Economic Review
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MONTHLY REVIEW CREDIT, BUSINESS AND AGRICULTURAL CONDITIONS WILLIAM W. HOXTON, C h airm an a n d F e d e r a l R e s e r v e A g e n t FEDERAL RESERVE BANK OF RICHMOND RICHMOND, VIRGINIA May 31, 1935 HE occurrence of Easter in April this year nat Turally tended to increase certain lines of business Loans to Industry activity during the month, and trade in the Fifth re In June 1934, Congress added Section 13(b) to the Federal serve district was good if allowance be made for very Reserve Act, authorizing Federal Reserve banks to aid in pro unfavorable weather. Department store sales in the viding working capital for established industrial or commercial district averaged nearly 21 per cent above the dollar businesses, for periods of not exceeding five years, as follows: volume of business done in April last year, and cumu (1) To discount for or purchase from any bank or other financing institution, obligations entered into for the pur* lative sales since January 1 totaled approximately 8 pose of obtaining such working capital; per cent more than sales in the first four months of (2) To make loans or advances to banks and other finan 1934. In banking, April and the first half of May cing institutions on the security of such obligations; witnessed a decline in rediscounts at the Federal Re (3) To make direct loans to or purchase obligations of such businesses, in exceptional circumstances, when it ap serve Bank of Richmond, an increase in industrial pears that requisite financial assistance cannot be obtained loans for working capital, an increase in member bank on a reasonable basis from the usual sources; reserves, and a seasonal decline in circulation of Fed (4) To execute commitments with respect to the foregoing. eral reserve notes, while a composite statement of con The law provides that the Federal Reserve bank may assume up to 80 per cent of any loss that may be sustained on any dition of twenty-eight regularly reporting member such obligation acquired from a bank or other financing insti banks shows declines in loans and investments in se tution. curities, and increases in reserve balances, cash in vaults In accordance with the new section, an Industrial Advisory Committee was appointed in this district to consider applica and both demand and time deposits. Debits to indi tions for such loans, purchases and commitments, and to make vidual accounts in four weeks ended May 8 showed a recommendations to the Federal Reserve bank in regard thereto. seasonal decline in comparison with debits in the four It consists of the following: preceding weeks, but exceeded debits in four weeks J. G. Holtzclaw, Pres., Virginia Electric & Power Company, Richmond. ended May 9, 1934. The commercial failure record in Walker D. Stuart, Pres., the Fifth district in April was good, the number of Richmond Hardware Company, Richmond. Overton D. Dennis, insolvencies being 24 per cent less than the number Dominion Oil Company, Richmond. in April last year, and April 1935 liabilities being 56 William L. Manning, Pres., Rosemary Mfg. Company, Roanoke Rapids, N. C. per cent below April 1934 liabilities. The district George E. Probest, Jr., Secy.-Treas., record was much better than the record for the entire Bartlett-Hayward Company, Baltimore. country. Employment conditions did not show any Since the enactment of the amendment in June 1934, the material change in April and early May, but on the Federal Reserve Bank of Richmond has encouraged commercial banks to make and hold such loans under commitments from whole there was probably some improvement. Coal this bank. By obtaining a commitment, a bank may make a production declined somewhat more than seasonally loan for not exceeding five years, be assured that it can turn the asset into cash at any time it desires within the terms of during April, but this was perhaps due chiefly to rela the commitment, and receive the benefit of the entire interest tively high production in March, which was stimulated thereon for the period carried, less a small commitment fee. by fears that labor troubles might develop at coal mines On May 20 this bank had outstanding $4,279,513 of working capital loans, and commitments aggregated $1,370,080. It is on April 1. Cotton textile mills continued to restrict felt that these accommodations have benefited industry by pro operating time during April, and cotton consumption viding needed working capital, individuals by creating more on a daily basis in that month was about 13 per cent employment, and banks by increasing earning power. below consumption in April last year. Spot cotton Additional information on the subject of working capital loans and application blanks will be furnished gladly by the prices advanced about $7.50 per bale between the end Federal Reserve Bank of Richmond. of March and the middle of May. Tobacco manufac turing plants operated full time in April, and output of all forms of tobacco exceeded output in April 1934. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 2 MONTHLY REVIEW Wholesale trade in five lines for which figures are working capital totaling $4,035,000 were outstanding, available varied last month, grocery, hardware and while none of these loans were outstanding last year. drug sales exceeding sales in April last year, while Total earning assets increased by $12,901,000 between sales of dry goods and shoes were less in the 1935 May 15 last year and this. Federal reserve note cir month. Collections in April in all five wholesale lines culation on May 15, 1935, showed an increase of $7,- were better than a year ago. Construction work pro 329,000 over circulation outstanding on May 15, 1934, vided for in building permits issued last month in but member bank reserve deposits on the 1935 date leading cities was materially above the amount of work showed a decline of $3,844,000 during the year. Cash planned in April 1934, and contracts actually awarded reserves of the Federal Reserve Bank of Richmond for construction also exceeded in valuation the con- • decreased by $23,168,000 between the middle of May tracts awarded in the corresponding month last year. | last year and this, and the ratio of cash reserves to On May 1, prospects for agricultural yields this year 1 note and deposit liabilities combined dropped by 7.87 were satisfactory in the Fifth district, and for most j points. crops were better than prospects on May 1, 1934. Wet j and cold weather has delayed farm work, but grains j Statement of 28 Member Banks are in good condition, pastures are much better than a j 000 omitted year ago, and abundant moisture in the soil indicates j ITEMS May 8 April 10 May 9 rapid crop development with the coming of warm j 1935 1935 1934 weather. Loans on stocks and bonds (in Reserve Bank Statement cluding Governments ) _ ___ $ 50,209 $ 56,945 $ 59,197 000 omitted All other loans____________ 92,950 94,845 110,959 ITEMS May 15 I April 15 May 15 Total loans and discounts— 143,159 151,790' 170,156 1935 j 1935 1934 Investments in securities_____ 198,225 207,785 172,945 Reserve bal. with F. R. Bank.... 69,767 53,036 48,394 Cash in vaults_____________ 11,770 11,571 11,399 Rediscounts held ...................... $ 175 $ 295 $ 1,264 Demand deposits ---------------- 243,524 238,058 218,514 Open market paper--------------- 174 196 219 Time deposits -------------------- 138,022 136,650 134,854 Industrial advances _________ 4,035 3,613 0 Borrowed from F. R. Bank.__ 0 0 0 Foreign loans on gold----------- 0 j 4 0 Government securities ______ 113,563 | 113,563 103,563 The accompanying table shows the principal items Total earning assets_______ 117,947 117,671 105,046 Circulation of Fed. Res. notes.. 149,650 154,212 142,321 of condition of twenty-eight regularly reporting mem Members’ reserve deposits____ 147,003 128,445 150,847 ber banks in the Fifth reserve district as of three dates, Cash reserves_____________ 191,028 ! 192,646 214,196 thus affording opportunity for comparison of the latest Reserve ratio _____________ 63.06 ! 63.93 70.93 available figures with those of the corresponding dates During the month between April 15 and May 15, a month and a year earlier. It should be understood this year, rediscounts held by the Federal Reserve that the figures in the table reflect conditions as of the Bank of Richmond declined by $120,000, and there report dates only, and are not necessarily the highest was also a decrease of $22,000 in the portfolio of open or lowest figures which occurred during the interval market paper and $4,000 in foreign loans on gold were between the dates. paid off. On the other hand, the Bank increased in Total loans and discounts in the twenty-eight re dustrial advances for working capital by $422,000 dur porting banks declined by $8,631,000 between April ing the month, while holdings of Government securities 10 and May 8, this year, loans on securities showing remained unchanged. The net result of the changes a drop of $6,736,000 and all other loans declining by mentioned increased total earning assets by $276,000 $1,895,000. The banks also decreased their invest between the middle of April and the middle of May. ments in stocks and bonds by $9,560,000 during the A seasonal decline in circulation of Federal reserve past month, but their reserve balances at the Federal notes amounting to $4,562,000 occurred in the period reserve bank rose by $16,731,000.