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CIRCULAR NO. 80. FEDERAL RESERVE BANK OF N E W YORK NEW YORK, September 24, 1917. To THE CASHIER, SIR: We recommend to your earnest consideration the enclosed communication received from the Federal Reserve Board approving the suggestion that the practice be encouraged of having short time commercial paper run for not longer than four months, instead of six months as is frequently the case to-day. For the reasons stated in the letter, I hope that this suggestion will also meet with your approval and that you will take the matter up with your own customers and commercial depositors. Respectfully, BENJ. STRONG, Governor FEDERAL RESERVE BOARD WASHINGTON September 1 7 , 1917. Dear S i r : In view of the anticipated heavy demands upon Federal Reserve banks, the Board looks with approval upon the suggestion that the practice be encouraged of having short time commercial paper run for not longer than four months instead of six months as is frequently the case today. It seems desirable that the commercial banks of the country should have in their portfolios a maximum amount of paper that can be rediscounted with Federal reserve banks. As the Federal reserve banks can rediscount only paper which has not more than ninety days to run, it follows that if investments of member banks are in six months paper, on an average of only 50#> of such paper is available at any one time for rediscount ; but should the investments be in paper having four months or less to run, at least 75% would on an average have not more than ninety days to run to maturity and would therefore be immediately available for use at the Federal reserve bank. The Board is of the opinion that the suggested change would greatly improve the banking condition of the country, as the banks would make a turn-over three times a year instead of twice, and the credits which they would provide would come up for consideration three times instead of twice a year. The borrower in good credit would have no reasonable grounds for complaint and the borrower in doubtful credit would be strengthened by frank conversations with his bankers at more frequent intervals than at present. It is suggested that if the bankers of the country will undertake this change in methods of borrowing and insist upon four months paper instead of six, the credit situation will be greatly improved within a short time; responsible borrowers would have greater assurance of credits and the banks themselves would be in a position to meet contingencies with at least bOfo more confidence than under the existing borrowing conditions. Very respectfully, W. P. G. HARDING, Governor.
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