New Britain herald. [microfilm reel] (New Britain, Conn.) 1890-1976, 1929-01-11
BANKING CHAPTER
HEARS ECONOMIST
B. N. Anderson, IT,, SPEAKER It
Burritt Hotel Meeting

Members of New Britain Chapter.
4. l. B.. At their meeting last night
at the Burritt hotel. were addressed
by Benjamin N. Anderson. jr.. New
York banker and economist.
Operations OF the New York
stock exchange and the federal re-
serve banking system were dis
cussed by the speaker. whose talk
follows:
IN response to the rising rates
OF interest at the stock exchange,
there has been an immense increase
during the past year in "outside
money" that Is. loans not made for
the account OF chartered American
banks and trust companies, In the
brokers' loans figures These loans
are made for the account OF indi-
viduals, firms. corporations, foreign
banks, and private banks. The fed
eral reserve authorities, receiving
weekly reports from the New York
city member banks. place the figure
at S927.G33, 900 on January I. 1928,
1929. These figures obviously cover
only that part of the outside
money" which is handled through
the New York city member banks
and trust companies. The more tn
elusive figures OF the New York
stock exchange, covering all brok-
.rs' loans, whether made through
New York city banks and trust
companies or not. show an addi-
1ional item of outside money"
which amounted to 36c1,0s7.ooO on
December 81, 1927, and $l.O3S,943,-
600 on December 81, 1928. Combin-
ing the two sets Of figures gives us
total Of outside money" In brok-
srs' loans OF $l,54S,730, 900 at the
beginning of 1928 and OF t3,2O5,-
100000 at the beginning OF 1929.
an increase Of 1000, or OF
1o7 per cent.
Will this great volume of out
side money remain permanently at
the disposal of the Stock Exchange?
We shall find our answer. I think,
by considering the original source
from which it came. How does 1t
happen that corpora tons, foreign
banks. individuals. and firms, are in
Possession of large volumes OF high
~ liquid funds which they can lend
to the stock market at high inter
est rates? 1t has never happened be-
Tore in our history, even when
money rates were much higher.
"The answer is to be found in the
Expansion Of commercial bank
credit in the United States between
tarly 1922 and early 1928. an ex-
pansion amounting to 14h billion
dollars in loans and Investments
and to 1917 billion dollars in de-
POSTS.
This great expansion Of bank
credit represents savings only in
tninor part. 1t represents primarily
4 multiple expansion Of bank credit
based on excess reserves, the excess
reserves being due to (a) excess Of
gold. and 90 easy money policies at
the Federal Reserve Banks. Unneed-
ed by commerce, the new bank
credit was utilized in real estate
mortgage loans. in installment
finance paper. and, above all. in the
buying of bonds and in loans against
securities. This facilitated an i'm
1nense increase in the volume OF new
security issues, and a great number
OF corporations obtained funds in
this way. which they could use in
paying Off bank loans. in increasing
working capital, in plant extension.
and finally. in building up liquid re-
serves of cash. A great flotation Of
foreign loans took place at the same
time, which placed the outside world
in possession of a great volume OF
short term funds in dollars.
The bank expansion led also to a
great rise in the prices OF urban and
suburban real estate and in securi-
ties The old holders of real estate