South Bend news-times. (South Bend, Ind.) 1913-1938, 1920-04-29
FEDERAL RESERVE
BOARD ACTS FOR
CREDIT CONTROL
First Step Toward Establish.
ing Sliding Scale of Dis
count Rates Taken.
by louis LUDLOW.

WASHINGTON. D. c. April Is
The first step toward control Of
credits through a sliding scale Of
discount rates. as provided by the
recent amendment 20 the federal re-
serve act has been taken b. the
federal reserve board ia the Kansas
city district, IL IS learned here.
With the approval Of the reserve
board. the governor OF the Kansas
city bank has put the new plan into
effect. and IL y expected 81 VIII be
adopted By several OF the other re-
serve banks in the near future.
The Kansas City plan gives each
memb Der bank a basic amount Of
credit at the normal discount rates.
The basic amount Is based on the
average reserve balances of the
member banks. the 50 per cent gold
reserve and the paid-in subscription
10 the capital stock OF the federal
reserve bank.
For discounts in excess OF the
basic amount, the borrowing bank
must pay an additional one-haif Of
one per cent Of the accommodations
up 10 an amount equivalent to %
per cent Of the basic amount. For
the next subsequent sum equal to
p per cent Of the basic amount. the
borrowing bank must pay an add
tiOnal rate Of One-half OF one per
cent. and 50 on at an increasing
rate Of one-half OF one per cent,
for each unit Of 20 per cent addi-
tiOnaL
Example Cited.
Therefore. II a bank had a basic
line OF credit Of S1e0. 900 and want
I'd 10 borrow 5000 900, il would get
the first 800. OC0 at the normal
rates. For the next $4,000 IT
would pay a premium. OF one-half Of
one per cent, for the next S25. 700 il
would pay a premium OF one per
cent. for the third So. 900 IL would
pay one and one-half per cent addi-
tional. and for the fourth SIS. 600 II
would pay a per cent premium.
IN order 10 protect those banks
which own large amounts Of treas
ury certificates and liberty bonds.
there is a provision that the higher
rates shall not apply 20 discounts Of
the member banks paper secured by
certificates and government bonds
which the member banks actually
own.
Rates May Vary.
While IL IS probable that the Kan
sas CITY, method Of determining the
basic rate will be followed by other
federal reserve banks, the scale OF
increases in rate may vary mater
tally. Governor Harding Of the fed
eral reserve board said today that
the question of the scale of rates
will be adjusted by the respective
banks 70 most conditions in the diff
ferent districts The governor also
stated that the board will not insist
that the new plan be adopted inn
mediately t. all the reserve banks,
but will leave II to the directors of
the various institutions 10 decide
when such steps are necessary. The
principal advantage, he said, is that
the plan has been effected and can
be made TO function whenever and
wherever conditions may first arise
which warrant IL.
Most of the member banks. il is
stated. would not be affected by the
higher rates, since their discounts
do not exceed the basic amounts TO
which they are entitled. There are
a few banks in each district, how
ever which have discounted far in
excess Of their pro rata share, and
these institutions will be compelled
either to reduce their borrowings or
pay the higher rates.
The federal reserve board is hope
fuI that this method OF varying the
discount rates Will enable IL 20 curb
undue speculative borrowings and
gradually to restore the credit struc-
ture 20 a conservative basis.