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The enumeration in the legislation of changes in the
existing administrative set-up should be preceded by a preamble
or declaration to the effect that it is the purpose of the Congress
in enacting the legislation to eliminate unnecessary duplication
of effort and expense through the redistribution and coordination
of existing activities and that it shall be the duty of the agencies
charged with the administration of the Federal banking laws to
carry out this purpose in the performance of their respective
functions. This preamble or declaration of policy should be broad
enough to permit and specific enough to make it clear that the Federal banking agencies under the proposed legislation must mako joint
use as far as possible of existing facilities and organizations and
must not necessarily maintain or establish duplicato facilities and
With the foregoing purpose in view, the legislativo
program should include:
I. Termination of the office of the Comptroller of tho
Currency* - Its currency functions should be transferred to the
Treasury of the United States. The supervision which the Comptroller
of the Currency now exercises over building and loan associations
in the District of Columbia should be transferred to the Home Loan
Bank System*

The bank examination powers of tho Comptroller of tho

Currency and of the Board of Governors should be transferred to the


Federal Deposit Insurance Corporation with a provision that reports of examination shall include such information as the Board
of Governors may require for the performance of its functions*
The numbor of examinations and the frequency with which they are
to be mado should bo in the discretion of the Federal Deposit Insurance Corporation*

The powers of the Comptroller of the Cur-

rency and of the Federal Deposit Insurance Corporation to roquiro
reports should be transferred to the Board of Governors, with provision that there shall be included in such reports information
requirod by the Fodoral Doposit Insurance Corporation for the performance of its functions. The number of reports and their frequency should bo in the discretion of the Board of Governors* All
powers of regulation as distinguished from supervision should be
vested in the Board of Governors*
In order that the foregoing proposal may be more clearly
understood, the following functions would bo placed in the Federal
Deposit Insurance Corporation:
(a) Chartering of all national banks and admission of
all State banks to deposit insurance*

In lieu of present rigid

statutory capital requirements for chartering national banks and
admitting State banks to the Federal Reserve System, the Federal
Deposit Insurance Corporation should be authorized to determine in
oach case the adequacy of the bank's capital on the basis of its


deposit liabilities and other corporate responsibilities«


Corporation,in those cases in which the net sound capital and
surplus of an insured bank is loss than onc-tonth of its liabilities, should have the power to prohibit or limit the payment of
dividends by such bank whan it finds that its net earnings are insufficient to justify the proposed payment or when in its judgment its existing capital and surplus arc inadequate in relation
to its deposit liabilities and other corporate responsibilities.
(b) Approval of establishment of branches, domestic
and foreign, of all insured banks.
(c) Permission to exercise trust powers by all insured
(d) Supervision of holding company and other affiliates.
This supervision should be made applicable to all insured banks
upon the same basis and not merely to member banks. The recently
prepared draft of proposed holding company legislation should be
reviewed and revised to such extent as may seem necessary in the
light of experience.
(e) Proceedings for the removal of officers under section 30 of the Banking Act of 1933*

This section should be revised

so as to make it possible for the Corporation to act on the basis
of changes of violations of law and of regulations issued pursuant
thereto without the necessity of establishing a repetition of such

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violations. Unsafe and unsound practices should be eliminated as
grounds for such action and the entire procedure should be consolidated in the Corporation.
(f) Enforcement of the provisions of law containing
prohibitions against interlocking directors, officers, and employees of banks and between banks and security companies. The existing provisions of law should bo revised so as to make the prohibitions applicable to all insured banks and not merely to member
(g) Enforcement of the prohibition against loans to
executive officers.
(h) Enforcement of provisions of law relating to full
disclosure in the case of sales of securities or property to banks
by bank directors.
(i) Enforcement of prohibition against affiliation of
member bonks with security companies.
(j) Termination of dopooit insurance
(k) Appointment of receivers and conservators.
(l) Liquidation of insolvent banks.
(m) Approval of capital reductions.
(n) Approval of consolidations, mergers, etc.
As previously stated, all regulatory powers would be
vested in the Board of Governors. Among those, which for particular

- 5-

reasons are montionod, would be included:
(a) Regulations relating to payment of interest on demand and time deposits, payment of time deposits before maturity,
determination of -what shall be deemed to bo payment of interest,

(Now partly in Federal Reserve Board and partly in F.D.I.C.)
(b) Regulations governing the purchase of investment


(Now in Comptroller of the Currency)

(c) Collection of reports of condition and other statistical data.

(New in Federal Reserve Board, Comptroller of the

Currency and F.D.I.C)
(d) Regulation of extension of credit accommodations by
Federal Reserve banks to insured banks• The present eligibility
of tho Federal Reserve Act should bo eliminated, but the right to
fix different rates for different classes of paper should be reserved
to the Board, This would require a revision of section 16 of the
Federal Reserve Act dealing with the collateral requirements of
Federal Reserve notes,
**• Membership in Federal Reserve System, - Distinctions
between membership as now constituted in the Federal Reserve System
and nonmembership of insured banks should bo abolished. All insured
banks should be admittod at once to tho exercise of all privileges
now incident to membership in the System and all insured banks,
regardless of membership, should bo subjected to the seme require-

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monts of law and r e g u l a t i o n s .

As a part of t h i s program each

existing bank with deposits not exceeding $1,000,000 and located
in a place with population not exceeding 2,500 in which there is
now a non-par bank, should be permitted to charge oxchango in r e mitting for chocks drawn upon i t s e l f and u n t i l 1941 othor existing
banks not now on the par l i s t should be grantod the some p r i v i l e g e .
I t should also be providod that the absorption of such exchange
charges by correspondent banks other than Federal Reserve banks
should not bo doemod to bo the payment of i n t e r e s t .

Ovftiorship of tho Federal Reserve Banks. - The

c a p i t a l stock of tho Fodoral Reserve banks should be r e t i r e d at
par plus accruod dividends, the remaining surplus t o c o n s t i t u t e tho
capital of the Federal Reserve bonks.

Each Fodoral Reserve bank

should then be permitted to accumulate net earnings u n t i l an aggrogate capital of $300,000,000 (equitably apportioned among the bonks
in some manner to bo dctorminod) has boon accumulated.


subject to the creation and maintenance of adequate r e s e r v e s , each
bank should pay a l l of i t s earnings to the Government as a franchise

As an incident t o t h i s c a p i t a l adjustment a l l i n t e r e s t of oach

Federal Reserve bank in tho c a p i t a l stock of the Fodoral Deposit
Insurance Corporation should bo transferred t o tho Treasury and
f i n a l settlement should bo made with tho Treasury on advances by i t
to the Federal Rosorve bonks under section 13(b) of tho Federal

- 7-

Reserve Act. Provision should be made for the liquidation of loans
made under such section and for the discontinuance of this function
in the future.

Directorates of Federal Reserve Banks. - The direc-

torate of each Federal Reserve bank should be reduced to seven
directors in number, none of whom should bo an officer, director,
or employee of any bank*

Three of such directors, actively engaged

in their district in commerce, agriculture or some other industrial
pursuit, should be elected by the insured banks of the district,
under rules and regulations of the Reserve Board, and one of such
directors should be the banking supervisory authority of one of the
States comprising the district, similarly elected by the banking
supervisory authorities of all of the States comprising such district.

The remaining three directors, none of whom should be a

stockholder of any bank, should be appointed by the Board of Governors. The term of each director should be for three years and no
director should be permitted to serve for more than three full consecutive terms. The election and appointment of directors should
be staggered so that in each district all insured banks would elect
one director and the Reserve Board would appoint one director each

The manager of a branch of a Federal Reserve bank should be

eliminated as a director of such branch and there should bo substituted in his place a director elected by the State banking supervisory

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authorities in States served by such branch*

The office of the

Chairman and Agent of each Federal Reserve bank should be separated and, if present collateral requirements for the issuance of
Federal Reserve notes is eliminated, that of Agent should be

Interlocking memberships between Board of Govornors

of the Fodoral Reserve System and Board of Directors of the Federal
Deposit Insurance Corporation* - The Board of Governors should be
reconstituted to consist of seven members as now provided but the
Chairman of the Board should serve for a term co-terminous with tho
term of office of the President and should bo an ex officio member
of the Board of Directors of the Federal Deposit Insurance Corporation*

As a corollary, the Chairman of the Federal Deposit Insurance

Corporation should also servo for a term co-terminous with the term
of office of the President t a should bo an ex officio member of the
Board of Governors*

The remaining five members of tho Board of Gov-

ernors should be appointed for terms of ton years each, so arranged
as to require tho appointment of a member each two years* Members
of the Board should bo mado continuously eligible for reappointment*
The Board should be permitted, except as to actions relating to
national or System policy, to allocate particular duties to individual
members and to delegate authority to Federal Reserve banks* Tho
Board of Directors of the Federal Deposit Insurance Corporation should

9 -

be reconstituted to consist of three members as now provided, but
to conform to the above program.

The third member of the Board of

Directors of the Federal Deposit Insurance Corporation should bo
appointed by the Secretary of the Treasury.

Such appointed mombor

should be permitted to act for the Chairman of the Federal Deposit
Insurance Corporation in his ox officio capacity as a member of the
Board in his absence, and the Chairman of the Board of Governors
should be permitted to select one of the appointed members of the
Board to act for him in his ex officio capacity as a member of the
Board of Directors of the Federal Deposit Insurance Corporation.

Present Federal Advisory Council and present advisory

council of Federal Deposit Insurance Corporation. - The Federal
Advisory Council should remain as now constituted and the present
de facto advisory body to the Federal Deposit Insurance Corporation,
consisting of State bank supervisory authorities, should be made a
statutory body under an appropriate name.

Open Market Operations. - The direction and control

of open market operations of the Federal Reserve banks should be
placed in the Reserve Board and the banks should be authorized to
purchase Government securities having maturities not to exceed 90
days from the date of purchase directly from the Treasury.

The re-

quirements of the present law whereby the size (?) of the System
Open Market Portfolio is published in the weekly statement should

10 -

bo amended*

Reserve Requirements* - Tho statutory reserve re-

quirements should be made uniform for all insurod banks, differentiating only between demand deposits and time deposits and having ono percentage for time deposits, as for example 5 per cent and
ono percentage for demand deposits, as for example 15 per cent*
However, the Reserve Board should have the authority to classify
cities as reserve or central reserve cities and within the limits
of the authority granted it in connection with changing reserve requirements should have the authority to prescribe different percentages of reserves to be maintained for different classes of cities*
The Reserve Board should have sufficient authority to enable it substantially to absorb all excess reserves created from the importation of gold from abroad*

In this connection, the Reserve Board

should have authority whereby some control can be exorcised over
balances of foreign Governments and foreign central banks by permitting the Board to require that such balances be maintained only
with Federal Reserve banks*

The Board also should have authority

to prescribe different and higher reserves for foreign balances*
Inter-bank balances should be treated as is now provided but an exemption from the assessment base of the Federal Deposit Insurance
Corporation should be provided for all balances carried at a Federal
Reserve bank*

11 -


Issuance of Currency> - All authority to issue cur-

rency should be lodged in the Reserve System and all other outstanding authority to issue circulating notes should be repealed.
In this connection, provision should be made for the retirement of
United States notes by funds made available by the Treasury out of
unused gold certificates or other funds made available from other

The present collateral requirements for tho issuance of

Federal Reserve notes should be repealed as well as the penalty
provided for one Federal Reserve bank paying out the notes of
another Federal Reserve bank.

Silver Purchase Act. - The legislation should provide

for the discontinuance of the purchase of silver under the Silver
Purchase Act of 1934. Certificates for silver already purchased
should bo issued to the Reserve System at the cost of such silver
to the Treasury and the credit thereby established should be used to
retire outstanding silver certificates. The Reserve System should
have authority to use such certificates as reserves for the issuance
of its notes upon a basis of one to one coverage.

Thomas Amendment. - The Thomas Amendment should be


Mandate. - Consider the possibility of drafting a


form of mandate which will enable tho Chairman or the Board, acting
through the Chairman, to advise tho Chief Executive, or such Board

12 -

or Commission as may be established for the purpose, as to tho
need for action or the exorcise of Governmental powers beyond the
scope of the Board of Governors with a view to accomplishing the
purposes of the Board's monetary policies.