Evening star., 1920-07-08
GOV. SEAY REPLIES
TO BANK CRITICS
Holds Restriction of Credit
+ Needed-Has Met All
Legitimate Demands.
BY I. A. FLEMING.

4, Gov. Seay of the Federal Reserve Bank
OF Richmond has just issued a five-pag &c
Scircuiar letter to the banks in this dis
trict on Federal Reserve Bank Policy
'the Discount Rate and War Bonds"
In a way. the letter is a defense
Rgainst the varied accusations that have
tbeen made against the recent advances
In discount rates by the federal reserve
Nbanks, the efforts for conservation OF
sCredit, curtailment of expansion and in
screased cost of carrying government Sc
Scurities.
Much space Is devoted to citing the
Fprevailng conditions that created need
Aof efforts for conservation.
Attention is called to the fact that
fthe reserves of member banks wit
the federal reserve institutions total
$IS00. 100000, while the banks are
: lending their members approximately
$50, 900, O0G. 900, this being rendered pos
sible by provision of the act which
! permits reserve banks to issue federal
reserve notes against members re-
fdiscounts, "a graphic example of the
way the federal reserve banks are
aiding the banks of the country"
Attention is then called to the eX-
tent of aid to national banks by their
correspondents before the war, about
s75, coo, 900, reaching S150,000.000. the
GmaNimum. in 1914, contrasting this
$50. 000, 900 loaned, versus the $4,000
O00 900 of today. one-thrd of the lat
ter amount being loaned to carry war
bonds
1T was never contemplated" says
the letter, that loans would be made
in volume, even upon government
bonds, but the effect is the same on
the resources of the banks. 1t uses
credit. this being one of the reasons,
in the support of commercial credit,
why purchasers of government bonds
should pay for them as rapidly as
possible. and take them out of federal
hanks WhafaVar other nrnflt
able or self gratifying uses they have
for the capital or savings"
Urges Further Reduction.
Gov. Seay urges reduction of
credits on government bonds from 40
per cent to 10 per cent; points out the
fact that the initiation lies in the enor-
nous increased use of credit without
corresponding increase in production
He cites the fact that there was eX-
panSion: that loans and discounts OF
national banks increased from So
16S, 100000 in 1913 to S11,994 ,000, ,00C
in 1920. Loans and discounts of ma
Gonal banks increased nearly 100 per
cent in the same time, indicating their
I own ability to meet increasing de-
mands for credit. The net earnings
of national banks have increased
steadily from 7.0S per cent in 1915 on
capital and surplus to 12.11 per cent
in 1919.
Protests Against Criticism.
Gov. Seay says: 1T has been con-
tended with some heat and accusati on
'even of bad faith that the federal re-
serve banks should have maintained
! a low rate of discount for war paper
THE Federal Reserve Bank of Rich
mond is lending to the member banks
more than twice the amount of their
deposits. 1t has rediscounted with
other federal reserve banks to the ex-
tent of $4,000, 900 in order to meet
Il
and no loans, proper to be made, in
the judgement of its officers, has been
refused. 1t is lending aproxima tely
fsS4.0O0,000 on war paper alone. a
larger aggregate tt n held by other
federal reserve banks, except those
of New York, Boston, Philadelphia and
Chicago.
According to advices from member
banks in this district they own $780,
100000 of war obligations. and these
holdings. together with loans upon
war bonds, are much in excess of
800, ,000. 900"
Total Holdings of War Paper.
. June 80. 1919, the latest available
date, the banks of the country gen.
orally held $4,S05, 900, 900 of war pa
per and bonds and SLIGO, 900, 900 of
Treasury certificates.
Gov. Seay illustrates the value of
money today and the relative lower
AdiCS o1i :" paper, dS the responsible
factor in causing a decline in liberty
issues and not the higher discount
rates Also to the fact that surplus
incomes which formerly went into
investments are now taken for taxes
ANY merchant" he adds will tell
you that it is necessary to put the
surplus profits into business in order
to expand it. Continue to take excess
profits in taxes and what must be the
result?'
There still remains a considerable
sum of cash in the banks to the credit
of the Treasury from the proceeds OF
the last issue. Payments were called
of 10 per cent, then So per cent OF
the remainder, and yesterday the
banks sent in one-third of the bal.
r ance, leaving about $128,00O.000 with
the banks. This will last but few
days the way the cash is going out.
Changing Certificates.
Many investors who purchased GER
tidcates are liquidating them now anc
reinvesting in commercial paper bear
ing z and per cent rates. Corpora.
tions and big institutions still il
the market as borrowers on certif
Gates bearing relatively low rate o1
interest stand to lose considerable
the difference between the going rate
and the certificate rate.
Purchasers of the lower-rate certifi
Gates of the Treasury can and are
WI even tiiiOuGn Tie Sdie ana d re-
investment in paper. Certificates are
being urged as a prime short-term in
veStment.
Local Securities.
Public utilities featured todays ses
sion of the local stock exchange Cap
ital Traction shares, after months o1
inactivity, were the leaders, seventy
shares. in lots. changing hands at IS 3,
to S5A.
Railway preferred moved up sharply
in the bid and asked quotations, Az be
in the bid and 43 asked. The common
stock sold at 16.
Railway As sold at 54.