The Trend

U.S. bank profits are still rolling up in the vast and general U.S. war boom. So are the banks' deposits, their loans and their holdings of Government securities.

The first 1944 quarterly reports of leading Wall Street banks showed that assets of the twelve largest Manhattan banks have risen to $23 1/2 billion, and deposits are up to $21 3/4 billion. In each case this was a gain of some $500 million since Dec. 31. Chase National's $4 1/2 billion deposits, the largest in its history, enabled it to hold its lead as the biggest depository in the world. The National City Bank joined Chase as the second $4 billion bank.

Despite increasing costs, U.S. banks are making more money than the most optimistic of bankers had dared predict. Net profits of member banks in the Second Federal Reserve District, after taxes on net income, averaged 7.2% on invested capital in 1943, compared with 4.4% in 1942. And all U.S. national banks earned 8.9% in 1943 on invested capital, 22.9% on outstanding capital stock. Part of this increase is due to the fact that the banks have consistently invested their excess reserves in Government securities, thereby increasing their total income from interest.

The mushrooming deposits reflected primarily the Government's reliance upon banks to finance federal expenditures--besides tax revenues and bond purchases made out of savings. While banks were not permitted to participate in the last two War Loan Drives, they did loan money to individuals for bond purchases and bought Government securities from investors to enable the latter to buy new bonds. Loans came to $1.8 billion in the Third War Loan Drive. In the Fourth drive, Federal Reserve member banks in 101 leading cities added almost $2.8 billion to their holdings of Government securities. The 14,600 U.S. banks on Dec. 31, 1943 held $67 billion of the U.S. national debt--out of a total of $168.7 billion.

Old Warning. The continuous increase in bank deposits (now over $110 billion) has resulted in a marked reduction in the ratio of bank capital to deposit liabilities. Some banks today have less than 5-c- of their own money to every $1 deposited.

A rising question is: Can U.S. banks afford to make higher-risk loans to business after the war, unless they sell more bank stock to, protect depositors against contingencies?* A nickel for every dollar of other people's money is not much protection. And if the Government is called upon to make postwar loans, the funds obviously would have to come largely from the further sale of Government securities to banks.

Two years ago John H. Williams, the scholarly, money-wise vice president of the Federal Reserve Bank of New York, warned: "If the banking system is to become more and more a mechanism for providing funds to finance Government expenditures, and a mechanism the preservation of whose stability becomes increasingly a matter of concern to Government, could not the ultimate reaction of the public be that such a mechanism should be a public rather than a private institution?"

* During 1943 there were only 17 secondary offerings of bank stocks involving $16 million. Some banks are now gingerly plumbing capital funds-raising possibilities. But many banks are still in hock to the Reconstruction Finance Corp. on whose books remain $358 million for investments in preferred bank stocks, capital notes, and debentures.

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