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All the powers of the Federal Reserve System shall be directed towards the improvement of banking and credit conditions and the regulation of
the volume and cost of credit with a vievf to economic stability and the fullest sustainable employment of the nation1s human and material resources•
"Whenever in the opinion of the Board the attainment of this objective is
impeded by factors beyond its control it shall be the duty of the Board to
report the situation to the President or to the Congress.
The Board believes that this is the proper objective of Federal
Reserve policy and, in practice, it has endeavored to further this objective
with the limited means at its disposal* It believes therefore that this
objective should be stated in the law.
The Board is fully aware of the fact that there are many nonmonetary factors that are as powerful in shaping the course of economic
events as are monetary developments. Monetaiy objectives cannot be carried
out effectively unless the other factors are propitious to the attainment
of these objectives. The Board has no direct responsibility for policies
pursued in other lines, such as, for example, gold and silver policies, the
policy of Government borrowing, spending, and lending, the policies in relation to foreign trade, to public works, to labor, or to agriculture.
At the same time the fact that the Board finds it impossible to
carry out its objectives by the means at its disposal should not relieve it
of the duty to study these other factors and to report to the President or
to Congress its views on the situation together with such recommendations as
it may wish to make. The Board being an independent nonpolitical body with
continuous and intimate contacts throughout the country and with experienced
and trained personnel which as a part of its regular duties must be constantly in touch with conditions should be utilized for the purpose of giving
the benefit of its information and analysis to those responsible for other
phases of our economic life. This provision will also tend to overcome the
traditional opinion that, since money is the medium of a H business, economic
conditions can be regulated by monetary means alone. It is hoped that it
will contribute to a better understanding of the close relationship that
exists between various economic forces and will result in better coordination of these forces to serve the public interest.

Each Federal Reserve bank shall repurchase and cancel its capital
stock and shall operate thereafter on its surplus* After all expenses have
been paid and necessary reserves provided for, the remaining net earnings
shall be added to the surplus until the surplus amounts to as much as the
capital and surplus as of January 1, 1939; and thereafter all remaining net
earnings shall be paid to the Government. Retain existing provision that,
upon dissolution of Federal Reserve banks, the surplus shall go to the
In order to enable the Federal Reserve authorities to make an
effective contribution toward economic stability, they should have additional powersj it is appropriate that Congress require as a condition precedent
that the System be entirely free from private banking control*
The Federal Reserve banks are governmental institutions and are
operated solely in the public interest* The fact that they have been privately owned since the beginning of the System has been a source of growing
complaint by increasing numbers of Members of Congress and of the public*
Under present law, the class A directors are active bankers elected by the
member banks and naturally consider their service as directors to be representative of the stockholding banks. Situations have arisen where a member
bank needed the assistance of the Federal Reserve bank and was loath to avail
itself of such assistance due to the presence on the bank's board of an
officer of a competing institution*
The dividends paid by the Federal Reserve banks on their stock
absorb a substantial part of the System1s earnings. There is at present
sufficient capital and surplus in the Reserve banks to permit the retirement
of the stock and still leave enough surplus to carry on the operations of
the System under present conditions. Provision, however, should be made for
reestablishing the present amount of capital and surplus so as to insure the
System against future contingencies*
While it is proposed that active bankers no longer be on the
Reserve bank boards, it is proper that the private banking system be able
to present its views to the supervisory authorities and this is provided
for through the election of three of the directors at each Reserve bank by
the banks of the district and the present organization and functions of the
Federal Advisory Council*


Provide for a Board of seven directors, three elected by insured
banks and three appointed by the Board of Governors, none to be directors,
officers or employees of banks. Such directors to serve for three-year
terms, one term of each class expiring each year and each insured bank
to have one vote in election of directors• No director shall serve for more
than three full terms of three years each. The seventh director to be
elected annually by bank supervisory authorities of States included in
With the retirement of the stock of the Federal Reserve banks
there is no longer any reason for the election by the banks of the district
of a majority of the directors. It is proposed that these banks continue
to elect three directors who would be comparable to the present class B
directors, who are not bankers.
The limitation on continuous service is desirable since it has
been demonstrated that without it, influential bankers frequently serve so
long that there is a crystallization of control in the board and a consequent *
domination of the Federal Reserve bank by one or two directors. A rotation
of directors after three full terms would prevent such control and at the
saxae time would permit a director to serve for some time after he has become
familiar with the affairs of the Reserve bank.
The provision respecting the seventh director is a recognition of
the fact that of the fourteen thousand odd insured banks, aoproximately nine
thousand operate under State charters and are examined and supervised by
State authorities. The presence on the Reserve Bank board of a representative of the State banking authorities of the district should promote better
coordination between the Federal and State supervisory agencies.