Evening star. [volume] (Washington, D.C.) 1854-1972, 1933-03-08
BANKING SITUATION
SOMEWHAT EASED|
Yesterdays Partial Opening
Helps Understanding of
Special Regulations.

ing pay rel cNeckS ana providing luiluS
for essentials.
Thus. in the third day of the ex-
traordinary national financial paralysis,
with the special session Of Congress
called to deal with the crisis only one
day away. more distinct STRINGS Of
business in the banks inspired fresh
hopes of early lifting Of the cloud CT
uncertainty Yesterdays partial re-
opening Of the banks had been re-
stricted by conflicting interpretations OF
regulations.
Clearing house associations in various
parts of the country were preparing
issues Of scrip, a special money" which
may be paid out, under the authority
of Treasury Secretary Woodin, starting
Friday, but with the Federal Reserve
banks beginning for the first time this
week to provide member banks with
began to wane.
In both washington and New York
the opinion that the Federal Reserve
system provided readymade means
of emergency issuing of currency was
said to be gaining ground, while the
plan of having region clearing house
groups issue scrip or certlhcateS mao
become involved in difficulties when
means were sought to make such a
medium nationally negotiable.
Plan Is Delayed.
Because many banks are not men,
bers of the Federal Reserve system, 1t
appeared that the scrip plan might de-
velop on g local basis in many COM
munitieS, and New York State was
ready with its new Emergency Certln-
cate Corporation" headed by former
Gov Alfred E. Smith, to develop this
form of emergency currency. But the
New York Clearing House, which had
already ordered q substantial volume
printed, held its plan in allegiance.
Some banking authorities expressed
the opinion that the only way that
local clearing house issues of scrip
could be made readily acceptable IN
distant cities would be through Gov
eminent guarantee, and 1t was felt that
Government guarantee on scrip would
be the equivalent to special issue OF
Federal currency, for which the Federal
Reserve System was already prepared
With the Glass Steagall measure
enacted a year ago, permitting the
using Of Government bonds as backing
for Federal reserve notes. In place OF
the previous so per cent backing OF
commercial paper, it was explained
that the Federal Reserve System could
legally issue an almost unlimited
amount OF currency.
The Federal reserve act permits the
system to let its gold reserve run below
40 per cent in emergencies, but deter
mination to bring gold out OF boarding
was seen in the regulation partially
reopening the Federal Reserve banks,
as we'll as in President Roosevelt
banking holiday proclamation issued
any-1vv Iov, NJ
WINGED that maintenance OF the gold
standard was one of the administra-
tons cardinal detectives.
Banks Responsible.
The order issued by Treasury Sec
tetary Woodn, providing for resump-
ton Of reserve bank operations. was
first made public late last night by the
New York Reserve Bank, and provides,
among other things. that a reserve
bank may not make advances to a
member until the member has ex-
changed all Of its gold and gold certifi-
Gates for other currency. Further
more, suggestions to tax gold or make
it acceptable only at discount after
a certain date have been discussed as
measures to bring the metal out of
boarding. The New York Federal Re-
serve Bank has for years made 1t a
practice to take names and addresses
Of persons withdrawing substantial
amounts of gold.
This order places the responsibility
OF passing Judgment as to which banks
are deserving of Federal Reserve aid
in meeting pay roll and other essential
requirements. squarely upon the shoul-
ders of the individual Reserve institu-
ton. saying that it may serve member
al, 10 i,,Irr % I,a
Federal Reserve Bank, are complying
strictly with the spirit and purpose as
well as the letter Of the regulations
issued by the Secretary of the Treasury
pursuant to the Presidents proclama-
ton
Yesterdays experiment in partial re-
sumption of banking service was not
widely successful. In New York and
Chicago great confusion as to what
the banks could do developed. but 1t
appeared today that difficulties had
now largely been ironed out and the
opening of the Reserve banks was ex-
pected to help considerably. The Re
serve banks were permitted with limita-
lions to resume such accommodations
as clearing checks and collection items
and making transfers of credit between
member banks, so that necessary move
ment Of funds between cities would be
facilitated.
New York Scrip Sought.
The New York Clearing House plan
OF issuing scrip or certificates to meet
the emergency was among the first to
be developed in a large city since the
bank crisis developed with full force
last Saturday. and attracted much IN
terest over the country, particularly IN
other cities planning similar moves. so
the holding of the plan in allegiance
proved somewhat confusing. :,
While the plan has not been formally
announced in detail, it was learned
that 1t provided that any member might
deposit certificate of indebtedness. &C
cor,nanied bv suitable collateral. with
the clearing house and receive in turn
the scrip. which the bank could pay
out in cashing checks. Each member
would paw a small rate of interest on
the Indebtedness to meet expenses OF
the plan 1t could pay of its certlhcate
of indebtedness at any time with scrip
or cash.
As soon as it was announced that
the clearing house was planning 70
issue scrip. New York banks began to
receive inquiries from correspondent
banks in the interior as to when they
could get the New York scrip, which
-
would have wide circulation.
Pay Roll Racket.
There was considerable confusion re-
garding the meeting of pay rolls. Many
banks were besieged with large checks
at the opening, each one conspicuously
marked pay roll" While some checks
for moderate sums were met, payments
on others were not made and corpora
lions presenting them were advised to
pay their employees by check instead OF
cash.
"You might call it pay roll racket, y
said one bank official
I'VE discovered that one OF our
customers drew pay roll checks on three
of our branches. In other words, an
attempt was being mace to draw out
three times the amount OF cash neces-
sary to meet the regular weekly wage
enhancement of the c0mDany We