Forest City press. (Forest City, Potter County, D.T. [S.D.]) 1883-19??, 1918-05-30
Increase of Bank Deposits
Is a Sign of Danger
From Commerce and Finance.

Time money is o n a s per cent basis and the market is without
Unusual features: Call money has ranged from . to 6 per cent
during the month, with 1 TO . as the common range. Considering
the heavy payments in sight, for the Liberty loan and taNcs and the
enormous turnover in trade and industry, the situation is easier
than might he expected. bmt. this is explained by the increased resort
to the federal reserve banks. The gain i'm freight deliveries and
increased marketing OF grain and live stock since the LIST of March
has promoted a more rapid movement OF funds. There is a good
distribution OF commercial paper the country over, and current
requirements OF m"nc! seem to be satisfactorily met.
The federal reserve banks have taken are of the commercial
loan expansion this spring. AT the opening of the campaign for the
second Liberty loan early last October. the total earning assets of
tn" federal reserve banks We're SosOS51O0O They rose from that
to loSl,o22,OoO ON December II, by which time the loan was mainly
paid up. then gradually declined TO SOL 9S9, 600 ON February IS,
from which they had rlScn to 81 .2S6. $4,000 om April %. The loans
and investments of the member banks reporting to the federal
reserve board. other than those secured 10y government obligations.
aggregated $99s5, 734. 900 ON April 10. which compares with $9,57l-
oI4,Wo % N December IS, and 1894 .31 900 on March l. But while
10 customers (N rcdiscounting at the federal reserve banks they
have been increasing their holdings of government securities from
$3.50, 62600O on December 2S to s.. l067 100000 ON April IS. The
latter consist chiefly of certificates of indebtedness, which will be
operation Will probably involve a further increase of individual
loans. There is no lodging the fact that these figures show continual
expansion. The total earning assets of the ~ fcdral reserve banks
in April, 1917, wcr about 1928 100000.
Or course. this increase of LOANS is accompanied by am increase
OF deposits, and it is surprising how many persons, even among
bankers. comment upon increasing deposits under these conditions
as q favorable sigh They argue from increasing deposits an
increasing ability to make loans. although every banker must know
from his own experience that these deposits are lue to the growth
of the loans. 1t is am obvious faNacy to suppose that deposits which
are created by loans increase the capacity of the banks to make
more loans. A bank customer borrows and takes credit in his
account; he checks the sum out i'm the course of business and his
check becomes Il deposit i'm another bank: the same thing is going Nh
in tens of thousands of instances, and the volume of bank deposits is
swollen in each instance. and remains swollen except as drawn upon
TO pay off bank loans. The latter action constitutes the only method
by which this process OF initiation is countcracted.
This increase of bank deposits is not a matter for congratulations.
1t means initiation. a corresponding increase of prices, higher war
costs, and a greater Indebtedness to be paid off after the war.