New-York tribune., 1920-04-02
Assert Proposed
Change Would Kill
Open Bill Market
Bankers Advise Harding
Alteration of Federal Re.
serve Policy on Buying Of
Acceptances A Is Unsound

Ihe Federal Reserve Board is con-
sldering a change in banking practice
which dealers assert would smash the
fast developing open market in accept
ances, 1T became known yesterday. AS
q result of his conference with bankers
here on Wednesday regarding the sug-
gested innovation, it is understood that
W. P. G. Harding, governor of the
board, now clearly perceives the bank
ers' objections to the proposals and
has invited the bankers whom he met
to come to Washington to explain
their point Of view to the other mem
bers Of the board.
Under the proposed change member
banks would be deprived of the advan-
tages of an open market in which to
sell bills, dealers contend. At present
a member bank has the option Of redis-
counting an acceptance at the Federal
Reserve Bank or selling it in the open
market at less advantageous rate
The present motive for placing bills
with their Endorsement in the open
market instead of rediscounting them
is that the banks by using the open
credit at the Reserve Bank, either for
advances or rcdiscounts. The proposed
change, however, would, it is argued
terminate this advantage by making
acceptances indorsed by member
bank which are sold to the Reserve
Bank by dealers count the same as a
rcdiscount. Thus, if member bank A
had $1,000,000 line of credit at the
Reserve Bank, it would be using up its
line whenever a dealer from the open
market sold a bill ndorsed by it to the
discounted the bill
Acceptance men asserted that the eff
feet of this change would be to lessen
the purchases by banks of acceptances,
because of the narrowed market that
would. result when they tried to dis
pose Of them. And, moreover, the
dealers would be less anxious to ac-
quire the indorsed bills because it
could never be certain whether the Re-
serve Bank would buy them, since they
would not know how near the member
bank was to the end of its line of
credit
The object of the suggested change,
which, 1t is reported, has impressed the
non-banking members of the board,
was to relieve the Reserve banks of
nately large proportion of the bills out
standing were finding their way ulti-
mately into the Reserve system. At
present the New York Federal Reserve
Bank buys acceptanccs indorsed by a
me Der bank in the open market for 5a+
per cent for ninety-day acceptances,
and rediscounts acceptances for mem
Der banks for per cent.
Dealers say frankly that the best
selling points for these prime bankers
acceptances is their great liquidity. re-
sulting from the fact that they can be
reallzcd on at any time at the Reserve
Bank: Member banks now only incur
a contingent liability when they in
dorsc acceptances and sell them into
the open market, but under the
change, would be cxhausting their re-
discount facilities at the Reserve Bank
every time dealer sold bill indorsed
by them to the Reserve Bank. This is
particularly significant in view of the
pending bills in Congress which would
authorize the Reserve banks to charge
a sliding scale of rates when the bor-
rowlngs and discounts of banks 20 be-
yond fixed limit The proposed
change in practice. it was reported,
was suggested by John SHELTON Will
iiams' Comptroller of the Currency