Evening star., 1939-11-19
Allies Are Defrayino
Arms Bills THROUGH
u. ). Reserve Bank
Some Finonciers Fear
Policy Will Collide
With Neutrality
~ the Associated Press.

the New YORK FeQeral Reserve BANK,
it was reliably reported in Wall
Street banking circles today.
While some leading bankers de-
Tended the action of the reserve
bank in paying out on order British
and French funds for these pur-
chases, others asserted some COM
petent legal opinion here raised the
question of whether the banks
action may not collide with interna-
tional law covering neutrality.
officials of the reserve bank, who
rarely talk for publication declined
to comment, and bankers said the
reserve had undoubtedly received
assurances that it's action was legal
and proper.
Formerly a Private Function.
Those who raised the neutrality
question said part of their interest
naturally stemmed from the fact
that the reserve was doing what
was formerly an important function
Of commercial and private banks.
The reserves action in making
these payments for wartime pur-
chases was said to date from the
passage by Congress of the revised
. neutrality laws.
Its action in paying out funds OF
the Bank of England and the Bank
of France does not represent a new
policy in banking mechanism, these
bankers said, but rather an absence
of change of banking policy as the
business of the banks customers
changed from a peacetime to a
wartime nature.
The Federal Reserve Bank of New
York fulfills some of the functions
of an official central bank for this
Nation, and, in that capacity, has
for some time in the past acted as
depository for gold and dollar bal
ances of the central banks of Eng
land and France, and of Germany as
well.
Pays Out Under Order.
AS a central bank, it pays out
those funds in this market on order.
It was reported, however, that the
ReichSbank had not asked the re-
serve bank to pay out money for
wartime purchases.
Following the revision of the
neutrality laws the Bank of France
and the Bank of England changed
the nature but not the banking
technique of their transactions with
the reserve bank, namely, ordering
their funds paid out in specified
vnonror for u,o tiYoo t,,,rpbo COG horo
Thus, Wall Street critics of the
reserve banks policy conceded,
the reserve bank has not initiated
new policy, but has atstained
from changing an old policy to
meet changed international politi-
cal conditions
Criticized by Nye Unit.
1t was pointed out that the
e United States Senate c'Nye Com
mitteeD munitions investigation of
1886 specifically. criticized the Fed
eral Reserve Bank for carrying an
active account of the Bank of
England during the first World
War.
In that period, it was said, the
less an instrumentality of the
national Government than it is
today Although member banks still
own the Federal Reserve Banks
through stock holdings, the Board
of Governors of the Federal Re-
serve System which controls the
policies of the II regional Federal
Reserve Banks, is now wholly ap-
pointed by the President of the
United States and responsible to
him. Thus, some legal experts
contended, the action of the Fed
eral Reserve Bank of New York
might be construed by foreign
power under international law as
the action of an instrumentality of
the Federal Government
Some Express Surprise.
Some leading international bank
ers said they had been surprised
to hear of the reserve banks
action. They said they had as
sumed the banking business for
the allied belligerents would be
handled by private banking agen-
cies of those powers. During the
first World War j. P Morgan & Co.
was purchasing agent for England
and France) This assumption,
they said, arose from a "tip" passed
on several weeks ago from Wash
ington that the Government would
rather they did not handle the
wartime business of the allied bel
ligerents on the ground that the
neutrality of the United States
might be compromised by such
action.
AS result of this Tip" the big
banks here laid off" the foreign war
business. They then reached the
conclusion, it was explained, that the
wartime purchases banking business
of England and France would be
handled through such institutions as
the Bank of Montreal, which has
a fully chartered branch here, and
the Societe Generate, one OF the
largest banks of France, now open
ing a State licensed branch in New
ork.
Some prominent bankers, who de-
Tended the reserve banks action,
took the position that the business
taken over by the reserve institu-
ton would have been a headache"
anyway and not greatly profitable.
The private banks most substantial
profits could still come from flnanc-
ing United States firms selling goods
to the allies, it was explained.
No Credit Extensions.
N6oreover IT, was assumed in Wall
Street that the reserve bank would
not. even in the most indirect way,
violate the letter and spirit of the
revised neutrality laws by extending
credits in any form to the allied
belhgerents. The bank is not re-
quired to involve itself by inspect
ing materials, or checking on deliv-
"a otiSf1r itself