Word: rediscount
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...days before England dropped the gold standard. Some $525,000,000 had left through shipment or "earmarking," against imports of $40,000,000. Squarely facing the Comptroller was another mighty figure: over $1,000,000,000 tied up in closed banks. Gold exports could be stopped by raising the rediscount rate, the money in suspended banks might eventually be retrieved in part but hoarding by the people was a psychological matter, a mob spirit, dangerous, unreasoning...
Such obvious loss of confidence literally forces banks to hoard also. Fearing a run by its doubting depositors it must be fortified by an abnormally large amount of cash in its vaults. To do so they take their eligible paper to the Federal Reserve Bank in their district, rediscount it. If pressed, they must sell their secondary reserve of bonds and stocks in the open market, probably at a loss. Cash on hand in banks is sterile, earning nothing, doing good to no one, a tribute to fear...
Anxious to give business a stimulant, last week the directors of Federal Reserve Bank of New York slashed its rediscount rate from 2% (where it had stood since Dec. 24) to 1½% Money eased throughout the land.* The immediate aim and probable result was to aid England which has been losing gold to the U. S. Over a longer period, agreed bankers last week, it should encourage foreign financing in the U. S., likewise issues by domestic companies. Yet last week the state of U. S. business was such that no sudden demand for funds was expected, no immediate...
General was the agreement of witnesses that the Federal Reserve Board in Washington had followed a mistaken course of public warnings in trying to check the 1929 stock inflation instead of adopting the recommendation of the New York Federal Reserve Bank for tipping the rediscount rate. When this rate was belatedly advanced from 5% to 6% it was admittedly insufficient to turn the tide. Though witnesses were not rude enough to say so, they implied that the fault lay largely with the foggy-headed uncertainties of Roy A. Young, the Governor of the Board...
...Federal Reserve. Late transactions can turn proper reserves into surpluses or deficiencies. A surplus signifies a multiplied loss of profit owing to the fact that a dollar in reserve means many dollars in banking power; a deficit means the bank must pay 2% above the regular Federal Reserve rediscount rate. Often, suddenly afraid of late deposits which mean a larger reserve will be needed, banks call loans late Tuesday and Friday. The sensitive New York money market is frequently disturbed by this action...