Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-01-21
HIGH MONEY RATES
HELD CREDIT CHECK
Harrison Disputes Theory
Increased Interest Charges
Reduce Speculation.

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Reduce Speculation.
Possibilities of changing the law 10
prevent use Of Federal Reserve Bank
credit for stock speculation were dis
cussed before the Senate committee
investigating banking conditions.
George l.. Harrison, governor Of the
Federal Reserve Bank Of New York,
and Chairman Glass Of the committee
agreed the intent Of the trainers OF the
act was to keep Federal Reserve funds
as far removed from stock speculation Is
Harrison said this was being done, but
Glass was not convinced and expressed
the hope that Reserve Bank credit for
stock market gambling could be con-
trolled by charging higher rates for such
loans.
Harrison disagreed, saying he believed
it was impossible to make money cheap
for business and expensive for specu-
lation" as the credit pool Is too big
for any group to dictate the rate for
different. classes"
He added any effort to control ex-
pansion Of credit for speculation would
be 'prejudiced by the fact that loans
can be made for speculation outside the
national banking system"
He said the present law does not au-
thorize Federal Reserve bank to in
quire of a member seeking q loan the
purpose for which It Is 10 be used and
doubted the wisdom Of such q provision.
Branch BankinR.
Gov. Harrison was the second wit
ness to be called before the subcomnnit-
tee, following John w. Pole, controller
of the currency. He agreed with Pole
in recommending legislation which
would permit the establishment Of
branches by national banks, and went
considerably farther than the controller
in advocating the separation Of banks
and security houses.
why do you apply a high rate and
penalize legitimate business in order to
control speculation" Senator Glass
asked.
Putting up our rate" Gov. Harrison
replied, was Q means of preventing
the too rapid use Of the country's credit
facilities for speculation or any other
ANY other form Of control is inenec-
tive, Gov. Harrison told Senator Wal
colt of Connecticut, subcommittee
member, In response to q question, add
ing:
"When money Is controlled by the
rate it invariably results In the liquids
ton Of the least desirable loans, aS
banks adjust their credit positions
through collection Of call loans farst."
Senator Glass interpoeed the remark
that he never saw either the fairness
or effectiveness of increasing the rats"
and Senator Walcott suggested the pos
sibKlity Of q special tax on speculative
buying and selling Of securities, which
brought the following response from
Il don't believe it Is possible In any
vay to make money cheap for BUSH
ness and expensive for speculation. The
pool of credits In this country 10 100
great"
Pictures Credit Situation.
He also said he believed that busi-
ness does not mind paying the premium
for brief periods OF high rates. Tne
greatest strain on. credit control, ne
added. came In 192S-1e29, when private
lenders stepped in 70 MI the gap Gre
ated by raises in the rediscount rates.
This later had q serious effect on banks,
he added, for inevitably when. the
structure went into reverse those loans
were thrown hack on the banks.
A lengthy discussion concerned pro-
cedufe Of the Federal Reserve Banks IN
Observing the statute In the Federal
Reserve act which forbids Fedtscount OF
paper pledged Is security with banks
for loans for speculative purposes.
Senator Glass inquired closely INTO
Reserve Bank after Gov. Harrison
testified he did not believe It IS ''prac-
ticsl for a Federal Reserve bank to try
to control the use Of Q loan" by men,
Der bank.
This impracticability, he added, was
due to the fact that member banks
themselves may not be able positively
to state the purposes Of loans MADE 70
customers.
GOV. Harrison took the position
that the most q Federal Reserve bank
car. do is to see that its member banks
keep their various types Of loans IN line
with the general level. Gov. Harri-
son had testified that his bank would
not necessarily turn down . request Tor
rediscount or legitimate business paper
because the bank applying Tor redis-
count had become temporarily over"
loaded with stock loans.
Then bank may use its redweount
privileges to supply detciency u cree
its due to stock loansT" asked Senator
Glass.
"I wouldn't say that We nullify the
law in that manner" replied Gov. Har-
rison. I'VE would control that bank on
the grounds that they are borrowing
funds too diSproportionately out Of line"
Discusses Bank Failures.
Gov. Harrison charged that most Of
the 5000 bank failures in the United
States IN the last 10 years were lin great
part attributable TO abuses Of the priv"
ileges provided by law" and in another
portion Of his testimony state:
You can never set up system that
viii protest q depositor against dishon'
esty and bad Judgment"
Other causes for bank failures
ascribed by Gov. Harrison included the
liberalization Of laws by competing leg
islattye bodies and real estate loans
made during the era Of imitation IN an
honesty, but with sometimes disastrous
results to banks holding large amounts
Of this paper.
Gov. Harrison also agreed with Con-
troller Pole that some form OF discipline
for banks which overstrain their re-
sources or indulge in unsound practices
might be formulated.
Other changes in laws must be made,
he testified, to cover the multiple activ-
tiles of modern banks and the inclusion
of savings deposits or time deposits"
in the business of commercial banks.
Gov. Harrison recommended legal
changes which would require banks 10
carry the same reserves against savings
deposits rs against checking accounts.
Regarding operation Of security houses
by banks, Gov. Harrison stated unequiv-
ocally, II myself should rather prefer
that no commercial bank should have
Q security afiliate."
He recommended as an alternative
that the controller Of the currency be
empowered legally to examine into the
affairs Of the companion security houses
as closely as into the banks.
When Senator Glass asked II Sc
curity afiliate of bank. lis not an
organization primarily for evasion of