New-York tribune., 1918-03-13
Federal Board
Urges Banks to
Cease Rivalry
1t Objects to Increase of
Interest Rates to Win
Demand Deposits

WASHINGTON, March 12.-1n n
further effort to check the COM
petitvc movement among interior
banks to obtain demand deposits by
increasing interest rates. Governor W..
P. G. Harding of the Federal Reserve
Board to-day telegraphed Reserve
banks to use their influence with banks
to discourage this practice pending ac-
tion by the New York Clearing House
Association to restrict higher interest
rates, which have drawn many deposits
there.
Results will be harmful both to ma
tional financing and to the banking
business, Governor Harding said. un-
less the tendency to lure new check
ing accounts by better rates is immedi-
ately eliminated
Another step taken by the Federal
Reserve Board was the calling of a
conference Of governors of Federal Re-
serve banks here March % to discuss
interest rates. plans for the third Lib
erty Loan and other questions.
Many Banks Protest
Hundreds of banks in interior cities
have protested to the board in the last
few weeks, it was disclosed to-day, over
the action of few banks in raising
rates on checking accounts from 2 to
21a per cent to prevent the removal OF
these accounts to. New York state
banks or trust companies, which always
have maintained rates of 3 per cent or
even more. The concentration of de-
posits in this way has been rapid since
last June, when an amendment to the
Federal Reserve act became effective,
requiring national bank reserves to be
kept solely with Federal Reserve banks
and removing the former encourage
ment for country banks to keep ex-
change accounts with recognized de-
postary banks, and at the same time
get credit for the deposits as reserves.
In his telegram TO Reserve banks to-
day, Governor Harding said:
"The board is anxious to have you
watch the situation in your district
with respect to competition for de-
posits through advancing interest rates,
with view of getting banks contem-
plating advances to defer action and Of
inducing those who are paying more
than normal rates to reduce them.
Federal Financing First
"The board feels that government
financing should have the right of way,
and that the reserve strength of the
banks would be increased by encourag-
ing the public to invest in Treasury
certificates of Indebtedness and Liberty
bond issues rather than by banks COM
peting for these funds, and thus neces-
stating heavy investments in these Sc
curities for their own account
deposits throughout the country
show general tendency to increase in
volume, and there seems to be no good
reason to increase rates of interest
paid for them, thus adding to the cost
of money. The transfer of balances
from one bank to another does not add
anything to the strength of the banks
position as whole. The board urges
that a broad national view be taken
Of this question. In view of the ap-
preaching Liberty bond campaign, a
sharp nationwide contest among banks
FOR deposits would be particularly un-
Fortunate"
Governor Harding cited the New
York Clearing Houses action, con-
demning the movement to raise rates
and the possibility that some step
might be taken within ten days to re {.
duce the interest rates now paid by
New York trust companies.