Finance
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Abstract
Finance—Credit and Banking O developments in the banking situation during recent weeks include the amendment to the Federal home loan bank law extending the circulation privilege to additional issues of Government bonds, as mentioned on page 9. and the enactment of the emergency relief and construction act of 1932. In addition to providing new funds to the Reconstruction Finance Corporation for advances on construction and other purposes, the latter provides for direct loans by the Federal Reserve banks to individuals, partnerships, and corporations. Such loans are to be made only in "unusual and exigent circumstances . . . . provided the individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. This introduces a new element into our central banking practice since heretofore the discount facilities of the reserve banks have been available only to member banks and Federal intermediate credit banks. Safeguards provided by the law and the regulations issued by the Federal Reserve Board are expected to protect the liquidity of the reserve banks in carrying out its provisions. Statistics of the reporting member banks reveal a continued shrinkage in outstanding bank credit. Since June 29, the loan account of the reporting member banks has declined by a further $354,000,000, of which $192,000,000 represented the decline in "all other loans. During the same period the investments of the reporting member banks increased $180,000,000 as a result of purchases of Government securities. The portfolio of other securities was reduced by $65,000,000, the banks not having added to their security holdings, aside from "governments," during the current rise in the bond market. Similarly, their loans against securities have declined at the same time brokers loans have remained stationary. Thus, security market purchases on the recent rise apparently were not made by the extensive use of bank credit. Federal reserve credit outstanding continued to expand during July, but during the current month has shown a tendency to contract, mainly as a result of an increase in gold holdings and a decrease of money in circulation. After the middle of July, reserve purchases of Government securities were reduced to a rate of about $5,000.000 a week. Improvement in the banking situation since June is reflected in the decline in the number of bank suspensions with a larger drop in the deposit liabilities involved and a decline in the amount of hoarded currency. Bank deposits made available through the reopening of banks in July were larger than the amount tied up in suspensions. Money in circulation has recently shown a tendency to decrease, whereas normally there is a seasonal increase at this period of the year. The rise in bond prices has also strengthened the banks, through the resultant increased value of their security holdings. Bank debits, outside New York City, have continued to decline, the July total being 32 per cent below a year ago in comparison with an average decline for the elapsed seven months of the year of 30 per cent.