Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1914-11-12
REGIONAL BANKS
WORK Is DEFINED
BY RESERVE BOARD
New Federal Institutions
Will Not Exercise All of
Functions at Beginning.
Rules for Rediscounting
Paper.

WASHINGTON, Nov. 12-The Federal
Reserve Board has issued circular
governing the operations of the 12 new
Federal reserve banks for the first few
months of their existence, from next
Monday, when the new Institutions are
opened for business. The new banks will
not exercise all OF the functions given
them under tie Federal reserve act at
the beginning, but their operations will
be gradually increased as conditions per-
MT,
Among the things defined in the circular
is commercial paper. The question OF
double ard sngle-name paper is not dis
cusscd. although preference is shown for
The two-name variety IT is pointed out
that the banks are to make very careful
inquiry into slngle-name paper which is
presented to them. The discount rate
will not be Uniform I'm all the banks.
The plan or operation of the new insti-
tutions at tho beginning is indorsed as
follows: Acceptance OF deposits OF re-
sHerves from member banks: discount OF
bills OF exchange. and commercial paper,
and acceptance OF deposits OF checks
drawn by member banks on any reserve
bank III a reserve or central reserve city
within their Federal reserve districts.
INFLUENCES OF WAR.
Discussing war influences and the con-
sequent economic changes that may be
expected, the board says in its circular:
ut should be borne in mind that, al
though our exports are showing a crafty
ing increase, there Is still large cash
balance duo to European countries for
which gold may be demanded. and a large
L. 4
abroad may be returned to the United
States; while more than S3O0OOo,OOO of our
emergency currency must be gradually
retired.
at is probable that at the end OF the
war interest rates In Europe will be
higher than In the past. and greater in
vestment returns Will be yielded. The
tremendous destruction of property and
waste of capital will not only check the
flow of European savings to the United
States, but may dispose foreign investors
10 return the securities they now hold.
Lower money rates in this country
would be likely to accentuate this tend
ency, while, on the other hand, higher
interest rates and larger investment re-
turns side would check It.
THE function of the Federal Reserve
Bank Is, therefore, two-fold. They should
extend credit facilities particularly where
abnormal conditions have created emerg-
encies demanding prompt accommodations,
ana they must protect the golu holdlngS
of this country.
While credit facilities should be llber-
ally extended in some parts of the
country. 1t would appear advisable to
proceed wsth caution In districts not In
need of immediate relief. and to await
the effect of the release of reserves and
OF the changes in the credit mechanism
of the country before establishing a defin-
mite discount policy.
While the most acute stage of the
a,luV -
have passed conditions In other countries
make 1t necessary that the United States
should to the utmost organize and make
available its own resources"
COMMERCIAL PAPER DEFINED.
In defining commercial paper the board
says:
mo bill shall be admitted to redis-
count by a reserve bank the proceeds
OF which have been or are to be ap-
piled to a permanent investment.
"Maturities of discounted bills should
be well distributed. so that a reserve
bank should be able to liquidate one-third
of all its investments within 30 days"
Bills presented for rediscount should
be essentially self-liquidatlng"
In addition the board requires that such
paper be indoTsed by the member bank
offering II for rediscount; that the in
dorser bank waive demand notice and
protests that such paper be issued or
drawn for agricultural Industrial or
commercial purposes or the proceeds OF
which have been so used; that, III In the
form of acceptance. they must be based
on transactions involving the importa-
tion or expectation OF goods and have a
maturity OF not longer than three months.
Aceeptanees must be indorsed by
member bank and the total amount Of
1sred shall not exceed one-half its paid
up capital and surplus,
The aggregate OF paper bearing the in
dofsement of any one person, corpora
tion or firm rediscounted for any one
bank shall not at any time exceed 10 per
cent. OF the unimpaired capital and sur
plus, this not to apply 20 bills OF exchange
drawn against actually existing values
Paper drawn for trade in stocks and
securities viii not be acceptable, nor such
paper drawn for merely investments"
This excludes paper the proceeds OF
which may be used In investment In land
plant machinery, permanent improve
ments or similar transactions. Specua-
tive purchases of commodities being
mere investments would be excluded
LIMIT OF REDIscoUNT.
For the present the limit for which a
reserve bank may rediscount paper for
agricultural purposes or based on live
stock" having not more than six months
maturity. Is fixed at 25 per cent OF the
capital OF the bank. but this limit may
be increased In agricultural districts In
time OF need.
II is hoped TO establish central credit
bureau for the beneht Of all reserve
banks in which the financial record OF
the big borrowing corporations, firms and
individuals will be kept.
Until January Is next, a written state
ment OF an Oficer Of a bank applying
for the rediacOunt OF any qualified bin
win be suficient After that date how
ever, no paper win be rediseounted unless
il bears on its face evidence that Il Is
eligible under the boards regulations. ana
that the seller has given a statement
under oath 20 the member bank This
statement win show the character of
business, the balance sheet the proat and
loss account permanent and nxed in
festmeRts. slow ana quick assets, capital
long term and short term loans, and
also the maximum aggregate up to which
the borrowing concern expects 70 sell
short paper. The giyer OF the statement
shall obtain the member banks consent
before exceeding the agreed limit
The signature Of a member bank ON
such paper will be binding. ana q guar
antse that the paper complies with the
lap.
fhiH Information viii be open 10 in
specuon % examiners aud copies snail 81
furnished On request 70 the Reserve
Beard