New-York tribune., 1919-12-30
Bankers to Confer
With Reserve Board
On Interest Rates
Governor Harding Would
Abrogatc ssEntangling AL
liance'' Between Reserve
Bank Discount Rates and
Payment on posi- IT'S

tative bankers from all over the country
have been invited by the Federal Re-
serve Board to meet in Washington
January to discuss the existing re-
lation between the Federal Reserve
Bank discount rates and interest rates
on deposits.
The conference Is the first step Of
the Federal Reserve Board to iron out
tho "cxisting entangling alliance" be-
tween Federal Reserve Bank discount
rates and interest rates on deposits
which resulted from war financing, Gov
ernor Harding said Members Of the
Reserve Board feel that any change
in the present arrangement, established
during the war period, will have to be
made with duo consideration for it's eff
feet on the general banking situation.
Plans for the conference were given
in letter to the chairman of the Fed
eral Reserve Bank from Governor Har-
ding.
early in 1918" said the letter,
"there was a disposition on the part
of large banks all over the country to
indulge in sharp competition for bank
balances and to offer inducements in
the way of increased rates of interest.
Some of the banks in New York were
bidding as high as per cent for bal
ances of other banks payable on de-
mand, and the rates offered for time
deposits were higher. This led to re-
prisas on the part of interior banks,
and the bidding for business by mark
ing up interest rates on deposits threat
ened to interfere seriously with the
financial operations of the government
''Finally the Clearing House banks
of New York agreed to fix rate of
21a per cent on bank balances payable
on demand, with the proviso that the
intrest rate would be automatically adj
vanced or reduced a of l per cent with
cont IN the ninety day rate at the Fed
eral Reserve Bank of New York. This
rate is now IA per cent, and should it
be advanced at any time to per cent
the rate of interest paid by New York
banks for out Of town bank balances
would automatically advance to pa per
cent.
"The board wishes to be free to ap-
prove such discount rates as it may
deem necessary to bring about proper
control of credit. But it is anxious at
the same time to avoid Il disturbance
Of the whole banking situation such
as would most likely result from an
advance in the interest rates allowed
on out OF town balances by the New
Y ork bank. The board has decided,
therefore. to invite representative
bankers from all parts of the country
TO meet in Washington January for
the purpose OF discussing this matter
in the hope that some way will be found
Of abrogating the existing entangling
alliance between Federal Reserve Bank
discount rates and interest rates on
deposits without endangerng existing
banking relationships
Minneapolis and Chicago banks, like
the member banks of the New York
Clearing House Association, base their
interest rates on the deposits Of out
Of town banks on the ninety day com
merclal discount rate of the Federal
Reserve banks. Bankers here feel that
the purpose of the meeting called for
January is to work out a uniform
system throughout the country.
Since the fall of 1914. when the Fed
oral Reserve system came into being,
the volume Of deposits of out of town
national banks in New York institu-
ary it IS said, while bank deposits as
q whole doubled. The deposits of trust
companies, however, have increased
substantially 1t was generally ex-
pected that the reserve system would
take money from New York and distrib-
ute it more throughout the country.
On the basis of Governor Harding's
banks, the assumption was made that
the board is considering a further
raise of discount rates, especially on
commercial paper.
The announcement in Washington
yesterday by Carter Glass, Secretary of
the Treasury, that a new issue of tax
certificates of ndebedness. dated Jan
uary 3 1920, and maturing December
Is. would be offered, bearing 4s4 per
cent interest," was interpreted as a
in the money market. Heretofore
Treasury certificates bore either AZ or
~ per cent interest. Since the an
nounced object of the Offering is to
fund half the outstanding loan certifi-
'cstes, it is assumed that the Treasury
would like to sell S7OO,o0O,0O worth.
The total amount of loan certificates
outstanding is, roughly. $1,4OO, 900 900.
and one-half Of this has already been
provided for
IN connection with the leaping of
call money rates yesterday up to 25
per cent bankers explained that thew
were outstanding their funds in prepa-
ration for enormous end of the year
disbursements and that to extend the
tension was temporary. However, the
decline OF the ratio of total reserves to
net deposit and Federal Reserve note
liabilities combined to the new low Of
AIS per cent last week, compared with
1853 per cent and 50.6 per cent a wear
ago, indicated a state Of credit expan-
sion that might induce further cur
tailment.