and the difficulty of making loans large enough to carry the producers after the decline took place.

Senator LENROOT. Governor, do I understand that the same percentage of credit will be extended at the high peak as is extended now?

Gov. STRONG. No, sir; I can not answer that.

Senator LENROOT. If it was not, it would not be four times the amount it was last year.

Gov. STRONG. It would not be four times as much; but I used those figures simply to illustrate the relationship between the twobetween a low-priced crop and a high-priced crop.

Senator LENROOT. There would not be that same relationship, however.

Gov. STRONG. No, sir; last year's crop was 13,500,000 bales, approximately, and this year's crop is estimated at approximately eight and a quarter million bales.

Senator LENROOT. I would like to ask a question about this chart. This [indicating] represents street loans of eight or ten billion dollars; this is magnified ten times? (See page 626.)

Gov. STRONG. Yes; the volume is, but the relative amount of increase is not magnified. It merely raises that line on the chart. Senator LENROOT. The actual figures show $16,000,000,000; that would be an increase of $8,000,000,000. But this is magnified ten times; so the actual increase is about $800,000,000.

Gov. STRONG. Yes; I could give you the exact figures reported to us daily, Senator.

Senator LENROOT. Just to take your chart so that anyone that reads the record may understand it as a matter of fact, the actual increase, as shown by the increases from January to November on street loans is $800,000,000, approximately?

Gov. STRONG. It is approximately that; yes, sir.
Senator LENROOT. Is that an unusual expansion?

Gov. STRONG. It is impossible to answer that, because we have not had the data upon which to make a comparison. The only data which we have showing the fluctuation of loans on the New York Stock Exchange are those which we began to get in November, 1918, when these reports were first sent to us, and we have no data showing the volume of the loans, for example, as in such a period of expansion previous to this as the one which culminated in 1907, when a similar occurrence took place. We have no data for comparison.

Senator LENROOT. In your judgment, did that expansion from January to November in itself have any effect or was it one of the causes of the break which afterwards followed?

Gov. STRONG. I think it was one of the causes of the break, in the sense, Senator, that that market, with all other markets, commodities, and everything else, got top-heavy. It had got too high in the burst of speculation that raged not only over this country but over the whole world.

Senator LENROOT. Then if this expansion had not occurred, the break would probably not have been as great; if this particular expansion had not occurred, the break would not have been as great? Gov. STRONG. On this market?

Senator LENROOT. Generally.

Gov. STRONG. Yes; that applies to all markets.

Senator LENROOT. But the expansion, I take it, from this chart, was greater than the ordinary expansion during that same period, relatively speaking?

Gov. STRONG. Yes; the rise in the values was greater than-Senator LENROOT (interposing). No; the rise in volume of street loans was very much greater than the rise in credit generally, as shown by the chart?

Gov. STRONG. Yes; it is so shown by the chart; yes, sir. I would like to pursue that a little further, to be very certain that that is the fact.

Senator LENROOT. Yes.

Gov. STRONG. Of course, these reports, Senator, are made from figures submitted by only 800 banks, and that would exclude the percentage or volume of expansion which took place in the agricultural sections, which we regard as very much greater than in the

commercial sections.

Senator LENROOT. This particular expansion seems to be very much greater than the general expansion of credit during that period. Could that have been controlled so as to have prevented it, in part, at least?

GOV. STRONG. I hope to make a full report on the measures that were taken, Senator, on that matter.

Senator LENROOT. I will not press it now, then.

Representative TEN EYCK. The fact that the street loans started to drop in October-I think the peak was in October-

Gov. STRONG (interposing). It was, in fact, November 3.

Representative TEN EYCK. Is that the reason why loans and investments started to increase at that time, due to the speculator and the weak investor starting to sell his stock, or transferring them from a broker's loan to a banker's loan, which then would become an investment by buying their stock out and out, but still owing the bank for part of it; is that one of the reasons why that line for loans and investments started to rise or increase?

GOV. STRONG. Loans and investments?

Representative TEN EYCK. Yes; loans and investments.

Gov. STRONG. I should say that the cause of the earlier decline in the stock market, and consequently the earlier decline in the volume of loans, which are interrelated, of course, arose in very large part from the nervousness of nolders of speculative stocks at the peak of the rise in the stock market, and consequently in the rise of the loan account, because they were afraid there was not going to be enough. credit to support the speculation. And when I come to describe what happened in that period, I think you will appreciate they had reason to feel uneasy.

Representative TEN EYCK. I think I know the reason, and think I appreciate the situation at that time. But at this particular time, the loan account, through investments, increased, while the loan account on the street decreased. I wondered whether there was any relation between them, on account of transfers from one condition to the other. You know, often a man buys stock on the market and leaves it with his broker, and then comes a time when he says, "I guess I had better get this out of the broker's hands and buy it out

right." At the same time he does not put up much more money, but borrows money at the bank, and puts the stock up, at the bank, as collateral, and the bank holds it, instead of the broker; is that not a fact?

Gov. STRONG. Yes, sir.

Representative TEN EYCK. I wondered whether that had any relation to this situation?

Gov. STRONG. Of course, banks do not buy stocks, as a rule.

Representative TEN EYCK. I am not talking about banks; I am talking of the individual investor who buys his stock through a broker, and the broker may have carried him five months or two months or one month, but there comes a time when he says to himself, I think I had better take this stock out of the market and buy it out and out," but in doing so he goes to his bank, where he has credit, and borrows enough money to take that stock up. and puts the stock up as collateral in that bank. Now, when he does that, that loan comes in the line of loans and investments, does it not?

Gov. STRONG. Yes, sir.

Representative TEN EYCK. Is that not one of the reasons why that line ran up and increased while the other one was going down, or is that so small that it made no difference?

Gov. STRONG. I would have to surmise in order to answer your question, until we have had time to analyze the account which is shown on the chart as "loans and investments of all reporting banks." But, surmising only, I think what happened was that the demand for agricultural and industrial accommodations increased throughout that period so rapidly that, as shown on the charts, our reserve percentage constantly decreased, and it was the outside pressure for accommodation to take care of this volume of commodities, with the increased pressure that was put on the money market, that was one of the causes of the liquidation. The rise in the money market simply indicates one of the elements causing liquidation in the stock market.

Representative TEN EYCK. I appreciate that; but doesn't this have something to do with it?

Gov. STRONG. I think it may, Congressman, but I could not say without analyzing the figures, and I do not like to surmise where we are in a position to get the actual figures.

There is still another chart relating to this matter, which bears three curves. (See opposite page.) One shows the total loans and investments of the New York City reporting banks-the 70 banks to which I have referred; the second is a similar curve showing the loans and investments of all banks outside of New York City reporting to us; the third curve shows the loans and investments of all reporting banks, including the New York City banks. I also offer a chart comparing the decline in deposits of New York City banks with the decline in deposits in the 800 banks of the whole country. (See p. 636.)

I do not think there is any necessity for commenting upon those charts, unless something is suggested by them to the members of the commission.

Gov. STRONG. In connection with that first chart, which includes all loans, including stock exchange loans, the point that you raised, Congressman Ten Eyck, should have been made clear. It was stupid of me not to do it. In the first chart which I submitted, the curve which shows the loans and investments of all reporting banks, the upper curve, includes the street loans of the New York City daily reporting banks.

Representative TEN EYCK. I see.

GOV. STRONG. And the significance of that is that notwithstanding the decline in the volume of the street loans the other curve continued

JAN. APR

1920

APR.

JULY ост.

1921

JULY ост. JAN. APR. JULY ост. JAN.
1919
LOANS OF REPORTING BANKS IN NEW YORK CITY AND THE UNITED STATES.
Logarithmic scale.

Source of information: Annual reports of the Federal Reserve Board, Federal Reserve Bulletin, weekly press statements.

and

to go up, showing that the release of credit effected by the reduction of credit on the New York Stock Exchange was taken up by other classes of loans in the banks of the country.

Representative SUMNERS. You stated a moment ago that the effect of a high interest rate in the money market was to cause a speculator to turn his investment loose, and that the stock turned loose by the speculator under a high interest rate was absorbed by the investors. throughout the country. Is there anything to show how much money during that sort of a situation comes in from the country at large in order to absorb these shares of stock pressed upon the market by the high interest rate?

Gov. STRONG. I know of no means of getting at the absolute data, Congressman, but certain information can be obtained which would throw some partial light upon that question. The effect upon the loan account in a declining market arises from two causes. As stock values decline, those who have bought them on margin must put up more margin and draw upon their bank accounts, which has a tendency to reduce the loan account. And then the class of investor I speak of comes in and buys stocks outright, and that also reduces the loan account. The two together would result in gradually paying for stocks which had formerly been carried on loans.

BANK DEPOSITS IN NEW YORK CITY AND OUTSIDE.

Total deposits of reporting banks in New York City and in the United States outside New York City the last week of each month. (Logarithmic scale.)

Source of information: Foderal Reserve Bulletin and weekly press statements of the Federal Reserve Board.

Representative SUMNERS. There is an opinion very widespread throughout the country that the custom of dealing in these stocks by speculative investors, resulting in such fluctuations of interest rates and purchases and sales has a general disorganizing and demoralizing effect upon the volume of available money scattered throughout the country; have you any data with reference to that, or any opinion with reference to it?

Gov. STRONG. I think possibly the Senate document to which I have alluded will give some information.

Representative SUMNERS. Very well.