The New York herald., 1921-01-08

many people were departing from the
paths laid out by sound business judg-
ment and that they were becoming
prone to regard the abnormal conditions
then existing as being more or less per-
manent
''rhe Federal Reserve Board noted
with increasing solicitude the declining
tendency of the reserve and the Federal
Reserve Banks We're constantly ex-
tending loans and discounts OF the
member banks. and the increasing re-
discounts showed this with the Fed
eral Reserve banks. Members of the
board on various occasions during the
fall of 1919 issued public warnings.
which had, however, only temporary
effect. In boom times warning un-
accompanied by real action has no
more effect than cheering words in
times of depression can have unless
real action. l remember that Jon Sep
tember 10. 1919. the total loans and
discounts and invested assets and earn
ing assets of the Federal Reserve banks
amounted to 81. $50. 900 900. That included
rediscounts which were secured by
more obligations OF the Government of
the United States.
There was during that period of
three or four months thereafter a strong
declining tendency noticeable In the
amount OF rediscounts held by the Fed
eral Reserve Bank which were secured
by Government war obligations. Those
rediscounts declined from about the
first of July. 1919, to the middle of jan
uary. 1920. from about $500, ,o00, 900
TO $1,000. 900. 900. In spite of that de-
cline OF 100000 900, which was caused
partly by the reduction OF the floating
a rod
by Treasury certificates. the commercial
loans increased so greatly that the net
increase in the loans and earning as
sets Of the Federal Reserve banks from
September, 1919. to January 81. 1920,
were nearly 1000. .00O, 900, or an ad :
vance to $4,000, 900, 900 in the latter
part of January 1920.
Gold Shipments Cause Change.
THE chart shows it advanced at an
angle of about forty-five degrees. Now,
the Federal reserve in the bank Is
slightly lower than II had been In Jan
uary, 1919, on account of the gold which
we lost when the embargo against the
Shipment to other countries was re-
moved. In that condition OF affairs ~
seemed imperative. II the integrity of the
system was to be maintained and II tbs
gold standard be preserved, that a check
be placed upon expansion.
Consequently. In the latter part Of
January. 1920, the directors Of all the
Federal Reserve banks proposed
marked advance in their discount rates,
averaging In most cases IN per cent,
say from ~ to s per cent. The Federal
Reserve Board approved these advances
in discount rates. The result was that
there was a tendency in the rediscounts
OF the Federal Reserve banks to fall
off for a few weeks
Now II is well for you to bear In
mind, gentlemen, just what the Federal
Reserve Bank is. 1t receives no primary
deposits; has no dealings with the pub
lie. 1t deals only with the Government
of the United States and with member
banks. The deposits which 1t receives
from the Government of the United
States are temporary in their charac-
ter and fluctuate great deal.
For few days they may have large
deposits for the Federal reserve and
on other days 1t is practically nothing
with the Federal Reserve banks, so that
the main Reserve deposits which are
carried by the Federal Reserve banks
are a part OF the money of the people
of the country which Is deposited with
member banks.
neHlocT TtuulTeu 10 CdTTy
certain proportion of their demand
deposits with the Federal Reserve Bank
as their reserve. That proportion of
demand deposits varies according to the
classification of the cities. In the GEN.
trail reserve cities of New York. Chi
cago and st. Louis the member banks
must carry with the Federal Reserve
Bank 1S per cent of their net demand
deposits. In the ordinary reserve cities.
such as Boston, Philadelphia. Cleveland.
&C.. they must carry 10 per cent. of
their net demand deposits with the Fed
eral Reserve Bank.
I'm all other banks not located In
central reserve or reserve cities these
banks have been known as country
banks They must carry per cent. of
their net demand deposits with the Fed
eral Reserve Bank. and all banks, re-
gardless of the classification of their
city. are required to carry per cent.
of their time deposits with the Federal
Reserve Bank as reserve.
Not All Primary Deposits.
$50 that all the funds that the Fed
eral Resevve banks receive from member
banks are not primary deposits. but are
merely part Of the deposits received
by the member banks. which must be
carried as reserve with the Federal Re-
serve Bank. II Is essential therefore.
that the invested assets of the Federal
Reserve banks be not only sound but Of
a liquid character. and IL possible of q
character.