The Birmingham age-herald., 1914-11-12
All Functions Given by Con. gress Will Not Be Exer-
 cised at Present
GIVE DEFINITION OF
 COMMERCIAL PAPER
Rate of Discount Not Announced. Function of Banks Now. Claim Directors. Is of Two
 fold Character


 next Monday was dehned for the first few months of their existence in a circular issued today by tho federal reserve board For the present the banks will not ex- ercise all the functions given them by Congress. The board, eoneurrng with the bank directors and governors, in- dorsed this plan;
 Acceptance Of deposits of reserves from member banks.
 l Discount of bills of exchange and com mercial paper
 Acceptance of deposits of checks drawn 1 by member banks on any reserve bank or member bank in reserve or cen tral reserve city within their federal re- serve districts
 Other powers may be called into play as the establishment of safe and efficient organization permits In It's circular the board gave the long expected definition of commercial paper, which Is to be the lifeblood of the new system, the basis for the new federal reserve currency. and the means through which the nations circulating medium is expected to meet the expansions and eontractions of trade and industry
 Rate of Discount Not Given
 The rate of discount was not announced and probably will not be until Monday. 1 It will be uniform in all banks
 The definition of commercial paper is broad and relies to d large degree upon the language of the currency act The board declined at the present time to discuss the question of double and slngIo name commercial paper It did make 1t clear, however, that it had pref erence for the two-name sort, and left [ no room for banks to doubt that it is 2 expected careful inquiry Into one-name
 pnper presented flor rediscount
 The circular discussed the conditions { that have arisen here through war and gave some insight into the economic changes which might be expected to re- : suit
 "It should be borne in mind,'' 1t said. that although our experts are showing a gratifying increase, there Is still large , leash balance due to European countries for which gold may be demanded and that large quantity of American se- curities held abroad may be returned to the United States while on the other hand more than s20o0o0oo0 of emergency currency must be gradually retired No ono can estimate the duration of the war or predict what it's effect will be on financial or commercial conditions when peace shall be restored. Our own indus l trial development has been greatly facil- itated by capital and We have been nc- customed to borrow large sums annually in Europe and to sell American securi- 1 ties there. which attracted foreigners because their higher rate of return com pared with European investments. 1t is l probable that at the end of the war irl- terest rates in Europe will be higher than they have been in the past and greater 1 investment returns will be yielded The tremendous destruction of property and waste of property will not only check the flow of European savings to the Uni ted States but may dispose foreign in- vestors to return the securities they now 1 hold. Lower money rates In this coun- try would be likely to accentuate this 1 tendency, while, in other hand. higher interest rates and large investment re- turns on our side would check it.
 Function TwofOld
 ."rhe function of the federal reserve banks, is therefore. of a twofold char acter. They should extend credit fla cilities. particularly where the abnor- mal conditions now prevailing have created emergencies demanding prompt accommodations and on the other hand.
 
 of this country in order that such hold 1 ings may remain adequate to meet de 1 mands that may be made upon them While credit facilities should be 'lib- | erally extended in some parts of the l country, 1t would appear advisable to proceed with caution in districts not l in need of immediate relief, and to await the effect of the release of re- serves and of the changes which the credit mechanism of the country Is about to experience before establishing a definite discount policy l While the most acute stage of the recent financial emergency appears to l have passed. the conditions in other countries make 1t necessary that tho United States should. to the utmost degree of efficiency, organize and make available its own resources in order 1 that it may provide for It's own needs and replace the facilities suddenly de- stroyed by the closing of many and trade,
 ] In defining commercial papers tho l board announced these basic prin- , cples:
 That no bill bo admitted to rediscount by a reserve bank the pro I ceeds of which have been or are to be applied to \ permanent investment.
 Maturities of discounted bills should be well distributed so that reserve bank should he in position to hdui- date one-third of all us investments within 30 days
 l Bills presented for rediscount should be essentially ''self-liquidattng," which the board explained. means that they ishould represent some distinct step Tn the productive or distributive process and be of such character that 1t Is req sonably sure they can be collected at maturity.
 ;. Must IndOrse Paper ] In addition the hoard requires that such paper be indorsed by the member bank offering 1t for srediscount, that the indorser bank waive demand no- Itice and protest; that such paper be lissued or drawn for agricultural, in dustrial or commercial purposes or the proceeds of which have been so used. that if in the form of acceptances' they
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