New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1921-09-11

siderable convenience and expediency
and serves useful purpose. 1t is ar
rived at by adding together the items
met deposits" and Federal Reserve
notes in actual circulation" and divid-
ing this total into the item total re-
serves" In the statement Of August
81 last this combined reserve percent
age was 66.S, The ratio of gold re-
serves to Federal Reserve notes in cir
culation, after setting aside the So per
cent cover" against deposit liabilities,
was 8S.5.
A great deal of mistaken argument
has been occasioned by the uninitiated,
who have attempted to compare the So
called ratio of reserve of the Bank of
England with that of the consolidated
Federal Reserve, to the alleged detri-
ment of one or the other. AS a matter
of fact, the reserve figures OF the two
institutions are so differently arrived
at that no comparison is possible. The
Bank OF England sets aside, first, 100
per cent gold cover against it's out
standing circulating notes. and then
considers what is left of its coin and
bullion as reserve against deposit la-
bilities. In the statements Of August
81 the combined reserve ratio of the
Reserve banks was $50. The reserve
ratio at the Bank of England was 14.6
Had the Bank Of England computed its
reserve in similar fashion to the Fed
eral Reserve banks, its ratio would
have been 65.1 per cent, whereas if the
Federal Reserve banks had computed
theirs according to the British system
the figure would have been 1874 per
cent. And it is only recently that the
Federal Reserve banks have acquired
sufficient gold to give them a 100 per
cent cover against their outstanding
notes.
The next group of figures which are
scanned by students of the banking sit
the rediscounts for member banks
These come under the head CT Bills
Discounted" in the summary of re-
sources, and since the beginning of
1913 the item has been split into
halves, showing, respectively, redis-
counts secured by United States gov
eminent obligations and rediscounts
secured by commercial paper. The Re-
serve banks also include in this group
ing "biils bought in the open market"
The first two items in this classical
ton represent operatio ns exclusively
with member banks, while "bills bought
in the open market" may be purchased
from member banks or from non mem
in commercial paper which is eligible for
Federal Reserve investment. The total
of these three items represents the
actual assistance which the Federal Re-
serve banks are rendering to the bank
ing community.
Following down the statement come
the items which reflect whatever aid
the Reserve banks are giving the Fed
eral government. The item Omitted
States government bonds and notes" in
dicates the investments of the Reserve
banks in government obligations. The
second item in this classification,
United States certificates of indebt-
edness," Is divided now into two parts,
one showing the amount of one-year
certificates the banks hold as result
of their investment in government
paper to facilitate the operations Of
the so-called PittrnAn act, passed dur
ing the war and designed to rectify
Oriental exchanges by releasing sew
eral hundred million dollars worth of
silver bullion held in the Treasury as
collateral for silver certificates, while
the other half, listed as "all other"
represents the Treasury's floating debt
to the Reserve banks.
Of these three items the first two
fuctuate very little, but the third
that is, the floating debt item--varies a
good deal. Over periods when Federal
taxes are due and Treasury certificates
are maturing it usually is necessary
for the Treasury to borrow heavily on
the Reserve banks, for the reason that
Treasury certificates must be paid the
instant they mature. while the influx
of funds on tax receipts are more or
less delayed because Of the physical
inability to clear all payments on the
due date. Within week or SO, how
ever, this operation generally is COM
pleted and the floating debt item is
back to normal.
The gold and legal tender reserve
items are Of great Importance. Taking