Norwich bulletin., 1916-11-28
FEDERAL RESERVE
 BOARD WARNS BANKS
tcontinued from Page one)


 banks of the reserve system author ized to buy British treasury bills as if they were bills of exchange to cover commercial transactions.
 Danger of Importation of Gold.
 Danger from further importation of large amounts of gold, the board says in its statement, will arise only in case the field is permitted to become the basis of undesirable loan expan- sions and of imitation. Emphasis is laid upon the necessity Tor caution in putting mopey into investments which are short term in name but which either by contract or through force of circumstances may in the aggregate have to be renewed until normal con- ditions return"
 Federal Reserve Bulletin.
 The boards warning in the form of a statement to be published later in the federal reserve bulletin. follows:
 Tn view of contradictory reports which have appeared in the press re- garding its attitude toward the pur- chasing by banks in this country of treasury bills of foreign governments the board deems it a duty to define it's position clearly. In making this statement the board desires to dis claim any intention of discussing the finances or of ref1ecting upon the if nancia1 stability of any nation, but wishes it understood that it seeks to deal only with general principles which affect all alike.
 Danger of Undesirable Loan Expan-
 sion.
 "The bofrd does not share the view frequently expressed of late that fur ther inportations of large amounts of gold must of necessity prove source of danger or disturbance to this coun- Fho4 Q nn will arise only in case the infiowing gold should remain uncontrolled and be permitted to become the basis Of undesirable loan expansions. and of in flation. There are means, however, of controlling acceSSionS of gold by pro- banks or if need be by legislative en- actment. An important step in this direction would be the anticipation of final transfer of reserves contemplated by the federal reserve act to become effective on November 16. 1917. This date could be advanced to February or March, 1917.
 "Menber banks would then be placed or the permanent basis of their reserve requirements and fictitious re- serves would then disappear and the banks have a clearer conception of actual reserve and financial conditions. It will then appear that while large increase in the country's gold hold ings has taken place the expansion of loans and deposits has been such that there will not remain any excess of reserves, apparent from the important reserve loaning power of the federal reserve banks.
 Bank Should Keep Liquid.
 '1n these circumstances the board feels that member banks should pur- sue policy Of keeping themselves li- qlfid: of not loaning down to the le- gal limit, but of maintaining an ex- cess of reserves-not with reserve agents, where their balances are loan ed out and constitute no actual re- serve, but in their own vaults or pre- ferably with their federal reserve banks. The board believes that at this timeMbanks should proceed with much caution in locking up their funds in long term obligations or in invest ments which are short term in form or name but which, either by contract or through force of circumstances, may iii the aggregate have to be re- uewed until normal conditions return.
 No Forecast of Probabilities.
 '"The board does not undertake to forecast probabilities or to specify cir cumstances which may become impor- tant factors in determining future conditions. It's concern and reSpOnS1- bility lies primarily with the 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 sit uation which, if not kept under con- trol, would tend toward instability, and ultimate injury to the economic development of this country.
 Temptation to Bankers.
 "The natural absorbing power of the investment market supplies an inn portant regulator of the volume of our