Evening star., 1924-01-20
INTEREST ON LOANS
EXPECTED TO DROP
SIX Per Cent or More on
Money Borrowed From Banks
May Become Memory.
HUGE SUMS NOW IDLE
Slack Demand for Funds Likely to
Force Reduction-Cut Due
Very Soon.
Bf HARDEN COLFAx

DIX per cent interest-or bipber
on money borrowed at the bank bids
lar soon 10 become a memory So
many millions of idle dollars are ac-
in the nations banks ac-
cordlng to the Federal Reserve Roards
"tehlg statement, and borrowers are
so shay about asking for more, that
interest rates, long maintained on a
FAIRLY stable basis. seem destined ~
arop to new low levels within the
next thirty days or six weeks.
from every section of the country.
except Texas, where agriculturaI
loans still lie heavy in MANY hanks
the story is the same. The weeks
falin'ary hanlf y. SHOWS that borrowers paid
ptck 10 national banks during tba
SlX-uay period an excess of rnora ~,
9too'uUo,OOp over fresh BORROWINGS
me regal reserve of gold in the fed
eIaI reserve banks, which the law re
qulreS shall be 40 per cent. rose dur-
ing the week, as a cous....opon
more than so per cent Seldom has il
'ouched TINS high marke before.
More Cash transactions.
The boards statement implies aIso
that business transactions are comins.
more to cash basis, with mini
mum of credit. While loans dronned
during the week by about s1S4.0o0 ono
IN the chief national banks danoSitC
also fell off to the extent cf sho,It
Sl55,uO0.OOO. The inference annearS 4o
be plain. Merchants. manufacturere
ana others who have been doing busi-
ness largely on borrowed funds now
are doing business to greater sxterr
with their own money
Not even strong bull marlat
climbing steadily upward. has check,
ed the mood of loan repayments 10
shows that loans secured bv stocks
ana ponds declined by more than
Sl0s,OO0,OOO during the week. II is
the money lent on that kind of col
lateral that goes largely into stock
market deals.
10 explain the phenomenon. The vol
une OF business remains large.
though not so large, perhaps. as ir
was last summer or fall. and the
stock market IS active. Business is
going ahead as usual. but doesn't
seem TO need the old-time line of cred
II. The national banks alone have
an untouched reservoir of credit that
measures approximately $4,000, 900
000. yet this great lending powrr
seems neither touched nor noticed
Funds Outstrip requirements.
realm of finance is becoming crowded.
There are more than 81 900 sizable
banking institutions in the country.
Ihey have an apparent overcapacity
for meeting business demands The
banks appear to have outstripped
business, TO have grown faster than
the requirements of the business
world demand. As a result thousands
OF the smaller institutions are finding
= i'm -iF0ty n
the handsome profits of other days.
Even the federal government is
feeling the effects of the situation.
During the war, the federal Treasury
received in single year as much as
$50, 100000 as its tax on the profits
of the reserve banks. This year, be-
cause of the lack of demand for cred
ii, it Will receive, in the opinion of
the bureau of the budget, about $40
100000, although the tax rate is the
same.
The boards statement this week
also shows an unusual departure from
normal in another respect The
amount of gold in the Golfers OF the
federal reserve banks to redeem fed
eral reserve notes in the hands OF the
public is s2,177.6.9 900. The amount
of the notes circulating throughout
the country, however, is placed at
but ,0S4,764,0 ,000.
Gold SurpaSses Notes.
In other words, the federal reserve
banks have more gold in the vault
than they have currency outstanding
about $S3, 100000 more. Seldom does
tho actual gold equal the outstanding
notes. And Yet the gold is held, to re-
deem the notes as they may be pre-
sented. In addition to the gold in
vault, the reserve banks also have
more than $1,000. 900. 600 in other gold,
not held to redeem notes.
time the war.
apparently, the entire volume of fed
eral reserve currency could be retired
without inconvenience or delay by the
gold held TO redeem it. When it is re-
called that most of the currency in
circulation is in the form of federal
reserve notes, the volume of Ameri-
cas- gold holdings comes nearer the
possibility of measurement in terms
that the average man can understand.
Gold could be substituted readily for
most of the currency in everyday
circulation, if desired.
why Drop Is Expected.
The influx of gold, in the opinion OF
some officials aere. is one OF the
chief reasons why interest rates are
doomed to drop soon. The golden
food sweeps in unabated upon our
shores, making money cheap and
plentiful, they say, to the borrower;
and at the same time making it more
difficult for the banker to keep to his
standard profits.
AS the result of this and other fac
tors, a lowering not only of CONNER
cial interest rates. but of rediscount
rates is expected soon.
Copyright, 1924