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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26 Brcourageinent Utilizing the controls of rediscount to encourage sound methods Methods oy member banks should not be objected to on the ground of undue interference by reserve banks with member bank activities. Soundly managed member banks will usually find their discount applica- tions accepted as a matter of course. It is only a member bank which is tending to deviate somewhat from the recognized principles of prudent banking, in undermining its liquidity and using borrowed reserve credit unduly for profit purposes, which may find its bor- rowing powers thus interfered with. By insisting that such a mem- ber bank adhere to sound principles and accepted standards and protect its solvency, the reserve banks are acting not only for the bene- fit of other banks but also for the stockholders and depositors of ‘he bank in question. COMMITTEE REPORT Recommendation The Committee recommends that, in passing upon an applica- tion for rediscount accommodation, a reserve bank should be guided by the general condition of the applying bank and the effect of granting the rediscount upon the safety of depositors as well as by the character of the paper which the applying bank tenders. It was recognized at the time the Federal Reserve Act was iramed that the outstanding volume of reserve credit could not be regulated in satisfactory fashion if the only method of influencing it were by changes in the rediscount rate. One reason is that redis- count applications rest upon the initiative of the member bank, and the rate is only one of the factors entering into the decision. There must be at times some way by which the reserve banks, upon their own initiative, can influence the volume of reserve credit more directly and more speedily than by a rate change. Open-Market Operations 2urpose Effect To make this possible, reserve banks were given the privilege of dealing in bills of exchange and government securities in the open narket—buying from and selling to other than member banks. They can, by making purchases, place money in the market, and by making sales, take money out of the market, thus producing an immediate ffect upon the outstanding volume of reserve credit. Counteracting Activities It is to be admitted that the open-market operations of the -eserve banks may frequently be countered by the activities of mem- ser banks. Funds released to the market by purchases of acceptances ind government securities may be employed by member banks to reduce their discount indebtedness with the reserve banks. On the sther hand, funds withdrawn from the market by these operations may be offset by increased rediscounting. These processes, however, rake time to operate; hence, it would appear that on almost all occa- sions the reserve banks have it in their power to exercise an influence apon the outstanding quantity of reserve credit. {Continued on page 28)

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