The Washington times., 1929-03-02
SPE EGULATIvE
LOANS HIT
BY BOARD
By HARRY GUSACK
Financial Editor


Undue expansion Of borrowings
IN any field should be restricted,
according to the annual report Of
the Federal Reserve Board for
1873, made public today by Gov.
Roy Al. Young.
Throughout the report is a warn
ing to member banks who borrow
at the reserve institutions for the
purpose of loaning money to spec
Ilators, that the board opposes such
policy and has the means to eur.
tail activity of that character.
The report is of particular sig
nificance because 1t describes the
sensational developments on the
stock markets during the year--a
period during which the use OF
credit for speculative purposes
reached the highest point in Amer.
1can history:
Governor Young called attention
TO the grave difficulties which con-
front the Reserve Board in any
economic manipulation aimed at al
tering credit conditions
In determining upon credit policy.
Mr.. Young pointed out, the Federal
Reserve system is always under the
necessity Of balancing the advanta.
ges and disadvantages.
Low money rates may have a
favorable effect on domestic busi-
ness, but at the same time may
stimulate speculation in securities,
commodities or real estate" Young
explained.
High money rates. on the other
hand, may exert a moderating influ-
ence on speculation, but at the same
time may result in a higher cost of
credit to all lines OF business and
thus be detrimental to commerce
and industry; ultimately they may
draw gold from abroad, which would
tend to ease the domestic situation.
1T is certain that the Federal
Reserve system must steer its
course with reference to broader
developments and longer time
detectives than day-to-day or
month-tosmonth changes in any
particular line of credit.
Principal among such obiectives
are the continuous provision of
credit at reasonable cost in amounts
adequate for the requirements of
trade and industry and the safe
guarding of our gold reserves, which
are held in trust to- meet future
needs, against unduly rapid absorp-
tion through expansion of credit. :"
The Federal Reserve system was
held under obligation to make such
use of its own lending power as will
be In the broadest sense, in the
interests of the business of the
country The, report said that
''since the Reserve banks hold all
the reserves of member banks, and
through credit policy can influence
the rate of. growth OF these re.
serves. the Federal Reserve system
has a responsibility, within the
limit of It's powers. for the char
acter OF growth in the total volume
of member bank credit"
Every class of loan or investment
rests in the final analysis upon Re,
serve bank credit, which is the
base of the entire credit structure.
The report declared that excessive
or too rapid growth in any field of
credit, whether it be commerce.
industry, agriculture or the trading
in securities, Is a matter OF concern
to the Federal Reserve system.
TOO rapid expansion of bank
credit in any field may result in
serious financial Reorganization and
It inevitably leads to increased de-
mand for Reserve bank funds" the
report said.
Because the sytem has a broad
responsibility for the general sound
ness Of credit conditions and be-
cause a growth of bank credit for
any purpose ultimately leads to a
demand for Reserve bank credit. it
is its duty to use Its influence
against undue credit expansion in
any direction"