Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-02-02
PRAISES RESERVE ACT.
Mitchell Believes Banks Are Natural
Agencies" for Call Loans.
BY DAVID LAWRENCE.

Looking retrospectively at events
leading up to the stock market crash
Of October, 1929, the Senate committee
headed by Senator Carter Glass Of Viz
GINA, Democrat, sat down with Charles
e. Mitchell, chairman OF the board OF
the National City Bank of New York,
and talked over informally what might
have been done and what changes in
the Federal reserve act might yet be
made to adjust the many factors in the
Nations credit machinery.
Mr. Mitchell declared at the outset
that he believed the Federal reserve act
to be one of the most constructive pieces
of legislation in recent years and that
It had proved itself of great benefit to
the country. He said that it was nat
ural that from time to time there should
be discussion Of changes In the evolu-
ton Of the Federal reserve system as
circumstances developed and that he
was ready to furnish the committee
with all the information at his disposal
and to give the benefit of his experience
as a director of the Federal Reserve
Bank in New York in studying the
operations Of the Federal reserve sys-
tenn.
Call Market Loans.
In attendance at the hearing were
Board, and Adolph c. Miller, member
of the Federal Reserve Board since its
inception.
Mr. Glass sought by his questions to
ascertain just what effect the lending
Of money in the call money market by
corporations had on the general credit
structure and asked Mr.. Mitchell If he
didn't think the banks should have re-
fused to make call loans when it ap-
peared that legitimate business and
commerce was being adversely affected.
The New York banker declared that
If he could think of a way TO curtail
such lending he would be glad to sug-
gest 1t, but that the banks did not
make loans for the account of others"
agencies would be organized to do the
job, and he thought that If it was
going to be done at all, the banks were
the natural agencies" and were well
equipped to handle call loans.
Rediscount Rate.
The questions and answers brought
out the fact that Mr. Mitchell believed
that the rediScount rate might have
been advanced sharply during 1929, in
order to- cut down the volume of collat-
eral loans. He said that this was the
view Of the Federal Reserve Bank Of
New York at the time, and that there
were differences of opinion between the
directors of the Federal Reserve Bank
of New York and Of the Federal Reserve
Board in Washington.
II believe We were right about It," he
said, but we couldn't prove it,
The discussion led to the possibility
of strengthening the Federal Reserve
act SO as to prevent corporations from
engaging in the business of lending
money on an extensive scale, in fact,
conducting banking operations.
I'm not a lawyer" remarked Mr.
Mitchell, but should think that 1t
might be possible to prohibit corpora
tons from doing things which we have
TO pay to obtain the right to do"
you are right" commented Mr..
Glass, and think there might well be
such law"
Credit Uses.
The Virginia Senator asked Mr.
Mitchell II it wasn't true that some
corporations had issued stock to the
public and used the surplus funds for
the very purpose Of lending money in
the call money market, which during
1929 yielded such high rates of return.
The New York banker said that he did
not know Of a single instance Of that
kind. Senator Glass said that It was
the information of his committee that
there were number of such specific
instances.
Mr.. Mitchell made 1: clear that he
believed that in the matte of call
loans what was happening in The in
vestment market had become such
vital part Of the whole credit picture
that 1t was difficult to eliminate
loans for the account of others" from
consideration in examining the effective
ness Of Federal Reserve operations, and
that he thought in some way ali ire
factors in the use of credit should be
fuzzy appraised in the making of
policies Mr. Glass said that in the
drafting of the Federal Reserve act it
was specifically intended to exclude the
loans in the investment markets and
Mr.. Mitchell remarked that nobody was
In q better position to interpret the
intentions of those who framed the
Federal Reserve act than Senator Glass
himself, who played such prominent
part in giving 1t birth"
Mr.. Mitchell did feel, however, that
any academic consideration Of credit
conditions must necessarily include all
uses of credit, whether in the field Of
collateral loans or in the channels of
industry and commerce.
Inquiry to Continue.
The Senate committee is 20 continue
It's investigations throughout the next
making a report next December IL pos
sible on changes In the Federal Re-
serve act with the idea of preventing
q recurrence Of the imitation which
brought on the panic u 1929.
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