fkderal reserve bulletin - st. louis fed · 2018. 11. 6. · federal reserve bulletin vol. 25...

FKDERAL RESERVEBULLETIN

JANUARY 1939

Anniversary of Federal Reserve Act

Treasury Financing in 1938

Interest Rates on Commercial Loans

BOARD OF GOVERNORS

OF THE FEDERAL RESERVE SYSTEMCONSTITUTION AVENUE AT 20TH STREET

WASHINGTON

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

TABLE OF CONTENTS

PageReview of the month—Treasury financing in 1938 1-8National summary of business conditions - 8-9Summary of financial and business statistics 11Law department:

Ruling of the Board :Deposit of trust funds by a National bank in its own savings department 12

Ceremony on the twenty-fifth anniversary of the signing of the Federal Reserve Act 13-16Rates charged by banks on customers' loans __ 17-19Indexes of production of durable and nondurable manufactures 20-21Revised form of bank report of condition . 22—23All banks in the United States, assets and liabilities 24-28French measures affecting the Bank of France and the Treasury 29-30Balance of international payments of the United States, 1936-1937 31Statistics of international capital transactions of the United States, July-September 1938 32-35Financial, industrial, and commercial statistics, United States:

Member bank reserves, Reserve bank credit, and related items 38Federal Reserve bank statistics 39-43Reserve position of member banks; deposits in larger and smaller centers 44Money in circulation u 45Gold stock and gold movements; bank suspensions; bank debits._^ 46All banks in the United States 47All member banks 48-49Reporting member banks in leading cities - 50-53Acceptances, commercial paper, and brokers' balances 54Federal Reserve bank discount rates 55Money rates and bond yields.! 56Security markets , 57Treasury finance 58-59Governmental corporations and credit agencies; Postal Savings Systemi 60-61Production, employment, and trade 62-70Wholesale prices 71Crop Report 72

International financial statistics:Gold reserves of central banks and governments 74Gold production 75Gold movements 75-76Central banks 77-80Bank for International Settlements 81Money rates , 81Discount rates of central banks 82Commercial banks 82-83Foreign exchange rates 84Price movements:

Wholesale prices 85Retail food prices and cost of living 86Security prices 86

Federal Reserve directory:Board of Governors and staff; Open Market Committee and staff; Federal Advisory Council 88Senior officers of Federal Reserve banks; managing directors of branches_.^_ 89

II


Bronze bas-relief of the Honorable Carter Glass and inscription placed on the west wallinside the Constitution Avenue entrance of the Federal Reserve Building in Washingtonand unveiled on December 23, 1938, by the Honorable Henry B. Steagall on the occa-sion of the twenty-fifth anniversary of the signing of the Federal Reserve Act. Theproceedings in connection with this ceremony appear in this Bulletin on pages 13—16.


A X A OV CNT URE I N COKl'&TW50 f ?$/ r i M


FEDERAL RESERVE BULLETINVOL. 25 JANUARY, 1939 No. 1

REVIEW OF THE MONTH

Following a further sharp rise in Novem-ber, business activity was maintained in De-

cember, changes beingBusiness conditions i a r g e l y of a seasonal na-m December T J 4. • i J

ture. Industrial produc-tion, as measured by the Board's seasonallyadjusted index, was at about 104 percent ofthe 1923-1925 average, slightly above the fig-ure of 103 for November and materiallyhigher than the midsummer level of 77. Forthe year as a whole the index averaged 86 ascompared with 110 for 1937. Employmentand payrolls appear to have increased fur-ther from the middle of November to themiddle of December. Department store sales,which earlier in the year were continuouslylower than in 1937, exceeded last year's vol-ume during the Christmas holiday trade.Railroad freight traffic showed about theusual seasonal decline in the first three weeksof December.

For the purpose of financing enlarged ex-penditures for recovery and relief, in ac-

cordance with the policyfinancing adopted last spring, the

United States Treasuryincreased the volume of outstanding Govern-ment obligations during the latter part of1938. Treasury debt operations in Decemberincluded the sale of about $700,000,000 ofnew issues of bonds and notes and the ex-change of over $900,000,000 of Treasurynotes maturing in March 1939 for new issuesof bonds and notes. These followed the salefor cash in September of about $800,000,000of bonds and notes. During the year 1938,taken as a whole, the interest-bearing directdebt of the United States Government in-creased by $2,200,000,000, of which $1,300,-000,000 represented additions to publicly-offered issues and $900,000,000 special obli-

gations issued to Government agencies andtrust funds. Outstanding obligations ofFederal agencies guaranteed by the UnitedStates Government increased by $350,000,000during the year. Changes in the compositionof the publicly-offered direct obligations dur-ing 1938, which are shown in the table below,resulted from a growth in the volume ofbonds and declines in the volume of notes andbills.

During the year about $3,000,000,000 ofTreasury notes were retired through ex-changes for new issues, and about $1,000,-000,000 of new notes were issued, one-third

UNITED STATES GOVERNMENT INTEREST-BEARINGOBLIGATIONS, DIRECT AND GUARANTEED

[In millions of dollars]

Publicly-offered direct obligations:Treasury and pre-war bondsU. S. Savings bondsTreasury notesTreasury bills

Securities issued to Govt. agencies and trustfunds

Other direct obligations 1

Total direct obligations.Guaranteed obligations

Dec. 31,1937

20, 555964

10, 5471,952

!, 227464

36, 7084,645

Dec. 31,1938

24, 0831,4428,4961,306

3,156415

4,992

Changein year

+3, 528+478

-2,051-646

+929-49

+2,191+347

1 Includes adjusted service bonds of 1945 issued to veterans and postalsavings bonds formerly issued to depositors in the postal savings system.

as exchanges and two-thirds for new cash.New issues of Treasury bonds totalled about$3,500,000,000, three-fourths of which werein exchange for Treasury notes. In additionthe amount of United States Savings bondsincreased by $480,000,000. The amount ofTreasury bills outstanding was reduced by$650,000,000 to $1,300,000,000, comparedwith an average outstanding amount of about$2,300,000,000 in 1937. The increase inguaranteed issues resulted from sales ofnotes by the Reconstruction Finance Cor-poration and the Commodity Credit Corpora-tion, offset in part by retirements of bonds ofthe Federal Farm Mortgage Corporation andthe Home Owners' Loan Corporation.


FEDERAL RESERVE BULLETIN JANUARY 1939

Changes inpublic debt inrecent years

Interest rates on Treasury obligations soldduring 1938 declined in the course of the yearand were exceptionally low for issues of sim-ilar maturities. In March maturing noteswere exchanged for lO1/̂ year bonds, bear-ing a coupon rate of 2V2 percent. In June2% percent bonds of 1958-1963 and iy8 per-cent 5-year notes were offered by the Treas-ury in exchange for June and September notematurities. The September financing in-cluded an offering of 2i/2 percent 12-14 yearbonds and 1% percent June 1943 notes, whilein December exchanges were permitted for23/4 percent bonds of 1960-1965 and 2 per-cent bonds of 1947, as well as for 1% percent5-year notes, and there were cash sales ofthe longer bonds and the notes.

Review of the public debt since the end of1930 shows a considerable growth in the

aggregate, a general length-ening of maturities and animprovement of the distribu-tion of maturities as between

individual years. It also shows a decline inthe average rate of interest paid on Govern-ment obligations.

The interest-bearing direct obligations in-creased from about $16,000,000,000 at theend of 1930 to nearly $39,000,000,000 at theend of 1938. In the early years of this pe-riod, as shown on the chart, this increase wasprincipally in Treasury notes maturing in 5years or less. In addition about $6,000,000,-000 of Fourth Liberty loan bonds, due in 1938,were callable in 1933. Thus from 1930 until1934 over two-thirds of the publicly-offereddebt was due or callable within 5 years and alarge part of the growth in the debt occurredwithin those maturities. Changes in the ma-turity distribution of the publicly-offereddirect debt since 1930 and since 1934 areshown in the following table.

Since 1935 when refunding of the Firstand Fourth Liberty loan bonds was com-pleted, there has been a rapid increase inTreasury bonds outstanding and a slow de-cline in notes. Obligations maturing in lessthan 5 years have decreased in amount andare now less than 40 percent of the total.

1-

_

DOLL

!

i

if

I1

ARS

NTE REST-BEARING DEBT OF THE

END OF MONTH

_

— J\

•~±

> ^

U.S. GOVERNMENT

->-BONDS /

TT1 1CERTIFICATES

AND BILLS

—i—^tW

OTAL /

V

NO

A.

J0N

\r

OF DOLLARS

yE S /

s,

/

\?

40

35

3C

25

15

1 0'16 1918 1920 1922 1926 1928 1930 1932 1934 1936 1936

Special issues include securities issued to Government agenciesand trust funds, adjusted service bonds issued to veterans, andpostal savings bonds formerly issued to depositors in the postalsavings system.

The increase in the debt has occurred in thelonger maturities, and issues maturing after15 years now comprise about 15 percent ofthe total, whereas in 1930 they were only9 percent of the total and by 1934 were amuch smaller part.

MATURITY DISTRIBUTION OF PUBLICLY-OFFERED DIRECTOBLIGATIONS OF THE UNITED STATES GOVERNMENT1


Due or callable 2

Within 5 years" 5-10 years.

10-15 yearsOvei 15 years

Total

Dec. 31,1930

11, 757359

1,5301,327

14, 973

Dec 31,1934

16, 8656,1433,411

805

27, 224

Dec. 31,1938

13, 39011, 2595,5265,153

35, 327

1 Excludes issues to Government agencies and trust funds, adjustedservice bonds issued to veterans, and postal savings bonds.

2 Callable issues classified according to earliest call dates; savingsbonds on maturity dates.

In addition to the lengthening of the ma-turity distribution of the debt, maturitieshave been arranged in a larger number ofindividual years. As a result there is nolarge amount of issues maturing or callablein any single year as was the case whenthere were over $6,000,000,000 of theFourth Liberty loan bonds callable between1933 and 1938. The more orderly distribu-tion of maturities has diminished the refund-ing problems facing the Treasury in thefuture.


JANUARY 1939 FEDERAL RESERVE BULLETIN

Issues to Governmentagencies and trustfunds

In the past two years the amount of securi-ties issued directly to Government agencies

and trust funds hasincreased considerably.These special issues re-mained generally well

under three-quarters of a billion dollars from1931 to the early months of 1937. Bythe end of 1938 the total had increased to$3,200,000,000. The principal elements ofincrease, as shown in the following table,were the old-age reserve account series andthe unemployment trust fund series. Thelaw requires that the funds available forthese purposes be invested in Governmentsecurities with specified rates of return, andthese accounts have purchased securities di-rectly from the Treasury rather than in theopen market.

Although the maturity of the debt has beenlengthened in recent years, the average rate

of interest paid on out-Decline in interest standing obligations has

declined. The refundingof securities bearing high

coupon rates and the sale of new issues atlow rates have brought about a reduction inthe average interest rate on the debt fromabout 3% percent at the end of 1930 to 3percent at the end of 193.4 and to between2V2 and 2% percent at the present time.These changes reflect the substantial declinein the general level of interest rates duringthis period.

The following chart shows fluctuations inyields on long-term Treasury bonds and onshorter-term Treasury issues since 1919.The chart indicates that the trend in bond

SECURITIES ISSUED TO GOVERNMENT AGENCIES ANDTRUST FUNDS


rates on Governmentsecurities

Adjusted Service funds 1Unemployment t rust fundOld-age reserve and railroad retirement

fundsGovernment employees retirement funds. __Other series

To ta l -

Dec. 31,1930

620

161

781

Dec. 31,1937

Dec. 31,1938

531625

563378130

2,227

5221,064

938468164

3,156

1 Figures exclude adjusted service bonds issued to veterans, which nowamount to about $300,000,000.

yields was downward from 1920 to 1927,showed a temporary increase in 1928 and1929, at the time of high short-term interestrates, and returned in 1930 to the 1927 level.Following a sharp increase late in 1931 andin January 1932, yields again returned tothe 1927 level in 1933. Since that time thesubstantial increase in excess reserves ofbanks and in other funds available for in-vestment has resulted in a decline in yieldson long-term Treasury bonds to a record lowlevel of about 21/2 percent. Yields on shorter-term Treasury issues, which have shownwider temporary fluctuations, have declinedrelatively more than bond yields. The wid-ening spread between short-term and long-term rates reflects the demand for highlyliquid investments in which to place the largesupply of funds awaiting more permanentemployment.

YIELDS ON UNITED STATES GOVERNMENT SECURITIES

Yields on 3- to 5-year Treasury notes and on Treasury bonds dueor callable after 12 years. Yields on 3- to 6-months' notes andcertificates from January 1920 to January 1931, average rate on3-month bills offered within month from February 1931 to Decem-ber 1933, and average dealers' quotation on 3-month bills fromJanuary 1934 to December 1938.

Banks have purchased a large part of thenewly-issued Government securities in the™ . ,. ., . past eight years.Changes in distribution ^of Government obligations The i n c r e a s e inamong holders banks' holdings ofdirect and guaranteed obligations of theUnited States Government in that period hasamounted to about half of the increase in theoutstanding amount of publicly-offered obli-gations. The volume of bank purchases hasvaried somewhat with changes in the types of


FEDERAL RESERVE BULLETIN JANUARY 1939

securities offered. As shown in the followingtable, in 1930 banks held more than a third ofthe total publicly-offered obligations of theGovernment. In the five years from 1930 to1935, when bank loans were declining sharply,their investments in Government securitiesalmost tripled, and the proportion of bankholdings to the total outstanding increasedto 46 percent. In this period the First andFourth Liberty loan bonds, which had beenwidely distributed among individual holders,were refunded, and new issues included alarge amount of short-term obligations, whichwere popular with banks. Also in the latterpart of this period guaranteed obligationswere issued by Government agencies princi-pally in exchange for farm and home mort-gages, and a large portion of these issuescame into the portfolios of banks. The issu-ance of these guaranteed obligations alsoprobably contributed to the increase in hold-ings of insurance companies in this period.

From the middle of 1935 to the middle of1938, when a considerable part of the newissues were longer-term bonds, the growthin bank holdings was relatively small andamounted to only about a third of the increasein the obligations outstanding. A large partof the increase that occurred was at mutualsavings banks. New York City memberbanks continued to increase their holdingsuntil the middle of 1936 but reduced themconsiderably in the next year and a half, andat member banks in other cities holdings de-clined during 1937. Country banks showedno decline in their holdings until the firsthalf of 1938. At life insurance companiesinvestments in Government obligations havemore than doubled since 1935. Amountsheld by various United States agencies and inGovernment trust funds have also increased.Holdings of other investors, for which de-tailed information is not available, havegradually increased in the past eight years,but the proportion of these to the total out-standing has declined from 57 to 34 percent.

Since June 30, 1938, there has been agrowth of about $2,000,000,000 in the amountof publicly-offered direct and guaranteedGovernment obligations outstanding and an

HOLDINGS OF UNITED STATES GOVERNMENT OBLIGA-TIONS BY TYPES OF INVESTORS1

[Amounts in millions of dollars]

Obligations outstanding ._ ._

Holdings of—Member banks

New York City 2Other reserve cities . . .Country banks

Nonmember banks3

All banks, excl. Fed. Res. banks

Federal Reserve banks . _ _.U. S. Govt. agencies and trust fundsLarge life insurance companiesOther holders

Percentage distribution of holdings

Obligations outstanding _ _Member banks

New York City 2 .Other reserve citiesCountry banks

Nonmember banks 3

All banks, excl. Fed. Res. banks

Federal Reserve banksU. S. Govt. agencies and trust fundsLarge life insurance companiesOther holders

June 30,1930

15,138

1,1471,6861,2291,436

5,498

591196250

8,603

100.0

7.611.18.19.5

36.3

3.91.31.7

56.8

June 30,1935

31, 033

3,8095,1362,4842,829

14, 258

2,4331,3441,857

11,141

100.0

12.316.68.09. 1

46.0

7.84.36.0

35.9

June 30,1938

38, 316

3,7405,6392,9644,382

16, 725

2,5642,0983,942

12, 987

100.0

9.814.77.7

11.4

43.6

6.75.5

10.333.9

* Figures include direct and fully-guaranteed obligations which arepublicly-offered and interest-bearing.

2 Central reserve city banks only.3 Figures include mutual savings banks and are partly estimated.

increase of about $750,000,000 in holdingsof member banks in 101 leading cities, indi-cating a renewed growth in this type of bankinvestment. End-of-year figures for othertypes of investors are not yet available.

Increase in the public debt during the latterpart of 1938 was for the purpose of meeting

larger expenditures for theTreasury require- recOvery and relief pro-ments in 1938 f .

gram inaugurated duringthe year. Total receipts from taxes and otherTreasury revenues for the year were near thehigh level reached in 1937, while expendi-tures increased. The working balance of theTreasury was increased by security sales inanticipation of continued large expendituresin the first half of 1939.

Treasury receipts and expenditures in gen-eral and special accounts for the past threecalendar years are shown in the followingtable. In addition to these accounts Treasurycash needs were affected by receipts and ex-penditures in various trust accounts, espe-cially those connected with unemploymentcompensation, and in certain checking ac-counts of Government agencies, such as the



Reconstruction Finance Corporation and theCommodity Credit Corporation.

Treasury cash outlays for general andspecial accounts in the latter half of 1937and the first quarter of 1938 were notmuch larger than receipts from taxes andother revenues, and the difference was ap-proximately balanced by a net cash inflowfrom sources outside the regular budget,chiefly from net deposits by States in theunemployment trust fund. Mounting require-ments during the spring and early summerof 1938 were financed without new directborrowing in the open market at that time.The release of gold from inactive account inApril added $1,200,000,000 to the Treasury'sworking balance. From the latter part ofApril to the middle of July these funds weredrawn upon to meet current requirementsand for the retirement of $800,000,000 ofTreasury bills. During the first half of 1938the outstanding publicly-offered debt de-clined by about $550,000,000, and in additionthe Treasury's working balance increased by$400,000,000.

In the latter half of 1938 Treasury needsfor funds to meet cash expenditures in excessof receipts were met by increases in thepublicly-offered debt, as already described.Some cash was also available during thisperiod from net deposits in the unemploy-ment trust fund and from sale in the open

TREASURY RECEIPTS AND EXPENDITURES


Calendar years

193619371938

General and special accounts

Receipts

4,3726,3125,993

Expendi-tures x

7,4687,0907, 880

Excessof

expendi-tures (—)

-3,096-778

-1,887

Other,net,

excess ofreceipts(+) or

expendi-tures (—)

-1,033+260+59:

1 Excluding debt retirements and transfers to trust accounts largelyfor investment in Government securities; in 1936 the latter included largetransfers to the adjusted service certificate fund in connection with thepayment of adjusted service certificates, for which the Treasury's cashneeds are reflected in the last column of the table.

market of guaranteed notes of the Recon-struction Finance Corporation.

For the year as a whole the Treasuryadded to its working balance about $1,300,-

000,000 of funds from new security issuessold for cash, $1,200,000,000 from the trans-fer of gold from inactive account, and about$600,000,000 from other sources. The totalof funds from these sources was considerablylarger than the excess of regular budget ex-penditures over receipts, amounting to $1,-900,000,000 for the year, and the workingbalance at the end of December at $2,450,-000,000 was double the balance at the end ofthe preceding calendar year.

During the latter half of 1937 and the firstquarter of 1938, when expenditures were in

smaller volume, the yield of taxesTreasury an (j 0^her Treasury revenues wasreceipts J

the largest of recent years, averag-ing $1,600,000,000 a quarter. Subsequentlyrevenue yields declined somewhat as thelower level of business activity was reflectedin reduced receipts from customs and cer-tain miscellaneous internal revenue taxes.In the last quarter of 1938 receipts wereabout $1,420,000,000. Income tax receiptsin 1938 did not reflect the lower level of in-comes for that year. Collections from thissource during the calendar year 1938 werebased largely upon incomes of the calendaryear 1937 and were about the same as thoseof the preceding year based on incomes ofthe calendar year 1936. Receipts of socialsecurity taxes also were about the same in1938 as in 1937, although in the latter half of1938 they were somewhat smaller, reflectingthe decline in payrolls since 1937.

Treasury expenditures during the lastthree quarters of the calendar year 1938 were

in about the same general vol-Treasury u m e a s during the latter partexpenduures ^ ^ ^ ^ ^ ^ rf1937, following a period of about nine monthswhen they declined about 15 percent fromthis level. Total expenditures, excludingdebt retirements and amounts which merelyinvolve transfers to trust accounts largelyfor investment in special debt issues, wereabout $2,000,000,000 in each of the last threequarters of 1938 as compared with a quar-terly volume of about $1,600,000,000 duringthe period from June 1937 to March 1938and an average quarterly volume of about


6 FEDERAL RESERVE BULLETIN JANUARY 1939

$1,900,000,000 in 1936 and the early part of1937.

As shown in the following table, the de-cline in expenditures during the latter partof 1937 and the early part of 1938 and thesubsequent increase resulted largely fromchanges in expenditures under various re-covery and relief programs. Expendituresfor work relief and direct relief, like thosenow administered by the Works ProgressAdministration, were in the neighborhood of$520,000,000 a quarter during 1936, but de-clined during 1937 to $320,000,000 in thefinal quarter of that year and then increasedsharply in the latter part of 1938 to a totalof over $600,000,000 in the last quarter. Inrecent months agricultural adjustment pay-ments have been in much larger volume thana year ago, reflecting largely price adjust-ment payments to cotton farmers. Pay-ments under various social security programshave been growing steadily and the quar-terly total of $90,000,000 at the end of 1938was nearly double the quarterly volume oftwo years ago. Some recovery and relief ex-penditures continued during 1938 at a levelmuch smaller than in the preceding periods.This was true of public works expenditures;the new public works program enacted inJune was reflected in Treasury cash outlaysto only a moderate extent prior to the lastmonth of the year. Expenditures for nationaldefense and for regular departmental activi-ties were slightly larger in 1938 than in 1937.

TREASURY EXPENDITURES BY QUARTERS, 1937-1938x


1937:Jan.-Mar._Apr.-June-July-Sept..Oct.-Dec.._

1938:Jan.-Mar._Apr.-June-July-Sept..Oct.-Dec. _

Totalex-

pend-itures

1,8521,9611,6711,605

1,6262 2,024

1,9692,167

Recoveryand i

W P A

449428334316

353470559621

•elief

Other

240251196173

1422 158

136196

Socialsecur-

ity

54515784

73788291

AAA

1941714732

106178116187

Na-tion-

alde-

fense

206229236240

246253267273

In-ter-est

193271192240

186308176249

Allother

516560609520

520579633550

1 General and special accounts, on the basis of daily Treasury state-ment, excluding debt retirements and transfers to trust accounts.

2 Excluding Treasury payment of $94,000,000 to the Commodity CreditCorporation to restore impairment of capital stock.

Statement by the Federal Open Market Committee

The Federal Open Market Committee an-nounced, following a meeting December 30,1938, that weekly statements of the totalholdings in the Federal Reserve System'sOpen Market Account may at times showsome fluctuation depending upon conditionsin the market affecting the Committee's abil-ity to replace maturing Treasury bills heldin its portfolio. The volume of Treasury billsavailable on the market has declined mate-rially during the year and, owing to the largeand increasing demand, such bills are alreadyselling either on a no-yield basis or at a pre-mium above a no-yield basis. It has, there-fore, become difficult and in some weeks im-possible for the System to find sufficient billson the market to replace those that mature.Short-term notes are also selling on a no-yieldbasis and longer-term notes have at timesbeen difficult to obtain. In these circum-stances, it may be necessary from time totime to permit bills held in the portfolio tomature without replacement, not because ofany change in Federal Reserve policy butsolely because of the technical situation inthe market. Because no change in FederalReserve policy is contemplated at this time,maturing bills will be replaced to the extentthat market conditions warrant.

Election of Class A and B DirectorsThe member banks elected the following

Class A and B directors of the Federal Re-serve banks for the three-year term begin-ning January 1, 1939:

CLASS ABoston—Allan Forbes, President, State Street

Trust Company, Boston, Massachusetts (re-elected )

New York—Otis A. Thompson, President, TheNational Bank and Trust Company of Nor-wich, Norwich, New York (reelected)

Philadelphia—Joseph Wayne, Jr., President,Philadelphia National Bank, Philadelphia,Pennsylvania (reelected)

Cleveland—F. F. Brooks, President, First Na-tional Bank at Pittsburgh, Pittsburgh,Pennsylvania (reelected)

Richmond—L. E. Johnson, Chairman, FirstNational Bank, Alderson, West Virginia(reelected)

Atlanta—G. J. White, President, First Na-tional Bank, Mount Dora, Florida (re-elected)



Chicago—F. D. Williams, Vice President andCashier, First Capital National Bank, IowaCity, Iowa (reelected)

St. Louis—Sidney Maestre, President, Mis-sissippi Valley Trust Company, St. Louis,Missouri

Minneapolis — J. R. McKnight, President,Pierre National Bank, Pierre, South Da-kota

Kansas City—E. E. Mullaney, President,Farmers & Merchants Bank, Hill City,Kansas (reelected)

Dallas—Ford Seale, President, Citizens Na-tional Bank of Denison, Denison, Texas

San Francisco—Reno Odlin, President, PugetSound National Bank, Tacoma, Washington

CLASS BBoston—P. R. Allen, Chairman, Bird & Son,

Inc., E. Walpole, Massachusetts (reelected)New York—W. C. Teagle, Chairman, Stand-

ard Oil Company of New Jersey, New York,New York (reelected)

Philadelphia—Harry L. Cannon, President,H. P. Cannon & Son, Inc., Bridgeville,Delaware

Cleveland—G. D. Crabbs, President, PhilipCarey Mfg. Co., Cincinnati, Ohio (reelected)

Richmond — Edwin Malloy, President andTreasurer, Cheraw Cotton Mills, Inc., Che-raw, South Carolina (reelected)

Atlanta—E. T. George, Chairman and Presi-dent, Seaboard Refining Company, Ltd.,New Orleans, Louisiana (reelected)

Chicago—N. H. Noyes, Secretary and Treas-urer, Eli Lilly and Company, Indianapolis,Indiana (reelected)

St. Louis—J. R. Stanley, Secretary, Treasurerand General Manager, Stanley Clothing Co.,Evansville, Indiana.

Minneapolis—J. E. O'Connell, President, EddyBakery Co., Helena, Montana (reelected)

Kansas City—L. E. Phillips, Phillips Petro-leum Company, Bartlesville, Oklahoma (re-elected)

Dallas—J. D. Middleton, President, Texas Re-fining Company, Greenville, Texas (re-elected)

San Francisco—W. G. Volkmann, Vice Presi-dent, A. Schilling and Company, San Fran-cisco, California (reelected)

Appointment of Class C DirectorsThe Board of Governors appointed the fol-

lowing Class C directors of Federal Reservebanks for the three-year term beginning Jan-uary 1, 1939:

Boston—F. H. Curtiss, retired (reappointed)New York—Beardsley Ruml, Treasurer, R. H.

Macy & Co., Inc., New York, New York (re-appointed)

Cleveland—James C. Stone, Tobacco Mer-chant, Lexington Kentucky

Atlanta—Frank H. Neely, General Manager,Rich's Inc., Atlanta, Georgia (reappointed)

Chicago—R. E. Wood, President, Sears, Roe-buck & Co., Chicago, Illinois (reappointed)

Kansas City—J. J. Thomas, Lawyer, Seward,Nebraska (reappointed)

Dallas—J. H. Merritt, retired, McKinney,Texas (reappointed)

Designation of Chairmen and Federal Reserve Agentsand Appointment of Deputy Chairmen

The Board of Governors designated the fol-lowing Chairmen of boards of directors andFederal Reserve Agents at Federal Reservebanks for the year 1939:

Boston—F. H. Curtiss, retired (redesignated)New York—Owen D. Young, Chairman, Gen-

eral Electric Co., New York, New York (re-designated)

Philadelphia—Thomas B. McCabe, President,Scott Paper Co., Chester, Pennsylvania

Cleveland—George C. Brainard, President,The General Fireproofing Co., Youngstown,Ohio

Richmond — Robert Lassiter, Chairman,Mooresville Cotton Mills, Mooresville, NorthCarolina (redesignated)

Atlanta—Frank H. Neely, General Manager,Rich's, Inc., Atlanta, Georgia (redesignated)

St. Louis—W. T. Nardin, Vice President &General Manager, Pet Milk Co., St. Louis,Missouri (redesignated)

Kansas City—R. B. Caldwell, Member of LawFirm of McCune, Caldwell & Downing,Kansas City, Missouri

Dallas—J. H. Merritt, retired, McKinney,Texas (redesignated)

The Board of Governors appointed the fol-lowing Deputy Chairmen of Federal Reservebanks for the year 1939:

Boston—Henry S. Dennison, President, Den-nison Manufacturing Co., Framingham,Massachusetts (reappointed)

New York—Beardsley Ruml, Treasurer, R. H.Macy & Co., Inc., New York, New York (re-appointed)

Philadelphia—Francis Biddle, Member ofLaw Firm of Barnes, Biddle & Myers,Philadelphia, Pennsylvania

Cleveland—R. E. Klages, President, and Gen-eral Manager, Columbus Auto Parts Co.,Columbus, Ohio

Richmond—W. G. Wysor, General Manager,Southern States Cooperative, Inc., Rich-mond, Virginia (reappointed)

Atlanta—J. F. Porter, President and GeneralManager, Tennessee Farm Bureau Feder-ation, Columbia, Tennessee

Chicago—R. E. Wood, President, Sears, Roe-Buck & Co., Chicago, Illinois (reappointed)

St. Louis — Oscar G. Johnston, President,Delta and Pine Land Co., Scott, Mississippi

Minneapolis—W. C. Coffey, Dean, Depart-ment of Agriculture, University of Minne-sota, St. Paul, Minnesota.

Kansas City—J. J. Thomas, Lawyer, Seward,Nebraska

Dallas—Jay Taylor, Rafter 0 Cattle Com-pany, Amarillo, Texas

San Francisco—St. George Holden, President,St. George Holden Realty Co., San Fran-cisco, California (reappointed)



Retirement of Chairmen and Federal Reserve Agentsat the Federal Reserve Banks of Philadelphia,Cleveland, and Minneapolis.

Effective at the close of December 31,1938,Messrs. R. L. Austin, E. S. Burke, Jr., andW. B. Geery retired as Class C directors andChairmen and Federal Reserve Agents atthe Federal Reserve Banks of Philadelphia,Cleveland and Minneapolis, respectively.

Mr. Austin served as a Class C directorand as Chairman and Federal Reserve Agentof the Federal Reserve Bank of Philadelphiafrom the date of its establishment.

Mr. Burke was appointed a Class C direc-tor and Deputy Chairman of the FederalReserve Bank of Cleveland in March 1933.He served as Deputy Chairman until March

1, 1936, and as Acting Chairman of the bankfrom November 1934 to March 1936, and onMarch 3, 1936, was designated as Chairmanand Federal Reserve Agent, serving in thatcapacity until his retirement on December31, 1938.

Mr. Geery served as Deputy Governor ofthe Federal Reserve Bank of Minneapolisfrom September 1920 to October 1927, atwhich time he was elected Governor of thebank. He served in that capacity untilMarch 1, 1936, when he was appointed aClass C director of the bank and designatedas Chairman and Federal Reserve Agent,serving in that capacity until his retirementon December 31, 1938.

NATIONAL SUMMARY OF BUSINESS CONDITIONS[Compiled December 23 and released for publication December 25]

The sharp rise in industrial production,which began early last summer, continued inNovember. Preliminary reports for the firstthree weeks of December indicate some slow-ing down in the advance. Employment alsoincreased in November and payrolls showedlittle change, although a decline is usual atthis season. Distribution of commodities toconsumers increased considerably.

Production.—The Board's seasonally ad-justed index of industrial production in No-vember rose to 103 percent of the 1923-1925average from 96 percent in October. Outputof steel continued to increase, contrary to theseasonal trend, and there was a further sharprise in automobile production. In the firstthree weeks of December activity at steelmills declined somewhat more than season-

1NDUSTRIAL PRODUCTION

120

110

/\ 1' V

A

-v /

s\J

\I\

//

, /

120

110

Monthly index of physical volume of production, adjusted forseasonal variation, 1923-1925 average = 100.

ally, while output of automobiles continuedat the high level reached at the end of No-vember. Lumber production in Novemberdecreased by more than the usual seasonalamount. In the nondurable goods industries,shoe production declined seasonally, whileoutput of textiles showed a considerable ex-pansion, with increased activity at cotton,wool, and silk mills. At mines, bituminouscoal output increased further and productionof anthracite showed less than the usual sea-sonal decline. Output of petroleum showedlittle change.

Value of construction contracts awardedin November showed a decline from the highlevel reached in October, according to F. W.

CONSTRUCTION CONTRACTS AWARDED

400 -Y—\

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938

Three-month moving averages of F. W. Dodge data for value ofcontracts awarded in 37 Eastern States, adjusted for seasonalvariation. Latest figures based on data for October and Novemberand estimate for December.


JANUARY 1939 FEDERAL RESERVE BULLETIN 9

Dodge figures for 37 Eastern States. Privateand public projects both declined, followingincreases in October. The decline in con-tracts for private residential building wasless than seasonal.

Employment.—Employment increasedsomewhat further and payrolls showed littlechange between the middle of October andthe middle of November, although declinesare usual at this time of year. In manufac-turing the number employed continued torise, reflecting principally a further sharpincrease at automobile factories and substan-tial increases in the machinery, steel, andtextile industries. Employment declined sea-sonally at establishments producing clothingand shoes; in most other industries employ-ment increased somewhat. In lines otherthan manufacturing, employment showedsome increase, when allowance is made forusual seasonal changes.

Distribution.—Distribution of commoditiesto consumers showed a considerable increasein November. Department store sales andmail order sales, which had been retarded inOctober by unseasonably warm weather, rosesharply, and sales at variety stores also in-creased in November. Sales of automobilesto consumers expanded sharply following theintroduction of new models and in Novemberwere larger than a year earlier.

Freight-car loadings, which had increasedconsiderably in previous months, showed a

FACTORY EMPLOYMENT

rv/

Monthly index of number employed at factories, adjusted forseasonal variation, 1923-1925 average = 100.

slightly less than seasonal decline in No-vember.

Commodity prices.—Prices of some indus-trial materials, such as nonferrous metals,hides, and cotton goods, decreased somewhatfrom the middle of November to the thirdweek of December. Sugar prices also de-clined, while grains advanced somewhat.Prices of most other agricultural and indus-trial commodities continued to show littlechange.

Bank credit.—In connection with pre-holiday trade, there was a sharp increase inmoney in circulation and as the result of thisincrease in the demand for currency, togetherwith Treasury operations around December15, there was a temporary decline in memberbank reserves.

MEMBER BANKS IN 101 LEADING CITIESBILLIONS OF DOLLARS

1938

Wednesday figures for reporting member banks in 101 leadingcities, September 5, 1934, to December 21, 1938. Commercialloans, which include industrial and agricultural loans, representprior to May 19, 1937, so-called "Other loans" as then reported.

Following declines during November, totalloans and investments of reporting memberbanks in 101 leading cities increased duringthe first three weeks of December, largelyreflecting operations of the Treasury. Loansto security dealers by New York banks in-creased sharply, reflecting temporary bor-rowing for the purpose of carrying Govern-ment securities exchangeable for new issueson December 15. Adjusted demand depositsrose to a new high level in the first half ofDecember.


10 FEDERAL RESERVE BULLETIN JANUARY J.939

MEMBER BANK RESERVES AND RELATED ITEMSBILLIONS OF DOLLARS

16

15

14

13

12

11

10

8

7

4 J

3 M

2

1

WEDNESDAY FIGURES

r"

--i

***^ ^ - - * • "

" ' • • • • . . . . . • . . .

RESERVE BANKCREDIT

GOLD $

MONEY IN

TRF

' TREASLA. ft AT C

CIRCULATION

- ASURY CASH

JRY DEPOSITS• D DAM/C

•„ -••"

, \

BILLIONS OF DOLLARS

16

15

14

13

12

11

10

8

7

1934 1935 1936 1937 1938 1939

1934 1935 1936 1937 1938

Latest figures for December 28. See table on page 38.

1939

2

1


J A N U A R Y 1939 FEDERAL RESERVE BULLETIN 11

SUMMARY OF FINANCIAL AND BUSINESS STATISTICS

1938

Nov . Oct. Sept

1937

N o v . Oct. Sept.

A n n u a l averages

1937 1936 1935 1934 1933 1929

MEMBER BANK RESERVES, RESERVE BANK CREDIT,AND RELATED ITEMS

Reserve bank credit outstanding—totalBills discountedBills boughtU. S. Government securities

Gold stockTreasury currency outstanding _Money in circulationTreasury cash holdingsTreasury deposits with F. R. banksNonmember deposits and other accountsMember bank reserve balances:

TotalExcess

Averages of daily figures; in millions of dollars

2, 59271

2, 56414,1622,7606,7502,728

526783

8,7273,276

2,59881

2,56413,9402,7456,6682,782

665622

8,5463,143

2,61081

2,57213,4412,7336,5702,717

704

8,1962,920

2,592193

2,54512, 7882,6136,5583,642

125750

6,919

1,104

2,583223

2,52712, 7822,6036,5663,636

95717

6,9541,043

2,58424

32,526

12,6532,5906,6583,618

190607

6,854900

2,554143

2,54012,1622,5676,4753,225

158595

1,220

2,48164

2,43010, 5782,5036,1012,474

446551

5,9892,512

2,47575

2,4319,0592,4785,5852,791

128507

5,0012,469

2,5023625

2,4327,5122,3815,4032,798

81438

3,6761,564

2,429283

832,0524,0592,2715,576

28855

497

2,343528

REPORTING MEMBER BANKS

Total loans and investmentsLoans—total

Commercial, industrial and agriculturalTo brokers and dealers in securitiesOther loans for purchasing or carrying securities..All other loans

Investments—total _U. S. Government direct obligationsObligations fully guaranteed by U. S. GovtOther securities

Reserve with Federal Reserve banksCash in vaultBalances with domestic banksDemand deposits—adjustedTime deposits (excluding interbank)2Deposits of domestic banks 3Borrowings

Averages of Wednesday figures; in millions of dollars

21,3478,3193,884

715571

3,14913,0288,1301,6813,2177,170

4382,467

15,8255,1356,233

2

21, 3238,2823,904

669576

3,13313, 0418,0841,6823,2757,005

4252,446

15, 6885,1646,122

1

21,078

3,893675578

3,12212,8107,9571,6683,1856,712

4162,413

15, 3775,2135,974

21, 5569,5594,740

881657

3,28111,9977,9701,1272,9005,348

3201,804

14, 6365,2875,039

21, 8899,8904,8281,103669

3,29011,9997,9141,1322,9535,384326

1,78114, 7565,2785,088

5

22,18710,0264,7331,317687

3,28912,1618,0681,1312,9625,313305

1,70314,8435,2834,990

11

22,1989,546(0

1,2260)0)

12,6528,3941,1643,0945,307337

1,88415,0975,2025,298

12

22,0648,4620)1,1810)0)

13,6029,0801,2503,2724,799383

2,35814,6194,9995,810

5

19,9978,0280)9900)0)

11,9697,989928

3,0524,024326

2,11212, 7294,8834,938

18,6728,4910)981

0)(0

10,1816,856e 3253,0002,875271

1,688

0)4,9373,814

8

17,5059,1560)7770)0)

8,3495,2283,1211,822240

1,3220)

4,9462,822115

MONEY RATES AND BOND YIELDS Averages of daily figures; percent per annum

Commercial paperStock exchange call loansU. S. Treasury bills (91 days)U. S. Treasury bonds, long-term *Corporate high grade bonds (Moody's Aaa).

CAPITAL ISSUES

All issues—totalN e wRefunding

Domestic corporate issues—total..N e wRefunding

1,459962241208

3,6962,0154,476

20722

406

2,35843

22,59916,8870)

«2,208

85,7122,8652,8471,725

2481,1420)6,7882,787

674

691.00.04

2.503. 10

691.00

.052.483.15

.691.00.08

2.583.21

1.001.00

.092.713.24

1.001.00.20

2.763.27

1.001.00.31

2.773.28

.951.00.28

2.683.26

.75

.91

.172.653.24

.76

.66

.172.793.60

1.021.00.28

3.124.00

1.721.16

3.314.49

5.857.61

3.604.73

37922515514543

102

763165598337

64273

23714492

1508565

Amounts per month;

1369442362610

20396

1071366770

22115467

15211339

in millions of dollars

3231731501989999

518164354382

99282

39212127018934

155

18011664411526

896029321318

959841118781667115

PRICES

Common stocks (1926=100). . _ _. ._.Wholesale commodity prices (1926=100):

All cornmorjitiftsFarm products _ . . ._FoodsOther commodities

Retail food prices (1923-25—100)

BUSINESS INDEXES

Industrial production. _ _ _ _ _M anuf acturesMinerals

Construction contracts awarded—totalResidentialAllother. _ _.

Factory employmentFactory payrolls (unadjusted) _ __Freight-car loadingsDepartment store sales _

MERCHANDISE EXPORTS AND IMPORTS

Exports, including re-exports _ . _General imports

95

7868748178

91

7867748178

86

7868758179

83

8376838484

91

8580868585

Index numbers

106

8786888686

112

8686868585

111

8181828082

78

8079847880

72

7565717874

63

6651617166

190

9510510092

106

Index numbers, adjusted for seasonal variation, 1923-25=100

P103PIOSP102

P117

6989

9695998257

10288846884

91899778569687816486

8885

109563276

101937191

102101113523665

1051057693

111110116563771

1071047894

110109115

594174

1061027892

10510510555377098867588

90909137216091746479

79788632124886656275

76758225113773605867

11911911511787

142106110107111

Amounts per month; in millions of dollars

P252P176

278178

246168

315223

333224

297233 to

to 205

202190171

178138.

140121

437387

p Preliminary. r Revised. e Partly estimated.1 Figures not available.2 Includes time deposits of banks, domestic and foreign. 1929-1934.» Does not include time deposits 1929-1934.4 Averages of yields of all outstanding bonds due or callable after 12 years. See B U L L E T I N for December 1938, pp. 1045-1046.



LAW DEPARTMENT

Deposit of Trust Funds by a National Bank in ItsOwn Savings Department

The Board recently considered the follow-ing questions relating to the deposit of trustfunds by a national bank in its own savingsdepartment:

"(1) May a national bank with trust powers,acting in a fiduciary capacity, deposit trustfunds in its own savings department 'as an in-vestment/ and would the answer be different in aState where State banks are permitted to investtrust funds in their own savings departments?

"(2) If trust funds are deposited in its sav-ings department 'as an investment' are suchfunds required to be secured by assets of thebank segregated in the trust department?

" (3) Where the provisions of the trust instru-ment require legal investments, may a nationalbank deposit funds 'awaiting investment or dis-tribution' in its own savings department underthe provisions of section 11 (k) of the FederalReserve Act and of Regulation F, if savingsaccounts 'as an investment' cannot be consideredas conforming to local statutes?"

In connection with the first question, theBoard pointed out that section 11 (a) of itsRegulation F provides that "funds receivedor held by a national bank as fiduciary shallnot be invested in . . . obligations of . . .the bank", and a footnote appended theretoprovides that such requirement "shall notbe deemed to prohibit investments which areexpressly required by the instrument creat-ing the trust or by court order," Accord-ingly, the Board expressed the opinion thata national bank is not permitted to investtrust funds by depositing them in its ownsavings department unless such investmentis expressly required by the instrument creat-ing the trust or by court order. In this light,the Board believed it to be immaterialwhether State banks are permitted to investtrust funds by so depositing them.

With respect to the second question, afterreferring to the fact that section 11 (k) of

the Federal Reserve Act and section 9(b) ofRegulation F require that trust funds await-ing investment or distribution which areused by a national bank in the conduct of itsbusiness be secured by the deposit of securi-ties in the trust department of the bank, theBoard expressed the opinion that trust fundsinvested by a national bank by deposit in itsown savings department are not required tobe secured because they are not funds await-ing investment or distribution. In this con-nection, it was suggested that trust fundsdeposited by a national bank in its own sav-ings department ordinarily should be as-sumed to be funds awaiting investment ordistribution if they cannot properly be in-vested in obligations of the bank under theprovisions of section 11 (a) of Regulation Freferred to above.

In answer to the third question, the Boardstated that section 11 (k) of the Federal Re-serve Act and Regulation F do not prohibita national bank from depositing in its ownsavings department trust funds administeredby it and awaiting investment or distribu-tion, but it should be borne in mind thatsection 9 (a) of Regulation F provides thattrust funds shall not be held uninvested orundistributed by a national bank "any longerthan is reasonably necessary." Of course,any such deposit must conform to the require-ments of the Board's Regulation Q relatingto "savings deposits." The question whether,under the laws of a particular State in whicha national bank may be located or underthe provisions of a particular trust instru-ment, a national bank may properly carrytrust funds awaiting distribution or invest-ment in a savings deposit is one dependingupon all the facts in the particular case andthe proper construction of the State law.



CEREMONY ON THE TWENTY-FIFTH ANNIVERSARY OF THE SIGNING OF THEFEDERAL RESERVE ACT (DECEMBER 23, 1913-1938)

INTRODUCTORY REMARKS BY HONORABLE MARRINER S.ECCLES, CHAIRMAN, BOARD OF GOVERNORS OF THEFEDERAL RESERVE SYSTEM.

Senator Glass, honored guests, ladies andgentlemen: We are met here today, as youall know, to commemorate the twenty-fifthanniversary of the signing of the FederalReserve Act by President Wilson. I takegreat pleasure, on behalf of my associatesof the Board of Governors, in welcoming youand in asking you to join with us on thisoccasion. It is one of importance to all ofus who are interested in the Federal ReserveSystem. It has historic significance, I think,as we look back over the history of the UnitedStates and recognize the part that the Fed-eral Reserve System has played in peace andin war during the last quarter of a century.

The record is a creditable one. The Systemhas rendered a public service, a service es-sential in our country, as it is in every othercivilized land. It is fitting, therefore, thatwe should pause for a moment to mark thisoccasion and to hear from the HonorableHenry B. Steagall, Chairman of the Com-mittee on Banking and Currency of the Houseof Representatives, who for so many yearshas been identified with the development ofbanking legislation, who has been a staunchfriend of the Federal Reserve System and achampion of sound, forward-looking bankingmeasures in the public interest. He has beenconstantly and closely associated with thedistinguished Senator from Virginia, whoseportrait in bronze he will unveil. I am espe-cially gratified that Chairman Steagall couldcome here today. He made the trip from hishome in Alabama only for the purpose ofbeing present this morning.

I think I may tell you also that whenSenator Glass was informed of the proposedunveiling as a part of this ceremony, hisnatural reluctance to have it take place wasovercome only because he was told that theBoard had reached a decision, based upon aconviction shared by all of my colleagues andmyself, that we could in no better way ob-serve this occasion than by placing and un-veiling his portrait here.

Letter from the President

Before I present Representative Steagall,I want to read a letter which I have receivedfrom the President of the United States:

"My dear Mr. Chairman:May I not express my congratulations to

you and, through you, to your associates ofthe Board and of the entire Federal Re-serve System, upon the occasion of thetwenty-fifth anniversary of the signing ofthe Federal Reserve Act by President Wil-son, which you are observing today. Hadit been possible for me to be present, Iwould have taken pleasure in joining withyou, your colleagues and your guests in theobservance of a quarter century of distin-guished service which has been renderedto the country's banking and, thus, tobusiness, industry, and agriculture, by thisdistinctly American institution in whichall who were associated with its creation,and particularly those who like myselfserved in Woodrow Wilson's administra-tion, justly take pride.

It is especially appropriate that you aremarking the anniversary by unveiling onthe wall opposite the portrait of PresidentWilson, a bas-relief of Senator Glass ofVirginia, who, as one of the original spon-sors of the Act, has always been its de-fender. The Federal Reserve System rep-resents one of the great forward steps indealing with our economic system. On thisoccasion we may well recall for our guid-ance now and in the future PresidentWilson's words, fittingly inscribed underhis portrait:

'We shall deal with our economic sys-tem as it is and as it may be modified,not as it might be if we had a cleansheet of paper to write upon; and stepby step we shall make it what it shouldbe.'

Very sincerely yours,FRANKLIN D. ROOSEVELT."

Letter from Senator McAdoo

I should also like to read a letter fromSenator McAdoo, who was the first Chairmanof the Federal Reserve Board:

"Dear Mr. Chairman:I have just received your letter of De-

cember 14 together with your telegram ofDecember 16, inviting me to participate ina simple ceremony to be held December 23,1938, in the Federal Reserve Building,commemorating the twenty-fifth anniver-



sary of the signing by President WoodrowWilson of the Federal Reserve Act—duringwhich, you advise me, there will be unveileda bas-relief in bronze of Carter Glass.

It is with sincere regret that I find my-self unable to participate in these cere-monies. I rejoice that you are celebratingthis historic event which has resulted invast benefits to the American people. Itis impossible to calculate the profoundeffects the Federal Reserve System hashad upon our development during the pastquarter of a century, but we can readilysee that, without it or some effective sub-stitute, our progress as a Nation wouldhave been seriously impeded and restricted.

I am delighted that a bas-relief of mydistinguished friend and colleague—theHonorable Carter Glass, is to be unveiledon this occasion. I am gratified that thisrecognition of his magnificent services inthe formulation and passage of this greatmeasure through the House of Represent-atives, and his continuing and importantcontributions to the success of the System,since its establishment, is to be accordedduring his lifetime. Too frequently, thosewho have rendered immortal service to thecountry are not recognized until long afterthey have passed into eternity.

Cordially yours,W. G. MCADOO."

Letter from Senator Wagner

I have also received a letter from the Chair-man of the Committee on Banking and Cur-rency, Senator Robert F. Wagner, reading asfollows:

"My dear Mr. Chairman:I regret exceedingly my inability to be

present and participate personally in theceremony on the twenty-fifth anniversaryof the signing of the Federal Reserve Actby President Woodrow Wilson. I extendmost cordial felicitations to the Board ofGovernors of the Federal Reserve Systemand to Carter Glass, to whom the Nationowes an eternal debt of gratitude for hisleading part in the drafting and enactmentof the Federal Reserve Act. He remainsto this day the outstanding defender andexponent of the law which he fathered.This occasion signalizes for the Americanpeople a great victory in progressive ac-tion, and for Carter Glass a major personaltriumph.

With kindest personal regards and bestwishes, I am

Very sincerely yours,ROBERT F. WAGNER."

It gives me great pleasure to present theHonorable Henry B. Steagall of Alabama:ADDRESS OF HONORABLE HENRY B. STEAGALL OF ALA-

BAMA, CHAIRMAN, COMMITTEE ON BANKING ANDCURRENCY OF THE HOUSE OF REPRESENTATIVES.

Twenty-five years ago yesterday the Chair-man of the Banking and Currency Commit-tee of the House of Representatives, in pre-senting the Conference Report on the Glass-Owen Bill, expressed the view that the meas-ure embodied legislation which had beensorely needed for many years. The passageof the Federal Reserve Act did not representany hasty or immature judgment.

The necessity for currency reform had beenrecognized by advanced thinkers throughoutthe Nation. The country had become accus-tomed to periodic money panics, resulting indisastrous disturbance to agriculture, indus-try, and commerce and special Congressionalcommittees had made repeated studies insearch of a remedy. During these unfortu-nate periods the people found themselveswithout the supply of credit and currency in-dispensable to the normal flow of trade andcommerce. At such times it even becamenecessary to resort to barter or the issuanceof scrip with which to meet the requirementsof business. An illustration of which I havepersonal knowledge is to be found in the caseof many banks in small communities thatwere unable to secure payment in currency oftheir deposits in the large banks in financialcenters. Under these conditions the largebanking interests were in control of the Na-tion's supply of credit and currency, virtuallyholding the power of life and death over everyother business interest in the land. Thesituation demanded fundamental reform, andthe passage of the Federal Reserve Act wasthe answer of statesmen to that demand.

The party then in power had declared thatbanks existed for the accommodation of thepublic and not for the control of business, andthe Congress proceeded to make that princi-ple a living reality.

Happily for the Nation, the people hadsummoned to the office of Chief Executive aman with a vision unclouded by selfish inter-est and with an unwavering devotion to thepublic weal. The task was so stupendous that



it presented a challenge to the leadership ofthe President, and required leadership inCongress possessing the same lofty patriot-ism, rare courage, and consummate skill.

At that time a modest, unobtrusive, self-styled "country editor from Virginia" wasChairman of the Committee on Banking andCurrency of the House of Representativesand leader in the House in all matters oflegislation touching banking and currency.During his years of service in the House hehad quietly and studiously acquired vaststores of information useful to him and to hisCommittee in meeting the problems confront-ing it. It is no exaggeration to say that deeperor more painstaking study was never given toany measure than was given to the FederalReserve Act by the Chairman of the HouseBanking and Currency Committee. Ofcourse he was ably supported by his asso-ciates, but his was the responsibility, his thetask of piloting the legislation through hisCommittee and to final passage in the House.This was accomplished. The historian of thefuture, looking back over the period encom-passed by the passage of this Act, will beamazed, not only at the wealth of informationbrought to bear at all critical stages, but atthe consummate ability with which the Chair-man of the Banking and Currency Committeeof the House met the onslaughts of opponents,both within and without the halls of Con-gress.

It is doubtful that any great measure everencountered more stubborn and relentless op-position than was arrayed against this pro-posal, both in the Congress and in the bigbusiness circles of the country. A horde ofpowerful lobbyists such as seldom seen gath-ered in Washington, filling the air with direpredictions of confusion and chaos to followthe passage of the Act.

The Chairman of the Banking and Cur-rency Committee of the House, now the be-loved Senator from Virginia, with the con-summate courage that has characterized hisentire career, undaunted and undisturbed bythe clamor of the hour, pursued the eventenor of his way until he achieved the goalthat ushered in the dawn of a new day offreedom for the legitimate business interestsof the Nation. No measure was ever pre-sented to the House of Representatives byany chairman of a committee with a morecomprehensive grasp of the measure in handand of all pertinent information that couldbe desired by the House. The masterly man-

ner of presentation has never been surpassedin the history of the House. Objections weremet with devastating facts or reason. Oppo-nents became supporters, and the final votewas a triumph of leadership seldom equaledin the House.

The Federal Reserve System afforded asupply of currency and credit adequate to thegrowing demands of the country. The vol-ume of industrial production increased by30 per cent in two years following the in-auguration of the System, with correspond-ing improvement in agriculture and expan-sion in trade and commerce. During thesame period the National income increasedapproximately fifteen billions of dollars. TheSystem supplied facilities for financing theGovernment during the period of the WorldWar. The volume of Government securitieshandled through the Reserve Banks duringthat period amounted to approximately fiftybillions of dollars. The System enabled usto finance the great war and to hasten itsconclusion. It is today the greatest instru-mentality of the Government for meeting theproblems of the present. Strange as it mayseem, if at any time after the System hadbeen tested by experience a proposal had beenoffered to repeal the law, it would have en-countered even more strenuous oppositionand from the same sources that opposed theoriginal measure and indulged such dire pre-dictions of disaster to follow its enactment!

The part played by the illustrious Senatorfrom Virginia in connection with the estab-lishment of the Federal Reserve System madehim the choice of the President for Secretaryof the Treasury, in which capacity he ren-dered most able and conspicuous service.This does not by any means complete thestory of his career. Senator Glass, as Chair-man of the Committee on Banking and Cur-rency of the House of Representatives, gaveprofound study to the subject of farm creditsand the Federal Farm Loan Act was spon-sored by him and passed under his leadership.

Since the passage of the Federal ReserveAct he has been its constant defender andprotector, and as Senator he has sponsoredand supported new legislation to strengthenthe System and to enlarge its service to thepublic—always in conformity with the origi-nal purposes of the Act. Senator Glass sawthe evils and dangers attending the orgy ofspeculation during the period preceding thegreat depression and under his constructive



leadership legislation was enacted that termi-nated many of the evil practices which ob-tained and brought about the desired im-provement since recognized. He is the ac-cepted authority in the Senate in matters oflegislation relating to banking and currency.His activities cover a wide range too extensivefor review here and have left deep and lastingimprint on the Nation's financial structure.His lofty patriotism, great learning, and su-perb courage have endeared him to all hisassociates, as well as to the people of theentire Nation.

A great Roman said that he would ratherposterity would ask why he had not heldpublic office than to inquire why he had.

Historians in the years to come will wonderwhy Senator Glass was not made the nomineeof his party and elevated to the Presidencyof the United States following the Wilsonregime. His name will have a place in his-tory such as coveted by the great Roman.

We know not how long this marble struc-ture or this bas-relief will survive the vicis-situdes of time, but the name and fame ofCarter Glass of Virginia will endure to enrichthe annals of the Republic.

Senator Glass, we unveil this bas-reliefplaced here as a testimonial to your distin-guished public service and as an expressionof esteem and admiration of those who knowyou and love you.



RATES CHARGED BY BANKS ON CUSTOMERS' LOANSInterest rates charged by member banks

in principal cities on commercial loans tocustomers have for some time been at thelowest level on record. These rates have notchanged much during the past two years andhave averaged about 1% percent in NewYork City, about 2% percent in 7 otherNorthern and Eastern cities, and about 3*4percent in 11 Southern and Western cities.In 1929 these rates were close to 6 percent.Similar information is not available forbanks in smaller places.

That there are considerable geographicaldifferences in the structure of rates is shownby a recent survey of rates charged on com-mercial loans by banks in 19 leading citiesduring the first half of September. Theresults of this survey, which gives some de-tailed information that has never been ob-tained before, are summarized below and inthe following chart. Owing to the brief pe-riod covered by the survey, these conclusionsshould be accepted as only approximate.

New York City.—Abput two-thirds of the moneybeing lent to commercial borrowers is at rates be-tween 1 and 2 percent. About one-third of the bor-rowers pay this rate and the rest pay higher rates,many up to 6 percent.

7 other Northern and Eastern cities.—In these citiesabout half of the funds being lent for commercial pur-poses is at rates between 1 and 2 percent and theother half is rather evenly spread over rates from 2to 6 percent, with but a small amount at higher rates.Only few borrowers get the lowest rates, nearly four-fifths paying 4 percent or more, and about half ofthese pay 6 percent. Whereas the average interestcharge on loans made by banks in these cities wasabout 2% percent, the median rate was closer to 2percent.

11 Southern and Western cities.—In these citiesabout one-fourth of the commercial funds being lentare at rates between 1 and 2 percent and the re-mainder is about equally distributed over rates from2 up to 6 percent. Only a small amount of commer-cial funds is lent at rates higher than 6 percent. Ofthe number of borrowers, however, nearly two-thirdspay 5 or 6 percent and about one-sixth pay rateshigher than 6 percent, with some as high as 12 per-cent.

Method of reporting customers9 rates.—Since 1919 rates charged on commercial andother types of loans to customers have beenreported each month by a number of member

banks in cities with Federal Reserve banksand branches. These reports have not beenentirely satisfactory chiefly because the typesof loans have not been adequately definedand because banks have been permitted to

DISTRIBUTION OF COMMERCIAL LOANSACCORDING TO INTEREST RATES CHARGEDBASED ON SURVEY OF NEW LOANS MADE BY 92 BANKS DURING PERIOD SEPT. 1-15, 1938

60

50

40

30

20

10

0

40

30

20

10

0

30

20

10

PERCENT" OF TOTALNUMBER OF BORROWERS

NEW YORK CITY

7 OTHER NORTHERN AND EASTERN CITIES

hull11 SOUTHERN AND WESTERN CITIES

6 0

50

40

30

20

10

0

40

30

20

10

0

30

20

10

0

INTEREST RATE CHARGED

use their individual judgments in reporting"prevailing" rates or ranges of rates. Re-ported figures have therefore not alwaysbeen strictly comparable as between banksand have also varied from time to time be-cause of changes in persons reporting atindividual banks. In September a prelimi-nary survey was conducted for the purposeof testing a proposed revision of the report-ing of rates. It covered new commercialloans including industrial and agriculturalloans made during the period September1-15, 1938, by 92 banks in the 12 Reservebank cities and 7 of the branch cities. Agri-cultural loans made by these banks are neg-ligible in amount. The cities and banks re-



porting were selected partly on the basis ofvolume of commercial loans outstanding andpartly with a view to providing wide geo-graphical distribution.

Geographical differences in customers' rates.—The chart shows the percent of total dollarvolume and total number of new commercialloans made at different rates, as reported inthe survey. Figures are charted separatelyfor New York City and for two groups ofcities: 7 other Northern and Eastern cities,covering Boston, Buffalo, Philadelphia, Cleve-land, Pittsburgh, Chicago, and Detroit; and11 Southern and Western cities, coveringRichmond, Baltimore, Atlanta, New Orleans,St. Louis, Minneapolis, Kansas City, Dallas,San Francisco, Seattle, and Los Angeles.Each Reserve district is therefore repre-sented.

The chart illustrates the chief geographicaldifferences in the structure of rates on com-mercial loans. In the principal cities of theNorth and East a preponderance of newfunds for commercial purposes is being lentat low rates of between 1 and 2 percent. Inthe South and West a relatively smallervolume of loans is made at these low rates,other rates up to 6 percent being almost ascommon.

Although only a third of the commercialfunds lent by New York banks is at ratesof 2 percent or more, this includes two-thirdsof the borrowers, while about one-sixth ofthe borrowers pay 6 percent or more. In18 other leading cities the number of bor-rowers increases steadily as the rate in-creases, with the most numerous group inthe range of 6 to 7 percent. Only in theSouthern and Western cities does any con-siderable number of borrowers, amountingto about one-seventh of the total number,pay 7 percent or more.

Variation in rates by size of loan.—Theamount of money involved in loans at lowerrates is relatively much larger than the num-ber of borrowers who obtain accommodationat such rates. In other words, big borrowers

are likely to obtain lower rates, in partno doubt because many of them have a na-tional credit standing and can shop aroundfor their funds. The increase in rates as theaverage size of the loan decreases is broughtout by the following table:

AVERAGE SIZE OF COMMERCIAL LOANS MADEDIFFERENT RATES, BY GROUPS OF BANKS,

SEPTEMBER 1-15, 1938

[In thousands of dollars]

AT

Interest rates charged 1

1-2 percent-2-3 percent..3-4 percent..1-5 percent.5-6 percent.6-7 percent.

NewYorkCity

7 North-ern andEastern

cities

18026221362

11 South-ern andWestern

cities

6524191063

1 Ranges include the lower percents shown but not the upper.

Volume of loans covered by survey.—Banks reporting interest rates in the Sep-tember survey had outstanding on Septem-ber 14 about $3,000,000,000 of commercialloans, or more than three-fourths of suchloans made by all weekly reporting memberbanks in 101 leading cities. As shown in thefollowing table, in the half month covered bythe interest rate report these banks madesomewhat more than $200,000,000 of newcommercial loans. Since the volume of suchloans outstanding showed little change in theperiod, repayments were similar in amountto new loans made.

COMMERCIAL LOANS OUTSTANDING AND NEW LOANSMADE AT BANKS REPORTING INTEREST RATES,

SEPTEMBER 1-15, 1938

[In thousands of dollars]

New York City7 other Northern and Eastern cities._11 Southern^and Western cities

Volumeof newloansmade

89, 61062, 43263, 593

Loansout-

standingon

Sept. 14

1, 424, 587890, 700655,085

Changesince

Aug. 31

-14 , 598+ 3,226+18, 897

Level of customers' rates.—That the levelof rates charged on commercial loans is now



unusually low is shown in the followingtable, which gives typical rates charged byreporting banks in these cities on loans tocustomers represented by prime commercialpaper eligible for rediscount, as reported onthe schedule that has been in use. The ratesshown for September 1938 on loans of thistype are about the same as the typical rates

BANK RATES ON COMMERCIAL LOANS TO CUSTOMERSSELECTED PERIODS, 1920-1938

[Percent per annum]

1920-19211925-1927

1929-Sept..._1931-Sept.1932-March1936-June1938-Sept

NewYorkCity

4 ^

6

7 otherNorth-

ern andEastern

cities

QU

6

5*3

2H

11 South-ern andWestern

cities

51/

6

r l /

3 1 /

on commercial, industrial, and agriculturalloans of all kinds more precisely reported inthe special survey made in that month.

During the years immediately after theWar, when money was generally tight, cus-tomers' rates increased to exceptionally highlevels. By the middle of 1924 they had de-clined and during the years 1925-1927, whenbusiness conditions were relatively stable,they showed only slight fluctuations. In1928 and 1929 rates rose, reaching a peakof around 6 percent. The subsequent declinewas temporarily interrupted in the autumnof 1931, when there was an outflow of goldfrom the country, and again in the spring of1933 during the banking holiday. Since themiddle of 1936 these rates have shown nochange at New York City banks, while atbanks in the 18 other principal cities theyhave declined slightly further.



INDEXES OF PRODUCTION OF DURABLE AND NONDURABLE MANUFACTURES

Monthly indexes of the production of dur-able and nondurable manufactures have beencompiled with a view to facilitating interpre-tation of current developments in manufac-turing output. The indexes are shown forthe period since 1919 in the accompanyingtable, and current figures will be publishedregularly in the FEDERAL RESERVE BULLETIN.

INDUSTRIAL PRODUCTIONADJUSTED FOR SEASONAL VARIATION

1923-25 AVERAGE=100

1930 1932 1934 1936 1938

Latest figures shown are for November 1938.

These indexes are based on a breakdownof the Board's index of manufacturing pro-

duction according to the durability of theproduct. The principal items in the durablegroup are iron and steel, lumber, and auto-mobiles and in the nondurable group are foodproducts, textiles, and paper and printing.In the 1923-1925 base period production ofnondurable goods comprised somewhat overhalf and production of durable goods some-what less than half of all manufacturing.The underlying data are those used in com-piling the manufactures index, which, incombination with the minerals index, makesup the Board's total index of industrial pro-duction. The index of industrial productionand the indexes of durable manufactures,nondurable manufactures, and minerals areshown in the accompanying chart for the pe-riod from 1929 to date.

Output of durable manufactures usuallydeclines more than output of nondurablemanufactures in periods of business reces-sion and rises more in periods of recovery.The more pronounced declines in the pro-duction of durable goods than in the pro-duction of nondurable goods during reces-sion reflect in part the fact that existingsupplies of machinery, buildings, automo-biles, and other finished durable prod-ucts are large as compared with current out-put and are used up slowly; consequently newpurchases can be postponed a long time with-out seriously affecting the use of such prod-ucts. Further, purchases of durable goods,which generally involve substantial amountsof money, are more dependent on financialconditions than are purchases of nondurablegoods; and prices of durable goods in generalfluctuate less than prices of nondurablegoods.



DURABLE MANUFACTURES

1923-1925 average=100

Month 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938

Without Seasonal Adjustment

JanuaryFebruaryMarch __April..MayJune ...JulyAugust ..September _ _October _November._ _._December

Year. .

95981061121131091041031031019690

102

9610811210188787284889192

CO

C

Oto

to

1031091131081061019899103110111106

106

10711311711611511010611311211210392

110

981091141121131019710097958885

101

99109114119113109108114118118111107

112

1141241351371381371291291261189983

122

9310911111210898848379726457

89

637278787564575347444239

59

394038383734282630312900

CO

CM

CO

CM CO

O5

CO CO

CM

405165787160523945

50

496071777873504644424151

57

687680797270687471808788

76

80798910510710510310297104109108

99

107114

130132116118122103947457

107

53545758565358636680

JanuaryFebruaryMarch. __AprilMayJuneJulyAugustSeptemberOctoberNovemberDecember _

Year

888781777181889383798383

83

969897869196949896918276

92

645952495047454949555654

53

5762687782868878819092

00

CO

98971011051081081081061051009899

102

1001041049584787586899094101

92

Adjusted for Sea?

106105105101102102102101104109114116

106

111109108109110111111113113112108101

110

10310510610410710110110097959395

101

onal

104106105110107109112113117118120122

112

Variation

12212112412512913413412712411910893

122

10010710310210095868178737067

89

687072706862585247444648

59

434035353433292529313335

33

CO CO

CN

364663817059534353

50

535964687171514543424562

57

747472716568717680838994

76

8479829498102107105106109112116

99

CM CO

CO

1171201121221261141017460

107

56545453515058646984

._ _

p Preliminary.NOTE.—Includes iron and steel, coke, nonferrous metals, lumber, cement, polished plate glass, automobiles, locomotives, and shipbuilding.

Indexes without seasonal adjustment have not been computed for period prior to 1923.

NONDURABLE MANUFACTURES

1923-1925 average=100

Month 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938

Without Seasonal Adjustment

JanuaryFebruary _March .AprilMay-June. _JulyAugust ...SeptemberOctoberNovemberDecember

Year

103107106106104999292979810094

100

10210299969186848898102104103

96

108109106105101989799103107108106

104

10910910710110110298103112114112106

106

110112113112111111106107113112112105

110

113117114108

O ©

O

O-J

tO

OC

CD

114116118112

112

120120119120119118111115120121114102

117

1101111071071049893921001019990

101

97103102104104999898102989690

99

979590848079788698989284

88

89888292105116114105104979685

98

9810099100999290939310110098

97

104103100100100979698105110107102

102

107105103105104105107110116116120120

110

1181221211201161131041071091039790

no

94959491939497104109109

Adjusted for Seasonal Variation

JanuaryFebruary.March _April .May .JuneJuly...AugustSeptember _ _October.._November. _ . _December

Year

777474808587898992939493

86

969493919187838178736560

83

656872757780828384868585

79

86868785899393959697102103

93

100103105106104103999797979695

100

999997969289909297100101103

96

105105104104102102103103102104105108

104

106105105104103105104107110110109108

106

108108111111112114113111111109109108

110

110113112108110110107110112114

CO OO

CM

118116117119118119117118118118112107

117

10910710610610399989598999895

101

96100101103103100103101101969495

99

959289838080818897959089

88

88868191104118120109104959490

98

9698989999939496919898104

97

1031019910010199100101102106104108

102

106103102104104107112113114112117126

110

1171191201191161151081101071009495

110

939493919395102108107105P110

p PreliminaryNOTE.—Includes textiles, leather products, food products, tobacco products, paper and printing, petroleum refining, and rubber tires and tubes.

Indexes without seasonal adjustment have not been computed for period prior to 1923.



REVISED FORM OF BANK REPORT OF CONDITION

In order to improve the statistical infor-mation obtained from banks and to simplifysomewhat the task of reporting, the Comp-troller of the Currency, the Federal DepositInsurance Corporation, and the Board ofGovernors of the Federal Reserve Systemhave together worked out a revised reportof condition for banks. This report has beenadopted by each of the Federal agencies ina nearly identical form, most of the differ-ences among the adopted forms being re-quired for statutory and administrativepurposes. In addition, the Executive Com-mittee of the National Association of Super-visors of State Banks approved this reportform and recommended that, so far as prac-ticable, it be adopted by State banking de-partments. The form is being used by theFederal agencies for the current call forreports of condition.

The general use of a standard conditionreport form will simplify the problem ofpreparing reports for State banks, sincemost of them submit reports to either theReserve System or the Federal Deposit In-surance Corporation as well as to their Statebanking departments. Many State bankmembers of the Federal Reserve System willalso be relieved of the obligation of publish-ing two different reports for the same calldate. This duplication occurred when therewas a difference in the form of the reportsrequired for publication by the State au-thorities and by the Federal Reserve. Withthe standardized condition report a singlepublication may be made to satisfy all legalrequirements for any one call date.

The report form has been revised both withrespect to the general statement of conditionwhich is required to be published for the in-formation of depositors and stockholdersand with respect to the special schedules thatsupply information needed for supervisorypurposes and for analysis of banking andcredit developments. Additional informationof importance will be supplied by the new

report. At the same time some less im-portant sections of the previous form havebeen condensed or eliminated so as to simplifyfor banks the preparation of the report.

With respect to banking and credit statis-tics the most important changes in the formare a revision in the classification of loansand the reporting of information regardingmaturities of security holdings. The newclassification of loans is similar to that usedin weekly reports obtained from memberbanks in 101 leading cities and is based moreon purpose of loan than on type of collateral.Information will be obtained on commercialand industrial loans, on agricultural loans,and on loans made for the purpose of pur-chasing and carrying securities, as well ason open-market paper, brokers' loans, andreal estate loans.

Security holdings will be reported withpractically the same detailed classificationsas to issuers as before and, in addition, forthe broad classifications figures will be givenas to holdings of securities maturing in fiveyears or less. For United States Govern-ment obligations additional maturity group-ings will be shown.

On the report to be published additionalinformation to be given includes holdings ofobligations of State and political subdivisionsand also the deposits of these bodies. In-vestments and other assets indirectly repre-senting bank premises or other real estateare to be reported separately, rather thanbeing included in loans or investments asheretofore. Borrowings, which recentlyhave been small, are to be reported in onerather than four items. The reporting ofthe capital account has been greatly simpli-fied, primarily to enable depositors to see ata glance the amount and principal kinds ofthe bank's capital funds. Secured and pre-ferred liabilities, as well as pledged assetsheretofore published, are included in the newform of published report.

A short schedule for reporting whether



or not the bank has any affiliates is containedin the body of the report, so as to make itunnecessary for most banks, which have noaffiliates, to submit a separate schedule onaffiliates.

The standardized condition report is to beaccompanied by detailed instructions for thepreparation of the report. These instruc-tions are for the purpose of assisting banksin preparing their reports of condition. Par-ticular attention is given to those sections oft

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