New-York tribune., 1922-01-22
By John n. Rich
Reserve Agent Federal Reserrs

Reserre Agent Federal Reserrs
Bo'ak Of Minneapolis
<scall a period not very long age
,Asn there was nothing but praise OF
10 Federal Reserve system. I was
;apo,ed to believe then that condi-
isns would change. Now that we have
sas over the top Of the hill 1t -
.rfectly natural that many people
hsuld look for some one to blame for
..s;r difficulties, and the Fedora! Re
.ve banks have offered shining tar
~. IL is regrettable that so much
: hi. criticism is based upon igno-
...ce. incomplete understanding OF the
let, and erroneous conceptions. The
.u, will come. however. when the
..r,.e OF the Federal Reserve banks
sr,;rv the war and since will be seen
n better perspective.
am Of the opinion that there are
,ome points in connection with the
w.. ~. cc,icy Of the Ninth Federal Re-
..v. Rank which arc not as we'll un-
S.,,,ood AZ they should be. Before
'ann,;ns an opinion on what this
oaS;ry should he it might be we'll to
ts., two points very clearly in mind.
-ss M frst is that the rediscount rate
IA, no direct relation to any interest
~. 49, charged by any bank to any Gus
.omcr The second is that q uniform
h..;s os interest rates in this coun-
~ i. impossible. The vast areas OF
.bs United States and the difference in
Tho state Of development between the
var;ous areas make II uniform basis
impractical. If it were practical, and
i L should be adopted. the first effect
would be to injure severely the North
vest and all other partly developed
sections. The Importance of the re-
discount rate OF the Federal Reserve
Rank from the standpoint of banks and
bankers is exaggerated. Prior to the
establishment Of the Federal Reserve
sy,.en, bankers customarily met sea-
scnsl demands or the requirements OF
,uods of stress by borrowing from
.s.I. correspondents at the financial
c.nters, and this borrowing was at q
rate dependent upon conditions. There
sH at that time no assumption that
Ii. rate charged at such centers upon
,u,h loans should influence or contrel
riny way the bank rate to customers
This condition has changed, and while
t,nks still borrow from correspondents
hey also borrow ncdN!ly from the
FEDERAL Reserve Bank. In both cases
he rate charged is the price of &C.
,.mmodation to the bank and not to
h. customers of the bank. The Gus
omer still pays. as he always HAS
.uch rate as current conditions and
his own credit entitle him to.
No Legal Restriction
Nothing in the law and regulations
cs the Federal Reserve Board gives any
FEDERAL Reserve bank any control, su-
pnision, authority or influence over
INV rate charged q customer by any
member bank 1t is therefore An ab-
urdity to assume that the rediscount
ra,. level of the Federal Reserve banks
il the general basis upon which rates to
borrowers are fixed, or that it con-
srols. The connection, if any, is Of q
yery indirect character.
There is a real Importance in the re-
suction Of Federal Reserve bank rates
which is very often overlooked. This
lies in their effect upon interest rates
charged upon transactions that are en-
tirely outside the banks. / refer to
farmers notes for overdue balances
with merchants, machinery firms, etc,