Bank Reserves and Credit Inflation

Archive Report

Existing Basis for Rapid Expansion of Credit

The August Number of the Federal Reserve Bulletin noted a steady increase during recent months in member bank reserve balances and stated that these balances amounted “to about $4,000,000,000 during the latter part of July, the largest figure ever recorded, and about $1,900,-000,000 in excess of legal requirements.” By the end of August member bank reserves held by the Federal Reserve banks had risen to $4,126,973,000. During the first week in September, however, there was a $220,000,000 decline, accompanied by a sharp expansion of bank loans to business.

At the end of August, 1929. when the pre-depression credit inflation had reached its peak, reserve balances of member banks amounted to only $2.322,000,000, and excess reserves to only $35,500,000. Loans ...

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