The Washington herald., 1918-03-15
MAY REGULATE
BANK INTEREST
Holland Says New York F.
nanciers Favor Uniform
Rate on Deposits.

Kdte on DepOSltS.
W. P. G. Harding. who Is a member
Of the Federal Reserve Board at
washington. would. presumably, not
deem II worth while to visit New
York 80 that he might consult with
bankers respecting the proposed rule
which II adopted would limit the rate
OF interest paid on deposits to 2 per
cent less than the existing rate for
rediscounts at the Federal
Reserve banks unless he and the Fed
eraI Reserve Board looked upon the
matter as Of more than local impor-
tance.
Mr.. Harding has. since he became
one OF the original members Of the
Federal Reserve Board, increased, II
that were possible, the high reputa-
lion he had earlier gained in New
York City for his abilities as a bank
er at Birmingham. Ala He appears
to take very seriously the recent dis
position manifested IN some quarters
to tempt deposits away from some
banks by the Offering Of higher in
terest rates.
D2aAEHa AN~e
There is no doubt that the opinion
commonly held among bankers, at
least those who are members Of the
clearing house association is, In IA
Vor Of some kind. Of regulation such
as would put an end to excessive COM
petition with intent to secure an In
crease in the deposit line.
(Some years ago there arose some
discussion based upon the disposition
shown by certain trust institutions to
Increase their deposit lines. by offer
ing tempting rates of interest, so
great in fact as to persuade deposi-
tors in other banks to withdraw those
deposits and put them where they
would earn larger interest.
Nothing was done at the time, how
ever. in the direction Of regulating this
competition. The feeling seemed to be
that sooner or later IL would be found
throat competition which character
ized some of the railroad manage
ments, thirty years ago.
There was a recent illustration OF
the ability to secure a large addition
al deposit through the offering OF
tempting rates Of interest. One of the
national banks of New York secured
a transfer of New York City deposits
amounting to several millions which
had been for a long time carried by
one Of the strongest banks in the
world. The interest rate which New
York City had been receiving was
per cent. Interest at the rate of 3
per cent was offered by another bank
and that proved to be sufficient to
persuade the city to transfer its de-
posits to the institution which offered
inerest at the rate of 3 per cent.
Where the Danger Is.
1t was said by some of the older
bankers at the time this transfer of
deposit was made that there lurked
in this kind Of competition an ele-
ment Of danger, for by and by some
one OF the large trust institutions
might deem it expedient to offer to
pay 3h per cent interest on city
deposits and there was a possibility
in view Of the extraordinary flnan-
ciaI conditions. that some other in
stitution might see that offer and
go II one better.
Competition for deposits began
twenty or twenty-five years ago.
time of banking in New York It
would have been regarded as an
evidence of unhealthful condition IL
any bank were to attempt to secure
deposits by offering to pay interest
upon them. In fact, years ago, in
the earlier days Of banking. at least
in Great Britain, the bankers did
not pay interest on deposits. but ex-
acted a commission for taking care
of deposits.
lIr. Harding is in agreement with
many bankers Of this city respect
ing the expediency of so regulating
the payment Of interest upon depos-
its as to put an end to competition
which may. before it has run its
course, lead to harmful results.
Competition In Reverse.
This competition is simply the re-
verse of the kind of competition
which the railways carried on until
by law prohibited. When A. B
Stickney was building the Great
Western system, having in view
Omch Ia as the Western terminal, he
announced a certain rate which his
company would charge for transpor-
tating grain from the Missouri Val.
ley scross Iowa and Illinois, to
Chicago. 1t was a low rate but II
opened up an opportunity to com.
petition OF which Marvin Hughitt
of the Chicago-Northwestern road
took instant advantage. He an.
nounced that his road would trans.
port grain from the Missouri River
to Chicago for a rate below that
fiIe- by Mr.. Stickney. Thereupor
Mr.. Stickney came back with a re-
duced offer and Mr.. Hughit met II
and announced a still further re.
duction-' This competitive war oc.
casioned a great deal OF comment
partly for the reason that Mr.
Hughitt was competing. as was said
at the time, with a phantom road
since many miles of the Great
Western awaited construction be.
fore Omaha was reached. Those
who were experts at figures com.
piled tables which showed how
greatly to the disadvantage of tht
Northwestern competition of this
kind would prove to be. It wal
finally abandoned. The railroad.
in their competitive struggles fol
business represented the reverse Of
the methods adopted by q bank tc
increase its deposit lines by offering
unusual or unaccustomed rates OF
interest. The banks competed By
offering increase in interest rates
the railroads competed by offerins
reduction in rates for traffic but the
fundamental principle was the same
OF National Importancey
This discussion between the bank.
ers OF thu clearing house and Mr.
Harding is of much more than To-
cal interest since il the proposed
regulations were adopted IL would
n necf halances in New Ynrlr hnL-.