The Washington times., 1935-12-30
GUARANTY SEES
NO NEED FOR
CREDIT CURB

NNLDII NOND
From the standpoint of immedi-
ate financial returns to bankers,
it would undoubtedly be desirable
to have steps taken that would
reduce the supply of surplus funds
and tend to raise money rates, but
for bankers to advocate such steps
on this ground alone would be
both a selfish and a shortsighted
policy, the Guaranty Trust Com.
pany continues in its current
monthly review Of business and
financial conditions. The review
added:
"In the long run, it is, Of
course, to their interest (the
bankersD that recovery proceed
as continuously and as soundly
as possible.
THE attention of business in
tereSts has recently been TO-
cused again on the growing vol
ume of excess bank reserves in
this country. Bankers have long
recognized the potential dan
ger inherent in the situation
and have considered various
means of avoiding them. The
question assumed an official
status early this month, when
the Federal Advisory Council
transmitted a report to the
board of governors of the Fed
eral Reserve System definitely
recommending that steps be
taken to eliminate or at least
greatly reduce the excess re-
serves of member banks. The
board of governors and the open
market committee issued joint
statement on December 18 indi-
eating that no immediate action
would be taken"
TWO PRINCIPLE METHODS
The report of the advisory coun-
Gil called attention to the two
principle methods by which excess
reserves can be reduced under ex'
isting law: First, selling or per
mitting to run off" all or a part
of the Federal Reserve banks pres
ent holdings of Government Sc
curities; and, second. action by
the board of governors to raise
the reserve requirements OF mem
ber banks, the review said, add
ing:
"As far as changing reserve
requirements is concerned, we
believe that this dNvice should
be used only on the rarest Occa-
sions, when it is clear that there
is great need of control. Frequent
resort to this practice would
make it impossible for bankers
to know where they stood in for
mulating their credit policies.
Under the system of regulation
that prevails in this country,
bankers are subject to fixed laws
and rules governing reserves, in
contrast to the practice in some
other countries, notably Eng
land, where the amount OF re-
serves to be maintained is left
to the discretion of the bankers"
1t should also be borne in mind
the bank continues that the mos
important consideration in con
nection with bank reserves is no'
the amount of the cash reserve!
but the general liquidity Of the
banking system. The present dis
cussion of the possibility of doub
ling the required cash reserves
merely reemphasizes the frozel
character of some bank assets anc
| the necessity of placing the bank
ling system on a basis where it will
be prepared to meet the demand!
of business. on the one hand, and
on the other. a withdrawal OF de
posits. should it be faced with tha
contingency, according to the re
view.
Outlook Seen Favorable
In discussing the business situa
ton as we 60 into 1886, the surve!
said:
Business enters the new year
in the most favorable position.
from the short-term point of
view at least, that has been OBJ
served since the depression be-
gan. Although many factors Of
nncertainty still exist, they ap-
ply, for the most part, to the
longer future, rather than to the
months Immediately ahead. AS
far as the outlook at the begin
ming of 1886 is concerned, these
unfavOrable influences are out
weighed by the tangible progress
that has been made toward
higher levels of activity and by
the moderate revival of conf
dence that has resulted from the
removal of some types of pOliti-