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 THE FEDERAL RESERVE SYSTEM 
 
 THE COURSE OF THE FEDERAL RESERVE BANKS 
 BEFORE AND DURING THE PRICE CRISIS 
 AND READJUSTMENT 
 
 Address by 
 
 GEORGE J. SEAY 
 
 GOVERNOR OF THE FEDERAL RESERVE BANK OF RICHMOND 
 
 Before the 
 
 NORTH CAROLINA BANKERS’ CONVENTION 
 AT PINEHURST 
 
 April 26-28, 1922 
 
 
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 THE FEDERAL RESERVE SYSTEM 
 
 THE COURSE OF THE FEDERAL RESERVE BANKS 
 BEFORE AND DURING THE PRICE CRISIS 
 AND READJUSTMENT 
 
 Address by 
 
 GEORGE J. SEAY 
 
 GOVERNOR OF THE FEDERAL RESERVE BANK OF RICHMOND 
 
 Before the 
 
 NORTH CAROLINA BANKERS’ CONVENTION 
 AT PINEHURST 
 
 April 26-28, 1922 
 
 Published by 
 
 THE FEDERAL RESERVE BANK OF RICHMOND 
 
 May, 1922 
 
Digitized by the Internet Archive 
 in 2016 
 
 https://archive.org/details/federalreservesyOOseay 
 
‘Sx \^f ■ 
 
 Federal Reserve System 
 
 the Federal Reserve Banks Before and During the 
 Price Crisis and Readjustment 
 
 Mr. President and Members of the 
 
 North Carolina Bankers’ Association: 
 
 (i- 
 
 Having an intimate knowledge of the stress under which you have 
 labored for several years, it is a source of unspeakable gratification to meet 
 with you at a time of recovery, although, as yet, only in part, from the mis- 
 fortunes and the depression which came upon you as the outcome of the war 
 and its consequences, and which, perhaps, to many of your people brought 
 trials greater than any they ever passed through. 
 
 It is a good time to take stock and determine, if we can, whether it is 
 not altogether likely that your banks, nevertheless, will emerge from their 
 troubles with the resources and experience which will enable them to quickly 
 surpass the highest level of prosperity ever reached in the history of your State. 
 I may venture to say that I consider this outcome certain. The history of a 
 state is a history of all its people, and there have been and will continue to be 
 always varying degrees of fortune and misfortune among individuals. But 
 we will consider the history and welfare of the banks of the State as a whole. 
 
 I was requested to speak on the Federal Reserve System, but only part 
 of my talk will be on that subject. Our commercial and agricultural life is 
 bound up with the banking business, and the banking business — of non-members 
 as well as members— is inseparably linked with the operations of the Federal 
 Reserve System, so the influence of the Federal Reserve System will nevertheless 
 permeate everything I shall have to say. This will be something of a review. 
 
 I remember a small boy in my home town who on one occasion was 
 interrogated as to his progress in his studies. He said his class was then having 
 a review. To test his understanding, his father asked him what that meant, 
 and quick as a flash he replied: “You commence where you was and you go 
 where you is. So I will commence “where you was” before the Federal Reserve 
 System came into existence. It is not my purpose to take advantage of your 
 courtesy in inviting me to speak to be controversial, but I will state certain 
 facts and leave them with you for digestion, and in considering these facts, I 
 will, perhaps, be entitled, at times, to express a personal opinion or conviction, 
 since that is so much the fashion in these troubled days. 
 
 W hen discussing banking transactions and banking practices and banking 
 history, a due proportion of statistics cannot be avoided, but some of the figures 
 which I shall recite tell such a vivid tale and are so full of encouragement that 
 they cannot fail to stir the mind and the imagination. So let me give you a 
 comparison between then and now. 
 
 n 
 
 The 
 
 The Course of 
 
 3 
 
A COMPARISON OF BANK RESOURCES 
 
 In 1914, prior to the organization of the Federal Reserve Banks, taking 
 June 30th, the date on which reports are compiled, the aggregate resources 
 of all your State banks, then 422 in number, including branches, were $89,236,000 
 and their individual deposits $62,794,000. 
 
 The state banks of the country, particularly those aggressive state 
 banks — if I may presume to use the term — which are opposing the efforts of the 
 Federal Reserve Banks to give the country a par collection plan, are accustomed 
 to contrast their numbers and banking power with the national banks, and 
 sometimes with the whole Federal Reserve System including state bank members. 
 The state banks have the ascendency in numbers in your State and in the country, 
 as we all know, and the national banks of North Carolina at the time mentioned in 
 1914 were comparatively few — only 73. These 73 banks, however, had aggregate 
 resources of $67,262,000 and individual deposits of $33,805,000. The national 
 banks, therefore, were of much larger average size. 
 
 Seven years later, having passed through the most extraordinary period 
 of the world’s history, your banks, both state and national, have emerged not 
 reduced in number nor with resources diminished, but, on the contrary greatly 
 increased in number and power. Your state banks increased 135, making 
 the number 557, with branches, on June 30, 1921, having aggregate resources of 
 $242,374,000, with individual deposits of $157,627,000. The individual deposits 
 of your state banks have increased practically two and a half times, and the 
 total resources have nearly trebled. The resources of the state bank members, 
 15 in number, were $50,587,000. 
 
 Within the same period, your national banks increased 14 in number, 
 making 87, having resources of $144,245,000 and individual deposits of $90,429,- 
 000, making the total resources $386,000,000 against $156,000,000 in 1914. 
 The individual deposits of the national banks have grown in a somewhat greater 
 ratio than those of the state banks. 
 
 Of course, many banks as well as individuals during that time suffered 
 misfortune and were cut down. That is the history of corporations and business 
 concerns as well as of individuals, and sometimes it is the history of nations. 
 But the world goes on ! 
 
 In the period under discussion, which, bear in mind, is the period of the 
 Federal Reserve System during world upheaval — social, political, financial and 
 commercial, the banking power of the entire nation also grew beyond precedent, 
 but not quite with the same percentage of growth shown by the banks of North 
 Carolina. For a period of more than two decades, the banking business in the 
 states of North Carolina, South Carolina and Virginia has outstripped the rate 
 of growth of the country as a whole; and when we consider the magnificent 
 endowment of this section in climate, soil and natural resources, without at- 
 tempting the prophetic, we have reason in experience to expect continuance of 
 this ratio of development. 
 
 4 
 
INCREASE IN THE BANKING POWER OF THE COUNTRY 
 
 In the country-at-large in this period, the banks increased in number 
 from 26,765 to 30,812, and their resources from $26,971,000,000 to $49,671,- 
 000,000. There is no information as to whether all the banks of the country 
 reported on either of the dates chosen for comparison, but the comparison 
 covers all reporting banks. 
 
 It is highly interesting to compare the development of the state and the 
 national banks in the whole country, as well as in your own State, and for that 
 purpose I incorporate a table in this address, to which reference can be made. 
 
 The national banks increased in number from 7,525 to 8,154, and their 
 resources from $11,482,000,000 to $20,518,000,000. The state banks, that is, 
 the commercial state banks, doing a similar business to the national banks (to 
 make the comparison fair) increased astonishingly both in number and resources : 
 in number from 14,512 to 18,875, and in resources from $4,354,000,000 to 
 $14,199,000,000. 
 
 The loan and trust companies, which in many respects do a regular 
 banking business, as you know, actually decreased in number — due to con- 
 solidation doubtless — but increased in resources from $5,489,000,000 to $8,181,- 
 000,000. 
 
 It will be observed that, although the commercial state banks, not in- 
 cluding trust companies, outnumber the national banks by more than two to 
 one, their total resources are six billions less than the resources of the national 
 banks. 
 
 How do these figures compare with the banking power of all the banks 
 in the Federal Reserve System, both national and state, including trust com- 
 panies? 
 
 The resources of the state bank and trust company members of the 
 System on June 30, 1921, were $10,009,000,000, making the aggregate resources 
 of all members of the System $29,639,000,000 against resources of $12,371,000,000 
 of the commercial state banks and trust companies not in the System. The 
 System thus embraces about 60 per cent of the entire “banking power” of the 
 country, as usually expressed, including mutual savings banks and all private 
 banks, but about 70 per cent of the commercial banking power. In April, 1915, 
 about five months after organization of the Reserve Banks, their total resources 
 were $340,000,000, all reserve deposits not having been paid in at that time. 
 In October, 1920, their resources had grown to $6,600,000,000, and the Reserve 
 Banks were then lending their members $3,100,000,000, although the reserve 
 deposits of members were only about $1,800,000,000. The amount of Federal 
 Reserve notes outstanding then was $3,400,000,000. Such is the value and 
 power of the credit and currency principles embodied in the Federal Reserve 
 Act. In April, 1915, the resources of the Federal Reserve Bank of Richmond 
 were only $15,500,000; at the greatest period of expansion they reached $300,- 
 000,000. The Richmond bank organized with less than a dozen employees. 
 They now number 773, including the Branch at Baltimore. 
 
 5 
 
INCREASE IN CURRENCY CIRCULATION 
 
 During this wonderful period under study, the money circulation of 
 the country increased from $3,630,000,000 in 1914 to $6,363,000,000 on Decem- 
 ber 1, 1920, an increase of $2,733,000,000 in seven years. In one year, 1917, it 
 increased $782,000,000, and in 1918, $908,000,000. These tremendous increases 
 can be appreciated only by comparison. In the six years from 1908 to 1914 
 (August 1st), the increase in all forms of money in circulation was only $390,- 
 000,000, not quite $50,000,000 per annum. 
 
 On one occasion early in the development of the System, the governors 
 of the Federal Reserve Banks together with representatives from the Federal 
 Reserve Board met in Minneapolis at the Federal Reserve Bank, of that city, to 
 hold one of their periodical conferences. The speaker, among others, made a 
 short talk and endeavored to picture the probably development of the Federal 
 Reserve System, although, it must be confessed, no idea of the magnitude of 
 growth and the rapidity of development which has since taken place was then 
 in mind. But some allusion was made to the power which the Federal Reserve 
 System might exercise in the banking operations of the nation. Mr. James J. 
 Hill, one of the greatest figures the Northwest has ever produced, a great railroad 
 builder, as you know, derided the probabilities which I ventured to outline, and 
 said that to him it seemed that we might as well expect the “tail to wag the 
 dog.” Since that time, the “tail” has, indeed, grown to unexpected proportions, 
 and has, as you know, been accused on many sides of “wagging the dog.” Not 
 so, however. The dog is still “the thing,” and has fully grown up to his tail, 
 and should wag under his own power. But the point I am endeavoring to 
 illustrate is that the dog has been neither killed nor seriously injured by the 
 supposed wagging, but has grown to greater dimensions than any pre-historic 
 animal. 
 
 The total loans and discounts of all the banks of the country to their 
 customers on June 21, 1921, were $28,932,000,000. The maximum amount of 
 paper rediscounted by Federal Reserve Banks on a given date was, approxi- 
 mately, $3,100,000,000, or only about 11 per cent, of that total. This should 
 be accepted as evidence that too much has been made of the charge that the 
 Federal Reserve Banks control the bank credit of the country, or that Federal 
 Reserve Bank rates control interest rates. They reflect conditions; they do not 
 make them. They cannot prevent rates going low, and they exercise only a 
 moderating influence on rates going high or too high. 
 
 THE FEDERAL RESERVE SYSTEM 
 
 There is no exact or close parallel in the banking system of any country 
 to the Federal Reserve System. We all, perhaps, hear more of the Bank of 
 England and its operations than of any other central bank, although the Bank 
 of France is in many respects the greatest of all central banks. In France there 
 are only a few joint stock banks. 
 
 In the United Kingdom, there were only 38 banks up to a recent date, 
 but these banks had established 9,462 branches, or one branch to about every 
 5,000 population. In the neighboring Dominion of Canada, where before the 
 
 6 
 
organization of Federal Reserve Banks, they had a banking system superior to 
 ours in some respects, particularly as to the currency, there are only 19 banks, 
 but these banks have 3,545 branches. These conditions are recited for the 
 purpose of bringing them in contrast with the more than 30,000 independent 
 banking institutions of all classes in this country, 9,745 (June 30, 1921) being 
 combined in one system — that is, the Federal Reserve System. Let us consider 
 what has happened under the Federal Reserve System. 
 
 There are some who allege that the policies which they ascribe to those 
 charged with the administration of the System, were the ‘‘direct cause of de- 
 flation in prices” and ‘‘destruction of the purchasing power of a large portion of 
 the nation” by reason of the losses inflicted upon those affected by decline in 
 the prices of that which they produced or held. Even if this were admitted, 
 during the operation of the System there has been, nevertheless, an unparalleled 
 advance in the banking power of the country which can fairly be attributed to 
 the working of the System, as administered. And if the distribution of wealth 
 has been uneven, and if misfortune has fallen heavily on part of our people, it is 
 undoubtedly true that the wealth of our country, or the wealth-producing power, 
 and the facilities for an enlarged commerce have been increased, notwithstanding 
 the destruction or waste of much capital by war. I have stated many of the 
 facts and will give others which demonstrate that we are not prostrated but 
 have accumulated wealth and power, and have the machinery for greater ac- 
 complishment, and it is due in very large part to the operation of the Federal 
 Reserve banking system. Of that there can be no doubt whatever. Of course 
 it may be argued that we might have everything which we now have and more, 
 too, under a different policy. Any man may charge that, and no man, however 
 wise, is in position to refute it. ‘‘Man never is, but always to be blessed.” 
 
 However, consider this: during the seven-year period since the organiza- 
 tion of the Federal Reserve System, the banking power of the country has 
 grown more than it grew in any three decades prior to that time, and there has 
 been greater stability in the conduct of the banking business the country over; 
 indeed, the banking power has developed almost as much within this brief 
 period as it had during the entire period of banking up to that time. The 
 banks of your own State, both national and State banks, up to 1913, from the 
 beginning of their organization, had acquired resources amounting to only 
 $156,000,000, and yet within the seven-year period mentioned, they added 
 $230,000,000. The total is down $66,000,000 from the peak of inflation, but 
 because of that shall we take no account of the tremendous increase which 
 remains? The record must be admitted to be amazing, and it had a cause. 
 
 A distinguished critic states, in an article contributed to the Raleigh 
 News & Observer of April 27th which was distributed by the publishers in the 
 convention, that ‘‘from January 1, 1920 to September 6, 1921 the total de- 
 posits of the national banks of the United States shrank from $17,866,000,000 to 
 $14,561,000,000, the total loss in deposits for this period being $3,305,000,000.” 
 This he attributes to the “destructive contraction policy” of the Federal Reserve 
 System. 
 
 An analysis of this “loss in deposits” shows that $1,230,000,000 occurred 
 in bank deposits and $340,000,000 in Government deposits. During the period 
 
 7 
 
specified by the critic the loans of the national banks were reduced $809 000 000 
 It is well known that deposits are built up through credit transactions-th’at is 
 by loans. When loans are paid, the process is reversed and deposits decline. 
 
 But, taking the shrinkage as it stands, there is another side to the picture. 
 1 he deposits of national banks increased during the period which I am reviewing— 
 that is, from 1914 to 1921, from $8,563,000,000 to $17,866,000 000 Thev 
 more than doubled within this period. We have no experience of similar con- 
 ditions which justified us either in the hope or the expectation that banks could 
 retain without reaction the whole of the entire growth to such unexampled 
 proportions. After the shrinkage, to which attention is called, the increase in 
 deposits from 1914 remained $5,997,000,000, and it should be noted that the 
 last report shows that the deposits of all national banks recovered or increased 
 $830,000,000 from September 6, 1921 up to March 10, 1922. That record too 
 is amazing, and it had a cause. 
 
 MAGNITUDE OF PRESENT-DAY TRANSACTIONS 
 
 By means of the mechanism provided by the Federal Reserve Act and 
 built up by the Federal Reserve Board and the Federal Reserve Banks, transfers 
 of funds and settlements of balances between different sections of the country 
 ave been effected in a single day, staggering in their magnitude, with such 
 ease and absence of disturbance as to pass without public notice. The 40 
 billions of dollars raised for war was handled through the Federal Reserve ! 
 Banks. 
 
 Under former banking practice, the transfer of a few million dollars ' 
 from one part of the country to another, through credit and exchange operations, ‘ 
 would sometimes cause local stringency until the funds were redistributed. On 
 the other hand, by means of the machinery of the Federal Reserve Banks, the 
 Government has handled taxes from every nook and corner of the country, 
 amounting at times to about one billion dollars quarterly; huge issues of certi- 
 ficates of indebtedness have been floated, have matured and been paid, and the I 
 receipts and disbursements of the Treasury on a single day, on occasion, have ‘ 
 amounted to approximately a billion dollars each way. All of these funds ! 
 passed through the Federal Reserve Banks ; they were adjusted and redistributed, 
 and the Federal Reserve Banks supplied any credit needed without disturbance 
 of the financial equilibrium and as a routine matter. You have all become 
 accustomed to these tremendous transactions, and they now occasion no com- 
 ment among you ; yet they would not have been possible under former methods. 
 
 COURSE OF THE FEDERAL RESERVE BANKS DURING THE DECLINE 
 
 OF PRICES 
 
 Now, let us consider together, fairly, what were the real facts relating to 
 the part which the Federal Reserve Banks played in the credit system of the 
 country during that wild period of inflation after the armistice, with the sub- 
 sequent and consequent deflation, and I ask you to ponder upon these facts 
 when you consider the allegations of those who charged that the Federal Reserve 
 
 8 
 
Banks, by restricting or contracting credit and the issue of currency brought 
 about those declines in prices which have been so disastrous, temporarily, at 
 least, to a part of the people, because chiefly of the inequality in the decline of 
 certain products and commodities in relation to others and to all the factors 
 which enter into the cost of living. 
 
 You will recall that, immediately after the armistice, there was a decline 
 or halt in the activity of business, and an apprehension and even expectation of 
 further decline and depression because of the cessation of business created by 
 the war. It was rather expected that the inevitable inflation, which had been 
 brought about would start upon its natural course of deflation. This rather 
 general expectation was reflected in actual hesitation of business. But the halt 
 was of brief duration, and those who then expected a decline reckoned without 
 considering all the factors in the case. No financial undertakings equal to those 
 of the Government were ever assumed in a like period by any government in 
 the world at any time. After the armistice, commitments entered into by the 
 Government had to be fulfilled, and the extent of the commitments was not 
 known to or appreciated by the general public. It has been said that we planned 
 for a five-years’ war. 
 
 We raised by taxes and from sale of Government securities about 40 
 billions of dollars, and according to Assistant Secretary Leffingwell, who had 
 active charge of Treasury financing during that period, we spent half of it — 
 20 billions — after the armistice. You know we raised the Victory Loan after 
 the end of the war. It was these commitments and expenditures which were 
 chiefly responsible for business activity at the high mark, and this business 
 activity, the cause of which was not as well understood as it should have been, 
 incited the use of further sums of bank credit to supply what then appeared to 
 be an insatiate demand, due in part to an orgy of spending as a reaction from the 
 self-denial of war times. There you have the whole picture. The Assistant 
 Secretary, on a certain occasion, when commenting on Treasury activities, 
 described the situation and the results so graphically that I will quote him 
 literally: 
 
 “We fought a great war. We are proud of it and glad of it. But from the 
 economic point of view, it was a reckless debauch, and the people ought to be told 
 that the next time they enter upon an economic debauch, they must pay the price, 
 and the price will be registered in inflation. We must not delude ourselves, or those 
 who rely upon us, with the belief that the consequences of economic waste can be avoided 
 by any amount of wisdom and ingenuity in finance or banking.” 
 
 In this connection, in order to show how a considerable proportion of the 
 money raised by the Government was expended, in competition with home 
 buying, during that period, to which due weight is seldom given when the course 
 of prices is considered, I will quote one of the findings of the recent Joint Com- 
 mission of Agricultural Inquiry: 
 
 “While exports had begun to fall off in some commodities during this period 
 (March 19, 1919, to June, 1920), notably in war materials, and in the latter part of the 
 period in farm products, a balance of $2,500,000,000 of funds placed by the United States 
 Government to the credit of foreign governments enabled Europe to complete payments 
 for goods under contract and to continue its purchases in this country for a period of 
 several months. This purchasing on the part of foreign governments during the period 
 undoubtedly helped to sustain the prices of commodities in this country during this 
 time.” 
 
 9 
 
The balance of trade continued to be in our favor, month after month run- 
 ning as high as $700,000,000 in a month. $2,500,000,000 is an enormous sum. 
 When this sustaining power was withdrawn or exhausted, then began to happen 
 that which no amount of “wisdom or ingenuity in finance or banking” could 
 have avoided. 
 
 We could have just such another debauch and just such another rise in 
 prices with a consequent unequal distribution of wealth, if it were possible to 
 bring about conditions similar to those which then existed, and if we pursued 
 the same tactics in raising and spending money and competing for goods and 
 labor; and we could, in my opinion, look forward to the same settlement — 
 whatever banking policy it might be practicable to adopt. I agree with Mr. 
 Leffingwell that the result could not be avoided “by any amount of wisdom and 
 ingenuity in financing or banking.” We dance and we pay the piper. 
 
 I think I am right in saying that, undoubtedly, a very considerable 
 proportion of the public has been led to believe, for one reason or another, that 
 the credit policies of the Federal Reserve Banks — and when I say “credit poli- 
 cies,” I mean alleged restriction of credit or contraction of credit and of cur- 
 rency — were directly responsible for the inauguration of the decline in prices. 
 I have been told that this opinion prevails to a considerable extent in North 
 Carolina. The subject is certainly one of great importance, and it ought to be 
 settled for good. While it is not new to you and has been much discussed, I 
 trust I may nevertheless be able to hold your attention. 
 
 Our member banks know very well that there has been no lack of liberality 
 in providing credit, but since the majority here do not represent member banks, I 
 will give you proof of what the Richmond bank did, as well as of what the 
 entire System did. Although, as I say, the truth has been presented before, it 
 appears not to have entered the eye of the mind of some, so I am making use of 
 certain charts to illustrate it to the external senses. I hope I do not assume 
 too much, and that I may be able to set that phase of the matter forever at rest 
 in the minds of at least the majority of you. There have been so many charges 
 and reiterations and some have so interpreted and used the facts and the figures 
 to suit personal theory and opinion, which may, of course, have been shared by 
 others, that it is no wonder many have been confused. 
 
 In considering the causes of price decline, it is vital to a correct con- 
 clusion to consider first when prices began to decline. I have had enlarged a 
 chart published by the Manchester GUARDIAN, one of the most reputable 
 and conservative journals of England, whose information, I think, we can 
 accept, which illustrates the beginning and the course of the decline in the 
 principal countries through the year 1920, in which the greatest decline occurred, 
 and on through 1921. Refer to this chart, and mark well the beginning of the 
 decline, the rapidity of the decline, and particularly the period of maximum 
 decline in this country, which was from May through December, 1920. Observe 
 that the decline apparently started first in Japan in March, and it was rapid, 
 severe and continuous for the period of a year. It next extended to France 
 and Italy where decline commenced simultaneously in April. The decline in 
 France continued with but little interruption till June, 1921. The decline in 
 
 10 
 
COPV OF CHART PUBLISHED BY MANCHESTER GuaRD\AN. ENGLAND 
 
 WORLD PRICES 
 
the United States commenced in May and in Great Britain apparently in June, 
 and in Sweden and the Netherlands a little later. 
 
 This chart and the other charts submitted illustrate what everybody 
 now must admit to be the fact, that the decline started throughout the world 
 at a time when the Federal Reserve Banks, notwithstanding they were ad- 
 monishing their members and the public to go cautiously in the use of credit, 
 and to liquidate unnecessary loans, were, nevertheless, granting large additional 
 sums of credit to their member banks; and the issue of Federal Reserve notes 
 was increasing at the same time, and the volume of both credit and currency 
 continued to increase during the period of maximum decline in this country. 
 Therefore, those who have charged that contraction of credit by Federal Reserve 
 Banks (which did not at that time take place) was responsible for the tumble in 
 prices (which did take place) must change the nature of their charge to give it 
 any standing in court. The Federal Reserve Banks were certainly not re- 
 sponsible for starting the decline in foreign countries. Let us base a decision 
 upon the facts in this case, and not upon personal opinion or upon unfounded 
 allegations or upon assumptions, or upon dangerous suppositions which have 
 been adopted by some people with the confident assurance that, if such ex- 
 periments had been made, there would not have been any fall in prices, or at 
 least not until one set of producers had exchanged their surplus products for the 
 surplus products of other people; so that, by some commercial alchemy, the goods 
 of the world in this country would have been so equably swapped or bartered 
 or distributed that nobody would have suffered a loss, or that the loss would 
 have been so distributed that no one would have felt it seriously, but all things 
 would have come down together or would have adjusted themselves to an 
 equitable level. That is ideal, but wholly impossible of realization. 
 
 The decline in discounted paper and Federal Reserve notes followed 
 the decline in prices as a matter of course. To say that it preceded the decline 
 is not sustained by fact, and if it did not precede, it did not cause. 
 
 The charts indicate that the peak of prices in this country was reached 
 in the spring of 1920, about May. For just about one year prior to that time, 
 the amount of commercial and agricultural paper discounted for member banks, 
 including paper acquired in the shape of bank acceptances, based upon com- 
 mercial transactions, had been steadily increasing until the increase amounted 
 to $1,120,000,000 up to May, 1920. 
 
 As a matter of course, the paper discounted by Federal Reserve Banks 
 covered by Government securities had been decreasing gradually as these 
 securities became absorbed, either by those who subscribed for them or by the 
 investing public. Prices, from whatever cause or causes, began to decline, and 
 although allegations were made that credit was being restricted and contracted, 
 the holdings of Federal Reserve Banks of commercial and agricultural paper 
 increased further from May to October 29th, when it reached its maximum total 
 of $1,895,000,000, which was more than the reserve deposits of all member 
 banks, and an increase from May to October 29th of $405,000,000. Neither 
 caution nor the discount rate stemmed the demand for credit, and, so far as we 
 are aware, no bank that needed credit and asked for it was denied it. I choose 
 
 11 
 
the date of October because that is the date when, according to the weekly 
 statements rendered by Federal Reserve Banks, the holdings of commercial 
 and agricultural paper were at the top. Although it is customary about that 
 time of the year, that is, in the fall, for some liquidation to take place as a regular 
 matter of course, from then on to December 30th, the holdings of such paper by 
 Federal Reserve Banks decreased only $62,000,000, a smaller amount than might 
 have been expected from natural causes. Federal Reserve notes, however, did 
 not reach their maximum circulation until December 23d, and remained high 
 until March, 1921. 
 
 The discounted paper of the same nature held by the Federal Reserve 
 Bank of Richmond followed the same course. The total increase during the 
 year 1920 up to October 29th was about $41,000,000, and at the close of 1920, 
 the amount of such paper was but $3,000,000 less. I ask you again to bear in 
 mind that it was during this period of rising rediscounts that prices had their 
 most rapid and drastic decline. It is manifest, therefore, that to whatever cause or 
 causes the decline in prices during this period may have been due, it was not due to a 
 contraction of credit by Federal Reserve Banks during the period, for no such 
 contraction took place. The charges that such contraction did take place and 
 was the cause of the decline in prices will not stand, therefore, and we must look 
 to some other cause. It would at least have been more logical to have charged 
 that the decline started and continued because credit was not poured out still 
 more freely. But in that way lay great danger. Has anybody forgotten the 
 evil and the unbearable burden of high prices generally? 
 
 In connection with the decline in prices during this period, which wit- 
 nessed an increase in the rediscount of commercial and agricultural paper by the 
 Federal Reserve Banks, this fact also must be taken into account, and, so far as 
 I have observed, it has not heretofore received due attention. All new credit 
 granted at the lower prices brought about by the decline went very much further 
 in meeting the credit demands. That is to say, the credit, of course, financed 
 a much greater volume of commodities and goods. While a great proportion of 
 the paper held by Federal Reserve Banks based upon old transactions continued 
 to be renewed, it took a much smaller amount of credit to finance new trans- 
 actions. Manifestly, it did not require the same credit to finance cotton at 
 $50 or $75 per bale which it took at $150 to $200 per bale. Cotton and cotton 
 goods had almost their whole decline before the close of 1920. Therefore the 
 amount of increase in Federal Reserve Bank credit during this period was 
 relatively, that is, in comparison with a similar amount of credit issued against 
 goods at higher prices, much greater in effectiveness than it seemed. It went 
 further, of course. 
 
 DEALINGS OF THE FEDERAL RESERVE BANK OF RICHMOND WITH 
 
 ITS MEMBER BANKS 
 
 Let me describe the dealings of the Federal Reserve Bank of Richmond 
 with its members. Reserve Banks deal with their member banks, as our member 
 banks know, practically in the same manner in which all banks deal with their 
 customers. They discount paper or grant credit according to the needs of the 
 
 12 
 
bank and according to the condition of the banks asking for credit. The Federal 
 Reserve Bank of Richmond advanced the maximum amount of credit for the 
 year 1920 in September, $144,000,000. In order to do this, it was compelled to 
 borrow at times as much as $30,000,000 from other Federal Reserve Banks. 
 On October 31st, it was discounting for the borrowing banks of North Carolina 
 229 per cent, of their basic line. Our member banks understand the meaning 
 of the term “basic line” (which is a theoretical term), but for the information of 
 non-members and others present, I will say that it means the amount which the 
 Federal Reserve Bank is enabled to lend to any particular member bank by 
 reason of the contribution of that particular member bank to the lending power 
 of the Federal Reserve Bank. It is arrived at in this way: 35 per cent., being 
 the amount of reserve which the Federal Reserve Bank is required by law to 
 carry against deposits, is deducted from the reserve deposit of the member 
 bank. After this deduction, the paid-in capital stock of the member bank in 
 the Federal Reserve Bank is added, and the basic line is reckoned to be two and 
 one-half times the sum obtained. 
 
 LIBERALITY OF FEDERAL RESERVE BANK IN EXTENDING CREDIT 
 
 I will illustrate the liberality of the Federal Reserve Bank of Richmond 
 in dealing with members by a table of typical cases of banks in North and South 
 Carolina and Virginia. 
 
 A Memorandum of the Amount of Credit Extended to Banks in 
 North Carolina, South Carolina and Virginia in a few 
 Typical Cases on a Given Date — April 28, 1921 
 
 This memorandum is intended to show the credit strain under which 
 these banks operated, due to conditions in their localities, and the extraordinary 
 assistance given them by the Federal Reserve Bank, while charges of “restriction 
 of credit” were being made by misinformed people. Note the proportion of 
 borrowed money to the deposits of the banks and to the reserve deposits carried 
 in the Federal Reserve Bank. 
 
 Loans 
 
 Borrowings from 
 F. R. Bank Elsewhere 
 
 Deposits 
 
 Reserve 
 
 % 404,000 
 
 $ 172,000 
 
 $ 
 
 15,000 
 
 $ 191,000 
 
 $ 11,837 
 
 3,978,000 
 
 786,000 
 
 
 205,000 
 
 2,808,000 
 
 271,597 
 
 673,000 
 
 381,000 
 
 
 97,000 
 
 394,000 
 
 overdrawn 
 
 3,559,000 
 
 660,000 
 
 
 239,000 
 
 2,302,000 
 
 102,799 
 
 3,685,000 
 
 713,000 
 
 
 243,000 
 
 2,682,000 
 
 129,986 
 
 1,011,000 
 
 284,000 
 
 
 15,000 
 
 557,000 
 
 13,153 
 
 867,000 
 
 369,000 
 
 
 
 448,000 
 
 17,592 
 
 150,000 
 
 88,000 
 
 
 16,000 
 
 62,000 
 
 4,482 
 
 775,000 
 
 355,000 
 
 
 62,000 
 
 447,000 
 
 16,497 
 
 177,000 
 
 69,000 
 
 
 10,000 
 
 51,000 
 
 overdrawn 
 
 13 
 
Borrowings from 
 
 Loans 
 
 F. R. Banks 
 
 Elsewhere 
 
 Deposits 
 
 Reserve 
 
 1,868,000 
 
 469,000 
 
 25,000 
 
 1,376,000 
 
 overdrawn 
 
 4,359,000 
 
 1,441,000 
 
 175,000 
 
 3,748,000 
 
 176,731 
 
 1,203,000 
 
 536,000 
 
 20,000 
 
 705,000 
 
 34,233 
 
 10,217,000 
 
 3,573,000 
 
 250,000 
 
 7,166,000 
 
 458,957 
 
 420,378 
 
 170,000 
 
 25,000 
 
 224,000 
 
 7,665 
 
 346,000 
 
 231,000 
 
 35,000 
 
 142,000 
 
 overdrawn 
 
 652,000 
 
 239,000 
 
 15,000 
 
 160,000 
 
 25,086 
 
 153,000 
 
 40,000 
 
 24,000 
 
 66,000 
 
 4,604 
 
 4,513,000 
 
 1,262,000 
 
 670,000 
 
 3,574,000 
 
 179,145 
 
 454,000 
 
 218,000 
 
 25,000 
 
 250,000 
 
 6,557 
 
 756,000 
 
 273,000 
 
 55,000 
 
 372,000 
 
 15,663 
 
 191,000 
 
 74,000 
 
 20,000 
 
 69,000 
 
 3,148 
 
 2,397,000 
 
 802,000 
 
 378,000 
 
 1,955,000 
 
 100,596 
 
 4,074,000 
 
 980,000 
 
 745,000 
 
 3,966,000 
 
 183,207 
 
 420,000 
 
 243,000 
 
 
 220,000 
 
 20,527 
 
 5,122,000 
 
 906,000 
 
 83,000 
 
 3,241,000 
 
 141,143 
 
 171,000 
 
 94,000 
 
 10,000 
 
 111,000 
 
 4,150 
 
 1,528,000 
 
 527,000 
 
 89,000 
 
 1,109,000 
 
 41,812 
 
 200,000 
 
 63,000 
 
 37,000 
 
 100,000 
 
 3,020 
 
 325,000 
 
 89,000 
 
 87,000 
 
 161,000 
 
 3,330 
 
 701,000 
 
 225,000 
 
 145,000 
 
 322,000 
 
 13,681 
 
 608,000 
 
 270,000 
 
 61,000 
 
 288,000 
 
 12,225 
 
 1,230,000 
 
 386,000 
 
 135,000 
 
 658,000 
 
 6,226 
 
 305,000 
 
 175,000 
 
 5,000 
 
 111,000 
 
 overdrawn 
 
 1,502,000 
 
 409,000 
 
 
 1,202,000 
 
 overdrawn 
 
 337,000 
 
 160,000 
 
 40,000 
 
 332,000 
 
 overdrawn 
 
 573,000 
 
 194,000 
 
 35,000 
 
 212,000 
 
 16,725 
 
 4,877,000 
 
 1,362,000 
 
 
 3,366,000 
 
 228,417 
 
 3,662,000 
 
 1,002,000 
 
 
 2,958,000 
 
 195,328 
 
 16,448,000 
 
 3,234,000 
 
 845,000 
 
 14,217,000 
 
 709,242 
 
 4,428,000 
 
 1,551,000 
 
 
 3,152,000 
 
 147,783 
 
 4,620,000 
 
 781,000 
 
 325,000 
 
 3,030,000 
 
 overdrawn 
 
 4,946,000 
 
 1,590,000 
 
 519,000 
 
 2,876,000 
 
 45,165 
 
 The cases mentioned are some of the most flagrant, and they are but an 
 example of the spirit in which the bank dealt with all of its borrowers at a time 
 when the majority of all borrowers were borrowing to an excessive extent, only 
 a little less aggravated than in the examples given. This will be manifest to you 
 in the statement I have before made, that all of the borrowing member banks in 
 North Carolina were borrowing 229 per cent, of their basic line, or nearly five 
 times the amount of the reserve deposits which they were maintaining. The 
 loans of South Carolina members were actually greater and relatively much 
 greater. At the end of the year 1920, the member banks of North Carolina 
 were borrowing $25,000,000 and the members in South Carolina $26,000,000, 
 while the banks of Virginia were borrowing $49,000,000, the member banking 
 resources in Virginia being much larger than in the two Carolinas combined. 
 These conditions continued with but little decrease during the entire year 1921. 
 On June 30, 1920, all the state banks in North Carolina were borrowing $29,- 
 
 14 
 
000,000, a majority part of which, of course, came from the Federal Reserve 
 System. On June 30, 1921, they were borrowing $32,000,000. At one time 
 the member banks of the Federal Reserve Bank of Richmond were lending to 
 non-members in this District about $35,000,000. Not a single member bank 
 in this District failed or suspended for lack of credit up to 1922. One member 
 bank only failed, and it was burnt out and its assets destroyed in large part. 
 
 By reference to the list of typical banks to which I have alluded, you 
 will see that a number of those banks were borrowing more than their total 
 deposits at that time. I leave it to you to say, and I think you know, what 
 would have happened if we had not extended support to this more than liberal 
 degree — support which would not have been warranted to that extent under 
 any ordinary conditions. Only recently I learned that one member bank said 
 that if the Federal Reserve Bank had understood conditions, it would have been 
 more liberal and altered its policy. Now that particular bank was borrowing 
 from the Reserve Bank in August, 1920 $3,400,000, and about $2,000,000 from 
 other banks (which came from the System, I am sure). Its deposits at the time 
 were somewhat over $9,000,000. By December we had increased loans to the 
 bank to about $4,600,000; it had reduced its outside borrowing to about $300,000. 
 The reserve deposit of the bank at that time was just a little more than $400,000, 
 so that it was borrowing about 1 1 times its deposit. What do you suppose was 
 this banker’s idea of liberality? I am quite sure we understood conditions better 
 than any single bank did. 
 
 When we first began to urge moderation and restraint in the use of credit — 
 and liquidation in some cases — a comparatively small percentage of our members, 
 chiefly in the cities, were borrowing the greater part of what we were lending. 
 That was because of the forced activity in manufacturing centers. 
 
 Later on credit demands became heaviest in those parts of the District 
 most intimately identified with agriculture, and there it was found that many 
 banks had made inordinate and non-liquid loans which had nothing whatever 
 to do with agricultural productions. And when we admonished and cautioned 
 member banks, it was because we felt it to be the part of prudence, and necessary 
 to insure that the supply of credit would go around. We were justified by 
 developments. 
 
 Having placed you in possession of these facts, I am unable to believe 
 that any banker here present can or will credit or countenance the charge of 
 restriction of credit or forced liquidation by the Federal Reserve Bank of Rich- 
 mond, and least of all lack of liberality or lack of understanding of conditions. 
 
 I have every reason to know or believe that similar motives and conditions 
 prevailed with all Federal Reserve Banks, and I am sure I am right when I 
 say that in dealing with members, policies in granting rediscounts were de- 
 termined by Federal Reserve Banks and not by the Federal Reserve Board. 
 From the beginning the Federal Reserve Bank of Richmond has been represented 
 by directors of the highest standing and ability, and they hold themselves re- 
 sponsible for the policies of the bank. Both North and South Carolina have 
 been fortunate in having directors of such character and standing and experience, 
 and I am able to say that they have shown a jealous regard for the welfare of the 
 banks of their states. 
 
 15 
 
EARLIER BORROWING PRACTICE 
 
 To illustrate how great has been the change in the practice of borrowing 
 by banks, let us compare recent transactions of that nature with similar trans- 
 actions during the seven year period immediately preceding the organization of 
 Federal Reserve Banks. During 1907 all the national banks in North Carolina 
 never borrowed at a given time more than $3,500,000, and in South Carolina 
 and in Virginia, it so happens, the amount borrowed at a given time by the 
 national banks during the same year did not exceed that sum in either state. 
 During 1914, the first year of the war, when cotton went down to six cents, in 
 the latter part of which year Federal Reserve Banks were established, the 
 maximum amount borrowed by all the national banks in North Carolina on a 
 given date was $7,900,000, and the following year they reduced it to $4,200,000, 
 and the next succeeding year (1916), they were borrowing only $1,865,000. In 
 1914 all the state banks in North Carolina together borrowed only $5,900,000 
 on a given date, and in 1916 they reduced that amount to $4,123,000. From 
 1908 to 1913, inclusive, the amount of inter-borrowing by all the national banks 
 of the country on a given date did not exceed $72,000,000, although in 1907, 
 which was a panic year, they borrowed $100,000,000. Now behold the change! 
 In 1920 they borrowed $2,300,000,000, and in addition were obligated for ac- 
 ceptances amounting to $400,000,000. State bank members were at the time 
 borrowing $464,000,000. At the close of 1921, the national banks had reduced 
 their borrowings to something more than a billion dollars, which has since been 
 further reduced. Lower prices and wages, as well as the curtailment of business 
 activity, resulted in lessened demand for credit and the paying off of loans. 
 
 The foregoing will illustrate the tremendous change in the practices of 
 the banks with respect to working within their own resources. The occasion 
 was extraordinary, of course, and they were called upon to do this in the case of 
 loans on Government securities. The trouble arose from the fact that after 
 having used their credit to finance the Government in the war, the banks then 
 demanded further credit from the Federal Reserve Banks to meet the irresistible 
 demand from their customers who saw the opportunity for profitable business. 
 Prices were high and ever going higher, and because of the high prices credit 
 was licked up as a sponge absorbs water. Too great a strain was placed upon 
 even our great gold reserves, which at the height of the credit demand began to 
 diminish heavily through exports. It would, perhaps have been better if the 
 banks had been refused the credit in large part, and to go back still further in 
 the chain, if the banks had refused their customers until their own credit position 
 had become adjusted. But that was not in human nature. Each bank thought 
 its credit demands were reasonable and would relieve a situation or help business, 
 and the sum total of these demands among the great body of our independent 
 banks got out of control, as it always has done. It is contended by many that 
 credit is more fluid under the branch banking system and better controlled, and 
 they are probably right. 
 
 The borrowing figures for all national banks do not measure the relative 
 borrowing in proportion to resources which prevailed with a large number of 
 banks, particularly in the Fifth District, as illustrated in the table to which 
 
 16 
 
I have referred. At the height of our loans to members, there were more than 
 250 banks which were not borrowing from us, and which could, of course, have 
 borrowed if they had applied, but they managed their affairs to their satisfaction 
 without doing so. There have been only three banks in North Carolina — mem- 
 bers from the beginning — which never borrowed from us, and none in South 
 Carolina. The total membership is now 628, of which 67 are state banks. 
 
 THE CREDIT POWER OF THE FEDERAL RESERVE SYSTEM 
 
 It is quite generally agreed that, because of the reduction in reserve re- 
 quirements for member banks, brought about by the Federal Reserve Act, and 
 the concentration of their reserves in the Reserve Banks, and because of other 
 provisions of the Act, gold is now a basis for at least twice as much credit as in 
 the period before the Reserve System was established. With reduced reserve 
 requirements, the banks of the country generally went to the limit of credit 
 against their reserves, and then called on the credit-making power of the Federal 
 Reserve Banks. 
 
 Taking into account the fact that the reserve ratio of the Federal Reserve 
 System went down to nearly 40 per cent., very close to the minimum required 
 by law, it is manifest that it would have been impossible to have developed the 
 volume of bank credit recently used but for the working of the Federal Reserve 
 System. There are some, among whom are the most voluble critics of Federal 
 Reserve policies, who appear to think the decline in prices could have been held 
 off and probably prevented by the extension of additional credit in large volume 
 by the Federal Reserve Banks. At best that can be only an assumption. 
 Whether such people take into account, or are aware of, the frightful danger 
 of such action, I doubt. I am quite sure that the balance of judgment is not on 
 their side. Although people of that mind may not accept the economic doctrine, 
 there comes a period, even in normal times, when large addition to the general 
 outstanding volume of credit works harm rather than benefit to the economic 
 situation. We had long before passed that stage, and were asked to cure the 
 bite of the dog with his hair. Remember there was nowhere in the world to go 
 for credit after depletion of Federal Reserve Banks, and only two alternatives 
 would have been left in that event, which threatened to be imminent — de- 
 preciated or fiat money, both leading to universal collapse. There can be no 
 doubt that maintenance of the financial strength and integrity of the United 
 States saved the world from general commercial ruin, as our armies helped save 
 our allies from defeat and physical ruin. 
 
 More than to any other cause, it was due to the abuse or too liberal 
 use of credit that prices rose to such an unexampled height. The conditions 
 which brought about the creation of such a large volume of credit were very 
 complex and difficult of control, if not entirely impossible of control. When 
 credit ceases to bring about an increase in production commensurate with the 
 volume of credit, then it begins to work inflation, manifested in prices of things. 
 When it only furnishes the means to compete for the same volume of goods, of 
 course, prices go up and absorb the credit, and it does not get you anywhere. 
 
 17 
 
Too much credit always results in overtrading and over-extension of business 
 concerns generally, and also in widespread speculation, and always heretofore 
 it has culminated in a crisis followed by depression. For more than one hundred 
 years, periods of activity in business and so-called prosperity have been suc- 
 ceeded by periods of depression, unrest and distress. Men have been en- 
 deavoring in all that time to find the definite causes and a preventive of such 
 periods of reaction. There is rather general agreement upon the one fact that 
 price movements are the chief factor in the development of the ups and downs 
 of industrial activity. It is not believed that these recurring periods of de- 
 pression are within our power to eliminate. They are supposed to be due to 
 lack of adjustment in our economic system, and the more complex society 
 grows and the more diverse the interests of our people become, the more difficult, 
 rather than the less difficult, are they to control, notwithstanding some progress 
 has been made and is being made to mitigate their effects. 
 
 THE GREAT ACCOMPLISHMENT OF THE FEDERAL RESERVE 
 
 SYSTEM 
 
 One great thing has been accomplished in banking which we were not 
 able to accomplish under our old banking practices from the time of the es- 
 tablishment of the National Banking System; that is, we have finally arrived 
 at a sound currency principle and currency practice and are now able, through 
 the Federal Reserve System, to furnish the currency needs of our banks in 
 intrinsically sound and elastic currency to meet any demands which may be 
 made upon the banks — a currency which will expand when it is needed and 
 called for, and automatically seek retirement when the need has passed. We 
 no longer have to use reserve money, and thus automatically diminish our 
 credit power, to supply the need for more currency. 
 
 Another accomplishment of equal importance has been achieved. Ade- 
 quate credit at all times for active business has been insured through the re- 
 discount system. It is not likely that the demand will ever again be made on 
 the bank-credit supply such as was made during the war. Then it was used 
 in an improper manner and worked overtime, but it could not be avoided. When 
 I say active business, I mean just that. There will always be a limited supply, 
 even when a large supply, of mobile floating or liquid credit, most of which finds 
 its way into the banks. It is constantly being created and recreated, but the 
 surplus is just as constantly going into fixed or permanent investment. Do not 
 forget that one of the chief purposes of rediscount operations is to obtain addi- 
 tional currency when needed. 
 
 There will never at any time be a sufficient supply of bank credit to 
 justify an attempt to hold the great crops of the country in bulk off the market 
 for a predetermined price or for an indefinite time. By that very fact business 
 would be held up, and bankers should oppose the passage of any laws which will 
 tend to absorb bank reserves for that purpose or in long-time credits or non- 
 liquid paper. If any such attempt is ever made, it should be with investment 
 capital. 
 
 18 
 
Bank and commercial credit from its very nature should be kept moving. 
 It is when it becomes “tied up” that stringency ensues, and the rate for its use 
 goes up. Many who then require it find that somebody has been before them, 
 and that the credit is being retained longer than the holders have a right to it, 
 and they cannot turn it loose. In consequence business is checked. There are 
 few bankers here present who cannot illustrate this by their own experience. 
 The same effect is produced in the case of any particular bank when too much 
 credit is extended to one person or set of persons; either other customers then 
 have to go without or the bank is driven to borrow inordinately to supply them, 
 which is the reverse of sound management. There is no safer or sounder maxim 
 to follow, whether in the case of the individual or the bank and whether in 
 business or speculation, than “Never overtrade.” When banks begin to borrow 
 from Federal Reserve Banks, they begin to use up their reserves, and the discount 
 rate should always be sensitive to such demands and exercise control over them. 
 
 It is one of the most remarkable events in banking history that during 
 the trial and stress through which our banks went, and with all the talk of 
 stringency of credit, or “tight money,” notwithstanding enormous* inflation of 
 credit, no question was raised about the currency and no panic developed, and 
 if there was any alarm among bank depositors anywhere, it was not due to fear 
 that they might not be able to secure payments of their deposits in money. Yet, 
 there was more to cause such disturbance than at any previous period in modern 
 times; that is, the upheaval and disruption of business and society the world 
 over gave far greater reason for disturbance. 
 
 CONTRACTION OF CURRENCY 
 
 There are some critics of Federal Reserve Bank policies who accuse the 
 banks of deliberate contraction of currency. A recent communication to a 
 newspaper in a near-by state illustrates this class of critics. The author quotes a 
 remark credited to President Lincoln, as follows: 
 
 “If a government contracted a debt with a certain amount of money in circulation 
 and then contracted the volume of money before the debt was paid, it is the most 
 heinous crime a government could commit against the people.” 
 
 Very fortunately indeed for this country and fortunately for the world, our 
 Government did not attempt to finance any of the expenses of the war by the 
 issue of currency. So there is no application. Yet some would be misled into 
 thinking so by this. The same critic goes on to quote : 
 
 “Place the money power in the hands of a combination of a few individuals, 
 and they by expanding or contracting the currency may raise or sink prices at pleasure; 
 and by purchasing when at the greatest elevation may command the whole property 
 and industry of the community and control its fiscal operations.” 
 
 That was quoted as from John C. Calhoun. Now what is the implication here? 
 and where is the application? It does not apply to any condition which has 
 existed in the Federal Reserve System and it is therefore misleading. 
 
 The Federal Reserve Board has the right of refusal to issue Federal 
 Reserve notes in its discretion under the law. It has never exercised such 
 discretion, and so has never refused to authorize the issue of Federal Reserve 
 
 19 
 
notes when applied for by Federal Reserve Banks. There was all the currency 
 which business called for or could use, although many may have wanted credit 
 which they could not obtain. 
 
 There has been no failure to furnish Federal Reserve notes to member 
 banks when applied for, and failure to furnish could only arise out of failure to 
 discount for member banks, and rediscounts were not contracted but increased 
 during the most fateful period, as I have shown, and Federal Reserve notes were 
 paid out and increased in volume. It is an advantage to Federal Reserve Banks 
 to pay out Federal Reserve notes (when they can) when their members draw 
 against their reserve deposits, because such payments conserve the lending 
 power of the Federal Reserve Banks. 
 
 As proven by the facts hereinbefore presented to you, during the period of 
 the most drastic decline in prices, the Federal Reserve Banks continued to 
 discount paper for their member banks in increasing volume, and continued to 
 issue Federal Reserve notes in increasing volume. It was only after prices had 
 continued their decline for a protracted period that finally the volume of currency 
 and Federal Reserve bank credit began to decline. Federal Reserve Banks do 
 not call in their currency. It is deposited by the people in the banks, and 
 whenthere is no need for it, it is forward by the banks to Federal Reserve Banks 
 for (credit and redemption. 
 
 As pointed out, the major part of the decline in prices in this country 
 happened prior to January 1, 1921. There after, prices continued to decline in 
 many things, but not in the same ratio or to the same extent, and after that date, 
 partly as a result of the decline in prices and liquidation of many business trans- 
 actions, rediscounted paper and Federal Reserve notes both declined in volume. 
 And here, as I have endeavored to illustrate, must be taken into account the 
 working of the law of proportion or the law of compensation, or any other law 
 you may choose to call it, to this effect: working under reduced prices, it is mani- 
 fest to any mind that the same volume of credit is not needed for the current 
 transactions as was needed or would have been needed when prices were 50 
 or 100 per cent, or any other per cent, higher, and any given outstanding volume of 
 credit is now equivalent in effectiveness to a very much larger sum under former 
 conditions. The same causes which started the price decline operated to con- 
 tinue the decline. When the war purchases of the governments of the world 
 ceased, and when the money or credit raised to discharge the obligations entered 
 into was exhausted or spent, there was not sufficient demand for our goods by 
 those who could pay for them. We had stopped putting up the money for others 
 to buy. If we had been able to continue to give credit to all the rest of the world 
 to buy from us, then no doubt prices would have been kept up longer, but those 
 who furnished the credit could not have kept it up very long, for they would 
 have “gone broke,” because they would not have been paid, as we know. (As 
 a matter of fact, foreign countries became indebted to us on current account for 
 a sum estimated between three and four billions). There was no way for such 
 people to pay except in part with goods, which we did not want. 
 
 As to what started deflation or who started deflation, the question has 
 been solved by one of your North Carolina newspapers, which stated in a recent 
 editorial that, as a matter of fact — 
 
 20 
 
“Henry Ford was the man who introduced a turnover from the artificial prosperity 
 that the country was enjoying after the war. It was in September, 1920, that Mr. 
 Ford announced a drastic reduction in the price of his cars and startled the whole 
 business and and manufacturing world. * * * He made the others break their 
 
 prices, and the result was that all over the United States and throughout every line of 
 trade and industry, deflation set in with its consequent depression, a condition which 
 the country is only now beginning to show capacity to overcome.” 
 
 I am glad to have the responsibility transferred to Mr. Ford’s shoulders. 
 
 DECISION IN THE PAR COLLECTION CASE 
 
 Recently, we had a contest with a considerable number of North Carolina 
 non-member banks in the courts, to test the constitutionality of your recently 
 passed statute against par collections by Federal Reserve Banks. 
 
 I am very glad to be able to recall that such amicable feeling existed 
 between the legal representatives of the Federal Reserve Bank and those of the 
 non-member banks that somebody said “the fellowship was so good that he 
 couldn’t tell one side from t’other.” The attorneys for the other side have 
 advised the non-member banks that the decision of the court was a sweeping 
 one for them. That may be, and, yet, I venture to say, the result may not be to 
 their ultimate advantage. There is one outcome of this court decision which 
 the Federal Reserve Bank welcomed and which is highly gratifying to it. That 
 outcome is expressed in paragraph 10 of the “Findings of Fact” by the court, to 
 the following effect: 
 
 Paragraph 10: “That the checks drawn on the * * * * * 
 
 and such other of the plaintiff banks as appear from the evidence herein, which were 
 sent to the defendant for collection, were as expeditiously as possible under all the 
 circumstances given or sent by the defendant to its collectors, and were by such col- 
 lectors presented to the several banks upon which they were drawn without unnecessary 
 or unreasonable delay, and without permitting such checks to accumulate in the hands 
 of the defendant, and there was no saving up of checks drawn on the plaintiffs or either 
 of them by the defendant.” 
 
 Also paragraph 23 of the “Findings”: “That the acts and things done by 
 the defendant as shown herein were done and performed solely with the object and with 
 the intent to discharge what the defendant was advised and believed to be its legal 
 duties and obligations under the Act of Congress, and the said defendant was not 
 actuated by any motive or purpose to cause any unnecessary injury or loss to the plaintiff 
 banks, or any of them.” 
 
 That clears the skirts of the Federal Reserve Bank of any contamination 
 by reason of the flinging of accusations that the bank used coercive methods 
 and other improper methods to further the collection plan. 
 
 In the conclusions of law arrived at by the judge, the whole substance, I 
 think, is contained in the first paragraph : 
 
 “1. The act of the Legislature of North Carolina of February 5, 1921, is a valid 
 and constitutional law.” 
 
 We have, of course, appealed from that conclusion. 
 
 Paragraph 4 of the decree of the judge reads as follows: 
 
 “4. The said defendant is likewise enjoined from publishing or authorizing 
 the publication of the name of any of the plaintiff banks, literally or by inclusion, in 
 any list or other publication designed for circulation among banking institutions gener- 
 ally, regardless of the name employed to designate such list for publication unless or 
 until the bank thus published or included shall have previously given its consent to 
 such publication.” 
 
 21 
 
The judge has advised our counsel in an exchange of correspondence that 
 he did not mean by that paragraph in the decree to deny the right or the privilege 
 of the Federal Reserve Banks to publish (for the guidance of members and their 
 customers) a list of the names of those non-member banks included in the in- 
 junction against the Federal Reserve Bank, upon which the bank does not receive 
 checks. 
 
 The judge stated that his meaning was that the Federal Reserve Bank 
 must not publish the name of any non-member North Carolina bank on the par 
 list as a bank upon which it would undertake to collect at par without the consent 
 of such non-member bank. 
 
 There is one fact that I should like to present to those non-member banks 
 in North Carolina and elsewhere which are refusing to join in the par collection 
 system of the country, which now embraces banks having about 98 per cent, of 
 all the banking resources of the country. We firmly believe that the par col- 
 lection system is to the interest of the public and that the public so regards it, 
 and that being to the interest of the public, it must of necessity be to the ultimate 
 interest of the banks. I do not mean to deny that some small banks may not 
 find it difficult to earn a living income from the lending of money gathered in 
 from the surrounding community, thus putting idle capital to work, which is 
 the primary function of a bank and which constitutes 99 per cent, of the useful- 
 ness of a bank to the public, or that some of them under previous conditions 
 and practice cannot do business if they cannot make an exchange charge when 
 remitting for their customers’ checks. I do mean to state the conviction, 
 however, that a par collection system is to the ultimate interest of all banks. 
 
 For your thoughtful consideration, I will present to you the result of a 
 study we have been making of the course of deposits in the non-par banks 
 as compared with the course of deposits in those non-member banks which are 
 remitting at par. I do not undertake to say, of course, that the figures that 
 I present are more than a coincidence, but when you take a large number of 
 coincidences, say, 227 of them, that being the number of non-par banks in North 
 Carolina, and compare them with 208 other coincidences, that being the number 
 of non-member banks in North Carolina which (although being non-members), 
 nevertheless, remit at par, then, at least, the comparison is entitled to some 
 thoughtful consideration, and that is all that I mean to ask and all that I mean 
 to say. The decline in the deposits of 227 non-member banks in North Carolina 
 which did not remit at par from February 28, 1920, to June 30, 1921, was 36.04 
 per cent., while the decline in the deposits of 208 non-member banks which 
 remitted at par for the same period was only 26.89 per cent. The decline in 
 the deposits of 102 national bank and state bank members during the same 
 period was only 25.5 per cent. This may indicate (I don’t say that it does 
 positively, since it may have been due to special causes, but I ask you in your 
 own interest to consider whether it does indicate) that depositors prefer to 
 deal, or that a greater percentage of depositors prefer to deal, with those banks 
 which pay their checks at par without the deduction of exchange. 
 
 A final word upon the nature and causes of our depression, from which 
 you have emerged to some extent and from which I hope and believe in due 
 time you will emerge upon a higher plane of power and usefulness; for the fact 
 
 22 
 
confronts you that the banks of North Carolina, state and national, have grown 
 to an unparalleled extent under the protection of the Federal Reserve System, 
 and when their loans to their customers become more satisfactorily adjusted and 
 more liquid, they will be in a stronger position and more useful than they have 
 ever been in the life of the State. 
 
 We know, of course, the loss and distress which has been brought upon a 
 multitude of individuals, chiefly upon those engaged in agriculture, who need 
 aid of several kinds. On the other hand, I believe that no man will undertake 
 to deny that the State as a whole has advanced in real wealth far beyond that 
 possessed prior to 1914, and that it has the machinery, both of banking and of 
 commerce and manufacture, to quickly advance to far greater heights of pros- 
 perity and far greater attainment of wealth for the people as a whole than has 
 ever yet been realized. Whether this depression could have been avoided or 
 not — and I am one of those who believe it was inevitable, as I believe future 
 depressions as a result of excesses whenever committed will be bound to occur — 
 let us consider the utterance of one of the world’s foremost statemen or politi- 
 cians, and certainly one of the best minds in public life in the world today — the 
 utterance of Mr. Lloyd George in his recent speech before the Genoa Conference: 
 
 “The conference has been called to consider the problem of reconstruction of 
 economic Europe, devasted, broken into fragments by the devasting agencies of war. 
 Europe — the richest of all continents, the continent which possesses the largest amount 
 of accumulated wealth and certainly the greatest machinery for production of wealth 
 and the largest aggregate of human means, with highly civilized needs and with highly 
 civilized means of supplying those needs, and therefore Europe is the best customer 
 in the world and of the world — has been impoverished by the greatest destruction of 
 capital that the world has ever witnessed. 
 
 “If the European countries had gathered together their mobile wealth in one 
 pymarid and set it on fire the result could hardly have been more complete as far as 
 the capital wealth of Europe is concerned. International trade has been disorganized 
 through and through; the recognized medium of commerce, exchange based on currency, 
 has become almost unworkable, and vast areas upon which Europe had hitherto depended 
 for a large proportion of its food supplies and its raw materials are completely destroyed 
 for all purposes of commerce.” 
 
 Let me ask you in all candor: with these great and terrible facts long 
 known and still confronting the world, of which no man can plead ignorance — 
 with these causes too powerful and inexorable to be stayed in their operation, is 
 it not futile in the delirium of distress to imagine that we could escape the 
 penalty, or the consequences, or that any economic or banking policy possibly 
 of adoption could do more than alleviate the distress, as has been done, or that 
 there is any remedy or hope of recovery except in the course of time? We 
 cannot eat and have, as we tried to do. 
 
 All men will never agree together upon any great matter — finance, 
 politics, religion, economics or what not; else there would have been no war. 
 And if one thing happen as the result of any course, there will always be some 
 who will say that another course might have been taken and another thing would 
 have happened, and the other thing might have been still more terrible. Who 
 can see the end from the beginning? 
 
 You bankers may hearten yourselves with these facts: Notwithstanding 
 what you have passed through, your banks as a whole emerged with greater 
 resources and more powerful than you would have dared to dream of seven 
 
 23 
 
years ago. It is so with the country-at-large. The industries of your State 
 have added to her wealth in that period, and you have the equipment to create 
 greater wealth and prosperity, such as you had no right to hope to have within 
 so short a time. It is so with the country-at-large. We have added something 
 of value to our experience, but let us not forget the teachings of adversity. 
 
 24 
 
GRAPHIC CHARTS 
 AND 
 
 TABLES OF INFORMATION 
 
 REFERRED TO IN THE ADDRESS 
 
 25 
 
EXPLANATION OF GRAPHIC CHARTS REFERRED TO IN 
 
 THE ADDRESS 
 
 The first four of these graphic charts show the trend of the average 
 monthly wholesale prices of Corn, No. 3, Chicago; Wheat, No. 2, red winter, 
 Chicago; Cotton yarns, northern cones, 10-1 Boston; Cotton, middling, New 
 Orleans; Sugar, granulated, New York; Hogs, light, Chicago; Hides, packers, 
 heavy native steers, Chicago; Cattle, steers, good to choice, Chicago and the 
 trend of Federal Reserve Note Circulation and the holdings of Government 
 Secured paper and All Other Paper (including Bankers’ Acceptances) and Cir- 
 culation and Paper Combined, for the Federal Reserve System and for the 
 Federal Reserve Bank of Richmond. 
 
 The figures, in all instances, have been reduced to the same basis, the 
 January, 1920, figure being represented by the index figure 100. Subsequent 
 increases or decreases are represented by an upward or downward curve. The 
 extent of the increase or decrease is gauged by the figures at either margin. A 
 curve touching the heavy line marked 140 would represent an increase of 40% 
 over the January figure; one touching the heavy line marked 30 would represent 
 a decrease of 70% as compared with the January figure. 
 
 Chart No. 1 shows the course of the average monthly wholesale prices of 
 Corn, Wheat, Cotton yarns, and Cotton. 
 
 Chart No. 2 shows the course of the average monthly wholesale prices of 
 Sugar, Hogs, Hides, and Cattle. 
 
 Chart No. 3 shows the course of Federal Reserve Note Circulation, Gov- 
 ernment Secured Paper, All Other Paper (including Bankers’ Acceptances) and 
 Circulation and Paper Combined for the Federal Reserve System. 
 
 Chart No. 4 shows the course of Federal Reserve Note Circulation, 
 Government Secured Paper, All Other Paper (including Bankers’ Acceptances) 
 and Circulation and Paper Combined for the Federal Reserve Bank of Richmond. 
 
 The figures for charts Nos. 1 and 2 were taken from the Federal Reserve 
 Bulletin; those for chart No. 3 from the Federal Reserve Board’s weekly pub- 
 lished statement nearest the 15th of each month, and those of chart No. 4 from 
 our statements of the same dates. 
 
 The curve of Chart No. 4 showing Government Secured Paper, 
 includes that paper under re-discount with other Federal Reserve Banks as well 
 as that actually held by this Bank. 
 
 All these figures, average monthly wholesale prices, Federal Reserve 
 Note Circulation, Holdings of Paper, and Circulation and Holdings Combined, 
 have been reduced to the same basis — that of percentage, January, 1920, being 
 taken as 100% or “Par,” and subsequent increases or decreases calculated from 
 this (January, 1920) basis. 
 
 26 
 
27 
 
 NO I. 
 
28 
 
 N°2 
 

 29 
 
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32 
 
TABLES OF INFORMATION REFERRED TO IN THE ADDRESS 
 
 We frequently hear the inquiry, ‘What has become of all the money?” 
 This inquiry generally arises from current talk and newspaper comment about 
 “tight money,” which usually means in these times, as bankers know, quite a 
 different thing from lack of currency, or real money, which is supposed to be 
 meant by a large part of the public. 
 
 Nevertheless, a considerable portion of the otherwise well-informed 
 public is misled or confused whenever periods of credit stringency come around, 
 and banks are not able to lend “credit” freely to everybody who asks for it but 
 does not always need it. 
 
 For the information, or perhaps for the ready reference, of those who 
 wish to know what happened to our money or circulating currency supply 
 during the recent extraordinary period, I append a table showing the variation 
 in both the general stock of money in the country and the amount in circulation 
 on December 1, 1920, when both were at the maximum, and on March 1, 1922, 
 after the period of “deflation.” Between these periods there was a decrease of 
 only $205,000,000 in the general stock and $875,000,000 in the circulation. 
 
 The general stock of money means the total supply of gold, silver and all 
 forms of currency in the country, in the hands of the Government, the banks and 
 the people. 
 
 The “circulation” at any given time, is determined by deducting from the 
 general stock the amount held in the Treasury as assets of the Government, and 
 the amount held by Federal Reserve Banks or Federal Reserve Agents against 
 issues of Federal Reserve notes. 
 
 To illustrate: Gold certificates are issued by the Government against gold 
 coin and bullion held. Of course, the gold coin and the gold certificates issued 
 against them are not both counted either in the general stock or the circulation. 
 So gold held by Federal Reserve Banks or Agents and Federal Reserve notes 
 issued against them are not both counted in the circulation; one represents the 
 other, and only one is therefore counted. 
 
 Federal Reserve Banks are permitted by law to issue Federal Reserve 
 notes, with a minimum of 40% of gold reserve held against them. So the 
 amount of Federal Reserve notes circulating at a given time may be much greater 
 than the amount of gold held by the Federal Reserve Banks and Agents. But to 
 arrive at the net circulation, the amount of the gold held by the Federal Reserve 
 Banks and Agents against the notes is, of course, deducted from the total. At 
 At the present time, there is just about one dollar of gold behind every dollar of 
 Federal Reserve notes after setting aside the 35% reserve required by law against 
 deposits. 
 
 33 
 
COMPOSITION OF GENERAL STOCK OF MONEY AND MONEY IN 
 
 CIRCULATION. 
 
 (Money in circulation is determined by deducting from the General Stock the amount 
 held in the Treasury as assets of the Government and the amount held by F. R. 
 Banks or F. R. Agents against issues of Federal Reserve notes.) 
 
 . 
 
 General Stock of 
 Money in U. S. 
 
 Held in Treas- 
 ury as Assets 
 Government. 
 
 Held by F. R. 
 Bks. and F. R. 
 Agts. against 
 Issues F. R. 
 Notes. 
 
 Money in Cir- 
 culation. 
 
 DECEMBER 1, 1920 
 
 Gold coin and bul- 
 lion 
 
 Gold Certificates.. 
 Standard Silver 
 
 Dollars 
 
 Silver Certificates. 
 Subsidiary Silver. 
 Treasury Notes of 
 1890 
 
 $2,761,338,519 
 
 $430,386,732 a$ 
 
 898,841,309 
 
 201,018,280 
 
 b$ 879,529,142 
 351,563,056 
 
 97,095,305 
 
 155,289,410 
 
 262,917,134 
 
 1,615,362 
 
 339,718,602 
 
 3,319,415,118 
 
 269,857,494 
 
 15,857,417 
 
 266,609,065 
 
 3,691,931 
 
 
 United States 
 Notes 
 
 346,681,016 
 c3, 663, 592, 795 
 
 6,962,414 
 
 18,203,857 
 
 
 Federal Reserve 
 
 Notes 
 
 325,973,820 
 
 Federal Reserve 
 
 Bank Notes.... 239,569,800 
 National Bank 
 
 Notes 734,010,797 
 
 4,094,172 
 
 13,130,555 
 
 235,475,628 
 
 720,880,242 
 
 Total $8,281,659,486 $492,327,078 $1,425,833,409 $6,363,498,999 
 
 a Includes $822,903,893 credited to F. R. Agents in the Gold Settlement fund deposited with Treasurer 
 of the United States. 
 
 b Includes $403,542,320.39 credited to F. R. Banks in Gold Settlement fund deposited with Treasurer 
 of the United States. 
 
 c Includes own F. R. notes held by F. R. Banks. 
 
 MARCH 1, 1922. 
 
 360,401,851 
 
 272,380,601 
 
 Gold coin and bul- 
 lion 
 
 Gold Certificates.. 
 
 Standard Silver 
 
 Dollars 
 
 Silver Certificates. 
 
 Subsidiary Silver. 
 
 Treasury Notes of 
 
 1890 
 
 United States 
 
 Notes 346,681,016 
 
 Federal Reserve 
 
 Notes d2, 518, 443, 360 
 
 Federal Reserve 
 
 Bank Notes.... 105,525,400 
 National Bank 
 
 Notes 752,035,482 
 
 720,755,655 $369,444,572 b$l, 602, 100, 023 C$1,056,861,301 
 
 266,103,280 426,246,479 
 
 5,930,528 
 
 17,571,082 
 
 3,900,196 
 
 3,067,442 
 
 1,351,259 
 
 16,130,055 
 
 301,862,170 
 
 67,987,131 
 
 284,950,223 
 
 254,809,519 
 
 1,533,969 
 
 342,780,820 
 
 2,213,513,748 
 
 104,174,141 
 
 735,905,427 
 
 Tota l $8,076,223,365 $417,395,134 $2,170,065,473 $5,488,762,758 
 
 b Includes $1,524,190,760 credited F. R. Agents in Gold fund deposited with Treasurer of the United 
 States. 
 
 c Includes $504,072,205.86 credited to F. R. Banks in Gold fund deposited with Treasurer of the 
 United States. 
 
 d Includes own F. R. notes held by F. R. Banks. 
 
 NOTE: It is to be taken into account that money in circulation includes money 
 
 in the possession of the banks of the country. 
 
 (Continued on next page) 
 
 34 
 
ANALYSIS— NET DECREASE IN GENERAL STOCK. 
 
 It will be observed that the General Stock of Money on March 1, 1922, is only 
 $205*000,000 less than on December 1, 1920, accounted for as follows: 
 
 Decrease. Increase. 
 
 F. R. Notes $1,145,000,000 
 
 F. R. Bank Notes (Is and 
 
 2s chiefly) 134,000,000 
 
 $1,279,000,000 $1,074,000,000 
 
 Net Decrease 205,000,000 
 
 Gold $ 959,000,000 
 
 Silver Dollars 91,000,000 
 
 Subsidiary Silver 6,000,000 
 
 National Bank Notes. . . 18,000,000 
 
 Decrease in Circulation. 
 
 The net decrease in circulating money between the periods given was $875,- 
 000,000, accounted for as follows: 
 
 Decrease. Increase. 
 
 F. R. Notes 
 
 F. R. Bank Notes 
 
 $1,106,000,000 Gold $ 253,000,000 
 
 . 131,000,000 All other (net) 109,000,000 
 
 $1,237,000,000 $ 362,000,000 
 
 Net Decrease 875,000,000 
 
 35 
 
GENERAL STOCK OF MONEY IN UNITED STATES 
 AND 
 
 MONEY IN CIRCULATION, DETERMINED BY DEDUCTING FROM THE GENERAL 
 STOCK THE AMOUNT HELD IN THE TREASURY AS ASSETS OF THE 
 GOVERNMENT AND THE AMOUNT HELD BY FEDERAL RE- 
 SERVE BANKS OR FEDERAL RESERVE AGENTS 
 AGAINST ISSUES OF FEDERAL RESERVE NOTES. 
 
 
 
 General Stock 
 
 In Circulation 
 
 December 
 
 ii 
 
 U 
 
 a 
 
 1, 1914.... 
 
 1, 1915 
 
 1, 1916 
 
 1, 1917 
 
 4,329,000,000 
 
 
 u 
 
 u 
 
 a 
 
 a 
 
 March 
 
 1, 1918 
 
 1, 1919 
 
 1, 1920 
 
 1, 1921 
 
 1, 1922 
 
 7,669,000,000 
 
 8,281,000,000 
 
 
 
 STOCK OF 
 
 GOLD IN THE UNITED STATES, 
 
 1914-1922. 
 
 December 
 
 1, 1914 
 
 • 
 
 
 it 
 
 1, 1915 
 
 
 
 it 
 
 1, 1916 
 
 
 
 u 
 
 1, 1917 
 
 
 
 a 
 
 1, 1918 
 
 
 
 a 
 
 1, 1919 
 
 
 
 a 
 
 1, 1920 
 
 
 
 a 
 
 1, 1921 
 
 
 
 March 
 
 1, 1922 
 
 
 
 
 
 
 
 36 
 
GROWTH IN NUMBER AND RESOURCES OF BANKS FROM STATEMENTS OF 
 THE COMPTROLLER AS OF JUNE 30, 1914-1921. 
 
 Number of Banks Resources 
 
 Classification of Banks 1914 1921 1914 1921 
 
 National 7,525 8,154 $11,482,000,000 $20,518,000,000 
 
 State (commercial) 14,512 18,875 4,354,000,000 14,199,000,000 
 
 Loan and Trust Companies 1,564 1,474 5,489,000,000 8,181,000,000 
 
 Mutual Savings 634 623 4,254,000,000 6,041,000,000 
 
 Stock Savings 1,466 978 1,196,000^000 557,000,000 
 
 Private 1,064 708 196,000,000 175,000,000 
 
 26,765 30,812 $26,971,000,000 $49,671,000,000 
 
 NUMBER AND RESOURCES OF ALL MEMBER BANKS OF THE FEDERAL 
 
 RESERVE SYSTEM. 
 
 June 30, 1921 
 
 Number of 
 Member Banks 
 
 Resources 
 
 9,745 
 
 $29,639,000,000 
 
 AGGREGATE RESOURCES OF NATIONAL BANKS. 
 
 December 31, 1921 
 
 8,169 $19,420,000,000 
 
 There is no information available as to whether all the banking institutions of 
 the country reported at either period. 
 
 37 
 
REDISCOUNTS AND BILLS PAYABLE OF ALL NATIONAL BANKS IN COUNTRY 
 AT APPROXIMATE DATES, TOWARDS THE CLOSE OF EACH 
 YEAR 1907-1921. 
 
 1907 
 
 1908 
 
 1909 
 
 1910 
 
 1911 
 
 1912 
 
 1913 
 
 1914 
 
 100,000,000 1915 98,000,000 
 
 39.000. 000 1916 89,000,000 
 
 43.000. 000 1917 741,000,000 
 
 71.000. 000 1918 ... 1,380,000,000 
 
 64.000. 000 1919 1,504,000,000 
 
 72.000. 000 1920 2,299,000,000 
 
 100.000. 000 1921 1,007,000,000 
 
 132.000. 000 
 
 REDISCOUNTS AND BILLS PAYABLE OF NATIONAL BANKS IN VIRGINIA 
 NORTH CAROLINA, SOUTH CAROLINA AT APPROXIMATE DATES 
 TOWARDS THE CLOSE OF EACH YEAR, 1907-1921. 
 
 
 Virginia 
 
 North Carolina 
 
 South Carolina 
 
 December 
 
 1907 
 
 
 $ 1,400,000 
 
 1 onn aaa 
 
 $ 500,000 
 
 1,000,000 
 450,000 
 2,100,000 
 
 2.700.000 
 3,000,000 
 
 3.500.000 
 
 6.800.000 
 
 3.654.000 : 
 
 2.055.000 
 
 4.554.000 
 
 23.988.000 
 
 20.798.000 
 
 26.636.000 
 
 24.392.000 f 
 
 15.251.000 
 
 1908 
 
 
 1909 
 
 
 -L jv UUjUUU 
 1 onn nnn 
 
 1910 
 
 
 i ,yuu,uuu 
 
 Q AAA AAA 
 
 1911 
 
 
 o,UUU,UUU 
 
 3,200,000 
 
 O 1 AA AAA 
 
 1912 
 
 
 1913 
 
 
 Z,IUU,UUU 
 
 Q C AA AAA 
 
 1914 
 
 
 o,OUU,UUU 
 
 <7 A A A AAA 
 
 1915 
 
 
 i UUjUUU 
 
 A O A A AAA 
 
 1916 
 
 
 4,ZUU,000 
 
 1.855.000 
 
 4.889.000 
 
 1 o 1 AC AAA 
 
 1917 
 
 
 1918 
 
 
 1919 
 
 
 lZ,IUo,000 
 
 13.810.000 
 
 25.077.000 
 
 26.178.000 
 
 14.578.000 
 
 1920 
 
 
 1921 
 
 
 March 31, 1922 
 
 
 
 MONEY BORROWED BY ALL STATE 
 
 BANKS IN NORTH CAROLINA. 
 
 June 
 
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 41 
 

 A MEMORANDUM OF THE AMOUNT OF CREDIT EXTENDED TO BANKS IN 
 NORTH CAROLINA, SOUTH CAROLINA AND VIRGINIA IN A FEW 
 TYPICAL CASES ON A GIVEN DATE— APRIL 28, 1921. 
 
 This memorandum is intended to show the credit strain under which these banks 
 operated, due to conditions in their localities, and the extraordinary assistance given 
 them by the Federal Reserve Bank, while charges of “restriction of credit” were being 
 made by misinformed people. Note the proportion of borrowed money to the deposits 
 o± the banks and to the reserve deposits carried in the Federal Reserve Bank 
 
 Borrowings from 
 F. R. Bank Elsewhere 
 
 Loans 
 
 $ 404,000 
 
 3.978.000 
 
 673.000 
 
 3.559.000 
 
 3.685.000 
 
 1 . 011.000 
 
 867.000 
 
 150.000 
 
 775.000 
 
 177.000 
 
 1,868,000 
 
 4.359.000 
 
 1.203.000 
 
 10.217.000 
 420,378 
 
 346.000 
 
 652.000 
 
 153.000 
 
 4.513.000 
 
 454.000 
 
 756.000 
 
 191.000 
 
 2.397.000 
 
 4.074.000 
 
 420.000 
 
 5.122.000 
 
 171.000 
 
 1.528.000 
 
 200.000 
 
 325.000 
 
 701.000 
 
 608.000 
 
 1.230.000 
 
 305.000 
 
 1.502.000 
 
 337.000 
 
 573.000 
 
 4.877.000 
 
 3.662.000 
 
 16.448.000 
 
 4.428.000 
 
 4.620.000 
 
 4.946.000 
 
 $ 172,000 
 
 786.000 
 
 381.000 
 
 660.000 
 
 713.000 
 
 284.000 
 
 369.000 
 
 88,000 
 
 355.000 
 
 69.000 
 
 469.000 
 
 1.441.000 
 
 536.000 
 
 3.573.000 
 
 170.000 
 
 231.000 
 
 239.000 
 
 40.000 
 
 1.262.000 
 
 218.000 
 
 273.000 
 
 74.000 
 
 802.000 
 
 980.000 
 
 243.000 
 
 906.000 
 
 94.000 
 
 527.000 
 
 63.000 
 
 89.000 
 
 225.000 
 
 270.000 
 
 386.000 
 
 175.000 
 
 409.000 
 
 160.000 
 
 194.000 
 
 1.362.000 
 
 1 . 002.000 
 
 3.234.000 
 
 1.551.000 
 
 781.000 
 
 1.590.000 
 
 $ 15,000 
 
 205.000 
 
 97.000 
 
 239.000 
 
 243.000 
 
 15.000 
 
 16,000 
 
 62,000 
 
 10,000 
 
 25.000 
 
 175.000 
 
 20.000 
 
 250.000 
 
 25.000 
 
 35.000 
 
 15.000 
 
 24.000 
 
 670.000 
 
 25.000 
 
 55.000 
 
 20.000 
 
 378.000 
 
 745.000 
 
 83.000 
 
 10.000 
 
 89.000 
 
 37.000 
 
 87.000 
 
 145.000 
 
 61.000 
 
 135.000 
 
 5,000 
 
 40.000 
 
 35.000 
 
 845,000 
 
 325.000 
 
 519.000 
 
 Deposits Reserve 
 
 $ 191,000 
 
 2,808,000 
 
 394.000 
 
 2.302.000 
 
 2.682.000 
 
 557.000 
 
 448.000 
 
 62,000 
 
 447.000 
 
 51.000 
 
 1.376.000 
 
 3.748.000 
 
 705.000 
 
 7.166.000 
 
 224.000 
 
 142.000 
 
 160.000 
 
 66.000 
 
 3.574.000 
 
 250.000 
 
 372.000 
 
 69,000 
 
 1.955.000 
 
 3.966.000 
 
 220.000 
 
 3.241.000 
 
 111,000 
 
 1.109.000 
 
 100,000 
 
 161,000 
 
 322.000 
 
 288.000 
 
 658.000 
 
 111.000 
 
 1 . 202.000 
 
 332.000 
 
 212.000 
 
 3.366.000 
 
 2.958.000 
 
 14,217,000 
 
 3.152.000 
 
 3.030.000 
 
 2.876.000 
 
 $ 11,837 
 
 271,597 
 overdrawn 
 102,799 
 129,986 
 13,153 
 17,592 
 4,482 
 16,497 
 overdrawn 
 overdrawn 
 176,731 
 34,233 
 458,957 ; 
 7,665 
 overdrawn 
 25,086 l 
 4,604 
 179,145 
 6,557 
 15,663 
 3,148 / 
 100,596 ; 
 183,207 l 
 20,527 
 141,143 j 
 4,150 | 
 41,812 1 
 3,020 1 
 3,330 1 
 13,681 1 
 12,225 I 
 
 6,226 J 
 
 overdrawn 
 overdrawn 
 overdrawn j 
 16,725 j 
 228,417 
 195,328 
 709,242 
 147,783 
 overdrawn 
 45,165 
 
 42 
 
DECREASE IN INDIVIDUAL DEPOSITS IN NORTH CAROLINA BANKS, MEMBER AND NON-MEMBER, PAR AND NON-PAR. 
 
 FEBRUARY 28, 1920 — JUNE 30, 1921. 
 
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 43 
 
 The foregoing comparisons apply to the same banks on the different dates given. Only individual deposits are taken into account. 
 


 
 
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