The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1917-01-22
Drastic Proposals for Central
ization of Metal and
Power.
FEAR PoST-BELLUM CRISIS
Plan Suggested House Banking
Banking and Currency Com
mittee by Gov. Harding.

Capitalization of both gold ana
power in the Federal Reserve Board
IL aimed at in the amendments which
the board has proposed to the bank
ing and currency act, and which Gov.
William P. G. Harding spent two days
of last week explaining to the House
Banking and Currency Committee.
While the board has carefully re-
Trained from intimating the fear OF
an industrial and financial crisis, IT Is
evident from the amendments, several
of them drastic in character, that the
possibility of disturbed conditions
during or after the European war has
impressed the board with the wisdom
O fcentrafizing in it greater command
Of the gold supply and wider powers
of direction over the banking system
of the country.
Make Board Central Bank.
Briefly, it is proposed to constitute
the Federal Reserve Board a Govern
ment central bank, similar in scope 10
the bankers central bank on which
the Aldrich plan was based.
Aside from the economic merits OF
Is certain to arouse a storm of opposi
tion in Congress. Except for occa-
sional questions, members of the com
mittee refrained from comment on the
proposals during Governor Harding's
statement In the main, however,
they would seem to be assured OF the
support of Chairman Carter Glass
and his Democratic colleagues.
May Increase Balances.
One Of the most drastic proposals
is to add the following to section IL
Of the currency act:
The Federal Reserve Board shall
also have power, whenever extraor-
binary conditions justify, tos in
crease from time to time for periods
not exceeding thirty days, on the af-
frmativa vote Of five of its members,
the amount of balance required by
this act to be maintained by member
banks with their respective Federal
reserve banks: Provided, such in
crease shall at no time exceed 20
per centum OF such balances and shall
be Of the same rate for all member
banks of any one district; and pro-
vided further, That the. Federal Re
serve Board shall make a report to
Congress in writing setting forth the
based"
The nature of this proposal to give
the board power to contract credits
by increasing reserve requirements
IS indicated by the safeguards in
cluded against abuse. 1t is explained
that this power is proposed in order
10 prevent an overextension of
credits based on the tremendous gold
supply at a time when unforeseen
cause sudden and disastrous contrac-
tion of credit
Reduce Commercial Paper.
Amendments proposed to section 10
of the currency act seek TO make pos
sible the assembling of greater gold
reserves in the vaults of the Federal
reserve banks by the direct ex-
change of Federal reserve notes for
their face value in gold or gold GER
tificates. Amendments to this sec
ton also contemplate reducing the
amount OF commercial paper required
as reserve against such notes from
100 per cent to 60 per cent in addi-
tion to the 40 per cent gold reserve
required by the present law. The is
suing Of Federal reserve notes
against gold also, It is pointed out,
offers the reserve banks so much
more gold on which, in combination
with the required commercial paper,
to issue further reserve notes, thus
making it possible for the reserve
banks materially TO extend credits
should the necessity arise.
Want Gold Capitalization
"The reason for desiring the power
to exchange Federal notes for gold
IS TO get the gold" explained a men,
Der Of the committee today. THE
more gold the Federal reserve banks
get the stronger they are"
By amendment proposed to Section
IL, national banks are no longer re-
quired to hold even a portion of the
Government bonds required under the
old national banking act, but are per-.
mitted to dispose OF them through the
Federal reserve banks, which in turn
are permitted to exchange them for 3
per cent one-year gold treasury notes,
and in case of emergency the Federal
reserve banks are authorized to issue
currency against these notes: Sub
3ect to the same tax imposed by law
on circulating notes which are Sc
cured by 3 per centum bonds of the
United States"
Drastic Proposal
Radical readjustments of the re-
serves of member banks with a view
20 collecting in the vaults OF the Fed
eraI reserve banks a large amount
of gold now permitted to be held in
the vaults of the member banks is
proposed as perhaps the most drastic
step in the direction Of centralizing
reserves. Country banks, now permit
ted to hold 4 per cent Of their re-
serves in their own vaults, 8 per cent
in the vaDlts OF the Federal reserve
bank, and per cent in either, are re-
quired to have per cent in the vaults
of the reserve bank and per cent Of
what the amendment designates as
"tiII money" that is, any kind OF
currency and not necessarily gold
and lawful money" In the cases of
banks in reserve cities, the division
is made 10 per cert for the Federal
reserve vaults and 8 per cent till
money, while for central reserve
cities, the requirement IL Is per cent
in the vaults OF the Federal reserve
bank and 8 per cent till money.
THE effect" IL was explained, as
20 get q large amount OF reserves
actually In the vaults OF the Federal
reserve banks: to increase their gold
IL g. ~