The Washington times., 1913-06-29
SAYS CURRENCY BILL
IS FULL OF HOLES"
Congressman Prouty Of Iowa
Declares Measure Would
Contract Funds.

That the Administration currency
bill is "full of holes" and that II
would actually result In q heavy con-
traction Of the loanable funds of the
country is asserted by Congressman
s. F. Prouty, of Iowa. Judge Prouty,
who has made q study Of financial
questions, and who has had practical
experience in banking, who also has
a currency bill Of his own, made this
statement:
IT consider the present currency bill
an Improvement over the Aldrich plan.
but 1t is certainly full Of holes when
viewed from the standpoint of a safe
and sane currency. As a reserve sys-
term, It seems to me 1t falls down at
the vital point. 1t In evidently the pur-
pose Of this measure to increase the
amount of available loanable funds
which 10 30 necessary In carrying on the
large business of the country. The un-
doubted effect Of this system will be to
curtail rather than expand the amount
Of loanable funds In every local COM
munity. It requires the local banks to
hold the same amount OF reserves as
now required by law, and In addition
It requires all the subscribing banks to
pledge 20 per cent Of their capital stock
to the formation OF Federal reserve
banks. This 20 per cent is now avail
able in local banks for loaning pur-
poses but under the proposed system
10 per cent of II will be Immediately
Withdrawn and the other 10 per cent
curtail the amount Of loanable funds in
every local community.
Takes Funds from City.
"As there are to be twelve reserve
banks Of not less than 100000 each,
there would be an immediate with
drawal Of S6oo0ooO0, and, IL the other
10 per cent Is called, of $12o,ooO0oo. II
all the banks in my own city OF Des
Moines became subscribers to this Fed
eral reserve system, 1t would immedi-
ately take about q quarter Of a mil
lion dollars Of the loanable funds out
of the city, and would take cores
ponding amount out Of every other city.
In addition to this amount, 1t would re-
quire the holding Of about another
quarter Of a million dollars to meet the
IT is true that local banks in the ag-
greEate could borrow back from the
reserve bank by rediscounts. 66 2-3 per
cent Of this amount, but all banks are
loath to rediscount. and the pracucai
result would be that they would NOT
meet this impairment Of their loanable
capital. The immediate result would
be contraction. In other words, Il
would Immediately take $50. 0.0oo.0Oo out OF
the loanable funds OF local banks ano
lock them up in the reserve banks, In
addition to the amount that Is now re-
ouired to be held os reserve. And, In
addition to this. II would Immediately re-
quire all the national banks to increase
their reserve and thus withdraw that
amount from the business Of the coun-
try.
View On Section Ie.
'.Ses ton II repeals the law allowing
national banks to count as a part Of
their reserve the 5 per cent now held
by them in the Treasury for redemp-
tion OF outstanding currency. This
would require the banks to take from
their available loanable funds this
amount and lock II UP in reserve banks.
Section IA of the act among other
things, provides that any Federal re-
serve bank may discount paper
WHEN its own cash reserve exceeds
g l-s per cent Of its total outstanding
This. in effect, requires the reserve
banks to hold 80 1-3 of their deposits
from the loanable funds. except as to
short time paper not exceeding forty
five days maturity. There are now
about 1900 00o 600 held by the banks of
the United States as reserve. II this
system works as Its trainers design.
all this money eventually will reach the
vaults Of the Federal reserve banks. and
under the operation of this section n
billion Of this must be held permanently
ir these reserve banks not available for
Again the direct effect of this bill
Is to limit banks in their small loans"