Referendum on the report of the Special Federal Reserve Committee

Bibliographic data

Monograph

Identifikator:: 1827879114

URN:: urn:nbn:de:zbw-retromon-221388

Document type:: Monograph

Title:: Referendum on the report of the Special Federal Reserve Committee

Place of publication:: [Erscheinungsort nicht ermittelbar]

Publisher:: [Verlag nicht ermittelbar]

Year of publication:: 1930

Scope:: 53 S.; graph. Darst.

Digitisation:: 2022

Collection:: Economics Books

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+ Manner of Utilization of Credit Consideration of Member Banks’ Condition Right to Refuse Discount COMMITTEE REPORT desirable quantity of reserve credit cannot on all occasions be achieved merely by assuring the eligible character of the paper re- discounted. On occasions of rapid business expansion, in which in- Aationary conditions develop, the supply of eligible paper always ‘ncreases. This increase may be due in part merely to general in- creases in commodity prices. Although the reserve banks were given power, on such occasions, to discourage the increase in member bank rediscounting, by raising their rates and consequently the cost of reserve credit, experience has further shown that the effectiveness of rate increases is subject to many limitations. Some of these limita- tions arise from the considerable differences in money rates which prevail over various parts of the country so that discount rates which would effectively restrain some member banks from excessive redis- counting might not thus operate to restrict the activities of other member banks. With these limitations upon rediscount policy to secure for the sountry the desirable aggregate of bank credit, it would appear that rediscount devices are principally important from the standpoint of their ability to encourage the desirable type of credit activities of member banks. But restrictions upon eligibility determine only the way reserve credit may come into being and do not insure its sub- sequent utilization by member banks in encouraging either commer- rial or short-time agricultural operations. Member banks, whose assets are generally becoming frozen and uncollectable, may discount their best paper with the reserve banks and in this way build up the reserves which permit them to .ncrease their extensions of long-time and perhaps unsound credits to the business community. If the reserve banks rest content merely in securing sound paper, they may protect themselves adequately, but at the cost of threatening the safety of the other creditors of the member banks, including the depositors. In the event of failure, these depositors may find that their bank has pledged its best assets with the reserve bank and that their ability to recover has been in large part destroyed. It should be clear that in the general welfare he reserve banks cannot act in disregard of the interests of the bank’s lepositors even though their own security has been maintained. The right of a federal reserve bank to refuse to rediscount sligible paper has been upheld in the federal courts. In one im- portant decision it is stated: “Certainly it was lawful to engage in open market transactions by the sale of securities, to fix the redis- count rate and to decline to rediscount eligible paper . . . Itis important to note that it (the federal reserve bank) is not under any compulsion to rediscount eligible paper, for the words of the Act in respect to rediscounting are wholly permissive.” (Continued on page 26)

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