Full text: Referendum on the report of the Special Federal Reserve Committee

forms of 
Notes of 
Member Banks 
“Eligible” Paper 
and “Acceptable” 
Original Theory 
vance the exact policy or formula which would produce a desirable 
result. In the employment of their resources the reserve officials must 
consider a variety of factors and credit conditions. 
The Committee earlier recommended that the precise adapta- 
tion of the volume of reserve currency and credit to requirements 
of trade should be considered as a problem of administrative instead 
nf legislative control. 
It now recommends that no limiting policy such as one of the 
maintenance of price stability be imposed by legislation as a definite 
{uty upon the Reserve Board and the reserve banks. 
And further, while it does not believe that there should be pre- 
scription by Congress of precise methods to be followed, the Com- 
mittee recommends that in determining the system’s credit policies 
federal reserve authorities, with cooperation of the member banks, 
should endeavor to restrict the flow of bank credit into speculative 
channels when its volume or directions of use are such as to produce 
an immediate or prospective strain upon the reserve or member banks 
in their effort to provide credit accommodation for commerce and 
By the Federal Reserve Act and by regulations of the Federal 
Reserve Board certain types of commercial and agricultural paper 
which member banks accept from their customers are made eligible 
for rediscount with the regional reserve banks. 
A handier way for a member bank to get reserve accommoda- 
sion is by presenting its own note, collateraled by either government 
securities or eligible paper, to the regional bank for discount. Such 
loans may be made for fifteen-day periods. 
The belief early arose and has long persisted that the presenta- 
rion of eligible paper automatically opened the coffers of the reserve 
bank to its members. A distinction has come to be made between 
‘eligible” paper and “acceptable” paper, cutting down somewhat the 
original conception. There has been little disposition on the part of 
‘he reserve banks, however, to deny reserve accommodation to the 
member which offered acceptable paper or government securities. 
There are instances of this attitude leading to unwise loans which 
~ontributed to member bank weakness. 
At the time the Reserve Act was passed it was no doubt gener- 
ally believed that strict insistence upon the commercial character of 
paper which the member banks might tender for rediscount would 
accomplish the two-fold purpose of, first, preventing the extension 
of too large a supply of reserve credit and, second, of encouraging 
member as well as reserve banks to keep in a liquid condition. Expe- 
rience in administration has shown that the determination of the 
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