The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-05-17

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Winthrop w. Aldrich. chairman
of the Chase National Bank,
brought the story to Washington
buried in a $4,000 word condemna-
/ ton of the New Deals central bank
bill. He told how the Federal Re-
serve Board blocked efforts of the
New York and other reserve banks
to increase rediScount rates in the
first half of 1929
Some New York bankers sided
with the board to keep interest
rates down and, inferentially, to
keep speculation going. Notable
among them was Charles E. Mitch
ell. who was driven from control
Of the National City Bank by Sen
ate stock market investigating reve-
lations.
Seems Strange Solution
Mr.. Aldrich testified before the
Senate committee. He complained
of political control of banking and
credit inherent in the Administra-
ton bill and, specifically, that the
plan would shift from the u re-
gional Federal Reserve banks of the
Federal Reserve Board authority to
change discount rates.
The discount rate is the interest
charged by a Federal Reserve bank
for lending to private member banks
The rate varies among the reserve
districts and, in general. controls the
interest charges of private bankers
to their customers.
Referring to the New Deal plan to
permit a politically controlled re-
serve board in washington decide
when Minneapolis. Kansas City or
any other reserve bank center shall
change its discount rate. Mr. AID
rich said:
This seems a strange solution. for
on the whole the record of the re-
serve banks has been better IN the
matter of rate changes than the
( record of the Federal Reserve Board.
Speculation Is Mentioned
I refer especially to the long diff
ference of opinion between certain
OF the reserve banks and the Fed
ersi Reserve Board over the pro-
/ posed increase of discount rates in
the first half of 1929 Dust before Mr..
Hoover's inauguration as a means
for curbing the rising tide of stock
market speculation.
The rate of the New York Re-
serve Bank remained unchanged
from July Is. 1928. until Aug. Q. 1929.
notwithstanding the vast Specula-
ton then in progress. From the be-
ginning of 1929 onward. the Girec-
tors of the New York Reserve Bank
representing private bankers as
well. believe. as the directors of
certain other reserve banks voted
consistently to raise their rates. and
as consistently the Federal Reserve
Board failed to determine"
In other words, the reserve board.
Of which Andrew w. Mellon was ex-
officio chairman by virtue of his
position as Secretary of Treasury.
vetoed reserve bank efforts to in
crease rates, make money dearer
and, thereby. curb speculation
Called Conspicuous Failure"
his long postponement." Mr.
Aldrich continued. had immeasur-
able consequences both on the height
Of the speculative tide and the ex-
tent of the collapse, and has come
10 be regarded as quite the most
conspicuous failure of the Federal
Reserve system since its inception"
Roy A. Young was governor of
the Federal Reserve Board during
1929. He was a Coolidge appointee.
coming TO washington in 1927 from
governorship of the Minneapolis
Federal Reserve Bank. Mr.. Young
now is governor Of the Boston Re-
serve Bank
The Aug. Q. 1929. increase in New
York discount rates was the begin
ming of the end Of the Coolidge
boom. II fsltered in October and COL
lapSed on Mr.. Hoover in November.
Mr.. Aldrich cited the 1929 incident
In support Of his contention that a
politically controlled banking system
Is dangerous because 1t may be util-
lied for such political purposes as
boom making.