The West Virginian. [volume] (Fairmont, W. Va.) 1914-1974, 1915-11-06
BIG BANKS STILL
.F|GHTiI|NGFEDERA[ i|
RESERVE SYSTEM
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May Appeal to Congress to
Abrogate An Important
Requirement.
THEIR PROFITS CUT INTO
Under New Law They Do
Not Have Funds to Loan
to Wall Street.

WASHINGTON. Nov. 6.-Opposi.
ton to the federal reserve banking
system may find Its expression In
Congress this winter. There is al
ready talk OF legislation which the
federal reserve officials say would
cripple the system, namely an act to
relieve the national bankers from
their liability under the federal re.
serve law requirement to deposit in
the federal reserve banks rather than
in certain city banks which enjoyed
them previous to the passage OF the
federal reserve act
1t is not generally known that the
reserve law is not yet fully opera
tive. A provision in the Act deferred
the transfer of reserves three years.
This long period was urged In order
that no shock might be felt by the
business world on account OF the
withdrawal OF large sums from city
banks to federal reserve banks. The
law requires that these deposits be
made in four installments covering
the three.year period. Two OF these
installments will have been complet,
ed on the 18th OF November. Now 1t
lis suggested that Congress will be
asked to. relieve the banks from ma
king the other two deposits.
The reason is clear. Under the
old law the banker was permitted to
deposit large part of his reserve"
in q bank in a reserve city. This
bank in turn was permitted to deposit
a large share Of this reserve with
New York reserve bank. The result
was the money, supposed to be on.
deposit with the country banker, or
even in the Western bank was really,
in; eastern banks, in, New: York gen.
orally, where much of 1t was loaned
on speculative stocks. It was this
system which made possible the 1907
panic when s;the small correspondent
banks could not get their. money but
were forced to use clearing house
certificates in lieu Of currency, the
currency being tied up in the big
eastern. repositories.
The federal reserve law was passed
largely to cure this evil and while the
big city banks have seemed to &c.
quiesce and have found certain fea.
lures of the law satisfactory. they
naturally are not happy at the
thought of letting go this money
which for years has flowed in from
the country. banks and in their hands
has made them huge profits. At the
Money Trust hearing one OF the big
New York bankers testified under
oath that his banks profits from
these sources had been as high as
1900 and 1000 percent on the banks
capital stock.
One complaint made now Is that
some of the federal reserve banks
are losing money. This is not true
unless possibly in the case Of one
bank and 1t is claimed that any Of the
federal reserve banks make money
IL their directors desired the bank
to do SO. The federal reserve banks
all have tremendous sums at their
disposal and as their capital stock
Is very small they can easily cover
their running expenses and show a
small profit by merely investing their
deposits in munlciapl bonds which
they are authorized by law to do.
Their purpose In the theory OF the
law IN any case IL NOT " luuhe plS
profits, but to be reserve. Their
stockholders are the member banks
themselves, and these banks make the
profit while the reserve banks serve
as a vault In which accumulated re-
serves may sicily b except. to be used
Off the benefit Of the stock-holding
banks when occasion may arise. To
demand that such banks make money
is like a banker expecting a dividend
from, his vault.
There has been talk of reducing
the number OF reserve banks from
twelve to eight. There is no neces-
sity for Legislation to do this as the
present law leaves this discretionary
with the federal reserve board. 1t
Is believed that opposition to the
reserve system is confined to bank.
ers rather than to the. business world
which looks with favor on the idea Of
monetary and banking system
which has fortified against panics.
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