New-York tribune., 1921-02-17
Credit Restriction
O Reserve Board
Backed by Harding
Absence of Panic During
Rapid Economic Read
lustment Proof of Stabil-
ify, Governors Report

WASHINGTON, Feb. 16.--Strongly
defending the control and regulation
OF the credits policy Of the Federal Re-
serve Board against charges of critics
OIL the system, w. p. G. Harding, gov
ernor of the board, in his annual re-
! port declares that the absence OF
/ money panics during the period of
fa2id economic readjustment in 1920
/ must be regarded as the strongest
proof of the efficiency and stability of
ehe country's banking system and of
Its ability to absorb the shock and
avert the disaster which in other times
mas overtaken the country.
1t is generally recognized, the gov
ernor asserts, that the crisis has been
passed and the country has regained
more normal state Of mind, which
Is OF first Importance in working back
toward normal conditions. and looking
TO the future a spirit of greater conf
denee prevails. AS the year closed
/ there were many indications that busi-
ness was beginning to adjust itself to
! new conditions and was preparing to
proceed on sounder and saner basis.
Inc most trying and critical stage of
Vhe ready dlustment was passed before the
END OF the year, and the situation at
It's close was intrinsically better than
at its beginning.
Control of Credit
Referring specifically to the control
ana regulation of credit and the dis
count policy of the Federal Reserve,
Governor Harding declares that in the
situation which existed at the begin
ning, OF 1920 ordinary prudence die
tated plainly that not only should
speculation in corporate stocks and Sc
curltles be restricted, but that further
expansion of banking credits made
age should be checked. "The loans
and advances of a Federal Reserve
bank" the Governor says, SHOULD be
as nearly s possible of a self -liquidat
ing character.
Continued advances against unsold
goods in storage would tend inevitably
to involve the banking system in the
needless risks and difficulties growing
CUT OF general changes in business con-
dlhons without improving in any re
spect the situation as a whole or re-
lleVlng those obliged to reduce prices
or curtall production in order to stimu-
late the demand necessary to move
commodities rom producer to con
sumner. The boards purpose was to
maintain the strength of the Federal
Reserve banks, which are the custodi
ans Of lawful reserves of the member
banks. 1t was not the boards intention
to deny proper accommodation to agri-
culture, commerce and industry, for
any such limitation would defeat the
very object of its policy"
Figures are presented to prove the
contention of Governor Harding. show
ing that so far as the resources and
liabilities o. the Federal Reserve banks
are concerned the effect of the boards $
action in authorizing increases in dis
count rates last year, even assuming
that this action was a direct influence
tending to affect the gross volume Of
transactions, was merely to slow down
the immediate tendency toward expan-
SION. From the end of February until
they reached the peak for the year on
November 5, except for the temporary
and usual fluctuations which result
from quarterly income and excess
profits tax payments made to the gov
ernment, the loans of Federal Reserve
banks have continued substantially at
their present level.
Decline in Loans