ARGUMENTS IN THE NEGATIVE
and fiscal agents; to receive and maintain the legal reserves of member banks; upon
ndorsement of member banks to discount notes, drafts and bills of exchange arising
sut of actual commercial transactions but not ‘notes, drafts or bills covering merely
nvestments or issued for the purposes of carrying or trading in stocks, bonds or other
investment securities, except bonds and notes of the government of the United States’;
to make advances to member banks on their promissory notes for not more than 15
days at rates to be established by the federal reserve banks subject to the review and
jetermination of the Federal Reserve Board, provided such promissory notes are secured
sy ‘eligible paper, or by bonds, or notes of the United States; to receive federal reserve
aotes upon deposit of eligible paper, or gold, or gold certificates, provided a gold re
serve of not less than 40 per cent of such notes is maintained.
“Federal reserve banks may also, under rules and regulations prescribed by the
Federal Reserve Board, engage in ‘open-market operations,’ that is to say, purchase and
sell in the open market at home or abroad cable transfers and bankers’ acceptances and
bills of exchange of the kinds and maturities eligible for rediscount. They may dea
in gold coin and bullion at home and abroad; buy and sell, at home and abroad, bonds
and notes of the United States and bills, notes, revenue bonds and warrants with a
maturity from date of purchase of not exceeding six months, issued by any state, county,
fistrict, political subdivision or municipality in the United States, such purchases to
se made in accordance with regulations prescribed by the Federal Reserve Board.
They may purchase from member banks and sell bills of exchange arising out of com:
mercial transactions and may ‘establish from time to time, subject to review and de-
termination by the Federal Reserve Board, rates of discount to be charged by the
federal reserve bank for each class of paper, which shall be fixed with a view of
accommodating commerce and business.” They may establish accounts with other
federal reserve banks with the consent and upon the order and direction of the Federal
Reserve Board and, under regulations to be prescribed by said board, may open accounts
and establish agencies in foreign countries for the purpose of purchasing, selling, and
collecting bills of exchange. They may purchase and sell in the open market either
from or to domestic banks, firms, corporations or individuals, acceptances of federal
ntermediate credit banks and of national agricultural credit corporations wheneve:
the Federal Reserve Board shall declare that the public interest so requires.
“The foregoing provisions enable the federal reserve banks, without waiting for
applications from their member banks for loans or rediscounts, to adjust the general
credit situation by purchasing and selling in the open market the class of securities that
they are permitted to deal in. The power ‘to establish from time to time, subject to
review and determination by the Federal Reserve Board, rates of discount to be charged
by the federal reserve bank’ appears in the act with the open-market powers. The two
powers are correlative and enable the federal reserve banks to make their rediscount
rates effective. The sale of securities does not lessen the total amount of credit avail-
able but, by necessitating payment to the federal reserve banks, increases available credit
in their hands ‘with a view of accommodating commerce and business’ as provided by
the act.” (Raichle v. Federal Reserve Bank of New York, 34 F (2d) 910.)
Open-Market
Operations
Credit
"Continued on page 11)
