Evening star., 1932-05-21
BANK LOAN POLICY
REMAINS CAUTIOUS
Federal Reserve Credit Ex-
pansion Program Is Max
ing Slow Progress.
Special Dispatch to The Star.

NEW YORK, May 2l.-The unwill-
ingneSs of member banks to join with
the Federal Reserve system in extend
ing more liberal credit facilities and in
adding to their investment portfolios
was again indicated this week in a
summary of their assets and liabilities.
This shows a reduction in loans and in
vestments of Sl37,000,000. OF the total
reduction in loans of S125 100000 those
on securities accounted for $4,000, 900
and on other loans S39 100000.
From this it is apparent that the
banks are continuing the process OF
closing out loans that are secured by
stock or bond collateral and that this
liquidation has been playing an impor-
tant part in the decline in security
markets.
1t is an open secret that the Federal
Reserve authorities are disappointed
over the response of member banks to
their program Since early in March
they have been buying Government Sc
curitieS steadily. In the past five weeks
their purchases have averaged about
500, ,O0O,O 900 weekly. On February "a
their portfolio of Governments was
S740, ,556 900. On May l it was S1,385,-
267 900. 1t is today probably s700 600.
900 greater than it was two and ha1
months ago.
Process Has Been Slow.
The controlled credit policy Of the
Federal Reserve has. therefore. had
sufficient time to show its effect were
the member banks disposed to make use
of it to the extent anticipated, 1t has
been realized that the process OF credit
expansion would be slow one and that
its full effect might not be shown until
the latter part of June. There was
reason to believe, however, that by this
time it would be counteracting the m
fluences of deflation in securities and IN
commodities. Instead, both markets are
much lower than they were when the
buying campaign began.
In the meantime the member banks
have been accumulating an excess OF
reserves, which now aggregate nearly
$500 900 900, or sufficient to enlarge
their credit facilities by about $3,OOo,-
O0,000
The policy of the member banks con-
tinues to be one of limiting their pur-
chases of securities to short-term Gov
ernment issues. The latest Offering OF
Treasury discount bills has just been
sold on a basis below 4 of l per cent,
a return approximating the amount
paid by the New York clearing house
banks on their demand deposits. There
has been little inclination on the part
of the banks to take advantage OF the
bargain prices in either high-grade cor
poration bonds or in those OF a lower
rating that are obviously selling on a
basis of market valuation that discounts
the bankruptcy of the companies.
The general demand is for main
tenance of a high degree Of bank
hquidity. In this respect there has been
practically no change from the conoi-
ton which reached its extreme limit in
the statements of both national and
State banks published at the end Of
1881. Banks appear to be indisposed
to lend except on the very highest
credit, for they shave down applications
for loans to proportions that make them
impracticable to the borrower. An in
stance was cited of an application for
a loan on suburban real estate property,
which was finally appraised down to
the minimum of 100000, and on which
the borrower was able to obtain only
s2,500.
Loaning Program Watched.
1t is obvious that the Federal Reserve
Board cannot continue making $780,
900 900 per week purchases of Govern
ment securities indefinitely. 1t is quite
probable that when the total increase
has reached $1,000, 100000 it will then
determine whether its policy Is to be
modified or abandoned. This will de-
pend on the extent to which member
banks in the meantime broaden their
loaning program or keep to the pres
ent practice of accommodating short
term Government securities and cash
and preparing themselves for another
showing of high reserves in the bank
call at the end of June.
(Copyright. 1922