New Britain herald., 1916-02-14

trust companies have been materially lowered by legislative enactment since the adoption of the Federal Reserve Act The only justification for the reduction of the reserve requirements 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 na- tional banks and are therefore in po s1uon to come imm ediately with all Of their resources to the support of national banks in case of necessity or emergency"
 on the other hand it is stated, state banks have reduced their reserve re- qulrements without the support of the reserve system, This says the re- port IS an element of danger in our panklhg system, because the weaken Ing or the reserves of the state banks anu trust companies makes them more vulnerable in times of emergency and It IS conceivable that a situation might arise Ill the affairs of such state banks anu Ilust companies where they might nave to call upon the credit structure or the national banks and the federal reserve system for support when they would not be entitled to it because they had not contributed to the strength of the federal reserve sys- tenn by taking membership in it. The board is giving serious thought to this question, and to the action that may ne taken to guard against the conse- quences of this situation"
 This part of the report is concluded With an expression of opinion that the credit resources of the country would De greatly enlarged and strengthened With corresponding benefit to busi- ness and the people if state banks and tust companies were to enter the svs- tenn.
 Outstanding Feature.
 The report declares that a condition of remarkable ease was the outstand- ing feature of the country's money market during the year. It says that the nations export trade has reached high water mark, that manufacturing in nearly all lines is active and that it has been the part of wisdom for re- serve banks to conserve their re- sources "and hold themselves in read mess to meet any unexpected devel- oDments in the situaticn.'' An in- crease of almost a billion dollars in the combined loans of national banks in the year and an increase of deposits of nearly two billion dollars are point ed to as pertinent in considering the situation.
 ''These facts the report says would seem to indicate that it is prudent to be prepared for time when the re- serve resources of the country will be subjected to a severe test and when the leadership and operations of the federal reserve banks will become more influential"
 Discount Policy.
 The discount policy of the board during the past year is declared to have been the proper one under the existing circumstances but it is point ed out that as time goes on there will be a disposition to make these rates as nearly equal in all parts of the coun- try as is possible. The reserve banks have not been greatly encouraged indulge in such commercial banking operations as the law permits, open market operations might have been in and money rates further de- pressed More active participation in such transactions by reserve banks may be expected in the future.
 The board, the report announces, is considering the establishment of branch agencies of reserve banks in cities other than those where such banks are located and for the present does not expect to approve the estab- lishment of branch reserve banks. The clearing operations of the banks, it says. have proved a success but too few Of the banks have taken advan- tage of this function.