Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-03-25
RESERVE POLICIES
|. QUESTION REVIVED
McGarragh Statement Again
Raises Discussion Over
Changes in Rates.
BY PRESTON s. KRECKER.

Special Dispatch TO The Star.
NEW YORK, March 25.-The ques-
ton how far the Federal Reserve Board
in Washington should go in overrulins
regit al Reserve bank directors in mat
tiers of discount policy, which is not q
new issue, is raised afresh by Gates w.
McGarragh, former chairman of the
Federal Reserve Bank of New York,
his annual report for 1929.
In that document Mr.. McGarragh, no
has since resigned to become president
of the Bank of International Settle.
ments, in Basel, Switzerland, states that
for a number of weeks, from February
to May of last year, the New York
banks directors repeatedly voted an in
crease in the banks discount rate only
to be overruled each time by the Wash
ington body. It will be recalled that
the rate eventually was raised, but not
until the following August months after
the banks directors first thought credit
conditions called for an increase.
Opinion Sharply Divided.
The implied criticism of the Federal
Reserve Board by Mr.. McGarragh is un-
usual from banker noted for his con-
ServatiSm. 1t reveals how sharp was
the division of opinion between the New
York banks directors and Washington
on the rate policy last year. 1t shows
further that the New York bankers put
up a strong fight for a cut before they
surrendered to Washington.
The point is that, in the opinion OF
many bankers, the devastating break in
the stock market last Autumn might
have been averted had the central
banks put The screws on the money
market early in the year, as the New
York banks directors sought to do. As
it was, the orgy of speculation on the
Stock Exchange was continued for sew
er:l months longer while the bubble of
imitation was blown bigger, with the re-
suit that when the boom did collapse
the destruction was far-reaching.
All of that is water over the dam.
The question now is merely whether
lesson can be learned by experience.
Some bankers believe such lesson can
and should be learned and applied in
practice. The suggestion is that when
the directors of a regional Reserve bank
decide definitely on a change in the
bank rate they make public their de-
cision irrespective of whether Washing
ton vetoes that decision or not. BY 50
doing they would lift the veil of myS>
terry, which breeds uncertainty. The
public would be advised at least Of how
lAAC buAlh . NIANCbOlo 4CC4 dUOuI Jk1C
situation and could be guided accord
ingly.
Controversy Recalled.
Under existing practice a very few
become exclusively possessed of infor-
nation of immense and general impor-
lance to all business men and bankers
everywhere, while the latter are kept in
the dark and grope along trying to find
out where they stand. If, moreover,
publicity should be given to Reserve
banks decisions the moment they are
made, the full responsibility for failure
to make the desired change could then
be placed Squarely where 1t belonged.
The episode to which the New. York
Federal Reserve Bank report refers
brings back to mind the famous contro-
versy that arose between the directors
Of the Federal Reserve Bank of Chicago
and the Washington board in 1927 over
| proposed change in the rate. On that
occasion the board probably exceeded
its authority in forcing the Chicago
bank to cut its rate.
tCopyright, Iss0)