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TEXT OF .ARTICLE .APPEARING IN THE UNITED STATES DAILY ' Saturday, February 19, 1927. by D. R. Crissinger Governor, Federal Reserve Board. Congress has invested the Federal Reserve Board with broad supervisory powers in the administration of our Federal Reserve System. Those powers the Board exercises in cooperation with the 12 Federal Reserve Banks, each of whiCh within the territory assigned to it functions as a central reserve instituti0n~ In passing the Act of December 23, 1913, Congress rejected, along with many other schemes of bankirlg and currency reform, the proposal of a central bank operating bran~hes in different sections of the countr,y. Some coordinating agency exercisihg supervisory controi was, however, clearly essential for the effective functioning of a system of regional re~erve banks, and such an agency was ~rovided in the Federal Reserve Board, which ,is composed of six members ap~ointcd by the Presi1 dent, selectbd 1 wi th due regard to a fair re'!_)resentation of the financial; agricultural, industrial, and co~~ercial interests, and geographic divisions bf the cou.."ltry, 11 and two members who serve ex-officio - the Secretary of tho Treasury, ~ho acts as Chairman of the Board, and the Comptroller of the Currency. One of the appointive members is designated by the President to serve as Governor of the Board, and one as Vice Governor. Members arc appointed for terms of 10 years. The 3oard occupies rooms in the Treasury .Building, ru1d salaries of members are fixed b,y Congress; but expenses of the Board are levied upon the reserve banks in proportion to their capital and surplus. One-third of the commercial banks of the country are members of the Federal Reser.ve System. National banks are required b,y the Act to subscribe to the capital of the reserve banks and to operate as members, and State banks and trust companies may elect voluntarily to do so, retaining their charter powers as State institutions in so far as these do not conflict with provisions of the Federal Reserve Act or with regulations of the Board. Of the member banks approximately 8,000 arc national and 1,300 are State institutions, and those banks control nearly two-thirds of tho banking resources of the country. There are a number of State bonks, it may bo notod, with insufficient capital to meot the mini~ requirements of the Federal Reserve Act which are, therefore, ineligible for admission to membership in the system. .11a 2 X-4793 Consolidation of bank reserves and their use as a basis for loans to member banks at times of seasonal or other temporary needs is one of the principal purposes of the Federal Reserve Act. Each member bank is re~~ired to deposit its reserve in the Federal Reserve Bank of the district in which it is located, and only deposit credits with the reserve bank can be counted as legal reserve b,y the momber b~~k. On January 22 these reserve deposits of member ba~ks amounted to nearly $2,200,000,000. Against these deposits the reserve banks are recpired to hold a reserve of 35 per cent in gold or lawful money. These deposits, together with the banks' capital and the surplus accumulated out of earnings, provide funds in the reserve banks available for making advances to member bonks, o.nd for purchases of acceptances and Government securities in the open market. Under provisions ·of the Act member banks are enabled to provide adequately for the seasonally and periodically fluctuating credit requirements of agrtculture, industry, and com~erce, since in any period of unusual credit strain, they can increase their reserves and their lending power temporarily by borrowing at tho reserve banks. On January 23, to t~ke a recent date, member banks were borro~ ing at the reserve banks through the operation of discou~ting co~~ercial pa?er and their secured notes, in the or.1ount of $365,000,000. On reference to condition statements of the re~erve banks, it will be found that advances of these banks to their member· bunks through discounting opero.tions are co~stantly increasing or decreasing in response to tho varying credit needs in the several districts. By tho te~s of tho Federal Reserve Act the discount rate charged oember bonks in any district on adva?lces through discounting operations is established b,y the reserve baruc of the district subject to review and.determination of the Federal Reserve Board. A.noth~r irnpo;rbnt function of the Board is to define the character of paper ~t may be accepted as eligible for rodisqounting v1ithin the !Ilea.ning of the Act. The other activi·ties of the reserve banks, including the i13sue ,.. of Federal Reserve notes, open-market operations, tho exercise of clearing-house functions for menber banks, Qnd the rendering of services as fiscal agents of the Federal Government are subject to the general s~per~ vision of the Federal Reserve Board. The Board appoints three of the nine directors of·~~c~ Federal Reserve B~~. and desib~tes one of these three, who ~st be a person of tested bandng experience, to serve as chairman of the board of !irectors of the bank:, and as Federal Reserve a.ge:n t representing and reporting· to _ the Federal Reserve Board. The rer.:.ainine; six directors of each "Qank · 3 are elected by the member banks of the district, three to represent the persons actively engaged in the dissome other industrial pursuit. .ce~ber'banks and three chosen fro~ trict in co~~erce, agriculture, or ; The Board may authorize or in its discretion require any Federal Reserve Bank to rediscount the discounted paper of any other reserve bank, and so oake available to meet a t~porary deficiency of reserves in one district any surplus that may have ac~lated in another district. In effect this power consolidates the reserve resources of the system. Acting through its agents at the reserve banks the Board may "grant in 'Whole or in part or reject entirely" a:p':>lications of any Federal Reserve B~~ for Federal Reserve notes. The amount of note circulation is, however, in fact determined rather by the va~Jing demand for currency in tho several districts than by any decision of the Board or of those administering the reserve ba~ks. On January 26, the note circuln.tion of the reserve banks amounted nearly to $1,700,000,000. In December this circulation increased in response to the ho~iday demand for curren~J to $1,930,000,000 and fell off in the weeks follovring in proportion as this seasonal de!!'.a.nd subsided. In the post-war years the note cir~Qlation rose above $3,000,000,000. Notes are issued to the reserve banks on a collateral of gold or eligible co~4~ercial paper deposited with Federal Reserve agents, and the reserve banks ar~ re~Qired to hold gold reserves of 40 per cent against notes in circulation. The continuous f~uctu~tion of this circulation, as sho~ on the condition statements, is evidence that one of the principal purposes for which the reserve act was passed, the "furnishing of an elastic currency," has been achieved. The Board may on occasion suspend reserve requirements specified in the Act, establishing a graduated tax upon reserve deficiencies during any period of suspension. It may, if it should find occasion for doing so, reclassify cities as reserve, central reserve, and nonreserve cities. It may permit or requife a reserve ban.~ to establish branches. It prescribes regulations under which State banks and trust companies are admitted to membership in the system, and approves applications for cambership. Among the Board's administrative functions may be oentioned administration of the gold settlement fund, through which check cleari~gs and transfers, in so far as they involve inter-district payments and collections are effected. The reserve banks maintain balances in this fund and wire in each ~ to the Board amounts ~wed by them to other reserve - 4- x-4793 t15 banks on account of checks received for collection and transfers sold. ClcQ.rings through this fund on the average exceed $2,000,000,000 in the. course of a week. Through its division of exa~ination the Board regularly exar::ines tne reserve brui!::::s and their branches at least once a year. It may conduct exacinations of State ~ember banks, or it nay accept examinations of these b&lics by State authorities. Exa~hnations of national banks are conducted under the direction of the Co~~troller of the Currency, who files reports of his examinations with the reserve banks. EaCh week the reserve banks report qy wire their condition to the Board, which publishes weekly a statenent shov.dng the condition of each bank and a consolidated statement for the system, and the Board may require suCh special re~orts as it may deem necessarJ for its o~n information. In exercising its su"?ervisorJ "9o·,7ers the Board see!.cs the counsel of those ~inistering the reserve banks. It invites t~e governors of those batiks to Washington at least twice each year for formal conference on ~atters of Federal 'Reserve ~olicy, and at least once a year it invites the Federal Reserve agents to meet in Washi~~ton for conference. An Advisory Council, consisting of one member from eaCh district ap?ointed ~J the ~oards of directors of the several reserve ba~ks under specific provision of the Federal Reserve Act, meets at least four times each year to confer and report in an advisory capacity its reco~endations to the Board. Finally the Board oaintains a research and statistical staff whose function it is to compile data relating to current business and credit conditions whiCh must be taken into account in for~lating credit policies. ·
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