Evening star., 1926-04-12
CITES S250,O|lD,0OO
CREDIT EXPANSION

Report Held to Prove Useful
ness of Reserve System to
Financial World.
Usefulness of the Federal Reserve
system to the financial and economic
structure of the Nation is shown in
the annual report of the board for
1925, made public last night, which re-
vealed expansion of outstanding credit
by $3.50. .000, 900 during the year. This
brought the total credit to 81 500 ,000,-
900, the largest since the close of 1921. q.
I'm no previous year" the report
said. has the course of events, both
at home and abroad. afforded "a broad
er scope for the operation of the re
serve banks. or shown more fully the
strength and usefulness of the reserve
system"
Credit Growth Explained.
The increase in credit, it was eX-
planned, resulted from an advance of
about $135. 900, 900 to meet an export
demand for gold coincident with the
restoration of the gold standard by
England: S65, ,000. 900 of it was due to
growth in domestic currency re-
quirements and $50, 100000 was due to
increased reserve requirements of
member banks.
Without the aid of the Federal Re
serve system, the report declared
| these demands for credit otherwise
would have imposed serious strain
| on the credit structure of the country
| and would have made it necessary for
| banks to reduce their loans to bor-
| roWerS"
The business attitude of the Nation
was complimented by the report for
| maintaining conservative policy in
the face of the increasing volume of
trade during the year,
Seldom in the history Of American
business" it declared, has so large a
growth in Industrial activity occurred
without giving rise to marked specu-
lative tendencies. During the year
there was a growth of speculative
activity in the security market and
in some localities in real estate, but
there was no evidence of speculation
in the commodity markets.
Claims Proof OF Efficiency.
proof Of the efficiency of present
day production and transportation and
of the character of business sentiment
is that in those lines of industry where
the growth of activity has been most
marked, as in building and automo-
biles, prices Of materials and of prod
ucts have either remained constant or
declined during the year.
The board declared the increased
use Of credit for commercial purposes
for the year as a whole was moderate
while the growth in the volume OF
reserve bank credit during the year
reflected largely an increase in the
demand for loans and securities.
The arrangement with the Bank of
England for the advance Of credit by
the Federal Reserve Banks in connec-
ton with the re-establishment of free
gold market in London was described as
the most distinctive achievement of
the year in the Federal Reserve
policy"
with the re-establishment of an
effective international gold standard
the movements of gold between coun-
tries will again exercise the corrective
influences that experience has shown
to be safeguards against unsound
credit developments. The inflow OF
gold to this country during the period
since the reserve system was organ
ized has been on an unprecedented
scale and has made the problem OF
credit administration unusually diff
cult"
Member Banks Benefited.
Although the number of member
banks decreased by SO during the
year, the report declared, the credit
of member banks increased by $2,T3,-
900 900. to a total of $31 ,000. 100000,
the largest total in history. This re-
suited, it said, from the large vol
ume of business and financial activity
during 1926" It represented an in
crease in member banks loans, prin'
cipally, ''as the volume of their In
vestments remained relatively con-
slant during the year.
Among the factors accounting for
the rapid growth in member bank
loans on securities" the report ex'
planned, "have been the exceptionally
heavy volume of domestic and foreign
securities fioated during the year, and
the rise in security values, which
made necessary a larger volume OF
credit for financing transactions In
securities.
The relatively small growth of loans
| for commercial and industrial pur-
poses during year of active busi
ness was due in part to the cautious
attitude of business with reference to
| inventories, to an increase in the ra-
| pidity of merchandise turnover, to a
| great improvement in the efficiency
| of transportation, to a continued re-
payment of frozen loans and to the
| policy of many corporations to fund
| their bank loans through the issue OF
| long-term securities"
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