Evening star., 1925-10-04
BY I. A, FLEMING.


tho session of the American Bankers
Association at Atlantic City during the
past week was the permanency OF
the Federal reserve act, enacted IL
years ago next month, chartered for
a 2O-year period only and one Of the
greatest pieces OF legislation ever
passed by Congress.
The late Thomas r. Marshall, for
mer Vice President of the United
States, in one of his most. interesting
essays. but recently published. cred
tied the debate and study incident to
the passage OF this law as most care
ful and interesting" and at the time
OF its enactment he said in substance,
this act will. If necessary, finance a
war;
Acts Value Quickly Proved.
Mr.. Marshal was wise in his day
and generation.
The Federal Reserve System did
finance a war. Not ony did it finance
the part played by the United States
In the World War. but without 1t
to carry on until the entrance OF the
United States into that titanic strug-
gle.
More than that the passage Of the
Aldrich.Vreeland emergency currency
act prior to the enactment Of the
Federal reserve act saved the country
from more serious losses in the gen.
eral slump in values following Mr..
Wilson's first election to the presi-
the burden and relieved the strained
banking situation soon after.
A few months later the great war
broke out. Had the reserve act not
been on the statutes the panic that
attended the throwing over by foreign
countries of all American securities
would have been even more disastrous
than it was. Representatives OF for
eign governments would not now be
visiting Washington seeking to ar
range a settlement OF their debts to
this country, for our Government
would not have been able to have
made the loans OF billions to the
allies at the time they did. The
war would have been lost long before
1917. while the United States would
have been in a quandry to finance her
own share Of the war had she entered
sooner or even when she did.
Industry Would Have Suffered.
Not only all this. but industry in
the United States would have been
smashed. It would have continued in
the deep dumps that 1t found itself
before It was discovered that Amer
lean securities dumped by Europe
had q real value, and that banks
could finance their purchase and re-
discount all other assets through their
Federal Reserve banks. giving bust
ness full sway.
An Offering Of ST 900 .OO0.O Lib
erty bonds might have been largely
subscribed by patriotic men of wealth,
but 1t took the millions Of subscrip-
tions from the public. repeated ore
and ore, through the partial payment
plan of banks made possible by using
the bonds themselves to secure loans
from the Federal Reserve banks.
Charter Should Be Extended.
There should be no question over
the extension of the charter OF this
great system. either in perpetuity or
for a period OF 90 years.
Speaking before the District Bank
ers' Association at the New Willard
Hotel on the Federal reserve act, fol.
lowing its enactment, the late Sen
ator Shaforth and Senator Owen re-
ferred to the measure as "a panic
preventor," the latter adding that "a
bank may rediscount and rediscount
it's assets just as long as 1t has any
thing to redicount-hence no failure.
He did not mean that a bank could
overload with high-priced commercial
or commodity paper and rediscount
when values had broken badly, as
was the case with Northwestern
banks and their wheat commodity
paper later on.
Objections Are Expected.
Objections to the extension of the
charter Of the Federal reserve act are
expected from hundreds OF southern
and perhaps some Far Western and
Southwestern banks, who object to
the par collection system in use IN
the reserve banks. They object to
paving checks, drawn on themselves,
without exchange fees. a profitable
source Of income in the days past.
There may be other objections. per
haps some from trust companies,
which find their monopoly of trust
company privileges encroached upon
by the provisions Of the reserve law
which permits national banks to act
as trustee, registrar and executors,
under certain rules, regulations and
restrictions.
Branch Banking Important.
There is a way by which national
banks may establish branches in any
part Of their home cities. by gently
beating around the bush. A savings
bank may be acquired by interests
friendly to national institution.
The savings bank may then apply for
a charter under the national banking
act, after which a merge of the ma
tional banks, or rather &. sale of the
former savings bank to the older ma
ttonal institution ends the transaction
and completes the establishment OF a
branch.
Where a purpose can be attained by
beating around a bush there should
,;,, cd IF r..
mitting the same accomplishment.
This. an amendment of the Federal
reserve act will make possible, If
adopted, permitting branch banks in
cities in which the parent institution
does business, but not elsewhere.
Such an amendment passed the
House last year, introduced by Repre-
sentative McFadden. and will be re
introduced this year, with the back
ing of bankers and with the support
of a group of independent State bank
ers who are bitterly opposed to State.
wide branch banking as now practiced
by the Bank of Italy in California.
Want Handicap Removed.
There Is no reason for handicapins
the national banks. Handicaps exist
today, and bankers want them re-
moved.
One. Of the chiefest Of these is the
present limitation Of one year as the
time limit Of time that a national bank
may hold a real estate mortgage, max
ing it impossible for national banks
to participate in the great mortgage
investment business, except so far as
they are able to acquire mortgages
with one year to run to maturity
This handicap is a serious one.
National banks are at present char
tered for 20-year periods. They should
be given longer charters.