New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1916-01-04

banks or the country tne oppoIluHltF
Of obtaining rediscounts by actually
presenting specific items of paper, not
as collateral but for the purpose or
obtaining a bona-fde rediscount IN each
and every case. Furthermore. II has es-
tablished throughout each Federal Re
serve district a definitely known rate
of redscOunt, published each week and
available TO all member banks upon cN-
actly the same conditions.
The effect OF this change has been
important. II has tended to bring
about the Standardization of rates by
city banks on a level substantially STINT
10 that fixed by the Federal Reserve
bank in the district In which the rate
was offered. II has thus given 20 Dor
rowing banks a standard Of comparison
which in the past they nave never pos
sessed They now know that by going
10 the Federal Reserve bank with a
given carefully described kind OF paper
they can get thirty-day accommOda-
tion at. say. ! per cent.
Business men who AZ present under
stand that their paper falls within tho
requirements Of the Federal Reserve
are able 20 demand and do, in practice,
exact rate on such paper correspond
ing roughly 20 the rate fixed By the
Federal Reserve bank. plus moderate
commission. Some of them have been
able 20 discount their paper below the
Reserve Bank rate because their own
banks were holding high reserves and
were eager to get business. Had the
conditions been reversed and had So
we're stringency been prevalent they
would have been able 20 demand accom-
mediation from their banks based upon
the rate charged by the Federal Re
serve bank of the district. The effects
Of the Federal Reserve system upon the
large business man, or the business
man irrespective OF size, who knows
how and is able 20 make his paper CO
incide with the requirements Of the
Federal Reserve act, have been already
perceptible and important
Currency Function.
Experience thus far has unqucstior-
ably shown that the currency function
of the Federal Reserve Bank has been
unimportant. IL Is true that Federal
Reserve banks have obtained and
placed in the hands Of the public very
nearly S200,000000 of their own notes;
but the bulk Of this sum has been rep
resented by gold and lawful money
which has been deposited with Federal
Reserve agents dollar for dollar. In
all, the actual liability Of the Federal
Reserve banks for outstanding notes
protected by commercial paper IS
$20,O0O,000 or less. The figures
Just giyen--as well as all other evl-
dencc obtainable -show that little elc-
ment of elasticity" in the correc.
sense is TO be perceived in the Federal
Reserve notes up TO date notwithstand-
ing the fact that the Federal Reserve
net contains practically every provision
known 70 monetary science for forcing
the notes back 70 their issuers.
This state OF affairs with regard to
Federal Reserve notes Is partly due 70
the fact that, during most OF the =
life. the circulation was clogged BY the
Aldrich -Nreelsnd notes, which had been
30 plentifully issued last autumn, and
partly TO the fact that the new Fed
eral Reserve banks were organized
under the so-called banking theory
rather than upon the currency theory,
and that consequently they perform
their service without necessarily in
volving the issue of notes. Further
more, there is the general fact that
the circulation OF the United states
l. already too large, and rs daily be
ing added to By imports OF money from
abroad.
In the domain Of note circulation,
therefore, as in that of commercial
paper, il must be said that the Federal
Reserve system has barely made be
ginning in the cultivation of the field
opened 70 II. II has developed the ma
chinery provided by the law, and has
shown that such machinery Is effcc-
tive and adapted 10 the purpose.
Earnings of Banks.
One question inevitably and properly
asked with reference 10 every govern
mental enterprise o. a commercial nat
ure is: Has the undertaking paid
With most governmental operations *
is not possible TO answer categorcallY
whether "A given service has paid or
not. The Federal Reserve banking sys-
tenn is unique in that 1t may be SUB
iected TO either the general or the mar
row test applied 20 governmental en-
terprises.
The Federal Reserve Board has pub
lished complete tabulated returns
showing detailed sources Of income and
expenditures for the period from the
orqanization of the banks, on Noycm-
her is. 1914. up 20 and including Octo-
Der ~. 1915. These statistics show IN
general that the gross earnings OF the
system had been about Sl,739OuO'
while the gross expenses OF the sys-
TEN had been about $2.7is.0O0.. The
current expenses have amounted to ap-
pronimately Sl,5ls,O00.
Later months show steady improve
ment in earnings, but j, may be rough
IL stated that up 20 November l the
system has covered current expenses
yith a surplus Of some 100000. leav-
ing its organization cost and IT. EQUIP
ment outlay still TO be written OF
c., -. rir.inu ahouid be made upon