Abstract

Unused Billions in the Banks

A week ago it was said in this column that only a few faint voices had been raised against the proposal to amend the Federal Reserve Act in order to admit to the rediscount privilege certain securities now excluded. Since that time the objections though still relatively few, have gained in vigor. Each week a large group of banks, holding more than three-fourths of all the deposits of member banks in the Federal Reserve system, publish their condition. On October 7, 1931, these reporting banks owned $4,194,000,000 of the United States government securities, on which loans can be readily obtained at the Federal Reserve. In addition, they held $7,777,000,000 of loans made to customers against security other than stocks and bonds; in this total was included a vast sum of commercial paper eligible for rediscount. The big banks are ruled by a proper determination to keep their own position liquid. The whole paradoxical affair illustrates the unfortunate workings of a normally effective banking system when called upon to deal with wholly abnormal conditions.