South Bend news-times. (South Bend, Ind.) 1913-1938, 1915-11-04
BIG CITY BANKERS AND TIE
FEDERAL RESERVE

Quite as expected on the eve OF the
presidential campaign, republican op-
position To the federal reserve bank
ing system may find its expression in
congress this winter. There is already
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 reserve law require
ment TO deposit reserves in the federal
reserve banks rather than in certain
big city banks which enjoyed them
previous TO the passage of the federal
reserve act.
II is not generally known that the
reserve law is not yet fully operative.
provision in the act deferred the
transfers 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 install
nents covering the three-year period.
Two OF these installments will have
been completed on the 10th of No
vember. Now it is suggested that con-
~r~~~ VIII be asked TO relieve the
banks from making the other two de-
posts, and the republicans are said
10 have promised to see it through.
The reason for the demand is clear.
Under the old law the banker was
permitted to deposit a large part Of
his reserve" in a bank in a reserve
city. This bank in turn was permit
ted 10 deposit a large share OF this
reserve with a New York reserve
bank. The result was that money,
supposed to be on deposit with the
country banker, or even in the west
ern bank was really in eastern banks.
in New York generally, where much
Of it was loaned on speculative stocks.
1t was this system which made pos
sible the 1907 panic when 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 depositaries.
The federal reserve law was passed
largely to cure this evil and while the
big city banks have seemed to ac-
quiesce and have found certain fea-
lures of the law satisfactory, they nat
urally 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 per
cent 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
It is claimed that any of the federal
reserve banks could make money if
their directors desired the bank TO do
so. The federal reserve banks all
have tremendous sums at their dis
posal and as their capital stock is very
small they can easily cover their run
ming expenses and show a small profit
by merely investing their deposits in
municipal bonds which they are au-
thorized to do Their purpose in the
theory of the law in any case is not
10 make big profits, but TO be re-
serve. Their stockholders are the
member banks themselves. and these
banks make the profit while the re-
serve banks serve as a vault in which
accumulated reserves may safely be
kept, 10 be used for 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
70 eight. There is no necessity 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 10 bankers rather than to
the business world which looks with
favor on the idea OF a monetary and
banking system which has fortified
against panics.
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