The Bridgeport evening farmer., 1916-11-28
FEDERAL BOARD WARNS AGAINST
 FOREIGN LOANS

Gives Notice to U. s. Bankers That Caution Must Be Exercised.
 Washington, Nov. 2S.-American
 bankers were warned by the Federal
 Reserve Board yesterday to avoid 1 locking up their funds by purchasing treasury bills of foreign governments involving long term obligations. While specifically disclaiming any intention of refecting upon the "fnan- cial stability of any natiOn,' the board advises all investors to proceed with caution, and formally announced to
 member banks of the Federal Reserve System that with the liquid funds which should be available to Ameri- can merchants, manufacturers and farmers in danger of being absorbed for other purposes, it docs not re- gard it in the interest of the country at this time that they invest in for eign treasury bills of this character The statement is regarded in off, cial circles as one of the most im-
 
 since it's creation. Officials would not
 discuss the question for publication,
 but some of them informally inter
 preted the warning as the Reserve Boards answer to the recent proposal of J.. P. Morgan & Co.,, British fiscal agents in this country, to have Ameri-
 can bankers accept British treasury bills of an indefinite total issue, se- cured by gold reserves held, in Ot- | tawa. Such loans would be for ninety
 day periods, with the privilege of re- newal.
 Davison's Proposal.
 | H. P. Davison of the Morgan firm was in Washington recently and con- ferred with President Wilson and some of the members of the Reserve Board. It was said later that he sought to have banks of the Reserve System
 authorized to buy British Treasury bills as if they were bills of exchange
 to- cover commercial transactions 1 Danger from further importation of large amounts of gold, the board says in it's statement, will arise only in case the gold is permitted to be- come the basis of undesirable loan expansions and of imitation. Elm | phasis is laid upon the necessity for caution in putting money into invest
 ments 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 conditions return" This action of the Federal Reserve Board follows along the lines of a policy already thoroughly discussed
 and approved by the. Federal Advis- ory Council at it's two-day meeting here week ago. At that time the | council, which includes representa- | tive bankers from all parts of the country, placed itself on record as
 'in entire accord with the views al- ready expressed by the Reserve | Board, suggesting caution and mod
 eration'' in the purchase of obliga- tions which might prove to be prac-
 tically of long term nature.
 The Boards Warning. The boards warning. in the form of statement to be published later lows: e-
 "In view of contradictory reports which have appeared in the press re- garding it's attitude toward the pur- chasing by banks in this country of i Treasury bills of foregn governments, 1 the board deems it duty to define l 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 | financial stability of any nation, but
 wishes it understood that it seeks to deal only with general principles ! which affect all alike.
 .sThe board does not share the l view frequently expressed of late that l further importaions of large amounts l of gold must of necessity prove l source of danger or disturbance to l this country. That danger, the board l believes, will arise only in case the 1 infiowing gold. should remain uncon- l trolled and be permitted to become l the basis of undesirable loan expan- l sions and of imitation
 | There are means, however, of con- | trolling accessions of gold by proper ] and voluntary cooperation of the banks or. if need be, by legislative enactment An important step in this I direction would be the anticipation of the final transfer of reserves contem-
 plated by the Federal Reserve Act, to l become effective on Nov. 16, 1917 This date could be advanced to February or March, 1917.
 1 Member banks would then be 1 placed on the permanent basis of l their reserve requirements, and fcti- tious reserves would then disappear 1 and the banks have a clearer concep- l ton of actual reserve and financial conditions It will then appear that while a large increase in the coun- uy's gold holdings has taken place the expansion of loans and deposits Y IS been such that there will not re- ]i man any excess of reserves, apart l from the important reserve loaning I power of the Federal Reserve Banks.
 Don't Loan to Limit, It Advises. l 'In these circumstances the board 1 feels that member banks should pur- sue a policy of keeping themselves
 liquid, of not loaning down to the le-
 gal limit, but of maintaining an ex- cess of reserves-not with reserve l agents, where their balances are I Tor led o,it and constitute no actual
 reserve, but in their own vaults or. preferably, with their Federal Reserve Banks
 ''The board believes that at this
 time banks should proceed with much
 caution in looking up their funds in long term obligations or in invest ments which are short term in form