Evening star., 1924-08-10
RESERVE BANKS HIT
BY Low INTEREST
Barely Able to Meet Expenses
and Pay Dividends to
Stockholders.
BY HARDEN COLFAX.

BY HARDEN COLFAX.
Lower interest rates, forecast by
this writer three months ago, have
reached u point where the twelve
Federal Reserve Banks taken as a
whole are barely able to meet ex-
penscs and pay the legal rate of
holders. In the case of the Federal
Reserve Bank of New York, the
largest of the twelve, earnings dur
ing the first six months of the year
failed to meet expenses and dividend
Payments by about s33o.OO0.
While the other eleven banks were
In better shape during the first
six months of 1924. the low rates are
cutting into earnings to such an
extent as to leave but little, if any,
profit from their 1924 operations
The dividends will be paid, however
1t is believed, out of surplus.
Lowest Rate in Ten Years.
New York's rate of per cent on
commercial paper up to 80 days ma
turity, adopted this week, is the
lowest ever set in the ten-year MIS-
tory of the system. There have beer
) per cent rediSCount rates before
but they never applied to paper with
a greater maturity than fifteen days
The present rate of the New York
bank applies TO all kinds of paper
Boston, st. Louis and San Francisco
in 1915; New York in 1916, and Phila-
delphia in 1917 adopted rediscount
rates of 3 per cent on Today or
15-day paper, but adhered to higher
rate on notes Of longer duration
The new rate, therefore, sets the
record. 1t is also the lowest redts-
count rate in the world
Money is cheap all over the United
States at the present time, the high
est rediscount rate in the Federal Re
serve system being in the case OF
the Minneapolis Bank, which charges
II per cent. Every Federal Reserve
Bank, according to the boards re-
port this week, has more money or
its hands than it can safely lend
The chief cause of this situation, Off
cialS here say, is the great quantity
of gold held by the banks. a con
tributing factor is the decrease in the
volume of business.
Hard on Reserve Banks.
This situation is hard on the Fed
eral Reserve Banks. but it makes
borrowing easy for business men and
also will reduce somewhat the
amount to be paid out by the Federal
Treasury as interest on its short
term borrowings when they are re-
neWed Where the Treasury was pay
ing up to 4A per cent not long ago
il now can borrow at as low as
per cent The lower rate lopS one
third off the amount of interest. III
will help the taxpayer to that extent
Interest payments on Liberty bonds
are not affected by the present low
"a 3S n
constitute the overwhelming bulk OF
the Governments annual outlay for
interest, the relief to the taxpayer
will be relatively slight. 4 state
ment made public by the Federal Re
serve Board covering operations OF
the IL Federal Reserve Banks during
the first six months of 1924, places
gross earnings of those institutions
at S20,400,000 and current expenses at
S14,7O0,OO0. leaving current net earn
dividends have been paid, as required
by law, to the total of S3,325, go.
From the remaining S2.374,O00 the
banks are required to charge off de-
probation, reserve for Die
losses furniture and equipment, self
insurance and other items. Last year
total deductions of those kinds
amounted to S,463,00
Federal Reserve Earnings.
On the assumption that these de-
ductionS will be as great in 1874 as
they were in 1928, the first half or
the current year should proNlue
revenues to meet them in the sum
of about S4,231 900. In reality, the
boards report diScloses, but S2,374, 900
has been provided. Apparently the
~ banks, taken as "a whole, have
failed to earn expenses and dlvldendS
thus far in 1924. Individual banks
here and there. have made expenses
dividends however.
Against current net earnings OF
S.. 700, 900 during the first half of
1924, the II banks showed net
earnings of sf2.711,300 in 1923, and
$I6,49T.70O in 1922. The depression
demand and interest rates were at
their highest, was period of tre-
mendous prosperity for the Reserve
Banks. Their net earnings in 1920
we're almost $50, 900, and in 1921,
sSo, 900 In 1919 net earnings
went to S7S,OOO,000. and in 1918 to
nearly $53.OOO,0OO. During those four
wears the IL banks transferred S217,-
100000 out of earnings to surplus:
During the present year they will
hardly transfer a dollar. Indeed, in
dications are that they will draw
slightly on their surplus, to meet
dividends. instead.
In 1920 and 1921 the II banks
paid into the Federal Treasury more
Than s12O,OO0,000 as a franchise tax,
the sum coming out of excess earn
ings. During the present year tney
will pay little, if any, tax to the
Government. Private business condi-
tions are good and improving, but the
Federal Governments Seml-ofnclal
banking business is at about the
lowest point of the ebb tide.