View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


December 8,1920




Dear Governor Harding:
I have received and read with much interest the
correspondence between Senator O e and yourself, (Board's l e t t e r s )
X-2074 and X-2077) and must say that your reply leaves him without "a leg to stand on".
I somewhat regret that you didn't see fit to "take
a shot" at his statement to the effect that i t is not necessary
for Federal Reserve Banks to carry reserves against their deposi t s , "when as a matter of fact, the deposits in the Reserve Banks
cannot be withdrawn under the statute". Probably i t is best that
the part of Section 19, which provides that the required balance
carried by member banks with the Federal Reserve Bank may "be
checked against and withdrawn by such member bank for the purpose
of meeting existing l i a b i l i t i e s " be not quoted too freely just at
this time, because, particularly in this district, we are finding
i t difficult, and in some oases impossible, to get our member
banks t o maintain their required balances with u s .
I a pleased to note that you have spoken so freely
and forcefully on the subject of Federal Reserve Bank rates as
compared with current market rates. The margin of profit to a
member bank in the western sections of this d i s t r i c t , where even
the largest and most secure loans are made at 10% and 12%, i s so
great as to tempt even the most conservative bankers to make
loans which they absolutely know their bank is not able to carry.
Every time I think of this condition, the hope again arises within
we that some day the Board may find i t possible to base the reserve
bank rediscount rates on the rate actually received by the member
bank from i t s customers on the identical item rediscounted.
Rates which place a penalty on the rediscounting
bank in sane portions of our district offer attractive inducement
to rediscount by banks in other sections, which condition is, in
a measure, in my opinion, unsound,
Very truly yours

Hon. W. P. G. Harding, Governor,
Federal Reserve Board,