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FEDERAL RESERVE BOARD WASHINGTON July g, 1922·. X-3469 SUBJECT: Letter to Senate re Senate Resolution 308·. Dear Sir: There is enclosed herewith, for your information, copy of a letter addressed by the Federal Reserve BoaTd today to the President of the Senate, transmittu1g replies of three of the Fedqral Reserve Banks to Senate Resolution 308". Very truly yours, G o v e r n o r. (Enclosure) GOVEBNORS OF ALL F. R. BANK COPlES TO AGENTS \ COPY ,.. -j' July 8, 1922. Sir: The Federc..l Reserve Bo::trd tr:msmits herewith letters from the Federal Reserva B~ks of Philc..delphic.., Richmond c..nd St. Louis, in reply to Senate Resolution 308. Replies from the other bc..nks will be forwarded as soon as received. In transmitting this correspondence the Boc..rd trusts thc..t it may, without ~propriety, avail itself of the opportunity to invite the at' tention of the Senate to certn.in mtters which h:we a direct bearing 'upon the subject ·of the inquiry. The corporate powers of the Federal Reserve Banks are defined in Section 4· of the Federal Reserve Act, which provides, inter alia, that "Every Federal Reserve bank shall be conducted under the supervision and control of a bo.:1rd of directors" :mo. th~;,t such directors 11 shall perfonn the duties usually appertaining to the office of directors of banking associations and all such duties as nre prescribed by law". The banking business is one which rests peculiarly upon the foundation of confidence. While true in the case of any bcmk, this is p:lrticularly true with respect to .:1 Feder ~,1 Reserve Bank which is the sole custodian of the leg::tl reser~es of its member b.:lriks and the inst~entality through Which is issued the co~try's fiduciary currency. Anything which tends to undermine public confidence in a b:mk, and in a Reserve :Bank particularly, impairs its ability to perform its functions and unless counteracted may defeat entirely the purposes of its org~nization. Therefore, those Charged with the administration of a bank h:1ve the right and are impressed with the duty of using :111 legi ti:rmte me::tns, when necessary, to protect its good n::tme ~nd to prevent any impairment cf public confidence. Criticisms of policy cannot be objected to ~d h~ve always been welcomed by the Federal Reserve :Bo.::.rd, "lhich has never imputed to itself infallibility of judgment. The :Board h..::.s been cho.rged with the administration of a new and untried lo.w and h~s from the beginning been confronted with a series of difficult and unprecedented situations. When criticism is based upon the solid foundation of fact, and underst~nding of the Federal Reserve Act and of banking principles, it is usefulj it is helpful to those ch~rged with the duties of administration. To the Federal Reserve Board it bas appeared, however, th::tt for the past two years much that has been said underthe guise of criticism of policy has not been intended to help, but to discredit the management of the Federal Reserve System through attacks upon the integrity and purpose of members of the Federal Reserve Board and of officers and directors of Federal Reserve Banks. These attacks h::tve been so repeatedly made :md have had such publicity ::ts to justify tbe suspicion that they are part of a concerted movement ~~\ i~ ~ .: - 2 - against the Federal Reserve System. The patience and forbaarance with which members of the :b"'ederal Reserve Board cmd officers :md directors of Federal Reserve Banks have borne these repeated att~cks, many of them personally abusive~ have been cited as an admission of the truth of char@ZS made and have tended to raise in the minds of some v.rho endorse the principles of the Federal Reserve Act but who had no means of informing themselves as to facts, a question as to whether there may not h~ve been some foundation for the charge that members of the Federal Reserve Board and officers and directors of Feder~ Reserve B~s hQve been incapable and corrupt. Beginning last s~r insin~tions nnd charges which had been made on the outside were repeated ~d amplified on the floor of the Senate of the United States, not merely once or twice but at frequent intervals up to the present time. This circumst-~ce h~s caused a great ~ount of correspondence with persons asking~ inforrn::.tion and Board members, as well as officers and directors of Federal Reserve Banks,have had occasion frequently to consider whether there were any means which might appropriately be employed to inform the public as to the op~ration of the Federal Reserve Banks and the character of their managament. Respecting the constitutional prerogatives of the members of the Senate, care has been tiken to mike no criticism of ~ny member thereof in any reply to letters of inquiry. This c1rcumst~ce also has been construed as an admission of the truth of charges so frequently made on the floor of the Senate, some of which would hQVe been resented as libelous but for the constitutional immunity above referred to. Many quotations could be made from st~tements which have been printed in the Congressional Record during the p::1st twelve months, which are misleading and untrue, but their insertion ·.vould. unduly extend this comnrunic:1tion. Tha Board has seen nothing to indicate th~t those who made these statements have ever corrected them. Last January the junior Senator from Virginia, who was Chairman of the Banking and Currency Committee of the House of Representatives which reported the bill creating the ffeder~l Reserve System and who was afterwards Secretary of the Treasury :md ex-officio Chairman of the Federal Reserve Board, made a speech on the floor of the Sen.J.te, in '.Vhich he discussed at length the operation ofthe Federal Reserve Banks and the attitude of the Federal Reserve Board during the recent period of economic reaction and financial stres~. The speech w.:.1s delivered during parts of two days· A brief report of it appeared in the daily papers ~d requests followed for complete copies of the sreech. Officers of Federal Reserve Banks, who for several months had felt themselves obliged to maintain silence while their motives and integrity were being assailed, deemed it not improper to avail themselves of the opportunity then presented to give to their correspondents and to others in their respective communities '.vho had evinced an interest or who were supposed to be interested in the economic questions dealt ·ui th, information which would enable them to draw their own conclusions. ' ~;\ I' • - 3The S)!eech was a public docUII13nt. Hav i:-:lg been delive.ced on the floor of the Senate and having been published in the Congressional Record, the Federal Reserve Board felt that there could be no impropriety in the distribution of copiei by the Federal Reserve Banks. Thtl speecr... dealt. so comprehensively with charges and statements which had been maJP. in the same place and printed in the same publication that the Board believed it silould be given wide publicity. Having been informed tha·~ copies might be obtained from the Public Printer if ordered promptly, it was decided that the Governor should send to each Federal Reserve Bank the following telegram: "January 18, 1922. "Think Senator Glass' great speech defending Federal Reserve System should be widely and promptly circulated. Government printing office will print special copies of it Frid~ 20th and additional orders should be given tomorrow. Printing Office estimates cost of copies at from five to seven cents eaCh. Please wire promptly how many copies your bank wishes. Harding. It (Note: This estimate of cost was too high. In view of the great demand for the speech and the large number of copies printed, the cost per copy to each Federal Reserve Bank was approximately l! cents.) The Federal Reserve Board assumes responsibility for commendi~g this speech to the Federal Reserve Banks for circulation. Neither the Board nor the Federal Reserve Banks regarded the speech as being an attack upon any Senator and were not interested in it from that point of view. This speech was end is regarded by the Board as a fair presentation of facts. It was commended to the ba:nks for circulation because it was an answer made 1n the Senate Chamber to charges which had been made on ~he floor of the Senate. It is a clear exposition of the policies, functions and operations of the Federal Reserve System during a critical period and is an i~ortant contribution to current economic discussion. Respectfully • (Signed) W. P. G. HARDING G o v e r n o r. The President of the Senate.
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