Arizona republican., 1916-11-28

will appear that while a large increase
 n the country's gold hdldings has taken place. the expansion of loans and deposits has been such that there will not remain any excess of reserves. apart from the important reserve loan ing power of the federal reserve bank.
 Tn these circumstances the board feels that member banks should pursue policy of keeping themselves in liqui- dalton by not leaning down to the le- gal limit. but of maintaining an excess Of rcseryes-not with reserve agents where their balances are loaned out and constitute no actual reserve but in their own vaults or preferably with federal reserve banks The board be- lieves that at this time banks should proceed with much caution in locking up their funds in long term obligations pr in investments which are short term in form or name buy which. either hy contact or through force of circum- stances may in the aggregate have to be renewed until normal conditions re- turn.
 The board does not undertake tc forecast probabilities or o-specify cir cumstances which may become import ant factors in determining future con ditions. Its concern and responsibility lies primarily with the banking situa- tion. lf. however. our banking institu tions have to intervene because foreign securities are offered faster than they can be absorhd by investors that is. their depositors-an e-s-aent would be introduced into the situation. which if not kept under control. would tend toward instability and ultimate injury to the economic development of this country
 The natural absorbing power of the investment market supplies an import ant regulator Of the volume Of our sales to foreign countries in excess of the goods they send us. The form which the most recent borrowing Is taking. apart from reference to it's n- trinsic merits, makes II appear particu- larly attractive as a banking invest ment. The board, as a matter of fact, understands that it is expected to place it primarily with hanks. In fact it would appear so attractive that unless a broader and natural point of view be adopted individual banks might easily be tempted to invest in it to such an extent that the banking resources of this country employed in this manner might run into many hundreds of mill lions of dollars.
 While the loans may be short in form and sevcrally may be collected al maturity. the object of the borrower must be to attempt to renew them col lectively. with the result that the az greGate amount placed here will re- main until such time as 1t may be ad- yantageously converted into a long term obligation. It would. therefore. seem as consequence that liquid funds of our banks, which should be sn..f our merchants. manufacturers and farmers, would be exposed to the dang- CT Of being absorbed for other purposes to a disproportionate degree, especially in view of the fact that many of our banks and trust companies already are carrying substantial amounts of foreign obligations and of acceptances Which they are under agreement to renew.
 The board deems it therefore its duty to inform the member banks that il does not regard it in the interest of the country at this time that they in- vest in foreign treasury bills of this character.
 "The board does not consider that it is called upon to advise private inves- tors. but as the United States is fast becoming the banker of foreign coun- tries in all parts of the world. it takes occasion to suggest that the investor should receive full and authoritative data-pa particularly in the case of un- secured loars-in order that he may judge the future intelligently in the light of present conditions and in con junction with the economic conditions of the past.
 The United States has now attained q position of wealth and of iaternation- al financial power which in the natural C .s .I reached for a generation. We must be careful not to impair this position of strength and independence. While it is true that slowing down in the pro- cess of credit extension may mean some curtailment of our abnormally export trade to certain countries, we need not fear that our business will fall off percipitately should we become more conservative in the matter of investing in loans. be- cause there still are hundreds of mill lions of our own and foreign securities held abroad which our investors would be glad to take over, and moreover, trade conditions are stimulated in other directions
 In the opinion of the board. it is the duty of our banks to remain liquid in order that they may be able to con tinue to respond to our home require ments, tue nature and scope of which none cam foresee and in order that our present economic and financial strength may be- maintained when. at the end of)the war we shall wish to do our full share in the work of interna- .ional re- Construction and development which thtn will lie ahead of us. and when a dearer understanding of eco- homie conditions as they will then ex-
 st. will eH ible this country more safely and intelTgcntly to co it's proper part in the fifancial rehabilitation of the world.'