FEDERAL RESERVE BULLETIN OCTOBER 1937 n Recent Credit and Business Development* Regulation A—Discounts by Federal ReseriM Banks Statistics of International Capital Transac- tions 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 credit and business developments •_ 965-976 Regulation on discounts by Federal Reserve banks 977-979 National summary of business conditions 980-981 Summary of financial and business statistics 983 Law Department: Regulation A relating to extensions of credit by Federal Reserve banks to member banks 984-995 Ruling of the Board: Applicability of Regulation U to stock registered after loan is made 995 Condition of insured banks 996-997 Statistics of international capital transactions of the United States, April-July, 1937 998-1001 Balance of international payments of the United States, 1935-36 1002 Belgian Central Bank Law 1003-1006 Financial, industrial, and commercial statistics, United States: Member bank reserves, Reserve bank credit, and related items 1008 Federal Reserve bank statistics 1009-1013 Reserve position of member banks; deposits in larger and smaller centers 1014 Money in circulation 1015 Gold stock and gold movements; bank suspensions; bank debits 1016 All banks in the United States 1017 All member banks 1018-1019 Reporting member banks in leading cities 1020-1023 Acceptances, commercial paper, and brokers' balances 1024 Federal Reserve bank discount rates 1025 Money rates and bond yields 1026 Security markets 1027 Treasury finance 1028-1029 Governmental corporations and credit agencies; Postal Savings System 1030-1031 Production, employment, and trade 1032-1040 Wholesale prices 1041 Crop report 1042 International financial statistics: Gold reserves of central banks and governments 1044 Gold production 1045 Gold movements 1045-1046 Central banks 1047-1050 Bank for International Settlements 1051 Commercial banks 1051—1052 Discount rates of central banks . 1053 Money rates 1053 Foreign exchange rates 1054 Price movements: Wholesale prices 1055 Retail food prices and cost of living 1056 Security prices 1056 Federal Reserve directory: Board of Governors and staff; Open Market Committee and staff; Federal Advisory Council 1058 Senior officers of Federal Reserve banks; managing directors of branches 1059 II Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FEDERAL RESERVE BULLETIN VOL. 23 OCTOBER, 1937 No. 10 REVIEW OF THE MONTH retary of the Treasury agreed to release at once the desired amount of gold. This will In the monetary field the principal devel- place an equivalent amount of funds at the opment of the month was the adoption by the disposal of the banks and correspondingly Federal Open Market Corn- increase their available reserves. System action mittee of a program of sup- "This action is in conformity with the lea^fal needs plying member banks with usual policy of the System to facilitate the additional reserve funds with financing of orderly marketing of crops and which to meet seasonal currency and credit of autumn trade. Together with the recent demands. On September 13 the Committee reductions of discount rates at the several issued the following statement: Federal Reserve banks, it will enable the "The Federal Open Market Committee met banks to meet readily any increased seasonal in Washington on September 11 and 12 and demands for credit and currency and con- reviewed the business and credit situation. tribute to the continuation of easy credit In view of the expected seasonal demands on conditions." the banks for currency and credit during the In deciding to provide additional reserves coming weeks the Committee authorized its for member banks for the purpose of meeting Executive Committee to purchase in the open seasonal requirements, the Federal Open market from time to time sufficient amounts Market Committee and the Board of Gover- of short term U. S. Government obligations nors acted in conformity with the System's to provide funds to meet seasonal with- policy of maintaining a condition of monetary drawals of currency from the banks and ease, a policy that has been actively pursued other seasonal requirements. Reduction of since the early months of 1932. Recent re- the additional holdings in the open market ductions in discount rates at the Federal portfolio is contemplated when the seasonal Reserve banks were in harmony with this influences are reversed or other circum- policy. stances make their retention unnecessary. The recent action of the Open Market Com- "The purpose of this action is to maintain mittee was taken in light of the fact that at member banks an aggregate volume of ex- member banks in coming weeks will be called cess reserves adequate for the continuation upon to meet a seasonal demand for currency of the System's policy of monetary ease for and credit out of a reduced volume of re- the furtherance of economic recovery. serves. Excess reserves of member banks "As a further means of making this policy in money-market centers were relatively effective, the Open Market Committee recom- small in August and the early part of Septem- mended that the Board of Governors of the ber, and some banks in New York were bor- Federal Reserve System request the Secre- rowing funds from other banks to maintain tary of the Treasury to release approximately their reserves at the required level. Member $300,000,000 of gold from the Treasury's in- banks in leading cities have been meeting a active account. The Board of Governors growing demand for commercial loans, and acted upon this recommendation and the Sec- in their adjustment to this demand they have 965 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 966 FEDERAL RESERVE BULLETIN OCTOBER 1937 continued slowly to reduce their holdings of on September 15. These public-debt transac- investments. tions, together with regular disbursements Excess reserves of member banks, which and payments for newly received gold, were declined in the latter part of July and the early considerably larger than total receipts, in- part of August from over cluding quarterly income tax collections. In Excess reserves $900,000,000 to about $700,- addition, a part of the regular Treasury bill 00°>°°0, were at an average issues of September 22 and 29 to replace level of about $770,000,000 maturities were sold to banks on a book credit from the middle of August to the middle of basis instead of for cash, thereby permitting September. Following the announcement a further reduction of Treasury balances at of the Open Market Committee, the Treasury the Reserve banks. proceeded at once to release $300,000,000 of As the majority of the Treasury bills gold from inactive account, and in the follow- which were paid off in September were held ing ten days excess reserves increased to in the New York market, the bulk of the in- over $1,000,000,000. crease in reserves went to New York City banks. Excess reserves of New York banks, EXCESS RESERVES OF MEMBER BANKS as shown on the accompanying chart, in- BILLIONS OF DOLLARS WEEKLY AVERAGES OF DAILY FIGURES BILLIONS OF DOLLARS 4 4 creased from about $100,000,000 early in September to an average level of about $350,- 000,000 in the week ending September 24. Banks in other sections of the country lost reserves around the 15th of September, largely as a result of quarterly income tax payments. During the autumn months the seasonal rise in money in circulation tends to reduce member bank reserve Prospective rise in balances. The accom- money in circulation . panymg chart, which gives the changes in money in circulation over the past four years, shows that in the past three years money in circulation has shown a gradual increase of about 1934 1935 1936 1937 $200,000,000 or more from the end of July The entire amount of inactive gold released until shortly before Thanksgiving, followed was placed to the Treasury's account with by a similar increase in the four or five the Federal Reserve banks, raising this ac- weeks before Christmas. In years when count to $410,000,000 on September 13. Dur- the volume of bankers' acceptances was ing the following two weeks Treasury cash large the drain on member bank reserves disbursements in excess of cash receipts re- resulting from this currency demand was sulted in a rapid reduction in Treasury de- largely met by sales of bankers' accept- posits with the Reserve banks. The Treasury ances to the Reserve banks supplemented had bill maturities on September 16, 17, and by an increase in Reserve bank discounts 18 of $350,000,000 and large interest pay- for member banks, but in the last three ments, as well as cash redemption of notes years, with the large volume of excess which were not exchanged for the new issues reserves, there was no occasion for resort of any kind to the Reserve banks. In fact, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis OCTOBER 1937 FEDERAL RESERVE BULLETIN 967 owing to the heavy gold imports in these States Government, have also declined some- years, member bank reserves continued to what at banks in leading cities. Most of the increase during the autumn months. This decrease in investments has been in holdings year, however, with the reduced volume of of United States Government obligations at excess reserves and with Treasury steriliza- New York City banks, but holdings of other tion of current additions to the gold stock, the securities have also declined both at report- seasonal rise in money in circulation, in the ing banks in other cities and at New York absence of action to increase reserves, would City banks.