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·- ·jl COPY l-3609 Ja.nua.ry My 4~ 1922· dear Mr. Peek: Your esteemed favor .of December 26 in reply to my letter of December 22 is gladly received and read with much interest. After reading and re-reading it. however, I am reluctantly forced to agree with you that since our viewpoints are at such a variance, it would seem to ba an insurmountable task to harmonize th.em. Before dropping the case with you, however. I want to impress upon you the fact that we have not a central banking system in this country. Our system is a decentralized banking system under the suparvision of a central board. I cannot refrain from making the s tatem:mt at this time that in my opinion the power possessed by the Federal Reserve Boaru is in the minds of the public greatly exaggerated. The Federal Reserve Act defines the duties of the Federal Re:oerve Board. anci if the :Board has azlY power i t should not have (I cannot think of any at this time) it would be a simple matter for Congress to amend the .).ct. It is most certain that tha Federal R:se.rve Board cannot make any loans, and it has no control over the loans made by Federal reserve banks, the general nature of which is regulated by law as interpret~ by the regulations of the Board. The Federal Reserve :Board has never deemad it proper and has no legal authority to interfere i~ the relations between a reserve bank and its member ~· Still less can the Reserva Board control the loans of :·wemb.er banks to their custom~rs. .:fUch .loans are entirely Wl.tlll.n the discretion of the banks th.amsel ves, e;xcept in so far as they are restricted by the National Banking Act and by State Banking LawsThe rates of interest charged to customers by member banks are entirely the result of local and economic conditions in so. far as they ar~ not regulated by state laws. In other words, neithar the Fader'a.l Reserve .Board nor the Federal reserve .banlr...s have anything whatever to do with the rates of interest charged the borrower or any control over loans made by a member bank to its customars. It is a fact, however, that some member banks, as well as non-member banks, that did not want to grant applications for loans on account of their undesirability or because tha bank was already in an overextended condition, have given as a reason for ~eclining X-36o9 - 2 ... . ~·7 ' '-"· the application, the statement that the Federal Reserve BOa.l'd or- the Federal re.~erve bank would not permit the bank to mak? any more loans. This is a tjJiecies of "passing the buck" and bas been the cause of much of the um:air and unjust criticism of the Federal Reserve. system. MY viewpoint in making an analysis of the operation of the Federal Reserve system is that of one who has been in the banking business for a quarter of a century, in one of the best agricultural sections in the United States if you please. who also has seen service on the Federal Reserve ~oard for twenty months. Consequently I am looking from without as well as from within, and it occurs to me that the old s~ing 0 the proof of the pudding is in the aatingn appliea particularly well to the operation of the Federal Reserve system. It has been given a test of such severity as no one ever dreamed of and bas weathered the storm as no othor banking system in the world was able to do .. The policies of the Federal R~serve System are the result of the most careful study of the Federal Reserve ~card in conjunction with the advice of an Advisory Council composed of twelve men, one from each Federal Reserve District appointed by the directors of the Federal reserve banks. In addition to the Advisory Council, tha Federal Raserve ~oard is in constant touCh with the Federal Rasarva Agents and the Governors of tha Federal reserva banks and throug;h tham with the ~ards ~ of Directors of the twelve Federal reserve bariks and the twenty-three branChes. These Boards of Directors are composed of representative bankers and business men Who are thoroughly familiar with the needs and resources of their Districts. The Advisory Council is composed of men of wide experience in finance from every section of the country Who meet in Washington four times each year with the Fedaral Rdserva Board. The policies of the System are largely tha result of thase conferences. The Chicago District has been represented by such able and distinguished men as Messrs. James B. Forgan and John J. Mitchell. I mention this for the purpose of calling your attention to the fact that the policies of the Federal Raserve System are not the creation of any one mind or even of the Board, but are established by and with the advice of recognized and most highly respected financial int~lligence. While we cannot seam to agree as to tha cause of the troubles of the past, we can certainly join in hopes for the future; that the coming year will see a Europe earnestly working for peace and well on the road to economic recovery; an America with continued good crops,better prices, increased industrial activity, and fewer misunderstandin 0 S between employer and employee, which necessarily entail hardships for all. With best wishes for your own t;,OOd health and prosperity, I am Very truly yours, l!r. George N. Peek, Molina , I 11. (Signed) John R .. Mitchell ..
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