Stock Market

Week by week the total of brokers' loans mounted. Federal Reserve banks, led by Chicago, raised the rediscount rate to 5%.* Still the member banks reported that corporations and individuals were withdrawing deposits and putting their funds on the call loan market. Last week, U.S. bankers sat down to a serious campaign to end the wholesale diversion of money for speculative purposes.

In Chicago, Federal Reserve directors discussed radical action, a return to the early system of "differential rediscounting," with low rates for agricultural and industrial loans, high rates for loans destined for speculation. To Manhattan came curly-haired Roy Archibald Young, Governor of the Federal Reserve Board, ostensibly on a tour of inspection. But bankers noted his arrival coincided with the issuance of a serious warning by the Federal Reserve Bank of New York. Banks were "overloaned." The discrepancy between deposits and loans was becoming too great.

Most promising, however, was the action of the New York Clearing House Association. Said the Clearing House: Banks shall refuse to put the money of the corporations out on call in amounts less than $100,000. Further, they shall increase their service charge on loans made for others from 5% on the interest on the loan, to 1/2 of 1% of the principal. Banks anticipated protests, prepared to meet them by handing the corporations a partial recompense. Interest rates on commercial accounts were raised from 2 to 2 1/2%, on deposits for 30 days or more from 2 1/2 to 3 1/2%.

But a chasm still yawned between interest rates on deposits and on call money. Opinions were divided on the possibility of curbing speculation by refusing to lend money on behalf of corporations. The corporations, for example, might lend their money directly, ignoring the banks. Or they might start a bank of their own. There seemed, last week, a number of ways by which the money market might be taken out of the control of the Federal Reserve and of its member banks.

*Last week, Lawyer Frank G. Raichle of Buffalo adopted the extraordinary course of filing suit in Federal Court to restrain the Federal Reserve Bank of New York, from raising the rediscount rate. Cried Lawyer Raichle: "Artificial stringency! Propaganda! Money despotism! Paternalism!" Charged Lawyer Raichle: "The Federal Reserve Bank has been illegally engaged in the arbitrary reduction of business through the fixing of high rediscount rates."

Frank Raichle is the law partner of Col. William J. ("Wild Bill") Donovan, Assistant to the U. S. Attorney General. He suffered bombardment when his innocent pleasure yacht was attacked, last month, by a Coast Guard Cutter (TIME, July 23).