The citizen. [volume] (Berea, Ky.) 1899-1958, 1921-08-11
RESERVE BOARD
AvERTED PANIC
Gov. Harding Further Describes
Working Of U. s. Money
Reservoirs.
STOPPED GENERAL COLLAPSE
Congressional Commission 10 Told Re-
strietior Of Credit Saved Financial
Crash - country's Bankers
"passed the Buck"

Washington. Aug S.-The ebb and
How OF monetary credits through the
federal reserve system was further de-
scribed before q congressional COM
mission by Governor Harding OF the
reserve board.
I'VE haye twelve reservoirs or
money I'm the reserve banks" he said,
"and we can put a pipe line from one
to another OF them when needs be-
come too great for local money sup
ply. always remembering that the
loans come In and are secured by local
member banks
The federal reserve board can out
line a credit folicy, but Il u very dim
cult to enforce II because Of this mem
Der bank proposition. There are 30
QUO Of them and they take the respon-
sibiiity In the first instance.
sems Credits Dangerous
Some Of them hold unused lending
powH. while others In credit strin-
gency go into the Federal Reserve
hank and get wider. even dangerous
extensions. That was why we had to
establish the progressive rate. TO pen
alixe the heaviest borrowers, but we
hope wen never have to put progress
sive ntes In effect again"
There Is q prevailing Impression
that the break In general prices dur
Ing 1870 was due 90 the restriction Of
credit. and that the reserve board was
responsible for the restriction" Rep
resentative Mills (RepJ. New York.
said.
There Is nothing In It." Governor
Harding replied. Our efforts were
devoted In 1920 TO preventing q col
lapse OF our banking system.
/'It isn't our duty TO enhance or re-
duce prices. but credit In based on
prices, and In 1870 we had most sig
nlficant signs that q break WAS COM
Ing"
Collapse Would Havs Come.
"what do you think would have hap
pened II you had not adopted restric-
ton policyr" asked Senator Lenroo
tRep.). Wisconsin.
You can tell what happened In
There would have come collapse az
gravated by banking insolvency"
Suppose the board had restricted
earlier" Senator Lenroot. said "would
not the rise In prices been lessenedr
That's probable Governor Hard
ing said. "rll he frank with you.
Had interest rates been put up earlier.
the runaway movement OF prices and
speculation might have been checked.
And II might have been better"
Representative Summers Dem.) OF
Texas, suggested that "the word had
been passed out from the reserve
banks" during 1919 and 1920 telling,
bankers 10 beware Of prices and cred
its on farm products particularly.
Says Bankers "Passsd Buck"
Nothing went out from the reserve
board that IL Inconsistent with my
statements" Governor Harding ne.
Piled, "but I want you To understand
that In human psychology a country
banker declining TO loan wants 10 re-
tain friendship OF the customer II he
can. Ma bank wants TO make per-
sonal enemy. The banker passes the
buck. and says the reserve bank has
called In all loans and he cant iend.
That lets him out, but creates that
widespread sentiment you cite"
Governor Harding insisted Il had
not been the policy Of the reserve
board. or Its Idea. TO reduce prices. or
TO spread the idea they are going to
fall.
you must know the pressure which
came upon Us TO issue general state.
ments." Governor Harding saId. 'bu,
we never issued one unless silence
would have made matters worse"