Referendum on the report of the Special Federal Reserve Committee

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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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18 Larger Dividends Earlier Reasons for Limitation Rarnings from Competitive Dperations Decrease in Franchise Tax (nterest to Member Banks »n Their Reserves Impracticability COMMITTEE REPORT net earnings to surplus until that equals one hundred percent of its subscribed capital (which is two hundred percent of the present paid in capital). After that, its net earnings go ten percent to surplus and ninety percent to the government as a franchise tax. In recommending that reserve banks, under adequate safe- guards, be permitted to declare larger dividends to member banks, there is no purpose to make the capital subscriptions of the member banks extraordinarily profitable. An increase of a full one percent in the dividend rate would increase the distribution to a bank with a capital and surplus of $100,000 by only $30. While the financial ad- vantage of the suggested change would not be great, it is believed that it would be attractive and would be fair in principle. It would stimulate good will and, with the experience which has been gained n reserve operation, would not result in deviation from sound proce- dure in order merely to enlarge earnings of reserve banks. The earlier reasons for limiting dividends on stockholdings in reserve banks to six percent, such as the fear of undue emphasis upon earn- tngs and the fear of stimulating competition by the reserve banks with their member banks, are no longer applicable. Under present law there have been years of small earnings and there is likelihood of their recurrence. No pressure to earn the dividend now permitted has been exerted. Six percent, is today not as reasonable a measure Of proper expectancy from such an investment as in earlier years. Future operations of the reserve system may require a larger de- velopment of the reserve banks’ open-market dealings. Member >anks which may meet, even to a slight extent, competition on this ground from the reserve banks have a right to share in the profits erived from such operations. Even though the monetary return to the member banks be small in amount, it is thought to be important n principle that the member banks be permitted a larger participa- ion in the earnings of the reserve banks; such larger participation should be so devised as to permit of the amassing of ample surpluses by the reserve banks. In other words, the larger participation in sarnings of reserve banks should be given to member banks prin- cipally through a proportionate reduction of the earnings now re- quired to be paid to the federal government. Permitting an increase in the dividend rate or provision for extra dividends would serve to overcome a frequent proposal that interest be paid on reserve balances, which we do not favor. No method has been proposed by which interest could be safely dffered by reserve banks upon member balances. At the beginning of the current year member bank reserve accounts were nearly two and 1 half billions of dollars. Two percent of this sum would amount to (Continued on page 40)

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