FEDERAL RESERVE BULLETIN DECEMBER 1938 Recent Banking Developments Condition of All Member Banks ******* 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—Recent banking developments 1033-1037 National summary of business conditions 1038-1039 Summary of financial and business statistics 1041 Law department: Amendments to Regulation L 1042 Rulings of the Board: Guarantee of account by special partner of member firm 1042 Maximum loan value of bonds under Regulation U 1042-1043 Paying for purchase in special cash account by selling another security 1043-1044 Revised averages of prices and yields on United States Government bonds 1045-1046 Condition of all member banks on September 28, 1938 (from Member Bank Call Report No. 77) 1047-1048 Number of banks and branches, 1933-1938; analysis of changes in number of banks and branches, January 1, September 30, 1938 1049 Financial, industrial, and commercial statistics, United States: Member bank reserves, Reserve bank credit, and related items 1052 Federal Reserve bank statistics 1053-1057 Reserve position of member banks; deposits in larger and smaller centers 1058 Currency in circulation 1059 Gold stock and gold movements; bank suspensions; bank debits 1060 All banks in the United States 1061 All member banks 1062-1063 Reporting member banks in leading cities 1064-1067 Acceptances, commercial paper, and brokers' balances 1068 Federal Reserve bank discount rates 1069 Money rates and bond yields 1070 Security markets 1071 Treasury finance 1072-1073 Governmental corporations and credit agencies; Postal Savings System 1074-1075 Production, employment, and trade 1076-1084 Wholesale prices 1085 Crop Report 1086 International financial statistics: Gold reserves of central banks and governments 1088 Gold production 1089 Gold movements 1089-1090 Central banks 1091-1094 Bank for International Settlements 1095 Money rates 1095 Discount rates of central banks 1096 Commercial banks 1096-1097 Foreign exchange rates 1098 Price movements: Wholesale prices 1099 Retail food prices and cost of living 1100 Security prices 1100 Federal Reserve directory: Board of Governors and staff; Open Market Committee and staff; Federal Advisory Council 1102 Senior officers of Federal Reserve banks; managing directors of branches 1103 Index to Volume 24 1104-1128 II Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FEDERAL RESERVE BULLETIN VOL. 24 DECEMBER, 1938 No. 12 REVIEW OF THE MONTH total United States money in circulation Business activity increased in November, showed an increase of about $200,000,000, continuing the rise which began early last of which $60,000,000 was in large-denomina- Summer. Industrial pro- tion currency, i.e., in bills of fifty dollars and Further increase in duction, as measured by over. Currency shipments to Europe by New business activity York City banks amounted to $15,000,000 in the Board s seasonally- September and to $11,000,000 in October, the adjusted index, reached a level slightly over largest amount reported for any two-month 100 percent of the 1923-1925 average as com- period since collection of the figures began pared with 96 in October and an average of in 1923. Most of these shipments were in 77 in the second quarter of the year. The large-denomination currency. advance in November reflected chiefly a fur- The total increase in circulation from the ther substantial increase in steel production seasonal low point near the end of July to and increases also in output of automobiles the end of November this year amounted to and textiles. Available figures for depart- about $370,000,000, compared with $140,- ment store sales and freight-car loadings and 000,000 in the same period last year, when reports on sales of new automobiles indicate business activity was declining, and with a rise in distribution of commodities when about $350,000,000 in 1935 and 1936, when allowance is made for usual seasonal changes. business was increasing rapidly. There were some decreases in prices of in- dustrial materials during November, while The substantial growth in the amount of prices of farm products and foods showed money in circulation over the past eight years little change. to a new high level has reflected Since last summer the amount of money Long-term principally increased holdings of in circulation has increased somewhat more cTr°cuiation individual savings in the form rapidly than is usual for this of currency and a shift from Recent changes season of the year. For sev- bank deposits to currency as a means of cL™Snin eral years United States current payments. money technically defined as In the decade ending in 1930 the general in circulation, that is, the amount outside the level of currency in circulation showed little Treasury and the Federal Reserve banks, change. In this period there was a growth in has shown a gradual rising tendency. The the use of bank checks for making payments, amount in circulation during November of and from 1926 to 1929, notwithstanding an this year exceeded $6,700,000,000, a larger expansion in the total amount of money volume than at any previous time except for payments, the volume of currency in circula- a short period during the banking holiday in tion declined somewhat. In 1930, with de- 1933, when there had been large temporary creasing business activity, there was a more currency withdrawals. pronounced decline. In the period from the The increase in money in circulation dur- end of 1930 until the banking holiday in ing recent months has reflected in large part March 1933 there were substantial with- expanding industrial payrolls, enlarged relief drawals of bank deposits in the form of payments, and shipments of United States currency for hoarding. This was reflected money abroad in connection with the Euro- in a marked rise in the demand for large- pean crisis. During* September and October denomination paper currency, which is more 1033 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 1034 FEDERAL RESERVE BULLETIN DECEMBER 1938 convenient for hoarding than the smaller in coin and the smaller-denomination cur- notes and coin. The chart shows total cir- rency. There was also a fairly steady growth culation of notes of fifty dollars or more and in the amount of larger-denomination cur- the total of all other paper currency and rency. In the middle of 1936 a sharp rise coin for end-of-month dates from October in circulation accompanied the payment in 1930 to October 1938. The growth shown in cash of the veterans' adjusted service certifi- the smaller denominations from 1930 to cates. As a result of a cessation of the rise March 1933 was in ten- and twenty-dollar in business early in 1937 and the recession notes, which were probably hoarded, while beginning in the latter part of that year, the one- and five-dollar notes and coin, which amount of money in circulation did not in- are used more largely for day-to-day pay- crease in 1937, as it had in the two previous ments, showed little change. years. In 1938 circulation continued close MONEY IN CIRCULATION to the 1937 levels until September, when, as BY LARGE AND SMALL DENOMINATIONS previously indicated, there was a renewed rise. IILLIONS OF DOLLARS ILL1ONS OF DOLLARS 7 The higher level of currency in circulation that has been maintained since 1936 at about $2,000,000,000 above that of 1929 represents increases both in large-denomination cur- rency and in coin and small-denomination bills. The increase in large bills reflects in part the holding of savings in the form of currency rather than in bank deposits, se- curities, or other property. The banking difficulties in the early thirties may be partly responsible for the increase in the volume of savings held in currency rather than in banks, notwithstanding the safeguarding of bank deposits after 1933 by Federal deposit insur- ance. Another factor is probably the reduc- tion in interest rates paid on savings and other time deposits. Increased circulation of coin and small- denomination bills indicates that there has also been a relatively greater use of cash for current payments. This tendency, which 1931 1932 1933 1934 1935 1936 1937 1938 may have been due at first to banking diffi- Following the banking holiday there was culties and the absence of banking facilities a substantial return flow of large-denomina- in some communities, has been furthered by tion currency in 1933 and to some extent in the extension of service charges on checking 1934, but the amount outstanding continued accounts. Relief payments, made to large substantially larger than in 1930, indicating numbers of people without bank accounts, the retention in hoards of a considerable may also have increased the demand for cur- amount of money. rency. Imposition of sales taxes in many From 1934 to the end of 1936 there was a States and cities may have had an effect in renewed increase in money in circulation. increasing the demand for coins. This was a period of rising business activity, Another factor increasing the amount of and much of the increase in circulation was currency reported as in circulation is a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis DECEMBER 1938 FEDERAL RESERVE BULLETIN 1035 growth in vault cash holdings of banks. This gations also decreased chiefly because of a increase has amounted to about $300,000,000 reduction in the volume available for pur- since the end of 1933, most of which has been chase by banks. Since July, with an increase at member banks.