Evening star. [volume] (Washington, D.C.) 1854-1972, 1915-08-22

1t is now nine months since the fed
eral reserve act was put into OPERATION
November 10, 1914. In the nine months
money, despite the fact that nearly all
| the important nations of Europe were
engaged in war, has accumulated IN
| the United States to such an extent that
many financial men have come to be-
lieve that a panic is now an impossl-
| bility; not only accumulated but the
| rediscounting privileges of the act Of
| fer such medium for expansion of the
currency of the nation that there are
no more complaints of inelasticity.
The largest grain crops, hay, etc, that
have ever been harvested. are being
moved without any appreciate cali for
crop-moving funds.
New York bankers who in years gone
by have appealed to the Treasury Depart
ment for deposits of government funds
to relieve the situation find no cause
for uneasiness today, Cespite the fact
that the foreign exchange market is
more or less demoralized. The state
ment of the New York fiscal institu-
tions yesterday showed excess reserves
of S152, 5S7,S20.
Millions of dollars worth of Ameri-
can securities have come home from
foreign shores; large credits have been
extended abroad: the billion-dollar
trade balance is a fact, not, as trade
balances have been in years gone by,
only apparent, because of the vast for
eign Indebtedness for money invested
in American securities and elsewhere.
In supporting the federal reserve act
before the District Bankers Associa-
ton. just preceding it's enactment.
Senator Shafroth, one of it's sponsors
in the Senate. made this statement:
"Panics will be impossible with this
no oh
real panics is the inability of bankers
to realize quickly on their assets. With
this law effective banker can redls-
count and rediScount with the reserve
bank SO long as he has dollar OF
assets ESQ long as it IS not coliateral
loan), and he cannot fail
Collateral loans are always easily
liquidated at a price-unless the loan
ought to have been written of months
or years ago.
without further discussing the merits
or the federal reserve act, whether
fewer regional banks would be better
than twelve now existing, or Wheth-
er central bank would have operated
as well, it goes without saying that the
United States currency system OF to-
day is decidedly elastic; it's capabilities
in this particular line have.-,not been
put to the test.
Business has been SO dull during the
last few years and at the present time, II
one may except the millions and ten
of millions of dollars worth of war
orders that are keeping factories
operating to capacity, that there has
been very little use, comparatively, for
money in legitimate channels. Business
men hesitate, and naturally, with Eu-
rope in turmoil and unsettling condi-
lions at home and abroad. Consumption
and manufacture in legitimate lines are
as necessity demands, not with much
anticipating.
When It's Not Liability.
Rather interesting developments in
connection with rediscounting of paper
by member banks with the regional
banks of the federal reserve system,
came to the attention of at least one
banker and one bank examiner as
we'll as to the knowledge of sevaral
minor banking officials, recently.
The contention was advanced that re-
discounts by a member bank were not
liability of that institution. 1t Is
within the law for bank to borrow. II
it so desires, to the amount of its capt.
tai Bankers generally have counted
their rediscounts with their regional
bank as liability, but the controller
of the currency has ruled otherwise,
and cited line, page and paragraph OF
the federal reserve act in substantial
ton. 1t is a liability. but it is fully
sucured by PAPER and Endorsements,
and in ascertaining liabilities for the
purpose of borrowing within legal
limits it does not count as such.
Some bankers who prided themselves
on the intimate speaking acquaintance
with the reserve law were caught on
this point and had to be shown.
Johp Bulls Pride.
John Bull, banker of the world, erst-
while must now shift from the auto
crat of the pound and it's component
shillings and pence to the borrower of
American dollars and cents.
That Great Britain has not announced
a big bond issue, bearing at least 5 per
cent free from income tax in Great
Britain and maturing after decade or
longer, is almost entirely because it
hurts John Bulls pride.
When one has been the aff1uent
worlds lender it is painful to appear
in the guise of borrower. and yet it's
coming.
Sterling exchange may plumb to still
lower and heretofore unexplored