Evening star., 1936-07-19
ST|FFER|NTEREST
RATE IS FORECAST
BYRESERvEED|CT
Uncertain Opinions Aris e
Over Result of Boards
New Ruling.
ACTION is DECLARED
EVIDENCE OF COURAGE
Record of Administration as 0p.
ponent of Initiation Is Believed
Strengthened.
BY CHARLES F. SPEARE.
Special Dispatch TO The Star.

BY CHARLES F. SPEARE.
Special Dispatch to The Star.
NEW YORK, July 1S (NANA)-
The drought and the threatened labor
troubles, on which the attention Of
business and banking circles had been
centered, were overshadowed this week
by the unexpected announcement by
the governors Of the Federal Reserve
System OF a proposed so per cent in
crease in the reserve requirements OF
the member banks on August Is.
Those who had been looking for action
Of this character did not anticipate an
advance higher than 25 per cent.
In the opinion of bankers who have
been urging the board to adopt meas
ures to anticipate imitation. the board
had been slow to act When it finally
did set q policy, it fixed on one that
assumes q reduction in excess bank
ing reserves from a maximum Of
s3,500,000,000 . month hence to
81, 900, ,oo0, 900.
Sign Of Courage.
This most drastic ruling by the
Federal Reserve authorities since 1929
ought, by its nature and its implica-
tions, to assure the banking world and
the critics of the administration that
those who now control the money pol
icy of the country have the courage to
act when the time for action arrives.
The situation has changed in several
respects in the past six or nine months
since arguments for and against con-
tinuance of the high excess reserves
began.
The statement of the Federal Re-
serve governors obviously takes ac-
count of the fear existing among
certain groups that imitation will de-
velop and that confidence in the long
term investment market may be dis
turbed, for it seeks to allay such ap-
prehension. Whether or not 1t has q
political motive, 1t assuredly strength
ems the record Of the administration as
a steadfast opponent of imitation.
Probable Effect Of Policy.
One cannot be so confident as the
governors of the Federal Reserve
Board as to the effect Of their order
on money rates. They state that the
present easy conditions will not be
disturbed: that their proposal is not a
reversal Of the easy money policy"
which they have pursued since the
beginning Of the depression. Action
50 positive as that which they have
adopted must have reactions of
definite character; otherwise it is In
effective. Among them is a probable
stifiening in interest rates in the CEN
trail reserve cities where the reserve
requirements are to be advanced from
13 TO 1914 per cent and where rates
on the bulk Of the corporation and
Government financing are determined.
1t Is doubtful If the business done
through the country" banks will be
much changed by the new regulations
One Of the first reactions to the news
was that banking profits in the sec
ond half Of 1886 would be benefited
by the schedule Of increased reserves.
Resistance to High Prices.
There is said to be some resistance
again on the part of the institutional
buyers Of securities to the high priced,
low coupon offerings Of the corpora
tions. The same situation developed
last Autumn. For while the life in
surance companies refused to sub
scribe to the 3% and 81 per cent is
sues Of that period. But. as their sup
plies Of idle money accumulated and
there was no sign of a break in the
era of low interest rates, they once
more were found among the avid ap-
plicants for most of the high credit
public utility and railroad refunding
loans.
The present condition Of stalemate
is reflected in the smaller volume of
offerings. This would have been q
natural result of the tremendous sup
ply of corporation bonds and notes
had there been no price consideration
involved. In the six months to June
80, according to the figures compiled
by the Financial and Commercial
Chronicle. corporate financing repre-
sented q par value Of $2,583, ,000, 900.
May Have to Revise Plans.
Corporations have been sailing
along on the tide of easy money.
There has been nothing. until this
weeks announcement of the proposed
advance in the reserve requirements
Of the member banks, to obstruct
their broad campaign of retiring mod
crate coupon rate bonds for those
which show the lowest average ever
attained by this group In American
history. A revision of some plans al
ready far along for offerings in the
next few months may now be neces-
sary in spite of the boards optimism.
This would be good news to the in
Vestor. harassed for the past year by
The steady calling Of his and So
per cent bonds, and unable in many
Instances to obtain a fair allotment
Of the substituted issues when offered
1t 3A to 81 per cent.
,Copyright, 1896. BY the North American
NaUsna mar Allianc. Tn.N