Bank Reserves and Credit Inflation

September 12, 1934

Report Outline
Existing Basis for Rapid Expansion of Credit
Reserve Requirements and the 1929 Crash
Rise of Bank Deposits and Reserves in 1934
Means of Controlling Credit Inflation
Special Focus

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 and investments of member banks at that time were nearly $36,000,000,000. By the end of June, 1934, they had fallen to $27,104,000,000.

Figures made public by the Federal Deposit Insurance Corporation on September 5, covering all insured banks, showed that these banks were 55 per cent liquid on June 30. “With the progress made in recovery,” said Chairman Crowlcy, “the banks arc altogether too liquid. The banks can't make money if they don't make loans. I should like to see the banks make more loans. We can't have real recovery unless the banks make more loans.” Crowley was further quoted as saying that the banks could safely expand their loans by more than $5,000,000,000 at the present time. Chairman Jones of the Reconstruction Finance Corporation agreed that the hanks could make more than $5,000,000,000 of “good” loans. The difficulty was not so much a reluctance of bankers to make loans to finance business and industry as a present lack of demand for good loans.

ISSUE TRACKER for Related Reports
Jan. 20, 2023  The Future of Cryptocurrency
Apr. 06, 2018  Financial Services Deregulation
Sep. 26, 2014  Digital Currency
Oct. 05, 2012  Euro Crisis
Jan. 20, 2012  Financial Misconduct
Jan. 13, 2012  ‘Occupy’ Movement
Oct. 24, 2008  Financial Bailout Updated
Sep. 01, 2000  The Federal Reserve
Jun. 22, 1990  S&L Bailout: Assessing the Impact
Nov. 04, 1988  Behind the S&L Crisis
Apr. 26, 1985  New Era in Banking
Nov. 18, 1983  Bankruptcy's Thriving Business
Aug. 07, 1981  Banking Deregulation
Jul. 19, 1974  Banking Stability
Jul. 17, 1968  Banking Innovations
May 06, 1964  Monetary Policy in Prosperity
May 16, 1940  Revision of the Securities Acts
Feb. 27, 1937  Expansion of Branch Banking
Sep. 03, 1935  The Decline of Commercial Banking
Dec. 11, 1934  Proposals for a Government-Owned Central Bank
Sep. 12, 1934  Bank Reserves and Credit Inflation
Nov. 27, 1933  Bank Credit in Depression and Recovery
Aug. 12, 1933  Closed Banks and Banking Reform
Apr. 04, 1933  Unified Control of Banking
Apr. 09, 1932  The Glass Banking Bill
Mar. 24, 1932  The Guaranty of Bank Deposits
Apr. 17, 1930  The International Bank and the Gold Standard
Feb. 08, 1930  Branch Banking and Chain Banking
Apr. 29, 1929  Mergers of Banking Institutions
Oct. 28, 1927  The Federal Reserve Rate Controversy
May 21, 1927  Labor Banking and Finance Since 1920
Jan. 31, 1924  The Northwestern Bank Failures and the Attack on Treasury Savings Certificates
Dec. 01, 1923  Why State Banks Do Not Join the Federal Reserve System, the Effect on the System and the Issues Involved
Nov. 23, 1923  Branch Bank Controversy
Consumer Credit and Debt
Economic Crises
Financial Institutions