Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1920-01-23
DRASTIC ADVANCE
IN DISCOUNT RATES
Federal Reserve Banks Increase
Charges to Enforce contrac-
ton of 'Unessential Loans
B0NDH0LDERS HIT HARD

by the federal reserve banks to bring
about a de6ation of the credit imitation,
or contraction of so-called "unessen-
tial loans" was announced late yester
day in sweeping addition increases in
discount rates running from Il of per
ent to 4 per cent This action, which
was taken by the federal reserve banks
Of Philadelphia, New York and Bos-
on was with the approval of the Federal
Reserve Board.
The maximum increase is established
on commercial paper. The rate on that
class of bills is advanced from 4M to
per cent. The rate on Liberty bonds
is increased from 4M to 512 per cent
and the rate on bankers acceptances
from Az to 5 per cent. No change is
made on certificates of indebtedness.
While there had been persistent re-
ports for several days of some advance
being made in discount rates, no such
drastic changes were looked for. Some
surprise was also expressed that the
new schedule should be put into effect
before the results of today's banking
conference at Chicago became known.
| With the new schedule in operation, it
was felt in banking circles that the con :
| ference today has been shorn of much of
its Importance.
| Considerable criticism was made
against the marking up the discount
rate on the so called war paper loans to
such a high level. The advance hit some
large owners of Liberty Bonds very
hard. and as one banker put it, lit
looked like genuine case of penalizing
the large holders of the war bonds for
their patriotism. Commercial and otl,er
| borrowers. however. are also hit hard
and it is difficult to understand how O
wholesale liquidation of bank loans car
be averted.
In announcing the action of the direc-
tors, E. =. Passmore, governor of the
Philadelphia Reserve Bank, said last
night:
I'm view Of the continued expansion
of credit and the low reserve position OF
the larger Federal Reserve banks in
the East. the Federal Reserve Board al
Washington, has felt it imperative tc
make further attempt at firmer con
troll of bank borrowing. To assist il
meeting this situation, the Federal Re
serve Board has recommended the i'm
mediate increase in rates of rediscount
to be uniform in the Philadelphia, New
York and Boston districts.
"While there has been a contraction
since the first of the year of some 5000,
600, 900 in round figures in Federal Re
serve notes outstanding, commercial
loans have continued to increase in spit,
of all efforts to hold them in check. Tht
advance in rates may seem radical, bu
it is felt the situation should be great,
improved by this action
Speaking today of the increases in tn,
discount rates ranging from 4 of l pc
cent to 4 per cent: John II. Mason
president of the Commercial Trust Co.
said
THE increases will not have tn
least effect upon holders of a few Lib
erty Bonds. Those who have paid 70
them, possess the bonds. These are tn
premier securities of the world and mus
increase in value with time. How mucl
they will increase | am not prepare
to say. But that they will increase ther
is not the slightest doubt.
"ThOse who are paying for smal
amounts of Liberty Bonds will continu
their payments until they own tn
bonds. There is no problem for them il
the increased discount rates.
"Holders of large blocks of Libert
Bonds might be affected in two ways
They might be compelled to liqudat
dl lOSS. VI II might COS
them more to carry their bonds, if the
borrow.
''But the large blocks of Libert
Bonds held in Philadelphia are in tn
hands of individuals and institution
who will not be placed under pressure
| The majority will hold their bonds.
Situations in which holders of bond
might sell at disadvantage might exis
with or without the increased discoun
rates. If 81 100000 worth of bond
were dumped upon the market whe,
there is a demand for only $500, 90
worth, the sellers would not have th
advantage that would exist if the condi
tiOnS were reversed
But there is no opposition. as ia
as | know, to the increased rates, an
no purpose to try to have them changed
'The officers of the Federal Reserv
Bank are working in the interest of tn
country, and for improvements as ia
as it is possible for them to achiev
them. Bankers have entire confdenc
in the members of the Federal Reserv
Bank board, and are convinced tina
their aim is to cause proper and orderl
liquidation.
"There are always two sides to ever
question, as there are always two side
to every story. In expressing my Opin
ion. do not specifically differ with an
other person. Persons with other idea
have right to think for themselves. \"