Loans on real estate and farm lands by national banks having no time deposits.... Necessity of new Clayton Act application where director has resigned from and again is elected Charters issued to national banks.___. Estimate of production of crops, by Federal reserve districts... Industrial statistics in the United States...... Wholesale and retail trade______ Industrial statistics for foreign countries.. Foreign trade of principal countries.___. Financial statistics for principal foreign countries.... Price movements in principal countries: Federal Reserve Board wholesale price indexes...... Comparative wholesale prices in principal countries.. Comparative retail prices and cost of living in principal countries... Banking and financial statistics: Condition of Federal reserve banks.... Condition of member banks in leading cities... Bankers' balances at reporting member banks in Federal reserve bank cities.. Changes in membership in the Federal reserve system........ Deposits of all member banks............. Condition of all banks in the United States on October 10, 1924... REVIEW OF THE MONTH Growth in the volume of Federal reserve bank credit during the last five months has been sufficient to offset the debank cline in the earlier part of the year, and has brought the earning assets of the reserve banks at the close Growth of reserve credit. No. 1 member banks, which began several months earlier and which was more rapid during the spring and summer, when industrial activity was relatively slack and balances were accumulating at the banks. These balances, inactive during the summer, strengthened the cash position of business concerns and were available for current use as business activity increased. of the year to about the same level as at the end During the earlier part of 1924, a period of of 1923. Increased use of reserve bank credit in recent months has been for the purpose of meeting the larger demand for currency, partly seasonal in character, and of furnishing member banks with reserve balances necessary to support the growth of their deposits. In the first half of 1924 the decrease in the demand for reserve bank credit reflected in part the large volume of gold imports, while in the second half of the year gold imports were relatively small, and in December there was a net outward movement of gold for the first time in four years. With the reduced amount of gold coming in from abroad, the larger demand for currency and for reserve balances has resulted in an increased demand for reserve bank credit and a consequent growth of the earning assets of the Federal reserve banks. Between the first of August and the first of December total money in circulation increased Currency and by about $330,000,000, a conbank deposits. siderably larger increase than for the corresponding period of either 1923 or 1922. The larger demand for currency has been in response, in addition to seasonal influences, to an increase in pay-roll requirements of industrial establishments, with the increase in their activity, and to a larger volume of business at a somewhat higher level of prices. The growth in the volume of money in circulation has been accompanied by a continuation of the increase in demand deposits of business recession, deposits accumulated at the volume of money in circulation declined. the banks but were relatively inactive, and More recently, with the revival of business there has been a growth in the volume of payments by check, and this increase in the by a growth in hand-to-hand currency, as use of deposit currency has been accompanied shown by the increase in the volume of money in circulation. A larger demand for currency to meet payroll, till-money, and pocket-money requirements leads to a larger demand for reserve bank credit, since, as has been frequently pointed out, when the public requires Currency demand and the reserve banks. currency the member banks are under the necessity of borrowing from the reserve banks the full amount of the currency paid out, while balances need to be increased on the average when the demand is for deposit credit, reserve by only one-tenth of the increase of deposits. Changes in the demand for currency are reflected in fluctuations of the demand for reserve bank credit and the elasticity of the currency system rests upon the fact that at times of decreasing currency demand the reserve banks absorb the redundant currency when it flows back to the banks, and that at times of growing demand additional currency is furnished by the reserve banks. Under this system the responsiveness of the volume of hand-to-hand money to changes in the public's the banks in the interior of the country with a requirements is in no way affected by the kind consequent decrease in their balances with of currency used by the reserve banks in meet- correspondents, while the growth of individual ing the demand, that is, whether they pay out deposits has continued, though at a somewhat Federal reserve notes, gold certificates, or slackened rate. other kinds of money. Increased demand for currency has been met by the reserve banks both through the issue of Federal reserve notes and through the paying out of gold. The effect of this, as seen in the condition statement of the reserve banks, has been that since the middle of the year the volume of Federal reserve note circulation has increased by about $100,000,000, and the cash reserves of the reserve banks have declined by about $275,000,000. Member bank reserves. Reserve balances of the member banks with the Federal reserve banks, which increased by more than $300,000,000 between the end of May and the middle of September and were at that time considerably above any previously recorded figure, are the other factor in the recent increased use of reserve bank credit. Since September the volume of balances has continued, with fluctuations, at this high level. The growth in reserve balances between May and September has supported the large increase in the deposits of member banks and their present volume is partly explained by the fact that the increase was largely in demand deposits rather than in time deposits and that it was chiefly at banks in central reserve and reserve cities, where reserve requirements are higher than for banks outside of these cities. The growth of time deposits, which require only a 3 per cent reserve, constituted but a minor part of the increase of deposits during this period. The rapid increase in demand deposits reflects in part the accumulation of balances by banks in the interior with city correspondents. A growth in bankers' balances increases the total amount of reserves required by member banks because these balances are a duplication of deposits against which more than one bank must hold reserves. The recent revival of business activity and seasonal requirements have resulted in a larger demand for credit at Decline of gold imports. With no net increase in member bank reserve balances since the middle of September the growth in reserve bank credit in use since that time has reflected chiefly the increased demand for currency. When the entire period from the middle of May to the close of the year is considered, however, a larger part of the growth in reserve bank credit outstanding is accounted for by an increase in member bank reserve balances than by the increase in the amount of currency paid out by the reserve banks. Increases during the past six months in requirements for reserve balances at the reserve banks and for currency, in contrast to the conditions in 1923, have come at a time when gold imports were not in sufficient volume to meet these requirements. While for the year 1924 as a whole net gold imports were not materially smaller than in 1923 and larger than in 1922, a large part of these imports came during the first half of the year. In the second half imports were on a much smaller scale, and in December were smaller than gold exports, so that in that month for the first time in four years there was a net export of gold. An important factor accounting for the decline in gold imports is that during the first part of 1924 India was not importing gold and the bulk of the new gold produced, which was somewhat larger in volume than in 1923, together with portions of the reserves of some of the European central banks, came to the United States, while in the latter part of the year India's trade balance was exceptionally favorable and there was a large demand for gold in that country. Much of this gold was shipped direct from South Africa to India, so that the shipments did not appear in the import and export statistics of either the United States or England. While the total amount of gold taken by India in 1924 was but little larger than in 1923, the fact that practi cally the full amount was taken in the second character, as it is at this season of the year that half of the year was a factor in causing gold im- a large volume of American agricultural prodports to the United States to be exceptionally ucts are exported to Europe, giving rise to heavy in the first six months and relatively acceptances and thus increasing the volume light in the latter part of the year. of acceptances outstanding at the time when the crop moving and fall trade demands for credit tend to stiffen money rates and cause acceptance dealers to offer bills to the reserve banks. At the end of 1924 the reserve banks held a somewhat larger volume of acceptances than at the same season a year earlier. During the month of December the stiffening in the open market rates for money led to an adVance in the buying rate for acceptances at the Federal Reserve Bank of New York. Increased purchases of Government securities during 1924 placed funds in the market which were largely used by member banks in the repayment of discounts, with the result that there was a practically continuous decline in the volume of borrowing by member banks. From $800,000,000 in January discounts de Net gold exports in December were also due to the fact that there were in that month considerable exports of gold from the United States to Europe, chiefly to Germany, as the result of withdrawals made by the Reichsbank against the proceeds of the $110,000,000 loan floated in this country. Germany acquired this gold in order to provide a larger basis for note issues by the new Reichsbank, as the new bank law requires a 40 per cent reserve against the new notes, not less than 75 per cent of the reserve to be in gold and the remainder in stable foreign currencies. The withdrawal of gold by Germany, therefore, does not indicate a reversal of the general influences which have brought gold to this country, but is the result of a loan to Germany for the particular pur-clined to about $200,000,000 at the end of Nopose of monetary reconstruction. There have been during the year several other loans to foreign countries floated primarily for the purpose of stabilizing currencies and exchanges, but for the most part the proceeds of these loans have remained in this country and have not led to gold exports. The outward movement of gold in recent weeks is of importance in the present connection chiefly because it has been a factor in the increased demand for reserve bank credit.1 At the end of the year the volume of Federal reserve bank credit in use was about at the same level as a year ago and Earning assets about $500,000,000 higher than of reserve banks. at its low point in the middle of the year. Most of the increase occurred since the beginning of September, and took the form largely of an increase in the holdings of acceptances. The reserve banks' bill holdings, which in the summer months had been as low as $18,000,000, were about $390,000,000 at the end of the year. This increase in acceptance holdings at the reserve banks was partly seasonal in 1 A fuller discussion of gold movements in 1924 appears on page 27 of this issue. vember, and increased to nearly $400,000,000 in December. Another factor accounting for the present relatively low level of discounts has been the liquidation at the reserve banks in agricultural districts. In those sections the farmers have used a portion of the proceeds of this year's crops in the liquidation of accumulated indebtedness, and the member banks have in turn repaid their borrowings at the reserve banks. In some districts this liquidation has been so complete that for several successive weeks member banks in leading cities were entirely out of debt to the reserve bank. credit. While earning assets of the reserve banks have shown no net increase since the spring of Growth of 1922, loans and investments of member bank member banks have increased by about $5,000,000,000 since that time and are at present at the highest level on record. This continuous growth of member bank credit without a corresponding. increase in the use of reserve bank credit has been frequently commented upon in these reviews. During the period, gold imports have been sufficient to supply the increased demand for currency and the increased reserve requirements of the member banks, and consequently these banks have been able to increase the volume of their outstanding credit without making use of a larger volume of reserve bank credit. In 1923 gold imports were sufficient to meet the growing currency demand, and in 1924, with a relatively constant currency demand, the gold by being added to the reserve balances of member banks supported the rapidly growing volume of deposit liabilities of these banks. As their reserve balances increased through the deposit at the reserve banks of imported gold the member banks used the added lending power for the purchase of investments and loans on securities, and the consequent growth of their deposits has been sufficient to require the support of the larger reserve balances. Consequently the member banks have not been in a position with the diminished volume of gold imported, to meet the recent increase in currency demand without a larger use of reserve bank credit. Bank investments. The further growth in the investment holdings of banks represents the continuation of a movement which has been under way for three years and which is reflected both in the present large volume of investments and in the relatively large proportion that security holdings constitute of the total earning assets of banks. In June, 1924, investments constituted 31.1 per cent of total earning assets of all banks in the United States, as against 26.9 per cent in 1920. The table below shows for a series of years the total investments of banks in obligations of the United States Government and in other securities: ALL BANKS IN THE UNITED STATES [Amounts in millions of dollars] Bank holdings of United States Government securities, as shown by the table, have been increasing since 1922, and holdings of other securities since 1921, but the growth of loans has been equally rapid, so that the proportion of bank resources represented by investments has been the same in 1924 as in the two preceding years. Bank holdings of United States Government obligations were larger in June, 1924, than at any previous time with the exception of the spring of 1919, and as a consequence of this growth and the reduction in the total volume of Government securities outstanding the proportion of these securities held by the banks, 22 per cent, was the largest for the six-year period. Since June investments of member banks have continued to increase rapidly, and more recent figures for reporting member banks in leading cities show that these banks increased their investments by about $750,000,000 between June and December, the increase being divided about equally between Government securities and other securities. In view of the large growth of investments by the banks it is of interest to consider the character of these investments in more detail. Information on this point is available for national banks and is presented in the table below: INVESTMENT HOLDINGS OF NATIONAL BANKS 71 End of June Total loans 350 747 772 422 25 total loans total United Government. 117 154 179 62 25 All other securities Total vestments vest ments outstand States securities in invest- ing held ments by banks 1 Includes claims, warrants, judgments, trust notes, etc. Since 1916, prior to the influence of war financ15.4ing, holdings by national banks of all classes 22.0 of investments have increased by $2,790,000,000, |