Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1915-01-27

WASHINGTON, Jan. T.-In Its first
annual report, for the period ending De-
cember 81, and dated January Is, declares
the quick recovery from the financial
chaos caused by the outbreak of the war
was due to the new banking system.
"Seldom, II ever. has the banking and
business community of the country found
itself in situation of such uncertainty
and perplexlty" as it did on August TO-
when the board began its work.
''The whole situation demonstrated
afresh, and to striking degree, the
dependence of our banking system upon
the call-loan market"
Emergency currency and clearing house
certificates in large volume were issued.
The tendency to hoard cash was again
being manifested by country banks.
ORGANIZATION FASTENED.
The board found 1t necessary Ito enlist
the hearty cooperation of all the men,
ber banks in two matters which were
deemed of fundamental importance:
First, payment by the member banks in
gold out of their own vaults of the re-
serves they were required to contribute
to the new banks, thus diffusing the bur-
den of providing the cash resources Of
the Federal Reserve banks; second, the
adoption of a discount policy which
would prevent the accumulated strength
of the banks from being dissipated and
protect their resources"
On 1ionday, November 16, the new banks
opened their doors for business
At the end of the first weeks opera
tions, there had been paid into the re-
serve banks total of 1921, $4,000, of which
a very large percentage was either in gold
or gold certificates.
The opening of the new banking system
was hurried on account of war emergen-
cies. the report states, but events had
since shown that the opening of the in
stitutions was wisely timed to synchronize
with the restoration of activity in Amer
ica's export trade. The Federal Reserve
banks were able to begin business with
substantially all their deposits in gold and
without pressure on the general business
or credit conditions.
with the system thus established. the
question of a discount policy Immediately
became urgent. ." In response to tele-
graphic inquiry, each bank submitted It's
views with respect to the rate of dis
count thought to be advisable for it's di
trict. Upon tabulation and comparison of
these results 1t was found that they did
not vary greatly, the rates ranging from
to Z per cent. for 90-day paper
1t was decided to fix the rates of dis
count at from 81 to 6h per cent. The
rates thus initially established were sub
sequently lowered from time to time, the
lowest rate thus far approved being AZ
per cent for So-day paper.
RELEASE OF FUNDS.
From the beginning of the war, there
had been an abnormal reserve situation.
But the change in requirements released
funds which had been held idle by the
banks in observance of the law. The
release was very large, how large cannot
be estimated, lowing to the fact that
reserve accounts in the existing system
of correspondent banks are so closely
and completely intermixed," and the in
crease of member banks lending power
was correspendingly larger.
Loans were extended more freely, dis
count rates fell.
The opening OF the reserve system en-
abled the banks in the larger centres to
reduce the rate. and within two weeks
interest rates for the best
paper fell as low as 81 and per- cent
In some parts of the South banks were
able TO obtain accommodation at rates
as low as ~ per cent.
Appreciation of the fact that when |
the new lending power should all have |
been absorbed there would still remain |
the great credit potentiallties OF the Fed |
sral reserve banks, furnished a basic |
element OF confidence which helped to |