The Morning Tulsa daily world. [volume] (Tulsa, Okla.) 1919-1927, 1920-08-08
Advances in Rates De
Tended as Measure to
Reduce Initiation.
PAY OVER $l4,9 100000
Profiteering Charges thal-
lenged in Bulletin Saying
People Lcgatces.


by the federal reserve agent. makes
vigorous dcfons, ur ts position
with regard TO rodi8Douut rates and
tho resultant ua.iuiuEa Of the bank
ana challenges thc charge that The
reserve banks are profitccring.
Tho bulletin said earnings FOR the
first half of the current gear were
considerably larger than for the cor
responding period OF last year The
bank paid approximately Gib,O0C
In semi-annual dividend. added Sc.
100000 to surplus, set aside an un'
stated sum "a reserve against con.
tingenclos. which is believed to have
been somewhat in excess OF $1,000
900, snd had remaining about sii,-
900, 600, which viii be paid over Al
the end OF the year as a franchise
tax TO the treasury department
These earnings are equal To apprcx
imately 100 per cent on the bnnk'f
average pald.in capital for the siS
months. After deductlnR tho re.
serve Rsainst contingencies. the ear
nings would he equal to about 90 per
cent on the paid-in capital.
Earned 1870 Per Cent.
For the fun year 1919 the Federal
Reserve Bank OF New York earned
slightly more than 130 per cent, OF
which something more than half was
earned In the final six months as in
that period loans were In greater vol
ume than In the first six months ana
rediscounts. after November 2. were
advanced over tho levels at which
they have stood since carly In 1918.
In defending its position and It's
course, tho bank. through the reserve
agents bulletin. snys:
These continued large earnings
have called forth IA large number OF
comments to the effect that the Fed
eral reserve banks were proflteering
and that In view OF their earnings
they should lower their rates. One
critic quite seriously pictured the
federal reserve system as manifest.
ing that same thirst for power that
IL characteristic of carniyorous
beast when it has tasted blood for
the first time and announced that
its management had "come to the
conclusion that these institutions
should he monCy-making concerns
and that they should see how much
profit they can show instead of being
used for the purpose of rendering O
service to the community. Will,
most OF the criticisms are not as
fantastic as the foregoing. they evil
dence rather generally n lack OF uy.
derstanding OF the poHcica and work
ings OF the federal reserve banks
This IN not unnatural, since we are
still relatively unfamiliar with the
operations OF bank OF issue and re-
discount. which are well understood
IN mort other countries a few
words about the operations OF this
bank as they are reflected in It's
earnings may be therefore be appro-
ato.
Provide Elastic Credit.
"The federal reserve banks were
created to provide elastic credit and
currency, which would expand OF
contract in accordance with tho re-
quirements OF industry, commerce
and agriculture They were also ex-
pected messurably to control and
regulate the volume OF credit so thai
credit conditions might bo as stabl,
as possible. They came into exis
ience after the European war had h,
gun, and upon Americas cntranc,
into the war they were called on e
assist in creating the immense vol
ume OF additional credit required bl
the financing of the war. Their ef
fective response TO the call not onll
made possible tho prosecution OF tn,
war. but enabled manufacturers
merchants and farmers confidentl!
to continue their affairs
when the peak OF the government
debt was passed last autumn an,
there was no necessity for furthe
credit expansion on account OF gov
ernment operations, the federal re
resve banks took steps toward inau
guranng gradual deflation. The,
adopted the method OF bringing
about a reduction OF tho credit vol
ume. which had been tried and test
cd In other countries. l. e., increase,
discount rates These were advance,
step by step. from the four and three
fourth per cent rate prevailing Il
October to the seven per cent, rat
which was established IN June, Th
higher rate resulted In larger earn
ings. which in turn raised the per
fectly natural question: Arc tn
federal reserve banks profiteering
People Are Kcsiduary Lcgatees.
1T IN one or the ironies of the wa
that the one bank not organized 10
profit should he making larger prof
It's than any other bank In the coun
Try fbutihl TehtfNe bhnkS profit
come from the loans which the
make 10 their member banks TO en-
able thou TO furnish credit to thei
customofs But as the federal re
serve banks are an agency Of the pco
pie to maintain an elastic credit an
currency system and 10 steady cred
its the law provides that after pay
ing dividends OF per cent 20 IN
member banks. which are their onl
stockholders, and after accumnlatin
a reasonable surplus, the federal re
serve banks should return the bal
ance OF their earnings TO the peopl
as a contingent franchise tax Thu
the people are the reslduary lesa
toes OF the federal reserve bank OF
orations; and the treasury's use
the money thus returned is restricte
10 the purchase OF government bone
or placing additional gold behind II
greenbacka
Federal reserve bank earnings al
q reflection OF the existing degree
credit and price initiation. In tim,
when credit and prices are norm
federal reserve bank earnings vi
probably he small. The higher di
count rates, esta blished TO stimula
deflabon, are at present increasiI
These earnings, but as the volume
credit grows less these earnings "
decrease proportionately. II is n,