The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1915-03-20
Watchful Waiting Is Attitude
of State Institutions and
Trust Companies.
ARE HESITATING
Referendum Brings Out Fiinancicrs
Views on New Federal
System.

In the belief that their business would
be impaired and that many disadvan
tages would follow their entrance to the
new Federal reserve system, State banks
and trust companies in every section of
the United States have adopted a policy
OF watchful waiting. pending the pas
sage through the experimental stage of
that system. according to returns from
a referendum conducted by the Bankers
Information Service. of this city.
Under the terms OF the Federal reserve
act membership in the system was made
compulsory as to the 800 national banks
or the country. with liquidation as the
alternative. The national banks thus
compelled to enter the system or go out
of business constitute but one-fourth of
all the banks of the United States OF
the remaining thrce-quarters. comprised
of state banks and trust companies. op-
Grating under Stat" charters. but eight
ont OF approximately 1000 such banks
have entered the Federal reserse sys-
tenn
Bankers Views Gathered.
The referendum by the Bankers In
formation Service was the first effort 10
cct a nationwide expression OF the rca-
sons back OF the rema rkablc apathy of
the State banks toward the new none
tary system. The views collected are in
most instances expressed by State bank
ing department executives throughout
the country. with few expressions from
prominent state bankers whose authority
is recognized by the State banking Off
Gals.
While the referendum has drawn many
expressions of cordiality toward the new
system. with the hope that time will find
it working along lines that will attract
the State banks the overwhelming sen,i-
ment is that State banks will withhold
entrance into the Federal reserve plan
until changes in its operation may oe
made and its practicablity fully demon
stEatcd.
As shown by the returns the following
are the main objections upon which the
apathy Of the state banks toward the
Federal reserve system is founded:
That If they join the Federal reserve
system and become dissatisfied they can
not withdraw without liquidation.
Capital Is Tied In.
That although they will be compelled
to pay a portion of their capital into the
capital of the Federal reserve system.
where II will be tied up. they may re-
Ccive no benefit because the class of
commercial paper they handle is not
eligible for discount under the rcgula-
tions of the Federal Reserve Board.
nat InlS Is lICulstIly u uC III liit
cotton and wheat producing States. where
State banks are called upon by farmers
and cotton producers for extended credit
on longterm commercial paper not read
lily eligible for discount in the Federal
reserve banks.
That on entering the Federal reserve
system the State banks will be subjected
10 two separate cXamlnations-oie by the
State authorities and one by he ma
II 60. 49,.
at the present time there exists consid-
cradle conflict between various provi-
sions OF the Federal reserve act and
state banking laws. this dual exanIina-
ton would be intolcrablr.
That the Federal Reserve Board is n
political body and subject tn shifting
personnel, and that with shifts In menu
bership on the board. regulations AMI
policies may change. making the future
uncertain.
That hidden in the discretionary power
of the Federal Reserve Board there ex-
lists the possibility of power to apply
methods of pressure and discrimination
which might at some time be used to the
dctriment of units of the system:
Fear Losses Would Result.
That the small-town banks would stand
to lose heavily under the system OF
clea RANGES provided in the Federal sys-
tenn:
That city hanks continue TO afford cor
respondent relations on favorable basis.
and that the small state banks will real
We all OF the benefits and none or tn"
disadvantages Of the Federal system
through their relations with the larger
banks in the system.
In practically all the expressions OF
opinion. the view is taken that under the
present law and regulations, State banks
have much to lose and little to gain by
coming under the Federal domain. and
that they will not join until either the
secure to the State banks better Qutd
pro quo before submitting themselves to
Federal jurisdiction.
According to returns from number OF
State banking commissioners. national
banks in several of the farming states
are preparing to give up their national
charters and will take out State char
tors il order to continue business reia-
tion~ with the formers and growers in
~ tCrritoy.
On the orhe hand. from the South come
nlany expressions of cordial sympathy
for the aims of the Federal system. and
the statement that with the restoration
OF prosperity and normal conditions with
the end of the European war, many State
banks vii! enter.
1t Is also pointed out that In a number
of states the local laws are being amend
ed to eliminate the conflict between the
State and Federal laws.