Word: rediscount
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Dates: during 1940-1949
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...TIME said: "The proposed rise in the rediscount rate . . . was too small to be more than psychological in effect...
...chairman of the First National Bank of Chicago, who put a realistic finger on the trouble with Eccles' plan. Eccles, he said, need not go after such sweeping powers until he uses the powers that FRB now has. Why, for example, didn't FRB raise its rediscount rate (the cost of FRB loans to commercial banks) and thus raise the interest rates on all borrowed money...
Eccles flatly said that he "would not recommend" using this power. FRB was still frightened by the slumps of 1920 and 1929. A big boost in rediscount rates had preceded them, and many still blamed the credit curb for the slumps...
Modest Steps. Next day, Eccles had a second thought. He announced that FRB would inch up the rediscount rate from 1% to 1¼% "in the not too distant future." Then Allan Sproul, president of the Federal Reserve Bank of New York, prodded Eccles. FRB has the power to make Central Reserve banks (those in Chicago and New York) increase their reserves another 6%. Why didn't it do so? As for Eccles' new plan, Sproul gave it the back of his hand. Said he: "It would expose us to grave monetary disorders. ... A program of modest steps...
...that Federal Reserve banks be required to back their currency notes by 40% in gold, the same ratio as prewar (it had been dropped to 25% as a war measure). This would have no immediate effect; reserves are actually at 49% now. Nor would the proposed rise in the rediscount rate; it was too small to be more than psychological in effect...