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June 23, 1933 Dear Mr* Berle: la accordance with our telephone conversations, I em enclosing confidentially a suggested statement which represents whet I think the President should give to the press and the public In suauaing up the results of the bank examination review prompted by his- recovery message to Congress* It also represents wh&i I believe would be tiie most effective summary and one that would be of reel benefit both fros the standpoint of fc-he Administration and particularly thst of smaller businesses and the banks—though, of course, I know that the President hiiaself could put it in words that are more trenchant. I feel a strong responsibility for making this suggestion because I had requested the President to include in his message this move to lift restrictive policies by the several Federal bank supervisory agencies as a means of helping to facilitate the flow of the superabundance of b&nk credit already existing and added to by his recovery program. In feet, the Board*a willingness to reduce reserve requirements wes closely connected with the expectation that restrictions on the bsnks isould be lifted if the President requested it, as he did in effect in his message. I feel that something S very worthwhile has resulted for which he is entitled to great credit, but that the effect will be completely lost if ^ a t is accomplished is announced merely as a further step to "protect tiie beak depositor*, as if we had not been protecting him heretofore, HtnreTgr, I do not need to elaborate the subject to you because I know you h®¥e e full appreciation of it* I aerely felt thet my responsibility to th'e President would not be discharged unless I made every effort to let aim know my own Tiew ma to the significance of this program on viiieh the bsukiag agenciesfaeveuaanimouaiy &£>*&&&, not witiiout reluctaac© on tii# part of those of the old school who resist all co&nge or adaptation to modern eoaditio&s mad represent the typical basic examiaer mentality. iiincereiy. Ecclea, Honorable A, A, Berle, Jr, Assistant Secretary of State Washington, D» C, Wtimd - June £5, 1958. In my message to Congress on April 14, I announced the desterilisation of approjdaately H , 400, 000,000 of Treasury gold, accompanied by action on the part of the Federal Reserve Board to reduce reserve requirements by about three-quarters of s billion dollars, for the purpose of making additional bank resources available iasmedi&tely for the credit needs of the country* At the saxe tiae X expressed the hope that Federal banking supervision could be better coordinated, with a view to facilitating the flow of credit for commerce, industry and agriculture. The Secretary of the treasury initiated a series of conferences with representatives of the Federal Deposit Insurance Corporation, the Office of th© Comptroller of the Currency, and the Board of Governors of the Federal Reserve Systest for the purpose of reviewing the policies and regulations of the Federal banking supervisory authorities and determining wherein they might be improved and better coordinated in furtherance of this objective, consistent with sound banking principles. They have unanimously agreed upon and submitted to me a program which for the first time brings about eosplete uniformity in the rules and regulations to be followed by the Federal agencies in their administration of all bank examinations under their respective jurisdictions. This is an important forward step ia re- - 2 soring from the field of bank supervision sources of conflict and of irritation that do not sake for the efficient functioning of the banking system. Beyond this, however, the program adopted should be of benefit both now and in the future in two iaportant respects; first, by opening the way especially for the small and sediuasised business concerns to obtain needed credit froa the banks, and, second, by relieving pressures that tend to reduce outstanding credit or prevent extension of new credit to sound borrowers* The program includes a broad revision of the Regulation of the Comptroller of the Currency governing bank investaent policy. Xt provides that member banks of the Federal Reserve Systen nay purchase investment securities, of such sound value or so secured as reasonably to assure payment, issued by established commercial or industrial businesses or enterprises that can demonstrate the ability to service such securities, without requiring that the securities be offered for public distribution or that they mist be readily marketable, provided, however, that they mature not later than 10 years after the date of issuance and that 75 per cent of the principal be aaortized at aaturity by substantial, periodic payments, none of which would be required during the first year. The program provides, with respect to bank examination reports, that what has been commonly called the "slow" column will be abolished altogether. In place of this, and of the coliams heretofore h&aded "doubtAd" and estiaftted Ivm*, there irill be substituted the dealgaftti&a®, I I , I I I , aad IV, which &r*s to be defined respecttvoJLy *©* the l i s t i n g of loans that ax® so**«vh&t doubtful, »or@ doubtful^ and l a mki&h loss 1® e s t l m t s d . The •slow* eoluwt ha* loug been a Ktunofter ami a mum t f oospUiint* The iaportaat fact, howevert I s not the de&i^&m&l&n of the eoiujsas, but the d e a r recognition ^ & t in mki&g for workla^ OfepitsX or fixed e&pitsi |»irpo»@s e wuKHixttged t© |>i««® to® esipl^sis ap«a @maidri#®# rather then up<m liquidity or qolek a a t a r i t y . &iaUjirly9 the rerlsed exaaiaatioft procedure clearly racognls®© the principle that bssi^ lnv«atiMm'&s *bould tea cumsldered 1B th# light of their liyurrent i^ouad;n«r0-0 rsther day to d«y aark^t i'luctu&tioas or liquidating mt %£m b&okln^ sj$t@^ depend* in the l a s t eamlyeld upoa the Re«Mi of tbe eouraitiT*^teislaeiMKend ladttetriel «aterprl*e#« It ehoultl oot be s@-a®ur«s4fej*tiw pjr^e^riou^ jrmrdetiek of tleker qaot«tl«aa ithiok often reflect apeculiitiv® m& not true of i a t r i a s i e worth* Xa their parehasa of ae<suriti«s the should be enoouregod. to lisveet» not to ^peetiJUte. &Gmr&lngky9 the revised p-roeed^ir© Ijroadlj -divides euriiit® into t&oaa of lnve*tmmt - 4 - or gab-st&f&tenl eh&racter* The tormr will b© l i s t e d in Croup Xf to l a t t e r l a Group I I * Xfefaultad bonds end slotifci * i l l "be l i s t e d in Cfroups X$&od IV, reepecwivoiy. I t i s e&tin&taci t h a t epproxia&tftly 00 par ftant of th tot&l 0ec*xritl$ts Imld % ih& h&iik& i*re of Xnvcstmaat q u a i l t j c a r r i e d III feflqp !• Iji eocifoTntlt^' * i t h Urn p r i n c i p l e of g suoh socurltiec^ tgr iavc^Uaont and. ^o-t, fa^ fXuetUAtia^ tawrket* 8t«?uS#crd8, <J,fctl;f quotations if 111 a o t be token i n t o aecouot i s nxskslo^tion r e p o r t s , which will f S p l y * th&t such o e c u r l t i e * be afeo^m At tht^ir book m l u # ¥h«tb»r th^f b« l i f t e d ay urtllst^J s^eariti®©. % tfciU3 <Mr?«rln^ bonk invaatw»it fro® tfa* t i c k e r , bank® w i l l ba eaaeotupi^Ki t o purtUvMM tb« 0#eyurli£#s of scRuad iBMKricaii Uisi&^dd tm& indufitrii&l «K3iMS8n*«> nitether lar^© or f©r t h a i ? true varth «»d not for speoultttivu gsitui* Sub-^titadard op speoultttivc Mourivi«ti f t© b© i a Sroap I I , ®r© »sti«mt«d t o e^mprlse not n w a thmi *> per of the bwnfea'1 iMiittWi M l w i l l b© sliomi in e a t t h « i r «f3P!*g« aarket |MMpi for t t e l i wmtha pvSMtlai the €3t, a Mrthod whlc^ would aor® &o®'arat,«l^ r ^ r i e o t ixttrinvie i s t h i s group. Unlisted doouriti&a in Uiis gpoap w i l l b© ahomt a t •gtia&ted VtfbMi I» ISfee mn& of Group I I I «ad 17 e a r i t i « « , a « t depr«ci»tioa w i l l eontinu© t o ba i In ©atia&ttag the net sound capital of beak*, total of loans eln.g&ifisd as l o s s , &0 well as t&e te*tul depreciation In def&olted bond* ««d ©took® will b# deducted. In addition, 60 p«r cent of iis® nore doubtful Xo&a&» ** showa in Ola^s XIX nod SO par <seat of th@ u«t d®i;xr«©iailo3a of the suto-s-Uis^ard bo»dn l i s t e d l a Group II $ will be dsduct«d* Pr^vioualy, the t o t a l of a l l of thd loaas classified &s d*?ubt£ul h&» besai de<iuct«Kif but oxp^rieaea has ahoim thatt not «&r® then half result in IOSB* .Idk@wis@f in the da&setions Mavs &@^i MUI« for &H of th® dApmwtiatlott «fi r©~ eurreat naarkat quotations for the ttatire inve^taent portfolio* A primxy purpow of ta© pro^rim ie to wacouxmgo thd oasikiag system of the country to adapt i t s leading and ^ia«tioja» to pmMat^da; r«cair©a®ats of ooRAwreft^ i n dustry ty*d agriculture* I t will &fior4 the baaks a broader oppor- tualty for iMrvice to 'th« eo«tt^uixity «nd I'or profitable outlet for too* of tbair afeuafibat,. idle fiuods* If th© bfeaks will aTbil th#e»- of Ui&t opportualtj 9 the nt*c«*city will be diajisxiahed for of gorera»ent «^enei*» to fursiisii er«dit fa«ilitie« irfeich t t e h$mk& i l w J i provide* 1 f i r s t *te>p la stopping deflation r e - that credit eontruetlon ia the b&nkin^ ^rgtea ba fhi* Is ejsseatisl lit ord»r to provida a bsslsi upon which nwgeasary can bs brought Jtbout, This pragma should &sai#t la lifct* or«4it contraction mid eaeour#giag private credit p M l In turn will l##0@n ths a#«d for publle credit* tbeniby It a#£i coatrlfau-ts to gon^r&l haaith upon ^fcicli th« weXf&re of th« public &s wall es of banker and Ismnk depositor depeods*
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