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DateJanuary 29, 1946.


Mr. Vest

Subject: System responsibility in
credit field — Legislative

Last week I submitted to you a brief resume of the statutory responsibilities of the Federal Reserve System in the credit field*
Since then we have examined the legislative history of various provisions
of the law on this subject and have prepared a memorandum of some length
in this connection. I give below a few of the statements taken from the
legislative history which illustrate the clear intention of Congress
that the Board of Governors and the Federal Open Market Committee should
have definite responsibility and final authority with respect to these
Senator Fletcher, in explaining the Open Market provisions of
the bill which became the Banking Act of 1935, said on the floor of the

We shall, through this act, definitely fix the responsibility
for and the power to engage in open-market operations in the
Federal Reserve Board. In the future, when money becomes 'easy*
or money becomes 'tight' or when we are led into a period of inflation or a period of contraction and economic demoralization,
we shall be able to put our finger upon the Federal open-market
committee and say, T You are responsible.tff
In connection with the conference report on this bill,
Mr. Goldsborough said in the House:

* * * Under the conference report they [i.e., the Board]
control the open-market operations• The Federal Reserve
Board represents the public; the Secretary of the Treasury
is off of it and the Comptroller of the Currency is off of
it. * * * *
Regarding discount rates and reserve requirements, Senator
LaFollette said in connection with the Banking Act of 1935:
"The new Board itself, as constituted under the pending bill,
will have complete control over rediscount rates and reserve
The House Banking and Currency Committee report on the bill
said with respect to reserve requirements: "It is essential to give
the Board more authority in controlling credit conditions * * *•" and
„* * * It i g ijflpQp-fcaj^ to clarify the Federal Reserve Board's power to
arrest inflation."

Chairman Eccles


Representative Williams declared that by giving the Board
"levers of control" over credit conditions (by means of open market
operations, discount rates, and reserve requirements) "it is hoped
and expected that the Federal Reserve Board shall so regulate and
control the expansion and contraction of currency and credit throughout the Nation as to accommodate agriculture, commerce, and industry,"
Regarding margin requirements, the report of the Banking
and Currency Committee of the House with reference to the bill which
became the Securities and Exchange Act of 1934 contained the following:

* * * All speculative credit should be subjected to
the central control of the Federal Reserve Board as the
most experienced and best equipped credit agency of the
There are many other comments in like vein as those mentioned above, all showing clearly that the Board and the Open Market
Committee have the authority and the responsibility for action in
this field*