Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-10
FURTHER ADVANCES IN u. S. BANK
RATES ARE EXPECTED SHORTLY

Reserve districts of Philadelphia, Rich
mond, Atlanta, Kansas City and Dallas
have been on 3 per cent rediscount
basis ever since New ork went to ia
per cent early in the year.
AS was TO be expected the advance
in the rediscount rate here was fol-
lowed by higher bill rates today. Deal
ers quoted 90-day bills at y to l pe<
cent above Thursdays bid. There was
time money, which lately have gone
from per cent to 23t per cent and
were yesterday quoted Arm at 8 per
cent for collateral loans.
1t had been supposed that the call
money rate yesterday would reflect the
higher terms quoted by the Federal
Reserve Bank, and although the day
rate was not announced until long
after the usual time, 1t was again ~
per cent. the figure that has been in
operation with almost no change
throughout this year.
There Is q decided difference of
opinion concerning the effect Of the
rediscount rate advance on the banking
situation and on the investment market
For moths there has been little profit
to q correspondent bank in depositing
its funds in central reserve district.
With a nominal demand and a mini
mum rate for call loans this once pro-
fitable avenue for the surplus funds of
banks has been shut of. The argu-
ment, however, that an increase in the
rediscount rate from III to 2I2 per
cent will re-attract to the banks those
deposits which they have lost, Is not
to be sound.
While there has been a considerable
transfer Of deposits from commercial
banks TO savings banks in order to
obtain the higher interest rates Of the
latter, the main motive has been that
OF increasing the margin of safety
rather than the amount of return. This
applies particularly to the deposits of
individuals. Corporations whose de-
poSlt rate had dropped down to a mini
num- and, therefore, were compelled to
purchase short term paper, may be less
disposed to follow out this policy when
the readJuStment in the deposit rates
OF banks Is made to the 2l2 per cent
rediscount rate Of the Federal Reserve.
Effect on Investment Market.
Ordinarily an advance in rediscount
rates Is construed as bearish on the
investment market. Conversely, a re-
auction Is accepted as bullish. How
ever, the succession Of cuts in the re-
discount rate in New York did not pro-
duce the improvement anticipated in
bonds, which steadily declined as rates
dropped, but not for reasons identified
with the money market. 1t has fire.
quently been stated that a or 31a
per cent rediScount rate, as the true
expression of the business conditions
of the country, would be more beneficial
to the bond market than a ~ per
cent rate rejecting an almost absolute
stagnation in commercial lines.
The point at which the higher redis-
count rate does affect the investment
market is where 1t touches Government
financing. This is extremely sensitive
to the ups and downs of the official
money market. 1t has been during the
period OF 1ls per cent rediScount rate
that the Treasury has been able to sell
its short-time bills to greatest advan-
tage. The 21s per cent rate now in
effect will doubtless demand some
change in the terms proposed for this
same kind Of financing in the next 80
days and in the important operations
that must be put through before the
end OF the year.
(CopyriEht, 1919