ARGUMENTS IN THE NEGATIVE 
sther purposes they serve to bring out clearly the extent in which banks outside of New 
York still put out funds in New York as loans on securities. These loans in New York 
on call reached $1,897,000,000 on September 18, 1929, and remained over $1,700, 
100,000 to October 23. They then dropped rapidly and on November 27 stood at 
£638.000,000. 
So large a volume of “country money” on call in the New York market raises 
1 question if the federal reserve system has brought about some of the. fundamental 
-hanges which its supporters undoubtedly expected. Before the reserve system was 
organized there was much criticism of a situation which resulted in out-of-town banks 
keeping a large aggregate of reserves in New York, where these funds were pre- 
dominantly lent on call. It was argued that this concentration of funds caused dangers 
which had been actually experienced when conditions arose which led the out-of-town 
yanks to withdraw suddenly any considerable portion of their funds. In the reserve 
system many of its supporters saw means for preventing this concentration of bank 
‘unds, through the transfer of reserves to the respective reserve banks and ways for 
utilization of other funds nearer home. Yet, in 1929, the aggregate of funds of out 
2f-town banks on call in New York was larger than at any time before the reserve 
system came into existence. 
Banking is a business. It is privately owned and privately 
operated. In the interest of those who deal with banks, and of the 
public at large, banks have been subjected to public regulation for 
‘he purpose of maintaining their solvency. The federal reserve system 
was created to aid the banks in performing their functions, both in 
‘heir own interest and in the interest of the public. For the reserve 
banks to attempt to discriminate among the uses of credit, to refuse to 
srant rediscount of eligible paper, and to take other steps of a similar 
ind would seem to involve interference in the management of banks 
which is foreign to the proper functions of central banking. 
The regulation of banks for purposes of safety is covered by statutes dealing with 
the subject and compliance with these statutes is enforced by the Comptroller of the 
Currency in the case of national banks and by state banking commissioners for state 
banks. So far as the federal reserve system intervenes in the affairs of its member banks 
it is therefore dealing with their banking policies with which the law does not other- 
wise concern itself. There may well be question whether or not such intervention 
should occur at all, as well as further question whether or not, if it is to occur, it 
should occur as a matter of discretion, being unaccompanied by responsibility for 
results. The distinction between attention of the reserve system to banking policy— 
and, incidentally some of the difficulties which arise, in the nature of things—and the 
attention of the system to credit policy appears in the following passage in the annua: 
ceport of the Federal Reserve Board for 1928: 
“Influence exerted by a reserve bank on the loan and investment policy of an 
ndividual member bank is ordinarily exercised only over banks that are borrowers 
from the reserve banks. It is in the nature of banking supervision, and is akin in many 
respects to the bank examination function of the reserve system. This phase of reserve 
bank policy may be called banking policy, as distinguished from credit policy, which 
Jeals with more general developments of banking in relation to the credit needs of the 
country. Banking policy ordinarily has but limited effect on credit conditions as a 
whole, because no class of borrowers is confined for accommodation to any single bank 
or group of banks. and because of the general mobility of bank credit. When one mem- 
(Continued on daae 41) 
Banking Policy 
Federal Reserve 
Ronrd 
Banking Policy