Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-09-10
BOARDING RESULTS
IN HEAVY LOSSES
Withdrawal of Funds From
Circulation Is Serious Blow
to Credit Situation.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, September 1O.-The
financial district estimates that nearly
$500 900 of United States currency
Is now being boarded, which is the
equivalent of S8,2OO.O0O.O0O worth of
loans or bank deposits. This boarding
has more serious effect on the general
money market than an increase in
brokers' loans to a record peak line in
1929, bankers here said today.
This is what happens when money Is
bearded:
James x. Smith, 40. business leader
in suburb Of Greater New York. steps
around to his bank and presents a with
drawal slip for $4,000.
Buying some bonds or some lots.
JIM genlally queries Bill Brown, the
No" replies Jim. How much do
your safety deposit boxes rent for?"
Loss on Transaction.
And before Bill RECEIVERS from his sur
prise jim takes nine $500 bills and
places them in safety deposit box, re-
marking Now, I don't care what
banks fail around here"
The loss On this little transaction to
smith amounts to interest rates at 81,
per cent year. or S157.50, plus SIS rent
a year for box. or SI62.5O But the
hoardlng does not stop with him.
Smiths boarding of $4,000 worth of
currency has the effect Of depicting the
reserves of his bank by that amount.
II the institution happened to be a
commercial bank, member Of the Fed
erai Reserve System, it would have to
TepIenlSh Its reserves at the central
panK by $4,000. If the bank from
which the boarding money was with
Drawn happened to be a savings insti-
tuition, it would either have to sell
some OF It's assets, such as bonds or
mortgage loans, or, in these times of
mounting savings deposits, buy that
much less bonds or lend that much
less TO home buyers or builders
In another sense, Smiths little
hoarolng operation hits the gold re-
serves OF this country Burying $500
o. money, by taking it out of circuIa-
t!on' Is Just the same as if Smith had
exported 81 800 in gold, since every
american dollar has to be backed by a
gold reserve Of at least 40 cents
Gold Imports.
If Smith had transferred his 81 5no
TO bank he considered safe. his fIInds
would not have been lost to the bank
ing world and credit to the extent of
$4,000 could have been extended on
them va
Fortunately for this country. gold i'm
ports within the last year. in their ef-
iecteat least, have about offset the sum
hoarded. Every case of boarding, how
ever. makes the situation for banks diff
n t, in that they have to build up
tneir reserves by the amount of cash 50
WithoraWn and, because Of the posi-
bllity Of such demands, have TO keep
on hand in their tills far more cur-
rency and coin that is profitable In
conservative bank operations.
ms expansion Of circulation be-
cause OF boarding. is quite different
from an expansion of loans bv bank
Money that is loaned comes bach m
me bank in the form Of deposits, Banks
only have to increase their reserve re-.
qulrementS about one-tenth the
amount Of the expansion of their Gae
pcs4IS whereas when currency is taken
out. they have to increase their reserves
6y the amount of the currency with
tCopyright. 1919