Federal Reserve Bulletin December 1929 - St. Louis Fed · 2018. 11. 6. · FEDERAL RESERVE BULLETIN...

FEDERAL RESERVEBULLETIN

DECEMBER, 1929

ISSUED BY THE

FEDERAL RESERVE BOARDAT WASHINGTON

The Banking PositionBranch and Chain BankingRecent Changes in the Wholesale Price Level

UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON : 1929

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

FEDERAL RESERVE BOARD

Ex officio members:A. W. MELLON,

Secretary of the Treasury, Chairman.

J. W. POLE,

Comptroller of the Currency.

ROY A. YOUNG, Governor.EDMUND PLATT, Vice Governor.ADOLPH C. MILLER.CHARLES S. HAMLIN.GEORGE R. JAMES.EDWARD H. CUNNINGHAM.

WALTER L. EDDY, Secretary.

J. C. NOELL, Assistant Secretary.E. M. MCCLELLAND, Assistant Secretary.W. M. IMLAY, Fiscal Agent.

Chief, Division of Examination, and Chief FederalReserve Examiner.

WALTER WYATT, General Counsel.

E. A. GOLDENWEISER, Director, Division of Researchand Statistics.

CARL E. PARRY, Assistant Director, Division of Re*search and Statistics.

E. L. SMEAD, Chief, Division of Bank Operations.

District No.District No.District No.District No.District No,District No.District No,District No,District No.District No,District No,District No,

FEDERAL ADVISORY COUNCIL

1 (BOSTON) ARTHUR M. HEARD.2 (NEW YORK) WM. C. POTTER.3 (PHILADELPHIA) L. L. RUE.4 (CLEVELAND) HARRIS CREECH.5 (RICHMOND) JOHN POOLE.6 (ATLANTA) J. P. BUTLER, Jr

7 (CHICAGO) FRANK O. WETMORE, President.8 (ST. LOUIS) W. W. SMITH.9 (MINNEAPOLIS) THEODORE WOLD.10 (KANSAS CITY) P. W. GOEBEL.

11 (DALLAS) B. A. MCKINNEY, Vice President.12 (SAN FRANCISCO) F. L. LIPMAN.

WALTER LICHTENSTEIN, Secretary


OFFICERS OF FEDERAL RESERVE BANKS

Federal Reserve Bank of—

BostonNew York..

Philadelphia

Cleveland

Chairman

Frederic H. Curtiss.G. W. McQarrah...

R. L. Austin

George DeCamp

Richmond I Wm. W. Hoxton..

Atlanta-

Chicago.

Oscar Newton..

Wm. A. Heath-

Governor Deputy governor Cashier

W. P. G. Harding...Geo. L. Harrison

Geo. W. Norris

E. R. Fancher

George J. Seay

Eugene R. Black....

J. B. McDougal

St. Louis Rolla Wells

Minneapolis

Kansas CityDallas

John R. Mitchell

M. L. McClureC.C.Walsh

San Francisco Isaac B. Newton

Wm. McC. Martin.

W. B. Geery

W. J. BaileyLynn P. TalleyJno. U. Calkins

W. W. PaddockJ.H. CaseL. F. SailerE. R. Kenzel ,A. W. GilbartL. R. RoundsWm.. H. Hutt

M. J. FlemingFrank J. Zurlinden.C.A. PepleR. H. BroaddusHugh FosterCreed TaylorC. R. McKayJohn H. Blair

0. M. Attebery

Harry YaegerH. I. ZiemerC.A. Worthington.R. R. GilbertR. B. ColemanWm. A. DayIra Clerk

W. Willett.J. W. Jones.*Ray M. Gidney.1J. E.Crane.iW. B. Matteson.1C. H. Coe.iC.A. Mcllhenny.W. G. McCreedy.*H. F. Strater.

Geo. H. Keesee.John S. Walden, jr.*M. W.Bell.

W. C.Bachman.*K. C. Childs.*J. H. Dillard.»D. A. Jones.*O. J. Netterstrom.1A.H. Haill.»F. N. Hall.1S. F. Gilmore.1G. O. Hollocher.»C. A.Schacht.iGray Warren.Frank C. Dunlop.1J. W. Helm.Fred Harris.W. D. Gentry.*Wm. M. Hale.

i Assistant deputy governor. * Controller.

MANAGING DIRECTORS OF BRANCHES OF FEDERAL RESERVE BANKS


New York:Buffalo branch

Cleveland:Cincinnati branchPittsburgh branch

Richmond:Baltimore branchCharlotte branch

Atlanta:New Orleans branchJacksonville branchBirmingham branch._Nashville branch

Chicago:Detroit branch

St. Louis:Louisville branchMemphis branchLittle Rock branch

Managing director

R. M. O'Hara.

C. F. McCombs.J. C. Nevin.

A.H. Dudley.Hugh Leach.

Marcus Walker.W. S. McLarin, jr.A. E. Walker.J. B. Fort, jr.

W. R. Cation.

W. P. Kincheloe.W. H. Glasgow.A. F. Bailey.


Minneapolis:Helena branch

Kansas City:Omaha branchDenver branch

j Oklahoma City branch| Dallas:

El Paso branchHouston branch

! San Antonio branch.1 San Francisco:! Los Angeles branch

Portland branchSalt Lake City branchSeattle branch

i Spokane branch __

i

Managing director

R. E. Towle.

L. H. Earhart.J. E. Olson.C. E. Daniel.

W. 0. Ford.D. P. Reordan.M. Crump.

W. N. Ambrose.R. B. West.W. L. Partner.C. R. Shaw.D. L. Davis.

SUBSCRIPTION PRICE OF BULLETIN

The FEDERAL RESERVE BULLETIN is the board's medium of communicationwith member banks of the Federal reserve system and is the only official organor periodical publication of the board. The BULLETIN will be sent to all memberbanks without charge. To others the subscription price, which covers the cost ofpaper and printing, is $2. Single copies will be sold at 20 cents. Outside of theUnited States, Canada, Mexico, and the insular possessions, $2.60; single copies, 25cents.

in


TABLE OF CONTENTS

PageReview of the month—The banking position 755

Changes at New York banks—Banks outside New York—Brokers' loans—Security issues—Bankcredit in 1929—Loans on securities and "all other loans"—Discounts in New York and outside—Strong banking position.

Branch and chain banking developments, 1929 762Recent changes in the wholesale price level in the United States._.. 772The Hague protocol on reparations 792Text of the Czechoslovak currency law 797Annual report of the Danish National Bank 799Condition of all member banks on October 4, 1929 760, 823-828

National summary of business conditions 776

Financial, industrial, and commercial statistics:Reserve bank credit and factors in changes 777-779Analysis of changes in monetary gold stock 778Discount rates and money rates 780, 781Member bank credit „ 782Bankers' balances 783Bankers' acceptances and commercial paper outstanding . 783Brokers' loans 783Commodity prices, security prices, and security issues 784Production, employment, and trade 785Industrial production 786Factory employment and pay rolls 788Building 789Trade and distribution 790November crop report, by Federal reserve districts 791Bank suspensions 822

Financial statistics for foreign countries:Gold holdings of central banks and Governments 800Gold exports and imports 800Condition of central banks 801Condition of commercial banks *— 803Discount rates of central banks 803Money rates 804Foreign exchange rates 805Price movements 806-808Industrial statistics for England, France, Germany, and Canada 809, 810

Law department:Rulings of the Federal Reserve Board—

Maturity of bankers' acceptances drawn to finance domestic shipments 811Changes in National and State bank membership 811Fiduciary powers granted to national banks 813

Detailed banking statistics for the United States 814-822

IV


FEDERAL RESERVE BULLETINVOL. 15 DECEMBER, 1929 No. 12

REVIEW OF THE MONTH

In November changes in the banking posi-tion were largely in the nature of readjustment

accompanying and followingChanges at ^ drOp in security prices.banks. Since it was chiefly at the mem-

ber banks in New York Citythat the changes occurred, the course of eventscan best be described by reference to figures forthese banks alone. During the week endingOctober 30 loans and investments of thesebanks had increased by $1,400,000,000, largelybecause they had taken over a large part of theloans in the call loan market which had previ-ously been made by out-of-town banks andnonbanking lenders, as these lenders withdrewfunds from the market. As the liquidation ofbrokers' loans continued in November, how-ever, it was reflected in a reduction of securityloans by the New York banks for their ownaccount. Changes in the position of the NewYork banks during the week ending October30, during the four weeks following, and forthe entire 5-week period are shown in thefollowing table:

C H A N G E S I N P O S I T I O N O F R E P O R T I N G M E M B E R B A N K SI N N E W Y O R K C I T Y

[In millions of dollars]

Loans and investmentsLoans on securities

To brokers.. _To others

All other loans _ _Investments .

Reserves with Federal reserve bankBorrowings from Federal reserve bank

Oct. 23to Oct.30,1929

+1,391+1,200

+992+208+92+98

+243+129

Oct. 30to Nov.27,1929

-823-1,128-1,238

+110+106+199-201-137

Oct. 23to Nov.27, 1929

+568+72

—246+318+198+297+42

- 8

During the week ending October 30 the NewYork banks took over $1,200,000,000 of secur-ity loans, of which about $1,000,000,000 wereloans to brokers and $200,000,000 loans toothers; in the following four weeks brokers'

loans of New York banks were liquidated inthe amount of $1,240,000,000, but their othersecurity loans increased further, and there wasalso a considerable growth in their other loans,including loans for commercial purposes, andin their investments. As a consequence, atthe end of the 5-week period the New Yorkbanks' security loans to brokers were consider-ably smaller than at the beginning, while theirother loans, both on securities and otherwise,as well as their investments, had increased, sothat the total volume of their credit showed agrowth of $570,000,000 and was at a higherlevel than at any time prior to October 30 ofthis year.

This growth in the New York banks' loansand investments was not accompanied, how-ever, by any increase in their indebtedness atthe Federal reserve bank, as the reserve fundsneeded to meet the increase in their reserve re-quirements, arising from the growth in theirdeposit liabilities, were supplied through secur-ity purchases by the reserve banks. Therelatively low level of indebtedness of the NewYork banks was a factor in the decline in openmarket rates for money which characterized theperiod. The reserve banks' buying rates forbills were reduced gradually from a range of 5%to 5K per cent to a range of 4 to 4% per cent,and the discount rate at the New York bankwas reduced from 6 to 5 per cent on November 1and to 4% per cent on November 15. Discountrates at the Boston, Chicago, Atlanta, and SanFrancisco reserve banks were also reduced from5 to 4% per cent.

Outside New York City there was also duringthis period an increased demand both for loans

on securities and for other loans.Banks outside m i . i j , i ,-,New York demand was met by the

use of funds obtained in partthrough the withdrawal by the out-of-townbanks of loans from the security market, andin part through the further sale of investments,

755


756 FEDERAL RESERVE BULLETIN DECEMBER, 1929

with the consequence that total loans andinvestment of member banks in leading citiesoutside New York showed little change for theperiod. At the end of the period the volumeof security loans by member banks to their owncustomers continued at a high level both atNew York City banks and at banks outsideNew York City, while the volume of open-market loans by banks to brokers in New YorkCity was smaller than at any time since January6, 1926, when figures on loans to brokers firstbecame available.

This decline in the volume of funds loanedby banks to brokers in New York City accom-

panied an even greater liquida-BrokersMoans tion of brokers' loans for the

account of nonbanking lenders,with the consequence that on November 27total loans to brokers and dealers at $3,450,-000,000 were reduced by one-half as comparedwith their October peak and were approximatelyat the same level as two years earlier. About60 per cent of this decrease occurred in loansfor the account of nonbanking lenders and 40per cent in loans reported as for account ofmember and nonmember banks. The accom-panying table shows changes in the volume ofthe different classes of brokers' loans fromJanuary 6, 1926, when the reporting servicebegan, to October 23, 1929, and for the subse-quent 5-week period.

BROKERS' LOANS PLACED BY REPORTINGBANKS IN NEW YORK CITY


M E M B E R

Total loans to brokers..For banks, total

For own ac-count

For out-of-town banks !.

For others

Jan. 6,1926

3,1412,577

1,338

1,239564

Oct.23,1929 27,1929

6,6342,810

1,077

1,7333,823

Nov.

3,450

831

Changes

Jan. 6,1926. toOct. 23,

1929

Oct. 23,1929, toNov. 27,

1929

+3, 493+233

-261

+494+3, 259

Jan. 6,1926, to

Nov. 27,1929

-3,184-1,341

-246

-1,095 ! -601-1,841 | +1,418

+309-1,108

-507

1 Includes an indeterminate amount for customers of these banks.

The table brings out the fact that totalbrokers' loans, wh'ch had increased by $3,500,-

000,000 between January 6, 1926, and October23, 1929, declined by $3,200,000,000 in the fol-lowing five weeks, so that the increase for theentire period of nearly four years was only$300,000,000. Loans by New York banks fortheir own account on October 23, 1929, were$260,000,000 lower than at the beginning of thereports and declined by another $245,000,000in the following five weeks, while loans foraccount of out-of-town banks on October 23,1929, were $500,000,000 above their January1926, level, but declined by $1,100,000,000 inthe next five weeks. In the aggregate loans bybanks, which in the third week of October ofthis year had been $230,000,000 above the levelof January 6, 1926, were on November 27$1,100,000,000 below that level. The largestchanges had occurred in the volume of loans foraccount of nonbanking lenders. These loanshad increased by $3,260,000,000 between Jan-uary 6, 1926, and October 23, 1929, and de-creased by $1,840,000,000 in the following fiveweeks. After this decrease, however, theywere still $1,420,000,000 higher than at thetime the reporting service began. Expressed interms of percentage, loans by nonbankinglenders constituted on January 6, 1926, about18 per cent, and on October 23, 1929, about 57per cent of total brokers' loans; after the recentliquidation the proportion remained practicallyunchanged, indicating that while the growthin brokers' loans during the past four yearshad been largely in loans by nonbankinglenders, the liquidation during the five weeksafter the middle of October of this year wasin approximately the same proportion for loansby banks and by other lenders.

Too little time has elapsed as yet since theend of October to make possible a comprehen-sive appraisal of the effects of the drop insecurity prices on the banking situation. Thediminut'on in the demand for credit from thesecurity market has resulted in a decline ofmoney rates. • Although there has been anincrease in the vo ume of bank credit, as thebanks have taken over loans of nonbankinglenders, the total volume of funds used in the


DECEMBER, 1929 FEDEKAL RESERVE BULLETIN 757

Security is-sues

security market has decreased by a largeamount, and the general credit situation hasbeen improved by the liquidation of thesesecurity loans.

As has been frequently pointed out, thegrowth of brokers' loans since 1926 and their

recent decline has correspondedclosely to the course of securityprices. An additional factor

in the trend of brokers' loans, however, hasbeen the greatly increased volume of capitalissues, since the flotation of securities involvesthe use of bank credit by the issuing housesduring the period when the securities are beingdistributed to investors. Purchasers of thesenew issues through brokerage houses are alsolikely to carry a part of the purchase price oncredit, causing the brokers to increase their bor-rowings from the banks. The following tableshows the volume of domestic corporate issuesof securities for each year from 1924 to 1928and also for the 10 months ending October,1928 and 1929.

I S S U E S OF DOMESTIC CORPORATE SECURITIES l


Year:19241925192619271928

10 months, Januaryto October:

19281929

Total

3,3224,1014,3575,3766,015

4, 381 "8,130

Rail-roads

780380346506364

227431

Publicutilities

1,3261,4961, C042 0771,883

1,5711,838

Indus-trialand

manu-factur-

ing

6911,0981,1971,2811,474

9621,974

Land,build-ings,etc.

333715709630716

600491

Miscel-laneous(includ-ing in-vest-menttrusts,etc.)

193411500883

1,577

1,0213,396

1 From Commercial and Financial Chronicle. Exclusive of refundingissues.

During the first 10 months of this yearneŵ domestic capital issues amounted to$8,130,000,000, compared with $6,015,000,000for the whole of last year and smaller amountsfor previous years. An analysis of this increasein capital issues over the corresponding periodof last year shows that there has been a growthin financing by railroads, public utilities, and

mining and manufacturing industries, whilethe financing of land and buildings has beenon a somewhat smaller scale. The largestchange, however, has been in the securitiesgrouped under the heading "Miscellaneous."This group of securities, the issues of whichamounted to $1,000,000,000 in the first 10months of 1928, absorbed $3,400,000,000 offunds in the first 10 months of 1929. Thisgroup includes the capital stock issued byinvestment trusts and trading companies,which increased at a rapid rate in the presentyear. These issues of investment-trust securi-ties, which were the principal single factor ofgrowth in total security issues in 1929, par-ticularly in the later months, were also animportant source of brokers' loans for accountof nonbanking lenders, since the trusts, havingobtained funds from the public through thesale of their own securities, used portions ofthese funds in the call loan market, wherehigh rates of interest prevailed in the earlyautumn of this year. When security pricesdeclined toward the end of October, invest-ment trusts withdrew some of their fundsfrom the call-loan market and utilized themin the purchase of securities at the prevailinglower level of prices. Thus during the pastyear the growth and operations of investmenttrusts have been an important contributingfactor in the rise and subsequent decline ofbrokers' loans.

Reviewing briefly the course of bank creditin the country as a whole during the year

ending in November, as hasbeen customary in recent yearsin the FEDERAL RESERVE BUL-

LETIN for December, it appears that the earlypart of 1929, just as the larger part of 1928,was characterized by firm money conditionsand the absence of growth of member-bankcredit, so that in May of the present yeartotal loans and investments of member banksin leading cities were somewhat lower than ayear earlier. Beginning with June of thisyear, however, the volume of bank creditincreased rapidly, and on October 23, the

Bank credit in1929



last report date prior to the taking over by thebanks of a large volume of loans by nonbankinglenders, the volume of credit of the weeklyreporting member banks was about $1,000,-000,000 above the level of the correspondingdate a year ago. This growth of $1,000,000,000represented the net result of an increase insecurity loans and of a continuous growth inother loans, offset in part by a liquidation ofinvestments. In the following week, thatending on October 30, loans and investments ofreporting member batiks increased by morethan $1,500,000,000, as the banks took overloans of nonbanking lenders; in the four weeksbetween October 30 and November 27, thevolume of credit of these banks declined by$1,100,000,000, but at the end of this period itstill stood about $1,250,000,000 above the levelof a year ago.

Two charts are here introduced showing thecourse of security loans and of other loans by

reporting member banks inLoans on se- leading cities for the past threecunties and "all B v ± i. •other" years. The first chart brings

out the fact that after the recentliquidation security loans still showed a large

BILLIONS OF DOLLARS

9 MEMBER BANKS IN LEADING CITIES

LJ L_Jan. Feb. Mar. Apr.

Apr. May June July Au£. Sept. Oct. Nov. Dec.

growth during the past year. The growth wasnot in loans to brokers, however, but in se-

curity loans to others, chiefly customers whohad transferred their borrowings from brokersdirectly to the banks. All other loans haveshown a constant growth beginning with Feb-ruary of this year and have increased evenmore rapidly during the past month. Thegrowth since the middle of October which hasamounted to bout $300,000,000, has been con-trary to the usual seasonal trend and has notbeen altogether in loans for commercial pur-poses but has included a variety of lending andinvesting operations, some of which may havebeen indirectly related to the large changes in

BILLIONS OF DOLLARS B1LHOHS OF DOLLARS

MEMBER BANKS IN LEADING CITIES

Jan Feb. Mar. Apr. May June July Au£. Sept. Oct. Nov. Dec.

the volume of security loans. Furthermore,the relative abundance of funds at banks inNew York City, where most of the increase hasoccurred, has resulted in the purchase by thebanks of acceptances and other paper in theopen market.

The easy condition of the money market inNew York has been associated with a low level

of indebtedness of the NewY o r k C i t y b a n k s a t t n e reservebank, while outside banks havehad a relatively large volume

of discounts with the reserve banks. Thechart shows discounts by the Federal reservebanks for banks in New York City, in other

New° Yorkoutside


DECEMBER, 1929 FEDERAL RESERVE BULLETIN 759

leading cities, and outside of these cities.Member banks in New York City at the endof November had a lower volume of indebted-ness than at any other time in the past twoyears, while borrowings by banks in otherleading cities were at a high level. Borrowingsof banks outside leading cities, which havetheir usual seasonal peak in midsummer, in-

MILLIONS OF DOLLARS MILLIONS OF DOLLARS

700

600

DISCOUNTS FOR MEMBER BANKS

100

1926 1927 1928 1929

creased in November, contrary to usual sea-sonal trends, and were at the end of thatmonth close to the highest figure in recentyears.

The system's holdings of Government se-curities increased by $190,000,000 betweenOctober 23 and November 27, the growthoccurring for the most part during the firstweek of the period, when reserve requirementsof member banks increased as a consequenceof their taking over of a large volume of loansof nonbanking lenders. Acceptance holdings,on the other hand, declined by about $120,-000,000 during the period, owing chiefly to thefact that easy conditions in the money marketresulted in increased purchases of acceptancesby banks and other investors.

Demand for reserve bank credit increases inDecember in response largely to increased

currency requirements of theh o l i d a y s e a s o n - T h e r e s e r v e

banks this year enter upon theseason of maximum demand for reserve bankcredit with the volume of their credit out-

82033—29 2

standing smaller than at the same period of1928 and with a reserve position stronger thana year ago. The general credit situation hasbeen improved by the liquidation of a largevolume of security loans, and the bankingsystem of the country is in position to meetsuch seasonal demands upon it as will arise inthe next few weeks without any considerablefirming of money rates to trade and industry.

Changes in Discount Rate and Bill Rates

The discount rate on all classes and maturi-ties of paper was reduced from 5 to 4K per centat the Federal Reserve Bank of New Yorkeffective November 15; at the Federal ReserveBank of Boston, effective November 21; atthe Federal Reserve Bank of Chicago, effec-tive November 23; at the Federal Reserve Bankof San Francisco, effective December 6; and atthe Federal Reserve Bank of Atlanta, effectiveDecember 9.

At the Federal Reserve Bank of New York,buying rates on bills with maturities under121 days, which were reduced to 4% per centeffective November 1, were further reduced to4:% per cent effective November 15 and to 4per cent effective November 21. Rates onbills with maturities of 5 to 6 months were re-duced to 5 per cent effective November 1 andto 4K per cent effective November 15.

Changes in Foreign Central Bank Discount Rates

The following changes have been made sincethe 1st of November in the discount rates ofcentral bankslin|foreign countries:

November 1: Netherlands Bank, from 5}4 to 5 percent.

November 2: Bank of Danzig, from 7 to 6}£ per cent;German Reichsbank, from 7% to 7 per cent.

November 4: National Bank of Hungary, from 8 to7}i per cent.

November 13: Reserve Bank of Peru, from 7 to 8per cent; National Bank of Belgium, from 5 to 4}£per cent.

November 14: Bank of Poland, from 9 to 8% percent.

November 16: Netherlands Bank, from 5 to &% percent.

November 20: Bank of Colombia, from 8 to 9 percent.

November 21: Bank of England, from 6 to 5% percent.

November 22: Bank of Norway, from 6 to 5J4 percent.

November 23: Austrian National Bank, from 8%to 8 per cent; Bank of Danzig, from 6% to 6 per cent;Reserve Bank of Peru, from 8 to 7 per cent.



November 26: National Bank of Rumania, from 9}^to 9 per cent.

December 9: Austrian National Bank, from 8 to7}i per cent.

December 12: Bank of England, from 5}72 to 5 percent.

December 13: Bank of Sweden, from h}{ to 5 percent.

WEEKLY REPORTING SERVICE ON OPEN-MARKET MONEY RATES

The board's quotations of open-marketmoney rates in New York City for bankers'acceptances, call and time loans on the NewYork Stock Exchange, and yields of certainUnited States Government obligations, havebeen currently published in the BULLETIN forseveral years, both on a weekly basis and ona monthly basis (see p. 780), and retrospectivetables have appeared regularly in the com-plete edition of the board's annual report(e. g., 1928, Table 40). These quotations areall based on daily figures, from which so-called prevailing rates are derived for certaintypes of loans and average rates for othertypes. The renewal rate for call loans, forexample, is a simple arithmetic average ofdaily figures, as are all of the other averagesgiven except the rate for new call loans, whichis a weighted average, based on data show-ing the volume of new money loaned at eachrate. Up to the present time these statisticshave been published only at monthly intervalsand have become available for a given monthupon the appearance of the BULLETIN. Inview of the current interest of these figures,they will now be set up weekly in the formbelow and will be furnished to anyone uponrequest addressed to the Division of Researchand Statistics. The statement for any weekbecomes available on Monday of the followingweek.

MONEY RATES—OPEN-MARKET RATES IN NEW YORK

CITY

[Per cent]

Open-market rates

Prevailing rate o n -Commercial paper (prime, 4 to 6

months) _Bankers' acceptances (prime, 90

days) _ . _.Time loans (stock exchange, 90

days) .- _ .Average rate on call loans (stock ex-

change) :NewRenewal

Average yield on—U. S. Treasury notes and certifi-

cates (4 to 6 months).- .- . .U. S. Treasury bonds (3 long-

term issues)

Weekending

Nov. 30,1929

SH-37A

4 504.50

3.39

3.43

Weekago

3M-3K

5 -5H

4.865.00

3.30

3.43

Monthago

4H

6

5.945.80

3.92

3.54

Yearago

7

8.397.38

4.24

3.50

Resignation of Chief Examiner

Mr. J. F. Herson, who has been connectedwith the examination work of the Federal Re-serve Board since August 29, 1917, and hasbeen the chief Federal reserve examiner sinceJanuary 1, 1920, has resigned, effective Novem-ber 30, 1929.

CONDITION OF ALL MEMBER BANKS ONOCTOBER 4, 1929

Total loans and investments of all memberbanks increased further during the thirdquarter of the year, by $200,000,000, accordingto figures that have recently become availablefrom the call report of October 4, and amountedon that date to $35,914,000,000, the increasefor the year being $985,000,000. The followingtable summarizes the condition of memberbanks on call dates during the past year andshows changes in principal items of resourcesand liabilities for the year and for the threemonths ending October 4:

ALL MEMBER BANKS


Loans and investments

i Total i. Loans

Oct. 3, 1928 34,929ji 24,325Dec. 31,1928 | 35, 684'ij 25,155Mar. 27, 1929___ | 35, 393jJune 29, 1929 ! 35, 711'

24, 94525, 658Oct. 4, 1929 35, 914 | 20,165

.+2031 +507

.+9851+1,840

Change since—June 29, 1929.Oct. 3, 1928—

Investments

Total

10, 60410, 52910, 44810, 0529,749

-304-855

U.S.secu-rities

4,3864,3124,4544,1554,022

-133-364

Netde-

mandand

Other! timesecu- d e -rities Posits

Bor-row-

ings atFed-eral

6,2186,2175, 9945,8985,727

32, 40533, 39732,16232, 302!32, 269!

1, 0201,041981

1,029899

-170 -33 -130

The increase of $200,000,000 in loans andinvestments for the quarter reflected an in-crease of about $500,000,000 in loans and afurther decrease of about $300,000,000 ininvestments. The banks' investment holdingson call dates declined steadily from June, 1928,to October, 1929, by a total of $1,000,000,000,and were, at the end of the third quarter, atabout the same level as in the summer andautumn of 1927.

The further increase in the banks' loans andinvestments during the quarter was accom-panied by a decrease in their deposits and inborrowings at Federal reserve banks. Thisgrowth in loans and investments at a timewhen deposits and borrowings w êre decreasingmay be accounted for by a further growth inthe member banks' capital funds. These in-creased during the quarter by $250,000,000,the increase representing largely the transfer


DECMEBER, 1929 FEDERAL RESERVE BULLETIN 761

of funds from deposit account to capitalaccount.

The accompanying chart shows the courseof member bank loans, investments, and de-posits since the beginning of 1919.

BILLIONS OF DOLLARS BILLIONS OF DOLLARS

1919 1920 1921 1922 1923 1924- 192S 1926 1927 1928 1929

Figures are for dates on which member banks made call reports

The accompanying table summarizes a classi-fication of loans now provided for in thereports of condition required of member banks.It includes a number of new items, madeavailable for the first time in the MemberBank Call Report for June 29, and in theSeptember issue of the BULLETIN. The publi-cation of these figures at this time is madepossible through the courtesy of the Comp-troller of the Currency.

CLASSIFICATION OF MEMBER BANK LOANS


i

Loans, t o tal i

Open-market paper, total 1

Acceptances payable in the United States _Bills, acceptances, etc., payable in foreign \

countriesCommercial paper bought in open market.

Loans to banks _.. ... - - _.:Loans on securities (except to banks) __ . _ .

Real estate loans. __ _..... . . _ i

On farm land . . _ _. . . . . . ... _J•On other real e s t a t e . -. .._ .- . _. _.

All other loans . . . _ _ . . . . _

Amounton Oct. 4,

1929

26,165

391

93

70228

6409,994

3,152

3922,760

11,988

Changesince June

29, 1929

+506

- 5 6

- 1 5

- 2 0- 2 1

- 3 0+235

- 1 2

- 2 2+ 10

+370

The larger part of the increase of $500,000,-000 in loans for the quarter was in loans tocustomers, particularly in loans other thanthose made upon the collateral of stocks, bonds,or real estate. These loans increased by $370,-000,000 during the quarter, to a total of nearly$12,000,000,000. There was also a substan-tial increase, $235,000,000, in loans on securi-ties (exclusive of loans to banks), which in-clude both open-market loans on stocks andbonds made in the New York money marketand other loans on stocks and bonds, princi-pally local loans. There was a decrease of$30,000,000 during the quarter in loans tobanks and of $56,000,000 in holdings of so-called open-market paper—acceptances andcommercial paper purchased.

Condition figures for all member banks arepublished on pages 825-830 of this issue of theBULLETIN, and in more detail, by States andcities, in Member Bank Call Report No. 45.



BRANCH AND CHAIN BANKING DEVELOPMENTS: 1929

Branch-banking developments during theyear ended June 30 were generally in line withsuch developments in other recent years. Theproportion of the banks of the country operat-ing branches on June 30 had increased from 2.5to 3.3 per cent in the five years from June 30,1924, to June 30, 1929. In each of the periodsof approximately two and one-half years, im-mediately preceding and following the passageof the amending act of February 25, 1927, thenumber of banks in the country decreased (bysome 2,000 in the earlier and 1,800 in the laterperiod), the number of banks operatingbranches increased slightly (by 65 and 39 inthe two periods, respectively), and the numberof branches in operation increased (by 607 and540). As a result of decrease in the number ofbanks and increase in the number of branches,the proportion of branch offices in the total ofbanking offices serving the public increasedfrom 7 per cent in June, 1924, to 10 per cent inFebruary, 1927, and to 12 per cent in June,1929. In individual instances very consider-able extensions of branch systems were effectedduring the year by reorganizations, merger pro-cedures, and purchases of independent banks,the more important changes of this characterbeing restricted to a few States and urban com-munities of the branch-banking area. As de-fined in State banking codes and administra-tive practice, this area remained unchanged,except that two States—West Virginia andKansas—in which no banks were operatingbranches, enacted legislation prohibiting theestablishment of such offices in the future. Itmay be noted also that additional brancheshave been authorized since June 30 underspecial acts for Atlanta and Savannah banks,although Georgia in 1927 prohibited the estab-lishment of any branches by Georgia banks.Within the branch-banking area developmentsduring the year were characterized by growthin size of the larger branch systems of certainStates, rather than by increase in number ofbanks operating branch offices.

Changes 1927-1929.—For the year endedJune 30 a decrease of 17 is shown in the num-ber of banks operating branches (see Table I,p. 766). This is a net change for the year, inwhich 73 banks in fact discontinued branchbanking, including cases of merger of parentbank with another bank, of suspension of theparent bank, and of discontinuance of allbranches. In the same period, however, 56banks initiated branch banking, giving the

net decrease of 17. The increase of 210 forthe year in number of branches in operationsimilarly covered a total of 306 offices newlyestablished during the year—de novo asbranches, or by conversions of independentbanks into branches following purchase ormerger—from which are deducted cases ofbranches closed or merged with other branches,and cases of branches discontinued in con-sequence of suspension of the parent bank.

For branches representing conversions ofindependent banks into branches in the periodfollowing the passage of the McFadden Act,a net increase is shown of 223, although in thisperiod 279 independent banks were in factconverted into branches, some of these brancheshaving been discontined before the end of theperiod.

Detail underlying net changes in number ofbanks operating branches and in number ofbranches, for the year ended June 30 and forthe period following enactment of the amendinglaw of February 25, 1927, are shown in thefollowing table. Some of the difficulty en-countered in attempting to summarize changesduring this period may be inferred from thefact that over 900 of the 3,440 branches inoperation on June 30 had been involved inmerger procedures since the passage of theMcFadden Act, many of these branches havingbeen operated under three or four differenthead offices in succession. Such changes nec-essarily involved numerous reclassifications ofindividual branches, as operated by national,State member, or nonmember banks, as locatedin or outside the home city of the parent bank,and as embraced in small or large systems.

BANKS INITIATING AND DISCONTINUING BRANCHBANKING, AND BRANCHES ESTABLISHED AND DIS-CONTINUED: 1927-1929

Detail of net change

BANKS OPERATING BRANCHES

Number initiating branch bankingNumber discontinuing branch banking.

Merged with other banks. _SuspendedDiscontinued all branches

Net increase or decrease (—)

BRANCHES

Number establishedDe novo as branchesBy conversion of banks

Number discontinued.. _ __By parent bank _ _._Through suspension

Net increase ._

July 1,1928,to June 30,

1929

5673515

17-17

306171135968115210

Feb.25,1927,to June 30,

1929

1651269092739

70842927916814523540



Branch-banking area.—Under State bank-ing codes, branch-banking developments havebeen restricted to certain States and urbancommunities. The area within which bankswere operating branch offices on June 30 wascomposed of 28 States and the District ofColumbia. In 9 of these States, however,any further extension of branch banking hasbeen prohibited by law, leaving 19 States andthe District of Columbia as composing whatmay be called the branch-banking area, towhich may perhaps be added Wyoming, whosebanking code would seem to permit branch bank-ing, although no branch offices have been re-ported from this State. In 8 of these States(or 9 including Wyoming) State-wide branchbanking is permitted, the establishment ofbranches being restricted in the 11 other Statesto the home city of the parent bank or territorynearly contiguous thereto. In the tables givingdata for the individual States (see pp. 768-770)the States are grouped with reference to thelegal status of branch banking, as defined inState banking codes.

Within the branch-banking area as definedabove, the more important branch-bankingdevelopments have been largely restricted to afew States—one-fourth of the branch officesreported in operation on June 30 being reportedfor banks in the State of California, and morethen one-half of such offices from the threeStates—California, New York, and Michigan.For a majority of the States of the branch-banking area there were during the year onlyinconsiderable changes, either of increase ordecrease in the number of banks operatingbranches or of branches in operation. Thenumber of banks operating branches remainedunchanged or decreased in 12 of the 19 Stateswhich permit banks to establish branches, andincreased slightly in 7 of these States. InCalifornia the number of banks operatingbranches fell off from 63 to 54, although thenumber of branches in operation increased by35—an increase exceeded only by New York'sincrease of 75. More than one-half of the totalincrease in number of branches during the yearwas in these two States—New York andCalifornia.

Within those States of the branch-bankingarea in which the practice of branch bankinghas been relatively more extensive, this practicehas been largely—in some cases entirely—restricted to urban areas. Two-thirds of allbranches reported as in operation on June 30(2,362 out of 3,440 offices) were home citybranches, and the increase during the periodfollowing the passage of the McFadden Act

in the total number of branches of member andnonmember banks in all States was largely anincrease in the number of home city branches,the increase for such branches being 433 in atotal increase for all branches of 540.

The extent to which branch-banking hasbeen restricted to certain urban communitieswill be apparent on reference to the table giv-ing data for selected cities (Table II), whichshows, for example, that of the 682 branchesreported for the State of New York, 549 werein New York City and 71 in Buffalo; of Michi-gan's 433 branches, 305 were in Detroit; ofPennsylvania's 169 branches, 122 were inPhiladelphia; and even in California, wherebranch banking has developed freely on astate-wide basis, more than one-third of allbranch offices (299 out of 861 offices) werehome-city branches of Los Angeles and SanFrancisco banks. Banks located in these twocities operated a very large proportion (787out of 861) of all branches in the State, includ-ing branches located outside the home city ofthe parent bank with home city branches.

In California the number of branch offices onJune 30 (861) was nearly double the number ofbanks (455, including the head offices of the 54branch systems). In Michigan 61 banks in atotal of 742 were operating 433 branch offices;in New York 106 banks in a total of 1,141 wereoperating 682 branches; in Maryland 33 banksin a total of 235 were operating 125 branches.The proportion of branches was high also inRhode Island, Arizona, and the District ofColumbia, although the number of branches inthese areas was not very considerable. Outsideof these States of the branch-banking area boththe number of branches and the proportion,relatively, to the number of independent bankswas inconsiderable.

The proportion of branches in the total ofbanking offices serving the public has beennoted for the country as a whole. It will beapparent from the above figures that this pro-portion varies greatly from State to State.For the branch-banking area as a whole theproportion last June was 23 per cent, or ap-proximately one-fourth; it was between one-fourth and one-third in Arizona, Maine, Massa-chusetts, and Louisiana; above one-third inMichigan, Maryland, and New York; and roseto 65 per cent, or nearly two-thirds, in Cali-fornia.

Over the year the number of national and ofState banks operating branches fell off some-what, although the number of branches in-creased—for national banks from 941 to 993and for State institutions from 2,289 to 2,447.



These classifications, as noted eleswhere, havebeen variously effected in the several States byconversions and merger procedures, whichhave in some instances resulted in transfers ofbranch systems of considerable size from oneclass to another, as between national, Statemember, and nonmember banks.

Size of branch systems.—Branch systems areclassified by size of system for States inTable V, for selected cities in Table II, and forthe country as a whole on the several dates forwhich data are available in Table I. Thelarge proportion of small systems will be appar-ent in the summary figures of Table I. Thenumber of one and two branch systems, how-ever, decreased or remained unchanged duringthe year ended June 30 in 14 of the 19 Stateswhich permit banks to establish branches, andincreased only slightly in the 5 remainingStates of this group.

No change is shown for the year in the totalnumber of banks operating systems of 10 ormore branches. The number of such systemsfell off from 9 to 7 in California, and remainedunchanged in New York with 16, and in Michi-gan with 11 such systems.

The maximum number of branches in anysystem, the number reported by a Californiabank, fell off from 289 to 285, this reductionbeing effected by consolidation of offices inseveral instances where two offices were locatedin the same town.

Consolidations resulting in the building upof larger branch systems were consummatedduring the year very generally in several Statesof the branch-banking area. Altogether, 12California banks, which had been operatingbranches in June, 1928, were merged with otherbanks during the year. One national systemin Los Angeles, operating on June 30 last 144branches, represented a merger during the yearof two banks—one a national bank which hadbeen operating 97 branches in June, 1928, andone a State member bank with 53 branches.Another Los Angeles bank operating a State-wide system of 140 branches in June repre-sented mergers during the year of a nationalbank located in Los Angeles with 35 branches,a State bank located in San Francisco with 53branches, and some 27 other banks with 22branches. In New York City one State banksystem of 56 branches in June last had beenbuilt up by mergers during the year of threeState institutions operating 19, 15, and 3branches, respectively. Seventeen banks inNew York State which had been operatingbranches in June, 1928, merged with otherbanks during the year, and in Pennsylvania

merger procedures reduced the number ofbanks operating branches by 15.

On June 30, as shown in the following table,17 banks were operating systems of more than30 branches, and nearly two-fifths (37 per cent)of all branches in operation on that date werecomprised in these 17 systems, which werelocated in four States—California, New York,Michigan, and Ohio—with head offices in 6cities—2 in San Francisco, 3 in Los Angeles,7 in New York, 1 in Buffalo, 3 in Detroit, and1 in Cleveland. During the year ended June 30the number of such systems increased from 14to 17, and the aggregate of branches operatedin such systems increased from 1,026 to 1,287,or by 261. In the same period the number ofsmailer systems decreased from 821 to 801 andthe number of branches in smaller systems felloff from 2,204 to 2,153, or by 51. Over thelonger period from December, 1926, to June 30,1929, the number of these larger systems in-creased from 13 to 17 and the number of theirbranches from 689 to 1,287, or by 598, the in-crease in number of branches for smaller systemsover this period being 61.

SIZE OF BRANCH SYSTEMS

Size of branch system

Total

Less than 3 branches3 to 30 branchesOver 30 branches

In CaliforniaIn New YorkIn MichiganIn Ohio

Percentage:Total

Less than 3 branches3 to 30 branchesOver 30 branches

Banks operatingbranches

June,1929

818

596205

175831

100

7325

2

June,1928

835

619202

147331

100

7424

2

De-cem-ber,1926

796

585198

137321

100

7325

2

Branches

June,1929

3,440

7491,4041,287

71936015652

100

224137

June,1928

3,230

7691,4351,026

674146154

52

100

244432

De-cem-ber,1926

2,781

7141,378

6894111349252

100

255025

Banks operating only one or two branchesinclude small country banks operating branchoffices in neighboring communities and alsoinstitutions of large resources located in some ofthe larger financial centers. Of the 818 banksoperating branches on June 30, 305 were locatedin places of less than 25,000 population, and ofthese banks 220 were operating one branchonly and 53 two branches only. Of the 359parent banks located in cities of over 100,000population, 133 were operating one, and 68 twobranches only. The head offices of all but four



of the 55 branch systems of more than 10branches, however, were located in these citiesof 100,000 or more population. The distribu-tion of branch systems by size of system andpopulation of the city of the parent bank isshown in the following table. A similar distri-bution for selected cities is given in Table II, forJune, 1929 and 1928, and for December, 1926.

SIZE OF BRANCH SYSTEMS FOR PARENT BANKS LOCATEDIN LARGE AND SMALL CITIES: JUNE 30, 1929

Parent banks

Size of branch system

Total

1 branch2 branches3 to 5 branches6 to 10 branches11 to 30 branches..Over 30 branches

Total

818

443153129383817

Of over100,000

359

1336883243417

Located

Of50,000 to100,000

84

5414133

in cities

Of25,000 to

50,000

70

36181231

Of lessthan25,000

305

2205321

83

Urban and rural systems.—The character ofbranch systems is not determined by thelocation of the parent bank, except in thoseStates which prohibit the establishment ofbranches outside the home city of the parentbank. California's larger branch systems areoperated by banks located in San Franciscoand Los Angeles, but these systems embracea State-wide network of branches. The largestbranch system in the State with head office inSan Francisco was operating 42 branches inSan Francisco, 43 in Los Angeles, and 200 inother places in the State. Of the 861 branchesof California banks, 531 were located outsidethe home city of the parent bank, and of theseoutside branches 197 were in places of less than2,500 population, 135 in places of 2,500 to10,000, and 199 in larger cities. Of the totalnumber (1,078) of branches located outside thehome city of the parent bank in the countryas a whole on June 30, 591 were located intowns of less than 2,500 population, 133 inplaces of 2,500 to 5,000, and 354 in largerplaces. In New York, Michigan, and severalother States in which the development ofbranch banking has been considerable, how-ever, banks are not permitted to establishbranches outside the home city, and the de-velopment of branch banking in these Statesis accordingly restricted to urban communities.

CHAIN BANKING

Data reported by Federal reserve agents inthe several districts regarding the extent ofchain banking affiliations, so far as these areknown to the agents, are summarized in TableVI (p. 771). Information regarding these de-velopments ŵ as obtained from various sources,including credit files, examination records ofState officers, and personal knowledge of bank-ing officers, and the summary figures given forStates are not presented as covering completelyall existing chains in every section of the coun-try, or all banks comprised in the chains re-ported. As of June 30 last, the information isas nearly complete as the agents were able tomake it. For this date a total of 230 chainswere listed, embracing over 1,550 banks, ofwhich nearly 600 were national and over 950were State institutions. These banks weredefinitely linked up in groups and subject tocentralized administrative control.

Chain systems were found operating in alarge majority of the States, individual chainsystems extending in many instances beyondState boundaries; but group-banking develop-ments were relatively more considerable inthe States of Minnesota and North Dakota ofthe Minneapolis district; Iowa, Illinois, andMichigan of the Chicago district; Nebraska,Kansas, and Oklahoma of the Kansas City dis-trict; Arkansas of the St. Louis district; Wash-ington and Utah of the San Francisco district;and in the States of New York and New Jersey.In eight of these 13 States the establishmentof branches by banks has been prohibited bylaw, and in three of them the establishmentof branches is restricted to the home city ofthe parent bank; in the two remaining States(North Dakota and Oklahoma) although noprovision regarding the development of branchbanking has been enacted, no branches arebeing operated by banks. Very considerabledevelopments of chain banking are, however,reported from California, which permits state-wide branch banking, and some developmentsare found in other States of the branch bank-ing area, as well as outside this area.

Prohibitions and restrictions enforced uponbanks in developing branch systems in someStates may have stimulated the developmentof chain banking, although the extent to whichthey have done so can not be determined.Some of the considerations which have led tothe development of branch systems in Stateswhich have permitted such developments may



very well account, also, for the developmentof chain banking in these and other Statesgenerally, since the chain or group system mayin individual instances take on many featuresof centralized control which characterize branchbanking. Chain and branch banking may anddo interlock and supplement each other insome States and sections of the country, withthe result that extensive affiliations of banksand branch systems in different States havebeen built up. Tha extensive chain-bankingdevelopments since June 30, it should be noted,are not covered in the summary figures givenin Table VI. Some affiliations reported inJune, 1928, as chains were not reported assuch in 1929, it having been found on inves-tigation in each of these instances that theassociation was clearly not of chain-bankingcharacter. While the chain-banking relation-ship implies centralized control over a group ofcorporately independent institutions, neitherthe power to exercise such control nor theamount of control actually exercised can be de-termined in every instance. It follows thatunder any definition of chain banking there arebound to be doubtful cases. In making uptheir lists of chains for 1929 the agents haveincluded all groups, so far as known, of threeor more institutions definitely operated as asystem or group under centralized control.Generally, although not in every instance, thechain relationship implies a majority stockinterest in each member of the chain held bythe controlling agency. This controlling stockinterest may represent either direct ownershipby a bank; or indirect ownership by a bankthrough a subsidiary investment company; orownership by an individual or by an unincor-porated group of individuals; or by an invest-ment company not a subsidiary of any bank.Not infrequently the chain relationship is fur-ther evidenced by some interlocking of direc-torates or administrative staffs. Investmentcompanies or trusts organized to deal in bankstocks may or may not develop through ac-quirement of such stocks a degree of controlover a group of banks sufficient to justifydesignation of the group as a chain system.

Figures for June, 1928, are not brought intocomparison with those for June, 1929, becauseof inclusion in the earlier returns of data for

banking groups excluded from the list of chainsin 1929. Comparison of the returns for thesetwo dates, however, indicates that there wasno considerable increase during the year endedJune 30 in the number of banks comprised inbanking chains, the principal developments ofthis character having taken place during subse-quent months. It is known that certain chainbanking groups have been expanding rapidlysince June 30, and plans for incorporating com-panies of large resources to engage in chainbanking enterprises have been announced.

TABLE I.—SUMMARY OF BRANCH-BANKING DEVELOP-MENTS: 1924r-1929

Class of bank or branch, etc. June 30, June 30,

Number of banks.__Number operating branches:

Total

Member banks, total..NationalState -

Nonmember banks

Size of branch systems: Number ofbanks operating—

1 branch .__2 branches3 to 5 branches6 to 10 branchesOver 10 branchesNot classified. __ .

Location of parent bank: Number incities having in 1920 a populationof—

100,000 or more50,000 to 100,000 -25,000 to 50,000 ._._Less than 25,000Not classified -

Character of systems: Number ofbanks operating—

Home-city branches onlyOutside branches onlyHome-city and outside branches.

Branches in operation:Total___

Of member banksNationalState

Of nonmember banks .

Location of branches: Number lo-cated—

In home city of parent bankOutside home city__

Establishment of branches: Numberestablished—

De novo as branchesBy purchase of banksNo report of method

1929

25,115

818

354164190464

4431531303755

3598470

305

51825248

3,440

2,291993

1,2981,149

2,3621,078

2,329958153

1928

25,950

835

355169186480

4691501263555

3728166

316

52626247

3,230

2,161941

1,2201,069

2,2141,016

2,214853163

Feb. 25,1927

June 30,1924

i 26,973

779

334145189445

4461271243547

3536561

300

47626142

2,900

1,950390

1,560950

1,929971

1,996735169

28,996

714

299108191415

376

17&

2 3a

289

108

284

39128340

2,293

1,385248

1,137908

1,508785

1 March, 1927. 2 Mutual savings and private banks.


DECEMBER, 1929 FEDERAL RESERVE IBULLETIN 767

TABLE II.—BRANCH SYSTEMS WITH HEAD OFFICES IN SELECTED CITIES

City and date (cities arranged by totalnumber of branches in June, 1929)

New York:June, 1929- -June, 1928. ._ - . - _December, 1926

San Francisco:June, 1929June, 1928..-December, 1926

Los Angeles:June, 1929June, 1928December, 1926

Detroit:June, 1929 ._June, 1928December, 1926

Philadelphia:June, 1929June, 1928 -December, 1926

Cleveland:June, 1929 -- .June, 1928December, 1926

Buffalo:June, 1929 .June, 1928...December, 1926

Baltimore:June, 1929June, 1928December, 1926

Boston:June, 1929 . .June, 1928December, 1926

Cincinnati:June, 1929 . .June, 1928December, 1926

New Orleans:June, 1929June, 1928December, 1926

Toledo:June, 1929June, 1928December, 1926

Grand Rapids:June, 1929June, 1928 -December, 1926

Nashville:June, 1929June, 1928December, 1926

Number of banks operating branches

Total

717677

78

14

91013

111216

495353

12139

566

151416

191818

131211

555

677

333

666

Number operating

1branch

313232

112

334

12

202835

695

221

337g

1012

322

1

111

222

2branches

121413

12

112

11139

1

554

631

332

1

111

3-5branches

121114

^ t

oco

111

15129

211

2

4

to

toco

22

445

111

232

111

6-10branches

357

112

222

1

3

11

to to

1

112

11

233

123

111

Over 10branches

131411

234

457

99

10

322

321

3

to

toco

21

222

111

21

2; 2

2

• 222

Maxi-mumsize ofsystem(num-ber of

branches)

666662

285289100

1449795

949346

1054

525252

333332

171614

121111

111211

232020

171110

151515

121212

Number of branches

Total

549488 1409

402458247

385281307

305297284

12210185

1019488

726661

696557

615350

525246

464846

444238

373636

313130

City

549488409

9810475

201201214

305297284

12210185

817469

716560

656155

615350

515244

464846

444237

373636

191918

Outside

304354172

1848093

202019

111

442

1

2

1

121212



TABLE III.—BANKS OPERATING DOMESTIC BRANCHESAND NUMBEH OF BRANCHES, BY STATES: JUNE 30,1929

State

Total.

Total-

ArizonaCaliforniaDelawareDistrict of Colum-

biaMarylandNorth Carolina..Khode IslandSouth Carolina.__VirginiaWyoming

Number of banks

Total

818

Na-tional

Statemem-ber

Non-mem-ber

Number of branches

Total

164 190 464 3,440 993 1,298 1,149

Na-tionalbank

Statebank

ber

Non-mem-ber

bank

STATE-WIDE BRANCH BANKINGPERMITTED

215 !| 38 26

754

113342111238

5 !

3 I 25423

Total.

KentuckyLouisianaMaineMassachusetts. _.MichiganMississippiNew Jersey -,New YorkOhioPennsylvaniaTennessee

Total.AlabamaArkansasGeorgiaIndianaMinneso ta . . .NebraskaOregonWashington.Wisconsin

151

5355

1,265 535

22861

12

2312577355060

194 536

12 10109 264

2 10

B R A N C H E S R E S T R I C T E D AS TOL O C A T I O N

562

611153106588131

114

41

1610117318188

155

2711630

""IQ"402416

293

334235421101735264723

2,087

26108611544332510368225916967

425

108

5469

x33172134223

1,089

1340332306

""39"44617733

573

360586858243164699444

ESTABLISHMENT OF BRANCHES PRO-HIBITED BY LAW 1

20 33

1 Branches reported were established prior to prohibitory legislation.Other States which have prohibited the establishment of branches in-clude the following, in which no branches were in operation: Colorado,Connecticut, Florida, Idaho, Illinois, Iowa, Missouri, Montana, Nevada,New Mexico, Texas, Utah, West Virginia, Kansas. States which havemade no provision in State law regarding branch banking include thefollowing, in which, also, no branches were in operation: New Hamp-shire, Vermont, North Dakota, South Dakota, Oklahoma.

TABLE IV.—BANKS OPERATING DOMESTIC BRANCHESAND NUMBER OF BRANCHES, BY STATES: JUNE,1924-JUNE, 1929

Class of bank andState

Total .

Number of banks

June June30, 30,1929 1928

818 835

NationalState memberState nonmember..Mutual savingsPrivate

164 i190 i398 I62 ;4 ;

16918641558

Feb.25,1927

779

14518938750

June30,1924

10819138728

C1)

Number of branches

June30,1929

3,440

9931,2981,046

96

June I Feb.30, i 25,

1928 i 1927

3,230 |2, 900

9411,220

9738610

1,560

June30,1924

2,293

2481,137

0)0)

STATE-WIDE BRANCH BANKINGPERMITTED

Total.. -| 215

ArizonaCaliforniaDelawareDistrict of Colum-

biaMaryland.North CarolinaRhode IslandSouth CarolinaVirginiaWyoming

228 226 237 1,265 1,215 1,120

22861

12

2312577355060

23826

13

2212079333663

2376214

2011374292560

835

20538

18

212045

Total.

KentuckyLouisianaMaineMassachusettsMichigan.MississippiNew JerseyNew YorkOhioPennsylvaniaTennessee

Total.

Alabama..Arkansas..Florida..GeorgiaIndianaMinnesota...NebraskaOregonWashington..Wisconsin....

BRANCHES RESTRICTED AS TOLOCATION

562

9422488611153106588131

561

8432281641150112598427

505

5412479681114106538222

426 2,C

261086115443325103682259169

1,923 1,687 1,344

2511154141422258260725014561

1310654133401252151723113155

12934798

-332

213622039853

BRANCH BANKING P R O H I B I T E DBY LAW 2

46 88 92 93 114

1931

538

112179

1 Not separately tabulated.9 See note 1, Table III.



TABLE V.—SIZE OF BRANCH SYSTEMS AND LOCATION OF BRANCHES: JUNE, 1929 AND 1928

1

(Mass of bank or State, andyear

Numberof banks

Total:19291928

Member banks, total:1929 . .1928

National:19291928

State:19291928

Nonmember banks:

1928

Arizona:1929...1928

California:19291928

Delaware:19291928 .

District of Columbia:19291928

Maryland:19291928

North Carolina:19291928

Rhode Island:

1923... .South Carolina:

1929

25 11025, 943

8,7078,929

7, 5307 685

1 1771 244

16, 40317,014

4645

455496

4848

4142

235238

428' 445

8337

9931928 262

Virginia: t1929 4811928 494

Wyoming:1929 ' 871928 . . . 86

Totalnumber

818835

354355

164169

190186

464480

78

5463

5

1112

3332

4243

1111

1215

3839

Banks operating branches

1 branch

: 443'469

155; 164

86; 92

6972

288'[ 305

Number operating

2

branches

153150

68

3136

3532

8782

3 to 5branches

129126

69

6 to 10branches

3835

2157 23

2417

4540

6069

1010

1113

1712

Over 10branches

5555

4343

1314

3029

1212

STATE-WIDE B R A N C H B A N K I N G

3

2631

1 3

1 6

1

11

i 27| 28

'• 5

: 6

58

2628

22

9

33

22

88

6

21

33

86

11

1

11 1 310

1

23

99

68

33

I45

I

4

1

1

1

21

21

I

9

44

11

1

Maxi-mum sizeof system

285289

285289

285289

9697

14053

I? ranches

Totalnumber

3,4403,230

2,2912,161

993941

1,2981,220

1,1491, 069

PERMITTED

1011

285289

36

64

2020

66

1414

169

55

2223

861826

1213

2322

125120

7779

3533

5036

6063

In homecity

2, 3622, 214

1,8051,662

650603

1, loo1, 059

557552

! 330' 340

3j 1

2322

6864

1111

1616

2731

Outside

1,0781,016

486499

343338

143161

592517

2223

531486

912

5756

6668

1917

4329

3332

(Continued on p. 770)



TABLE V.—SIZE OF BBANCH SYSTEMS AND LOCATION OF BRANCHES : JUNE, 1929 AND 1928—Continued

Class of bank or State, andyear

Kentucky:19291928

Louisiana:19291928

Maine:19291928 .

Massachusetts:19291928

Michigan:19291928

Mississippi:19291928

New Jersey:19291928

New York:19291928

Ohio:19291928

Pennsylvania:19291928

Tennessee:19291928

Alabama:19291928

Arkansas:1929 - - - -1928

Georgia:19291928

Indiana:19291928

Minnesota:1929 „1928

Nebraska:19291928

Oregon:19291928

Washington:19291928

Wisconsin:19291928

Other States: *19291928

Numberof banks

572586

226229

134140

452446

742748

312325

567567

1,1411,146

1,0291,048

1,5891,628

490507

Banks operating branches

Totalnumber

9g

4243

2422

8681

6164

1111

5350

106112

5859

8184

3127

Number operating

1 branch 2branches

3 to 5branches

6 to 10branches

BRANCHES RESTRICTED

54

2726

129

5757

2732

77

3332

4750

2729

4453

2118

ESTABLISHMENT OF

350357

420437

420454

9861,028

1,0721,134

846904

235243

344352

964967

55

22

1619

44

22

22

11

34

67

10,14210,504

44

11

811

22

22

11

12

55

11

5756

1712

119

33

910

2424

76

1516

55

65

45

99

99

97

1415

1313

1915

21

33

3432

11

33

21

57

35

3

11

Over 10branches

Maxi-mum sizeof system

Branches

Totalnumber

AS TO LOCATION

11

22

1111

11

1616

86

22

77

2320

37

1211

9493

1212

106

6666

5252

105

1212

2625

108111

6154

154141

433422

2525

10382

682607

259250

169145

6761

In homecity

2424

5254

g5

135122

430418

11

9371

681606

228219

161137

2826

Outside

2I

5657

5549

1919

34

2424

1011

11

3131

8

3935

BRANCHES PROHIBITED BY LAW—OPERATION OF EXISTINGBRANCHES P E R M I T T E D

11

55

11

2

11

22

1

22

21

11

11

1515

22

99

55

33

11

11

22

42

1919

33

3437

99

66

22

11

56

99

1112

g8

66

22

33

88

1919

33

2325

11

11

23

11

NO BRANCHES IN OPERATION

i For list of other States which prohibit establishment of branches, or have made no provision regarding branch banking, see note 1, Table III.



TABLE VI.—CHAINS AND BANKS IN CHAIN SYSTEMS, BY STATES: JUNE 30, 1929

State

Total

Total.

ArizonaCaliforniaDelaware _District of ColumbiaMaryland _North CarolinaRhode IslandSouth Carolina. _VirginiaWyoming

Total.

KentuckyLouisianaMaineM assachusettsMichiganMississippiNew JerseyNew YorkOhio .__.PennsylvaniaTennessee

Total.

Alabama .ArkansasColorado. .Connecticut.FloridaGeorgia...IdahoIllinoisIndianaIowa _ _KansasMinnesota . . .Missouri .Montana. __ _.NebraskaNevada .New MexicoOregonTexasUtahWashingtonWest VirginiaWisconsin

Total

New HampshireNorth DakotaOklahomaSouth DakotaVermont __

Chain systems—

Total

230

8

14

1

2

61

1214

11

1217193

141

342

463

111

121034

42921665

11

5

20

785

Of 3banks

37

1

1

Of 4banks

45

Of 5banks

31

Of 6-9banks

82

Of 10-14banks

21

STATE-WIDE BRANCH

2

1

1

18

84

42

17

2

12

1

1

31

5

1

1

I

16

11

15

14

21

4

12

1

1

1

Of 15-19banks

9

Of 20-29banks

3

Of 30-39banks

2

Banks in chain systems

Total

1,561

BANKING PERMITTED

BRANCHES RESTRICTED AS TO LOCATION

8

1

3

12

1

14

1

21

2512

ESTABLISHMENT OF

25

1313

4221

2

1111

2

NO

2

2

20

111

1

1

136

1

1

2

1

54

111

2

15

15

18325

11232

1

1

3

11

1

1

1

BRANCHES PROHIBITED BY

17

11

1

12

3

4

11

11

4

1

2

1

2

1

2

1

1

49

630

3

10

337

4105

3371

49111

63810

LAW

1,026

226313

32232381

39255

279261563146

32375062

35

PROVISIONS REGARDING BRANCH BANKING

3

111

10

244

2

2

_ _

2

11

149

605930

National

596

25

120

1

3

135

462

193

22583

126

365

11138

1387

202

3315

13074

1524

147

1226

14

71

204110

State

965

24

510

2

7

202

43

1468

27533

264

661

11505

19151661

15940

149191148122

18303836

21

78

401820



RECENT CHANGES IN THE WHOLESALE PRICE LEVEL IN THE UNITED STATES

According to the index of the United StatesBureau of Labor Statistics, as illustrated onChart I, the wholesale price level rose sharplyfrom January, 1922, when it was at the lowestlevel since the war, until, in March, 1923, it hadreached a point which has been equaled inonly one subsequent year. Following thispeak, it declined irregularly until the middle of1924, and then rose again, regaining early in

110

100

90

60

PER CENT

110

100

90

80

WHOLESALE!

\ >

PRICES IN THE UNITED STATESJ.L.S. INDEX, 1926 = 100 PERC

1922 1923 1924 1925 1926 1927 1928 1929

CHART I.—Index of the Bureau of Labor Statistics: All commodities(550 series)

1925 all that it had lost, and remaining at ahigh level throughout the year. During 1926and the spring of 1927 there was a prolongeddecline. This was followed by an irregularrecovery until September, 1928. In October,prices dropped again, and since that date theyhave fluctuated about a level midway betweenthe high and low points of the seven precedingyears.

The Bureau of Labor Statistics index ofwholesale prices is probably the best availablemeasure of our wholesale price level, and thefluctuations of this index clearly indicate thatthere have been wide movements of prices sincethe beginning of 1922. It is the purpose ofthe present paper to try to account for thesebroad shifts in the price level. For this pur-pose, a new analysis of the Bureau of LaborStatistics index has been prepared. Thisanalysis appears to lend support to two general-izations regarding recent price movements: (1)The wholesale price level has moved chiefly in re-sponse to changes in the prices of raw materials;(2) the price movements chiefly responsible forchanges in the wholesale price level are in thoseindustries where the volume of output of rawmaterials is not closely or quickly adjusted toconditions of demand; namely, in domesticagriculture, and in industries producing bitu-

1 Acknowledgment is made to Morris A Copeland, a member of theDivision of Research and Statistics from February to September, 1929,for the study presented in this article.

minous coal, petroleum, rubber, sugar, coffee,and silk.

Regrouping of commodities.—The Bureauof Labor Statistics offers a grouping of thecommodities included in its index, first, into 10chief groups (farm products, foods, hides andleather, textiles, etc.); second, into farm prod-ucts and nonagricultural products; third, intoraw materials, semimanufactured articles, andfinished products. These groupings have notbeen devised with special reference to the raw-material finished-product relationship. Thuslivestock and meats, wheat and flour, cottonand cotton textiles, are separated under eachgrouping. To bring together in one groupcommodities whose price movements are simi-lar on account of this relationship, a regroup-ing of the commodities covered by the bureau'sindex has been undertaken.

Three criteria have been used in decidingupon this regrouping: (1) Reduction in thenumber of main groups; (2) combination inone group of prices with the most similar move-ments; (3) formation of groups with sharpdifferences in movement. In conformity withthese criteria, a new breakdown of the Bureauof Labor Statistics index into three main groupshas been worked out. Each raw material andits finished product have been grouped together.In general, this classification has brought priceseries with similar movements into the samegroup. In certain cases, commodities com-peting closely in use, such as silk and rayonror foreign and domestic wool, are also classedtogether, but the chief basis of classificationis origin of raw materials. The three groupsare:

(1) Domestic farm products and theirmanufactures, including foods (exceptsugar, bananas, and coffee), cotton andwool textiles, and hide and leather prod-ucts;

(2) Mineral and forest products andtheir manufactures, including metal prod-ucts, lumber, furniture, paper, clay, stoneand glass products, fuels, and chemicals;

(3) Crude imports and their manufac-tures, including sugar, coffee, bananas,silk and rayon, fertilizer, rubber, and tires.

Relative importance of groups.—Chart I Ishows the part which each of these groups hasplayed in the movements of the total index.For practical purposes, the total Bureau ofLabor Statistics index may be considered as astraight aggregative index; that is, it repre-



sents the aggregate cost of a bill of items, ofwhich the physical amounts remain fixedthroughout, while the prices change frommonth to month. The vertical scale repre-sents this aggregate, a trifle under $45,000,000,-000 for the all-commodity index. No baseis shown. The largest of the constituentgroups is that of farm products and theirmanufactures, which comes to something over$20,000,000,000. Mineral and forest productsand their manufactures represent a group whichaggregates something over $15,000,000,000.Crude imports and their manufactures are lessthan $5,000,000,000. The sum of the aggre-

VALUE AGGREGATESIN MILLIONS OF DOLLARS50

VALUE AGGREGATESIN MILLIONS OF DOLLARS

50

Mineral and Forest Products&. their Manufactures

1922 1923 192^ 1925 1926 1927 1928 1929

CHART II.—Bureau of Labor Statistics index of wholesale commodityprices with, analysis by origin of raw materials

gates of these three groups for any month isthe heavy line entitled "Three Groups Com-bined/7 Not quite all of the commodities wereassigned to the three groups. The omitteditems are carpets, cutlery, pails, tubs, glass andvitreous tableware, soap, lubricating oil, starch,and tobacco products. But the heavy linerepresenting these three groups follows theBureau of Labor Statistics all-commodityindex so closely that the differences betweenthe two are almost negligible. It remainsabout 2 per cent under the all-commodityindex throughout.

Group price trends.—When the commodi-ties are classified into these three constituentgroups, it is clear that the constituent groups

show striking divergence of movement. Farmproducts and their manufactures have a defin-ite upward trend. The other two groupsreach peaks in 1922-23 and show subsequentlydownward trends. In the price level of thefarm group there is a sharp downward dip in1925-1927 and rise in 1927-28. These move-ments are due principally to changes in theprice of cotton; though to some extent fluctua-tions in grain prices are also responsible.

Mineral and forest products and their man-ufactures remain on a level in 1924, 1925, and1926, the level being maintained in the lastmonths of 1926 by the British coal strike, whichproduced a rise in coal prices offsetting declinesin other items. The lower level in 1927 and1928 is largely due to a decline in the price ofpetroleum.

While the import group in terms of per-centages fluctuates more widely than the min-eral and farm products groups, the group aggre-gate is relatively small, and consequently itsfluctuations do not greatly affect the move-ments of the general price level. In 1922 and1923 the shape of the all-commodity curveclearly results from the combined movementsof the two largest constituent groups. This isa period of postwar and postdepression adjust-ment and of speculative boom in which wideprice movements appear in a great variety ofcommodities. During the next three years,except for minor fluctuations in the winter of1924-25, the all-commodity curve is practi-cally a replica of the curve for the farm prod-ucts group. In the spring of 1927 the declinein the wholesale price level appears to havebeen due largely to the drop in petroleumprices. Throughout the remainder of theperiod the all-commodity curve is again almostidentical in shape with the curve for the groupof farm products and their manufactures. Inother words, practically all of the movement ofthe price level since 1924 is accounted for byfarm products and their manufactures and bypetroleum, although the lower level in the lasttwo years is in part due to the downward trendof prices in the import group. A groupingshowing separately the prices of commoditiesnot closely affected by agriculture, by bitumi-nous coal, by petroleum, or by imports—whichis not shown on the charts—has a trend that isslightly downward in 1925-1927 and upward in1928-29, but it seems clear that most of themovement of the price level since 1924 is to beaccounted for by changes in agricultural prices,with only one important exception—the declineearly in 1927, which was due to a decline in theprice of petroleum.



The raw-materials factor.—The relationshipbetween the prices of raw materials and theirfinished products remains to be considered.The fact that when prices are grouped on theraw-material basis we get sharp divergence ofmovement, suggests that raw materials are animportant factor in price movements. Inorder to test this relationship further, the indexfor each of the groups may be compared withan index for the chief raw materials. ChartIII compares the index for farm products andtheir manufactures with the Bureau of LaborStatistics farm products index, both relative to

PER CENT PERCENT

801922 1923 1924- 1925 1926 1927 1928 1929

CHAKT III.—Price indexes of farm products and of farm products andtheir manufacturers. 1926=100

1926 as 100 per cent. The aggregate value ofthe raw-materials group is somewhat less thanone-half of the total group. Since the Bureauof Labor Statistics weights and selection ofcommodities have been retained throughout,it should be noted that these two curves arenot perfectly comparable. Such commoditiesas potatoes and oranges are represented in theraw-materials group but do not appear at anysubsequent stage of manufacture. Moreoverthere are differences of weighting, crops havinga relatively heavier weight in the raw-materialsgroup, and meats and livestock a relativelyheavier weight in the total group. In spite ofthese differences, there is a close similarity inthe timing, direction, and amplitude of move-ments in the two curves. The chief differencesin movement are due to the influence of thediffering weights of meats and crops. Thus thehigher early peak in 1925 in the raw groupreflects the movements of cotton and wheatprices, while the higher second peak in thetotal group in 1928 reflects chiefly the price ofpork.

A special index of the chief crude mineraland forest products, using Bureau of LaborStatistics weights, has been constructed forcomparison with the group of mineral and forestproducts and their manufactures (see ChartIV). It includes coal, crude petroleum, pig

iron, semifinished steel, the nonferrous metals,building materials and wood pulp—represent-ing a little over half the aggregate for the totalgroup. Here also the two curves are notentirely comparable, but the agreement intiming and direction of movement, and, after1922, of amplitude, is even closer than in thecase of the preceding chart. Minor differences

Crude Mineral and Forest Products& their Manufactures

100

90

80L1922 1923 1924 1925 1926 1927 1928 1929

CHART IV.—Price indexes of crude mineral and forest products and ofcrude mineral and forest products and their manufactures. 1926=100.

in movements are for the most part accountedfor by differences in weights. Nonferrousmetals, having a heavier weight in the rawgroup, account for the lower level of thiscurve in 1925, and copper accounts for thepeak in the spring of 1929. The peak in late1926 in the raw-material curve is chiefly due tocoal.

701922 1923 1924- 1925 1926 1927 1928 1929

80

70

CHART V.—Price indexes of raw imports and of raw imports and theirmanufactures. 1926=100

Chart V compares an index of the chief crudeimports with the index for the crude importsand their manufactures group. The rawgroup includes raw sugar, bananas, coffee, silk,rubber, and fertilizer materials, with an aggre-gate value a little less than one-half of that forthe total group. In view of the differences ofweighting between the raw group and the total



group, precise agreement of the two curvescould scarcely be expected for such wide move-ments, but in respect to timing and direction,the fluctuations show close agreement.

Charts III to V appear to be consistent withthe proposition that raw materials are theprime factor in price movements. If thedecline from 1925 to 1927 was largely due tochanges in raw-material prices, we shouldexpect the changes to be greater here than inthe case of their finished products. Datafrom the census of manufactures are appar-ently in agreement with such a view. Theratio of cost of materials to value of productschanged little from 1921 to 1925, but, in 1927,showed a definite drop (57.3 to 56 per cent).Since wages were rising in these two years,some of the decline in the prices of finishedproducts may well have been due to techno-logical changes and improved efficiency inmanufacturing, but the apparently largerdecline in the prices of raw materials is inagreement with the view that these pricemovements are of prime importance. Thechief effects of technological change appear tohave been ill-controlled increases in output ofraw materials or sharp cuts into the demand forcertain products when substitutes have becomeavailable, as in the case of petroleum for coal,or rayon for other textiles.

It is true that the dips in the wholesale pricelevel in 1924 and 1927 coincide with periods ofslackening business and suggest an explanationof the price movements which runs in terms of ageneral decline in demand, and it is not in-tended here to overlook or minimize the im-portance of the so-called cyclical fluctuations ofbusiness. But the decline from 1925 to 1926and the fact that 1928 averages slightly lowerthan 1924 can hardly be accounted for on such abasis, to say nothing of the minor peaks in1923-24, the spring dip in 1925, and theSeptember peak of 1928. While other factorsappear to have played an appreciable part insome of the movements of the wholesale pricelevel, the analysis here offered appears to sup-port the two general propositions alreadystated: (1) The wholesale price level since 1922has moved chiefly in response to changes in theprices of raw materials; and (2) the pricemovements chiefly responsible for changes inthe wholesale price level are in those industrieswhere the

Federal Reserve Bulletin December 1929 - St. Louis Fed · 2018. 11. 6. · FEDERAL RESERVE BULLETIN...

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