Evening star. [volume] (Washington, D.C.) 1854-1972, 1920-12-16
CURbS UPON BANK
BOARD ARE FOUGHT
Federal Reserve Body 0p.
poses Laws Striking Dis.
count Rate Regulation.
BIZ DAVID LAWRENCE.

The Federal Reserve Board is un-
aiterably opposed to the measures
pending in Congress which in any
the board or federal reserve banks
to regulate the rates of discount
which those banks may charge.
Senator Harris of Georgia has pro-
posed that the maximum rate Of in
terest which federal reserve banks
could charge member banks should
be per cent. A similar proposal was
knocked out of the Gronna Norris
resolution the other day. but it has
been revived separately by the sena-
tor from Georgia.
The Federal Reserve Board views
with alarm the attempts of some
members Of Congress to tinker with
the credit machinery OF the country
ana has not hesitated therefore to
express its views so explicitly xhat
responsibility for damage done may
be easily placed by the public.
Protection Of Gold Reserve.
The board insists that It Is essen
tial to the functioning Of any central
banking system that the banks of dis
count shall have complete control
over their rates. This control Is re-
garded as the most effective means
OF protecting the gold reserves Of \
country against Withdrawals for for
eign accounts. For instance, the dis
count rate Of the Bank of England il
z per cent, and il Americas were fixed
at per cent foreigners would nat
urally seek to discount their bills
here and gold would now out Of the
70
nxtng OF any maximum or minimum
rate and the necessity for keeping the
rates within the discretion Of the
federal reserve system are these:
Objectisns to Fixing Limit.
1. If q maximum rate Of discount
were fixed, the federal reserve banks
would find it impossible to protect
their gold reserves.
2. The federal reserve system would
In short time cease being a reserve
system and would become simply an
instrument for the speeding up Of
expansion.
3. A scramble for funds of the fed
eral reserve banks would ensue, and
the reserve banks would have no al
Tentative except to lend their funds
at rates below the market rates until
their reserves had been exhausted.
Banks We Id be Obliged to refuse 10
make further rediscountS, no matter
Ho1v meri or,ous the claim. and they
would be compelled to start q waiting
list until old loans had been paid
back and new funds obtained.
Interest Rates OF States.
Only three states-Illinois. Louisiana
and Michigan-have legal rate Of in
terest as low as per cent and in
each state higher rate is permits
sible. In thirty-two states the legal
rate IL per cent, and in seven states
the legal rate Is per cent, while in
8 other states and the District OF
Ten states allow legal rate Of 10
per cent, and ten others permit a
contract rate OF IL per cent
rherefore. It II argued by members OF
tho Federal Reserve Board that II the
discount rate we're hxed at S per cent
indeed stimulus. to member banks to
use all the rediscount facilities Of the
federal reserve System. because viii
the money market at 3 PEI. cent thefS
wou'1 be a handsome prunt Of 3 pc,
cent available to member banks
in rediscount transactions. Whers
rates as high as 10 or IL Per cent an
even srsater.
On the other hand, past experienc.
indicates that tie lowering of the dis
count rates to per cent would not. IN
tho judgment OF the board, bring down
the prevailing market rates. a. the lat.
ter are fixed BY the laws Of supply and
demand.
Eject Of s Per Cent Limit.
should the rsdiscount rate be fixed al
psr cent, 1t appears to be the federal
Reserve Boards view that the limit Of
credit expansion would be reached quick.
" and that the twenty-five billions Of
dollars Of government obligations avail
Able as collateral would be exhausted.
It Is feared BY members Of the
board that q condition of depression
much moro widespread and serious than
that which It IL sought to remedy would
(cspyrisht. 1900