The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1916-02-14
Federal Board Rules Financial
Operations Are Legal II
Commercially Proper.
NEW LEGISLATION is URGED
Permission Is Asked to Allow
National Banks to Establish
Branch institutions.

n a within the province Of the Fed
erai reserve banks Of the country to
finance munitions OF war operations II
the transactions are all right COM
mercially. =
This, In effect, In the pronouncement
of the Federal ,Reeefve Board with re-
snect TO frequent inquiries and COM
plants that the banks were violating
neutrality by dlscountlng and handling
paper that was used In financing war
munition, orders. IL 10 contained In the
second annual report Of the board made
public today, and IL the first direct
statement on the subject made by the
board. II means, In effect. that the
board fully counteuances the use OF the
reserve bank resources In the carrying
OF war orders from the allies.
Legislation siying national banks per
mission to establish branches In the city
or County in which they are located.
and giving them the power to make
real estate and farm loans. Is recon-
inended by the board
Calls Policy q Mistake.
The report states that 1t is n mistake
for state authorities to permit state
banks to carry reserves as low as those
Of national banks. unless they are IN
the reserve system. because such BANKS
do not have the backing and resources
of the reserve banks behind them.
With respect to foreign borrowing
(the financing OF war orders)' the
board states: ..s.
I'm the course OF the year peny
Inquiries with reference to It's atI-
tude toward foreign borrowing In the
United States, and Its policy win reL-
erence sto the obligations OF Foreign
governments. The subject has re-
board has reached the conclusion that
It's province should be primarily that
Of overseeing the regular business business
operations OF the Federal heserse
them. II has further reached the con,
cIusion, supported by competent legai
advice, that the purpose Tor whlcn
goods are sold or exported or the use
70 which such goods are uitimatey
put, does not fan within it's province
or Jurisdiction. II the transactions
which have given rise to such sales
or shipments are Of true commercial
nature, II the basis upon when they
rest Is such as to comply Win 1000 rns
act, and II the maturity OF the loan
Falls within the Limitation OF the law
then the paper growing out OF them.
no matter by whom or Tor wnat
drawn. may at Will be discounuea p ps
regarded as falling within the legItl-
mate sphere of their operations. Inc
Federal reserve act makes no pro
vision for collateral bond or stock
I Sovern 6s nG osSlisation BY reserve
':NeIther such obligations, therefore
nor loans to member banks based there
on are eligible as investments for FED,
the reserve system Is a matter Of busi
ness 10 be conducted In accordance VIII
the terms of the reserve act and th'
regulations of the board. II Ia not th'
lens involving international relation
ships OF the United States, either FOL
the purpose OF restricting or extending
explorations In one direction or another
P Bask. ess Sesssrm IN pf 81 Sa
which are as valid under one set Of In
ternational relationships as another; thu
function OF passing upon and dealing II
such paper under these regulations be
longs to the several reserve banks. TIT
board, however. believes that the imam
cling Of the country's export trade 10 a
the present time one OF the most i'm
portant I financial problem with which
the nation has TO deal; and II IL OF tn
opinion that Federal reserve banks can
not, even II they would, avoid the re
sponslbiiity OF assisting In this process
OF financing what legitimately and prop
eriy devolves upon them"
Would Permit Loans.
The board SUGGESTS that nationa
banks be permitted to make loans Of
improved and unencumbered real estat
located within 100 miles of the plac
where the bank Is located, irrespectiv
of district lines. providing the aRgre
gate of farm land and other real estat
shall not exceed rs per cent of its capita
and surplus or one-third of It's tim
deposits.
After setting forth that the FEEDERS
reserve act is a progressive piece 9
legislation. which "creates new condi
lions as the result of it's own operation.
the report suggests the following othe
amendments:
"in addition to powers now possesse
In this connection by Federal reserv
banks and national banks. the latte
should be permitted to subscribe for an
hold stock IN banks organlzed for tn
special purpose of doing banking bus
ness In Foreign countries.
With the approval OF the FEEDERS
Reserve Board the issue of Federal re
serve notes to Federal reserve bank
should be permitted either against tn
deposit OF an equal amount, face value
OF notes. drafts. bills OF exchange, an
bankers acceptance acquired by Fed
eral reserve banks under sections Is an
II Of the act or OF gold. or Of boil
provided. however. that gold 80 d.
posted with a Federal reserve aver
shall count a. part Of the reserve "
auired by the act TO be maintained
the bank AGAINST such notes outstant
THE acceptance system. provision fc
which IL made in foreign trade operl
lions by the Federal reserve act. Rhoul
be extended TO the domestic trade
80 far as relates to documentary accep
ances secured by shipping documents (
warehouse receipts. covering readi
marketable commodities or against II
pledge OF goods actually sold. The
can be but little question of the safei
OF such acceptances and their use wi
tend to edualiEe interest rates the coul
try over aud help TO broaden the di
count market.
I'm order TO enable member banss
obtain prompt and economical accom-
modAtions for periods, not 10 exec,
fifteen days. the Federal reserve banl
should be permitted to plcIls advances