New Britain herald., 1916-11-28

tive on November 16, 1918. This date could be advanced to February or March, 1917. Member banks would then be placed on the permanent basis of their reserve requirements and fictitious reserves would then dis appear and the banks have a clearer conception of actual reserve and finan- cial conditions It will then appear that while large increase in the countrys gold holdings has taken place the expansion of loans and de- posits has been such that there will not remain any excess Of reserves apart from the important reserve loaning power Of the Federal Reserve banks.
 More Caution Needed.
 ''In these circumstances the board feels that member banks should pur- sue a policy of keeping themselves liquid; of not loaning down to the legal limit, but of maintaining an excess of reserves-not with reserve agents. where their balances are loaned out and constitute no actual reserve, but in their own vaults or preferably with their Federal Reserve banks. The board believes that at this
 
 caution in locking up their funds in long term obligations or in invest ments which are short term in form o,. name. but which, either by contract or through force of circumstances may in the aggregate have to be re- neved until normal conditions return.
 "The board does not undertake to forecast Probabilities or to specify cir c11mstances which may become inpor- tant factors in determining future conditions It's concern and respons bility lie primarily with Che banking situation If however, our banking institutions have to intervene because foreign securities are offered faster than they can be absorbed by inves- tors-that is their depositors-an ele- ment would be introduced into the situation, which If not kept undeE- con- tro1. would tend toward instability, ultimate injury to the economic de- velopment of this country. The natural absorbing power of the in vestment market supplies an impor- tant regulator of the volume Of our sales to foreign countries in excess of the goods that they send us.
 "The form which the most recent borrowing is taking, apart from refer- ence to it's intrinsic merits, makes It appear particularly attractive as a, banking investment. The board, as a, matter of fact, understands that 1t is expected to place 1t primarily with banks. In fact it would appear so at tractive that unless a broader and na- tional point of view be adopted, in dividual banks might easily be tempted to invest in it to such an ex- tent that the banking resources of this country employed in this manner might run into many hundreds of mill lions of dollars.
 "While the loans may be short in form and severally, may be collected at maturity, the object of the bor- rover must be to attempt to renew them collectively, with the result that the aggregate am cunt placed here will remain until such time IS 1t may ad- vantageously be converted into a long, term obligation. It would, therefore, seem as a consequence that liquid funds of our banks, which should be available for short credit facilities to our merchants, manufa cturers and farmers, would be exposed to the danger of being absorbed for other purposes to a disproportionat degree, especially in view of the fact that many of our banks and trust com panies are already carrying substan- tial amounts of foreign obligations and of acceptances which they are under agreement to renew. The board deems it, therefore, it's duty to caution the member banks that it does not re- gard 1t in the interest of the country at this time that they invest in foreign treasury bills of this character.
 Suggestions for Investors.
 "The board does not consider that