We will see to it that the names of the members of the Council are put into the record.

(The names of the members of the Council are as follows:)

Federal Reserve district:

No. 1. Charles E. Spencer, Jr., president, the First National Bank of Boston
Boston, Mass.

No. 2. W. Randolph Burgess, vice chairman, the National City Bank o
New York, New York, N. Y.

No. 3. David E. Williams, president, Corn Exchange National Bank & Trus
Co., Philadelphia, Pa.

No. 4. John H. McCoy, president, the City National Bank & Trust Company
Columbus, Ohio.

No. 5. Robert V. Fleming, president, the Riggs National Bank, Washington
D. C.

No. 6. J. T. Brown, president, the Capital National Bank of Jackson
Jackson, Miss.

No. 7. Edward E. Brown, chairman, the First National Bank of Chicago
Chicago, Ill.

No. 8. James H. Penick, president, Worthen Bank & Trust Co., Little
Rock, Ark.

No. 9. Henry E. Atwood, president, First National bank of Minneapolis
Minneapolis, Minn.

No. 10. James M. Kemper, president, Commerce Trust Co., Kansas City
Mo.

No. 11. Ed H. Winton, president, Continental National Bank of For
Worth, Fort Worth, Tex.

No. 12. Reno Odlin, president, Puget Sound National Bank of Tacoma
Tacoma, Wash.

Senator FLANDERS. Do you have enough of those for the members of the committee?

Mr. ECCLES. I do not. This reply to the Board was finished late last night, and some time this morning.

Senator FLANDERS. Can you get some extra copies for us?

Mr. ECCLES. We can. We would be glad to give you some copies. Please send copies of the Council's statement and the Board's reply to all of the members of the committee.

The CHAIRMAN. Mr. Eccles, the first question that I want to discuss is whether this increase in bank credit is a serious problem.

The increase in the total bank loans that I have, considering January 1946, nearly 2 years ago now, is from $30,355,000,000 in January 1946 up to, as I gather from your over-all statement, though I do not have the figures on all banks, about $42,500,000,000 in November. In any event, in 2 years, the bank loans have increased about $10,000,000,000; is that correct?

Mr. WOODLIEF THOMAS. Yes.

The CHAIRMAN. Is there anything to support the statement that that is increasing?

The bank loans for 101 cities seem to be almost the same in Novem ber as in September.

Mr. ECCLES. Do you have the latest figures on that?

Mr. WOODLIEF THOMAS. There have been some fluctuations, yes The CHAIRMAN. Mr. Eccles stated in his statement that it showed signs of a growing inflation and I wondered what figures supported that.

Mr. WOODLIEF THOMAS. Commercial loans have been increasing. eal estate loans have been increasing. Consumer credit loans have een increasing.

The CHAIRMAN. I want to get the figures of the amount, whether is an increasing amount over the previous periods or not.

It seems to me we ought to have the whole thing by months from anuary 1946, with some reference back to 1939.

Mr. ECCLES. Well, you see, we get these calls for all banks about vice a year. There are nonmember banks, and we have to wait ntil the calls are made by the State bank commissioners, and June Dis the last report.

So, from then on, you estimate it, based upon the 450 odd weekly porting banks. The figures are as follows:

Loans at all insured commercial banks, by kind

NOTE.-Excludes loans at noninsured commercial banks which comprise about 1 percent of the loans at commercial banks.

The CHAIRMAN. Well, it seems to show, just summing up the general effect, it seems to show that the total expansion of credit, bank credit of all kinds, is at the rate of $5,000,000,000 to $6,000,000,000 a year, for the last 2 years.

Mr. ECCLES. That is right.

The CHAIRMAN. That is about right. Is that $5,000,000,000 of $6,000,000,000 a year; is that any reason to think that is excessive That is, where you are developing a new economy and making new loans?

Mr. ECCLES. Well, it would not be excessive in a normal condition where you were not experiencing a rapid inflationary development but any expansion of bank credit added to the total volume of the bank deposits and currency is excessive today. As a matter of fact if there were no further extension whatever of bank credit, with any normal velocity, and that is the velocity that we have been accus tomed to in the past, on the existing supply of money, if there wer no further increase in it at all, we could have a much further infla tionary development.

The CHAIRMAN. That may be; but in the war, the banks were lend ing the Government money, because they had to have it. Now there is no longer a war and they are lending it to the private people whe want to borrow, and presumably for legitimate purposes, because you check all of the loans yourself to see whether they are sound loans.

Is there any real evidence that $5,000,000,000 a year in the post war period, where people are going back to peacetime production is in any way an excessive increase in credit?

Mr. ECCLES. I think it is at this time. I do not think it was in the first part of 1946, when the reconversion was going on. I think it is only an excessive extension of credit when you already have such shortage of labor and materials in nearly every field.

The CHAIRMAN. But you would not just say to the banks, "You shall no longer increase credit at all"?

Mr. ECCLES. On the over-all credit there are many things to be considered. There are loans being paid all the time, and there are loans being made. We are not saying that banks should not make loans.

The point is that the banking system as a whole should have some restraint. Our plan here does not put them in a vise, where they can make no loans, but it puts the lender under a restraint which today he is not under.

Today, he is under pressure to make loans, not only because of the demand of the borrower, but because he finds that he has reserves. He does not know where they come from, but when gold comes into the country, and that is coming in at the rate of $200,000,000 a month, as that gold comes in, it immediately goes into the banking system and becomes reserves. Therefore, the banks have money to

invest.

The CHAIRMAN. They have not, however, been hampered in making loans by any reserve requirements?

Mr. ECCLES. No. They have not been hampered at all.
The CHAIRMAN. They can sell governments?

Mr. ECCLES. That is right, but this gold only adds reserves to those created by selling of governments. The gold gives them the reserves without the bank selling governments at all.

In addition to that, any purchase that the Federal Reserve will have to make to support the long-term rate of securities, that are not bank eligible, increases it.

Now, the extent to which we may have to support the long-term narket is, of course, unknown. Today it is not an important factor, ut it is becoming increasingly important because, as inflation levelops, the demand and the need for money become greater in rder to do a given, like amount of business.

Therefore, the corporations that have not borrowed, and who ave governments, sell those governments, and that puts reserves in he banking system.

The CHAIRMAN. I understand that, but what I am concerned bout is this: Is there really a problem? That is the question we have to start with. Is there any abuse of this power? Is this expanion excessive?

You, yourself, are exercising authority, and you are asking for uthority before the Banking and Currency Committee to increase he lending power of the Federal Reserve System to your small usinesses, presumably to increase production, and is not lending necessary to increase the production?

| Mr. ECCLES. We are asking for less authority than we have. We have today an authority to make direct loans under 13 (b), and we are asking the Congress to take over that $139,000,000 of gold that was set aside for that purpose, and put it into the revenue of the Government, and repeal the Board's authority to loan and substitute therefor as a stand-by service for deflationary requirements, the right to insure loans that are submitted by the banks.

That does not necessarily mean to say that you will insure them, out it is a substitute that is a less power than we already have.

The CHAIRMAN. But it would increase, then, the loans that the banks would make, guaranteed by the Board.

Mr. ECCLES. Yes, but it is much worse if we make loans now. If we make direct loans today, the Federal Reserve, we would put reserves in the banking system so that every dollar of direct loan the Federal Reserve makes today would put that amount of excess reserves in. We are asking that that power to create multiple expansion be taken away.

The CHAIRMAN. Which you are not exercising.

Mr. ECCLES. No, sir, we are not exercising it.

The CHAIRMAN. You want a more practicable power to increase loans through the banks, which has the same inflationary effect.

Mr. ECCLES. It does not have any multiple effect at all. The loan would originate from the bank. The only purpose for which we want it is on the books as a stand-by service.

We are not very particular about it as a matter of fact.

The CHAIRMAN. You might as well put it off for another year, when there is a deflation.

Mr. ECCLES. The only thing is, it is a question of repealing what we have. The only reason it came up at all was that the budget wanted to get this $139,000,000, and in order to get it, you had to repeal section 13 (b), and we merely suggested to the Congress that in its repeal that they give the Board this stand-by service of insuring loans if need be. So it is not that we brought it up. It was brought up in an effort to get this $139,000,000 into the Government's reve

nues.

The CHAIRMAN. Mr. Eccles, I still go back to the question as to whether we really have an abuse here or a problem that we have to do something about.

I notice the total bank loans in 1939 were this figure of $22,000.000,000. Now they are about $42,000,000,000. They have not quite doubled.

Considering the increase in the national income, the increase in production, which is more than double in the output, do you think the present volume of bank loans is excessive?

Mr. ECCLES. I think, in view of the amount of government, they are. It seems to me that an expansion of bank loans, in view of the existing volume of deposits already in the banking system, because of the huge amount of credit created to finance the war, should make any further bank credit expansion unnecessary on balance, because you are adding to the means of payment in the economy whenever you expend bank credit on balance.

I think when you get a situation of inflation as acute and as danger ous as the present situation is, that you cannot say that 14,000 banks should have the ready access that they have today to reserve credit. They should not have the reserve credit that they get from gold im ports, and from the Federal Reserve's purchase of market securities without some offsetting means of curbing that easy credit situation that we are forced to put them in.

The CHAIRMAN. I understand that, but in comparison to the prewar condition as to the amount of loans in 1939, the amount today in no way exceptional.

Mr. ECCLES. If the Government credit is compared with 1939, no. But when you look at the private credit structure, you have to take into account the Government credit structure which created money.

If it were not for the Government deficit financing that increased the amount of deposits of currency over 300 percent, if it were not for that, then I think the economy, with the kind of production we have, would be such that the bank loans would have to be far greater than they are, but industry, today, and individuals, own this 300 percent increase in deposits, and there they are. It is in the form of money, and they own it, and any time that the banks make further loans, they add to that spending stream.

I can understand how any one banker says, "This loan is good and I am only loaning my surplus money." I can perfectly understand his attitude, because he does not see the over-all picture which we have to take a look at.

The CHAIRMAN. What bothers me more is shutting off of loans from people who say they need them and who, presumably, have the assets on which to borrow.

Mr. ECCLES. You will not shut off loans.

The CHAIRMAN. Is that not a serious limitation?

Mr. ECCLES. You will not shut off loans to them at all with any

such program as we have.

The CHAIRMAN. Then what is the purpose of it?

Mr. ECCLES. There is no prohibition of loans.

The CHAIRMAN. What is the purpose of it?

Mr. ECCLES. There is this restraint; let me put it this way: The banks today have about 50 percent of their assets in Government securities.

The banks, as I showed in this statement, could sell one-half of those Government securities, and create reserves upon which they could build $200,000,000,000 of credit.