 per cent in this district, as compared
with an increase of 5 per cent for the entire country.
PER CENT
140

PER CENT
140

120

100

/
60

SEC

JDC)IS" "Rl< : T

1928'29 '30 '31 52 '33 '34 '35

\
\

irv

UN ITE.D < >TA"FES
1928'29 '30 '31 '32 *33 "34 "35

Indexes of Department Store Sales in the Second District and in the United
States (Adjusted for seasonal variations; 1923-Z5 average = 100 per cent)

The extent of recovery, and the levels of activity prevailing
in varied types of production and business activity, as reflected
by this bank's indexes, are shown in the following table. These
indexes represent percentages of the computed long term trend
of growth in each line, rather than percentages of a fixed base
period, and are adjusted for seasonal variations and where necessary for price changes.

TWENTY-FIRST ANNUAL REPORT
1929
average

1932-33
low

December
1934

December
1935

Cement production
Building contracts
Pig iron production
Steel ingot production
Bituminous coal production
Electric power production
Passenger automobile production...

Ill
107
115
118
107
109
114

30
14
16
18
48
67
21

42
26
37
56
69
72
66

54
71
75
87
76
76
76

Meat packing
Wheat flour production
Tobacco products output
Mill consumption of cotton
Wool consumption
Silk mill activity
Shoe production

98
104
106
104
106
109
105

82
68
68
56
34
45
75

113
89
90
80
88
65
105

83
86
89
91
105
67
128

Exports
Imports
Mail order house sales
Department store sales, U. S
Department store sales, 2nd Dist...
Car loadings, merchandise and misc,
Car loadings, other
Bank debits, 140 cities outside N. Y,
City
Bank debits, N. Y. City
Advertising
New life insurance sales
New corporations formed in N. Y.
State

109
113
122
102
101
108
104

39
51
65
64
69
51
38

44
60
74
76
73
61
61

58
79
79
79
75
67
66

112
135
104
132

55
42
45
53

62
45
60
59

68
44
69
55

MEMBER B A N K CREDIT

The principal expansion in member bank credit during 1935
was again in holdings of Government securities. The increase
in such holdings, however, was much less than in 1934, due partly
to the fact that the interest bearing debt of the Government
showed a materially smaller increase in 1935 than in the preceding year and that Consols and Panama Canal bonds which were
retired during the year were held largely by National banks to
secure their note circulation, and partly to a relatively larger
increase in purchases of Government securities by other
investors.
The increase in the interest bearing debt of the National
Government during 1935 amounted to $1,652,000,000, as compared with an increase of $4,494,000,000 in 1934. There were
several reasons for the much smaller increase in the National
debt during the past year. In the first place, Government borrowing went considerably ahead of expenditures during 1934,
so that Government balances in depositary banks showed an in

FEDERAL RESERVE BANK OF NEW YORK

BILLIONS
OF DOLLARS

INTEREST BEARING DEBT
OF UNITED STATES

3ANKJ

1919 '20 '21 '22 *23 '24 '25 '26 "27 *28 '29 '30 '31 '32 *33 »34 *35
Total Interest Bearing Debt of the United States Government; Amounts Held
by Member Banks and Federal Reserve Banks, and by All Other Investors

crease of nearly $700,000,000 during that year, whereas in 1935
Government expenditures exceeded new borrowings, and balances in depositary banks were reduced by approximately $800,000,000. Another factor was the retirement in 1935 of $675,000,000 of Consols and Panama Canal bonds, which previously
had been used largely to secure National bank note circulation.
These bonds were not replaced by other Government securities,
but for the most part were retired, directly or indirectly, out
of a part of the proceeds of the revaluation of the monetary gold
stock of the country. A third factor was the considerably smaller
amount of borrowing in 1935 than in 1934 tofinanceGovernment
lending agencies such as the Reconstruction Finance Corporation.
Government financing operations in 1935 included the retirement of a large volume of callable bonds, especially the remainder of the Fourth Liberty Loan and the outstanding First
Liberty Loan bonds. In partial replacement of these and other
maturing securities, large amounts of new Government bonds of
fairly long maturity were sold during the year and were purchased more largely by other investors than by banks, which in
general continued to invest chiefly in the shorter term Government securities, especially Treasury notes of 1 to 5 year matur

TWENTY-FIRST ANNUAL REPORT

ity. For this reason and because of the fact that the Consols
and Panama Canal bonds retired during the year were largely
from bank holdings, member bank holdings of Government
bonds, as distinguished from Treasury bills and Treasury notes,
showed a reduction during the year.
New York City banks showed an increase of less than $200,000,000 in their total holdings of direct obligations of the United
States Government in 1935, as compared with an increase of
nearly $900,000,000 in 1934, and had a considerably smaller increase in their holdings of Government guaranteed securities in
1935 than in 1934. The proportion of their aggregate investments in Government securities to total loans and investments
remained practically unchanged at 45 V2 per cent. In Chicago
and other Eeserve cities, member banks again increased their
holdings of Government direct and fully guaranteed obligations
substantially, but in this case also the increase was smaller in
1935 than in 1934. Member banks in other localities—* * country''
banks—showed a net reduction in their holdings of direct obli(In millions of dollars)

U. S. Government securities

Direct
New York City banks
Dec. 31, 1930
" 30,1933
" 31, 1934
" 31, 1935

1,239
2,362
3,246
3,425

Chicago and other Reserve City banks
Dec. 31, 1930
" 30, 1933
" 31, 1934
" 31, 1935

1,727
3,209
4,552
5,136

Country banks
Dec. 31, 1930
" 30, 1933
" 31, 1934
" 31, 1935

1,159
1,683
2,108
1,940

All member banks
Dec. 31, 1930
" 30, 1933
" 31, 1934
" 31, 1935

4,125
7,254
9,906
10,501

Fully
guaranteed

Total

Per cent
total U. S.
securities
to total
loans &
investments

278
401

1,239
2,362
3,524
3,826

14.4
33.8
45.4
45.5

356
744

1,727
3,209
4,908
5,880

12.5
31.6
42.3
46.5

355
623

1,159
1,683
2,463
2,563

9.3
20.9
28.1
28.7

989
1,768

4,125
7,254
10,895
12,269

11.8
28.8
38.7
40.9

FEDERAL RESERVE BANK OF NEW YORK

gations of the Government, and although they continued to purchase Government guaranteed securities, their total Government
security holdings showed comparatively little change, and remained under 29 per cent of their total loans and investments.
The relatively small increase in holdings of Government
and Government guaranteed securities by member banks resulted in a much smaller increase in total loans and investments
during 1935 than in 1934, despite the fact that other forms of
member bank credit showed greater stability or even increased
moderately in 1935, following the declines of several preceding
years.
In New York City, the increase in holdings of direct obligations of the Government accounted for only a little more than
one fourth of the increase in total loans and investments. In
this case the largest element in the increase in total earning
assets of member banks was an expansion in loans to security
brokers and dealers in New York City, which increased by more
than $350,000,000, or over 50 per cent. Part of this increase was
in replacement of loans previously made by out of town banks,
which were withdrawn in the espring
of the year when the rate
on call loans dropped to 14 P r cent, a return only sufficient to
cover the charge made by the New York banks for placing and
servicing such loans. The total volume of loans to security
(In millions of dollars)
United States

New York City

Loans on securities:
To brokers and dealers.
To others
Bankers acceptances
Commercial paper bought.
Loans to banks
Real estate loans
All other loans
U. S. Government obligations:
Direct
Fully guaranteed
Other securities
Total loans and investments

Dec. 30,
1933

Dec. 31,
1934

Dec. 31,
1935

Dec. 30,
1933

Dec. 31,
1934

Dec. 31,
1935

751
989
187
20
146
148
1,213

716
820
226
6
63
139
1,189

1,078
792
173
5
42
140
1,203

1,006
3,606
260
132
287
2,359
5,184

1,030
3,110
287
232
156
2,273
4,940

1,243
2,893
210
272
98
2,284
5,176

2,362
*
1,179

3,246
278
1,078

3,425
401
1,159

7,254
*
5,132

9,906
989
5,227

10,500
1,768
5,541

6,995

7,761

8,418

25,220

28,150

29,985

*A small amount of fully guaranteed securities included in other securities.

TWENTY-FIRST ANNUAL REPORT

brokers and dealers by all member banks showed a net increase
during the year of $213,000,000, but as the preceding table indicates, loans on securities to others declined $217,000,000 further
during the year, so that there was practically no change in the
total volume of security loans by all member banks, despite the
substantial rise in security prices during 1935.
The volume of bankers acceptances bought in the open market declined further during 1935, especially in New York City
banks, accompanying a continued reduction in the total volume
of such paper outstanding. An important element in the reduction, however, was the financing by the Government of certain
commodity loans which previously had been financed through
the banks. Loans on real estate increased slightly, and all other
loans, including the bulk of loans for ordinary business purposes, also showed a slight increase in New York City and an
increase of more than $230,000,000 for all member banks in the
country.
MEMBER BANK DEPOSITS

The volume of deposits in member banks showed a further
large increase during 1935, although, reflecting primarily the
smaller increase in Government security holdings, the increase
was not as large as in 1934. The increase again occurred chiefly
in demand deposits, and although interbank deposits continued
to be a substantial element, there was also a large increase in
other demand deposits (adjusted demand deposits) amounting
to 22 per cent for New York City banks, 20 per cent for other
Reserve city banks, and 18 per cent for "country" banks. The
two largest factors in this rapid expansion of demand deposits
were the heavy inflow of funds from abroad and Government
expenditures. Government expenditures in excess of current
receipts were reflected in a substantial reduction in Government
deposits, as well as in the further increase in Government securities held by the banks. The inflow of funds from abroad was
reflected only partly in the increase in foreign bank deposits
shown in the following table, a considerable amount going into
other deposit accounts, either directly, or indirectly through the
purchase of securities in this country.
Total demand deposits for all member banks, adjusted to
exclude interbank deposits and duplication of deposits represented by checks and other items in process of collection, rose
during 1935 to new high levels, well above the highest points
reached in 1928 and 1929. The total increase since June 1933

FEDERAL RESERVE BANK OF NEW YORK

has amounted to 42 per cent in New York City, 62 per cent in
other Reserve cities, and 65 per cent in "country" banks. Although the percentage increase was largest for the banks out(In millions of dollars)
Dec. 30,
1933

Dec. 31,
1934

Dec. 31,
1935

New York City banks
Demand deposits of domestic b a n k s . . . .
Demand deposits of foreign banks
U.S. Government deposits
Other demand deposits*

1,200
112
422
4,325

1,798
126
792
5,069

2,338
410
224
6,193

Demand deposits all accounts

6,059

7,785

9,165

748

659

610

Chicago and other Reserve City banks
Demand deposits of domestic b a n k s . . . .
Demand deposits of foreign banks
U.S. Government deposits
Other demand deposits*

1,685
17
434
5,021

2,430
19
666
6,324

2,943
33
483
7,562

Demand deposits all accounts

7,157

9,439

11,021

Time deposits

4,012

4,385

4,689

254
1
111
3,328

342
2
178
4,292

415
1
137
5,047

Demand deposits all accounts

3,694

4,814

5,600

Time deposits

4,366

4,864

5,115

All member banks
Demand deposits of domestic b a n k s . . . .
Demand deposits of foreign banks
U.S. Government deposits
Other demand deposits*

3,139
130
967
12,674

4,569
147
1,636
15,686

5,696
444
844
18,802

Demand deposits all accounts

16,910

22,038

25,786

9,126

9,908

10,414

Time deposits

Country banks
Demand deposits of domestic banks
Demand deposits of foreign banks
U.S. Government deposits
Other demand deposits*

Time deposits

* "Adjusted demand deposits"—adjusted by inclusion of certified and officers' checks,
cash letters of credit and travelers' checks outstanding, and amounts due to Federal
Reserve Banks (deferred credits), and by deduction of cash items on hand or in process
of collection and exchanges for the clearing house.

TWENTY-FIRST ANNUAL REPORT

side New York City and other Reserve cities, including Chicago,
the volume of deposits in such banks remained below the 19281929 levels, as the preceding shrinkage in deposits also had been
greatest outside of the principal cities. Furthermore, the volume of deposits in nonmember banks is far below the levels of
six or seven years ago, due partly to the closing of a large percentage of such banks and partly to conversions of nonmember
into member banks.
In dollar volume, about 70 per cent of the total increase in
adjusted demand deposits of all member banks since June 1933
has been in member banks in New York City and other Reserve
cities.
The rapid increase in deposits, occurring so largely in the
form of demand deposits and in the larger centers where reserve requirements are higher than in the smaller localities,
resulted in a further increase of $450,000,000 in member bank
reserve requirements, of which about $270,000,000 was in New
York City alone. This large absorption of reserves by increased
requirements was much more than offset, however, by the heavy
gold inflow, so that the amount of idle reserves at the end of
1935, as previously indicated, was much larger than ever before,
and the capacity for further expansion of bank credit was consequently much greater than at the beginning of the year.
The volume of transactions financed by the use of bank deposits, as reflected in bank debits, increased considerably during
1935, the increase amounting to about 11 per cent in New York
City and 15 per cent in 140 other centers throughout the country. These increases, however, were less than the increase in
the volume of demand deposits, so that the average rate of
turnover or velocity of demand deposits declined further instead of showing the increase that in past years has frequently
accompanied business revival. The indication, therefore, is that
the volume of deposits in the banks at the end of 1935, if used
as intensively as in most years since the war, would be sufficient
to finance a much larger volume of business transactions.
MEMBER BANK POSITION AT THE END OF 1935

The large increase in deposits during the past year tended
to reduce somewhat the ratios of bank capital funds to deposits,
but in general the ratios had been quite high at the beginning
of the year, due in many cases to the additional capital supplied
by the Reconstruction Finance Corporation, and although a

FEDEEAL RESERVE BANK OF NEW YORK

small part of the capital so supplied was retired in 1935, the
ratios of capital to deposits in general were quite ample at the
end of the year. In a number of instances, bank capital has been
increased during the past year by recoveries on loans and investments previously written down because of depreciation in
market or appraised value.
From the viewpoint of liquidity, the banks generally were
in strong position. Not only were their reserves far in excess
of current requirements, but the proportion of their assets in
the form of Government securities and other paper readily
usable to secure loans from the Reserve Banks was unusually
high. Furthermore, under the Banking Act of 1935 all forms
of sound bank assets are eligible as security for advances from
the Reserve Banks if occasion requires, subject to regulations
to be prescribed by the Board of Governors of the Federal Reserve System. Commercial loans of the kinds to which eligibility for rediscount at the Reserve Banks was originally limited
by the Federal Reserve Act remained very small in relation to
the total earning assets of member banks in this district and
BILLIONS
OF DOLLARS
14

TOTAL
LOANS & INVESTMENTS

LOANS ON SECURITIES

OTHER INVESTMENTS^

U. S. GOVERNMENT
^ S E C U R I T I E S OWNED

1929

1930

1931

1932

1933

1934

1935

Total Loans and Investments of Member Banks in Second Federal Reserve
District, Classified by Types

TWENTY-FIRST ANNUAL REPORT

BILLIONS
OF DOLLARS
40

TOTAL
LOANS & INVESTMENTS
• / / / / / / / / ,

W////A
'///AALL

OTHER L O A N S '

timu'1tfyz/'AMtea
•'/'/'/'/

''*¥/// "/''¥// ' ' '~j '

LOANS ON SECURITIES

U. S. GOVERNMENT
SECURITIES OWNED
1929
1930
1931
1932
1933
1934
1935
Total Loans and Investments of AH Member Banks, Classified by Types

elsewhere, and loans acquired in the open market, such as call
loans, bankers acceptances, and open market commercial paper,
which formerly were counted upon as important elements in the
liquid assets of the banks, also remained at comparatively low
levels.
In view of the low levels to which the volume of loans has
fallen, the investment position of the banks is now especially
important. At the end of 1935, investments in securities represented more than half of the total loans and investments of
member banks in this district and in the country as a whole, as
compared with about one fourth to one third of total loans and
investments six years ago. The percentages are as follows:
Per Cent Investments to Total Loans and Investments

New York City member banks
Other Second District member banks
All member banks in United States

1929 Average

Dec. 31,1935

23
33
28

59
56
59

A review of the securities held by a considerable number
of member banks in this district, which was made near the end

FEDERAL RESERVE BANK OP NEW YORK

of the year on the basis of recent reports of examination, indicated that bank investments are now predominantly of high
quality. The investments of the New York City banks covered
by the study were 75 per cent in United States Government
securities, and of the remaining securities nearly three quarters
were municipal securities and corporation bonds rated Aaa to
A. For the banks in other parts of the district that were covered by the study, a little over half of the total investments
were in United States Government securities, and about 70 per
cent of the remainder were in municipal and high grade corporation bonds. A classification of the investments of the banks
studied is as follows:
Per Cent of Total Investments

Type of Security
U.S. Government
Municipal
Aaa to A corporation
Baa and lower grade corporation.
All types

100 Other
Second Dist. banks
53
17
16
14
100

In general, the investments of the New York City banks
were not only rated higher but were also of shorter maturity
than were the investments of other banks in the district. It is
especially important for the New York City banks to hold securities that are readily marketable, in view of their high ratios of
demand deposits to total deposits. These demand deposits
include large amounts of deposits held for out of town banks
and for foreign depositors which are presumably more volatile than others. More than half of the investments of the
New York City banks mature within two years, and three quarters mature within five years. Other banks throughout the district had comparatively small holdings of securities maturing
within two years, but about 37 per cent of their total investPer Cent of Total Investments

Maturities
1935-1937
1938-1940
1941-1945
1946-1950
After 1950
All maturities

100 Other
Second Dist. banks
12
25
10
19
34
100

TWENTY-FIRST ANNUAL REPORT

ments mature within five years. These banks in general have
large proportions of time deposits, as in many cases they take
the place of savings banks in their respective communities, and
also hold only small amounts of balances of other banks.
Credit Policy and Operations of the Bank During 1935
In view of the large amount of surplus funds held by most
member banks during the past year, the calls upon the Federal
Reserve Bank of New York by member banks for funds to supplement their available cash and reserves were extremely small.
Few member banks had occasion to rediscount commercial paper
or to obtain advances from the Reserve Bank, and offerings of
bankers acceptances to the Reserve Bank were negligible in
amount.
The rediscount rate of the bank was held at the low rate of
Wz per cent, which had been in effect during most of 1934, but
the rate was of comparatively little importance in view of the
small amount of member bank borrowings. Investments in Government securities for the bank's own account and its participation in the System investment account remained practically unchanged at the relatively high level which has prevailed since
the autumn of 1933.
The policy of this bank, in cooperation with the other Reserve Banks and the Board of Governors of the Federal Reserve
System continued to favor low money rates and an ample supply
of credit for business use. Increasing attention was given, however, to the problem created by the extraordinary accumulation
of excess reserves in member banks, in view of the fact that
those reserves have supplied the basis for potential expansion
of credit far in excess of any probable need.
The Banking Act of 1935 provided the Federal Reserve
System with a new instrument for dealing with this situation,
in that it authorized the Board of Governors to increase member bank reserve requirements to not more than twice their
present amount, if necessary to avoid injurious expansion of
credit. The heavy inflow of gold during the past two years
has raised member bank reserves to a volume that is beyond
the scope of open market operations by the Reserve Banks, the
principal method of control employed in the past. For the country as a whole, excess reserves at the end of the year amounted
to about $2,850,000,000, and enough additional funds were in

FEDERAL RESERVE BANK OF NEW YORK

sight, including the seasonal retirement of currency then in
progress, and the unusually large amounts of Government deposits in the Reserve Banks, to raise excess reserves to about
$3,500,000,000, whereas the total Government security holdings
of all Federal Reserve Banks amounted to a little over $2,400,000,000. This situation has given rise to new problems concerning the proper order of application and timing of the various
instruments of Federal Reserve policy. Past experience of the
System has indicated that open market operations and changes
in Reserve Bank discount rates have been most effective when
member banks in the aggregate not only had no excess reserves
but needed several hundred million dollars of Federal Reserve
credit in order to keep their reserves at the required levels.
In connection with a system-wide study of the reserve position of member banks, the position of individual banks in this
district was examined near the end of the year. When reserve
balances in Federal Reserve Banks only were considered, it appeared that more than one fourth of the member banks in the
district had excess reserves amounting to less than 25 per cent
of their reserve requirements, and only about 36 per cent of the
banks had excess reserves amounting to 100 per cent or more
of their requirements. It was known, however, that many banks
especially in the smaller communities followed the practice of
keeping a substantial part of their surplus funds on deposit with
their city correspondents rather than in the Reserve Bank. In
order to obtain a more adequate view of the reserve position of
member banks, therefore, balances due from other banks in this
country were listed as well as reserve balances on deposit in the
Reserve Bank.
The inclusion of deposits with other banks completely
altered the indicated position of member banks in this district
with respect to surplus funds. Only 22 banks out of a total of
793 had reserve balances and deposits with correspondents
amounting to less than 25 per cent in excess of their requirements ; only 51 banks had such funds amounting to less than 50
per cent in excess of their requirements; and only 133 banks, or
about one sixth of all member banks in the district had funds on
deposit in the Reserve Bank or with other domestic banks
amounting to less than double their reserve requirements. It is
true, however, that a part of the funds on deposit with other
banks should be regarded as normal working balances, and
should not be regarded altogether as surplus funds.

TWENTY-FIRST ANNUAL REPORT

The distribution of Central Eeserve City (New York City—
Manhattan) and other member banks in this district with respect
to their reserve position on November 1, 1935, before and after
inclusion of balances due from other banks, was as follows:
Distribution of banks based on
Reserves with Federal
Reserve Bank only

Reserves and Balances
Due from domestic banks

Central
Reserve
City banks

All Other
Member
banks

Central
Reserve
City banks

All Other
Member
banks

Less than 25..
25 to 49
50 to 99..
100 or more

12
6
8
12

207
128
143
277

4
5
9
20

18
24
73
640

Total

755

Per Cent Reserves in Excess
of Reserve Requirements

Although in dollar volume the excess reserves of the New
York City banks were far greater than the excess reserves of
all other member banks in the district, in proportion to existing
SILLIONS
)F_DOLLARS

2.0
BANKERS' BALANCES
IN NEW YORK CITY BANKS
1.5

1.0
EXCESS RESERVES
OF NEW YORK CITY BANKS

1933

1934

1935

Bankers' Balances Held by New York City Banks for Account of Out of Town
Banks, and Excess Reserves of New York City Banks

FEDERAL RESERVE BANK OF NEW YORK

reserve requirements the percentages of excess reserves were
less for the City banks than for the "country" banks, especially
if balances with other domestic banks are taken into account.
Furthermore, the large New York City banks held deposits due
to other domestic banks amounting near the end of 1935 to
around $2,200,000,000, as compared with $900,000,000 to
$1,000,000,000 in 1928 and 1929. As the accompanying diagram
indicates, there has been a fairly close parallel between the trend
of these balances held for other banks by the New York City
banks and the trend of excess reserves of the New York City
banks during the past three years. It would appear, therefore,
that a large part of the excess reserves of the large New York
City banks in effect belong to out of town banks and are subject
to withdrawal by those banks, though a considerable part of
present balances are in the nature of normal working balances
that are unlikely to be withdrawn rapidly.
VOLUME OF OPERATIONS

The volume of ordinary operations, including services
performed for the Government as fiscal agent, and services rendered to business and the public generally in supplying currency
and facilitating settlements for business and financial transactions, increased moderately over 1934, probably due in part to
the further progress of business recovery.
Operations as fiscal agent for the Government expanded
somewhat further, although, as previously pointed out, the
amount of new money raised by the Treasury through sales of
securities was not as large as in 1934. Transactions by the Federal Reserve Bank of New York in Government securities, including sales of new issues, redemptions or exchanges of securities that matured or were called for payment during the year,
and denominational exchanges of Government securities by the
bank, totaled a little more than 20 billion dollars during 1935.
This amount included 8V2 billion dollars of new securities
issued, over 6 billion dollars of securities exchanged or redeemed, and more than 5 billion dollars of denominational exchanges. During the early part of the year the remainder of
the Fourth Liberty Loan outstanding was called for redemption, and around the middle of the year the First Liberty Loan
and all of the "circulation" bonds (Consols and Panama Canal
bonds which were eligible as security for National bank notes)
were called for redemption. Included in the First and Fourth

TWENTY-FIRST ANNUAL REPORT

Liberty Loan bonds especially were a large number of bonds of
small denominations, requiring more handling than corresponding dollar amounts of the more recent issues, which for the most
part have been issued in larger denominations.
The bank also carried through a large volume of work for
subsidiary corporations of the Government, especially the Reconstruction Finance Corporation, in connection with the receipt and custody of collateral for loans made by such corporations. The bank also continued to act as agent for the Treasury
in the purchase of silver and transactions in gold and exchange.
Beginning in August, the Reserve Bank was also requested to
handle for the Treasury the payment of checks issued by the
Works Progress Administration in this district.
1934
Number of Pieces Handled
Bills discounted:
Applications*
Notes discounted
Industrial advances:
Notes discounted
Commitments
Bills purchased in open market for own account
Currency received and counted
Coin received and counted
Checks handled
Collection items handled:
United States Government coupons paid
All other
United States Government direct obligations—issues,
redemptions, and exchanges by fiscal agency department
Transfers of funds
Amounts Handled
Bills discounted
Industrial advances:
Notes discounted
Commitments
Bills purchased in open market for own account
Currency received and counted
Coin received and counted
Checks handled
Collection items handled:
United States Government coupons paid
All other
United States Government direct obligations—issues,
redemptions, and exchanges by fiscal agency department
Transfers of funds.,
""Including applications for industrial advances.

1935

6,046
17,655

2,579
5,498

64
44
4,016
596,026,000
991,453,000
157,703,000

273
112
1,932
612,567,000
1,018,339,000
163,755,000

5,033,000
2,364,000

4,257,000
2,271,000

1,275,000
271,000

1,728,000
255,000

$415,086,000

$130,525,000

960,000
3,970,000
17,424,000
3,043,595,000
107,597,000
56,048,590,000

8,567,000
8,820,000
11,984,000
2,918,512,000
103,281,000
62,516,767,000

351,076,000
1,843,785,000

358,221,000
2,176,684,000

19,421,691,000
28,642,418,000

20,052,189,000
31,061,836,000

FEDERAL RESERVE BANK OF NEW YORK

The total dollar volume of checks handled showed an increase of 12 per cent over 1934, the first increase since 1929.
The amount of these checks—$62,500,000,000—was far below
that of pre-depression years, but was equal to something like 12
to 15 per cent of the estimated total volume of all business and
financial transactions in the United States during the year.
Wire transfers of funds through the bank also showed some
increase during the year and amounted to more than
$31,000,000,000. The dollar volume of currency handled was
slightly less than in 1934, but the number of pieces of paper
currency and coin handled showed moderate increases over the
preceding year, and the amount outstanding in this district appears to have increased during the year.
Bank examination work, which was greatly expanded during 1933 and 1934, continued to be an important element in the
work of the bank in 1935. The examiners of this bank participated with State examiners in all examinations of State member banks, and developed considerably the examination of trust
departments.
INDUSTRIAL LOANS

The bank continued to receive a considerable number of applications for loans of working capital, under legislation enacted
in June 1934, from business organizations unable to obtain the
credit desired from the usual sources, though the number of new
applications received tended to diminish as the year progressed.
The number of formal applications received during the year
was approximately 500, or about the same number as was received in the latter half of 1934. The number of loans approved,
however, was proportionately greater in 1935 than in 1934. In
1935, 37 per cent of the applications passed upon by the Board
of Directors were definitely approved, and an additional 8 per
cent of the applications were given conditional approval, as compared with 30 per cent of definite approvals and an additional
5 per cent of conditional approvals in 1934. The dollar amount
of loans approved in 1935 showed a considerable increase, aggregating $20,420,000, as compared with $11,000,000 in 1934. The
following table summarizes the action taken by the Board of
Directors with respect to all industrial loan applications up to
the end of 1935, following their investigation by the staff assigned to this work and consideration and recommendations by
the Industrial Advisory Committee.

TWENTY-FIRST ANNUAL REPORT
Applications for Industrial Loans at the Federal Reserve Bank of New York
June 19, 1934 to December 31, 1935.
Number of
applications

Amount

322

$26,908,000

344,000

4,205,000

585

31,522,000

958

$62,979,000

Approved
Conditionally approved and under consideration by the
applicants at the end of the year
Conditionally approved and nonacceptance indicated by
Rejected
Total

The total amount actually advanced on approved loans up
to the end of 1935 amounted to about $8,700,000, and commitments had been made up to that time to advance an additional
$11,900,000. Eepayments and expired commitments that were
not availed of by the applicants up to the end of 1935, however,
reduced the total advances and commitments outstanding at the
end of 1935 to about $17,700,000.
More than half of the loans in number, and three fourths of
the total in dollar amount, were made through banks and involved commitments by the Eeserve Bank to rediscount the
loans and to assume a substantial proportion of the risk involved. The record of advances actually made and of commitments against which advances had not yet been made by this
bank at the end of 1935 is as follows:
Advances and Commitments Made
June 19, 1934 to December 31, 1935
Direct advances
Advances on commitments to banks
Direct commitments
Commitments to banks

$ 4,432,000
4,288,000
254,000
11,644,000

Total advances and commitments made

$20,618,000

Advances repaid or sold and commitments expired
Total advances and commitments outstanding December 31, 1935

2,929,000
$17,689,000

The gradual decline in the number of applications received
may probably be interpreted as indicating that with the further

FEDERAL RESERVE BANK OF NEW YORK

progress of business recovery the financial position of many
concerns has been gradually improved, so that potential borrowers are able to offer a better basis for credit from their usual
sources of credit. While the total volume of funds actually advanced through the industrial loans made by the Eeserve Bank
remains comparatively small, the loans in a number of cases
have enabled business concerns to continue operations and
maintain employment which otherwise might have been discontinued for lack of working capital.
The Foreign Exchanges and Gold Movements
The principal changes in the status of foreign currencies
during 1935 were the devaluation of the Belgian monetary unit
(the belga) by 28 per cent at the end of March, following a
severe banking and exchange crisis, and the measures taken in
November by the Chinese Government to demonetize silver.
With the exception of the accompanying declines in the external
value of these two currencies, variations in exchange rates in
1935 were relatively small, and the foreign exchanges in general
showed narrower fluctuations than in any of the preceding four
years. Stability of the currencies of the European gold bloc
countries other than Belgium, however, was maintained only by
heavy international gold movements. The external value of the
dollar in terms of gold and gold currencies was held steady, the
Treasury standing ready, in accordance with the statement of
the Secretary of the Treasury dated January 31, 1934, to purchase imported gold or to sell gold for export to foreign central banks (whenever dollar exchange with gold standard currencies reached the gold export point), at a price of 35 dollars
per fine ounce minus or plus certain charges.
The pound sterling and its related currencies, although
having no fixed and established connection with gold, showed
comparatively restricted movements, the dollar-sterling rate
fluctuating during the year between a low of $4.74^ and a high
of $4.98%, or over a range of only 5 per cent. The rigid supervision of exchange dealings in Germany continued to be effective in preventing a decline in the official rate for the reichsmark,
the so-called free reichsmark, in which dealings were comparatively limited, being held close to its theoretical parity. In Italy,
although exchange restrictions were increased in scope and
rigor, and the Bank of Italy's gold holdings, together with the

TWENTY-FIRST ANNUAL REPORT

foreign assets and gold holdings of Italian nationals, were
mobilized for use in meeting payments abroad, the largely nominal official rate for the lira depreciated about 7 per cent, partly
as a result of the adverse effects on Italy's balance of payments
of the hostilities in East Africa.
Serious weakness in the belga developed in March, and
after an unsuccessful attempt to halt an outflow of funds which
led to a substantial reduction in the gold holdings of the National Bank of Belgium, the Belgian cabinet resigned on March
19, and the new government announced a 28 per cent devaluation of the belga on March 31. Although the transition to the
new parity took place much more swiftly in Belgium than it
had in the United States a year earlier, the Belgian devaluation was similar in some of its aspects. In both cases, the
abandonment of the old parity was preceded by banking difficulties and flight of capital. There was a transition period of
ambiguous currency status, during which exchange control was
established and unrestricted private gold shipment discontinued.
This was followed by devaluation, which, in the Belgian case as
in our own, was accomplished by Executive action following the
passage of legislation authorizing devaluation within a defined
range. A part of the "profit" resulting from the revaluation
of Belgian gold holdings was set aside in a stabilization fund.
The devaluation of the belga served to arouse doubts concerning the stability of other gold bloc exchanges, and both the
guilder and the Swiss franc immediately became subject to
severe pressure. The weakness of Dutch exchange began to
abate in the latter part of April after a heavy gold drain had
occurred, but the outflow of capital from Switzerland continued
until early in June, when the rejection by popular referendum
of a proposed change in national economic policy led to a subsidence of exchange pressure. Accompanying a fiscal crisis during May, the French franc, which had shown only intermittent
weakness in the previous month, also became subject to exceedingly strong pressure, and the Bank of France lost over $650,000,000 of gold from May 3 to June 7. The crisis was terminated by the formation of a new government with special
emergency powers in matters relating to the defense of the
franc.
Apart from the devaluation of the belga, the principal
effects of the gold bloc crisis of March, April, and May in the

FEDERAL RESERVE BANK OF NEW YORK

sphere of gold movements and the foreign exchanges were a
heavy gold flow to the United States; an accelerated movement
of gold into hoards and other unreported holdings abroad; and
a recovery in sterling exchange. From the latter part of March
to early in June the French, Dutch, and Swiss central banks
lost $1,100,000,000 of gold, of which close to $470,000,000 was
shipped to this country. A considerable part of the remainder
entered private hoards abroad and other unreported holdings
including the British Exchange Equalization Account. There
were indications of a substantial movement of funds to London
during this period, and the pound advanced from $4.74*4 on
March 12 to $4.97 on June 4.
Closing Cable Rates at New York
1935
Par

High

Low

December 31

$.1695*
.4537
8.2397
.0663
.4033
.6806
.0891
.4537
.3267
.4537
.3267
1.6931
.7187
.2025
1.7511
.8440
.6180

$.2368
.2226
4.9838
.06683
.4078
.6869
.0860
.2505
.1385
.2570
.3293
1.0100
.3324
.0871
.8075
.2947
.3768
.4213
.6175

$.1681
.2111
4.7425
.06510
.3972
.6680
.0803
.2382
.1350
.2446
.3192
.9812
.3162
.0830
.8000
.2792
.3587
.2925
.3188

$.1689
.2203
4.9325
.06629
.4026
.6800
.0803
.2479
.1375
.2543
.3256
.9947
.3288
.0860
.8050
.2882
.3728
.2938
.3206

Exchange on
Belgium
Denmark
England
France
Germany
Holland
Italy
Norway
Spain
Sweden
Switzerland
Canada
Argentina**
Brazil**
Uruguay**
Japan
India
Shanghai
Hongkong

*Belga devalued by 28 per cent by decree of March 31, 1935. **Official rates.

In the latter part of July, developments in the silver market
began to exert an important influence on the European exchanges and on gold movements. After reaching a peak of 81
cents an ounce late in April, the market price of silver declined
steadily to 69% cents at the end of June, receding slightly thereafter to 65% cents at the middle of August. An extended speculative position in silver had been built up in the London market,
and, as the upward movement of prices ceased, the volume of

TWENTY-FIRST ANNUAL REPORT

offerings increased, becoming very heavy during July and
August. The United States Treasury enlarged the volume of its
purchases during this period, and on a single day, August 14,
about 25,000,000 ounces of silver were acquired, according to an
announcement of the Secretary of the Treasury. The principal
direct effects of these heavy silver purchases in the field of
foreign exchange rates and gold movements were to give a
strong undertone to sterling exchange, which reached $4.98%
on August 14, and to diminish the volume of gold imports to
the United States. Gold shipments aggregating $60,000,000
were received during July and August, however, of which
$30,000,000 was exported from Holland during the political crisis
at the end of July.
The tense European political situation in September and
October growing out of Italian hostilities in East Africa gave
rise to a heavy movement of foreign balances from London to
New York and to considerable liquidation of gold held in London
on private account. These developments were chiefly responsible for gold movements to this country during these two months
of $460,000,000. About two thirds of this movement represented
shipments from France, since the Paris market in this period
acted as an international clearing center for gold, its exports
to the United States presumably being covered chiefly by receipts from official British holdings as well as from Holland
and Italy. The pound receded to a low of $4.88% on October 4
but again showed a firmer tendency as European war fears
abated, closing the year at $4.93^4.
Towards the end of October French gold losses to the
United States ceased to be covered by receipts from other countries, and in the six weeks ended December 6 the gold holdings
of the Bank of France showed a decrease of $415,000,000. The
bulk of this gold was shipped to the United States, although a
portion was reported to have been taken by the British exchange
authorities in connection with their operations to prevent an
advance in sterling. The French gold loss was the counterpart
of a renewed outflow of capital, occasioned by uneasiness over
the difficult fiscal and political situation in France. A change in
the immediate political situation, with which the question of the
future of the franc was popularly associated, halted the outflow
of capital from France early in December, thus permitting a
recovery in the franc and a cessation of the gold outflow.

FEDERAL RESERVE BANK OF NEW YORK

(In thousands of dollars)
Country
Canada
China and Hongkong..
Colombia
Ecuador
England
France
Holland
India
Mexico
Philippines
Russia
All Other
Total

Exports to

Imports from

Net

<IS

95,244
10,435
10,909
4,646
300,944
924,515
227,622
83,706
14,584
15,350
18,098
'18,828

95,174
10,435
10,909
4,646
300,944
924,498
227,622
83,706
13,712
15,350
18,098
18,800

987

1,724,881

1,723,894

']17
8' 12

Early in November, following an exceedingly sharp decline
in Shanghai exchange from 38 5/16 cents to 31 cents per yuan
during October, the Chinese Government adopted a series of
measures having the object of terminating the use of silver as
circulating money and establishing a more complete central
banking mechanism. These measures provided for the nationalization of all domestically held silver coin and bullion and for
the granting of a monopoly of note issue to the three government-controlled banks. These banks were also charged with the
responsibility for controlling the external value of the Chinese
monetary unit, and provision was made for the gradual assumption by the Central Bank of China (later to be known as the
Central Reserve Bank of China) of other central banking functions, including the holding of government funds and of the
reserves of other banks, the extension of rediscount facilities to
such banks, and the exclusive right of note issue.
Although the variable equalization tax on silver exports
imposed in October 1934 had been at least partially successful
in divorcing the external value of Chinese currency from the
value of its silver content, the premium on silver which subsequently developed provided a powerful incentive to smuggling,
and it seems probable that such smuggling reached large proportions in 1935. The inability of the Chinese Government to
exercise full control over silver exports, in the circumstances
then prevailing in the world silver market, led to the adoption
of the measures described above. Shortly after the announcement of the new Chinese monetary program, the Hongkong Gov

TWENTY-FIRST ANNUAL REPORT

ernment placed an embargo on silver exports and subsequentlynationalized domestic silver stocks and established an exchange
stabilization fund. A sharp decline in the price of silver in
December 1935 probably facilitated the fulfilment of the Chinese
Government's nationalization order by greatly reducing the
profitability of smuggling.
Changes in the monetary gold stock of the United States,
most of which were caused by the international movements of
gold reviewed in the preceding pages, are summarized in the
accompanying tables.
(In millions of dollars)
Jan. 1—Dec. 31, 1935
Shipments:
Imports
Exports

1,724.9
1.0
Net Imports

Gold earmarked here for foreign account:
New earmarkings
Release from earmark
Net earmark
Other factors, including newly mined domestic gold and scrap gold
Total addition of new gold to monetary stock

1,723.9
16.7
16.5
0.2

163.5
1,887.2

FEDERAL RESERVE BANK OF NEW YORK

Foreign Relations
During 1935 accounts were opened at this bank, with the
approval of the Board of Governors of the Federal Keserve
System, for the Bank of Canada, the Central Bank of the Argentine Eepublic, and the National Bank of Nicaragua. The
account of the Bank of Java was closed. As a result, the number of accounts maintained by the Federal Keserve Bank of
New York on behalf of all twelve Federal Reserve Banks for
foreign banks of issue and the Bank for International Settlements rose from thirty-six at the end of 1934 to thirty-eight
at the end of 1935. Balances maintained by foreign correspondents with this bank rose from $4,233,000 at the close of 1933 and
$19,394,000 at the end of 1934, to $28,935,000 at the end of 1935.
In the spring of 1935, and again in the autumn, short term
loans were extended by this bank, on behalf of all Federal
Reserve Banks, to a foreign central bank, against a deposit of
gold as collateral, in order to meet the seasonal requirements
for dollar exchange of the country of the borrowing bank, pending the marketing of its principal crop. The balance of such
loans outstanding at the close of the year was $350,000.
The principal amount of the credit outstanding in favor of
the National Bank of Hungary, described in the Nineteenth Annual Report of this bank, was reduced to $2,522,270 by the repayment of $617,815 during the past year.
At the close of 1935 this bank maintained balances abroad
in its own behalf, and in behalf of the other Federal Reserve
Banks, in an aggregate amount equivalent to $665,000, of which
$541,000 was repayable in dollars. It also held commercial bills
denominated in foreign currencies in an aggregate amount
equivalent to $4,656,000, inclusive of the Hungarian credit referred to above. Of this aggregate amount, $4,532,000 was repayable in dollars.

TWENTY-FIRST ANNUAL REPORT

Membership Changes in 1935
At the end of 1935, the number of member banks in this district was 793, a net gain of two for the year. The organization
of one new National bank and the admission of three State banks
and Trust companies to membership more than offset the decrease in number of members caused by the merger of two member banks with other member banks. There were no insolvencies
and no withdrawals during 1935. The proportion of member
banks to the total number of commercial banks and Trust companies in this district, at 74 per cent, was the highest since the
beginning of the System in 1914. The accompanying tables
show the member and nonmember banks classified according to
their charters, and indicate the nature of the changes in membership during the year.
Number of Member and Nonmember Banks in Second Federal Reserve
District at End of Year

TYPE OF BANK

December 31, 1935

December 31, 1934

NonPer Cent
Members Members Members

National Banks
State Banks*
Trust Companies
Total

626
54
113

0
135
144

100
29
44

627
52
112

0
137
153

100
28
42

793

279

791

290

* Excludes Savings Banks.
Changes in Federal Reserve Membership in Second District During 1935
Total membership beginning of year

791

Increases: (a)
National banks organized (b)
Admission of State banks and Trust companies.
Total increases
Decreases:
Member banks combined with other members.
Member banks combined with nonmembers. ..
Insolvencies
Voluntary liquidations
Withdrawals
Succeeded by newly chartered members
Total decreases
Net increase
Total membership end of year

793

(a) In addition to figures shown on this table, one nonmember bank was absorbed
by a member bank during the year.
(b) Organized to succeed bank under conservator, deducted in previous report.

FEDERAL RESERVE BANK OF NEW YORK

Financial Statement
Complete operating statistics of each Federal Reserve Bank
will be published in the annual report of the Board of Governors
of the Federal Reserve System, but the statements of condition
and of income and disbursements of this bank are given in the
following pages.
STATEMENT OF CONDITION
(In thousands of dollars)
ASSETS

Dec. 31,1935

Dec. 31,1934

$3,320,993
1,792
54,360

$1,836,675
1,500
56,764

$3,377,145

$1,894,939

Gold certificates on hand and due from U. S.
Redemption fund—Federal Reserve notes
Total reserves
Redemption fund—Federal Reserve Bank notes..
Bills discounted:
Secured by U. S. Government obligations, direct and/or fully guaranteed
Other bills discounted
Total bills discounted
Bills bought in open market
Industrial advances

1,427

832
2,198

1,538
2,690

3,030

4,228

1,738
7,741

1,983
813

55,908
498,307
187,668

$ 141,018
475,234
161,566

$ 741,883

$ 777,818

U. S. Government securities:
Treasury notes
Treasury bills
Total U. S. Government securities
Total bills and securities
Due from foreign banks
Federal Reserve notes of other banks
Uncollected items
Bank premises
All other assets
Total assets

$ 754,392

$ 784,842

265
5,483
166,040
10,781
27,956

$4,342,062

299
6,950
126,519
11,437
30,002

$2,856,415

TWENTY-FIRST ANNUAL REPORT

(In thousands of dollars)]
LIABILITIES

Dec. 31,1935
$ 807,718

$ 680,935
25,468

$2,747,431
330,925
10,542
165,156

$1,749,711
29,697
6,848
123,496

$3,254,054

$1,909,752

$ 160,139
51,006
50,825
7,744
8,849
1,727

$ 120,723
59,606
49,964
773
7,510
1,684

$4342,062

$2,856,415

83.1%

73.1%

Federal Reserve Bank note circulation—net
Deposits:
Member bank—reserve account
U. S. Treasurer—general account
Foreign bank
Other deposits
Total deposits
Deferred availability items
Capital paid in
Surplus (Section 7)'
Surplus (Section 13b)'
Reserve for losses and contingencies
All other liabilities

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

Dec. 31,1934

9,948

$
$

247
3,892

FEDERAL RESERVE BANK OF NEW YORK

INCOME AND DISBURSEMENTS

Data of income and disbursements for the year 1935, with
comparable figures for 1934, are given in the table below. Earnings in 1935 were $13,131,000, or $2,951,000 less than in 1934,
due partly to a slightly smaller volume of loans and investments
but more largely to a lower average rate of return on loans and
investments. Current expenses increased $864,000 to $8,200,000,
leaving current net earnings of $4,931,000, which was $3,815,000
less than in 1934. Additions to current net earnings, which included a profit of $2,678,000 on United States Government securities sold, were less than the amounts charged off for depreciation and for reserves for losses and contingencies, so that net
earnings were reduced somewhat further to $4,336,000, as compared with $8,307,000 in 1934. Eegular dividends of $3,411,000
were paid to member banks and $861,000 was transferred to
surplus.
PROFIT AND LOSS ACCOUNT
(In thousands of dollars)"
1934

1935
$

13,131
8,200

16,082
7,336

4,931

8,746

2,678
82

2,481
240

2,760

2,721

1,144
52
1,290
59
810

186
76
2,836
57
5

3,355

3,160

595

439

4,336

8307
8

1
1

4,336

$
$

8,315

Current expenses
Current net earnings
Additions to current net earnings:
Profit on U. S. Government securities sold
All other
Total additions
Deductions from current net earnings:
Bank premises—depreciation
Furniture and equipment
Reserve for losses and contingencies
Reserve for self-insurance
All other
Total deductions
Net deductions from current net earnings
Withdrawn from surplus (Section 13b)

Dividends paid
Section 13b earnings paid the United States
Transferred to surplus (Section 7)

3,411
64
861

3,568
4,747

TWENTY-FIRST ANNUAL REPORT

Changes in Directors and Officers
At a regular election during the autumn of 1935, Edward K.
Mills, President, Morristown Trust Company, Morristown, New
Jersey, was reelected by member banks in Group 2, as a Class A
director for a term of three years beginning January 1, 1936,
and Walter C. Teagle, President, Standard Oil Company (New
Jersey), New York, N. Y., was reelected by member banks in
Group 2 as a Class B director for a term of three years beginning January 1, 1936.
The Board of Governors of the Federal Reserve System redesignated J. Herbert Case as Chairman of the Board and as
Federal Reserve Agent for two months beginning January 1,
1936.
The Board of Directors of this bank appointed William A.
Dusenbury, President, First National Bank, Olean, N. Y., for
two years, beginning January 9, 1936, to fill the unexpired term
of Edward B. Vreeland of Salamanca, N. Y., whose resignation
from the Buffalo Board of Directors due to illness, became effective January 1,1936.
The Board of Directors of this bank appointed Frank F.
Henry, Chairman, Washburn Crosby Company, Inc., Buffalo,
N. Y., as a director of the Buffalo Branch for a term of three
years, ending December 31,1938, to succeed Lewis G. Harriman,
Buffalo, N. Y., whose term expired December 31, 1935.
The Board of Directors of this bank reappointed Robert M.
O'Hara as Managing Director of the Buffalo Branch for the
year 1936.

FEDERAL RESERVE BANK OF NEW YORK

MEMBER OF FEDERAL ADVISORY COUNCIL

The Board of Directors of this bank redesignated James H.
Perkins, Chairman, The National City Bank of New York, New
York, N. Y., as a member of the Federal Advisory Council for
the year 1936.
CHANGES IN OFFICERS

On April 30, 1935, Jay E. Crane, Deputy Governor, resigned
to accept a position as Assistant Treasurer of the Standard Oil
Company (New Jersey).
On June 28, 1935, Harold V. Roelse resigned as Assistant
Secretary of the bank but continued as Assistant Federal Reserve Agent and Manager of the Reports Department. Herbert
H. Kimball was appointed Assistant Secretary by the Board of
Directors and continued as an Assistant Deputy Governor.
On January 3, 1936, Allan Sproul, formerly Assistant to the
Governor and Secretary, was appointed Deputy Governor, and
resigned as Secretary. Herbert H. Kimball was appointed Secretary of the bank, and Horace L. Sanford was appointed
Assistant Secretary. John H. Williams, formerly Economist of
the bank, was appointed Deputy Governor. Arthur Phelan,
formerly Manager of the Discount Department, was appointed
Assistant Deputy Governor. Valentine Willis, formerly Manager of the Collection Department, was appointed Assistant
Deputy Governor. Silas A. Miller, formerly Chief of the Securities Department, was appointed Manager of the Securities
Department.
Effective February 1, 1936, E. 0. Douglas was appointed
Manager of the Collection Department, in addition to his duties
as Manager of the Bill Department.

TWENTY-FIRST ANNUAL REPORT

DIRECTORS AND OFFICERS
January 1, 1936
DIRECTORS
Term
Expires
Dec. 31

Class Group
A

1 GEORGE W. DAVISON, Greenwich, Conn

1937

Chairman, Board of Trustees, Central Hanover Bank and Trust
Company, New York, N. Y.
A

EDWARD K. MILLS, Morristown, N. J

1938

President, Morristown Trust Company
A

CECIL R. BERRY, Waverly, N. Y

1936

President, The Citizens National Bank of Waverly
B

1 THOMAS J. WATSON, Short Hills, N. J

1937

President, International Business Machines Corporation, New
York, N. Y.
B

2 WALTER C. TEACLE, Port Chester, N. Y

1938

President, Standard Oil Company (New Jersey) New York,
N. Y.
B

3 ROBERT T. STEVENS, Plainfield, N. J

1936

President, J. P. Stevens & Company, Inc., New York, N. Y.
C

J. HERBERT CASE, New York, N. Y., Chairman

1937

CLARENCE M. WOOLLEY, Greenwich, Conn

1936

Chairman, American Radiator and Standard Sanitary Corporation, New York, N. Y.
C

Vacancy, Deputy Chairman

1938

MEMBER OF FEDERAL ADVISORY COUNCIL
JAMES H. PERKINS

Chairman, The National City Bank of New York, New York, N. Y.

OFFICERS OF FEDERAL RESERVE AGENTS FUNCTION
J. HERBERT CASE, Federal Reserve Agent
RAY M. GIDNEY, Assistant Federal Reserve
Agent

HERBERT S. DOWNS, Assistant Federal
Reserve Agent and Manager, Bank
Relations Department
WILLIAM H. DILLISTIN, Assistant Federal H A R Q L D y RoELSE> Asdstant
Federal
Re.
Reserve Agent and Manager, Bank
Agent and Manager, Reports
serve
Examinations Department
Department

EDWARD L. DODGE, General Auditor

GEORGE W. FERGUSON, Assistant General Auditor

FEDERAL RESERVE BANK OF NEW YORK

OFFICERS
GEORGE L. HARRISON, Governor

W. RANDOLPH BURGESS, Deputy Governor

LESLIE R. ROUNDS, Deputy Governor

CHARLES II. COE, Deputy Governor

Louis F. SAILER, Deputy Governor

WALTER S. LOGAN, Deputy Governor and

ALLAN SPROUL, Deputy Governor

General Counsel

j O H N JJ. WILLIAMS, Deputy Governor

J. WILSON JONES,

WALTER B. MATTESON,

Assistant Deputy Governor

HERBERT H. KIMBALL,

ARTHUR PHELAN

Assistant Deputy Governor and becreL. WERNER KNOKE,

A .A
n
n
Assistant Deputy Governor

JAMES M. RICE,

Assistant Deputy Governor

Assistant Deputy Governor
VALENTINE WILLIS,

Assistant Deputy Governor
DUDLEY H. BARROWS,

JACQUES A. MITCHELL,

Manager, Administration Department
WESLEY W. BURT,

Manager, Credit Department
HORACE L. SANFORD,

Manager, Accounting Department

Assistant Secretary

DONALD J. CAMERON,

WILLIAM A. SCOTT,

Manager, Foreign Department

Manager, Government Bond Department

FELIX T DAVIS

WILLIAM F. SHEEHAN,

£ W e / Examiner (Bank
Department)

Assistant Counsel
EDWARD O. DOUGLAS,

TODD G. TIEBOUT,

EDWIN C. FRENCH

WILLIAM F. TREIBER,

Manager, Bill Department

Examinations

Assistant Counsel

Manager, Cash Department

Assistant Counsel

MYLES C. MCCAHILL,

RUFUS J. TRIMBLE,

Manager, Administration Department
ROBERT F. MCMURRAY,

Assistant Counsel
CHARLES N. VAN HOUTEN, JR.,

Manager, Safekeeping Department

Manager, Security Custody Department

SILAS A. MILLER,

I. WARD WATERS,

Manager, Securities Department

Manager, Cash Custody Department

BUFFALO BRANCH
DIRECTORS
FRANK F. HENRY, Buffalo, N. Y

Te rm
E
Decl\
1938

Chairman, Washburn Crosby Company, Inc.
HOWARD KELLOGG, Buffalo, N. Y

1937

President, Spencer Kellogg & Sons, Inc.
EDWARD G. MINER, Rochester, N. Y

1936

Chairman, The Pfaudler Company
GEORGE F. RAND, Buffalo, N. Y

1936

President, The Marine Trust Company of Buffalo
WILLIAM A. DUSENBURY, Olean, N. Y

1937

President, First National Bank of Olean
VACANCY

1938

ROBERT M. O'HARA, Managing Director

1936

OFFICERS
ROBERT M. O'HARA,

Managing Director
R. B. WILTSE,

Assistant Manager

HALSEY W. SNOW,

Cashier
CLIFFORD L. BLAKESLEE,

Assistant Cashier

Full text of Annual Report of the Federal Reserve Bank of New York : Twenty-First Annual Report of the Federal Reserve Bank of New York for the Year Ended December 31, 1935

FRASER