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516. X-1612. FEDERAL BOARD STATE'\.ffi:'NT FOB TRW. PRESS. For in:n.edie, te release, July 9, 1919. The Federal Reserve Board calls attention to the following facts: The March installment of income and profits taxes (deposits from March 10 to March 24, inclusive) which aggregated $1,035,993,534, had been prepared for by the Treasury through the issue of certificates of indebtedness, maturing March 15th and acceptable on that date in payment of taxes, to the amount of $834,000,000, and this r payment was handled without dbturbance in the money market. I •'-. • FOr the June instalLr.ent of income and profits tax payments 0depoeits I from June 1,0 to June 24, ·inclusive), the amount of which aggregated $903,586,676.77, the Treasury mad made even greater lJre!l.sration.. The aggregate amount of certificates of indebtedness of all issues which matured on June 16th and 17th was $1,018,885,000, and the Treasury had on June 9th announced its readiness to make payment of these certificates before ~aturity and as well of $491,4o7,000 of • ' .. RESERVE certificates maturing July 1, at the option of the holder. aggregate a:mou.'"lt of Treasury certif~cates The of indebtedness affected by this option of redemption before maturity was $1,510,292,000, yet the total amount of certificates actually redeerr.ed before June 16th was only $153,191,500, or 10.1% of such aggregate. ' evident t~~t Thus it is the banking institutions of the country preferred to keep -I 1 J .. 2 I investe~ their funds in Tre~sury 517 X-1612 certificQtes be~rinb interest ~t 4~ rather t~n to td.ke ci.dva.ntd.ge of much higher ra.tes on stoch. colkterd.l. It is, therefore, apparent · that the :re1-e.:a.ted flurries in t11e c .... ll ,J,..oney ,J.J<,.l.rJ.ret .~::- ri.l:o.:Lri ly r~ot in the first half of June clre to be d. tt ri but ea. - tax paywents of that month but to the March tax pa.~ent consequent Uj?on f~ct t~t in the to tile ~erioa since the there bad been a. great expansion of the loan account a continuous speculation for a. rise in stocks and th.J.t the bQnkers of the country, partly influenced perhaps by the warning of the Federal Reserve :Bocird, :freferred to keep their credit resources avd.ila.ble for the requirements of the Government a.nd of commerce and industry rather I , t~ to devote still further sums to the supfOrt of such speculation. Regrettable as they money on stock of fi~nctng si sted in. ~y collc:~.teral be, such flurries in the rates for call are inevitd.ble so long as and settling speculative trc:~.nsactions ~he present methOds in stocks are per- AS things are now, they cd.n be gUcirded i;i.ga.ins t only by such methOds as were adopted during the war, providing a reason.:a.ble supply of credit for carrying stocks but, contrariwise, td.king effective mea.aures to prevent undue specul<;l.tion or expg.nsion of t11e loan account, but it ••ou.lu.. be in every way undesirable and such unfort~te to ~erpetUdte in ~e~co ttwes ~rbitrclry rue~sures. It is not the function of the Trea.sury nor of the Fvei~r.;J,l R~sv!"?"C :Banks or the banking institutions of the country to provide cheap money for stock speculation and the Board feels that the reflex action of the rates for call money on stock collateral upon the Government's financial program and the requirements of commerce and industry has greatly decreased, (as, indeed, was evidenced by the small redemptions of Treasury certificates notwithstanding high call money rates and the relatively o - .. I • -3- X-1612 ' - ' ~1 •£feet upon the rates for comnercial borrowings) and will continue to decrease as it becomes better and better understood that the true function of the banking institutions of the country and of the Federal Reserve System, acting in their aid,is, subject to the temporary requirements of the Government, to finunce comnerce and industry. Only those banking institutions which ~dhere to this policy are performing their true function and are being wisely and conservatively handled in the real interest of their stoCkholders and the public. The demands for credit for stock speculation must yield precedence to these prior demands, and the rates for stoclt speculation ruling from time to time, however erratic, can have no permanent effect upon the rates for Governmental and corraercial and industrial purposes. To have definitely established the fact that there is no necessary connection between rates for speculative purposes and for comrr.ercial transactions is in itself an important development. I ~. 518
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