FEDERAL RESERVE BULLETIN SEPTEMBER 1937 Reduction in Discount Rates Banking Developments in First Half of 1937 Objectives of Monetary Policy Acceptance Practice Statistics of Bank Suspensions BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM CONSTITUTION AVENUE AT 20TH STREET WASHINGTON Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE OF CONTENTS PAGE Review of the month—Reduction in discount rates—Banking developments in the first half of 1937 819-826 Objectives of monetary policy 827 National summary of business conditions 829-830 Summary of financial and business statistics 832 Law Department: Regulation M relating to foreign branches of national banks and corporations organized under section 25 (a) of Federal Reserve Act - 833 Rulings of the Board: Reserve requirements of foreign banking corporations 833 Matured bonds and coupons as cash items in process of collection in computing reserves 833 Appointment of alternates for members of trust investment committee of national bank 834 New Federal Reserve building _• 835-838 Acceptance practice 839-850 Condition of all member banks on June 20, 1937 (from Member Bank Call Report No. 73) _. _ 851-852 French financial measures . _. _: 853 Annual report of the Central Bank of the Argentine Republic. _ _ . _ _ _..._. _ 854-865 Bank suspensions, 1921-1936 866-910 Financial, industrial, and commercial statistics, United States: Member bank reserves, Reserve bank credit, and related items 912 Federal Reserve bank statistics 913-917 Reserve position of member banks; deposits in larger and smaller centers 918 Money in circulation 919 Gold stock and gold movements; bank suspensions; bank debits r 920 All banks in the United States 921 All member banks 922-923 Reporting member banks in leading cities 924-927 Acceptances, commercial paper, and brokers' balances 928 Federal Reserve bank discount rates 929 Money rates and bond yields 930 Security markets 931 Treasury finance 932-933 Governmental corporations and credit agencies; Postal Savings System 934-935 Production, employment, and trade 936-944 Wholesale prices 945 Crop report 946 International financial statistics: Gold reserves of central banks and governments 948 Gold production _. 949 Gold movements 949-950 Central banks 951-954 Bank for International Settlements 955 Commercial banks 955-956 Discount rates of central banks 957 Money rates 957 Foreign exchange rates 958 Price movements: Wholesale prices 959 Retail food prices and cost of living 960 Security prices 960 Federal Reserve directory Board of Governors and staff; Open market Committee and staff; Federal Advisory Council 962 Senior officers of Federal Reserve banks; managing directors of branches _ 963 II Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FEDERAL RESERVE BULLETIN VOL. 23 SEPTEMBER, 1937 No. 9 REVIEW OF THE MONTH ture generally prevailing, and affords to mem- ber banks the benefit of rates, on advances Beginning August 20 discount rates were made by the Federal Reserve bank, which reduced at several of the Federal Reserve are in line with those available in the money banks. The reductions were market. During the extended period when Reduction in from 2 percent to li/> percent excess reserves of the banking system were discount rates at the Federal Reserve Banks between two and three billions of dollars, the of Atlanta, Chicago, Minneapolis, Richmond, occasion did not arise except in rare instances Dallas, Boston, and St. Louis and from 11/2 for member banks to borrow from the Fed- eral Reserve banks, and the discount rates percent to 1 percent at the Federal Reserve were accordingly inoperative as a practical Bank of New York. In approving the first matter. of these changes the Board of Governors issued the following statement in explana- "As a result of the continued progress of tion of its action: the recovery movement, demands of agricul- "The Board of Governors today approved ture, industry and commerce for bank ac- the action of the directors of the Federal Re- commodation have steadily increased and at the present time are augmented by seasonal serve Banks at Atlanta and Chicago in reduc- requirements, particularly with relation to ing the discount rate from 2 percent to IY2 crop movements. While excess reserves, fol- percent, effective in the 6th and 7th Federal lowing the action of the Board in increasing Reserve Districts, respectively, on August reserve requirements, remain at an unusually 21, 1937. high level of approximately $750,000,000 at "The Board's approval was based upon the present for the System as a whole, they are view that the reduction of discount rates at distributed preponderantly among the coun- this time would assist in carrying out the Sys- try banks and not in the money centers. The tem's policy of monetary ease and make Fed- reduction of the discount rates in the two eral Reserve bank credit readily available to large agricultural districts of Atlanta and member banks for the accommodation of Chicago should serve to assist the member commerce, business and agriculture, without banks to utilize credit directly available in encouraging member banks to borrow outside these districts in order to meet banking re- of their districts or to liquidate their port- quirements in connection with crop move- folios in order to be in a position to meet the ments and business needs. needs of present or prospective borrowers. "It is the Board's view, therefore, that at "The reduction in discount rates, which this time the Federal Reserve System can have had little or no practical effect during best discharge its public responsibility and the period when excess reserves were ab- promote the continuance of recovery by mak- normally large and widely distributed ing it possible for member banks to obtain throughout the System, brings the rates into accommodation from Federal Reserve banks closer relation with the interest rate struc- 819 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 820 FEDERAL RESERVE BULLETIN SEPTEMBER 1937 at rates which will encourage them to employ while at other reserve city banks and at coun- their funds to meet the needs of agriculture, try banks there was a small reduction. The industry and commerce." subsequent increase in reserves was con- These were the first changes in basic dis- fined to New York and Chicago banks, re- count rates at any Federal Reserve bank since flecting not only Treasury payments in those May 1935. As of September 2, 1937, thecenters but also movements of business funds discount rates in effect at the various Federal to them. Reserve banks were 1 percent at New York, EXCESS RESERVES OF MEMBER BANKS IV2 percent at Boston, Cleveland, Richmond, BILLIONS OF DOLLARS Atlanta, Chicago, St. Louis, Minneapolis, and Dallas, and 2 percent at Philadelphia, Kansas City, and San Francisco. Excess reserves of member banks de- clined in the latter half of July and the first few days of August from Recent changes in excess reserves over $950,000,000 to about $700,000,000. Subsequently they increased somewhat and on August 25 amounted to about $760,000,000. At $700,- 000,000 on August 4 excess reserves were the smallest since September 1933. Fluctu- Notwithstanding the large loss of reserves ations in member bank reserves during by money market banks, no appreciable tight- July and August were due largely to changes ness developed in the New in Treasury balances at Federal Reserve New York York market. There was an banks, which increased from less than $100,- money market . ..,!-,, 000,000 to over $300,000,000 through receipts increase m interbank borrow- from the sale of Treasury bills in excess of ing, and for a few days early in August the maturities and from securities sold and loans rate on Federal Reserve funds, that is the obtained in the market by various Govern- rate at which New York City banks borrow ment credit agencies. Subsequent expendi- reserves from other banks, usually on a tures reduced Treasury balances to about day-to-day basis, was in some cases as much $160,000,000. A seasonal increase in money as 1/2 percent, but generally the rate for these in circulation in August and increases in funds continued at the level of 14 percent, foreign and other nonmember deposits at the which had prevailed for the past few months. Federal Reserve banks after the middle of Loans by New York banks to out-of-town July absorbed over $100,000,000 of reserves. banks have recently been made at rates vary- The loss of excess reserves from the middle ing from 1 percent to 2V2 percent. of July to early in August was largely con- Other open-market rates showed little or centrated in the money market banks of New no change from previous levels; the average York and Chicago, which supplied a large rate on the weekly issues of 9-month Treasury part of funds obtained by the Treasury and bills continued at around !/£ of 1 percent, the Government agencies. At New York, as average yield on 3-5 year Treasury notes de- shown by the chart, excess reserves fell from clined to about 1% percent in July, and that $230,000,000 to about $40,000,000, and at on the longer-term Treasury bonds to little Chicago from $60,000,000 to $25,000,000, over 2^/2. percent. These were the lowest yields on Treasury obligations since early in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis SEPTEMBER 1937 FEDERAL RESERVE BULLETIN 821 March. After the first week of August there York City banks were nearly $250,000,000 was a decline in prices of Treasury bonds smaller than on June 30, and about $500,- which raised the average yield to above 2% 000,000 less than in March.