Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-09
BANK RATE RAISED
TO AID CONF |DENCE
Gold Inflow Stopped, Reserve
Officers Hold Need for
Cheap Money Ended.
BY DAVID LAWRENCE.

Coming on top of the announcement
of far-reaching plans to ease credit
conditions in the United States, the
advance of the rediscount rate OF the
Federal Reserve Bank of New York
from ! u to 2l2 per cent naturally
brought much questioning today as to
its purpose and significance.
It can be disclosed the move is en-
tirely in harmony with the feeling OF
the Federal Reserve Board here and
that members of the latter body have
for some time felt the rate in New
York was too low and ought to be
corrected. so as to make possible a
realignment of interest rates generally
Money that is so cheap 1t is not
worth lending forms a glut and the
banks of the country generally have
been struggling to overcome the handl-
can of cheap rates. Now they can ad-
vance slightly the rates to deposltors
and can make other adjustments SO
necessary to the earning power OF
banking institutions.
Regarded as Constructive.
AS a whole, the step was regarded as
a constructive and healthy measure for
the banking world and, curiously
enough. it was emphasized today that
the incident illustrates, more than any
thing else, how much less bearing now
adays than formerly a change in the
rediscount rate has on credit conditions
If anybody Is interested in the atti-
tude of the Federal Reserve toward
easier credit, he need only look at the
large purchases made by the Federal
Reserve system in the last two weeks OF
bankers acceptanceS. 1t is the bill mar
ket and purchases of Government Sc
curities by the Federal Reserve Banks
themselves which is barometer OF how
the central banking authorities feel
about the extension of credit.
Actually of course there has been an
outflow CT about $400.000,000 Of gold
and in normal times this alone would
mean an advance of the rediscount
rate so as to keep gold at home. But
the Ia per cent rate was established
in order to stop the inflow Of gold and
now that this has been accomplished,
the Federal Reserve authorities feel 1t Is
perfectly safe to disregard that factor
and concentrate on the Importance
of lining up interest rates for domestic
purposes. incidentally the Bank of
France raised it's rediscount rate today
so as to synchronize it with the Ameri-
can rates.
Renewed Confidence Sought.
The events of the last "a hours show
that the prime concern OF the banking
elements of America together with the
Federal Reserve Board is in the re-
Mobilization at home and the rediscount
taken to stimulate revival in conf
dence in the operations of America s
credit system.
1t is evident from the questions be-
ing asked here today that there is some
confusion between plans announced and
plans contemplated but not yet formu-
lated Thus Senator Glass OF Virginia,
author of the Federal Reserve act, and
ranking Democrat on the Senate Bank
ing and Currency Committee, issued a
statement saying he did not favor any
plan to create within the Federal Re
serve System a pool to take over the
work of the newly organized National
Credit Corporation, because he did not
think the Federal Reserve should be
asked to rediscount paper not now
eligible for rediscount.
Actually the information given out as
to the part the Federal Reserve System
would play In a banking pool had refer
ence to the project revealed by President
Hoover as having been undertaken on
September in connection with liqui-
Eating banks. Such machinery would be
possible within the Federal Reserve Sys-
tenn by amending the law and has moth
ing to do with ineligible paper or frozen
assets. 1t concerns the recapture by
Gepositors of cash held up in liouidating
banks due to the red tape of foreclosures
Steps in Program Outlined.
Here is brief outline Of the various
steps in the Presidents program as they
have been projected:
First, bankers pool, organized vol
unfairly by the bankers of the country
to set up through local clearing house
associations means of lending on slow
or frozen assets or securities not eligible
for redisccunt at Federal reserve banks
A capital of $500, 100000 is being SUBJ
Scrlbed, but the corporation will have
the right to issue another half billion
the same way If necessary. No warrant
of law is needed for this and no con-
f1ict with Federal reserve act provisions
is involved.
Second, another bankers pool with
approximately $500,000,000 available to
accelerate the payment of cash held BY
liquidating banks and large part of
which the depoSitorS ordinarily get back
IN the course of six to nine months.
This does not mean rediscounting in
eligible paper but releasing good assets
tied up in closed banks. Such a step
would now be taken by private banks,
but it properly can be handled by the
Federal Reserve System If Congress ap-
proves a recommendation to be sub
mitted by President Hoover. The con-
troller of the currency, John Pole, has
been working on this plan for many
months. II would authorize the con-
troller's ONCE to work with local or