February 1925 98 FEDERAL RESERVE BULLETIN FEBRUARY, 1925 BRITISH BANKING IN 1924 London clearing banks.—Increased activity bills outstanding declined from £716,000,000 in of industry and trade in Great Britain during September, 1922, to £633,000,000 at the end of the year just ended was reflected in a growth 1924, and it is therefore probable that the of advances at the nine London clearing banks proportion of these bills in the total bill hold- from £757,000,000 in December, 1923, toings of the clearing banks is now smaller than £811,000,000 in November, 1924. This in- 28 months earlier, and that a correspondingly creased use of bank credit to finance current larger proportion represents commercial bor- operations of British domestic business has rowing. The combined volume of advances, been fairly continuous since the autumn of discounts, and investments of these banks has 1922, and the funds required for meeting this changed relatively little for two years, and demand have been obtained by the London the net change in the volume of their deposits banks largely through the reduction of their has also been comparatively small. Thus it is holdings of investment securities and of dis- evident that the increased demand for credit counted Treasury bills. Between September, for commercial purposes arising from the im- 1922, and November, 1924, investments of the provement in JBritish industry and trade clearing banks declined from £382,000,000 to since the autumn of 1922 has been met by the £307,000,000, and their discounts, in which London clearing banks without an increase in discounted Treasury bills are included, de- their total credit outstanding largely through creased from £296,000,000 to £234,000,000. the sale of investments and the use of funds That Treasury bills are an important element released by the Treasury through the reduction in the discounts of British banks is indicated of the short-term public debt. by the fact that the volume of discounts has The average holdings of cash, including declined sharply during the first quarter of deposits with the Bank of England, have each year, a period when considerable amounts shown a very small decline over the past of Treasury bills have been retired by thethree years, but this has been nearly offset by Government. The total volume of Treasury an increase in " balances with and checks in NINE LONDON CLEARING BANKS MILLIONS OF POUNDS MILLIONS OF POUNDS 1OOO 2000 900 1900 800 1600 700 600 500 1500 Discounts, Advances and Investments 4OO 1400 300 1300 200 1200 1100 1000 1921 1922 1923 1924 1921 1922 1923 1924 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis February 1925 FEBRUARY, 1925 FEDEKAL RESERVE BULLETIN 99 course of collection on other banks in Great out the year had averaged above 1923, prac- Britain and Ireland/' The course of the tically to its legal maximum and necessitated principal items in the monthly statement of the transfer of £4,500,000 from the banking the nine London clearing banks for the years department to the currency note reserve. 1921 to 1924 (November) is shown in the chart. This permitted the issue ot an equivalent Bank of England.—At the Bank of England, amount of currency notes of smaller denomi- as at the commercial banks, the tendency nations without aiiy increase in the total cir- during the period since the autumn of 1922 culation figures, but it reduced the amount of has been toward a smaller use of credit by notes in the banking department's reserve to the Government, as reflected by a downward £18,190,075 on December 31, and, combined trend of Government securities and public with the usual year-end rise in deposits, deposits, and toward an increased volume of brought the reserve ratio down to 11.5 per accommodation to business concerns, indi- cent, the lowest in three years. The chart cated by a gradual growth, with fluctuations, shows the principal items in the Bank of Eng- in the volume of other securities and of other land statement for the period, 1921-1924. deposits. Money rates.—As a result of the increased The total volume of circulation, including demand for bank credit for commercial pur- both bank and currency notes, was slightly poses, interest rates in the London money market advanced during 1924, the rate on 90- MILLIOMS OF POUNire MILLIONS OF POUNDS 160 160 day bills rising in midsummer from 3 per cent to Z% per cent. Bank rate, however, remained unchanged at 4 per cent since July 140 4, 1923. The upward movement of money rates in London at a time when interest rates in the United States were declining made the 120 level of rates in England higher than in the 100 MONEY RATES IN NEW YORK AND LONDON 1921 1922 1923 1924 greater in 1924 than in 1923, and there is reason to believe that the amount in effective use was further augmented by a return flow of British currency from the Continent. The total issue of bank notes increased during the year by about £500,000, accompanied by a similar gain in gold holdings. Between July and the middle of November, however, nearly 1921 1922 1923 1924 £6,000,000 was added to the notes of the bank- United States, as is shown by the chart. This ing department, raising this from £18,392,235 differential led to a flow of funds from New on July 2 to £24,182,915 on November 19. York to London and was an influence in The requirements of Christmas trading diverting a large volume of foreign borrowing carried the currency note issue, which through- from the London to the New York market. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis.