The Sentinel=record., 1914-11-12

Washington, D. C., Nov 1.-The scope Of the operations of the twelve federal reserve banks, Co be. opened for business next Monday was de- fined for the first few months of their existence in a circular issued today by the federal reserve board For the present the banks will not exercise ali the functions given them by con gress The board, concurring at the directors and governors of the twelve in recent conference here endorsed this pan of operation
 Acceptance 0, deposits of reserves from member banks.
 Discount of bills of exchange and commercial paper
 Acceptance of deposits of checks drawn by member banks on any re- serve bank or member bank in re- serve or central reserve city within their federal reserve districts.
 Other powers may be called into efficient organization permits.
 In it's circular the board gave the long expected definition of conner cial paper, which is to be the life blood of the new system, the basis of the new fedora reserve currency and the means by which the nations cir culating medium is expected to meet the expansions and contractions of trade and industry.
 The rate of re-discont was not an nounced. This step probably will not be taken until Monday. The rate will not be uniform in all the banks.
 The definition CT commercial paper is broad and relies to a arge degree upon the language of the currency act. The board declined at the pres ent time 10 discuss the question of double and single name commercial paper. It did make it exceedingly clear however, that it had a prefer ence for the two name sort, and left no room for the authorities of the banks to doubt that it expected care full inquiry into one name paper pre- seuted to them for re-discount.
 The circular discussed the condi- tions that have arisen here and throughout the world through the war, and gave some insignt into the economic changes which might be eX- pecjed as result.
 Tt should be borne in mind that if said. "a though our exports are showing a gratifying increase there is still large cash balance due 10 European countries for which gold may be demanded and that a large quantity of American securities held abroad may be returned to the United States while on the other hand more than S30o.o00.000 of emergency cur rency must be gradually retired. No one can estimate the duration of the war or predict what will be financial or commercial conditions when peace sha be restored. Our own industrial | development has been greatly facill- tated by foreign capital and we have | been accustomed to borrow large sums annually in Europe aad to sell | American sacurit there which at tacted foreigners because of their higner rate of return compared with l European investments l. is prob able that at the end of the war inter est rates in Europe will be higher than they have been in the past, and greater investment returns will be 1 Iyeldtd The tremendous destruction of property and waste of capital will not only check the flow Of European savings Co the United States but may dispose foreign investors to return
 the securities they now hold Lower money rates in this country would be likely to accentuate this tendency Wnle, on the other hand. higher in lter,st rates and larger investment re
 turns on our side would check it.
 The functions of the federal re lserye banks. therefore, is of a two
 fold character They should extend
 credit facilities, particularly where the abnormal conditions now prevail
 ing have created emergencies de
 handing prompt accommodations
 and on the other hand, they must pro tect the gold holdings of this country
 in order that such holdings may re
 main adequate to meet demands tha'
 may be made upon them Whil, credit facilities should he liberally
 extended in some parts of the coun try it would appear advisable to pro
 ceed with caution in districts not il 
 await the effect of the release of re
 serves and of the changes which tn,
 credit mechanism of the country i'
 about to experience before establish
 ine a definite discount policy
 "Whi'e the most acute stage of thu
 recent financial emergency appears Ito have passed the conditions in oth
 aT.