Norwich bulletin. [volume] (Norwich, Conn.) 1895-2011, 1922-02-02
BANKER GIVES TALK TO ROTARIANS

ing the use Of bank credit was In the
form of note issue, and being subjected
to no central supervisor, lacked stabili-
ty and constant value. The national
banking period developed larger use Of
deposits than of note issue Not issue
as a privilege under federal supervision
resulted in stable values. This period
ended by the passing In fave Of bitter
opposition, of bill permitting the ex-
ba INKS for twenty years more.
The second period was from 1883 to
1899 and was one OF natural develop
ment, While circulation was declining
the extending of credits through depos-
its was rapidly growing.
The third period from 1900 to 1918
was that of development Of smaller
banks This was aided by the reduction
of the required national bank capitalize
ton from $4,000 to s25,oo0, by which
many small places were enabled to en-
JOY banking privileges.
The Present Period.
The passage of the Federal Reserve
Act in 1913 ushered In the present pc
Rod Under the old national bank sys-
| tenn Of note issue, it was very ineiastic
| and no provision was made that enabled
| banks in times OF distress to realize on
their scommercial paper. This led to
many banks carrying larger lines Of
| bonds, which they used as collateral for
| loans from the reserve banks in the
larger cities. When these larger cities
lacked funds, money was high and cred
| It difficult to get. This led to violent
| fluctuations In interest rates. Under the
reserve system the use of commercial
| paper In these stringent periods was
| developed and the cause Of these rapid
| changing rates was removed. In ca Sc
| of need, these Federal Reserve Banks
! can issue their own notes secured by
| goverrment bonds or by other collateral.
| They are allowed to rediscount for the
member banks OF the system. commercial
| paper, under certain conditions as fol-
lows:
(a) It must be a note. draft, or bill
| OF exchange which has been issued OF
| drawn or the proceeds of which have
been used OF are to be used in the first
| instance in producing, purchasing, car
rying or ma rketing goods in one or more
of the st cps of the process of produc
tic;1. manufacture. or distribution, OF
for the purpose of carrying or trading II
bonds or notes OF the United States.
Cb) It must not he note. draft OF
bill Of exchange the proceeds Of which
| have been used or are to be used fo1
permanent or fixed investments of an!
kind. such land buildings. or ma
chinery, or for any other capital pur
pose.
| (c) It must not be a note, draft, o.
bill of exchange the proceeds of whicl
have been used or are to be used TO
investment OF purely speculative char
| acter or for the purpose of lending t.
some other borrower.
(dlIt may be secured by the pledg
of goods or collateral Of any nature. In
Guiding paper. which is ineligible fo
rediscount, provided it (the note, draft
or bill of exchange) Is otherwise eligi
BILE.
: This system has developed q sound fin
arcial protection against panics as show
: the past two wears when we have pass
ed through the greatest defation perio
| In financial history, in an orderly pre-
cess, in great contras st with other sud
den financial disasters. BY regulatn
credits through its members, thereb
stopping imitation, unnumbered failure
have been prevented. To this end. tt
{ member banks of the system for Owe
8 | two years have worked together
. that We now feel the crisis is past an
: good times are ahead.