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Talk try JAMES K. VARDAMAN JR., member, Board of Governors, Federal
Reserve System. Given at a dinner meeting of the annual conference
of National Association of Supervisors of State Banks at Cleveland,
Ohio, on Thursday evening, September 19, 191*6,

Mrs. Vardaman and I are happy to be here on this occasion when the Federal
Reserve Bank of Cleveland honors itself and the entire Federal Reserve System by
being host to a group of men who may well be considered the best friends of the
most influential group of individuals and institutions in American life today.
In my opinion the U8 great State banking systems of the respective states
form the securest foundation upon which rests our entire structure of private
enterprise. Without those banks it is hard for me to conceive just how our present
system of political and social and business economy can continue. Without them
standing at the bulwark and forefront of individual effort and individual accomplishment, the world trend toward collectivism will certainly sweep all before it
in this country as it has in nearly all other countries of the world.
After spending more than 20 years in investment and commercial banking, I
absented myself for 6 years to do a job - a purely destructive job - with the
United States Navy. On my return I have been fortunate enough to become connected
with this great Federal Reserve System which is potentially one of the most constructive influences in government and is the biggest single wheel in our financial
and monetary machinery. But there are other wheels in this machinery just as important as the Federal Reserve System and all of these wheels must mesh and work
together, else we are certain to strip our gears and find ourselves an immobile
wreck along the roadside of human progress.


-2- »James K. Vardaman

There is the Secretary of the Treasury and the Comptroller of the Currency
whose efficient and foresighted administration of the National Banking System has
made that group of banks strong and powerful and helpful in our economy. Then
there is the Federal Deposit Insurance Corporation to which enough credit will
probably never be given for the fearless and constructive way in which it has
administered and caused to succeed a system of deposit guarantees which many of us
not so far-sighted had thought to be fantastic and impossible of sound administration. I figuratively doff my hat to this organization and wish for its continued
energetic life to carry on the splendid work already accomplished*
And then there are the i|8 wheels consisting of the State banking systems both member and nonmember banks - and it is to these that I bow tonight in compliment of their achievement and present prestige and their future potentialities.
The future of these all-important State banking systems largely rests with
you, Mr. State Supervisor, And whether they live or die is largely dependent upon
the manner of your leadership and administration of these systems. If under your
administration they continue the dynamic constructive force in their respective
communities, if they perform their duties as trustees for their depositors as the
sources of sound loans for legitimate enterprise and expansion, if they take to
their hearts the interests of their people and carry out their mission as guides
of financial and social development in their communities, if they do these things,
their future is secure.
But these things they cannot do without a constructive, sympathetic and
understanding leadership on the part of their supervising examiners, both in the
State and in the Federal Reserve System.

-3- James K. Vardaman

During recent years, in the plague of government securities, government
guarantees of all sorts and government participation in loans, the science of
rates and risks has been all but lost and many banks and many examiners now hesitate to take a business risk in the making of a loan; but rather prefer to take
the easiest way and when in doubt buy government paper or government guaranteed
paper, I think this is a bad trend and it is one which will surely lead to the
total absorption of our banking system by the Federal government.
The trend toward government participation (as distinguished from government
regulations) should be stopped and the local bankers should again take their
position as the financiers for their communities, and get as far away as is
practicable from eternal government guarantee and participation. Banks cannot do
this without the cooperative help and understanding of the examiners and it is to
be hoped that all of us in a supervisory capacity will do what we can to help the
banks make sound loans outside of the government field.
Gentlemen, I am particularly grateful for this opportunity to have met with
you and listened to you talk at this early stage of my experience as a member of
the Board of Governors of the Federal Reserve System. At the moment I am rounding
out my first 6 months in this position. Being a new man on a very old job, I
realized that I had a great deal to learn if I were to serve you constructively,
and so I have given all this first 6 months to study, listening and learning, I
have traveled many thousands of miles, talked personally to hundreds of bankers
and listened to dozens upon dozens of talks in meetings and in private conversation by individual business men and bankers. The more I have listened, the more
I have realized how little I know and I hope very much to continue the remaining



-!;- James K# Vardaman

years of my administration of the position in studying and learning as well as in
In my mind there is just one source of accurate knowledge and information
and that is the business man, the farmer and the banker, themselves in their own
communities. The atmosphere of Washington is so artificial that it is really hard
to get direct accurate information there. Even when men come to Washington from
the various states for the purpose of expressing their opinions they apparently
become somewhat subdued and awed by the atmosphere of the place and I have personally found that I can get more candid impressions on the citizen^ home ground
than if they come to Washington. Therefore, I have made for myself a schedule
which calls for travel about 1/3 of my time, and in following this schedule I
hope to visit each one of you from time to time in your respective state capitols
and talk with you on the problems as seen through your local eyes of farming,
industry and banking.
Because I am a new public servant, I feel that you may be interested because
of the position which I occupy in knowing the trend of my thoughts along certain
lines and I am going to give you an outline of some of my views. I am doing this
because I want you to tell me personally or by letter or by telephone if you
disagree with me, and if I get no signs of disagreement then I am bound to conclude
that my thoughts are not far out of line with your own. The reason I am doing this
is that I believe the soundest administration of this job which I can accomplish
will be to reflect as far as I can a consensus of the best contemporary thought.
I have very definite ideas about most things but I hope they are not arbitrary and
I hope I am not too hard-headed or too stubborn to give weight to contrary opinions
no matter from what source they may come5 and I shall certainly give weight to any

opinion expressed to me from any reliable source.

-5- James K. Var daman

You notice that I have used the words just now "public servant11. I chose
those words deliberately as having considerable difference in meaning from the
words "government official" and *public official". I amafraid^that some of us in_
Washington may be inclined to forget that we are public__s_e£y.antR and rnngmhpr too.
well that we are government officials, and as such we are apt to forget the purpose
of our presence in Washington, and what is worse, we are liable to inject ourselves
into the business life of our country to a degree far beyond that which is necessary
or that was intended by the Congress. There has already been too much of that in
my opinion and after six years of absence, I am surprised at the complacency with
which American labor, business people, farmers and industrialists, and all other
classes, have accepted regimentation, government interference and government
participation. I am surprised at the complacency with which bankers have permitted
their prerogatives to be more and more absorbed by the government.
Some of this regimentation and control and government competition was
undoubtedly necessary during the war. Many controls are undoubtedly now necessary
and will continue to be so. But only a few instances of government participation
or competition were actually necessary during the war and I know of but few
instances off hand where they are necessary or desirable.
You probably know, I am sure, that once a board or bureau is created in
Washington it is extremely difficult to ever eliminate it and there is always a
danger that it may become more concerned with self-perpetuation than in being of
constructive help. There is also a danger that some bureaus and boards may bypass the Congress to issue regulations and make orders and take action without
regard to Congressional expression or Congressional intention.



-6- James K. Vardaman

I consider the Congress is supreme, and I am in hearty accord with the
efforts of this administration to turn the government of the United States back
to its people through their duly elected representatives in Congress. I resent
and I vd.ll always fight any effort that may be made by our Board or any other
board to take action on any matter where such action is not definitely authorized
by the Congress, I realize that the Congress cannot pass a bill of particulars/
in each instance, and that some things have to be left to discretion; but I think
these discretionary powers should be few and far between and exercised with great
care and deliberation.
Because of my fear that some of "the regulations issued as war measures may
have outlived their usefulness. I ask that we review such regulations• Certainly
no harm can come from a reconsideration of any action. If, in the light of present
day circumstances, our regulations should be continued and in their present status
and if they are soundly based on Congressional authority, then I shall certainly
support them. But if in the light of present day circumstances they are antiquated,
I shall certainly hope that they be either brought up to date or dropped. And if
there is no clearly indicated Congressional authority for such regulations, then
I hope we will ask the Congress for an expression of its desires.
Referring again to the Congress, I hope you will bear in mind that these
people are human, just as we are, and that they are subjected to tremendous
pressure from organized groups and that they are pushed, pulled and shoved from
every angle. But if some twenty five years1 experience in and out of Vfashington
does not deceive me, you will find that one pood personal conversationwith your
Congressman will have more effect on him than any memorial or petition.



James K. Vardaman

I advocate personal contact with our legislators. If you believe in the
type of private economy which we now have and which has carried us successfully
through the trying years of war, and will see us through even more trying years of
reconversion, then go to your Congressman, and tell him so personally. Give him
your support in his efforts to check the present necessity and status of all these
government bureaus and corporations and boards created during the emergency. Ask
him to eliminate those which are not necessary and return their functions to
private enterprise. But above all, give him your personal contact.
I am proud to be in the Federal Reserve System, gentlemen, and I look forward to the day when all banks which can profitable become members, will do so.
But most of all gentlemen, I am proud of our present form of government and our
present policy of private enterprise. Therefore, I am a devout believer in the
dual or quadruple banking system as we now know it$ that is, the national banks,
state member banks and state non-member banks, with the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, the Federal Reserve System, and the
State Banking Systems. Ours is the only central banking system which is privately
owned (if you can call the Federal Reserve Banks privately owned) left in the
world today. All the others have gone the route of collectivism, nationalization,
communism or socialism. I hope and pray for a continuation of our present system.
I admit our systems overlap, that they are inefficient to some degree, ?nd
that they are irritating in many respects. But all these acknowledged shortcomings are made worthwhile when they are considered as insurance of a continuation of our over-all system of private economy.



-8- James K« Vardaman
Just as sure as fate, if all our banks are forced into one great system,
controlled by one master button, pushed by one master hand in Washington, private
banking and private enterprise in this country m i l find itself in its dying days.
Let us keep what we have and try to pass on to our children and to our
grandchildren at least some part of 'the splendid heritage of private enterprise
which our forefathers handed down to .us.

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