Evening star., 1932-02-12
Rate by Mail-Payable in Advance.
MARYLAND and Virginia.
All Other States and Canada.
Memher of the Associated Press.
Releasing Hoarded Gold.

An old banker who had been
through much Of the same sort Of
thing before, was asked for comforting
advice on how best to stand the
stresses and strains of the period
Keep liquid, son." he replied. Good,
sound advice, ordinarily. Any bank
that keeps liquid can face its de-
positors any day of the year with the
confidence born of knowledge that
there is enough cash on hand to meet
q panicky rush of those who want to
feel their gold and see that it is there.
But the effort by the banks to keep
liquid" has become one of the vicious
boomerangs of the period. To remain
liquid, the normal extension Of credit
has been retarded. Loans have been
called. Money in vast quantities has
accumulated cobwebs and boarding,
openly deplored, has been encouraged
nevertheless. One can denounce the
bankers for lack of courage and timidity
in lending, but the average banker OBJ
alternative, in too many cases pre-
sented, of closing the bank to stem the
tide of depositors who want their
money NOBODY can blame him.
One of the chief purposes of the BIZ
partisan bank bill. under the care of
Senator Glass in the Senate and Rep
resentative Steagall in the House, is
to furnish the banks with something
mere tangible than confidence, en-
abling them to follow the bankers ad-
vice to keep liquid" but at the same
time providing them with facilities for
extending credit without running the
risk of inability to meet an emergent
demand for cash. The bill is intended
to accomplish this by modifying the
redscounting section of the Federal
Reserve act by making available for
rediscount certain types of paper that,
while potentially sound enough, are
not now claSsed as eligible" collateral
for loans to the member banks, and by
enabling the Federal Reserve Board to
use Government bonds as a basis for
is intended to correct one of the de-
fects of the Federal Reserve system
as exposed by the depression. The
statutory requirement that Federal
Reserve notes must be backed by a
minimum of 40 per cent gold reserve,
while the 60 per cent balance is to be
made up of commercial paper of pre-
scribed types, has resulted in an ex-
ceSsive amount of gold reserves in
relation to the amount of commercial
paper. The shortage of the latter
type of security has forced the system
to make up the balance in gold. This
has led to an accumulation Of idle
gold that should be free. BY making
direct obligations of the United States
a basis for Federal Reserve currency
issues and fortifying the gold status.
the amount of currency for issue will
be increased at the time that restric-
tions are eased on its availability to
the member banks.
One naturally anticipates the charge
that this bill represents another step
to counteract defiation by initiation. But
such charges will represent cynicism
and not the doubts that result from
judicious opinion. The chief purpose of
the bill can probably be described as
releasing the gold that technical pro-
vision of the Federal Reserve act has
required unnecessarily to be held. The
bill does not offer opportunity for any
dangerous imitation of currency beyond
the amount of a safe gold reserve. The
success of the BILL the provisions OF
which are to be effective for one
year only, depends upon whether the
situation it aims to correct is really
in large measure responsible for the
paralysis that has resulted from the
depression, preventing healthy recovery.
The bankers and economists believe that
that situation is to blame, and that this
bill will go far to remedy it.