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U1 December 16* 9• Mr* T. IT. Leggett, Vice Chairman, Executive Committee, Hational Association of Supervisors of State Banks, State Capitol Building, L i t t l e Bock, Arkansas* Dear Mr. Loggetti Thank you f o r sending us the copy of your l e t t e r of Deoeuber 15 t o Mr. Hospelhorn. I read i t with an increasing sense of g r a t i f i cation and encouragement, I recognise* as you do, the implications of any proposal to require State banka to comply with Federal regulations and we both know that i t i s always a n a t t e r of degree and purpose, the FDIC certainly has not undo rained the dual banking ays tea, and I think yon know that there i s no such i n t e n t so f a r as t h i s temporary special reserve proposal i s concerned* I t merely recognises the hard f a c t that t o be e f f e c t i v e any reserve requirements would have t o be applicable to a l l commercial banks, t h a t was also reoognised i n the Special Beport which the System sent to Congress a t the end of 19^0 i n which the Federal Advisory Council, the presidents of the Beserve Banks, and the Board unanimously Joined. I aa so favorably impressed with your objective approach that I em taking the l i b e r t y of c i r c u l a t i n g your l e t t e r among the For Circulation ^Board members* first to HAj&LSO^r** Let Me take t h i s occasion t o send you a l l good wishes of the Holiday Season* Mr. Szyinczak..,./ Mr. Draper — yS Sincerely yours, Mr. Evans ^ ^ ^ ^ ^ ^ ^ ^ ^ Mr. CIayton ^ ( S i g n e d ) M S. F.ccles Mr. Thurston Mr. Morrill .VL-.^-.S. Boole8, Mr. Carpenter K ^ / I Chairman. Mg^flmmnn^ / ST:b Mr, Sherman,V. Mr, * Mr 1. pieas/^^ Bmk turn J 'ft- w December 15* 1 0 7 Hr# John D. Hospelhom, Chairman 3£xecutive Co*nlttee Eatloaal Association of Supervisors of State Banks Baltimore, Maryland Dear John* I have your l e t t e r of Becesiber 10 enclosing a detailed copy of the state* saent recently made by Chairman Socles before the Joint Committee on the economic report* Since that ti&e I aa i n receipt of two bulletins from the Federal Beserva Board* with an explanatory sheet dictated by Mr* Eccles under date of Becesiber 10 1 as a result of h i e conference with Secretary Snyder^ I mm sure I can go along i n f u l l accord with Mr* Socles* except the reserve requirement which he propoee** and I an a l i t t l e inclined to think he i s r i ^ h t even I n t h i s . However. 1 can understand why the bankers generally would no* be favorable to such a reserve requirement* 1 believe the reserve requirement proposed mirhfc be a &ood thing, but I would hate to see the Federal Reserve Board have j u r i s d i c t i o n over the non-member banVrs In this respect f o r the only of s e t t i n g a precedent* I do not believe the the r e s t r i c t i o n of bank credit alone a cure for the i n f l a t i o n which now exists* 1 believe i t w i l l take an organised e f f o r t on a l l f r o n t * * and as has been stated, soae of the elements necessary to, give attention to are as follows* The increase of productivity both a t ho»e and abroad; Suspension o f future demand* f o r wage increase*» especially those of organised labor, where the Increase* have b$en greaters A f i s c a l policy to prodttee the largest possible surplus, to be used to pay o f f bank~held debt mi thus reduce the money eujfply, C o n t i n u a t i o n and expansion o f t h e T r e a s u r y Savings Bond campaign, w i t h adequate f i n a n c i a l s u p p o r t b y Congress* I f t h e a d m i n i s t r a t i o n w i l l g e t s e r i o u s about t h i s i n f l a t i o n and g i v e a t t e n t i o n t o t h e above r e l a t e d f a c t s , I would b e w i l l i n g t o go a l o n g aftd s u p p o r t Mr* E c c l e s 1 p l a n o f i n c r e a s e d bank r e s e r v e s * One t h i n g I b e l i e v e t h a t we* as bank s u p e r v i s o r s * s h o u l d always bear I n mind, I s t h e s a f e t y o f t h e b a n k i n g eye t e a . The s a f e t y o f bank a s s e t s i s more i m p o r t a n t t h a n e n c o u r a g i n g banks t o t o l e r & t s t o o g r e a t expansion i n c r e d i t f o r t h e sake o f making more money. I b e l i e v e t h a t most o f t h e banks a r e d o i n g a good Job i n s e l e c t i n g c r e d i t r i s k * , b u t we do have s e v e r a l banks i n wp s t a t e which I Imagine c o u l d r e p r e s e n t a v e x y good s a m p l i n g o f t h e c o u n t i y i n w h i c h t h e banks a r e t o o a m b i t i o u s t o make l o a n s on h i g h p r o p e r t y v a l u e s * She t r e n d i s d e f i n i t e l y t o w a r d a w i d e expansion i n bank c r e d i t * I b e l i e v e we s h o u l d t h i n k something o f s t o p p i n g i t b e f o r e i t gets too f a r * I am impressed w i t h what Mr* E c c l e s s a i d i n one p a r a g r a p h o f h i s s t a t e m e n t , i n w h i c h he mentioned t h e f a c t t h a t t h e F e d e r a l Beserve S u p e r v i s o r y C o u n c i l d i d n o t agree w i t h h i s p r o p o s a l * She p a r a g r a p h l e a s f o l l o w s : ' l a m s u r e t h e C o u n c i l 1 * v i e w s r e f l e c t t h e o p i n i o n o f a g r e a t many b a n k e r s , who a r e e n t i r e l y s i n c e r e i n t h e b e l i e f t h a t t h e l o a n s t h e y a r e e x t e n d i n g a r e s a f e , d e s e r v i n g r i s k s necessary t o s u s t a i n f u l l production* That c o n v i c t i o n , h o n e s t l y h e l d , i s u n h a p p i l y c h a r a c t e r i s t i c o f boom p s y c h o l o g y * I n 1920, o r i n t h e l a t t e r p a r t o f t h a t decade, bankers w o u l d have made t h e same r e p l i e s t h a t t h e y g i v e today i f asked whether t h e y t h o u r f i t t h e l o a n s t h e y were making s h o u l d n o t be made, A s h o r t t i m e l a t e r t h e y were t r y i n g d e s p e r a t e l y t o l i q u i d a t e some o f t h e s e l o a n s * The i n d i v i d u a l b a n k e r i s J u d g i n g b y s t a n d a r d s a p p l y i n g t o t h e i n d i v i d u a l b o r r o w e r and r i s k . * I f I t I s necessary f o r a c o n f e r e n c e I n r e g a r d t o ways and means o f c o m b a t t i n g t h e i n f l a t i o n a r y t r e n d I n w h l c h w e a r e encompassed, o r i n t h e d e a l i n g w i t h o t h e r m a t t e r s , I w i l l make I t a p o i n t t o t r y and a t t e n d t h e c o n f e r e n c e when y o u see f i t t o c a l l i t * W* t e g g e t t . V i c e Chalrmmi, E x e c u t i v e Committee twl/aa
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