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APPENDIX 
is particularly strained indicates that there is little causal relation 
between the rates for call money and those on commercial loans.” 
In the Stabilization hearings (p. 368) Governor Benjamin Strong 
stated: “Here we have a large group of country banks which, for 
one or another reason, have funds that they cannot use locally or are 
anwilling to use locally. What are they going to do with them? They 
will not lock them up in cash in their vaults. They send them some- 
where for employment, in order to earn money on them. Also, when 
they are not members of the Federal Reserve system especially, they 
require balances in money centers in order to meet the requirements 
of their customers who make payments there, and the amount of that 
iund in the money center—in the central exchange market—fluctuates 
according to changes in rates reflecting changes in demand and 
supply, and according to the local needs of the bank. I do not see 
how it is going to be possible, by some mandate of law, to regulate 
that. In a way, it regulates itself. It is an inherent characteristic 
nf our type of banking in this country.” 
Dr. Adolph Miller (hearings on amended Stabilization bill, p. 120) 
stated: “It may be that there is such a considerable spread between the 
call rate in New York and the Federal Reserve discount rate, say, at 
an interior Reserve bank, as to put a temptation before the interior 
bank, if it has any money loaned on call in New York, to leave it 
here and meet the demands of its local customers by rediscounting 
with its Reserve bank. Such has undoubtedly been the case at times.” 
On the other hand, the testimony of Dr. Walter Stewart (Stabili- 
zation hearings, p. 765) stated: “The demand for credit for com- 
mercial purposes will always have first call on banking credits . . . 
For one reason, it involves the relation between the bank and the 
‘ine-of-credit customers, and secondly, the loan usually yields a better 
rate of return than the ca#l loan . . . I think any well-managed 
sank, in addition to the loans to customers, would undertake to have 
some money in liquid loans—call loans, etc. I think in the last four 
or five years the growth of brokers’ loans has not been at the expense 
of credit available for commercial purposes . . . I think the use 
of credit in the securities market, in view of the general organization 
of credit and banking, is a legitimate use. 
“In considering bank credit it is seldom realized that of the 
$30,000,000,000 in member bank loans and investments, about half 
represents either loans on securities or investments direct. We are 
in the habit of thinking of our banks as a commercial bank system, 
but they have either loans on investments or investments to the extent 
of about half of their total resources.”