Evening star., 1925-05-11
CURB ON RESERVE
BANK POWER URGED
McT Tadden to Seek Repeal OF
Wartime Amendments Be-
fore Next Congress.
BY CHAS. p. SHAEFFER

BY CHAS. P. SHAEFFER.
The present is propitious time 10
"demobilize the Federal Reserve banks
by repeating certain wartime amend
ments that clothed them with extraor-
dinary powers to control credits" II
is declared in statement by L. T.
McFadden, chairman Of the House
committee on banking and currency,
made public today.
Mr.. McFadden said, in part, that
reserve notes should be issued only
against commercial paper in response
to trade needs for, under the present
system, the reserve banks NAV issue
notes against gold, thereby introduc-
ing rigid element in our currency
system and acquiring the means of
extending excess credits that Ameri-
can business does not need" He pro
poses to give the reserve banks Gus
todY OF only part of the member
banks reserves instead of the whole
$50 that the judgment of individual
bank mana gers may be exercised TO
greater extent in determining how
great volume of credit shall be ex-
tended.
Will Question Congress.
Upon the reconvening of Congress.
Mr.. McFadden proposes to ask that
body to repeal the wartime amend
ments that have made It possible for
the reserve banks TO use the gold
intrusted to them as reserve Of mem
Der banks to pyramid credit. In
deed" he SAYS, there is A substan-
tial basis today for charging that the
Federal Reserve banks have saturated
currency to the extent of $1,000. 900
900 and have contributed TO the glut
of easy money and the resultant
speculative movements.
We should go back to the original
plan where the reserve banks were
directed TO supply only that credit
which the private banking system
could not supply. The system was
designed as reserve banking system,
to give American trade and commerce
the credit for which there was legti-
mate need and to afford an elastic
currency, which expanded or contract
ed TO meet the changing needs for
credit"
Mir. McFadden points out that mem
ber banks are now required TO keep
their entire reserves. which have
grown TO over two billion dollars. with
the Federal Reserve banks, declaring
that the reserve banks have used
more than one billion dollars to make
loans back to member banks in the
form of rediscounts and TO engage in
Opcl Hldl RET operations.
What Banks May Do.
A Federal Reserve bank can take
one million dollars in gold. he says.
combine it with commercial paper
which it can acquire in the open mar
ket and issue two and a half mil
lions in Federal Reserve notes The
reserve banks, he declares, through
their power to acquire gold by issuing
11H-
much larger part of the Nations en-
tire stock of gold, amounting to nearly
four and half billion dollars, adding.
Imagine what would happen If the
Federal Reserve banks issued 2Ic
times the greater part of this gold IN
the form of reserve notes. Cheap
money would become even cheaper
These are possibilities rather than
actualities. But dealing with facts
alone. we find that gold holdings of
the Federal Reserve banks April J
were s2.S45, $4,000. and total deposits
81 ,186,97S, 600. while total of Federal
Reserve notes in circulation was ST.
109,610 600, or more than billion dol
lars in excess of the free gold 1t NAV
we'll be asked to what extent this bill
lion dollars in notes have contributed
TO the ease in our money market and
cut down the earnings of banks?
Thinks Power Too Great.
When one considers the powers in
vested in the Federal Reserve banks
IL is questionable whether such a vast
amount of potential power should be
lodged in any group of men. In the
firstp lace they have the power of re
discount rates. BY lowering the re
discount rates they can create cheaper
money and tend TO bring about an ex-
pansion of business by making credit
easily available a low rate. BY rails
ing them they can effectually put the
brakes on business by increasing the
cost of credit. BY their open market
operations the Federal Reserve banks
can bring about a condition that will
cause the banks either to rediscount
with them or reduce the volume of
borrowings. The reserve banks oper.
ations in conjunction with the opera.
tions of the Treasury. bring more than
S6 ,000,0 900 900 which can be used in
control of interest rates within the
reserve banks control.
Il believe that il would he wise to
restrict their powers so that they will
have power to issue notes on the
security of commercial paper TO meet
trade demands only, rather than spec
ulative needs. and that 800 members
of the Federal Reserve system will
have more say as to how credit shall
he extended. AS now operated. the
system sets up A barrier against the
operation of the natural law of sup
ply and demand of credit and i'm
poses an impediment that defeats the
ends which it was created to serve"
Receivership Is Urged.
Fred 3. Rhodes and David w Fox.~
receivers of the District Guaranty
Corporation. today asked the District
Supreme Court to appoint receivers
for the Air Line Cargo Express. In
corporated. The latter concern is AL
legged to be insolvent, and the reCeiv-
ers say they hold notes of the cor
poration amounting to s37,T4575, now
overdue and unpaid.
Attorneys Paul Dulaney and Ralph
B. Fleharty appear for the petitioners.
Feature OF Local Trading.
A fractional advance to 81 on 20
shares of Capital Traction stock was
the only feature of trading on the
Washington Stock Exchane today.
This figure marks another new high
record for the year.
Riggs National Bank stock brought
335 on sales of 80 shares, and Lanston
was firm at SAX although trading in
this issue embraced only odd lots. Five
obor IF Merpepthaler brought 1872.