Evening star., 1942-08-16
Smaller Banks Gain
Growing Portion Of
.LenddbIe Funds
Become Temporary Rivo's
Of Big New York and
Chicago Institutions
BY IRVING PERLMETER
and FRANK MAC MILLEN

and FRANK MAC MlLLEN
wide World Business Writers.
NEW YORK, Aug. 15.-War is
shifting the balance of financial
power in a way which makes the
banks of a hundred main streets
throughout the country the tempo
rary rivals of big lending institu-
tions in New York and Chicago.
Huge payrolls in many cities and
towns are spreading bank lending
ability, the keynote of financial pow
er. to many smaller banks at a time
when money for hire is growing
scarcer in Wall street and La Sale
street.
For, in New York especially, such
lending money as the banks have
and it is still Lots being devoted
to growing extent to absorbing
giant Government bond offerings,
leaving less lendable funds, called
"excess reserves" by bankers, to be
put to ordinary banking purposes.
War Cash Flows In.
Meantime, in the smaller cities
and towns, factories, workers and
merchants are piling money into
local banks almost as fast as the
latter can lend it. Their excess re-
serves have declined a little, for they
too have made loans and bought
large quantities of the Governments
bonds.
But their proportion of the coun-
try's pool of lendable money has
been growing steadily and both
bankers and Treasury officials are
agreed the trend promises to con-
tinue.
Since the first of the year all ex-
cess reserves of the country have
declined from about 35 billions to
% billions but those at New York
from IL billions to only 28O mil
lions.
New York banks, which had 81
per cent of the lendable funds of
the country at the beginning of this
year now have only IL per cent; Chi
cago's proportion of the total has
dropped from Z per cent to 3 per
cent.
But the banks in smaller cities
have lifted their percentage from
80 per cent to 48 per cent in the
same time. and the country banks.
from Podunk to Fishers Switch,
have stepped up their proportion
from % per cent to 81 per cent.
Actually Show Increase.
The country banks actually have
increased the amount of money they
have to lend, despite the decline for
the country as whole, and the me-
dium cities have almost held their
total even.
The Treasury's war financing, ex-
perts explain, has acted as a sort
OF siphon, sucking funds from the
big money centers and spraying it
widely over the rest of the country.
In the New York Federal Reserve
district, since March, the Treasury
has taken about Is billions more in
borrowings than it has returned to
the Districts banks as deposits, pur-
chase of its own securities from
them, and in other ways.
This money has been spent else
where, to turn up eventually as de-
posits and, so, lendable money in
hundreds of smaller banks through
the country.
The Treasury and the Federal
Reserve System have watched this
swing away from the two big money
market centers and have, from time
to time, bought Government secur-
tiles from the big banks so that
they might not run short of lending
cash.
The Federal Reserve banks have
bought about 81 ,O0O, 900, 900 of Gov
ernment securities from the COM
mercial banks since spring, thus, in
erect, returning them money to add
to their lendable funds. Most of
these purchases have come from the
big city banks.
New Control Available.
But Washington money authorities
nave new and much more import
ant instrument to prevent a move
OF funds from the big centers to
the small ones of such proportions
that 1t would leave the big towns
with too little lending money.
The Federal Reserve Act recently
has been amended so that the re-
serves which the banks in New York
and Chicago must carry may be
changed, without also changing the
requirements of the smaller cities
and the country banks.
Now, the banks in these big cities
must set aside at least 26 cents of
every dollar of deposits as a reserve
to protect the depositor.
Under the law this might be
changed to as little as 13 cents on
each dollar Thus large sum of
reserves would become excess" that
is, not required to back deposits and
therefore available for lending or
investment.