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X958. In my aessaga to Congress on April 14, I announced the of approximately #1,400,000,000 of Treasury gold, action an th® part of the Federal Rsserve Bo&rd to rad&e© re#erv« requirements l$r about -Uere«--quartem of a biXXl<m dollars, for the pwrposv of aaJciag additlcmul b&ak resaurQe« available inmedistftXy for th# credit aaod8 of the eouistrj* lit UMI auie tlsw I expressed tli© hope that Federml baalciag suparvisioa could be better coordinated, vlth a vi»« to fnoillittting the flot* of credit for eowmr&®9 Industryftxtdftgrieultoire. fhe Secret&rj of tli« Trflesury initiated a series of eoawith re^reseutatlT^s of the Federal Deposit Insurance the Office of the Comptroller of the Oorreii^, auad the Board of Governors of the federal Keaerv© %steis for the parof reviewing the policies and regalatioati of the Federal sapesrvlsory Authoritiesfi^addeteritiaiag wherein they sight be iaproved find better coordinate*! ia furtherniiQe of this objective, consistent with SOUJKSfo&aktagprinciples* ffeejr have uaanimoujly &gr®&& n.i:*ni and subnitted to ate & program which for the first time brings about eoaplete uoiforttltgr in the rules and regulations to be followed by the Federal agencies in tfceir edsixa8tr©tic»a of all b&nk omMixm.%i<m& under thair respective Jurisdictions* This is aa important fonmrd step ia re- -zfrom the field of bunk supervision sources of conflict end of irritation that do not &ake for the efficient functioning of Byroad this, however, the progress adopted should be of benefit both H O D and in the future in %mo important respects; first, by opening the way especially for the saall and «s*£lua» sl«ed business concerns to obtain needed credit froa the banks, end, second, tey relieving pressures "Umt tend to reduce outstanding credit or prevent extension of aew credit to sound borrower*. The prograa includes a baroed revision of the Regul»tioa of the Comptroller of the Currency governing bank inrestaent policy. It provides that aeaber bulks of the Federal Reaejnro Systea aty pwc~ chase lavestetent seeurities, of such souad value or so secured &* reasoneibly to assure payment, issued by established coaaerciel or industrial businessea or enterprises that can deaoastrate the ability to service such securities, without requiring that the securities be offered for public distribution or that they oust be readily aarketable, provided, however, that they nature not later than 10 years after the date of Issuance and that 75 per cent of the principal be amortised at maturity by substantial, periodic payments, none of which woisld be required during the first year* the program provides, with respect to bank es&isiaation reports, that what has been eommmlj called the "slow* eolusn will be abolished altogether* In place of this, and of the coluaas heretofore beaded •doubtful* mad fj#timt®d I M * * J H M * will be substituted the designations, II, III, and IV, which &r® to bet defined respeetivalj for the listing of loan© that are SG?$e«tiat doubtful, sore doubtful, tiid In which loss is estimated* The "•low* column h&« long been a. aiaaoaer and a cause of coapl&iut* the important fact, however, is not the designation of the coloams, but the clear recognition that in waking loans, whether for working capital or fixed capital purposes, the b&aks should be enecnirased to place Vm emphasis upon soutidiieas rather than upon liquidity or quick Baaturity. Simllarljy the reriated eaE&a&aattoa .procedure claftrljr recognised the principle that beuak iareatments »hauld be considered Is the li^ht of their iahsreat aountiness rather tban on a basis of day to day market fluctuations or liquidating value. The soundness of the bankijag &j&%&& dvponds in the last analysis upon the soundk nessi of the country*» business sad iatdustrial eaterprieeiu It ©hould aot be osasured 'bjr tbs precarious yardstick of ticker quotatioaa which often reflect speculative and not true appraisals of intrinsic worth. In their purchase of securities the btmk» should be encouraged to invest, not to speculate. Accordingly, the revised procedure broadly divides securities into those of investment quail t^r and those of speculative - 4 - or e&ib-st&sjd&rd ebar&ctor. The foxier will b© listed la Group I, the latter in Group XI. Dofanltad bonds end stocks will b© Hated in Groups XZTaad IV, respactivelj. It la estiss&tod that approximately 90 p«r aeat of the tot&l securities held bj the b*mks are of investiteat ipiiilll and 1M carried i& Cipoup I» such meurltles % In coiiXonsity with th© pri&oiple of la^estamit and not by fluctuating md&rds, dailj q^ot^ations will cot fee taken into feceooat in •x&aiaatioa reports, which will raquire that auch Meurities be &ho<m at ti:@ir bosk value wbetber th^y be listed or unlisted securities. By thus severing bmsic luvestawat from the tickert buiiics will b© sneoumged to purchase the securities of sound American business aad IMustrial coacerws, whether large or 3taftllf far th«ir true worth ©nd not for specul&ilvft gains* Sub-Standard or speculative securities, to be carried In Graap* II, ar© estlimted to ooapris* not iaor« than & p&r cent of th© b&iifcs* holdings, aad will be shown in exaaiantioxi report* at their average wirk«i pri<»e for the Vi m<mth& proeeding the ex&aiijstioa, s method which would mor® ta&cnnxtely reflect intrinsic la this group. Unlisted securities in this group will be »t ©stl3a&t©d value, la "Use case of Qroup III ®ad IV securities, met depreciation will continue to be clfiasifled a® loss. In ©tttiiaating the aet sound capital 01' b&afes, the total of loans el&ssifled & @ loss, as naUL as the t o t a l depreciation In defaulted bonds and stoclcs will be deducted. In addition, SO per emit of the more doubtful loans, as shown la Glass XXI and SO per cent of the net depreciation of the sufo-st&iKi&rd bonds Hated In Qroup II p mill be deducted. Previously, the wotal of &11 of the lo&ns el&sslfl«d *s doubtful has b«s'u d e d u c t s , but 0X|>«>rience has aiiova thfet not «ore thaa hull resu.lt in loss, t*lk«visttf In the p&st deductloaa have be«a mmdm for &11 of th©,depreeifetioa && r e fleeted b> current ,mr&et quotations for the satire investiaeiit portfolio. A priaary purpose of th® pro^raa i« to encourage the \ private banking system of the country to &d#*pt i t s lejiding and investment fuactiofls to pre«entwSay r«caireaents of cois^i^rc©, indu«try end agriculture. I t ^ i l l afford th® banks e broader oppor- tunity for service to the eoamiaity end for profitable outlet for some of t&elr &foaad&at, idle fund*. If the banks will avail thea- selves of that opportunity, the necessity mill be diminished for erection of goveras^tit a&eaatefl to furnisli credit f a c i l i t i e s nhicb j the beaiis should provide. A f i r s t step in stopping deflation r e i quires that credit eontrsetion in the banking systeat bo arrested* - 8 - is essential in order to provide a basis upon which neeess&iy expansion can be brought about. This program should assist in halting private credit eoatr&etioa and ©neonrsglng private credit expansion which in turn will lessen the need for reli&nce upon public credit. Thereby it can contribute to general economic health upon which the welfare of the public »s ««X1 aa of the banker and bank depositor depends* It the same time, this program does not a#an unsound banking* fh« banlca will be required to continue the present practice of charging off losses and of establishing and maintaining adequate reserves against doubtful and speetilative loans and #ee\irlties.