Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-12-31
BY CHARLES f.. MITCHELL.

President. National City Bank of New York
THE year 1925 has been one OF
comparative stability in banking For
over decade the financial world has
been tossed about in a sea of alternat-
ing imitation and defation caused bv
war and great shifts Of gold on a
scale heretofore unheard Of Gradual
ly the effects of the war are clearing
away, and banking conditions the
world over are getting back more
nearly to normal.
I'm this country commercial de-
mands have shown a healthy expan-
sion during the past year, in keeping
with the activity of industry, but
there is no evidence of borrowing to
excuse. In fact, the conspicuous fea-
ture of the present situation has been
the ability of business concerns to
finance themselves with comparative
ly little recourse to bank credit Such
Increases as have occurred in com
mercial borrowing have been offset
In part by a decline in bank invest
ments and security loans, so that the
year closes with but a moderate ad-
vance In total bank credit outstand-
Ing over the levels prevailing at the
beginning of the year.
Concern has been expressed In
some quarters over the present large
holdings of banks of securities and
collateral loans which are ineligible
for rediscount or pledge at the reserve
banks. The expansion of these held
ingS in recent years has been Que
largely TO the fact that gold imports
have caused supplies OF funds To in
crease faster than they could be alb.
sorbed in the ordinary commercial
channels. so that banks have had no
other alternative than their employ
ment in the security markets. The
problem of maintaining liquidity should
engage the attention of all bankers,
but there is no evidence that the bank
ing position thus far has been i'm
paired. If we do not get any more
gold, the savings Of the country will
gradually absorb this large floating
supply Of securities, and banks will
increase their holdings of commercial
paper.
Despite the large amount of funds
employed in the security markets.
growth of fnstallment credit and other
demands upon the banks, the imnor-
tant thing to note is that the total
volume OF credit required of the re-
serve banks Is less than that OF a
year ago. The country IL thus carry
ing on its business without drawing
upon its ultimate banking reserves,
a fact that speaks strongly for rhe
underlying soundness Of the credit
situation.
with the resources of the reserve
banks practically untouched. money
conditions continue easy, with no
prospect of strain. What the trend
OF rates will bring during the coming
year depends. in the last ANALYSIS.
upon the course of business. No one
expects anything in the nature of
tight money, but 1t Is true also that
aside from such temporary seasonal
easing as always occur in January
no large reductions are likely SO long
as business holds up to current
levels. 1t should be remembered that
demands for capital have increased
very rapidly during the past five
years, and that heretofore they have
been met, with funds to spare, largely
because OF the replenishment of orr
bank reserves through gold imports.
With the probability that the period
OF large gold imports is now over. we
can hardly expect to enjoy Indefinite
ly the unusual combination of high
business activity and abnormalIy low
money rates.