Evening star., 1934-07-04
DEPOSITS SHOW
ABNORMAL GAIN
Federal Expenditures Cited
Along With Monetary
Influences.
BY w. r.. HUFF,
Associated Press Financial Writer.

NEW YORK, July 4.-M1dyear
banking figures reveal the striking
extent to which Government expendl-
lures have combined with certain ap-
normal monetary factors to expand
the Nations bank deposits N the last
SIX months.
Reporting Federal Reserve MEMBER
banks in leading cities, which hold
half the banking resources OF the
country, have increased their de-
posits by $2,SOO,OOO,OOO since the end
of 1888. 1t appears, therefore, that
all banks in the United States nave
gained at least $3,000,0 900 IN the
last halt-year, and perhaps $3,5UO,-
100000.
An analysis OF the figures shows
that the factors producing the de-
poslt expansion have been almost en-
tirely abnormal. In addition TO rails
ing $2,500,000,000 OF new money since
the year-end, the Treasury has spent
some $5OO,000,0O0 OF unemployed
gold, part of it the profit" resulting
from devaluation of the dollar.
Gold Imports Large.
Furthermore, gold imports from
abroad, accompanying the return OF
capital after StablllZaton OF the Amer
ican currency at It's new level, COM
blned with newly mined metal acqul-
SltlonS, have amounted TO approx
mately $500, 100000.
At least S2O0,O00,000 OF currency
has found its way back to the banks
from circulation. This factor alone
can be considered normal, IN view
OF the usual tendency OF money clrcu-
lation to shrink during the early part
OF the year. The other factors are
not ordinarily encountered under av-
erage economic circumstances, at
least not to the extent OF the past
few months.
All in all, some $4,000,000,000 of
funds have been piled on the banks,
leaving them with the insoluble prob
lem of what to do with them under
conditions where private borrowing
is sluggish and the capital market
Stagnant. Perhaps $2,0OO,000,00O has
been invested in Government Securi-
ties; the rest has gone into cash bal
ances at the Federal Reserve Banks.
The most striking feature of the
figures for reporting member banks
is the absence of any rise in loans
and investments, aside from hold
ings of United States Government
obligations. The normal way for
bank deposits to rise-and the nor
NAL evidence of expanding indus
frio &c hn
tension of more credit to customers
and the enlargement of investments,
which creates a return flow of funds
to the banks as deposits.
Commercial Loans Drop.
Yet, while holdings of governments
have grown just short of S1,4OO, ,O00,-
900 for the reporting member banks
in the last six months, loans have
dropped $388,000,00O, mostly in the
Commercial" rather than ION Sc
curitieS" classification. At time
when the Treasury was virtually
dumping money on these banks and
gold imports were flooding them
with funds, their investments, other
than Governments, rose a meager
$4,000, 600
Net demand deposits of these re-
porting banks rose S1,638,000.0 900 in
the half-year to a total of S12,504,-
100000, the highest in recent years
Time deposits gained 1852 100000 at
s4,501 100000, while Government de-
posits expanded $532,O00,O0 to
S1.357 900 900.
When the Treasury raises new
money it receives payment for its
new obligations largely in the form
of deposits on the books of banks.
1t calls for repayment of these de-
posits as the actual needs arise
Then when the Treasury disburses
the funds for public works, or
whatever other purpose it wants
money for, the deposits are recreated,
this time for private accounts.
With S532,000,000 of Treasury de-
poSitS still uncalled and $1,4O0, 100000
more Government obligations held
than six months ago, it would ap-
pear that some 1886, 100000 of the
increase in private deposits Of re-
porting banks resulted directly from
the Treasury borrowing.
Flows to Large Cities.
substantial portion of the in
creased funds of smaller banks also
has found its way to the larger city
institutions. 1t has always been a
practice Of country banks to keep
idle funds on deposit in New York,
Chicago and other big cities, as sec
ondary reserves or in search of short
term employment.
Deposits due to correspondents by
the reporting banks gained $929,-
100000 during the half year, while
deposits owed by correspondents to
the reporting banks increased S372,-
100000. This meant net increase
in the deposits of the reporting in
StitutionS from this source of $751;
100000
The gain in deposits of this char
acter is an illustration of the Nation
wide extent of the expansion of bank
resources. Small banks as we'll as
large have more money than they
can use.
The remaining increase in deposits
Of the reporting banks has been ac-
counted for by gold imports, Treas
ury spending of gold assets and the
return of currency. The gross an
crease from all these factors has
been reduced, of course, by the de-
cline in loans. The same is probably
true of other banks
The net rise during the six months
Of $l,071 100000 in loans and invest
ments of the reporting banks stands
beside an increase OF 1887 100000
IN their reserve balances. In other
words, these institutions could have
extended twice as much credit as they
If