The New York herald., 1920-01-17
CLEARING HOUSE
LIMITS INTEREST
ON BANK BALANCES
Maximum Of 2H Per Cent
Fixed TO Allow Advance
in Discount Rate.

With a view to meeting criticism of the
Federal Reserve Board the Clearing House
Association yesterday adopted an amend
ment TO It's resula tons which establishes
maximum limit of "a per cent on the
interest rate which member banks must
pay on bank balances OF the out-of-to7n
correspondents.
The action of the Clearing House banks
removes the most formidable obstacle 70
an advance In tho Federal Reserve Bank
discount rate on ninety-day commercial
paper. It is expected that the nationwide
conference of bankers, TO be held In
Chicago next "Wednesday. will fall in line
with the New York bankers. Following
such action, II Is believed in local bank
ing circles. the Federal Reserve banks
throughout the country will advance their
commercial paper discount rate.
The action OF the Clearing House As
sociation yesterday was unanimous. rs
IL 20 emphasize their anxiety to comply
with the wishes of the Federal Reserve
Board that the interest rates on bank ball
snces be divorced from the discount rate,
the bankers suspended that bylaw IN their
constitution which requires two weeks
notice before an amendment 10 inc ny
laws can be put to o vote. The recon-
mendation for the amendment was adopted
Thursday by the Clearing House Commit
tee. Yesterday final acuou was tahcH oh
Il.
Reserve Board Request.
After the meeting OF the Clearing House
Association the following statement on It's
action was issued
.'The Clearing House Committee recon-
mended the adoption OF tho amendment IN
view or the request of the fedefal Ike
serve Board, which had the approVal o.
the delegates from clearing houses All
over the country at the recent conference
held with the Federal Reserve Board at
Washington. that there yhould be no in
crease in the interest rate paid on bal
ances and that the maximum rate 10 De
paid under Clearing House resuiauons
should not increase with an increase IN
tho Federal Reserve Bank discount rate
for ninety-day paper boNond MAXIMUM
OF two and one e-cUartcr per cent
Tbe action OF the Clearing House Asso-
cis,ion follows recent revelation by the
roderaI Reserve Board that II was em-
barra ssed in its policy 81 advancing dis-
conn, ,ates TO check credit Imitation ny
tho regulation Of tho New foik clearing
fiousn which based tho interest rate on
bank balances upon the Fodera Nes"rNo
Bank discount rate on ninety ""S 'V"'
mercal paper. ,,
AZ a conference OF bankers held in Wash-
inrton last week Governor Harding sug-
eeated the advisahuity Of changing that
ros,,iation 80 that tho interest rnte would
not automatically adjust tscn oy the
discount rate.
Await hoard Action.
re ,nt,matcd ~ the time that the Board
desired 10 advance tho discount rate out
AZ ,bo same time wished TO discourage
anv further advance w the interest rate
40 as 10 obviate competitive bidding FOR
bank balances
As Tho Clearing House rule now stands
the interest rate viii automatically ad-
juat rseif 10 the discount rate until the
FORMER reaches maximum OF 2r per
cent After that Il viii remain stationary
regardless OF further advances in the dis
count rate.
~ taxing action ~ this time. without
waiting FOR the Chicago conference 10 act.
the New York Clearing House paves the
way for an immediate advance in the
commercial paper rate IN this reserve dis
triet Tho Impression in banking circles
is that such an advance already has been
recommended BY the Federal Reserve
Bank. hut that approval OF the Reserve
Board was withheld pending action by the
Clearing House.