Pine Bluff daily graphic., 1915-01-10
RESERVE BANKS BUSINESS SMALL
  Opponents of Plan Declare System Will Not Be Great Success.
HOLDS DOWN RATES
Supporters of Plan Assert Federal Re- serve System Means No More Pan- ics, and That Banks Will Reap
 Profits When Money Is "Tight."
(By Jonathan Winfield. )

Washington, Jan. 9.-Probably no new legislation ever enacted in the United States has been watched more
 anxiously than the federal reserve
 act. Many politicians throughout the
 country forecasted gloomy things when the federal reserve act should become law, on the ground that any change in the national money sys tenn is dangerous. The administra- tion officials, however, are calling at i tention to the smoothness with which the change from the old system to | the new was made on November 16, 1914, when the twelve federal reserve ] banks opened their doors for business. i On the other hand there are many | bankers in various parts of the ccun 1 try who declare that the system is
 not a success.
 It is claimed by a good many of these that the amount of discount or | rediscount business, as it is inter- changeably termed, which constitutes | the real business of the twelve banks, has been extremely small. The state ment of condition of the banks in the reserve system, as of the close of business oG December 24 1914, a l typical statement, show bills dis | counted and loans to the extent of | $S,552 ,000. The week before this class of business aggregated S9,043, | 900. Bankers, who are inclined to criticize the system, declare the re | discounts should have mounted l farther into the millions.
 l On the other hand, the administra- Lon yGrpc of hn 10v Jarn | that it is folly to expect the reserve banks to do a great deal of discount l ing now. Tn recent statement, the | federal reserve board observed that there was "great ease'' in the money
 market, particularly in the East. | Money was cheap, the board declared, | and there was no occasion for large
 amount of rediscounting.
 s'Rediscounting"
 The term "rediscounting' perhaps
 is not completely understood by the
 average layman. It means merely
 this. A merchant sells S1,00O worth
 of goods to a customer and receives a { note for that sum in payment. It is | due in 90 days. The merchant takes l this note to a member bank of the 1 federal reserve system. This bank
 pays tne merchant the money the note calls for; that is, cashes the note and for this services it receives a cer-
 tain percentage of the full value. This ! reGhces the amount of money the i merchant gets, but what he does re-
 ceive, he has immediately in hand whereas the bank has to wait. until I the obligation natures. Now sup l pose the bank itself needs cash. It in turn, takes the note to the federal
 reserve bank in it's district, and goes I through an operation, practically l identical to that adopted by the mer- | chant 1t receives cash for the note | less a percentage. say five percent, of the notes face value. In this way
 the federal reserve bank receives $50 for cashing the $1,000 note. This is | discount Or rediscount. the latter
 term implying that the operation has
 been employed twice.
 ! Discount rates at banks generally
 now range iron, to or 4 1-2 per
 cent. while some of the federal re-
 serve boa.d people explain, the mer- ! per cent. Naturally, the federal re-
 serve boar dpeople explain. tn mer-l
 chants are going to the individual banks to do this business. But they. claim, in hard times when money is
 costly, the private bank discount rate will soar far above it's present statrs and even above the rates of the fed eral banks. Then the latte will reapI Itheir big rewards. They will discount;
 vast quantities of commercial paper