Bank Credit in Depression and Recovery

Report Outline
Bank Credit and the National Recovery Program
Governmental Efforts for Credit Expansion
Establishment of New Mortgage-Loan Companies
Characteristics of New Loan Companies
Special Focus

Bank Credit and the National Recovery Program

Increases in costs of labor and materials under the President's industrial recovery program and his monetary policies have enlarged the needs of many business enterprises for short-term credits with which to carry on their operations. Complaints that banking institutions, from which such credits are ordinarily obtained, are following an ultra-conservative policy and are withholding needed credits have been heard in increasing volume since the President's Reemployment Agreement went into effect on September 1 of this year.

Whereas commodity prices and business activity have both increased more than 20 per cent since the low point in March, available statistics indicate that commercial loans by the country's banking institutions have risen less than 10 per cent. Excess reserves of member banks of the Federal Reserve System now exceed 1800,000,000, the highest figure on record, and a sum adequate to support more than $8,000,000,000 of new bank credit.

When the administration at Washington became alarmed over the possibility that a withholding of credits would prove a serious obstacle to its recovery program, it at first endeavored to persuade the bankers to liberalize their loan policies and offered additional funds, where needed for this purpose, through the Reconstruction Finance Corporation. More recently, with the failure of the banks to adopt an aggressive policy of credit expansion, the administration has undertaken to encourage the establishment of new financial institutions—known as community mortgage-loan companies—to supply needs for recovery credits which are not being met by the banks.