Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1916-02-14
BANKS
MAYLEND MONEY
TO BELLTGERENTS
Financing Must Be Done in
Roundabout Manner,
Says Reserve Board
CAN'T BUY BONDS DIRECT

WARRINGTON, Feb. 1.-THE Federal
Referve Board today virtually threw open
the vaults Of the u Federal reserve banks
of the United States to the financiers OF
the European war, giving permission for
the use OF the funds of these semi
governmental banking institutions in pur-
chasing munitions OF war for belligerent
nations. The permission Is given in the
second annual report of the Federal Re
serve Board, made to the Speaker of the
House OF Representatives at noon today.
In view of the terms of the Federal
reserve act, however, the board warns
the banks that foreign financing must
be performed In n roundabout manner.
the Federal reserve banks making no
direct purchases of obligations of foreign
Governments.
While not authorizing the Federal re-
serve banks to buy directly the bonds OF
foreign governments, this appears to give
them authority to lend money on bills,
notes, drafts and similar commercial
paper growing out of war-order transac-
tlons and other foreign financing. Labor
interests In this country alleged to be
pro-German last summer communicated
rs the board the threat that IL the banks
were permitted to engage in this sort of
financing. steps not directly in the path
way of recognized legal procedure would
be taken to preserve the neutrality of the
nation.
RECOMMENDS NEW LEGISLATION.
The boards report contains a number
OF striking recommendations for legisla-
ton, among them being amendments to
existing law permitting:
National banks and Federal reserve
banks to subscribe for stock in banks de-
signed to do foreign business.
The issue OF Federal reserve notes to
Federal reserve banks, either against the
deposit of an equal amount, face value
OF notes, drafts. bills of exchange ana
bankers acceptances or of gold, or of
both, provided that gold deposited be con-
sidered as part of the reserve required
maintained by the bank drawing the
notes.
National banks and Federal reserve
banks to extend the acceptance business,
now based on expectations and mporta-
ions of goods, to domestic dealings.
National banks to establish branches in
their cities or counties.
Federal reserve banks to make advances
to member banks against reliable COL
lateral.
National banks to lend on farmlands
within 100 miles of their locations.
WOULD LEND ON REAL ESTATE.
National banks to lend on real estate
other than farmlands, provided the real
estate Is improved and unemcumbered
that the loan therefor not to exceed one
year nor for moro than so per cent. of
the value of the property, and that such
loans shall not exceed % per cent of the
capital and surplus of the lending bank
nor one-third of its time deposits.
The boards report says that the great
amount OF confidence which the very
existence of the Federal reserve system
has inspired has been of inestimabe value
to the country, keeping money rates low
and causing the free and easy movement
of trade and commerce to endure in the
face OF extraordinary industrial and finan-
cial upheavals brought about by the
European war. Depression in business
life has given away to extreme activity"
says the boards report.
The establishment of local agencies
rather than full-hedged branch Federal
Reserve Banks, such as that at New Or
leans, is recommended by the board 1t
would not be wise at this time to estab-
lish many branches, as the expense could
not easily be borne, 1t is said.
The board reports that Federal reserve
notes increased $1S8, ,0OO, 900 in circula.
tion in 1915 The Federal reserve banks |
It is stated, earned but $639,Ss1 during |
1915, but, the board says. their func.
tion is not to make money, but merely |
to carry themselves along and hold |
themselves in readiness to influence the |
discount rate market when emergency |
arises demanding such action to forestall |
financial panic.
Further recommendations for legisla- |
tion are being formulated but are not |
mature at this time. the board says.