Full text of Marriner S. Eccles Papers : Memorandum to Members of the Board Regarding Problems for Review, Box 47, Folder 14, Item 3

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Form F. K. 131
BOARD OF GOVERNORS

Chairman Eccles

DFT HE

FEDERAL RESERVE SYSTEM

ce Correspondence
To

Members of the Board

p

Ronald Ransom

n ^ March 14,1959
Subject:

CONFIDENTIAL
It was suggested at the Board meeting on
Friday, February 17, that, in connection with the
discussion of existing problems contained in our
Annual Report, we would find it helpful to systematically review these subjects in an orderly way. This
would require (l) a statement of the subjects that
should be so reviewed, (2) the assignment of these
subjects to different divisions of the staff to prepare data for discussion, and (5) a series of round
table discussions between the Board and staff to
develop objectively all possible answers to the questions raised by such discussions.

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As the first step, there is attached a
list of subjects that might be so reviewed. This was
submitted in rough draft form to senior members of our
staff. In its present form it embodies suggestions
received from them. The order in which these topics
are listed is necessarily arbitrary, but it is believed
that, considered in this order, a reasonably complete
review can be developed. Suggestions from the members
of the Board are invited. When these are received, the
memorandum will be re-drafted and the Board can then
consider the question as to whether such a review will
be undertaken.

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I
GROUP A:

FJRPOSES OF THE FEDERAL RESERVE SYSTEM

.1, What are the purposes of the Federal Reserve System
(a) as declared in the statute?
(b) as expressed in committee reports?
(c) as expressed by commentators?
2.

Is there need for amplification of or change in the purposes
declared by the statute and, if so, what should be the declared purposes or objectives?
GROUP B: FUNCTIONS AND POLICY INSTRUMENTS OF THE
FEDERAL RESERVE SYSTEM

S. Currency
(a) Place of currency in our monetary system,
(b) Kinds of currency in existence at the time of the
establishment of the System.
(c) Substantial changes since then.
(a) Purpose of providing for Federal Reserve notes.
(e) Reasons for requiring collateral for Federal Reserve
notes*
(f) Desirability of dispensing with collateral requirements for such notes and, if so, requirements or
limitations upon their issuance which should be substituted.
(g) Reasons for provisions relating to interest on Federal
Reserve notes and prohibiting one hank from paying out
notes of another.
(h) Desirability of dispensing with these provisions.
(l) Effect of silver purchase operations.
4. Reserve requirements applicable to Reserve Banks
(a) Purpose of such requirements as to note issues and
member bank deposits, respectively.
(b) Are any changes desirable or necessary?
5. Credit accommodations of Federal Reserve banks

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(a) Purpose of Federal Reserve bank power to extend credit
accommodations.
(b) Purpose of power of Federal Reserve Board to regulate
the extension of such accommodations*
(c) Changes in law and in practice*




-25. Credit accommodations of Federal Reserve banks (continued)
(d) Should loans or discounts be made by Federal Reserve
banks only for member banks?
(e) Are existing powers and purposes adequate? If not, in
what respect should they be changed?
6. Discount rates
(a) Purpose of power of Federal Reserve banks to fix and
change discount rates,
(b) Purpose of power of Federal Reserve Board to review
and determine such rates.
(c) Changes in law or practice,
(d) Factors to be considered in fixing and determining discount rates,
(e) Should rates vary in different districts or be uniform
for the entire country?
(f) Should there be any relation between discount rates and
(l) loan rates of member banks or (2) rates of interest
paid on deposits by member banks?
(g) Influence of discount rates on credit conditions.
(h) Should any change be made either in the power to determine discount rates or in tho purposes for which they
should be fixed?
7. Open Market Operations
(a) Original purpose of the authority to conduct operations
in the open market,
(b) Extent to which the authority of the Federal Reserve
banks was made subject to control by the Federal Reserve
Board, and why.
(c) History of tho use of such authority and changes which
have taken place in tho purposes of such use in law or
In practice.
(d) Are the purposes stated in the statute adequate? If
not, how should they be changed?
(e) Relation between the power of the Federal Reserve System
to conduct open market operations and the conduct of the
fiscal operations of the Treasury and of other Governmental agencies,
(f) Relation between these powers and the power to change
reserve requirements ol1 member banks and other instruments of credit policy.
(g) Should the exercise of open market power as an instrument of general policy be confined to direct obligations
of the United States Government?

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7f

Open Market Operations (continued)
(h) May open market operations of Federal Reserve banks
in acceptances and other paper have any effects in
conflict with those of the System* a operations in
Government securities? Should there be any relationship or connection between such operations?
(i) Should the System have power to buy United States
obligations directly from the Treasury? If so, should
there be any limitations as to kind or amount or conditions under v/hich such purchases might be made?
(j) What is the "open market"?
(k) la the market in which operations in Government securities now conducted satisfactory for the purposes of
Federal Reserve policy? If not, is there any practical
substitute?
(l) Should Federal Reserve banks provide a "market" in
Government securities for member banks?
(m) Should Federal Reserve banks have power to create and
issue some additional types of obligations as a means
for influencing credit conditions?

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8, Reserve requirements applicable to member banks
(a) Reasons for incorporating reserve requirements in the
Federal Reserve Act.
(b) What changes have been made and why?
(c) Significance of reserve requirements,
(d) Purposes of power given to the Board of Governors to
change such requirements*
(e) Does the fact that such requirements are limited to
member banks impair their effectiveness materially?
(f) Do reserve deposits of member banks create eai^ning
assets for Federal Reserve banks?
(g) Relationships between control over or purposes of reserve requirements and (l) open market policy; (2)
other monetary policies; (3) fiscal or currency operations of the Treasury.
(h) Effect of gold movements upon problem of reserves,
and suggested means of handling problems due to the
increase in gold stock.
(i) What changes, if any, should be made in the-; present system of regulating reserve requirements and why?




1«
2.
3.
4.

As
As
As
As

to
to
to
to

purposes;
authority of the Board of Governors;
banking institutions affected;
variation between localities;

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-48. Reserve requirements applicable to member banks (continued)
5. As to differences in kinds of deposits affected—demand deposits, time deposits,
foreign balances, interbank balances, etc*
6. As to places where reserves are carried—
Federal Reserve banks, correspondent banks,
Federal Reserve districts, etc,
7. As to general formula.
(j) Should interest be paid on reserve deposits of member
banks in Federal Reserve banks?
9. Margin requirements
(a) Reasons for placing control in the Federal Reserve
Board,
(b) Reasons for making requirements applicable to brokers
and dealers as well as all banks,
(c) Are the purposes adequately stated in the statute?
If not, how should they be modified?
(d) Should margin requirements be fixed in the statute
or should they be left subject to regulation?
(e) Are the powers of the Board both strong enough and
flexible enough?

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10. Rates of interest on bank deposits
(a) Existing controls over rates of interest on bank deposits by Federal Reserve and other Federal authorities,
(b) History and purpo£5es of the establishment of such
controls,
(c) Has the regulation of such rates accomplished these
purposes? If not, in what rospocts?
(d) Are limitations of interest rates dosirable from an
economic standpoint and can they be made effective as
to (l) time deposits; (8) demand deposits?
(e) What, if any, changes should be made in existing requirements or in the statutory authority under which
they are made and for what purposes?
11.

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Collection and clearing system of Federal. Reserve banks
(a) Purpose of providing for use of facilities of Federal
Reserve banks.
(b) History and purpose of par clearance.
(c) Effects on development of Federal Reserve System and
correspondent bank relationships,
(d) What, if any, changes should be made.




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-512.

Bank examinations
(a) Reasons for existing statutory authority of both the
Federal Reserve banks and the Federal Reserve Board
to make examinations of all member banks.
(b) Why was it not confined to State member banks?
(c) Existing relationships, and changes, if any, which
should be made, as to bank examinations, between
!•
2.
3.
4.
5.
6.
7.
8.

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9.

The Board of Governors and the Federal
Reserve banks;
The Board of Governors and the examiners;
The Federal Reserve banks and the examiners;
The examiners and the banking institutions
examined;
The Board of Governors and the banking institutions examined;
The Federal Reserve banks and the banking
institutions examined;
The Board of Governors and the Comptroller
of the Currency;
The Board of Governors and the Federal
Deposit Insurance Corporation;
The Federal Reserve banks and the Board of
Governors and the State supervisory authorities*

(d) Relationships between the control or conduct of
examinations and
.1. The making of regulations governing operations of banking institutions;
2. The extension of credit accommodations to
banking institutions by Federal Reserve
banks;
3. General credit policies of the Federal Reserve System.
13. Reports of banking institutions
(a) Authorities to which reports are made by banking institutions with regard to their condition and current
operations.
(b) Relations as to such reports between such authorities
and changes, if any, which should be made in such relationships*
(c) Relations between such reports and reports of examinations of the same institutions.
(d) Relation between requirements as to such reports and




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-513. Reports of banking institutions (continued)
1,
2.
3.
4,
14.

The making of regulations;
The extension of credit accommodations;
Other statistical and economic data;
General credit policies of the Federal
Reserve System.

Foreign bank relations of Federal Reserve System and Treasury
(a) History.
(b) Relations "between Federal Reserve banks in this
field and Board of Governors and Treasury.
(c) Relations between Treasury and foreign central banks.
(d) Relations between Federal Reserve banks and Board of
Governors in respect to performance of fiscal functions
for Treasury.
(e) Relations between Federal Reserve System and Bank for
International Settlements,

15. Other governmental functions which directly affect the
administration of credit policy but over which Federal
Reserve System has no control
(a) Power of the Treasury to buy and sell gold and Government securities directly and to buy and sell gold,
Government, securities, and other obligations through
the operations of the Stabilization Fund.
(b) Power of the Treasury to purchase silver and to issue
silver certificates.
(c) Power of the Treasury to sterilize gold through the
issuance of Treasury bills, to release such gold and
to retire such bills through its inactive gold account.
(d) Power of the Treasury to invest and reinvest its trustfunds.
(c) Power of the Treasury to switch its balances from
commercial banks and Reserve banks, and vice versa,
with effects similar to open market operations.
(f) Emergency powers vested in the President under the
Thomas Amendment.
(g) Relations between Federal Reserve System and Treasury
with respect to exercise of foregoing powers and their
effects upon Federal Reserve policy.
(h) Relations in similar matters b<3tween Treasuries and
central banics abroad.

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16. Federal Reserve banks as fiscal agents for the Government
(other than in foreign bank relations).
(a) Extent and nature of services
(b) Relations between
1. Treasury and other Government departments
and agencies;
2» Federal Reserve Banks; and
3. Board of Governors, in such transactions.
GROUP C:
17.

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BANKING STRUCTURE AND ORGANIZATION

Banking system
(a) What is the banking system?
(b) What are banks?
(c) Should such institutions as mutual savings banks,
Federal savings and loan associations, credit unions,
Federal land banks, Federal homo loan banks or
Federal intermediate credit banks be considered as
within or without the banking system, and for what
reasons?
(d) If not, where should the line be drawn?

18. Adequacy of existing banking system,
(a) Practices and policies of banks as to types of loans,
kinds of investments, maturities of loans and investments, terms of repayment, interest rates, etc., as
factors in determining adequacy of system.
(b) Effect of existing laws and regulations upon such
practices and need for any change in same.
(c) Necessity for postal saving system either generally
or in particular localities.
(d) Necessity for Governmental lending agencies.
(e) Necessity for new facilities, such as credit banks
for industry.
(f) Necessity for some or all of the institutions mentioned
in "17" above if not considered to be a part of the
banking system, (l) under existing conditions, and
(2) with such changes in law as may be in order after
consideration of questions raised in sub-topic (b) of
this topic,
19. Unification of banking system
(a) is unification of banking system desirable?

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-819. Unification of banking system (continued)
(b) Why was membership in Federal Reserve System established on a compulsory basis as to national banks
but on a voluntary basis as to State banks?
(c) Should this plan be continued?
(d) Reasons for and disadvantages of membership in Federal Reserve System.
(e) Possibility of making membership more attractive by
modifications of existing statutory requirements.
(f) Should all banks be included in System?
(g) Should all insured banks be included in System?
(h) Is there any practical and feasible method of bringing
about unification of the banking system?
20.

Deposit insurance
(a) Should amount of coverage be increased and, if so, to
what extent?
(b) Should reserve deposits in Federal Reserve banks be
excluded from assessment base?
(c) Should interbank balances be excluded from assessmentbase?
(d) Should secured deposits be excluded from assessment
base?
(e) Should assessments be lowered or suspended when reserve fund reaches certain level?
(f) Should insurance of all banks be obligatory?
(g) Should privilege of insurance be made conditional
upon compliance with same statutory requirements and
regulations as are applicable to members of the Federal Reserve System?
(h) If not, should insurance be made optional with member
banks as it now is witb oonmember banks?

21.

Branch banking
(a) History and present status.
(b) Difficulties arising out of differences between
Federal and State requirements.
(c) Should National and State banks have sane branch banking privileges?
(d) Other problems and suggested solutions.

22. Bank holding companies

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(a) - History and present status.
(b) Relation to group and branch banking.
(c) Problems and suggested solutions.




-983.

Banks as underwriters of security issues
(a)
(b)
(c)
(d)
(e)

24.

History.
Reasons for Federal restrictions.
"English11 type of underwriting.
Possible effects on capital market.
Possible modifications of present restrictions,

Banks as fiduciaries.
(a) History.
(b) Desirability of continuing present condition.
(c) Should authority to grant trust powers to nationalbanks remain in the Board? If so, should Board have
authority (1) to supervise the exercise of such cowers,
and (2) to terminate or require the surrender of such
powers?

25. Federal Reserve Banks—ownership,

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(a) Reasons for existing set-up.
(b) Desirability of continuing existing plan.
(c) Elimination of stock and substitution of proceeds
of assessments against banks, with or without payment of interest thereon.
(d) Elimination of stock and operation on basis of
accumulated surplus.
(e) Ownership of stock of each Federal Reserve bank by
individual citizens, with limitations as to individual
holdings and amount of stock that could be held in any
Federal Reserve district,
(f) Ownership of stock by United States Government,
(g) Ownership of stock in part by United StateG Government
and in part by individual citizens.
26. Federal Reserve Banks—directorates*
(a)
(b)
(c)
(d)

Reasons for present set-up.
Desirability of continuing present plan.
Should bankers be ineligible,
Desirability of providing for three or four directors
to be elected by member banks; three or four to be
selected by Board of Governors; and one to be elected
by State supervisory agencies in the States of each
district, so that neither banks nor Board select
majority,
(e) Should there be a statutory provision limiting continuous period of service of individual directors?




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-1026»

Federal Reserve Banks—directorates (continued)
(f) Desirability in any of the foregoing connections of
substituting majority representation on branch directorates of appointees of Board of Governors for
present minority selection or as an alternative permitting State bank supervisory authorities to select
one director so that neither bank nor Board selects
majority.
(g) Desirability of substituting advisory committees for
directorates at head offices and branches.
(h) Any other alternatives.
(i) Question whether -^resident of a Federal Reserve bank
should be a member of board of directors.
(j) Question whether the chief executive officer of a
Federal Reserve bank should continue to bo the President, elected by the board of directors, or should be
the Chairman of the board of directors, appointed by
the Board of Governors.
(k) Separation of functions of Chairman and Federal Reserve
Agent at Federal Reserve banks.
(1) Access of directors of Federal Reserve banks or of
branches to examination reports.

27.

Federal Reserve Banks—powers.
(a) Should existing plan as to relations between Board of
Governors and Federal Reserve banks bo continued?
(b) Should there be greater or less decentralization?
(c) What types of powers should be exercised by or delegated to Federal Reserve banks?

28.

Federal Advisory Council,
(a)
(b)
(c)
(d)

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History and present status.
Functions performed by Council.
What should be the functions of the Council?
Should Council bo continued in present or different
form?
(e) Should provision be made for obligatory rotation of
membership?
(f) Should provision be made for obligatory representation
in Advisory Council on a rotating basis of each of the
three classes of banks represented In the directorates
of the Federal Reserve banks?
(g) Question whothor there should be either in lieu of or
in addition to the present Federal Advisory Council
another Advisory Council consisting of State superintendents or commissioners, of banks.




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-1129.

Federal Open Market Committee
(a) History and present status.
(b) History and present statue of executive committee,
including legal authority and practical necessity
therefor.
(c) Relations of full committee and executive commit too
to Board of Governors and Treasury.
(d) Continuation in present or different fora of these
committees.
(e) Difference between status of members of Board of
Governors as members of the full committee and status
of Federal Reserve bank representatives by reason of
the fact that Federal Reserve banks may bo represented
by alternates,
(f) Control of open market operations by Board of Governors,
(g) How can open market operations best be executed?
(h) What should be the role of the Federal Reserve banks
in the determination of open market policies?

30.

Board of Governors of the Federal Reserve System
(a) History.
(b) Should any change be made in present form?
(c) Should any change be made in present terms or conditions of membership?
(d) Should statutory provision be made for delegation of
authority to members of the Board, to its staff, or
to Federal Reserve banks, and, if so, to what extent?
(e) What are the responsibilities of the Board as a public
body for the dissemination of information regarding
economic and credit conditions, monetary and banking
developments, and other Matters in the financial field,
to

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1. Member banks, nonmember banks, foreign
central banks, nnd other financial institutions;
2. Industry, commerce, and agriculture;
3. Educational institutions; and
4. The general public?
31.

Federal supervision of banking
(a) History,
(b) Principal existing Federal authorities and reasons for
their creation*
(c) Relations between them and State authorities.

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-12-

^3
31. Federal supervision of banking

(continued)

(d) Extent of overlapping or duplication of powers or
functions.
(e) Plans for better coordination.
(f) Plans for simplification.
(g) Would better coordination or simplification contribute
to sounder banking system?
(h) Power of Treasury to license banks.

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