ARGUMENTS IN THE NEGATIVE 
————————— BCA TIVE 
daily holdings of all reserve banks in bills discounted was 57% of total bills and 
securities, the percentage in one of these regional banks did not get above 519% and 
was as low as 7%, the percentage for the second ranged from 79% down to 16%, 
and the percentage for the third went as high as 50% and as low as 6%. On December 
[8, 1929, the percentages for these three banks were 25%, 57%, and 37%, and for 
all twelve reserve banks together was 469%. 
With the modern facilities for transportation and communica- 
tion it is not apparent why the rediscount rate for paper of the same 
quality and the same maturity should not be the same at any par 
ticular time throughout the country. 
The argument in favor of different discount rates in the various reserve districts 
was stated as follows, in 1921, by a Federal Reserve Agent: “Obviously the same 
>ank rate cannot be charged in Massachusetts and Montana because of the difference in 
conditions. In the partially developed sections capital is scarce and credit is limited. 
The northwestern states have for years found it highly beneficial to attract eastern 
money by making favorable rates. * * * Ap equal or uniform level would nat- 
urally destroy this advantage since individuals in the East having surplus funds could 
:mploy them at the same rate at home and there would be no reason for sending money 
out into the West.” 
Statements of this kind seem to contain an element of fallacy; for in the period in 
which the quoted statement was written the rediscount rates of western reserve banks 
frequently were below those at the same time in effect in eastern districts. Indeed, this 
has on occasion continued to be the case. For example, at the end of 1928 the rate in 
‘he four western districts was 414%, whereas in the other districts it was 5%. In the 
middle of December, 1929, the rate was 414% at the reserve banks of Boston, New 
York, Atlanta, Chicago, Kansas City, and San Francisco, whereas it was 5% at the 
reserve banks of Philadelphia, Richmond, Cleveland, St. Louis, Minneapolis, and 
Dallas. It can be fairly argued, of course, that there can scarcely be any justification 
in considerations which should be given weight in central banking for a difference in 
rates between New York and Philadelphia, between Richmond and Atlanta, or be- 
tween St. Louis and Kansas City. 
The fallacy may be in a confusion of loans of one quality with those of another. 
The time has come, it may fairly be argued, when a loan of the highest quality accord- 
ing to all banking tests should be subject to the same rediscount rate in the central 
danking system whether the borrower, perhaps a resident of a western city, placed the 
paper at his local bank or with an eastern bank. 
The apparent false premise in such statements would seem to be contradicted, too, 
by the provisions in the law for reserve banks coming to one another’s aid. Inter-dis. 
rrict borrowing assumed large proportions in 1920 and 1921, reaching a maximum in 
one month of $260,000,000. If it had not been for these transactions between the 
reserve banks, with examples of some reserve banks receiving aid maintaining redis- 
count rates lower than the rates of the lending banks, one of the reserve banks would 
{Continued on page 21) 
Differing 
Rediscount Rates 
Partially Developed 
Regions 
Actual Rates 
Inter-District Loans