THE DECLINE IN DEPOSITS COMPARED WITH THE DECLINE IN LOANS. The loans of the reporting banks throughout the country corresponded closely in their rate of increase and decrease from month to month during 1920, and until May, 1921, the rates of decrease were closely the same. Since that time loans have continued to decrease but deposits have remained practically stationary, due largely to the accumulating base of gold-that is, gold imports have about offset the decline in deposits resulting from the extinguishment of loans. (See p. 641.) In New York City, however, the decrease in deposits was proportionately greater than the decrease in loans and it is only very recently that there has been substantial correspondence between them. (See pp. 635 and 636.) The following table gives a detailed comparison for 1920 and 1921. The figures are as of the last reporting day of each month, and in the case of the reporting banks in all districts covers only the period from October 15, 1920, inasmuch as that was the date on which the loans of those banks reached their maximum: Deposits, loans and investments, and borrowings of reporting member banks in the second Federal reserve district (last week of each month). On February 11, 1921, the deposits of the 72 New York City member banks which report weekly to the Federal reserve bank were 18 per cent below the high point reached on September 19, 1919. The total loans of these same banks on the same day showed a decline of 12 per cent from the high point reached on October 10, 1919. In the country as a whole, however, member banks reported that their deposits and loans had both declined 7 per cent from maximum. Whereas there was equality of decline in loans and deposits in the country as a whole, there was inequality of decline in loans and deposits in New York. The following explanation of this inequality appeared in the Monthly Review of the Federal reserve agent at New York for March 1: "This is due in great measure to the fact that there has been a marked tendency for loans to shift from other parts of the country to New York, the financial center. As pressure to liquidate has increased in other Federal reserve districts upon banks, corporations, and individuals, a growing demand for loans has been manifested in New York, from those districts. Much of this demand has been upon banks of large resources in New York City doing a nation-wide business. Not only have they given accommodation in large amounts to banks and corporations in other parts of the country, but the balances which banks ordinarily keep with them have been drawn down. From January 1 to February 19 the deposits of the leading New York City banks declined $515,000,000, of which about $110,000,000 represents the drawing down of deposits in New York City by out-of-town bank correspondents, and is in addition to the accommodation New York City banks have given to banks and corporations in the interior." BALANCES AND LOANS OF OUT-OF-TOWN CORRESPONDENTS. Early in January of 1920 the balances of out-of-town correspondents with New York City banks amounted to about $840,000,000 and the loans placed for them on the stock exchange amounted to about $680,000,000, making a total of about $1,520,000,000. These balances and loans, forming together a substantial part of funds from the interior placed in New York City, declined $450,000,000. During 1921 this decline has continued but at a slightly slower rate, as illustrated in the accompanying diagram. Whether by withdrawal of balances or in the reduction of loans placed for the account of out-of-town banks, in either case, movement of funds away from New York has resulted. At present (July 20) the amount of loans placed for out-of-town correspond OUT-OF-TOWN FUNDS WITH 32 NEW YORK CITY BANKS. White area shows balancos of out-of-town correspondents each week in 52 New York City banks and dark aren shows street loans placed by these New York City banks for out-of-town correspondents. Source of information: Daily reports to the Federal reserve bank of New York. ents is below $400,000,000 and lower than at any time since the spring of 1919; and the total of balances and loans is $175,000,000 less than on January 7, 1921, and about $550,000,000 less than in January, 1920. There is naturally a close interrelation between the rates on the stock exchange for call money and the supply of funds but it was not until the volume of street loans had begun to decline in 1919 that the highest rates for that year were reached. On the two accompanying diagrams the volume of loans placed for out-of-town banks and the volume of loans placed by New York City banks for their own account are shown in comparison with the average call loan rates. (See pp. 545 and 546.) In 1919 the lessening of the supply began in late October and was reflected some two weeks later in an average rate in excess of 14 per cent. In the closing weeks of the year out-of-town banks withdrew money which had been placed on call to the amount of about $110,000,000. While city banks made up a part of the funds so withdrawn the average rate rose nearly to 20 per cent for a few days and shortly thereafter sharply declined. Early in the year the volume of loans placed on call by New York City White area shows loans outstanding each week for their own account, and dark area amount outstanding each week for the account of correspondents. Source of information: Daily reports to the Federal reserve bank of New York. banks for their own account declined more than $250,000,000, going much below the amount placed by them for their out-of-town correspondents. This withdrawal was reflected in an average rate late in January of 1920 of about 14 per cent. Throughout 1920, with occasional fluctuations, the volume of stock exchange loans declined but rates fluctuated within substantially the same limits throughout the rest of the year, reflecting the decreased activity of the market. |