Evening star. [volume] (Washington, D.C.) 1854-1972, 1916-02-14
Would Have Others in System.

Would Have Others in System.
The board announces that 1t does not
consider that it can direct the BUSH
ness operations of federal reserve
banks in respect to foreign loans, but
that its function is to oversee these
banks. A plea is made in the report
Tor the entrance into the system of
more state banks and trust companies,
In speaking of foreign borrowing in
the United States the board points out
that IT has received many inquiries on
this subject and has given them care
full attention. It has reached the con-
ciuefon, 1t says, supported by compe-
tent legal advice, that the purpose for
which goods are sold or exported, or
the use to which such goods are ulti-
mately put" does not fall within its
province or jurisdiction.
II, the report adds, "the transac-
tions which have given rise to such
sales or shipments are of a true COM
mercial nature, if the basis upon which
they rest Is such as to comply with the
requirements of the federal reserve
act. and 1t the maturity of the loan
falls within the Limitation of the law,
then the paper growing out of them.
no matter by whom or for what drawn.
may at will be discounted by federal
reserve ba INKS and must be REGARDED as
railing within the legitimate sphere of
act makes no provision for collateral
bond or stock loans or for the pur-
chase OF foreign governments obiiga-
tons by reserve institutions. Neither
such obligations. therefore, nor loans
to member banks based thereon, are
eiislble as Investments for federal re-
serve banks.
The operation of the reserve system
IS matter OF business to be conducted
IN accordance with the terms of the
reserve act and the regulations of the
board 1t is not the province of the
board to deal with problems involving
states. either for the purpose Of re-
stricting of extending expectations In
one direction or another. The elieibil-
ity OF paper for reserve banks is de-
.ermined oy considerations which are
as valid under one set of international
Ieiationships as another; the func-
lions of passing upon and dealing
IN sueh paper under these regula-
lions belongs to the several reserve
banks The board. however, believes
that the financing of the country's ex-
port trade Is at the present time one
OF the most important financial prob
lens with which the nation has to deal,
and II Is of the opinion that federal re-
serve banks cannot. even If they would
avoid the responsibility of assisting in
this process of financing what legiti-
them
The board expresses regret ahat in
some states suits have been Instituted
to test the validity of the provisions
OF the reserve act by which it may
grant certain f1duciary powers to ma
tionaI banks. announces its intention
to have its counsel intervene in these
cases and Gays that every effort will
be made to have the question settled
by the Supreme Court at an early date
1t Is pointed out that only thirty-two
state banks have been admitted to the
system and eightyfour others have
come In by conversion into national
banks.
TT is regrettable." continues the re.
port, that in not few states re-
serve requirements for state banks and
trust companies have been materially
lowered by legislative enactment
since the adoption of the federal re-
serve act. The only justification for
the reduction of the reserve require
rnents for national banks is the fact
that the national banks are members
OF the federal reserve system and that
the federal reserve banks hold part
OF the consolidated reserve of the ma
tional banks and are therefore in DO
sition to come Immediately with ali Of
their resources to the support Of ma
tionai banks in case of necessity or
emergency"
Element Of Danger Pointed Out.
On the other hand, It Is stated, state
quirements without the support of the
reserve system. This" says the re-
port, lis an element of danger in our
banking system, because the weaken
ing OF the reserves of the state banks
and trust companies make. them more
vulnerable in times of emergency, and
it Is conceivable that a situation might
arise in the affairs of such state banks
and trust companies where they might
have to call upon the credit structure
of the national banks and the federal
reserve system for support when they
would not be entitled to II because they
had not contributed to the strength OF
the federal reserve system by taking
membership in II. The board Is giving
serious thought to this question and to
the action tina. may be taken to guard
against the consequences of this sit.
uatio1.'
This part of the report Is concluded
with an expression of opinion that the
credit resources of the country would
- greatly enlarged and strengthened