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Calendar No. 4 2 3
81ST CONGRESS

1st Session

SENATE

REPORT

No. 431

FOR THE ESTABLISHMENT OF THE NATIONAL
MONETARY COMMISSION

JUNE 1 (legislative day, MAY 23), 1949.—Ordered to be printed

Mr.

ROBERTSON,

from the Committee on Banking and Currency,,
submitted the following

REPORT
[To accompany S. 1559]

The Committee on Banking and Currency to which was referred
the bill (S. 1559) for the establishment of the National Monetary Commission having considered the same, reports favorably thereon without
amendment and recommends that the bill do pass.
The bill provides for the establishment of a National Monetary
Commission which would be clothed with authority to make adequate
studies to determine—
what changes are necessary or desirable in the banking and monetary system of
the United States, or in the laws relating to banking and currency, by reason of
domestic or international considerations or both.

Specifically, the Commission would be directed to investigate the
present requirements and methods covering the matters of legal reserves of banks, eligible deposits against such reserves, open market
operations of the Federal Reserve banks, adequacy of eligible paper
other than Government obligations, specie reserves, foreign-exchange
fluctuations and any and all other factors in this or other countries
which, in its judgment, may relate to the purposes set forth in section
1 of the bill.
Section 1 declares it to be the policy of Congress—
to promote and maintain the utmost stability of domestic and international
trade, to the end that orderly commercial relationships built up by the citizens
of the United States of America both within and without the country shall remain as free as possible from uncertainty concerning and arising from both the
relative and absolute values of the currency of the United States, in terms of
both of commodities and of currencies of other countries.

The Commission would be composed of 18 members. Six would
be appointed by the President, three of whom would be chosen from



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the executive branch of the Government and three from private life.
Six would be appointed by the President of the Senate, three of whom
would be from the Senate and three from private life. Six would
be appointed by the Speaker of the House of Representatives, three
of whom would be from the House of Representatives and three from
private life. Not more than three members of any one of these three
groups of six shall be from each of the two major political parties.
The Commission would make such interim reports as in its judgment
are desirable, and its final report and recommendations would be
made to Congress within 10 days after the convening and organization
of the Eighty-second Congress, with provision for extension of the
time by concurrent resolution.
GENERAL

STATEMENT

A National Monetary Commission was created by an act approved
May 30, 1908. That Commission was composed exclusively of Members of Congress. It held extensive hearings and conducted numerous
studies both in the United States, Canada, and several European
countries. It produced 38 volumes of information, statistical data,
and reports. After nearly 3 years' work the Commission made a
final report and introduced measures designed to carry out its recommendations. Although the bills sponsored by the Commission failed
of enactment, the work of the Commission provided the groundwork
upon which the Federal Reserve Act of 1913 was based. The wisdom
of that legislation and the sound and constructive administration of
the law are now universally recognized.
In 1938 the Federal Reserve Board recommended that Congress
consider means whereby the credit situation might be improved.
This resulted in the adoption of a Senate resolution (S. Res. 125, 76th
Cong., 1st sess.) approved August 4, 1939, under which the Senate
Committee on Banking and Currency was authorized to conduct
studies, hold hearings, and "recommend a national monetary and
banking policy by which the monetary and banking authorities of the
country shall be guided and governed," etc. Under pressure of urgent
wartime problems the work planned by the committee under authority
of this resolution was indefinitely postponed.
There has been no comprehensive official review of the whole
monetary and credit system since that undertaken by the National
Monetary Commission created by the act of May 30, 1908—a period
of more than 40 years. During that period there have been profound
changes brought about by two world wars, the tremendous alterations
in governmental and private debt, and the greatly increased complexity of domestic and international financial interrelationships.
The banking system of the country is no longer under the duress of
wartime and postwar inflationary pressures, but it is plagued by problems that have grown out of the disturbances that have characterized
the economy of the Nation and the world during that period, superimposed upon problems brought about by an unprecedented depression.
The Federal Reserve Board, to which Congress has delegated major
responsibilities for regulation in the monetary and credit fields, has
emphasized in successive annual reports to the Congress, beginning
in 1945, that it is unable to carry out that responsibility effectively



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without significant changes in the banking laws. In his latest economic report to this Congress the President expressed the view that
adequate means should—
be provided in order that monetary authorities may at all times be in position
to carry out their traditional function of exerting effective restraint upon excessive
credit expansion in an inflationary period and, conversely, of easing credit conditions in a time of deflationary pressures.

The committee feels that in order to deal adequately with a subject
so important and complex, it is desirable and timely to vest in a bipartisan commission consisting of Members of both Houses of Congress, as well as members from private life, broad authority to study
and report back to the Congress as promptly as practicable its recommendations for clarifying the responsibilities and improving the functioning of the country's banking, monetary, regulatory, and supervisory agencies, so that they may make their proper contribution to
the attainment of the national objective of stable economic progress.
Such a study would include a reexamination of existing banking laws
from the standpoint of reserve requirements, open market and other
credit-control powers, the purposes and functions of bank examination
and reports, the issuance of Federal Reserve notes, the insurance of
bank deposits, the framework within which the banking system operates, including the relationships and respective responsibilities of the
various bank supervisory agencies, and the adequacy of equity financing for business enterprises. It is desirable and necessary not only to
clarify the functions and purposes of banking and supervisory policies
but also to assure that those charged with the duty of carrying out the
policies of the Congress have at all times adequate means for meeting
their responsibilities. Many intricate problems are involved for which
appropriate solutions can best be devised after a thorough study by a
commission of the Congress authorized and directed to hear the testimony and draw upon the advice of those best qualified by training and
experience, both in and out of the Government.
Recently there has developed a definite sentiment in banking
circles for such a review. The president of the Federal Reserve Bank
of New York and the chairman of one of the largest banks in that city
have publicly urged that a National Monetary Commission be
appointed to make a thorough study of the country's entire banking
and monetary set-up. A number of leading bankers have indicated
that they would favor the establishment of such a commission "if
there were assurance that it could be kept free from undue political
influence"—a precautionary attitude probably stemming from the
fact that the former Commission was composed exclusively of political
personnel. Pointing out that present conditions make clear "the need
for constructive action, of a long-term character, in the field of monetary and banking legislation/' the president of a large New York
bank recently told his State bankers association:
In order to determine the constructive action which is required, a monetary
and credit commission should be established with authority, powers and expert
assistance to make the necessary studies and report its findings to the Congress.

Discussing the problem involved in the proposal to require nonmember insured banks to carry reserves with the Federal Reserve
banks, in hearings on S. 1775, Mr. Alfred Williams, president of the
Federal Reserve Bank of Philadelphia, said:




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I do not think we are ready for a solution of the problem. But the problem will
not be downed by the failure of this committee to include the insured nonmember
banks. It will come up, I think it should come up before a national monetary
commission. I think it is high time that we take 2 or 3 years and get the parties
at interest to say in effect, " W h a t must we do to bo saved in this whole area?"
Because it is an area that affects the stability of economic activities. It is an
area that is pervasive. Everrbankers do not quite fully realize how it pervades
all aspects of our economy.

Chairman Harl of the Federal Deposit Insurance Corporation, in
discussing the bill (S. 1775) which would make the supplemental
reserve requirements apply to nonmember insured banks, said:
We have not declined to endorse it, but we feel that further study of that
situation should be made because of the fact that a similar provision was included
in the 1935 banking act, and in 1939 the Congress saw fit to repeal it. We feel
that additional study is necessary. We understand there has been a resolution
(S. 1559) proposed for a monetary commission to study the operations, not only
of our organization, but likewise the Comptroller's office, as well as the Federal
Heserve System.

At the hearings on S. 1775 the Chairman of the Board of Governors
of the Federal Reserve System expressed similar views, as indicated
in his letter set out below responding to the committee's request for
the Board's attitude on S. 1559.
Any consideration of Government financial policy for economic
stability reveals a number of problems to which much thought should
be given. Among those which might well be thoroughly studied by a
commission such as is proposed by S. 1559, are the following:
1. Procedure for making and coordinatingfinancialpolicy,—This is a
problem which involves cooperation between the administration and
the Congress, as well as between the Government and representatives
of the banking interests of the country.
2. Monetary policies.—This involves the functions to be performed
by the Federal Reserve System in its actions affecting the supply of
money and bank credit, the principles by which the System should
l>e guided in the discharge of its functions, and the establishment of
specific criteria or rules for the assistance of the Federal Reserve
System in interpreting these principles.
8. Monetary control powers.—The powers of the Federal Reserve
System might well be reevaluated in the light of the growing recognition of the responsibilities of the System and the situation created by
the existence of a huge Federal debt. This involves consideration of
the limit up to which the Federal Reserve Board can increase reserve
requirements, the control of consumer credit as a permanent power
of the Federal Reserve Board, and whether some measure of control
should be established over types of credit other than that of commercial banks, such, for instance, as real-estate loans, the investments
of life-insurance companies, and credits extended by other institutions.
4. The supply oj equity capital.—The continued stability and progress of the economy requires a large sustained flow of equity capital
into investment. Experience of the postwar years, especially, raises
a serious possibility that the necessary supply of equity funds may
not be forthcoming. Ways and means of meeting this problem need
investigation.
5. The banking structure.—As a result of piecemeal evolution over
a period of many years there are four types of commercial banks—
National banks, State banks that are members of the Federal Reserve




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System, State non-member insured banks, and State nonmember noninsured banks. There are 48 different State systems of banking, each
subject to somewhat different laws and supervision. A reexamination
of the whole structure to determine whether or not the present system
is adequate and an examination as to what possibilities exist for
simplification and rationalization would seem to be worth while.
6. Monetary standard.—The question of the proper monetary
standard for the United States under existing conditions should be
considered by the Commission, including proposals to return to the
gold coin standard. Careful consideration of the present system of a
regulated gold standard which reserves gold for international payments is desirable. Other standards have been proposed, as well as
modifications of the existing system. They all deserve study and
investigation, and a definitive recommendation by the Commission on
this subject would be of great value to the country and to the world.
7. International finance.—While your committee is aware of the
fact that the subject is under constant study by Government and
international agencies operating in the field, with the greatly increased
importance to the United States of international finance, and the
world's large demands upon American financial resources, an independent review of the country's policies in this field would be of
great value. The structure and operation of existing organizations
for international financial transactions, both government and private,
could be assessed by the Commission and recommendations for American policy in this area could thus be formulated.
These are some of the problems which should engage the careful
attention of the National Monetary Commission proposed by S.
1559. Their solution, the committee believes, would be of monumental service to the Nation and the World.
In response to the request of the chairman of the committee the
Chairman of the Board of Governors of the Federal Reserve System
and the Secretary of the Treasury submitted the following reports:
BOARD OF GOVERNORS OF THE F E D E R A L R E S E R V E SYSTEM,

Washington, May 18,

H o n . BURNET R .

1949.

MAYBANK,

Chairman, Committee on Banking and Currency,
United States Senate, Washington, D. C.
M Y DEAR MR. CHAIRMAN: This is in response to Mr. McMurray's letter dated
April 13, 1949, requesting an opinion as to the merits of S. 1559 providing for the
establishment of a National Monetary Commission.
This bill would establish a bipartisan National Monetary Commission of 18
members which would be directed to study and inquire into what changes are
necessary or desirable in the banking and monetary system and laws of the
United States and to investigate, among other matters, the legal reserves of banks,
open market operations of the Federal Reserve banks, eligible paper, and foreign
•exchange fluctuations. The Commission would be required to make its final
report to Congress within 10 days after the Eighty-second Congress is convened
and organized.
In the statement which I made on behalf of the Board before Senator Robertson's subcommittee of the Senate Banking and Currency Committee on M a y 11,
1949, I included the following with reference to a review by Congress of the
authority and responsibility of the Federal Reserve System:
" W e in the Federal Reserve System are naturally concerned over the areas of
controversy that surround the System's functioning and responsibilities as a
central banking, monetary, regulatory, and supervisory authority.
W e trust
that Congress will review its delegation of authority and responsibility to the
System to be sure that they are commensurate with each other and with the
objectives established by Congress. Such a review would include consideration:




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(1) of the System's open-market powers and their relation to Federal financing
and the administration of the public debt; (2) of the use of selective credit controls
such as those over security loans and consumer installment loans and of the proper
sphere for the application of such types of control; (3) of the distribution of regulatory and supervisory power among the various Government agencies; (4) of the
need for some mechanism of policy coordination on the domestic financial front
as we have available through the N A C on the international financial front; (5)
of the objectives of central banking and supervisory policies; and (6) of the
relation of the Federal Reserve System as a central banking organization to the
banks of the Nation, both member and nonmember.
" I n any such review the role an function of reserves will inevitably receive
prominent consideration.
* *
" I hope the committee will include in its review of our financial system an
inquiry into the adequacy of our supply of equity capital.
* * *
The Board is in agreement with the above statement which I made before the
Senate Banking and Currency Subscommittee.
W e feel that an investigation
under authority of Congress of the banking and monetary laws of the United
States would be desirable and could be expected to form the'basis for constructive
legislation in this field.
Sincerely,
THOMAS B .

MCCABE,

TREASURY

DEPARTMENT,

Washington, D. C., May
Hon.

BURNET R .

MAYBANK,

Chairman.

1949.

Chairman, Committee on Banking and Currency,
United States Senate, Washington, D. C.
M Y DEAR MR. CHAIRMAN: Further reference is made to the request of your
committee for the views of this Department on Senate Joint Resolution 9 and
S. 1559, proposed legislation to create a National Monetary Commission. S. 1559
is more comprehensive in scope than Senate Joint Resolution 9, and it is understood that your committee wishes the comments of the Treasury Department to
be directed to that measure.
S. 1559 contains a declaration that it is the policy of Congress to promote and
maintain the utmost stability of domestic and international trade, to the end
that orderly commercial relationships both within and without the country shal)
remain as free as possible from uncertainty arising from both the relative and
absolute values of the currency of the United States, in terms both of commodities
and currencies of other countries. In pursuance of this policy, the bill would
establish a bipartisan National Monetary Commission consisting of 18 members,
six each to be appointed by the President of the United States, the President of
the Senate, and the Speaker of the House of Representatives. Nine members
of the Commission would be appointed from private life, while three each would be
appointed from the executive branch of the Government, the Senate, and the
House of Representatives. The Commission would inquire into desirable changes
in the banking and monetary system, or in the laws relating to banking and
currency, by reason of domestic or international considerations. It would also
investigate the present requirements and methods covering legal reserves of banks,
eligible deposits against such reserves, Federal Reserve bank open market operations, adequacy of eligible paper other than Government obligations, specie
reserves, foreign-exchange fluctuations, and other matters pertaining to the
declaration of policy. The Commission would make a final report and recommendations to the Congress within 10 days after the convening of the Eightysecond Congress.
The Treasury Department is of the opinion that there is no urgent need for
an exhaustive investigation of the nature proposed by S. 1559. The Department
believes that in the main the domestic and international fiscal and monetary
policies of the Government are designed and are being executed in the best interests of the United States. These policies and practices are under constant
review by the responsible Government agencies with a view to effecting improvements and to adapting them to changing conditions. It is doubted if a commission which would function for a limited period of time could make recommendations for fiscal and monetary policies covering future periods, the economic conditions of which could not be predicted. It is also suggested that the possibility
of creating international and domestic currency and exchange uncertainties




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:might well outweigh possible benefits of establishing a monetary commission at
this time.
Senate Concurrent Resolution 26, and House Concurrent Resolution 54, identical concurrent resolutions, would direct the Joint Committee on the Economic
Report to conduct an investigation into certain economic and fiscal matters including the problem of the effectiveness and coordination of monetary, credit,
and fiscal policies in dealing with general economic policy. Senate Concurrent
Resolution 26 has been passed by the Senate and House Concurrent Resolution
54 has been reported from the House Committee on Rules. It would appear
that the investigation by the proposed National Monetary Commission would
overlap investigation proposed by Senate Concurrent Resolution 26 and House
Concurrent Resolution 54.
The Treasury Department believes that there will be little benefit to be gained
f r o m the establishment of a national monetary commission at this time and
therefore does not recommend enactment of S. 1559.
This report has not been cleared with the Bureau of the Budget.
Very truly yours,




(s)

JOHN

W.

SNYDER,

Secretary of the Treasury.