

FINANCIAL REVIEW OF 1884. 



325 



The prices of leading staples on or about the 

 1st of January, 1885, compared with prices at 



the same date in 1884 and 1883, were as fol- 

 low: 



The Banks and the Money-Market. Money was 

 almost unprecedentedly cheap in 1884, the ex- 

 ception being during the crisis in May, when 

 banks positively refused to loan, even upon 

 Government bond collateral, and consequently 

 money commanded 3 per cent, per diem com- 

 mission and interest. On the 21st of June 

 there was a sudden demand for money at ^ of 

 1 per cent., due to disquieting rumors circu- 

 lated by the bears in the expectation of unfa- 

 vorably influencing the stock-market, but after 

 a 15 per cent, rate on the following business 

 day, the inquiry gradually subsided, and the 

 extremes for money thereafter for the remain- 

 der of the year were 4 per cent., and flat, bank- 

 ers' balances being frequently left over at the 

 close of the day free of interest, the lenders 

 preferring the collateral to the money. A dis- 

 tinction should, however, be made between 

 loans by banks and by brokers. The banking 

 institutions were not liberal lenders of money 

 after the May panic, carefully discriminating 

 against any but the choicest stock and bond 

 collateral, and refusing to discount mercantile 

 paper unless it was of unquestioned character. 

 Single-name paper was almost unsalable for 

 the greater part of the summer, and this ex- 

 tremely conservative policy on the part of the 

 banks resulted in seriously embarrassing sev- 

 eral commercial houses, and it is alleged caused 

 the failure of one prominent dry-goods firm. 

 The steady liquidation in the stock market and 

 the almost entire absence of non-professional 

 trading, materially lessened the demand for 

 money on call, and this will account for the 

 liberal rates at which bankers' balances were 

 offered. Those of the banks that loaned upon 

 stock collateral rarely did so below 2 per 

 cent., and, as they exacted the best security, 

 borrowers who could not furnish it resorted 

 to the Stock Exchange. After the panic the 

 New York Clearing-Honse Association appoint- 

 ed a committee to consider " whether the meth- 

 ods of business, as conducted by the several 

 members of the association, are uniform and 

 correct in their operation with the public, and 

 equitable to all the banks which are thus bound 

 together in the Clearing-House Association." 

 This committee subsequently reported in favor 

 of refusing longer to pay interest on balances 

 of interior banks, claiming that these deposits 

 were periodically attracted hither by a rate of 

 interest higher than that which could be ob- 

 tained at home, and that the banks receiving 

 these deposits were tempted, by this plethora 



of funds, to make injudicious loans, thereby 

 imperiling their own safety and that of others. 

 At the earliest indication of danger these de- 

 posits would be withdrawn, thus deranging the 

 money market and inflicting serious injury upon 

 speculative and other interests. The commit- 

 tee's report was not adopted, but later in the 

 year the banks generally agreed to reduce to 

 2 per cent, the interest thereafter to be paid on 

 deposits of their correspondents in the interior. 

 This action, however, did not cause the with- 

 drawal of funds from this center to any extent, 

 mainly for the reason that there was so little de- 

 mand for crop purposes, that the supply at the 

 West and North was abundant without drawing 

 upon the New York balances. The ebb and flow 

 of money incident to the movement of crops, 

 which in previous years has been an impor- 

 tant feature of the money market, was in 

 1884 almost insignificant. The influx began 

 as usual with the beginning of the year, but it 

 was arrested by the middle of February in 

 consequence of the silver scare which at once 

 caused a hoarding of gold, the withdrawal of 

 deposits by interior banks, and stimulated ex- 

 ports of gold to Europe. The country insti- 

 tutions did not return the funds so withdrawn, 

 and when the crisis came in May they with- 

 drew the greater part of the remainder of their 

 balances, retaining them until confidence was 

 fully restored at this center. Even then, only 

 a portion came back, so that, when the cereal 

 crop was ready to move, there was an abun- 

 dance of funds at the West for this purpose. 

 This exceptional movement is indicated by the 

 course of deposits in the associated banks. The 

 year opened with $329,950,200, and there was 

 a steady increase to $363,544,400 by the mid- 

 dle of February, part of which was accounted 

 for by the gain in this interval of $15,997,000 

 in loans. Influenced by the fear that silver 

 certificates might be forced upon the banks in 

 settlement of debit balances due the Clearing- 

 House by the Sub-Treasury, the deposits were 

 drawn down to $333,215,600 by the beginning 

 of May. The changes in loans in the interval 

 between February 9 and May 3 were shown 

 by an advance from $341,919,100, on the first- 

 named date, to $351,087,200 March 15, and 

 then a decrease to $341,990,500 by May 3. 

 The movements in the surplus reserve were 

 first an advance from $8,211,950, at the be- 

 ginning of the year, to $21,094,400 by February 

 9, and then a decline to $806,000 by May 3. 

 Specie was of course most directly influenced. 



