New-York tribune., 1922-01-22
Federal Reserve Policies
Defended by Banks Agent
ABSURD to Assume Rediscount Rate Level General
Basis for Borrowers Rates,
Saws Rich

and similar transactions between in
dividuals, or between individuals and
firms or corporations which are not
handled through banks. Altogether too
frequently have found that the high
redscount level at the Federal Reserve
bank is used as an argument to Justify
the high rate charged to the farmer.
Obviously there is no connection. and
this argument is simply q pretsxt for
a selfish gain.
1t has frequently come to my atten
tion that representatives OF non-mcm-
Der banks, which have no right to hor.
row from the Federal Reserve bank and
no connection with 1t, have made it
their cxcuse for charging a customer
high rate that they arc compelled
70 do so on account Of the Federal Re-
serve rcdiscount policy. Here again
IS case where there is no possible
connection. Such an argument Is un-
justihable and is simply a subterfuse.
Negative Argument
negative argument often empha-
sizes fact. II it Is q proper assump-
ton that the rediscount policy of the
Federal Reserve Bank Is controlling
factor in the rates which borrowers
pay at commercial banks, it might be
pertinent. il high rediscount rates
force high rates upon borrowers, to
ask why il was during the prc-war
period. when rediscount rates were very
low, that the existing level did
not produce very low rates to borrow
ers. 1t is common knowledge that
an advancing discount rate simply
narrows the spread between the rate
the borrower pays and the Federal
Reserve Bank rate, or, in other words.
that this borrowers rate does not
ordinarily advance as rapidly as the
rediscount rate. With rediscount rates
receding, it is improbable that the
general level Of the rate to borrowers
will recede at the same rate or in
the same proportion. 1t would be most
that rediscount rates control borrowers
rates were true. We would then have
twelve Federal Reserve banks that
ABSOLUTELY dominated interest levels in
the United States. The borrowers
rate would become hard and infexiblc
The very great adaptability Of the
interest rates to the necessity of the
particular individual or firm. which
is one of the most valuable assets of
our banking system, would be destroyed.
No sound business man or banker
would courtenancc for q moment any
policy that put the control of corn
rercial bank rates to borrowers, in
the hands of any authority except the
officers and executive committee of the
particular bank. The dangers of such
a situation are obvious, and one Of
the most apparent would be the crca-
ton Of the very situation which those
who drafted the Federal Reserve act
were most anxious to avoid-namely y.
Capitalization Of control over credit
The present situation under which
every member bank has absolute free
dom and independence in the making
Of rates to borrowers is infinitely
more desirable.
Too little consideration has been
given to the fact that while the country
was at war the rediscount policy Of
the Federal Reserve system was ncces-
sarily dominated by United States
Treasury policies. War financing cane
6rst. The Federal Reserve banks very
properly bent every effort to the sue
.s.sful prosecution of fh. war. /.
is only within a very recent period
that the Federal Reserve system has
had any opportunity to work out sound
rcdiscount policies