Evening star., 1914-08-15
The new BANKING LAW
XI.-Rediscounts.
By Frederic ]. Haskin.

One Of the most important establish
msnts Of the reserve act Is its creation
Of a powerful national market for
commercial paper. The development Of
such . market. sanely regulated. will
remove many prejudicial letters from
business, make possible much sound
expansion and tend progressively to
restrict the volume Of purely specula-
tive transactions.
It is one Of the primary functions Of
the federal reserve banks to purchase
or rediscount commercial paper for
their member banks. The new system
will begin with about $500 banks In
side the pale. and 50 privileged to share
in the benefits OF this rediscounting.
Besides these banks, the federal re-
serve board has the power to permit a
member bank to act as the agent Of a
non-member bank in rediscounting. 1t
board will be Jealous Of granting this
permission.
Further than being an immense adj
vantage in Ilmes of unusually brisk
commercial activity, the reolscounting
privilege Is to be a dependable agency
for relief in panicky times and in
periods of financial stress and anxiety.
One Of the principal defects in the old
banking organlzatlon-or disorganiza-
tion-was the inability Of the banks to
secure cash in seasons Of need There
25.V00 banks could convert their as
sets readily into cash wnen the. mo-
ment OF emergency presented itself.
Under me new system, wnen the
need arises. q bank suffering under
the strain Of severe Withdrawals will
take Its commercial paper Investments
to the reserve bank OF which it is a
member and sell them for cash or for
, credit upon the books Of the regional
| bank As commercial paper forms an
| important part OF the investments of
all banks. and. further. as it will likely
| become still more important form
for investment under the new law. the
likely spare any conservatively man
aged member bank the necessity for
| closing It's doors in the future on &C.
count Of lack of funds.
-.
The provisions OF the act concerning
rediscounting are:
| Upon the
Provisions Of the Act Endorsement
Anent Rediscounting. o, o.. asn,sa any ol
| banks, with a waiver Of demand, no
tice and protest by such bank, any
federal reserve bank may discount
notes. drafts and bills of exchange
Arising out OF actual commercial
lransactions-that Is. notes. drafts and
pills of exchange issued or drawn for
agricultural. industrial or commercial
purposes, or the proceeds Of which
nave been used. or are to be used. for
such purposes, the federal reserve
board to have the right to determine
or define the character Of the paper
| .hus eligible to discount, wlthin the
meaning OF this act. Nothing In ih.s
| ,rohioit s1ch notes. drafts and paiis Of
exchange, secured by staple agraSuA-
| ural products. or other Eoods, wares
Jr merchandise from peinG eligible FOL
such discount; but such oennit1on shall
not include notes. drafts or bills COW
| .rawn Tor the purpose Of carrying OF
.rading in stocks. ponos or otner IN,
.estment securities, except bonds anc
aVtes OF the government Of the Ont.eo
,tates. Notes, drafts and bills admit
| ed to discount unoer the terms OF tnie
me lims of discount Of not more than
ninety days. Provided. that notes
traits and bills drawn or issued fol
! .gricu1tural purposes or based on live
stock and having a maturity not eI.
| .eeding six months may be discounted
an amount to be limited to q per.
5entags OF the capital Of the federal
.eserve bank. to be ascertainsd and
liked by the federal reserve board"
This paragraph Of the law carefully de-
ts,ribes what is meant to be the commercia
,aper eligible to rediscount It might b,
well here, however, to enlarge upon tn