which they are located, they often rediscount notes, as is shown by their published statements, and their right to do so has been recognized by the courts. This may be necessary because of an unusual withdrawal of deposits, an unusual demand for loans by their customers, and possibly, in rare instances, to make good their reserve. Rediscounting when practical shows a rather strong seasonal swing with the larger amounts during the fall and early winter during the strain of the crop-moving period.

60. VARIOUS MEANS OF INTERSECTIONAL BORROWING.

The rediscounting by country banks in New York is not of large volume and at the present time comes principally from the southern correspondents. There is a great difference of opinion in reference to this matter, and in some quarters rediscounting is looked upon as a sign of weakness, but as far as I am concerned I do not feel that way. Of course any bank in New York which attempts to rediscount its paper and publish the same in its statement is more or less criticized. One large institution in this city showed bills discounted, or rediscounted, for some $2,000,000 in their September call to the Comptroller, which created considerable comment. But for out-of-town banks, whose customers need considerable sums of money at certain seasons, especially in the crop-moving period, and whose capital is not large enough, or would be too large during the rest of the year, I see no reason why such institutions should hesitate to rediscount with their reserve city correspondents. Where there are rival institutions in the smaller places throughout the country they do not hesitate to point out to the customers of the other institutions the fact that they rediscount, as if it was something out of the way. From this fact has grown up a practice with a large number of banks to secure money in other ways which will not show on their statement if called for by the Comptroller. For instance, if they have a large amount of bonds which are well known to their correspondents, they will pass a resolution of their board authorizing the officers to sell these bonds and their correspondent would buy them with an agreement on behalf of the bank to repurchase the bonds at the same price plus a fixed rate of interest. Another method of rediscounting is for the directors of the bank to give their own note jointly and severally to their reserve city correspondent for a considerable sum of money

Adapted from a letter of a prominent New York banker, quoted in an unpublished thesis by Joseph J. Klein, op. cit.

without guarantee or endorsement of their bank in any way. The money thus borrowed by the directors is placed at their credit on the books of their own institution, but they do not draw against it, and it gives them just as much more money to use and increases their deposits at a time when naturally the deposits are withdrawn by their regular customers. Another method employed for this borrowing is for the bank to sell some of its notes without recourse to its correspondent, with instructions to charge these notes to their account ten days before maturity and forward the same to them for collection. These are all irregular methods of borrowing and do not show in the call to the Comptroller; consequently that is the reason why when you come to examine the statements of national banks you do not find under the head of "Rediscounts" any considerable amount.

The Comptroller is endeavoring to take steps to stop these methods and make the banks show all their borrowings as rediscounts. There is one perfectly legitimate method, however, which the Comptroller cannot stop and which I am pleased to say is growing out of the practice of large purchases of commercial paper which the banks throughout the country are making in the open market. You know this is my "fad," and hence I feel very well pleased at the way this part of the business of the country is being handled. Where banks over the country buy commercial paper upon the open market from reputable note-brokers, and buy paper which is known to their correspondents in reserve cities as being first-class in every way, there is no reason, when they need funds to take care of their customers or meet receding deposit lines, why they should not take this commercial paper which is bought on the open market and sell it to their correspondents without any endorsement and without recourse. This makes a very flexible secondary reserve for every institution which carries commercial paper of this character, and the Comptroller can find no fault with this; and the banks that are doing it not only have the advantage over other institutions of being able to take care of their customers as the paper matures, but are also in a position to quickly and promptly turn into cash through their reserve agents a large amount of their bills discounted.

(2) PERIODIC TENSION AND EASE IN THE SYSTEM

(a) Seasonal

61. SEASONAL VARIATIONS IN NEW YORK MONEY MARKET

BY EDWIN WALTER KEMMERER

With regard to seasonal movements in the relative demand for moneyed capital the New York money market exhibits five important seasonal swings. Throughout January and during the early part of February there is normally a pronounced "easing up" of the money market. By the fore part of January the crop-moving demand for money in the West and South is over and the return flow of cash is at its height. There is a natural reaction-in part psychologicalwhich results from the relaxing of the heavy strain on the money market incident to January 1 settlements and to the passing of the holiday season. At this time freight traffic, both on the railroads and on the inland waterways, is relatively small.

The second seasonal movement is the spring revival, beginning about the middle of February and extending to the latter part of March or the fore part of April (in some years a week or so later). This recovery is stimulated by the cheap money prevailing during the preceding period, railroad traffic is released from the incubus of cold weather and snow, the inland waterways are opened up; on April 1 comes the demand for large interest and dividend settlements, and in this period comes the spring demand of agriculturists for the planting of crops.

The third important seasonal movement is the weakening money market of the late spring, followed by the summer depression. This period extends from the middle or latter part of April to the fore part of August. It is interrupted by a temporary reaction about July 1, the time of semiannual settlements. This third seasonal period shows the natural reaction from the high rates of the preceding period, the anticipation and later the realization of the hot months of summer comprising the vacation period, the lessened demand. for funds in the Middle West after the planting of the crops, and the resulting return of cash to New York for deposit, investment, and speculation. The declining and cheap money market at this time,

Adapted from Seasonal Variations in the Relative Demand for Money and Capital in the United States, pp. 24-25, 223-24. (National Monetary Commission,

which finds expression in such phenomena as large bank reserves, low interest rates, gold exportations, and high security prices, naturally brings its own corrective to some extent.

DEPOSITS AND BANK-NOTE CIRCULATION OF THE NEW YORK CITY CLEARINGHOUSE BANKS, 1890-1908

The crop-moving period is the fourth period. This period, the discounted beginnings of which are evidenced by the upward turn of interest rates on sixty- to ninety-day commercial paper and four months' time paper as early as the first week in July, may perhaps

best be dated from the first week in August, when call rates begin their upward movement and when bank reserves begin their decline. Under the pressure of the crop-moving demand for cash in the West and South bank reserves are depleted and the money market tightens rapidly until about October 1.

RESERVES AND RATIOS OF RESERVES TO DEPOSITS OF THE NEW YORK CITY CLEARING-HOUSE BANKS, 1890-1908

The fifth and last seasonal period in the New York money market extends from about the first week in October to the opening of the new year. It is a period of considerable uncertainty and of many minor fluctuations, but the demand for moneyed capital continues large until after the holiday season and January settlements. The westward movement of cash falls off rapidly in November and December, and by the latter month the return flow has set in. The southward movement declines in November, but shows some signs of increasing temporarily in December. Gold imports reach a low point in December. Throughout October, November, and December the Federal Treasury Department normally continues to increase its deposits in national banks, of which New York City gets its share.