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Summary of memorandum to the President

Banking situation, dealt with on emergency basis, needs to be put on
permanent basis before ending bank holiday,


Banking system should be integral part of Government mechanism to meet
domestic or internationally created emergencies.


Government lacks power to cope with foreign capital; gold inflow of 7
billions in last 5 years; multiplication of Federal agencies; conflicting
jurisdictions; discriminations against member banks; competition in laxity
inevitable when banks can at will escape supervision; Government cannot
make policy effective; easy money policy frustrated by contrary examinationinvestment policies.


Need for simplification greater than ever due to increase in Federal agencies;
precedents in Farm Credit Administration; Home Loan Bank Board. Chart.


Inadequate power to absorb impact of foreign capital, except as Treasury
sterilized; unpopular; would increase interest rates, add to public debt.


Stop silver purchases; Mining Congress resolutions.


Bank examination and investment policy contrary to easy money policy; agreement of last spring requires sympathetic administration; these policies
must be closely integrated with monetary policy.


Action needed at this session; grave risk to let situation go until after
1940; give opposition issue.


Procedure; President's message; Reserve Board should report facts; this
approach preferable to attempt to get agreement of Federal agencies;
Congress jealous of prerogatives; prearranged Administration bill might
provoke partisan attack; better to put responsibility up to Congress which
will be to blame if it fails to act; Administration would get credit for
legislation if Congress acts.


Form of legislation; transfer Comptroller's and Reserve examining functions
to FDIC; interlock FDIC and Reserve Board, giving former supervisory and
latter regulatory powers; cover all insured banks into Reserve System,
abolishing membership as such but requiring insured banks to carry reserves
with Reserve banks, exempting from insurance assessments; take bankers off
Reserve bank boards; abolish stock, letting System build up capital out of
earnings, surplus to be paid annually into Treasury.


Would also recommend power to deal with foreign government or central bank
balances; restoration of power to buy Treasury bills directly from Treasury.


Important thing is to solve problems; if better way available than foregoing,
ready to accept; would not wish to go contrary to President's wishes, but
would like moral support.


Retention of Reserve System probable; adequate facilities, staff, personnel;
Board named by President; have responsibility without power; untenable position.


Chairman's obligation to make facts known to President; question of reappointment; failure to report situation to Congress would imply ignorance or fear
to do so.