Evening Republican, Volume 23, Number 294, Rensselaer, Jasper County, 10 December 1920 — FEDERAL BANK ISSUES LEITER [ARTICLE]

FEDERAL BANK ISSUES LEITER

GOVERNOR M’DOUGAL OF CHICAGO MAKES IMPORTANT STATEMENT. The following letter has been sent out to the banks of the Seventh Federal Reserve District by. J. B. McDougal, Governor of the Federal Reserve Bank of Chicago: December 7, 1920 To the President of the Bank Addressed: — During November a series of Farmer-Banker conferences was held in the state of lowa, in which this bank was invited to participate. Each of these gatherings was conducted as an open parliament, and discussion of the problems of the day was frank and free. Each interest present carried away a much clearer impression of the view point of others than existed before and great benefit should result from tjiese conferences, because of this mutual understanding. This institution greatly appreciates the respectful attention and the uniform courtesy extended to its representatives attendant at these gaherings. The Seventh Federal Reserve District is largely agricultural; and while lowa is at the moment under a greater strain than other states, basic conditions axe largely the same in all sections, and the present seems an opportune time to emphasize a few cardinal principles which control the operation of the Federal Reserve Banks, from the standpoint of sound business as well as of legal requirement. The reserve of a bank consists of a certain proportion of its deposits, the minimum amount of Which is usually fixed by law, and which must be in actual cash or in the form of balances in other banks convertible into cash on demand. The member bank must carry the entire legal reserve required under the Federal Reserve Act as a deposit with the Federal Reserve Bank in which it is a stockholder. The Reserve Bank must keep such reserves constantly available, as its ability to rediscount for members depends upon the maintenance of required I reserve deposits. ... ~ - Rediscounts earned by the Ke- ' serve Bank for member banks must be repaid promptly, in order that the Reserve Bank may be in a position to provide for the requirements of other member banks. The law entitles each member bank to reasonable rediscount pnvileges,

but it obligates the Federal Reserve bank to be prepared to grand rediscounts equitably,' to each and every. member bank, even though 'all apply for such accommodations at the same time. The Federal Reserve Bank may grant and has willingly granted more than ordinary lines to some institutions in certain localities, but no institution pr locality so favored should assume that, once granted, these extraordinary accommodations may be carried indefinitely, dependent for their liquidation solely upon the pleasure of the original borrower. The payment of deposits, and the granting of seasonal demands yet to come, is dependent primarily upon the liquidation'or reduction of loans now held by banks. To urge complete liquidation immediately is as unwise as it is impossible, but a beginning of the process at once is imperative, and upon its gradual and orderly l continuance is dependent the future welfare of the banker, the depositor, the merchant and farmer alike. i At the Farmer-Banker conferences, the opinion was frequently expressed that the farmer alone is feeling the force of the after-war adjustment now in progress. Conditions in other lines of business indicate that this opinion is not well founded. It most by this time be evident to all, fair observers that the readjustment process is m evidence in practically all lines of commerce and industry, and the

balance sheets of January first next will undoubtedly be convincing proof of this fact. We believe the American Fanner is a good citizen, and that when he can be shown the inter-dependenee of his industry and all others, and the need of team work all along the line to bring order out uncertainty, he will do his fuH share. Banks in the Seventh Federal* Reserve District, Members and Nonmembers alike, are under an enormous burden of credit at this tune. Relief will come, if the banker will take his customer into his confidence and ask him to help. A beginning of liquidation, and a gradual and orderly continuance, ■will hasten the time when the baric law of supply and demand wiH agai n begin to operate normally and valu€S reach their natural and prefer level Governor.