Deming graphic. (Deming, N.M.) 1903-1948, 1921-01-04
CREDIT CONDITIONS
AND LOAN POLICY

The following communication Il
member banks has been sent out by the
Federal Reserve bank at Dallas:
AT its last meeting our board Of Ill
rectors made a careful review Of the
credit and financial situation In this
district and the future policy Of this
bank was the subject Of considerable
discussion and was given full and
thorough consideration.
Following the discussion l was
authorized and instructed To communi.
cate TO the member banks of the dis.
trict the consensus OF the views Of the
directors, which action seems timely
and appropriate as we are just enter
ing upon new year
IL must be understood that we are
fully aware Of the fact that many
banks receiving this letter have their
affairs In sound and liquid condition,
requiring no special admonition az our
hands, hut IL is hoped that the views
expressed herein are 50 sound and
helpful that they may be Of some bene-
tit 10 all our banks
We believe that the financial condi
lion Of the district is intrinSically
aound. although the heavy decline In
the prices of practically all products
makes Il necessary To somewhat re
adjust business 10 meet these changed
conditions
In bringing about this readjustment
we consider Il indispensably necessary,
and matter of first importance, that
II 10 Ii. h.f ~.
ducing businesses and enterprises
absolutely declining all merely specu
lative loans and reducing to mini
mum loans of an investment nature. II
appears equally essential that banks
having rediScountS or owing borrowed
money should Immediately take effec
tive steps to secure liquidation for
although we are In the midst and near
ing the end Of the period when om
seasonal liquidation normally takes
Place. we are now carrying an unduiy
large amount OF rediscounts and loan
for our member banks. many Of whose
lineS SHOW little or no dimunition from
the maximum amount reached during
the summer Bearing this In mind, and
also the fact that within a short while
the banks will be called on for funds
tor crop planting and for other season
Il needs, ii seems proper to suggest e
the banks that, before making commit
ments for the new year, they should
give careful attention 10 the above sug
geStiOns as well as consideration to
their ability. within their own re
sources, to take care Of any and all
loans made without resOrting 10 eX
cessive borrowing from the Federal Re
serve bank.
Section 4 Of the Federal Resery'
Act directs that In extending discounts
advances and accommodation 10 any
one member bank, due regard must be-
had for the claims and demands Of al
other member banks. This provision |
should always he borne In mind by |
member banks for. under Il rigid en-
fOrcement Of this rule, the maximum |
limit Of discount accommodation TO any |
member bank would be In an amount
substantially equal to two and one-half
times the reserve Of such member
bank plus two and one-half times the
amount Of its paid-up capital stock In
the Federal Reserve bank.
We have not heretofore found II
necessary 10 make this measure NJ Dor
rowing the limit or rule In this bank.
hut II becomes necessary 10 limit Dor
rowings by our member banks we shall
not hesitate to do 50.
At the beginning OF the present year
many banks, in making their commit
ments hlied to give proper considera
tion 10 the fact that their unusually
large deposits would prove unstable,
and made loans with less conservatism
than sound business prudence would
suggest. with the result that they
found themselves compelled to redis-
couh, with us far more heavily than
hOuld have been necessary. In many
II the banks too large portion Of
their funds became tied mp In invest
ment loans and too frequently In loans
for speculative purposes. This policy