4

Reductions
Opposed

Minor Adjustments


Legislative Review

Cash in Vault

Rural Banks

‘tems Due
From Other
Banks

Country Banks

Reserve Required
of Country Banks

COMMITTEE REPORT
of other banks whose lending powers would be similarly increased.
Attention has already been directed to the fact that reserve percentages
 are now much less than they were prior to the enactment of the
Federal Reserve Act. Just as the Committee has been opposed to
general reductions in the reserves required of member banks when
such reductions were proposed solely for the purpose of lowering
the lending powers of reserve banks, so, too, it is opposed to such
zeneral reductions when they are suggested solely for the purpose of
ncreasing the lending powers of member banks. This is not to main-‘ain
 that we are opposed to any change in the reserves required of
nember banks. We favor some early minor adjustments as indicated
>elow and support a thorough legislative review of the whole sublect.


There is room for minor adjustments in the existing reserve rejuirements
 if made for the sole purpose of removing existing inequalities
 in the schedules applying to the various classes of banks.
One such apparent discrepancy is due to the fact that banks in rural
sections are now obliged to carry in till relatively larger amounts
of cash than banks in reserve and central reserve cities. Inasmuch
as this cash in vault does not now count as reserve money, the country
 banks are obliged to keep larger actual percentages of reserve
than the nominal requirements of the law. It seems only just, therefore,
 that member banks, in computing the deposits against which
reserves must be carried, be permitted to deduct cash in vault from
net demand deposits. This would result in no serious expansion of
the lending powers of member banks such as would be occasioned by
a proposal sometimes advanced, namely, that cash in vault should
be counted as legal reserve—a proposal we do not support.
There is another respect also in which country banks now feel
that they are discriminated against. No bank may now utilize items
due on demand from other banks to accomplish anything more than
‘0 offset amounts due to other banks. Banks which have an excess of
‘due from” items over “due to” items, can under present law receive
10 credit for the excess. This difference in the financial practices of
country and of city banks has persisted to a greater extent than anicipated
 when the present reserve requirements were established.
On this account it is recommended that banks be permitted to deduct
tems “due on demand from other banks” from gross demand deposits
 instead of merely from amounts due other banks.
There is on the other hand one respect in which country banks
10ld a present advantage over reserve city and central reserve city
banks. Banks which hold an excess of items due on demand to other
>anks over items due from other banks must observe the reserve per-“entage
 applying to their particular classification. On this account
(Continued on page 36)