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MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
V ol . 28

RESERVE
J U N E

BANK

OF

NEW

YORK

1 9 4 6

No. 6

MONEY MARKET IN MAY
During the past month further adjustments were made by
member banks to meet the new conditions arising from the
elimination by all Reserve Banks between April 24 and May
11 o f the preferential discount rate. As outstanding borrow­
ings came to maturity, the member banks had the option of
renewing their loans at the regular discount rate of 1 per cent,
or adjusting their reserve positions in other ways. Many banks
chose to repay their borrowings in preference to paying the
higher rate— frequently by selling short term Government
securities from their portfolios. Other banks, however, con­
tinued to borrow from the Reserve Banks to maintain their
reserves at the required levels, even though they had to pay the
higher rate applicable after the preferential Vz per cent rate
was eliminated. Discounts and advances of all Federal Reserve
Banks were reduced 179 million dollars in the three weeks
following April 24 to 145 million dollars on May 15, the
smallest amount since July 18, 1945.
In addition to raising the funds required to repay a large
part of their indebtedness, member banks also found it neces­
sary to meet other needs for reserve funds during the past
month. These needs arose out of Treasury withdrawals from
War Loan deposit accounts in amounts which with tax collec­
tions exceeded Government disbursements, a moderate increase
in the amount of money in circulation, and higher reserve
requirements arising out of a growth in privately owned
deposits. The reserve position of member banks, therefore,
was under moderate pressure, especially in the early part of the
month, and the banks sold substantial amounts of short term
Government securities directly or indirectly to the Reserve
Banks. In addition, excess reserves of all member banks were
drawn down by about 175 million dollars net during the four
weeks ended May 22, and on that date were approximately 700
million dollars, the smallest amount since April 1944.
The redemption at the beginning of May of an entire issue
of somewhat over 1 Vz billion dollars of Treasury certificates
of indebtedness had the net effect, like the preceding redemp­
tions of March and April, of exerting some pressure on the
reserve position of member banks in the aggregate. Treasury
disbursements at that time somewhat exceeded receipts, but a
substantial element in the disbursements was the redemption
of certificates held by the Federal Reserve Banks, so that the




funds did not reach the commercial banks. In fact, Treasury
withdrawals from War Loan deposits exceeded the amount of
Treasury disbursements which were received by or deposited
in the commercial banks for the redemption of the matured
securities.
Subsequently the Treasury built up its balances in the
Reserve Banks moderately (presumably in anticipation of
further redemptions of securities in June) through with­
drawals from War Loan deposit accounts in excess of the
amounts needed to meet current Government expenditures. At
the same time the Government expenditures in excess of tax
collections resulted in a growth in privately owned deposits
and a consequent increase in member bank reserve require­
ments.
The New York City banks were subject not only to a steady
drain of funds through Treasury operations during May, but
also, in the early part of the month, to a substantial outflow of
funds to other parts of the country, which in part probably
reflected withdrawals of the proceeds of redeemed Treasury
certificates which had been held in New York for the account
of out-of-town banks and others. The New York banks found
it necessary to sell substantial amounts of Treasury bills to the
Reserve Banks, and they also sold other securities in the
market. The New York money market position, therefore,
was somewhat tight in the early part of May. Subsequently,
however, there was an inflow o f funds from other parts of the
country and the money market was somewhat easier.
R

e t ir e m e n t

o f

Pu

b l ic

D

ebt

In continuation of its program of using surplus working
balances for the retirement of outstanding debt, the Treasury
announced in May that it would retire approximately 2 billion
of a 4.8 billion dollar issue of certificates o f indebtedness due
on June 1, and would redeem without replacement the entire
amount of two bond issues totaling 1,855 million dollars,
which had been called for redemption on June 15. A new
issue of certificates was offered in exchange for the remainder
of the June 1 certificates, and will be allotted on the basis of
66 per cent of the amount of maturing certificates offered in
exchange for the new issue, except that subscriptions not in
excess of 25 thousand dollars will be allotted in full. The June

MONTHLY REVIEW, JUNE 1946

50

redemptions will bring the total retirement of Treasury market­
able securities since the end of February to 10.2 billion dollars.
The effects of the public debt retirement operations on
major classes of owners, as far as they are determinable from
current data, are shown in the accompanying chart. Govern­
ment securities held by the weekly reporting member banks
declined 3.5 billion dollars between February 27 and May 1,
an amount considerably in excess of their probable holdings of
redeemed securities. The difference is accounted for by sales
of other securities by these banks chiefly for the purpose of
adjusting their reserve positions. The Federal Reserve Banks,
on the other hand, had a net decline of less than 400 million
dollars in their Government security portfolios during this
period, although they held 1.2 billion dollars of redeemed
securities. Thus the Reserve Banks made net purchases of
more than 800 million dollars of Treasury obligations, either
directly from member banks or in the open market, to provide
reserves needed by member banks. The fact that securities
from Reserve Bank portfolios redeemed by the Treasury had
to be so largely replaced by purchases of other securities is a
clear indication of the pressure on member bank reserve posi­
tions that is exerted by the debt redemption operations.
"All others,” including nonreporting member and non­
member banks, as well as other investors, reduced their hold­
ings of Government securities by about 2.1 billion dollars
during the same period, an amount which is probably some­
what less than their holdings of redeemed securities. It appears
that these banks and other investors replaced in part their
redeemed securities by buying other securities in the market.
It is apparent from the chart that changes in the Govern­
ment security holdings of the different groups of investors
were not closely synchronized with the debt retirement opera­
tions of the Treasury. On some occasions, notably in connec­
tion with the March 1 and April 1 redemptions, the weekly
reporting member banks made at least partial replacements of
the redeemed securities on or before the date of redemption.
On these occasions the Treasury had built up large balances in
the Reserve Banks in advance of the redemptions and drew
down its balances in retiring the securities, so that the com­
mercial banks gained funds and were able to purchase other
securities, some of which were supplied by the Reserve Banks.
On the other hand, in the weeks that included the March 15
and May 1 redemptions, the reductions in the reporting mem­
ber banks’ holdings of Government securities were substantially
in excess of the amount of their securities that were redeemed.
In those weeks (and also the weeks ended March 27 and May
8) the reporting member banks sold securities to meet their
reserve requirements, and the Reserve Banks bought securities
to maintain the stability of the market and to supply needed
reserves to member banks. In general, other investors, includ­
ing nonreporting commercial banks, bought securities in
March to replace redeemed securities, but sold securities in
April while the reporting member banks were buying.
The retirement of 2 billion of Treasury certificates on June




Changes in the Ownership of the Ptiblic Debt*
(Cumulative weekly from February 27, 1946)
BILLIONS
OF D O L L AR S

* Total interest-bearing debt exclusive o f special issues and Savings notes.

1 will probably involve only minor strain on bank reserves.
Redemptions of these securities held by the Reserve Banks
will probably be largely offset by a reduction in the Treasury’s
balance with the Reserve Banks, so that little net withdrawal
of funds from commercial banks will occur. The June 1 certifi­
cate was issued during the Seventh War Loan drive and is
widely held, the latest Treasury figures showing that more than
60 per cent of the total was owned by nonbank investors at
the end of February. Some of these investors, including non­
bank corporations, may use the proceeds o f the redeemed
securities to pay quarterly instalments on their income taxes
due June 15 or for other business purposes, but an unexpect­
edly large proportion of the holdings of such investors were
offered in exchange for the new issue of certificates. Never­
theless, the proportion of redeemed June 1 certificates that will
come out of commercial bank portfolios is likely to be smaller
than in the case of previous redemptions of Treasury cer­
tificates.
N EW C O R PO R A TE FIN A N C IN G
The volume of new corporate security issues offered has
been well sustained in recent months despite the irregularity
in bond prices. Successive new monthly peaks for the year,
of 660 and 850 million dollars, were reached in April and
May, respectively. Flotations of new bond issues were at new
high levels for the year, but the totals might well have been
still larger were it not for unsettlement in the bond market.
Stock financing also was in large volume. Securities issued for
the purpose o f expanding working capital and plant and
equipment accounted for approximately 45 per cent of all
corporate offerings in April and 21 per cent in May, and were
well above the levels of the corresponding months of 1945.
"New money” issues in April were highest since August 1941.
The total of refunding issues in April and May 1946, taken
together, was about the same as in the corresponding months
of 1945.

FEDERAL RESERVE BANK OF NEW YORK

Unsettlement in bond prices started early in April among
Government securities and then spread to municipal and cor­
porate obligations. The recession in prices adversely affected
the distribution of new corporate bond offerings. In a number
of instances, new issues sold in the open market at a discount
of a point or more from offering prices. Weakness was
especially evident among new railroad issues where distribution
to the public was interrupted, not only by the decline in quota­
tions on outstanding securities, but also by other factors
affecting the railroads, including the coal strike and the
threatened railroad stoppage, as well as prospects of higher
wages, and of a delay in obtaining higher freight rates.
The weakness in prices led to the postponement of some
new issues and also to lower bids on securities offered to
underwriters on a competitive basis and to lower prices (or
higher yields) on reofferings to the public. Terms of a
number of new securities were modified so as to make them
more attractive to investors, and in one case, the coupon rate
was advanced above that originally contemplated.
Substantial changes occurred in the new issue market with
respect to types and purposes of new issues in the first five
months of 1946, as compared with the same period in the
preceding year. Although the total volume of new issues in
the 1946 period ( IVi billion dollars) was only 22 per cent
larger than in the corresponding five months of 1945, the
amount of new securities offered for expansion purposes rose
more than 90 per cent while refunding issues increased 5 per
cent. Total new stock issues exceeded 900 million dollars, or
2 1/2 times the preceding years figure, while bond financing
fell off about 6 per cent. Securities floated by industrial cor­
porations were twice as large in the aggregate this year (to
the end of May) as last year, while financing by railroads and
public utility companies dropped about 25 and 10 per cent,
respectively. Changes in the percentages of total new issues
accounted for by new capital financing, by industrial securities,
and by stock issues between the first five months of 1945 and
1946 are summarized in the following table.
1945

New ca p ita l.......................
Industrial ...........................
Stock ..................................

A major factor in the expansion of stock financing has been
the rising trend in equity security prices, which up to
February of this year had been in progress for more than three
years and has greatly stimulated investor interest in new stock
issues. New offerings have been so well received that the
shares have quickly sold at substantial premiums above issue
prices, and profits in the so-called "free rides” have been large.
The extent of the profits that could have been obtained
through "free rides” in new stock issues is indicated in the
accompanying table. For 65 common and preferred stock
issues placed in the first four months of 1946, investors pur­
chasing at the issue price could have liquidated their securities
on or near the date of offering with an average profit of more
than 5 per cent. Proportionate gains were much larger on
common stock issues than on the preferred issues which were
usually higher priced, indicating a greater demand for the
more speculative securities in the low price range. In general,
lower priced issues, common or preferred, advanced more
rapidly than the higher priced ones.
However, for the 39 new common and preferred issues for
which market quotations were available, prices reached by the
close of the date of offering were higher, on the average, than
New Corporate Issues of Stocks and Bonds
(Three-month moving averages placed at third month)
M IL L IO N S
OF D O L L A R S

31
51
36

New capital financing, which had increased steadily during
the second half of 1945, totaled over three fourths of a billion
dollars in the first five months of 1946, the largest volume for
any similar period since 1931. Nevertheless, while the demand
for capital has grown substantially since the end of the war,
the volume of new capital issues remains small in relation to
gross national product or any other measure of business activity.
To a large extent, however, capital needs have probably been
met out of corporations’ own cash or other liquid resources.
Most of the expansion over last year in new money issues
was in securities of industrial corporations, especially those
engaged in certain categories of manufacturing where recon­




version problems are more pressing than among other types
of issuers. Industrial issues also accounted for more than half
the total, including refunding, reflecting not only the expansion
in industrial securities but also a reduction in public utility and
railroad refundings.
Investment bankers sold more than 900 million dollars of
common and preferred stocks in the first five months of 1946,
the largest sum for any comparable period since 1930. While
a sizable proportion of the new stock issues were for refunding
purposes, chiefly preferred stocks with lower dividend rates,
a larger part consisted of "new money” offerings. In fact, close
to 70 per cent of the new capital issues took the form of stocks.

1946

20
30
17

51

S ource: Commercial and Financial C hronicle; A pril and M ay 1946 esti­
mated by Federal Reserve Bank o f N ew York.

MONTHLY REVIEW, JUNE 1946

52

Ratio of Market to Issue Price of New Stock
Flotations on Date of Offering*
(In p er ce n t)
Type and price of shares

Ratio

C om m on....................................................................................................
Under $25........................................................................................
Over $25...........................................................................................

109.6
111.8
103.8

Preferred...................................................................................................
Under $100......................................................................................
Over $100.........................................................................................

103.3
107.0
102.5

Comm on and preferred.........................................................................

105.3

,
Data cover 65 new issues (23 common and 42 preferred) of 1 million dollars
, ^ or more offered from January through April 1946, for which market quoJ jfilLtations were available. Weighted averages computed by the Federal Reserve
_ ^ B a n k of New York.

two weeks or a month later. The average market price was
106.5 per cent of offering price on the date of offering,
104.1 per cent two weeks later, and 103.9 per cent a month
later. Owing to the irregularity of stock prices in this period
(January-April 1946), however, it is not certain whether
those who bought the new issues in the market on the offering
date and held them for a month after acquisition fared any
better or worse, on the whole, than those who acquired out­
standing securities. It appears that market prices of new stocks
issued in the early part of the period increased more in the
month after issuance than did the general level of outstanding
stocks (or fell less in a period of falling prices). In the latter
part, particularly for new flotations toward the end of February
and in March, the reverse held true, with new issues showing
lesser gains or greater declines than the general market level.
In most of the cases tabulated by this bank, however, pur­
chasers who acquired new stock issues at the offering prices
had "paper profits” one month after issue date, and in a smaller
majority of cases, the premiums exceeded the rise in prices of
outstanding issues.
SAVINGS AN D LO AN ASSOCIATIONS IN
N EW Y O R K STA TE
Although the first savings and loan association1 in this
country was founded in Philadelphia in 1831, it was not until
1848 that a similar institution was organized in New York.
After that date, however, the number here increased rapidly
and in 1851 the State legislature passed the first law recog­
nizing this development and authorizing the incorporation of
"Building, Mutual Loan and Accumulating Fund Associa­
tions.” These early societies were patterned after the English
building and loan associations which were small mutual in­
stitutions organized for the specific purpose of assisting their
members to finance the purchase or building of homes. They
were founded with the idea that they would be terminated as
soon as each member had acquired a home or after a certain
number of years.
As these associations grew and developed considerable
change occurred in their character and operating principles.
The advantages of a permanent organization and greater flex­
ibility in their membership were very soon recognized, and




while home financing has remained one of their primary
functions, their role as savings institutions has been increas­
ingly emphasized and today their position in our economy is
somewhat analogous to that of the mutual savings banks. A
member still technically buys shares in an association which
he may resell to the association when he wishes to withdraw
his savings. But for all practical purposes the purchase of
shares amounts to a time deposit. Most of these associations,
like the savings banks, ordinarily waive their right to a period
of notice before withdrawal.
This development made necessary a greater degree of liquid­
ity in their investment position or some means of rediscount­
ing their mortgage loans in case of sudden and heavy with­
drawals. In 1914 the New York State Legislature took a
pioneering step in establishing the Land Bank of the State
of New York2 which was designed to provide rediscount fa­
cilities for savings and loan associations in the State. Mem­
bership in the Land Bank was and is voluntary. Its own cap­
ital was raised through the sale of shares to member institu­
tions and of its obligations to the public. The idea did not
meet with immediate or widespread favor, however, and for
a number of years only a small proportion of the States sav­
ings and loan associations joined.
The economic crisis of the 1930’s and the plight of many
home owners unable to meet their mortgage payments and of
savers unable to withdraw their funds led to the passage of
the Federal Home Loan Bank of 1932 and the Home Owners’
Loan Act of 1933. The latter provided for the Federal
chartering of new savings and loan associations and the con­
version of State associations to Federal charter. The Federal
associations were required to become members of the Federal
Home Loan Bank System. In 1935 the Federal Savings and
Loan Insurance Corporation was organized to insure savings
and loan association shares up to $5,000 per account. Insur­
ance was made compulsory for the Federal associations and
voluntary for State institutions. At the end of last December
65 of the 240 savings and loan associations in New York State
held Federal charters. Seventy-seven State associations were
members of the Federal Home Loan Bank System of which 50
were insured. Close to 75 per cent of the State associations
were also members of the Savings and Loan Bank of the State
of New York.
The assets and the private share capital of the savings and
loan associations increased very rapidly during the war period
along with those of all other types of banking institutions.
At the end of 1945 savings and loan associations in New
York had about 775 thousand members or shareholders, and
assets of 729 million dollars compared with 422 million in
1 These associations are also sometimes called building and loan
associations or cooperative banks, but the term savings and loan asso­
ciation which is becoming more widespread throughout the country
today is used in this article.
2 In 1932 its title was changed to Savings and Loan Bank of the
State of New York.

53

FEDERAL RESERVE BANK OF NEW YORK
P riv a te R ep urch asable Share Capital o f S a v in gs and L oan A sso cia tio n s,
D ep osits o f M u tu al Saving's B an ks, and T im e D ep osits o f M em ber
Banks in N ew Y o r k State, 1 939-45
(In m illions o f d olla rs)

December 31
1939.....................................
1940.....................................
1941......................................
1942.....................................
1943.....................................
1944......................................
1945.....................................

Share capital of
savings and loan
associations
323
354
378
394
442
521
628e

Deposits of
savings banks

Time deposits
of all
member banks*

5,599
5,688
5,555
5,574
6,174
7,122
8,292

1,606
1,684
1,731
1,706
1,987
2,417
3,003

* Individuals, partnerships, and corporations.
Estimated by the Federal Reserve Bank of New York.
Source: New Y ork State Banking Department, Federal H ome Loan Bank
Administration, Savings Bank Trust Company , and Board of Gover­
nors of the Federal Reserve System.
e

December 1939. The Federally chartered associations ex­
panded much more rapidly in this period than State institu­
tions and now hold nearly 50 per cent of the total assets of
all savings and loan associations in the State.
The total assets of savings and loan associations as a group
are still small in comparison with deposits of mutual savings
banks or the time deposits of individuals, partnerships, and
corporations in the commercial banks, as the accompanying
table indicates, but showed a much larger proportionate growth
over the war years than did the State’s mutual savings banks.
This development may in part be attributed to the fact that
the savings and loan associations are fairly well distributed
throughout the State, with large associations in the Upstate
war production centers of Niagara Falls and Rochester, while
the savings banks are more largely concentrated in New York
City where deposit growth lagged during the war. Also, in
contrast to savings banks and commercial banks which lost
deposits in 1941 and 1942, savings and loan associations did
not experience any net decrease in share capital ( although the
rate of increase did slacken) when many people drew down
their accounts at savings banks to purchase consumers’ durable
goods or Savings bonds. The repurchase ratio or the ratio of
withdrawals to new deposits for Federal associations in New
York, for example, was 85 per cent in 1942 and 52 per cent in
1944 compared with 105 and 63 per cent, respectively, for sav­
ings banks. The bonus paid by many associations on so-called
instalment shares, that is, regular deposits against which no
withdrawals are made over a long period of time (a practice
not followed by either the savings or commercial banks), may
at least partly account for this development.
The major portion of the assets of savings and loan associa­
tions have been traditionally invested in mortgages; at the end
of the 1920’s close to 90 per cent of their assets were in mort­
gage loans. But in succeeding years, as the result of the depres­
sion, the number of mortgages available declined and by
the end of 1939 the proportion of their assets invested in first
mortgages was down to 75 per cent. Wartime restrictions on
building and remodeling reduced this ratio to an estimated 60
per cent by the end of 1945. But these restrictions have not
had as great an effect on the mortgage portfolios of the savings
and loan associations, which concentrate on home loans, as they




have had on those of the savings banks. The outstanding
mortgage investments of the latter institutions have declined
every year since 1940. First mortgage loans of the savings and
loan associations, however, while they showed virtually no net
change in 1942 and declined slightly in the following year,
showed substantial increases in 1944 and particularly 1945 as
the result of the accelerated activity in real estate markets and
the rising trend of urban real estate prices. The higher prices
are reflected in the fact that in 1939 the average size loan
made by State associations was around $2,600; in 1943 it was
$3,000; and by 1945 it had risen to $3,600.
The wartime improvement in general business conditions
and incomes and the acute housing shortage made it possible
for the savings and loan associations to reduce greatly the ratio
of their mortgage loans in default and to dispose of most of the
real estate they had acquired through foreclosure proceedings.
The proportion of mortgages in default to total mortgages held
by State associations declined from 15 per cent in 1939 to 1.5
per cent by 1945, while the amount of real estate owned by
both Federal and State associations declined from about 9 per
cent of total assets to a negligible figure.
Because of the rapid increase in their available funds and
the limited mortgage volume, the savings and loan associations,
like other banking institutions, invested an increasing propor­
tion of their assets in Government obligations. As the accom­
panying table shows, their holdings of these securities rose
from an estimated 9 million to an estimated 218 million
dollars during the six war years. During the Victory Loan
drive the associations borrowed heavily to purchase drive
issues in anticipation of a further rise in their investable funds.
These purchases are reflected in the very large increase in their
holdings of Government obligations during 1945.
In the mortgage field the savings and loan associations face
keen competition from other lenders. The volume of home
mortgages has been rising, however, since the housing shortage
is forcing many people, who would not otherwise do so, to
purchase homes. The anticipated increase in home building
will increase the demand for mortgage funds. The volume of
loans made by these associations in the first quarter of 1946 is
estimated to have exceeded all previous records.
In the past, savings and loan associations with relatively low
operating expenses and good profit records have usually been
A ss e ts o f S avin gs and L oan A ss o cia tio n s in N ew Y o r k S tate, 1 939-45
(E n d o f ye a r fig u re s ; in m illions o f d o lla rs)
Assets

1939

1941

1943

1944

First mortgage loans......................

325
4
8
37
9*
11*
22
6

379
3
10
27
13*
11*
26
7

374
2
8
14
73
11
37
6

396
1
6
8
143
10
34
6

446
1
4
5
218
12
37
6

476

525

604

729

Real estate sold under con tract. .
Real estate owned...........................
U. S. Government securities.........
Other investments...........................
Cash on hand...................................
Total

422

1945e

e Breakdown of total estimated b y Federal Reserve Bank of New York.
* Breakdown between U. S. Government securities and other investment
estimated.
Source: New York State Banking Department and Federal H ome Loan
Bank Administration.

54

MONTHLY REVIEW, JUNE 1946

able to pay dividends to their members at a rate well above the
interest paid elsewhere on savings deposits. But during the war
the competition for the available supply of mortgages, changes
in the composition of assets, and the decline in the general
level of interest rates reduced their rates of earnings consider­
ably. The growing proportions of Government obligations in
their investment portfolios have meant a reduction in the
average return on earning assets, and the average rate of in­
terest in effect on the mortgage loans of State associations
declined from 5.68 per cent in the fall of 1939 to 5.07 per cent
in 1945 and the average rate charged on new loans in the latter
year to 4.98 per cent. Operating expenses have increased
roughly in proportion to the rise in total assets. The average
rate of dividends paid by the associations, therefore, has had to
be reduced, the ratio for State associations declining from
about 3.3 per cent in 1939 to 2.45 per cent in 1945 and for
Federal associations last year to 1.74 per cent.
The ratio of undivided profits to total assets rose from 2.4
per cent at the end of 1939 to 3.4 per cent in 1943, but subse­
quently declined slightly. Reserves and surplus have just about
kept pace with the growth in assets and at the end of 1945
were equal to about 4 per cent of total assets.
IN T E R N A T IO N A L LEN DIN G SINCE TH E
END OF H OSTILITIE S
Since the middle of 1945, the principal creditor nations
have made advances to foreign countries, or completed negotia­
tions for such advances, totaling more than 10 billion dollars.
Of this aggregate, over 6 billion represents credits actually
extended; the remainder consists of contracts negotiated but
not yet formally signed or ratified. These amounts do not
include the loans by individual countries which are still in
course of negotiation. Of the 6 billion dollars of postwar loans
actually consummated to date, the United States alone accounts
for over 4 billion dollars, including credits granted to the
United Kingdom, France, and other countries for the settle­
ment of lend-lease and other war accounts and for the pur­
chase of United States surplus property abroad.
This network of foreign lending is predominantly intergov­
ernmental in character. It includes outright loans, granted as a
rule directly by the Treasury or other government agency of
the lending country to the government of the borrowing coun­
try, as well as the amounts which certain central banks hold of
each other’s currency under the monetary agreements nego­
tiated by their respective governments, the central banks acting
merely as agents.
As to the specific foreign loans that have been extended
since the end of the war, the greater part of the American loans
have been made by the Export-Import Bank, the lending power
of which was increased in July 1945 from 700 million dollars
to 3,500 million. To May 31, 1946, the bank had authorized
loans totaling over 2,100 million dollars, of which 1,870
million is for Europe,1 195 million for Asia,2 and 76 million
for South America. Of the total amount already authorized,




only 169 million had actually been disbursed by the end of
March 1946.
Sizable credits have also been granted by the United States
Government for financing goods contracted for under the
lend-lease procedures but which had not been delivered prior
to the termination of lend-lease. Credit arrangements have
also been negotiated for financing the sale abroad of United
States surplus property. The United Kingdom has obtained
650 million dollars and France 720 million dollars in con­
nection with the settlement of their lend-lease and other
accounts and the purchases of surplus property.
Loans extended by Canada total the equivalent of 1,645
million U. S. dollars, of which 1,125 million are to the United
Kingdom, 450 million to Western Europe,3 54 million to
China, 13 million to the Netherlands East Indies, and 3 million
to the Soviet Union.
Great Britain occupies third place among post-armistice
lenders, but this is due only to the existence of a large unsettled
balance in her favor under the Franco-British financial agree­
ment of March 27, 1945, which expired on February 28, 1946.
France’s sterling debt under that agreement is stated to amount
to the equivalent of 440 million dollars. The only outright
British credits have been one of 10 million pounds sterling to
Greece and credits to Czechoslovakia totaling 6 million pounds
sterling. The mutual overdraft facilities provided for in the
monetary agreements made by Great Britain with Belgium, the
Netherlands, and Czechoslovakia, are expected to result in the
temporary accumulation by the United Kingdom of moderate
amounts of the currencies of these three countries.
Reconstruction and commercial credits extended by Sweden
total the equivalent of 242 million dollars.4 Sweden, in addi­
tion, is to accumulate sterling balances under her monetary
agreement of March 6, 1945 with the United Kingdom. N o
formal limit to the latter has been fixed, but the balances
accumulated so far are believed much larger than Sweden
originally envisaged. Altogether, according to an authoritative
Swedish source, Sweden during the twelve months ending
June 1946 will have loaned to foreign countries approximately
one seventh of her national income.
Switzerland has granted monetary and other credits totaling
the equivalent of 150 million dollars.5 Spain, Portugal, Argen­
1 Of the 1,870 million dollars for Europe, France has received com­
mitments of 1,200 million, the Netherlands 300 million, Belgium
100 million, Norway 50 million, Finland and Poland 40 million each,
Greece 25 million, and Denmark 20 million. The remainder con­
sists of a 95 million dollar cotton credit line to European countries
to finance the purchase of United States cotton.
2 Of which 67 million for China and 100 million for the Nether­
lands East Indies.
3 Of which 218 million to France, 112 million to the Netherlands,
91 million to Belgium, 17 million to Czechoslovakia, and 12 million
to Norway.
4 Of which 70 million dollars to Norway, 57 million to Finland,
29 million to Denmark, 24 million each to Belgium and Poland, 18
million to the Netherlands, and 20 million to other countries.
5 Of which 60 million to the United Kingdom under the monetary
agreement of March 12, 1946, 58 million to France, 18 million to
the Netherlands, 12 million to Belgium, and 1 million each to Czecho­
slovakia and Norway.

FEDERAL RESERVE BANK OF NEW YORK

tina, and other South American countries have likewise ex­
tended sizable commercial and monetary credits to Western
Europe.
So far there have been only a few cases of commercial bank
participation in postwar foreign lending. In the United States,
commercial bank credits of 100 million and 16 million, respec­
tively, were extended to the Netherlands and Norway last year,
and arrangements have been made to allow commercial banks
to participate in the new 200 million dollar Export-Import
Bank loan to the Netherlands of March 1946. In Switzerland a
group of large commercial banks has reportedly participated to
a somewhat greater extent in loans to foreign governments.
Under the very first postwar arrangement of this kind, a British
bank extended a one million pound revolving credit to a group
of nationalized Czechoslovakian commercial banks under the
guarantee of the National Bank of Czechoslovakia. Such in­
stances, however, remain relatively rare.
In terms of the recipient countries, the distribution of post­
armistice foreign borrowing may be summarized as follows:
Of the 6 billion dollars that has already been loaned, about 5
billion has gone to Western Europe, including more than
1.8 billion to the United Kingdom. The remainder is dis­
tributed between Eastern and Mediterranean Europe (about
370 million), Russia (400 million), Asia (about 300 mil­
lion ), and Latin America (76 million).
The following table shows the sources from which the prin­
cipal European borrowers have obtained their postwar financial
assistance. The creditor countries are listed under the name of
each borrowing country in the order of size of the amounts
received from them. Where the amounts are known, they are
given in millions of dollars.

Canadian credit.

55

Second in size is the 650 million United

States credit for settlement of lend-lease and other claims.
The remainder represents a rough estimate of the sterling
holdings that Sweden and Switzerland agreed to accumu­
late under their monetary agreements with the United King­
dom.

Although no formal limitation to this sterling debt

was stipulated in the Anglo-Swedish monetary agreement, the
Anglo-Swiss agreement of March 12, 1946 limited the Swiss
obligation to accept sterling to 5 million pounds sterling, "plus
such additional sum as may be determined by the contracting
governments in the light of the estimated balance of payments
between the sterling area and Switzerland.” The Bank of
England has stated that the upper limit of such "additional
sums” is estimated at 5 million pounds sterling for the first
year, and a further 5 million for the second, making with the 5
million of basic credit an aggregate of 15 million pounds.
In addition, the United Kingdom is to receive, under the
financial agreement now pending before Congress, a United
States Government credit of 3,750 million dollars for the
financing of necessary imports during the transition period.
Borrowing by the U.S.S.R. has consisted almost entirely of
the American " 3 ( c ) ” lend-lease loan of 400 million dollars,
plus a small Canadian loan. A Russian application for a one
billion dollar loan is reported to be on file with the United
States Government, and preliminary negotiations concerning
such a loan are reported to have taken place.
As a rule, the post-armistice credits have been "tied” loans,
utilizable only for exports from the creditor to the borrowing
country; bilateralism is thus a conspicuous commercial policy
feature of the post-armistice network of international lending.

K now n P o s t-A rm istice F oreig n B orrow in g o f C ertain E uropean C ountries*
(In m illions o f d olla rs)

In the case of the British monetary agreements with Western
Europe, however, the sterling which the British agree to make

France

United Kingdom

Netherlands

U.S.S.R.

Belgium

U .S ............ 1,920
U. K ........... 440
Canada....... 218
Switzerland. 58
Argentina...
36

Canada___1,125
U .S........... 650
Switzerland 60
Sweden___
f

U .S .............400
Canada........112
Switzerland.. 18
Sweden........ 18
U. K ............ f

U .S ....... 400
Canada.. 3

U .S .............100
Canada........ 91
Sweden........ 24
Switzerland.. 12
U. K ............ f

Total

Total

Total........... 550

T otal... .403

2,700

1,850

Total........... 230

available is utilizable throughout the sterling area. In contrast
to the above types of lending, the proposed American credit to
the United Kingdom is fully multilateral in conception and
implementation; its proceeds may be spent for British pur­
chases of goods and services not only in the United States but

* Because of the nature of the^data, the aggregates shown are approximate and subject
to revision,
t Not available.

Of the aggregate of 2.7 billion of credits received by France,
1.9 billion has been granted by the United States. In addition
to the 550 million Export-Import Bank loan arranged in
September 1945, France was granted, under an agreement
concluded on May 28, a further credit of 650 million fiom
the Export-Import Bank, as well as the 720 million credit for
settlement of lend-lease, reciprocal aid, surplus war property,
and other claims referred to above.
The major item in the total credits of 1,850 million dollars
received by the United Kingdom to date is the 1,125 million




in other countries as well. Together with the underlying Pro­
posals for Expansion of W orld Trade and Employment, the
Anglo-American financial agreement is an attempt to restore
international lending and world trade to a multilateral basis
and thus preserve the economic unity o f the world. Because of
its size, terms, and implications, therefore, the proposed Amer­
ican credit to Britain is the keystone of the post-armistice net­
work of international lending. The restoration of a multi­
lateral, nondiscriminatory trading system which it envisages is
a prerequisite to the successful implementation of all of the
international financial and monetary agreements achieved so
far.

56

MONTHLY REVIEW, JUNE 1946

D E P A R T M E N T STORE TR A D E
Department store sales in May in the Second Federal
Reserve District are estimated at 102 million dollars, a slight
increase over April, and about 50 per cent greater than sales
in May 1945. The seasonally adjusted index declined in
April from the record high established in March, but it is
expected that the adjusted index for May will equal or exceed
that of March. Sales in the Second District for the first four
months of 1946 have shown a greater gain over the same
period in 1945 than has the United States total. Thus this
District is gradually regaining its position in the country’s
total department store sales after a marked decline of its per­
centage share during the early war years. The Second District
seasonally adjusted index of department store sales for April,
however, was still more than 10 per cent below the comparable
index for the country as a whole.

D ep artm en t and A p parel S tore Sales and S tock s, Second F ederal
R eserv e D istrict, P ercen tag e C hange from the P reced in g Y ea r
Net sales
Locality
April 1946

Stocks on
Jan. through
hand
April 1946 April 30, 194C

Department stores, Second D istrict___

+59

+30

+12

New York C ity ......................................
Northern New Jersey...........................

Syracuse .............................................
Northern New York State..................
Southern New York State...................
Bingham ton........................................
Elm ira..................................................
Western New York S tate....................
B uffalo.................................................
Niagara Falls......................................
R ochester............................................

+ 61
+63
+62
+69
+63
+66
+65
+58
+65
+ 49
+56
+53
+50
+57
+54
+51
+57
+42
+51
+53
+35
+ 51

+31
+32
+ 31
+30
+25
+30
+30
+32
+50
+13
+27
+20
+17
+30
+30
+ 23
+27
+15
+24
+26
+ 8
+24

h ll
(-15
-16
b23
[-26
bl6
+20
+23
+ 26
+22
+ 6
+16
+ 9
0

Apparel stores (chiefly New Y ork C ity ).

+55

+28

+ 13

Westchester and Fairfield Counties. .
B ridgeport..........................................
Lower Hudson River V alley...............
Poughkeepsie..........................................
Upper Hudson River V alley...............
A lb a n y.................................................
Schenectady........................................
Central New York S tate.....................
Mohawk River V alley.....................

Indexes of Department Store Sales, United States and Second
Federal Reserve District* (1935-39 daily averages 100
per cent; adjusted for seasonal variation)

—

+15
+ 19
+ 13
+ 13
+ 16
+13
+ 7

Indexes o f D epartm ent S tore Sales and S to ck s
S econd F ederal R e serv e D istrict
(1 9 3 5 -3 9 a vera ge = 100 p er ce n t)
1945

1946

Item
April

Feb.

March

April

Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..

143
150

174
210

206
232

219
219

Stocks, unadjusted............................................
Stocks, seasonally adjusted............................

162r
160

156
166

171
170

182
180

r Revised.
Indexes o f B usin ess

Index

1946

1945
April

Industrial production*, 1935-39 = 100.........
(Board of Governors, Federal Reserve
System)
Electric power output*, 1935-39 = 100........
(Federal Reserve Bank of New York)
1939
1940
1941
1942
1943
1944
1945
1946
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank of New York)
*
Plotted on ratio scale to show proportionate changes. Index for United Sales of all retail stores*, 1935-39 = 100........
States preliminary fo r April 1946.
(Department of Commerce)
Factory employment
United States, 1939 = 1 00 f.........................
(Bureau o f Labor Statistics)
Department store stocks in this District have not paralleled
New York State, 1935-39 = 100................
(New York State Dept, of Labor)
the rise in sales but were 12 per cent higher at the end of
Factory payrolls
United States, 1939 = lOOf........................
April 1946 than on the same date last year, and only slightly
(Bureau o f Labor Statistics)
New York State, 1935-39 = 100................
below the estimated dollar volume of stocks at the end of
(New York State Dept, of Labor)
April 1942 when they were approaching an all-time peak. Income payments*, 1935-39 = 100...............
(Department o f Commerce)
The ratio of stocks to sales for April remained at 2.2 months’ Wage rates, 1926 = 100....................................
(Federal Reserve Bank o f New York)
supply at the April rate of sales, unchanged from March.
Consumers’ prices, 1935-39 = 100.................
(Bureau
Statistics)
A seasonal decline in outstanding orders in April reduced Velocity of of Labor deposits*, 1935-39 = 100
demand
(.Federal Reserve Bank of New York)
the estimated total to about 260 million dollars, which, how­
New York C ity ..............................................
Outside New Y ork C it y ..............................
ever, is more than a fifth higher than the amount of orders

outstanding a year ago. The ratio of stocks plus orders to sales
declined from 5.2 in March 1946 to 4.7 in April.




Feb.

March

April

230r

152r

168

164p

207

185

190

19 lp

248

188

203p

175

235

232p

163

122

130

135p

141

112

117

124p

333

210

233p

284

206

229

242

232

232p

170

171

174 p

127

130r

130

131p

91
79

91
81

100
80

76
73

* Adjusted for seasonal variation.
p Preliminary.
f Series revised beginning January 1944.

245p

r Revised,

FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, JUNE 1946

National Summary o f Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System)
output declined somewhat in April and the early part of May owing to the
coal strike. Employment in the economy as a whole, however, continued to expand in
April. The value of retail trade was maintained at record levels and commodity prices
rose further.
NDUSTRIAL

I

In d u s t r i a l P r o d u c t i o n

Indexes of Physical Volume of Industrial Produc­
tion, Adjusted for Seasonal Variation, 1935-39
Average —100 Per Cent (Groups shown are ex­
pressed in terms of points in the total index)

Employment in Nonagricultural Establishments.
Bureau of Labor Statistics’ Estimates, Adjusted
for Seasonal Variation by Board of Governors.
“ Other” Includes Transportation, Public
Utilities, Finance, Service, and Miscella­
neous. Proprietors and Domestic
Workers Excluded

The Board’s seasonally adjusted index of industrial production declined 2 per cent in
April and was at 164 per cent of the 1935-39 average. The drop in coal output after April 1
and the resultant curtailment in operations in some industries were offset in part by substantial
increases in activity in the automobile and electrical machinery industries following settlement
of wage disputes in the latter part of March.
Production of durable manufactures as a group rose 3 per cent in April. Iron and
steel production declined about 6 per cent; decreased output of pig iron and open hearth and
bessemer steel was partly offset by a sharp rise in electric steel production. In May activity
at steel mills continued to decline as a result of coal shortages and during the past two weeks
has averaged only about 50 per cent of capacity.
The number of passenger cars and trucks assembled in April was 80 per cent greater
than in March, and there also were substantial increases in activity in the railroad equipment
industry and in output of many types of electrical equipment. Production of lumber and
stone, clay, and glass products was maintained at the March level, which was above the same
period last year.
Output of most nondurable goods was maintained in April at about the March level.
Activity at cotton mills declined slightly, owing to reduced coal supplies, but output at other
textile mills advanced further. The number of animals slaughtered under Federal inspection
continued to decline sharply in April. Output of flour and bakery products decreased some­
what in April and is expected to decline substantially in May as a result of the stringent
wheat supply situation.
Minerals production declined by a fourth from March to April, reflecting primarily the
drop in bituminous coal output. There was also a further reduction in output of metals,
while crude petroleum production increased in April and early May. On May 13 bituminous
coal production was resumed under a temporary work agreement, and during the week
ended May 18 output was 70 per cent of the pre-strike weekly rate.
Value of construction contracts awarded rose sharply in April, according to reports of
the F. W . Dodge Corporation. The increase reflected a very large expansion in awards for
private residential construction to a record level; awards for most other types of private
construction were maintained at recent high levels.
Em p l o y m

ent

Nonagricultural employment continued to gain in April notwithstanding the bituminous
coal strike, and unemployment decreased by about 350,000. Manufacturing employment
rose by about 400,000 largely because of settlement of major labor disputes, and construction
employment showed a further large gain.
C o m m o d i t y P r ic e s

Price ceilings on grains were increased substantially on May 13 and ceilings for a
number of nonagricultural products have also been raised during the past month. Recent
price increases for industrial products have usually been between 10 and 20 per cent.
Recent advances announced for automobiles were smaller than these amounts but they were
in addition to price increases made earlier this year.
Retail prices of most groups of commodities continued to show small advances in April
and the consumers’ price index increased one-half per cent to a point 3 per cent higher than
in April 1945.
D

Indexes of Wholesale Prices Compiled by Bureau
of Labor Statistics (1926 averages 100 per cent;
latest figures are for week ended May 18)

is t r ib u t io n

Retail sales continued at a high rate in April and the first half of May. During the
past four weeks department store sales have been one-third larger in value than in the
corresponding period of 1945.
Freight carloadings declined sharply in April, reflecting chiefly the drop in coal ship­
ments. Shipments of most manufactured products continued to increase until the week
ended May 18. In that week interruptions in freight service resulted in large decreases in
loadings of manufactured products but bituminous coal shipments were resumed, and total
loadings increased slightly.
B a n k C r e d it

Government Security Holdings of Banks in Lead­
ing Cities.
Excludes Guaranteed Securities.
Data not Available Prior to February 8, 1939;
Certificates First Reported on
April 15, 1942




Treasury deposits declined, reflecting disbursements in excess of receipts, and deposits
subject to reserve requirements increased during April and the first three weeks of May.
Reserve balances increased less than required reserves, and excess reserves declined to about
700 million dollars on May 22. Federal Reserve holdings of Government securities, which
declined substantially in the early months of the year, have increased somewhat since the
middle of April.
Member bank holdings of Treasury bills, certificates, and notes declined in April and
the first half of May, while holdings of Treasury bonds increased further. Loans at member
banks in leading cities declined, reflecting largely reductions in loans for purchasing and
carrying Government securities.
In the latter part of April the Reserve Banks, with the approval of the Board of
Governors, eliminated the wartime preferential discount rate of about one half of one per
cent on advances to member banks secured by Government obligations due or callable in not
more than one year. The regular discount rate on advances secured by Government obliga­
tions or eligible paper remains at one per cent.
Yields of Government securities, which declined in the early weeks of the year, rose
sharply in the latter part of April and early in May.