Evening star., 1917-01-14
Plan AMENDMENTS
TO THE BANK LAW
Federal Reserve Board Mem.
bers Prepare for After
math of War.
NEWINTERNATIoNAL POLICY

NEWINTERNATIoNAL POLICY
Amendments to the federal reserve
act, designed to place the United States
on a thoroughly sound basis OF fnan-
cial preparedness for whatever the
future may bring during the con-
tinuance of the war and after its
termination, have been put into definite
form by the federal reserve board and
| soon will be introduced in Congress-.
The chief unforeseen financial prob
lens which the country has faced since
the war started have resulted, board
| officials believe, from the huge gold i'm
portations which have tended tofupset
former economic and financial. condi-
tions. and the recommendations for new
! Legislation are aimed principally at
controlling loan extensions based on
the gold accretions.
Amendment of the act, said state
| ment issued by the board yesterday.
seems necessary to enable us to deal
effectively with the new international
problems which seem destined to play
SO important a part in our domestic
life. The banking system of the United
States should be prepared. to meet e1ec-
! lively two conditions of opposite char
acter-one, the excessive and uncon-
trolled inflow of gold: the other, the
excessive and unregulated outflow of
gold.
To Control Loan Extensions.
"The amendments proposed are de-
signed to provide means for controlling
an overextension Of loans based on
new accretions to our gold stock and
to provide for the mobilization and
concentration of the gold holdings of
the United States so that the flow Of
gold back into Europe or to South
America or to the orient may be ar
ranged without forcing any violent con-
turbance to legitimate business"
OF necessity technical and detailed in
their wording, the amendments. the
statement continues. ARE designed to
withdraw gold from actual circulation
while enabling member banks at the
same time to release gold which at
present is tied up in their own vaults.
theory that all of the individual banks
should strengthen the gold holdings of
the federal reserve banks.
'The country's holdings of gold are
not used most effectively when they
are in the vaults of large number Of
banks scattered all over the country,
but it's greatest use would come from
concentrating it to a greater degree in
| the vaults of the federal reserve banks,
| where it can be effectively protected
| when not required and effectively used
when needed. The member bank does
not require gold with which to supply
the ordinary demands of its depositors
| SO much as currency.
1t is from this point of view that
the federal reserve board has proposed
| that Congress increase the required re-
banks with the federal reserve banks
On November II. 1916. the cash hold
ings Of all member banks were about
ss15,000.0oo. Under the proposed
would be transferred to the federal re-
serve banks. Hence the board believes
that ultimately the law should require
| Of member banks no more than that
they should maintain specified balances
with the federal reserve banks in
amounts adequate to supply the neces-
sary reserve basis. and that the federal
| reserve banks must have sufficient re-
serves of gold with which to protect
all obligations. but that there should,
however. be no legal requirement as
to the amount of currency that a mem
ber bank should carry in its own vault
Minimum Amount of Currency.
This is a matter of business jude-
| ment that might well be left to the dis
cretion of each member bank 1t was
thought. however. that If this principle
were. carried into full effect at this time
the step might be considered too ex-
treme. particularly under present con-
ditions. and nothing should be done
that might tend to further release of
reserve money. s.
"A minimum amount OF currency that
the member banks should be required
to keep in their vaults is. therefore,
prescribed. The amount suggested is
5 per cent of the demand deposits, so
that the total requirements-cash and
reserve-will remain practically un-
changed"
Nine other amendments of minor
to operation of the one outlined above
the board in times of emergency are
included in the recommendations
Among them are measures which would
permit non-member state banks and
trust companies to utilize the clearance
system of reserve banks and admit to
associate membership mutual savings
banks without capital stock, under GER
tain conditions.