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763d

Session88}

SENATE

COMMITTEE PRINT

NATIONAL MONETARY AND BANKING
POLICY

QUESTIONNAIRE
RELATIVE TO

S. Res. 125
(Approved August 4, 1939)

Printed for the use of the Committee on Banking and Currency




UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1940

C O M M I T T E E ON B A N K I N G A N D

CURRENCY

ROBERT F. W A G N E R , New York, Chairman
CARTER GLASS, Virginia
ALBEN W. BARKLEY, Kentucky
JAMES F. BYRNES, South Carolina
JOHN H. BANKHEAD, Alabama
ALVA B. ADAMS, Colorado
FRANCIS T. MALONEY, Connecticut
GEORGE L. RADCLIFFE, Maryland
PRENTISS M. BROWN, Michigan
* JAMES H. HUGHES, Delaware
CLYDE L. HERRING, Iowa
WILLIAM H. SMATHERS, New Jersey
JOHN E. MILLER, Arkansas
D . W O R T H CLARK, Idaho
SHERIDAN D O W N E Y , California

JOHN G. TOWNSEND, JR., Delaware
L Y N N J. FRAZIER, North Dakota
CHARLES W . TOBEY, New Hampshire
JOHN A. DANAHER, Connecticut
ROBERT A. TAFT, Ohio

PHILIP L E V Y ,

n




Clerk

S. RES. 125
(76th Cong., 1st sess.)
(approved August 4, 1939)
RESOLUTION

Resolved, That the Committee on Banking and Currency is authorized to conduct a study and to hold hearings to consider and recommend a national monetary and banking policy by which the monetary
and banking authorities of the Federal Government shall be guided
and governed, and to consider and recommend the character of
governmental machinery best calculated to carry out such policy.
The committee shall report to the Senate as soon as practicable the
results of its study, together with its recommendation for the enactment of any legislation it may deem necessary.
SEC. 2. (a) For the purposes of this resolution the committee, or
any duly authorized subcommittee thereof, is authorized to hold such
hearings, to sit and act at such times and places during the sessions
and recesses of the Senate in the Seventy-sixth Congress and subsequent Congresses as it deems advisable.
(b) The committee is likewise authorized to call upon any of the
agencies of the Government to present evidence with respect to the
subject matter of this inquiry which is within the administrative
jurisdiction of such agency under existing law or which may be assigned to such agency by the committee.
(c) The committee or any duly authorized subcommittee thereof is
authorized to employ such experts, and clerical, stenographic, and
other assistants and to take such testimony and make such expenditures as it deems advisable. The cost of stenographic services to
report such hearings as may be held shall not be in excess of 25 cents
per hundred words. The expenses of the committee which shall not
exceed $25,000 shall be paid from the contingent fund of the Senate
upon vouchers approved by the chairman of the committee.
m







CONTENTS
Pa«e
1. Treasury Department
—
I. Silver
II. Gold
III. Monetary powers
IV. Fiscal policy
V. Foreign exchange
VI International capital assets and liabilities of the United
States
VII. Currency
2. Comptroller of the Currency
I. Supervision
II. Legal status of banks
III. Relations among supervisory agencies
IV. Bank earnings.
V. Bank organization and structure
VI. Miscellaneous
3. Board of Governors of the Federal Reserve System
I. Monetary and credit powers and policies
II. Supervision of banks
III. Organization of the banking system
IV. Direct loans to industry^
V. Agriculture
VI. Miscellaneous
4. Federal Reserve Banks
I. Organization of the Federal Reserve System
II. Monetary powers and policies
III. Gold and foreign exchange
IV. Supervision
V. Legal status of banks
VI. Relations among supervisory agencies
VII. Bank earnings
VIII. Bank organization and structure
I X . Direct loans of Reserve banks to industry
X . Miscellaneous
5. Department of Commerce
6. Federal Deposit Insurance Corporation
I. Organization: Relationship to other agencies.
II. Federal Deposit Insurance
III. Supervision
IV. Legal status of banks
V. Relations among supervisory agencies
VI. Bank earnings and interest payments
VII. Bank organization and structure
VIII. Miscellaneous
—
7. Reconstruction Finance Corporation.
8. State bank supervisors
I. Supervision—general
II. Asset quality and type
III. Asset valuation.
IV. Capital
V. Procedures and sanctions
VI. Legal status of banks.
VII. Relations among supervisory agencies.
V I I I . Bank organization and structure
I X . Miscellaneous




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VI

CONTENTS

Paee
9. American Bankers Association and Association of Reserve City Bankers.
I. Deposit insurance
II. Supervision
III. Legal status of banks
—
IV. Earnings and interest payments
V. Bank organization and structure
VI. Credit control..




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QUESTIONNAIRE
1. T R E A S U R Y

DEPARTMENT

I . SILVER

A. General Questions.
1. What are the maximum and minimum amounts of silver which
the Treasuiy may buy under existing law?
2. How does the Treasury determine the amount of silver bought?
How does it determine the price?
3. To what extent has the United States progressed toward the
goals set forth in the Silver Purchase Act of 1934?
4. Does the purchase of silver impose a budget cost on the Treasury?
A real cost?
B. Foreign Silver.
1. How much foreign silver has been purchased since 1933? From
what countries?
2. What are the principal silver-producing countries, and what is
the importance of silver production to their economies?
3. To what extent have purchases of foreign silver reduced the
monetary stocks of foreign countries; to what extent do they represent
the purchase of newly mined silver; and to what extent have they
come out of commercial stocks?
4. Are there any silver-purchase agreements existing with foreign
governments?
5. Is the purchase of foreign silver made an instrumentality of
foreign policy—commercial, financial, or diplomatic?
6. What are the costs of production of leading silver-producing
companies in foreign countries?
7. Is silver production subsidized by any foreign country?
8. In what ways have the following countries been benefited or
harmed by our silver-purchase program: China, Mexico, India, other
countries?
9. To what extent is the foreign silver bought by the Treasury
produced by companies which are controlled by Americans?
C. Domestic silver.
1. What are the costs of production of leading silver-producing
companies in the United States?
2. What proportion of silver production in the United States comes
from mines in which silver is a byproduct?
3. What proportion of the payments made to domestic silver producers go to the payment of wages, dividends, taxes, cost of mining
supplies?
4. How many persons are employed in mines producing silver in the
United States? How many of these can reasonably attribute their




1

NATIONAL MONETARY AND BANKING POLICYJ5

employment to silver production? How many would become unemployed if the domestic price of silver fell to that of foreign silver?
5. What is the distribution of ownership of stock in mines producing
chiefly silver? What proportion of domestically mined silver is
produced by the 10 largest silver-producing companies? What proportion of the total is produced by the 25 largest producers?
6. Is the distribution of domestic silver production, by States,
undergoing any significant change?
D. Monetary Use of Silver in the United States.
1. What changes in the amount and composition of United States
money have resulted from silver acquisitions since 1933?
2. Does the monetary silver stock of the United States strengthen
or weaken the monetary system? How? Will a further accumulation of silver strengthen or weaken our monetary system?
3. What additional amount of silver certificates could be issued by
the Treasury on the basis of the existing silver stock? How would
such issue affect the volume and make-up of currency in circulation?
4. How much seigniorage has accrued to the Treasury from the
monetization of silver? How much more would be available if all the
silver were monetized?
5. How much silver is currently used in the manufacture of United
States subsidiary coins? Does the inclusion of silver in subsidiary
coins help to prevent counterfeiting, or serve any other purpose?
E. Foreign Monetary Use of Silver.
1. What changes have occurred in the monetary use of silver in
foreign countries in recent years?
2. What factors have been responsible for the huge exports of silver
from China in recent years?
3. What have been the principal reasons for foreign nations withdrawing silver coins from circulation during recent years? Will the
amount of silver coins in circulation in foreign countries be increased
after the war, or is the substitution of cheaper metals and of paper
currency likely to continue?
4. Do any foreign countries hold substantial monetary reserves of
silver apart from those contained in silver coins in circulation?
5. Do any foreign countries issue paper currency, such as silver
certificates, backed by silver?
6. What is the importance of silver in the monetary systems of
other countries? Would its complete demonetization have any
harmful effects on the monetary systems of the world?
F. Nonmonetary Use of Silver.
1. What are the nonmonetary silver stocks in leading silver-holding
"countries? In the world?
2. How much silver is currently consumed in nonmonetary uses?
What are the principal nonmonetary uses of silver?
3. What potential uses for silver are there if it becomes available
at substantially lower prices?
4. How low would the price of silver be likely to go (a) if no additional purchases were made by the United States; (6) if in addition
our present stock were liquidated within 5 years?
5. How would a lower price affect present industrial users of silver?
6. How much silver is now absorbed or released by India? Howmuch silver in the future is likely to be absorbed or released by India?



NATIONAL MONETARY AND BANKING POLICY

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G. Policy.
1. What purposes are achieved by the present policy of buying
domestic silver? What would be the probable results of its discontinuance?
2. Assuming that we are to continue purchasing domestic silver,
what criterion should Congress or the Treasury use in determining the
price?
3. Are there other commodities which should be bought and stored
by the Treasury on terms similar to those offered (a) to domestic
silver producers; (b) to foreign silver producers?
4. What would be the probable economic effects of a cessation of
Treasury purchases of foreign silver? Of substantially lowering the
Treasury's buying price for foreign silver?
(а) On our foreign trade?
(б) On employment in the United States?
(c) On the status of American-owned mining and other properties in Latin-American countries?
(d) On Mexico and other Latin-American countries? On
China?
(1e) On other countries, and on world trade?
5. Assuming that we are to continue purchasing foreign silver, upon
what criteria should the Treasury base its buying price for foreign
silver?
I I . GOLD

A. General
1. What changes have taken place in the rate of world gold production since 1900 and particularly since 1930? Can you assess the
influence of the fall in the general level of prices, and of the change
in the price of gold on output since 1930?
2. What are the current forecasts with respect to gold production
in the next decade?
3. What changes have taken place in the distribution of monetary
gold since 1914?
4. Is it possible to develop an objective measure of the appropriate
price for gold in terms of any given currency?
5. What criteria should be used to determine whether the price of
gold is too high or too low?
6. Why has the United States been getting so much gold? In the
current inflow of gold, what has been the importance of:
(а) The price of gold;
(б) Capital movements;
(c) The balance of trade; and
(d) Action of foreign governments?
7. With the continuation of our present gold policy, what will be
the probable nature of gold movements (a) as long as the current war
continues; (6) when the war ends?
8. Assuming that we continue to purchase gold at the present price,
what factors will be likely to prevent the demonetization of gold by the
rest of the world? What would be the influence on possible demonetization of a reduction of the price? Of an embargo on gold
imports?




NATIONAL MONETARY AND BANKING POLICYJ5

9. What is the legal status of gold held on earmark? What are the
economic advantages of earmarking gold? Are there any disadvantages?
B> The Cost of Gold Acquisitions.
1. How was our gold stock paid for? Does the acquisition of gold
involve a direct cost to the Federal Government? A contingent cost?
A deferred cost? Who owns our gold stocks?
2. Does the acquisition of gold constitute a direct charge against
the national income? A contingent charge? A deferred charge?
3. Do our gold purchases operate to bring about an increase in the
national income? If so, under what conditions?
4. Is the effect of purchases of foreign gold different from the effect
of purchases of domestic gold?
<7. The Gold Standard.
1. What were the essential features of the traditional gold standard?
Specifically, what function did gold perform under this standard?
2. In what countries of the world does gold still perform its traditional functions? Why has it ceased to do so in others?
3. What function does gold perform in (a) foreign monetary systems;
(6) international affairs?
4. Why have so many countries abandoned the gold standard?
How widespread is the desire in each of the leading countries to
return to the gold standard?
5. What are the probabilities of a general restoration of the gold
standard?
6. What line of action on the part of the United States would facilitate such restoration—if deemed desirable?
7. Would measures tending to reduce the production of gold be
appropriate? If so, what are the merits of the following:
(а) International agreement to reduce the price of gold;
(б) Unilateral redaction of the price by the United States;
(c) Agreement among gold-importing countries to restrict its
importation;
D. Gold and Domestic Monetary Policy.
1. What has been the traditional role of gold in determining our
domestic monetary policy? What developments since 1930 have
altered this role? Do the size of our gold reserve and/or the volume of
gold inflows (or outflows) have any influence on the credit policy of
the Reserve System? On the volume of excess reserves?
2. Do our present gold reserve and/or the prospective gold inflow
interfere with making effective the credit policies now deemed appropriate? Are circumstances likely to arise in which gold would so
interfere?
3. In particular, is there danger that our large gold holdings may
interfere with a program of monetary control at some time when it is
deemed necessary to check monetary expansion?
4. What effect would follow if restrictions on the convertibility of
currency into gold coins or bullion at a fixed rate were removed?
What amount of gold coins or bullion would the public be likely to
absorb?
5. What would be the results of reintroducing gold certificates into
circulation?




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6. Specifically, would private holding of gold and/or gold certificates
make monetary control more or less difficult?
7. Would a restoration of convertibility increase confidence in the
dollar? How does lack of confidence show itself? What would be
the effect of increased confidence?
8. Assuming that there is reason to expect the ultimate restoration
and indefinite retention of gold in the world's monetary systems, which
of the following methods of reducing the gold inflow into this country
would be most appropriate? (In evaluating them, consideration
should be given both to the immediate and to the long-run effects on
our international relations and trade, and on our domestic economy
and price levels.)
(а) An embargo on gold imports; cessation of purchases by
the United States.
(б) Reduction in the price the Treasury pays for gold.
(c) Buying only a certain amount of gold in the open market.
(d) Purchasing only gold that comes from certain countries.
(e) Requiring that foreign governments acquire a definite
agreed portion of their dollar needs through liquidation of their
holdings of American securities, rather than through gold
shipments.
(f) Reduction of our tariff schedules. On what category of
items and to what extent, if any?
(g) Extension of foreign loans. To whom and on what terms?
Ih) Increasing the spread between the Treasury buying and
selling prices for gold.
(i) Segregating monetary gold from nonmonetary gold, and
acquiring only monetary gold.
(j) Exchange control.
(k) Resumption by international agreement of (a) convertibility; (6) use of specie reserve against notes and deposits.
9. Are there other feasible devices which should help to curtail the
inflow of gold?
I I I . MONETARY POWERS

1. Describe the existing distribution of monetary and credit powers
between Federal agencies.
2. If you believe any changes to be desirable, indicate any new
powers of monetary and credit control which are needed, any redistribution of powers which would be desirable, and any changes which
would promote a proper coordination of the exercise of the powers.
3. What is the purpose of each of the monetary and banking powers
possessed by the Treasury? How effective for each purpose are these
powers?
4. In planning such of its operations as are likely to have a direct
influence on the expansion and contraction of credit what criteria are
employed by the Treasury?
5. As a practical matter, what influence does the Treasury exercise
in determining the policy of the Federal Reserve System with respect
to:
(а) Rediscount rates;
(б) Open market operations;
(c) Reserve requirements;
(d) Standards for extension of Federal Reserve credit?



NATIONAL MONETARY AND BANKING POLICYJ5

6. What influence does the Board of Governors of the Federal
Reserve System exercise with respect to the operations of the stabilization fund and the inactive gold account?
7. What significant economic differences, if any, exist between the
increase of the supply of money arising from the expansion of loans
and investments of commercial banks, and an increase arising from
issuance of Treasury non-interest-bearing currency?
8. Are variations in the size and location of the Treasury's cash
balances used as an instrument of monetary control? Are silver purchases? If so, how far is Treasury policy in the use of these powers
coordinated with Federal Reserve policy?
9. To what extent, if any, does the Treasury seek the support of the
Federal Reserve System in its fiscal operations?
10. Does the Treasury consider that it is desirable as a general policy
that the Government bond market be protected against sudden declines? If so, by whom, and why?
11. What are the repercussions on monetary and banking conditions
of additions to the Social Security reserves? What discretionary authority does the Treasury possess in investing these reserves? What
has been the basis of past decisions?
12. Which of the existing Treasury and Presidential monetary powers should (a) be made permanent; (6) retained for a specified period;
(c) made contingent on specified circumstances?
13. What is the purpose of the provision of law that the Treasury
may, under certain circumstances, issue $3,000,000,000 in greenbacks?
Should this authority be continued (a) permanently? (b) Temporarily? If the latter is recommended, under what circumstances should
it be permitted to lapse? Should the Treasury also have the power
to retire greenbacks?
14. If this power should be continued, would it be desirable that it
be transferred to, or exercised jointly with, the Board of Governors of
the Federal Reserve System?
15. Is it desirable that the activities of the Government lending
agencies be coordinated more closely with monetary and credit policy?
If so, how can this be achieved?
16. Should the Secretary of the Treasury become a member of the
Board of Governors of the Federal Reserve System? What disadvantages resulted from the membership of the Secretary of the Treasury
prior to 1935?
I V . FISCAL POLICY

1. Can fiscal policies (such as deficit or surplus financing, control of
size or location of cash balances, choice of securities to be issued or
retired, forms of taxation) advantageously be used as instruments of
monetary-credit policy? If so, can you suggest any means by which
fiscal policy and credit policy could be more closely coordinated?
2. Analyze the general relationship between Government surpluses
and deficits on the one hand and credit and monetary conditions on
the other. Illustrate the analysis from the facts of American financial history, 1917 to date.
3. Can you suggest any criteria for determining the appropriate
size of the deficit (or surplus)? Should it be related in some specific
way to—
(a) The amount of unemployment;
(fr) The level of output;



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(c) The volume of new investment;
(d) An index of prices?
4. Is the size of the existing public debt an important factor in
determining the desirable magnitude of a current surplus or deficit?
5. One of the major objections advanced against Federal deficits
is the associated growth of the public debt. What are the specific
objections to a growing public debt? Discuss the significance of the
following points, which are commonly cited:
(а) Refunding problem;
(б) Tax burden to pay off principal;
(c) Tax burden to $ay interest;
(d) The effect on private investment;
(<e) The effect on business conditions;
If) The effect on the distribution of wealth and income;
(g) Preparedness for another war.
6. If it is desired to produce an increased deficit (or decreased
surplus) what are the respective advantages of decreasing tax rates
and increasing expenditures?
7. Assuming that a deficit in certain years is unavoidable or desirable, discuss the effects of different methods of financing the deficit.
What differences are to be expected from financing all or part of a
deficit by:
(a) Issuance of long-term bonds;
(b) Issuance of short-term debt;
(c) Issuance of greenbacks;
(d) Creation of Reserve Bank credit against non-interestbearing United States bonds?
8. To what extent were the policies followed in the exercise of monetary powers by the Federal Reserve System and the Treasury's
management of the inactive gold account in the spring of 1937, and
the reversal of those policies in the autumn of 1937, responsible for
the changes in business activity which followed them?
9. If a part or all of a deficit were financed by the issuance of
greenbacks, what economic groups would gain and what groups would
lose because of the saving of interest to the Treasury?
10. What considerations now determine the types of securities
issued by the Treasury? Cite the basis of the choice in some specific
cases in recent years.
11. How does each of the several types of securities issued by the
Treasury affect the supply of money of the country?
12. What basic factors determine the rates at which the Treasury
can borrow on bills; on notes; on bonds?
13. What is the present distribution of holdings of—
(a) Government bonds;
(b) Treasury notes;
(c) Treasury bills;
(d) Government-guaranteed obligations?
14. To what extent does the Treasury depend upon the banking
system to finance new issues of bonds, notes, and bills? Is there an
upper limit to the amount of Treasury bonds, notes, and bills which the
banks in this country can absorb?




NATIONAL MONETARY AND BANKING POLICYJ5

15. What, if any, differences in economic effects follow if commercial banks rather than individuals buy and hold Government
obligations?
16. What has been the effect of Government borrowing on various
categories of interest rates?
17. Is the interest rate expected to rise or decline in the near future?
What factors are expected to cause such a rise or fall?
18. Who is now bearing the risk of possible changes in interest rates
as affecting the value of outstanding Treasury securities? Should
the Treasury assume this risk?
V . FOREIGN EXCHANGE

1. What are the advantages and disadvantages of fixed versus
fluctuating exchange rates with respect to:
(а) The volume of foreign trade;
(б) Exporters and importers;
(c) The "terms of trade";
(d) The tourist, shipping, and other service items in the balance
of payments;
(<e) Capital movements and foreign investment;
( / ) The stability of domestic economic activity and domestic
price levels;
(g) Speculation in foreign exchange;
(h) National control of monetary policy;
(i) International commercial relations?
2. What are the prerequisites of long-run stability of exchange rates?
Are these likely to be fulfilled?
3. What are the monetary consequences of:
(а) Exchange control;
(б) Clearing, compensation, and payment agreements;
(c) Barter agreements;
(d) Multivalued currencies;
(e) Export subsidies?
4. In view of the extensive and increasing use by foreign powers of
such devices as those listed in the preceding question, is there any
advantage in our maintaining stability in terms of gold? Any disadvantage?
.5. If fixed exchange rates are preferable, what lines of policy are
open to us to achieve this objective? If flexible rates are preferable,
should they be freely fluctuating, or flexible by international agreement?
6. Should we actively take steps to establish a dollar bloc? What
role could the Inter-American Bank play in a dollar bloc?
7. What special measures should the administration take to
promote the foreign exchange stability of Latin-American countries?
Appraise each of the following as an aid in achieving such stability:
(а) Widening thefieldfor capital investments in Latin America *
(б) Debt settlements;
'
(c) Gold or currency loans;
(d) Commercial policy;
(e) Proposed Inter-American Bank?




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8. What measures can we take, and should we prepare to take, to
protect ourselves against the possibility of complete collapse of the
currencies of any of the belligerent countries in Europe or Asia
during or after the war?
9. Is there any danger of an era of intensified competitive currency
depreciation at the end of the war? If so, what should be done
about it?
10. When is a country justified in adopting and maintaining
exchange controls? Is the abolition of exchange restrictions the
sine qua non of a higher level of world trade? Is it expected that most
countries will abandon exchange restrictions after the war?
11. What consideration should be given to the possibility of gold
loans for the stabilization of world currencies when the war is over?
12. What is meant by equilibrium in discussions of exchange rates?
Is it possible to tell when a currency is too high or too low with
relation to other currencies, or when a country is indulging in competitive currency depreciation? Can overvaluation or undervaluation of
a currency be measured, and if so, how?
13. What are the consequences of overvaluation or undervaluation
of a currency upon:
(a) Our export trade;
Ib) Competition from imports;
(c) General level of prices;
(d) Agricultural prices;
(e) Employment in the United States;
(f) World distribution of gold;
(</) Monetary stability;
(A) Restrictions on international trade?
14. Has the dollar been too high or too low in terms of the leading
currencies in the last 6 years? Is it too high or too low now?
15. What are the best methods for correcting overvaluation or
undervaluation?
16. Were the pound, franc, and yen overvalued during 1933-36
and 1936-39? Are they overvalued now?
17. Under what conditions should the dollar be permitted to
appreciate or depreciate?
18. Has our stabilization fund fulfilled the purpose for which it was
founded? How does it function? Is it more active now than before
the war?
19. How do its role and methods of operation compare with those,
of the stabilization funds of England, France, and other countries?
How are the stabilization funds of belligerent countries working in
war time?
20. Has the stabilization fund carried on, and does it now carry
on, forward exchange operations? If so, explain the technique of
such operations.
21. Can the tripartite accord serve as a basis or a model for the
stabilization of European currencies at the termination of hostilities?
Can its principles be extended in such a way as to make this objective
obtainable?
22. What effects does the present Anglo-French currency agreement
have on exchange rates? What would be the consequences of its
retention after the war? Is the principle it contains with respect to




NATIONAL MONETARY AND BANKING POLICYJ5

foreign balances and the franc-sterling exchange rate capable of
extension?
23. Should the present powers of our stabilization fund with relation
to foreign exchanges be retained, modified, or abolished?
V I . INTERNATIONAL CAPITAL ASSETS AND LIABILITIES OF THE
U N I T E D STATES

A. General.
1. What is the volume, character, and source of foreign capital in
the United States? Of American investments abroad? What changes
have taken place in the last two decades?
2. How large are the holdings of foreign governments or central
banks of:
(a) Dollar balances—both time and demand; (6) United States
Government obligations?
Is there any significant difference between these holdings and the
holdings of foreign individuals and private banks?
3. Last year our balance of payments contained an item of 1.2
billion dollars classified as "residual." What proportion of the residual
item can be explained by unrecorded capital inflows?
4. What are the relationships between the various types of capital
inflows and gold flows?
B. Causes of Capital Inflows.
1. Why has capital come to this country in such large amounts
since 1935? To what extent has each of the following factors been
significant in the flow of capital to the United States?
(a) Safety. ^
(b) Higher interest rates.
(c) Prospective speculative exchange gains.
(d) Prospective capital gains on securities.
(e) Evasion of taxation in home countries.
(/) Increase in the price of gold from $20.67 to $35 an ounce.
(g) Better investment opportunities.
2. From which countries have Americans repatriated their capital
from abroad in the last few years? What are the prospects that they
will continue to do so?
3. Is it expected that the inflow of capital will be maintained with
the continuation of the war? Will foreigners continue to purchase our
securities and accumulate dollar deposits? How much capital has
come to this country since the outbreak of war, and how much is
expected in 1940?
C Effect oj Capital Inflows on Our Economy.
1. What is the effect of capital inflows on—
(a) Bank reserves; (6) interest rates; (c) exchange rates(d) gold flows; (e) amount of capital investment in the United
States; (/) our security markets; (g) tax revenues; (A) foreign
capital markets; (i) fluctuations in business activity; (j) national
income?
2. What is the net effect on the national income of the United States
of foreign direct investments here? Of foreign holdings of American
securities?



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D> Policy With Respect to Further Inflows and Outflows.
1. Under what conditions is it desirable to prevent or discourage
further inflows of foreign capital? Under what conditions would it
be desirable to control the outflow of capital already here?
2. What are the prospects of an outflow of capital from the United
States after the resumption of world peace? Will private capital
seek foreign investment after the resumption of peace?
3. Should foreign investment by Americans be subjected to greater
restrictions or should the restrictions which now exist be removed?
4. Will free international movements of capital contribute to or
detract from the stability of foreign exchanges and the prospects
of world economic recovery?
E. Under the assumption that it is desirable to restrict jurther capital
inflows into the United States and encourage outflows, what measures to
achieve those*objectives are feasible!
1. The following measures have been suggested at one time or
another. What are the merits of each of the proposals?
a. Adoption of exchange restrictions on the movement of
capital.
b. Foreign deposits in the United States:
(1) Increasing the reserve requirements on foreign
deposits.
(2) Introduction of a licensing system on foreign
deposits.
(3) Creation of a Presidential power to stop the
withdrawal or expenditure of foreign balances if and
when an emergency arises.
(4) Taxation of foreign deposits.
(5) Action by the Board of Governors of the Federal
Reserve System or by agreement among the banks to
make the holding of foreign deposits less attractive.
c. Security holdings by foreigners and direct investments in
American plants, real estate, hotels, etc.:
(1) Revision of taxes applying to alien-held property
and alien corporations—income taxes, capital gains
taxes, and transfer taxes.
(2) Nontax measures such as registration, use of
American nominees and embargoes.
2. Have any important countries adopted any of the above devices?
How effective have they been? What were the consequences of
such adoption?
VII.

CURRENCY

1. What is the explanation for the increase in the volume of currency in circulation during the past 7 years?
2. What factors in general determine the total quantity of currency
and coin in circulation? What is the effect upon the total volume oi
currency m circulation of (a) increase in the gold stock, (b) silver
purchases and the issuance of silver certificates, (c) deficit fmancing?
3. Is the power to issue currency a source of profit to the Federal
Reserve banks? Would the power to issue currency be a source of
223191—40




2

NATIONAL MONETARY AND BANKING POLICYJ5

profit to commercial banks? Would the Government earn a profit if
the Treasury had the sole right of issue?
4. What purposes do the requirements of specie "backing" or
collateral for the various kinds of currency serve? What do the
silver, gold, Federal Reserve assets, etc., as the case may be, have to
do with the value of the currency? Could all the "backing" be dispensed with? What would be the advantages and disadvantages of
doing so?
5. Should anything be done to reduce the diversity of currencies?
What would be gained by doing so?
* 6. Proposals have been made to make United States Government
bonds legal tender. What are the merits of this proposal?
7. What purpose is served by the redemption provisions of Federal
Reserve notes? of silver certificates? Should the reserve for redemption of Federal Reserve notes now required to be maintained in
the Treasury be continued?
8. The proposal has been made to meet part or all of the annual
Treasury deficit by issuing new currency. What are the merits of
such a proposal?
9. What is the relationship between the quantity of currency in
circulation and the level of commodity prices?
(a) Can prices be controlled by changing the quantity of
currency in circulation?
(b) Is the monetary authority able to control the volume of
currency in circulation? What measures can be used to achieve
this control?
(c) Under what circumstances would it be desirable to control
the volume of currency? Would it be desirable to change the
volume of currency in circulation now?
10. Why should the gold reserve requirements against the currency
portion of the circulating medium be different from the gold reserve
requirements against the checking account portion of the circulating
medium?
11. What effect would the issuance of one to two billion dollars a
year of stamp money, as described by Irving Fisher, have on (a) our
currency system; (b) commodity prices; (c) the national income?




2. COMPTROLLER OF THE CURRENCY
I.

SUPERVISION

A. General.
1. What characteristics of the banking business justify or explain
the relatively greater amount of public supervision which is given to
it than to most other businesses?
2. What are the objectives of bank supervision? Do they include
any or all of the following:
(a) Promotion of business stability, through easing or tightening credit conditions as needed?
(b) Maintenance of competition between banks?
(c) Protection of banks against competition?
(d) Prevention of usurious or oppressive tactics toward borrowers?
(e) Keeping local money at home?
(f) Making funds more readily available for particular groups
(e. g., agriculture, small business) or less available for other
groups (e. g., stock market operation)?
(g) Facilitating the Government's fiscal operations?
3. Is any change of law with regard to objectives of supervision
desirable?
- 4. What effect in your judgment does bank supervision have upon—
(а) The quantity and quality of the debt owed to commercial
banks; and
(б) The total volume of debt in the country?
5. How does bank supervision affect the outstanding volume of
bank credit? In what way does supervision influence the expansion
or contraction of credit during the different phases of the business
cycle? If supervisory policy were to be so directed as to contribute
to the protection of the economy from the effects of undue expansion
or contraction of credit, how could this best be done? Would appropriate policy require a revision of supervisor standards during the
course of the cycle, or can standards be devised which will give the
desired results at every stage in the cycle?
6. Describe the work of a bank examiner. Does he simply engage in
fact finding, or does he also engage in corrective or advisory activities?
7. Do your standards of supervisory responsibility differ in any
respect as between large and small banks? Give details.
8. Enumerate the unsafe or unsound practices in which you have
found any director or officer of a national bank (or a bank or trust
company doing business in the District of Columbia) to have engaged
since the effective date of the Banking Act of 1933.
9. In how many cases have you found it necessary to warn a director
or officer of a bank (a) to discontinue unsafe or unsound practices;
(b) to discontinue violations of law?




NATIONAL MONETARY AND BANKING POLICYJ5

10. Should officers or directors removed under section 30 of the
Banking Act of 1933 be prohibited from ever again engaging in the
operation of insured banks?
11. Should there be provided some effective remedy against unsound
control when exercised by stockholders rather than by officers and
directors?
12. Do you think that the bank failure experience of the period
1920-33 was in any substantial measure due to inadequate principles
or practices of bank supervision? If not, to what do you ascribe that
unfavorable experience? If not, do you lmow any means whereby
such unfavorable experience can be avoided in the future? If so, have
the principles and practices been altered in a proper manner? Do you
have any suggestions as to needed changes of law which will permit
more adequate supervision?
13. Does your office or its examiners make any attempt to restrict
speculative trading in securities on the part of banks? If so, why?
Is any revision of law in this connection desirable?
14. What policies should a commercial bank be required to follow in
order to be able to meet abnormal demands for cash? Do you in any
way control the practice of the banks in this respect?
15. Explain in detail the allocation of functions in bank supervision
and examination between the Comptroller of the Currency, the District Chief National Bank examiners and the national bank examiners.
How is uniformity of practice achieved?
16. Is there any evidence that bank examiners (under any supervisory agency) have at any time since 1933 exercised a retarding influence upon the development of recovery in this country?
17. Is there danger that bank supervision in the hands of the
F. D. I. C. will be so stringent, because designed to reduce to the minimum the losses of that corporation, that the restrictions on bank credit
extension will unduly hamper business enterprise?
18. To what extent do you or your examiners give banks "advice"
with regard to policies or practices in the operation of a bank which
are not the subject of supervisory control enforced by legal sanctions?
Do you think that the giving of "advice" and the enforcement of
requirements of law can properly be carried out simultaneously by
the same agency? Do bankers and examiners see a clear demarcation
between the two functions?
19. Are the principles, procedures, and practices which you require
banks to follow available to banks in the form of published rules and
regulations, or are they made known to banks on a case by case basis?
Which of the two methods do you consider the more satisfactory?
Which would banks prefer?
B. Asset Quality and Type.
1. What principles guide your policy with respect to the types and
quality of bank assets? Which of these principles are now embodied
in law? Should any of the principles now in law be revised; and
should any additional principles be enacted into law?
2. Does the influence of bank examiners keep many banks from
making loans or investments they would otherwise be willing to make?
If so, what kinds of loans and investments?
3. What is the justification for the requirement that all securities
purchased by banks members of the Federal Reserve System must be
marketable? Would you favor any modification of the law in this
respect?



NATIONAL MONETARY AND BANKING POLICY

J5

4. Would you favor altering the law to permit national banks to
invest in high-grade preferred stock? Why, or why not?
5. What, if any, merit do you see in the proposal that certain assets
be segregated in savings departments to offset time and savings
deposits?
6. What use is made of the securities ratings of the recognized
rating agencies in your examination and supervision of banks? By
what means do you ascertain that the ratings are made in a manner
appropriate to the use to which you put them?
7. Do many national banks hold securities which they have bought
in violation of section 5136 of the United States Revised Statutes?
What steps do you take in such cases?
8. What steps do you take with respect to securities held by banks
which were eligible for investment when.purchased but which subsequently become ineligible?
9. Do national bank examiners discourage (a) long-term loans as
such; (b) capital loans as such; (c) real-estate loans as such?
10. Which, if any, of the following do you consider as inappropriate
assets for purchase, either by banks having demand deposits in
substantial volume, or by banks having chiefly time and savings
deposits:
(а) Real estate mortgages:
(1) Farm?
(2) Urban, uninsured?
(3) Urban, insured by F. H. A.?
(4) Limited to 3 or 5 years' duration?
(б) Loans to customers for working capital purposes:
(1) Repayable over a period of 5 years; 10 years?
(2) Nominally repayable within 90 days but actually
repayable only by liquidating the business?
(c) Stock market call loans?
(d) Railroad and industrial bonds of corporations with good
credit standing?
(e) Bonds issued by local industries of good credit standing but
having only restricted market?
(/) Finance company paper secured by installment notes?
(g) Acceptances issued by high-grade institutions covering
goods in storage?
(h) Notes collateraled by warehouse receipts for commodities:
(1) Hedged;
(2) Unhedged?
11. Do you have authority or responsibility to exercise control
over policies of the banks with regard to any of the types of assets
mentioned in the preceding question?
12. If any of the items listed in question 10 are deemed acceptable
for a restricted proportion of a bank's assets, indicate the criteria of
a proper proportion.
13. Should banks be permitted to operate personal loan departments making small loans on a high interest basis (for instance, 4 to
£ percent deducted in advance, on a monthly installment loan spread
over 1 year)?




NATIONAL MONETARY AND BANKING POLICYJ5

14. What is the effect of the law that national banks may not hold
real estate which they have held for a period longer than 5 years
(U. S. Rev. Stat., sec. 5137)? Is it practicable to enforce this? Do
you favor any revision?
15. What do you estimate to be the total amount of securities now
outstanding which are eligible for investment by member banks under
your regulations issued pursuant to United States Revised Statutes,
section 5136? What proportion of the total do you estimate to be
held by commercial banks?
16. In determining upon supervisory standards with respect to
bank asset quality, how are the needs for bank safety and the credit
needs of business weighted or reconciled? What consideration do
you give to the undesirability of placing obstructions in the way of
the investment process?
17. What is the nature of each of the four classes in which loans
are placed by examiners? What is the purpose of the classification?
Do you require or influence banks to collect class II loans?
O. Valuation of Assets:
1. What principles should guide public policy with respect to the
valuation oi bank assets? Which of these principles could and should
be enacted into law?
2. What new principles were established by the* agreement between
Federal supervisory agencies of June 1938 (published in Federal
Reserve Bulletin, July 1938, and in the Annual Report of the F. D. I. C.
for 1938)? What have been the results?
3. In a discussion of the revision of bank examination procedure
and of investment securities regulation which was agreed upon in
June 1938, appearing in the Federal Reserve Bulletin (July 1938, pp.
563-564), the following comments were made:
Under the new designations, the principle is clearly recognized that in making
loans, whether for working capital or fixed capital purposes, the banks should be
encouraged to place the emphasis upon intrinsic value rather than upon liquidity
or quick maturity.
Similarly, the revised examination procedure recognizes the principle that bank
investments should be considered in the light of inherent soundness rather than
on a basis of day-to-day market fluctuations.

In the light of experience since that time has the revised procedure
been effective in accomplishing the purposes indicated in this quotation? To what extent does examination and valuation procedure
differ from that which was prevalent before June 1938? Has the
change been beneficial and if so in what way?
4. If the capital and required surplus of a bank are unimpaired
when its assets are valued in accordance with the agreement of June
1938, but are impaired when its securities are valued at current market
price, is the payment of dividends illegal, unsafe, or unsound?
5. What benefit or harm follows from requiring publication of bank
balance sheets? Would you favor any change in the current law on
this subject? Does any harm follow from requiring banks to make
public the amount of their borrowings?
6. Does the law authorize you to require national banks to adjust
their books to the examiner's valuation of assets? If not, what
control, if any, is exercised over the valuation of bank assets? If
you do not control the valuation of assets as set up on books of the




NATIONAL MONETARY AND BANKING POLICY

J

5

banks, is it desirable to continue requiring the publication of bank
statements? Is any revision or clarification of law in this respect
needed?
D. Capital.
1. Can and does the Comptroller control the capital ratios of national banks? What principles should guide public policy with
respect to the capital of banks? Which of these principles should be
enacted into law? Should there be capital-ratio requirements? If
so, what bases and ratios would be appropriate? Outline the procedure for putting your suggestion into effect.
2. Give your reaction to a proposal that supervisory authorities be
given power to require the retention of earnings by banks which are
found to have an inadequate amount of capital.
3. Does the taxation of banks in accordance with the provisions of
section 5219 of the United States Revised Statutes keep down the
volume of bank capital? Do you favor any change in this section
of law?
4. Would retirement of all the stock of national banks now held
by the Reconstruction Finance Corporation be desirable? Please
indicate reasons for your answer.
E. Procedures and Sanctions.
1. list the sanctions which you may invoke in order to secure compliance with your supervisory requirements. Indicate by what specific
or general legislative grant you exercise each sanction. Have you
found these sanctions effective? Indicate any additions to or changes
in your sanctions which you consider desirable.
2. What right of appeal do banks have from the requirements of
your examiners or other supervisory requirements of the office of the
Comptroller of the Currency?
3. Analyze in full the power of, and principles followed in, the revocation of a national bank charter.
F. Granting oj National Charters.
1. Discuss the relative merits of granting national charters to all
banks which meet minimum specific requirements fixed by law and
agree to operate in accordance with the laws and regulations applicable
to national banks, as compared with the present system of case-by-case
decisions.
2. What standards guide you in determining whether each of the
following characteristics of a bank is such as to permit a bank to be
allowed to transact the business of banking as a national bank: (a)
The financial history and condition of the bank; (6) the adequacy of
its capital structure; (c) its future earnings prospects; (d) the general
character of its management; (e) the convenience and needs of the
community to be served by the bank? How do you determine whether
the standards enumerated in answer to this question are met by an
applicant bank?
3. By what standards do you determine whether to grant or withhold approval of a proposed consolidation of two or more national
banks?
4. Would you in general permit the merger of two banks which
could not legally have interlocking directorates?




NATIONAL MONETARY AND BANKING POLICYJ5

5. By what standards do you determine whether to approve the
establishment of new branches by a national bank, in eases where
such approval is discretionary?
6. Are there too many banks? What is the test of a proper number? Are there any communities not adequately served by banks?
I I . L E G A L STATUS OF B A N K S

A. National Charters.
1. Is it desirable to maintain the present dual (National and State)
system of chartering commercial banks and/or of bank supervision?
2. Are you inhibited from effectively supervising the national banks
by the possibility that they may withdraw from the national system
and continue operations under State charters? How many cases are
known in which a bank has withdrawn from the national system
because of the relatively lax supervision anticipated under State law?
3. What advantages or disadvantages would follow from requiring
all banks holding demand deposits, or all insured banks, to operate
under national charters and Federal supervision? Under State
charters and State supervision?
B. Membership in the Federal Reserve System.
1. Do you think any substantial economic disadvantages have
resulted (a) from the fact that a considerable number of banks have
not had full access to Federal Reserve credit facilities over the past
25 years; (b) from the fact that a considerable number of banks have
not been in the par collection system over the past 25 years; (c) from
the fact that a considerable number of banks have not been subject
to the Federal Reserve requirements for reserve against deposits?
2. Should all insured banks be required to be members of the
Federal Reserve System under present requirements for membership?
Under some other requirements for membership? If the latter, what
alterations in requirements do you suggest?
C. Deposit Insurance.
1. Should Federal deposit insurance be retained permanently in
substantially its present form, retained in a specified revised form,
abandoned in the near future, abandoned if certain specified conditions
appear, or abandoned at once?
2. Do you believe that all banks holding demand deposits should
be required to be insured?
3. Please state your reaction and the reasons therefor to the contention that the existence of Federal deposit insurance tends to cause
bad banking.
I I I . RELATIONS AMONG SUPERVISORY AGENCIES

1. Should the bank supervisory and bank examining functions of
the Federal Government be concentrated in the hands of a single
agency and a single integrated examining force?
2. Should all Federal bank supervisory laws be unified and codified
and made to apply uniformly to all insured banks, or to all banks
holding demand deposits? Please submit a tentative uniform bank




NATIONAL MONETARY AND BANKING POLICY

J 5

supervision code which you think should be applied to all insured
banks or all banks holding demand deposits and which you think
would give the best possible supervision.
3. In what manner do you supervise the receiverships of national
banks in which the Federal Deposit Insurance Corporation is the
receiver? Is undesirable duplication of effort involved? Do you
favor any alteration of the law in this respect?
I V . B A N K EARNINGS

1. Are the earnings and profits of commercial banks of particular
public interest? If so, in what respects? If so, evaluate those
aspects of law and supervision which pertain thereto, indicating
any desirable alteration of law and regulations. Are earnings of
commercial banks sufficient from the standpoint of the public interest?
2. Should earnings statements submitted to the supervisory
authority be required to be published?
3. Can you visualize any possible developments which would render
inadvisable a continuation of the present prohibition of payment of
interest on demand deposits and limitation of interest on time deposits?
Please enumerate and discuss. What, in your opinion, are the chief
justifications for these regulations?
V . B A N K ORGANIZATION AND STRUCTURE

1. Indicate in detail what, if any, changes you think should be made
in existing laws which affect the banking structure of the country, i. e.,
branch banking, unit banking, group and chain banking, bank competition, concentration of banking power.
2. Give in detail your appraisal of the following: (1) Nation-wide
branch banking; (2) Federal Reserve district-wide branch banking;
(3) "trade area" branch banking; (4) prohibiting further extension of
branch banking; (5) breaking up existing branch banking; (6) prohibiting further extension of group and chain banking; (7) breaking
up existing groups and chains; (8) prohibition of the concentration of
more than a given percentage of the bank deposits and offices of a
given area under common control.
VI.

MISCELLANEOUS

1. What advantages or disadvantages would result from the restoration of the membership of the Comptroller in the Board of Governors
of the Federal Reserve System? What advantages or disadvantages
result from the membership of the Comptroller in the Board of Directors of the Federal Deposit Insurance Corporation?
2. Would you favor any revision of that section of law which defines
"bad debts" as "all debts * * * on which interest is past due and
unpaid for a period of 6 months, unless the same are well secured, and
in process of collection?" If so, what do you suggest? If not,
please explain the logic of this provision. Do you in fact classify any
other loans to be bad debts in computing the sound position of a bank?
3. Even if no changes are to be made in the content of the Federal
banking law, should that law be rewritten and codified with a view to




NATIONAL MONETARY AND BANKING POLICYJ5

clarity and unatnbiguitv? If so, indicate at what points the present
law is most in need of clarification, and submit a rough outline of such
codification.
4. Do you have any suggestion for changes in the holding company
and affiliates provisions of law?
5. What benefit or harm arose from divorcing banks from securities
companies and prohibiting banks from doing a securities business?
6. Does the experience of your office indicate that the abandonment
of double liability of bank stockholders was wise?
7. Does the limitation of interest on time and savings deposits have
any effect on the total volume of such deposits?
8. In a report submitted to the Senate Select Committee to Investigate the Executive Agencies of the Government (75th Cong., 1st sess.,
S. Kept. 1275, 1937, at pp. 213-223), certain recommendations were
made affecting the Office of the Comptroller of the Currency. Comment on the advisability of cariying out such of these recommendations as are still applicable.




3. B O A R D

OF

GOVERNORS

OF

THE

FEDERAL

RESERVE

SYSTEM
I , M O N E T A R Y AND C R E D I T P O W E R S AND P O L I C I E S

A. Internal Organization.
1. What is the distribution of the functions between the Board of
Governors of the Federal Reserve System, the Board of Directors of
the Federal Reserve banks, and the Open Market Committee? In
what matters and to what extent does the Board of Governors determine the policy to be followed by Federal Reserve banks?
2. What has been the function of the Open Market Committee?
Is there any good reason why final responsibility for open market
nolicy and for rediscount rates should rest in different hands?
3. As a practical matter, what is the relative influence of the Board
of Governors, the Federal Reserve Bank of New York, the other
Reserve banks, and the Open Market Committee in determining the
policy of the Federal Reserve System with respect to the following
matters:
(а) Rediscount rates;
(б) Open market operations;
(c) Reserve requirements;
(d) Standards for extension of Federal Reserve credit;
(e) Bank examinations?
4. What function does the Federal Advisory Council perform?
5. To what extent have there been differences of opinion within
recent years with respect to major questions of policy within the
Federal Reserve System?
6. Is there any reason for altering the present number of members
of the Board of Governors of the Federal Reserve System, their tenure
of office, or annual salaries? What changes, if any, should be made
in the requirements for eligibility for appointment to the Board?
7. Should the statff of the Board of Governors be placed under civil
service?
8. Should the Secretary of the Treasury become a member of the
Board of Governors of the Federal Reserve- System? Should any other
Government officials be added to the Board? What advantages or
disadvantages resulted from the membership of the Secretary of the
Treasury and the Comptroller of the Currency prior to 1935?
9. Is it desirable to change the composition of the boards of directors
of the Federal Reserve banks to give wider representation to the general public? Are any changes desirable in their method of appointment, or in their annual salaries?
10. Would it be desirable to transfer the ownership of the Federal
Reserve banks to the United States Government? Would this transfer result in any benefit to the Government in financing its bonds
and other evidence of debt?




21

NATIONAL MONETARY AND BANKING POLICYJ5

11. Should any change be made in the disposition of Federal Reserve
bank earnings? In the rate of dividends on Reserve bank stock?
12. Do the provisions of the Federal Reserve Act concerning taxes
on any deficiency of the reserve of Federal Reserve banks serve any
useful purpose?
13. Would the Reserve System be improved if a single Reserve
bank with necessary branches were substituted for the present 12
banks?
14. What type of decisions and type of discussions is it against the
public interest to make available to the public? Why? Should any
matters dealt with or decisions made by the directors of the Federal
Reserve banks which are now kept confidential be made available to
the public?
B. Monetary Powers.
1. Describe the distribution of monetary powers which now obtains
among Federal agencies. If you think any changes are desirable, indicate any new powers which are needed, any redistribution of powers
which would be desirable, and any changes necessary for proper
coordination of the exercise of the powers.
2. What is the purpose of each of the monetary and banking powers
possessed by the Federal Reserve System? How effective for each
purpose are these powers?
3. In what directions and to how great a degree have each of the
powers been used during the last 15 years?
4. What is the present significance, from the standpoint of credit
control (a) of the regulations governing the eligibility for rediscount,
(6) of rediscount rates? Does it appear likely that the significance of
these regulations will increase materially in the near future?
5. What is the nature of the tradition with reference to (a) interbank borrowing; (6) rediscounting at a Federal Reserve bank? Do
the Board of Governors, the Reserve banks, or the examiners encourage
this tradition?
6. Is it desirable to increase the significance of eligibility regulations
and rediscount rates? If so, would it be practicable to do so-by selling
bonds from the Reserve banks' portfolios in the hope that banks would
thereby be put under pressure to rediscount?
7. What is the volume of eligible paper held by member banks of
the Federal Reserve System? Does it appear likely that the amount
of such paper would increase if eligibility became more important?
8. At what period in the past 15 years has there been an inadequacy
of monetary power on the part of the Federal Government? Specify
the nature of such inadequacy.
9. Should Reserve System authority over reserve requirements be
extended? Within what limits?
10. Can and should credit control include control over the uses to
which bank credit is put, rather than merely control of the volume of
outstanding credit?
11. What is the purpose of the provision of law that the Treasury
may, under certain circumstances, issue 83,000,000,000 in greenbacks?
Should this authority be continued (a) permanently, (6) temporarily?
If the latter is recommended, under what circumstances should it be
permitted to lapse? Should the Treasury also have the power to
retire greenbacks?




NATIONAL MONETARY AND BANKING POLICY

J

5

12. If this power should be continued, would it be desirable that it
be transferred to, or exercised jointly with, the Board of Governors of
the Federal Reserve System?
C. Monetary Policy.
1. What were the principal original purposes in establishing the
Federal Reserve System? How far have these purposes been achieved?
2. Have the objectives been modified in the last 20 years? Have
these modifications been embodied in legislation, or are they part of
an oral tradition? Is the public aware of these objectives, so that it
can predict the action of the System under given conditions?
3. What criteria have been and are employed by the Board of
Governors of the Federal Reserve System, and by the Federal Reserve
banks, in determining how far each of the following powers should be
employed either in checking expansion or in promoting expansion: (a)
market operations, (6) the rediscount rate, (c) reserve requirements
of member banks?
4. To what extent, if any, are open market operations influenced by
the need of the Federal Reserve banks to earn profits to pay operating expenses and dividends on stock? By fiscal operations of the
Treasury? To support the bond market?
5. Is this an appropriate time to formulate permanent rules of
monetary policy? Should such rules be embodied in legislative enactment? If not," should the Board of Governors adopt such rules, and
specify them in a public pronouncement? Are the present general
objectives adequate?
6. What are the present criteria of monetary policy? For legislative
enactment or Board pronouncement, what are the merits of the
following criteria, singly or in some combination? (Specify the
combination.)
(а) Stability of prices:
(1) Index of general wholesale prices.
(2) Cost-of-living index.
(3) Nonfarm commodity prices.
(4) Any specially devised composite price index.
(б) A stable relationship between price indexes of various
significant groups of commodities.
(c) A price level declining in accordance with increased efficiency of production.
(d) A slowly rising price level.
\e) Amount of unemployment.
(J) An index of production.
(g) An index of national money income.
(h) Stability of foreign-exchange rates.
(i) Reserve position of Reserve banks.
(j) Stable quantity of money or a secular increase in the
quantity of money (including or excluding rate of turn-over of
money).
.
(k) Stable relationship among the various categories of income
groups.
(I) Prices of Government bonds.
(m) Interest rates.




NATIONAL MONETARY AND BANKING POLICYJ5

7. Specify the lines of action that would be appropriate on the
adoption of any of the above criteria.
8. If any of the above guides to monetary policy had been formally
adopted, say in 1919, what changes in reserve policy would have been
made? What would have been the consequences of such action, in
contrast with the consequences of the lines of action that were followed?
9. Are the necessary quantitative data for any criteria you favor
now available? If not, specify the deficiencies.
10. What objectives are aimed at and what criteria are used in
exercising the authority which you possess with respect to margin requirements at the stock exchanges? Are the powers now possessed
adequate for their purpose?
11. In what sense, if any, is it true that stock market loans can
absorb the lending capacity of banks? Can a reduction of such loans
(otherwise than through an inflow of funds from abroad) make funds
more readily available for financing industry, commerce, and agriculture?
12. Apart from considerations involved in the preceding question,
is it desirable to restrict the volume of activity or control the level of
prices at the stock exchanges? If so, by what kinds of criteria is the
need for action best judged?
13. To what extent do you and the Securities and Exchange Commission cooperate in exercise of control over the stock exchanges?
14. What purpose is served by restrictions on stock exchange
lending by others than banks?
D. Fiscal Policy.
1. Can fiscal policies (such as deficit or surplus financing, control
of size or location of cash balances, choice of securities to be issued
or retired, forms of taxation) advantageously be.used as instruments
of monetary-credit policy? If so, can you suggest any means by
which fiscal policy and credit policy could be more closely coordinated?
2. Analyze the general relationship between Government surpluses
and deficits on the one hand and credit and monetary conditions on
the other. Illustrate the analysis from the facts of American financial
history, 1917 to date.
3. Can you suggest any criteria for determining the appropriate
size of the deficit (or surplus)? Should it be related in some specific
way to—
(а) The amount of unemployment;
(б) The level of output;
(c) The volume of new investment;
(d) An index of prices?
4. Is the size of the existing public debt an important factor in
determining the desirable magnitude of a current surplus or deficit?
5. One of the major objections advanced against Federal deficits
is the associated growth of the public debt. What are the specific
objections to a growing public debt? Discuss the: significance of the
following points, which are commonly cited:
(а) Refunding problem.
(б) Tax burden to pay off principal.
(c) Tax burden to pay interest.




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(d) The effect on private investment.
(e) The effect on business conditions.
(f) The effect on the distribution of wealth and income.
(g) Preparedness for another war.
6. If it is desired to produce an increased deficit (or decreased surplus), what are the respective advantages of decreasing tax rates and
increasing expenditures?
7. Assuming that a deficit in certain years is unavoidable or
desirable, discuss the effects of different methods of financing the
deficit. What differences are to be expected from financing all or
part of a deficit by—
(а) Issuance of long-term bonds;
(б) Issuance of short-term debt;
(c) Issuance of greenbacks; and
(d) Creation of Reserve bank credit against non-interestbearing United States bonds?
8. Do you consider variations in the size and location of the
Treasury's cash balances as an instrument of monetary control? If
so, how far is Treasury policy in this connection coordinated with
Federal Reserve policy?
9. To what extent, if any, does the Treasury seek the support of
the Federal Reserve System in its fiscal operations?
10. Do you consider that it is desirable as a general policy that the
Government bond market be protected against sudden declines? If
so, how, by whom and why?
11. Is it desirable that the activities of the Government lending
agencies be coordinated more closely with monetary and credit policy?
If so, how can this be achieved?
E. Monetary Policy and the Business Cycle.
1. What monetary policies have been followed, particularly during
the post-war period, in dealing with depressions (a) in the United
States, (6) in other countries?
2. What particular powers of the Reserve System have been relied
upon in the past to bring about monetary expansion as a means of
restoring employment?
3. What economic* and monetary developments since 1930 have
made these powers inadequate?
4. In the light of experience of the past 10 years, what can be said
as to the influence of cheap money, (a) on stock market prices, (b) on
commodity prices, (c) on the level of employment?
5. What have been the traditional checks to monetary expansion?
What checks are now available?
6. Is it possible for a policy of monetary ease to be carried too far
in a period of depression?
7. What facts would indicate that a policy of monetary ease had
gone too far? Have there been indications that a policy of monetary
ease was carried too far at any time within the last 20 years? Was
this an important factor in bringing on the depression of 1929?
8. Would there ever be occasion when a policy of monetary ease
should be limited, abandoned, or revised before the restoration of full
employment, because of danger that the monetary expansion could
not be controlled? Or for other reasons?




NATIONAL MONETARY AND BANKING POLICYJ5
9. Is it possible to check monetary expansion without at the same
time initiating a contraction of business activity? Is it possible to
check price increases by monetary means in any particular field (for instance in the stock market) without initiating a general contraction
of business activity?
10. What, in your judgment, were the causes of the marked increase
in the ratio of the volume of time deposits to that of demand deposits
which occurred during the twenties? Of the increase in the proportion
of demand deposits during recent years? What changes, if any, in
banking policy are rendered necessary by major shifts in the proportion of time and demand deposits?
11. Is there any good reason for requiring a different reserve ratio
against demand and time deposits?
12. What are the causes of the relatively low rate of turn-over of
bank deposits in recent years as compared with the period of the
middle twenties?
13. In 1931 a committee of the Federal Reserve System recommended a plan under which the velocity of turn-over, as well as the
volume of deposits, would be taken into consideration in computing
reserve requirements. Please comment on the merits of this recommendation.
14. What determines the magnitude of excess reserves held by
banks? Are there important variations as to excess reserves in
different types of banks?
15. What is the cause of the great volume of excess reserves? Is it
likely that the banking system will return to a position where excess
reserves will not exist? If so, describe the process by which this will
most likely come about.
16. Should the problem of excess reserves be dealt with now, or
only after undesirable monetary expansion is under way? If no action to reduce reserves is now appropriate, should any legislative
power necessary to control excess reserves be enacted now?
17. What are the merits and demerits of each of the following
methods of dealing with excess reserves:
(a) Raising reserve requirements;
(b) Establishing different and high reserve requirements
against additional deposits;
(c) Relating deposit expansion to an increasing ratio of capital
to deposits;
(d) Supplement existing requirements with special requirements of reserve privilege bonds?
(e) Sale of bonds by the Treasury or the Reserve System?
( / ) Other?
18. To what extent were the policies followed in the exercise of
monetary powers by the Federal Reserve System and the Treasury's
management of the inactive gold account in the spring of 1937, and
the reversal of those policies in the autumn of 1937, responsible for
the changes in business activity which followed them?
19. What factors have been mainly responsible for the low interest
rates which have obtained in recent years? What is likely to be the
coursie of interest rates in the near future?
20. What is the impact of low interest rates on the various economic
groups?




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21. What would be the effect of levying taxes on (a) bank deposits,
(b) on currency holdings?
F. Currency.
1. What is the explanation for the increase in the volume of currency in circulation during the past 7 years?
2. What factors in general determine the total quantity of currency
and coin in circulation?. What is the effect upon the total volume of
currency in circulation of:* (a) Increase in the gold stock; (b) silver
purchases and the issuance of silver certificates; (c) deficit financing?
3. Is the power to issue currency a source of profit to the Federal
Reserve banks? Would the power to issue currency be a source of
profit to commercial banks? Would the Government earn a profit if
the Treasury had the sole right of issue?
4. What purposes do the requirements of specie "backing" or collateral for the various kinds of currency and deposits serve? What do
the silver, gold, Federal Reserve assets, etc., as the case may be, have
to do with the value of the currency? Could all the "backing" be,
dispensed with? What would be the advantages and disadvantages
of doing so?
5. Should anything be done to reduce the diversity of currencies?
What would be gained by doing so?
6. Proposals nave been made to make United States Government
bonds legal tender; What are the merits of this' proposal?
7. What purpose is served by the redemption provisions of Federal
Reserve notes? of silver certificates? -Should the reserve, for redemption of Federal Reserve notes now required to be maintained in the
Treasury be continued?
8. The proposal has been made to meet part or all of the annual
T^easuiy deficit by issuing new currency? What are the merits of*
such a proposal?
9. What is the relationship between the quantity of currency in circulation and the level of commodity prices?
(а) Can prices be controlled by changing the quantity of currency in circulation?
(б) Is the Government able to control the volume of currency
in circulation? What measures can be used to achieve this
control?
(c) Under what circumstances would it be desirable to control
the volume of currency? Would it be desirable to change the
volume of currency in circulation now?
10. Why should the gold-reserve requirements against the currency
portion of the circulating medium be different from the gold-reserve
requirements against the checking account portion of the circulating
medium?
11. What effect would the issuance of one to two billion dollars a
year of stamp money, as described by Irving Fisher, have on (a) our
currency system; (b) commodity prices; (c) the national income?
G. The gold standard.
1. What were the essential features of the traditional gold standard?
Specifically, what function did gold perform under this standard?
2. In what countries of the world does gold still perform its traditional functions? Why has it ceased to do so in others?
tftSIOl—40 3



NATIONAL MONETARY AND BANKING POLICYJ5

3. What function does gold perform in (a) foreign monetary systems; (b) international affairs?
4. Why have so many countries abandoned the gold standard? How
widespread is the desire in each of the leading countries to return to
the gold standard?
5. What are the probabilities of a general restoration of the gold
standard?
6. What line of action on the part of the United States would facilitate such restoration—if deemed desirable?
7. Would measures tending to reduce the production of gold be
appropriate? If so, what are the merits of the following:
(а) International agreement to reduce the price of gold;
(б) Unilateral reduction of the price by the United States;
(c) Agreement among gold-importing countries to restrict its
importation?
8. Why has the United States been getting so much gold? In the
current inflow of gold, what has been the importance of:
(а) The price of gold;
(б) Capital movements;
(c) The balance of trade; and
(d) Action of foreign governments?
9. With the continuation of our present gold policy, what will be
the probable nature of gold movements (a) as long as the current war
continues; (6) when the war ends?
10. Assuming that we continue to purchase gold at the present price,
what factors will be likely to prevent the demonetization of gold by
the rest of the world? What would be the influence on possible demonetization of a reduction of the price? Of an embargo on gold
imports?
11. What is the legal status of gold held on earmark? What are
the economic advantages of earmarking gold? Are there any disadvantages?
H. Gold and Domestic Monetary Policy.
1. What has been the traditional role of gold in determining our
domestic monetary policy? What developments since 1930 have
altered this role? Do the size of our gold reserve and/or the volume
of gold inflows (or outflows) have any influence on the credit policy
of the Reserve System? On the volume of excess reserves?
2. Do our present gold reserve and/or the prospective gold inflow
interfere with making effective the credit policies now deemed appropriate? Are circumstances likely to arise in which gold would so
interfere?
3. In particular, is there danger that our large gold ^holdings may
interfere with a program of monetary control at some time when it is
deemed necessary to check monetaiy expansion?
4. What effect would follow if restrictions on the convertibility of
currency into gold coins or bullion at a fixed rate were removed?
What amount of gold coins or bullion would the public be likely to
absorb?
^ 5. What would be the results of reintroducing gold certificates into
circulation?




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6. Specifically, would private holding of gold and/or gold certificates
make monetary control more or less difficult?
7. Assuming that there is reason to expect the ultimate restoration
and indefinite retention of gold in the world's monetary systems, which
of the following methods of reducing the gold inflow into this country
would be most appropriate? (In evaluating them, consideration
should be given both to the immediate and to the long-run effects,
on our international relations and trade, and on our domestic economy
and price levels.)
(а) An embargo on gold imports; cessation of purchases by
the United States.
(б) Reduction in the price the Treasury pays for gold.
(c) Buying only a certain amount of gold in the open market.
(d) Purchasing only gold that comes from certain countries.^
(e) Requiring that foreign governments acquire a definite
agreed portion of their dollar needs through liquidation of their
holdings of American securities, rather than through gold shipments.
(/) Reduction of our tariff schedules. On what category of
items and to what extent, if any?
(g) Extension of foreign loans. To whom and on what terms?
(h) Increasing the spread between the Treasury buying and
selling prices for gold.
(i) Segregating monetary gold from nonmonetary gold, and
acquiring only monetary gold.
(j) Exchange control.
(k) Resumption by international agreement of (a) convertibility; (6) use of specie reserve against notes and deposits.
I. Foreign Exchange.
1. What are the advantages and disadvantages of fixed versus
fluctuating exchange rates with respect to:
(а) The volume of foreign trade;
(б) Exporters and importers;
(c) The "terms of trade";
(d) The tourist, shipping, and other service items in the
balance of payments;
(e) Capital movements and foreign investment;
(f) The stability of domestic economic activity and domestic
price levels;
(g) Speculation in foreign exchange;
0i) National control of monetary policy;
(i) International commercial relations?
2. What are the prerequisites of long-run stability of exchange
rates? Are these likely to be fulfilled?
3. What are the monetary consequences of:
(а) Exchange control;
(б) Clearing, compensation, and payment agreements;
(c) Barter agreements;
(d) Multivalued currencies;
(e) Export subsidies?




NATIONAL MONETARY AND BANKING POLICYJ5

4. In view of the extensive and increasing use by foreign powers of
such devices as those listed in the preceding question, is there any
advantage in our maintaining stability in terms of gold? Any
disadvantage?
5. If fixed exchange rates are preferable, what lines of policy are
open to us to achieve this objective? If flexible rates are preferable,
should they be freely fluctuating, or flexible by international agreement?
6. Should we actively take steps to establish a dollar bloc? What
role could the Inter-American Bank play in a dollar bloc?
7. What special measures should the administration take to promote the foreign exchange stability of Latin-American countries?
Appraise each of the following as an aid in achieving such stability:
(а) Widening thefieldfor capital investments in Latin America;
(б) Debt settlements;
(c) Gold or currency loans;
(d) Commercial policy;
(e) Proposed Inter-American Bank?
8.' What measures can we take, and should we prepare to take, to
protect ourselves against the possibility of complete collapse of the
currencies of any of the belligerent countries in Europe or Asia during or after the war?
9. Is there any danger of an era of intensified competitive currency
depreciation at the end of the war? If so, what should be done about
it?
\
10. When is a country justified in adopting and maintaining exchange controls? Is the abolition of exchange restrictions the sine
qua non of a higher level of world trade? Is it expected that most
countries will abandon exchange restrictions after the war?
11. What consideration should be given to the possibility of gold
loans for the stabilization of world currencies when the war is over?
12. What is meant by equilibrium in discussions of exchange rates?
Is it possible to tell when a currency is too high or too low with relation to other currencies, or when a country is indulging in competitive
currency depreciation? Can overvaluation or undervaluation of a
currency be measured, and if so, how?
13. What are the consequences of overvaluation or undervaluation
of a currency upon:
(а) Our export trade;
(б) Competition from imports;
(c) General level of prices;
(d) Agricultural prices;
(e) Employment in the United States;
(f) World distribution of gold;
Monetary stability;
(ti) Restrictions on international trade?
14. Has the dollar been too high or too low in terms of the leading
currencies in the last 6 years? Is it too high or too low now?
15. What are the best methods for correcting overvaluation or
undervaluation?
16. Under what conditions should the dollar be permitted to appreciate or depreciate?




NATIONAL MONETARY AND BANKING POLICYJ5

17. Should the present powers of our stabilization fund with relation to foreign exchange be retained, modified, or abolished?
J. International Capital Movements.
1. How large are the holdings of foreign governments or central
banks of: (a) Dollar balances—both time and demand; (b) United
States Government obligations? Is there any significant difference
between these holdings and the holdings of foreign individuals and
private banks?
2. Why has capital come to this country in such large amounts since
1935? To what extent has each of the following factors been significant in the flow of capital to the United States?
(а) Safety.
(б) Higher interest rates.
(0) Prospective speculative exchange gains.
(d) Prospective capital gains on securities.
(e) Evasion of taxation in home countries.
if) Increase in the price of gold from $20.67 to $35 an ounce.
(#) Better investment opportunities.
3. Is it expected that the inflow of capital will be maintained with
the continuation of the war?. Will foreigners continue to purchase
our securities and accumulate dollar deposits? How much capital
has come to this country since the outbreak of war, and how much is
expected in 1940?
4. What is the effect of capital inflows on (a) Bank reserves; (6)
interest rates; (c) exchange rates; (d) gold flows; {e) amount of capital
investment in the United States; (J) our security markets; (g) tax
revenues; (A) foreign capital markets; (i) fluctuations in business
activity; (j) national income?
5. Under what conditions is it desirable to prevent or discourage
further inflows of foreign capital? Under what conditions would
it be desirable to control the outflow of capital already here?
6. Will free international movements of capital contribute to or
detract from the stability of foreign exchanges and the prospects of
>^orld economic recovery?
I I . SUPERVISION OF BANKS

A. General.
1. What characteristics of the banking business justify or explain
the relatively greater amount of public supervision which is given to
it than to most other businesses?
2. What are the objectives of bank supervision? Do they include
any or all of the following:
(а) Promotion of business stability, through easing or tightening credit conditions as needed;
(б) Maintenance of competition between banks;
(c) Protection of banks against competition;
(d) Prevention of usurious or oppressive tactics toward
borrowers;
(e) Keeping local money at home;
> (f) Making funds more readily available for particular groups
(e. g. agriculture, small business) or less available for other
groups (e. g. stock-market operations); and
(g) Facilitating the Government's fiscal operations?



NATIONAL MONETARY AND BANKING POLICYJ5

3. Is any change of law with regard to objectives of supervision
desirable?
4. What effect does bank supervision have upon:
(а) The quantity and quality of the debt owed to commercial
banks;
(б) The total volume of debt in the country?
5. How does bank supervision affect the outstanding volume of
bank credit? In what way does supervision influence the expansion
or contraction of credit during the different phases of the business
cycle? If supervisory policy were to be so directed as to contribute
to the protection of the economy from the effects of undue expansion
or contraction of credit, how could this best be done? Would appropriate policy require a revision of supervisory standards during the
course of the cycle, or can standards be devised which will give the
desired results at every stage in the cycle?
6. Do Federal Reserve standards of supervisory responsibility differ
in any respect as between large and small banks? Give details.
7. Does the Federal Reserve System, through its supervisoiy activities, make any attempt to restrict speculative trading in securities on
the part of banks? If so, why? Is any revision of law in this connection desirable?
8. Explain in detail the allocation of functions in bank supervision
and examination among the Board of Governors of the Federal Reserve System, the respective Federal Reserve banks, and their examiners. How is uniformity of practice achieved?
9. Does the B.oard of Governors have control over the method and
content of Reserve bank examination of State member banks? Is
any change of law in this respect desirable?
10. Is there any evidence that bank examiners (under any supervisory agency) have at any time since 1933 exercised a retarding influence upon the development of recovery in this country?
11. Why does the Federal Reserve System examine state member
banks, thus duplicating the examinations of the States?
12. What is the purpose and character of the review of national
bank examination reports made by the Federal Reserve System?
Does it involve an avoidable duplication of activities?
B. Bank Failures.
1. Do you think that the bank-failure experience of the period
1921-33 was in any substantial measure due to inadequate principles
or practices of bank supervision? If not, to what do you ascribe that
unfavorable experience? If not, do you know any means whereby
such unfavorable experience can be avoided in the future? If so, have
the principles and practices been altered in a proper manner? Do
you have any suggestions as to needed changes of law which will
permit more adequate supervision?
2. What alteration of public policy at any time in the past could
have substantially mitigated the bank-failure problem during the 14year period 1921-33?
3. What, if any, change of public policy renders impossible a catastrophic bank-failure experience in the future?
4. What policies should a commercial bank be required to follow in
order to be able to meet abnormal demands for cash? Does the
Federal Reserve System in any way control the practice of the banks
in this respect?



NATIONAL MONETARY AND BANKING POLICY

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5. If the Federal Deposit Insurance Corporation insured all the
liabilities of the insured banks, would the Federal Reserve banks be
more willing to make cash available to banks in case of need than
they are at present? If so, would bank failures be rendered less likely?
<7. Asset Quality and Type.
1. What principles guide Federal Reserve policy with respect to the
types and quality of bank assets? Which of these principles are now
embodied in law? Should any of the principles now in law be revised;
and should any additional principles be enacted into law?
2. Does the influence of bank examiners keep many banks from
making loans or investments they would otherwise be willing to make?
If so, what kinds of loans and investments?
3. What is the justification for the requirement that all securities
purchased by bank members of the Federal Reserve System must be
marketable? Would you favor any modification of the law in this
respect?
4. Would you favor altering the law to permit national banks to
invest in high-grade preferred stock? Why, or why not?
5. What use is made of the securities ratings of the recognized
rating agencies in your examination and supervision of banks?
6. If so, by what means do you ascertain that the ratings are made
in a manner appropriate to the use to which you put them?
7. Do many State member banks hold securities which they have
bought in violation of section 5136 of the United States Revised
Statutes? What steps does the System take in such cases?
8. What steps does the System take with respect to securities held
by banks which were eligible for investment when purchased, but
which subsequently become ineligible?
9. Which, if any, of the following do you consider as inappropriate
assets for purchase either by banks having demand deposits in substantial volume, or by banks having chiefly time and savings deposits:
(а) Real estate mortgages:
(1) Farm.
(2) Urban, uninsured.
(3) Urban, insured by Federal Housing Administration.
(4) Limited to 3 or 5 years' duration.
(б) Loans for working capital purposes:
(1) Repayable over a period of 5 years; 10 years.
(2) Nominally repayable within 90 days, but actually
repayable only by liquidating the business.
(c) Stock market call loans.
(d) Railroad and industrial bonds of corporations with good
credit standing.
(e) Bonds issued by local industries of good credit standing,
but having only restricted market.
(/) Finance company paper secured by installment notes.
(#) Acceptances issued by high-grade institutions covering
goods in storage.
(h) Notes collateraled by warehouse receipts for commodities:
(1) Hedged.
(2) Unhedged.



NATIONAL MONETARY AND BANKING POLICYJ5

10. If any of the items listed in the preceding question are deemed
acceptable for a restricted proportion of a bank's assets, indicate the
criteria of a proper proportion.
11. Should banks be permitted to operate personal loan departments making small loans on a high-interest basis (for instance, 4 to 6
percent deducted in advance, on a monthly installment loan spread
over 1 year)?
12. What are the causes of the decline of the importance of the
commercial paper market over the last 20 years? Would this market
be likely to revive if member banks were under considerably greater
pressure to rediscount than they are at present?
13. Do you consider it desirable that banks (a) buy installment
paper direct from commercial concerns selling goods on the installment plan; (6) extend credit to such firms on the collateral of installment paper; (c) lend to finance companies on the collateral of installment paper; (d) make installment loans direct to private consumers to enable them to buy for cash goods which are customarily sold
on the installment plan?
^
•
' 14. Do you consider the expansion of installment selling which has
taken place during the last 20 years to have been an important factor
determining fluctuations in the level of employment and business
activity? If so, in what way? .
15. What do you estimate to be the total amount of securities now
outstanding which are eligible for investment by member banks under
regulations issued pursuant to United States Revised Statutes, section
5136? What proportion of the total do you estimate to be held by
commercial banks?
16. In determining upon supervisory standards with respect to
bank asset quality, how are the needs for bank safety and the credit
needs, of business weighted or reconciled? What consideration is
given to the undesirability of placing obstructions in the waj^ of the
investment process?
17. What is the nature of each of the four classes in which loans are
placed by examiners? What is the purpose of the classification?
Do you require or influence State member banks to collect class II
oans?
D. Valuation of Assets.
1. What principles should guide public policy with respect to the
valuation of bank assets? Which of these principles could and
should be enacted into law?
2. What new principles were established by the agreement between
Federal supervisory agencies of June 1938 (published in Federal
Reserve bulletin, July 1938)? What have been the results?
, 3. In a discussion of the revision of bank examination procedure
and of investment securities regulation which was agreed upon in
June 1938, appearing in the Federal Reserve bulletin (July 1938,
pp. 563-564), the following comments were made:
Under the new designations, the principle is clearly recognized that in making
loans, whether for working capital or fixed capital purposes, the banks should be
encouraged to place the emphasis upon intrinsic value rather than upon liquidity
or quick maturity.
. Similarly, the revised examination procedure recognizes the principle that bank
investments should be considered in the light of inherent soundness rather than
on a basis of day-to-day market fluctuations.




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In the light of experience since that time has the revised procedure
been effective in accomplishing the purposes indicated in this quotation? To what extent does examination and valuation procedure
differ from that which was prevalent before June 1938? Has the
change been beneficial and if so in what way?
4. If the capital and required surplus of a bank are unimpaired
when its assets are valued in accordance with the agreement of June
1938, but are impaired when its securities are valued at current market
price, is the payment of dividends illegal, unsafe, or unsound?
5. What benefit or harm follows from requiring publication of bank
balance sheets? Would you favor any change in the current law on
this subject? Does any harm follow from requiring banks to make
public the amount of their borrowings?
6. Should banks be required to adjust their books to examiners'
valuation of their assets? If not, what control should be exercised
over the valuation of bank assets? If supervisors do not control the
valuation of assets set up on the books of the banks, is it desirable
that publication of bank statements be required? Is any revision or
clarification of law in this respect needed?
E. Capital.
1. What capital standards other than those specified by law does
the Federal Reserve System require or urge banks to meet? Are
present minimum capital requirements adequate?
2. Should there be minimum capital ratio requirements? If so,
what bases and ratios would be appropriate? Outline the procedure
for putting your suggestion into effect.
3. Give your reaction to a proposal that supervisory authorities be
given power to require the retention of earnings by banks which are
found to have an inadequate amount of capital.
4. Does the taxation of banks in accordance with the provisions of
section 5219 of the United States Revised Statutes keep down the
volume of bank capital? Do you favor any change in this section of
law?
5. Would retirement of all the stock of member banks now held by
the Reconstruction Finance Corporation be desirable? Please indicate reasons for your answer.
F. Procedures and Sanctions.
1. Are the principles, procedures, and practices which you require
banks to follow available to banks in the form of published rules and
regulations, or are they made known to banks on a case by case basis?
Which of the two methods do you consider the more satisfactory?
Which would banks prefer?
2. List the sanctions which the Federal Reserve System may invoke
in order to secure compliance with its supervisory requirements.
Indicate by what specific or general legislative grant such sanctions are
exercised. Have these sanctions been found effective? Indicate any
additions to or changes in sanctions which you consider desirable.
3. What right of appeal do member banks have from the supervisory requirements of the Federal Reserve System?
4. Analyze in full the power of, and principles followed in, the
expulsion of a bank from the Federal Reserve System.




NATIONAL MONETARY AND BANKING POLICYJ5

G* Admission to Membership.
1. Discuss the relative merits of granting charters to all banks
which meet minimum specific requirements fixed by law and agree to
operate in accordance with the laws and regulations applicable to
banks, as compared with the present system of case-by-case decisions.
2. What standards guide you in determining whether each of [the
following characteristics of a bank is such as to permit a bank to be
admitted to membership in the Federal Reserve System: (a) the
financial history and condition of the Jbank, (6) the adequacy of its
capital structure, (c) its future-earnings prospects, (d) the general
character of its management, (e) the convenience and needs of the
community to be served by the bank? How do you determine
whether the standards enumerated in answer to this question are met
by an applicant bank?
3. In general, do you consider that the merger of two banks which
could not legally have interlocking directorates is in accord with
public policy?
4. What standards should govern the approval of establishment of
new branches by a commercial bank?
5. Are there too many banks or banking offices in the United
States? To what extent are there communities not adequately supplied with banking facilities? What method do you suggest for determining the proper number of banking offices in a given area?
H. Relations Among Supervisory Agencies.
1. Should the bank supervisory and bank examining functions of the
Federal Government be concentrated in the hands of a single agency
and a single integrated examining force?
2. Should all Federal bank supervisory law be unified and codified
and made to apply uniformly to all insured banks, or to all banks holding demand deposits? Please submit a tentative uniform bank-supervision code which you think should be applied to all insured banks or all
banks holding demand deposits and which you think would give the
best possible supervision.
I. Bank Earnings.
1. Are the earnings and profits of commercial banks of particular
public interest? If so, in what respects? If so, evaluate those aspects
of law and supervision which pertain thereto, indicating any desirable
alteration of law and regulations. Are earnings of commercial banks
sufficient from the standpoint of the public interest?
2. Should earnings statements submitted to the supervisory authority be required to be published?
3. How do you determine what maximum interest rate to permit
to be paid on time and savings deposits?
4. Do you think your power to control interest paid on time deposits
should be a permanent or a temporary power? What is the justification for this particular kind of price-fixing? Do you think you should
also have power to control interest rates charged by banks?
5. Does the question of bank service charges need legislation or
Government regulation? Is it in the public interest to promote or
discourage competition among banks in such charges?
6. Does the limitation of interest on time and savings deposits have
any effect on the total volume of such deposits? Do you visualize
any possible developments which would render inadvisable a con tin-




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uation of the present prohibition of payment of interest on demand
deposits and limitation of interest on time deposits? What in your
opinion are the chief justifications for these regulations?
I I I . ORGANIZATION OP THE BANKING SYSTEM

A. National Charters.
1. Is it desirable to maintain the present dual (National and State)
system of chartering commercial banks and/or of bank supervision?
2. Are you inhibited from effectively supervising member banks by
the possibility that they may withdraw from the System?' How many
cases are known in which a bank has withdrawn from the System
because of the relatively lax supervision anticipated under State law?
3. What advantages or disadvantages would follow from requiring
all banks holding demand deposits, or all insured banks, to operate
under national charters and Federal supervision? Under State
charters and State supervision?
B. Membership in the Federal Reserve System.
1. Do you think any substantial economic disadvantages have
resulted (a) from the fact that a considerable number of banks have not
had full access to Federal Reserve credit facilities over the past 25
years; (6) from the fact that a considerable number of banks have
not been in the par collection system over the past 25 years; (c)
from the fact that a considerable number of banks have not been
subject to the Federal Reserve requirements for reserve against deposits?
2. Should all insured banks, or all banks which hold demand deposits, be required to be members of the Federal Reserve System under
present requirements for membership? Under some other requirements for membership? If the latter, what f Iterations in requirements
do you suggest?
3. Is it better from the general monetary and economic standpoint
for banks with $15,000 capital to operate outside the Federal Reserve
System than to have such banks in the System?
C. Deposit Insurance.
1. Should Federal deposit insurance be retained permanently in
substantially its present form, retained in a specified revised form,
abandoned if certain specified conditions appear, or abandoned at
once?
2. Is it desirable that insurance coverage be extended to deposits
up to $10,000, $25,000, $100,000, to all deposits, to all liabilities?
3. Do you favor requiring all banks which hold demand deposits
to be insured?
4. Is the present assessment on insured banks adequate to build up
reserves to cover future losses? If the present assessment is inadequate, is it desirable to increase it?
5. Should the Government meet deposit insurance losses if the
reserves and current assessments prove inadequate?
6. Please state your reaction and the reasons therefor to the contention that the existence of Federal deposit insurance tends to cause
bad banking.
7. Is there danger that bank supervision in the hands of the
F. D. I. C. will be so stringent, because designed to reduce to the




NATIONAL MONETARY AND BANKING POLICYJ5

minimum the losses of that corporation, that the restrictions on bank
credit extension will unduly hamper business enterprise?
D. Bank Organization and Structure. 1. Indicate in detail what, if any, changes you think should be made
in existing laws which affect the banking structure of the country;
that is, branch banking, unit banking, group and chain banking, bank
competition, concentration of banking power.
2. Give in detail your appraisal of the following: (1) Nation-wide
branch banking, (2) Federal Reserve district-wide branch banking,
(3) "trade area" branch banking, (4) prohibiting further extension
of branch banking, (5) breaking up existing branch banking, (6) prohibiting further extension of group and chain banking, (7) breaking
up existing groups and chains, (8) prohibition of the concentration
of more than a given percentage of the bank deposits and offices of
a given area under common control.
I V . D I R E C T LOANS TO INDUSTRY

1. What is the outstanding volume of direct loans to industry under
section 13 (b) of the Federal Reserve Act as amended?
2. To what extent do you consider it desirable that Reserve banks
make loans under section 13 (b) which would not be considered desirable loans for member banks?
3. Is there any significant difference between the loans made by Reserve banks under section 13 (b) and those made by the Reconstruction Finance Corporation under section 5 (d) of the Reconstruction
Finance Corporation Act? Is there any advantage in having two
agencies offer a service as nearly alike as these? If not, which is the
more appropriate agency?
4. Does your experience with industrial loans under section 13 (b)
indicate that there is need for a continued or a greatly expanded
service, whether in the Federal Reserve banks or elsewhere, in the
making of direct loans to industry? Are there ways in which the
present service could be made more useful by appropriate legislation?
5. Does your experience with applications for industrial loans indicate that bank-examiner criticism prevents banks from making loans
that would be desirable bank investments? If so, what types of loans
are most affected?
6. Do you consider that the provision for Reconstruction Finance
Corporation loans to closed banks has served any useful purpose from
the standpoint of the monetary system of the country? Should such
loans be continued?
V.

AGRICULTURE

1. What special consideration needs to be given to agriculture in
the formulation of a national monetary policy? Is there any conflict
in this respect between the agricultural and other interests of the
country?
2. What has been the influence of Reserve credit policy on the level
and variations of agricultural prices since 1914, as distinct from its
influence on prices in general?
3. To what extent have bank failures since 1920 been due to the
adverse conditions of the agricultural community?




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4. Have many agricultural communities been left with inadequate
banking facilities in consequence of the large number of bank failures?
5. Have banks been inclined to pursue a more cautious policy of
extending credit to the agricultural community in consequence of the
bank failures through 1933? If so, has this been an important factor
in the agricultural depression?
6. Do the Reserve eligibility regulations tend to restrict the credit
facilities open to the agricultural community? If so, are changes of
law or regulation appropriate?
7. To what extent does the present practice of keeping country
bank balances with city bank correspondents increase the cost of
borrowing in rural areas?
8. To what extent has the relative increase of bank investments
and loans on securities made it more difficult for the agricultural
community to obtain bank credit?
VI.

MISCELLANEOUS

1. Even if no changes are to be made in the content of the Federal
banking law, should that law be rewritten and codified with a view
to clarity and unambiguity? If so, indicate at what points the present
law is most in need of clarification, and submit a rough outline of such
codification.
2. Do you have any suggestion for changes in the holding company
and affiliate provisions of law?
3. Should officers or directors removed under section 30 of the
Banking Act of 1933 be prohibited from ever again engaging in the
operation of insured banks?
4. Should there be provided some effective remedy against unsound
control when exercised by stockholders rather than by officers and
directors?
5. What benefit or harjm arose from divorcing banks from securities
companies and prohibiting banks from doing a securities business?
6. In a report submitted to the Senate Select Committee to Investigate the Executive Agencies of the Government (75th Cong., 1st sess.,
S. Rept. 1275,1937, at pp. 198-203,213-223), certain recommendations
were made affecting the Federal Reserve System. Comment on the
advisability of carrying out such of these recommendations as are still
applicable.
7: What is the present role of inter-bank deposits? What advantages and disadvantages would follow from the prevention of all
inter-bank deposits other than those with Reserve banks?







4. FEDERAL RESERVE BANKS
I . ORGANIZATION OF THE F E D E R A L R E S E R V E

SYSTEM

1. What is the distribution of the functions between the Board of
Governors of the Federal Reserve System, the Board of Directors of
the Federal Reserve banks, and the Open-Market Committee? In
what matters and to what extent does the Board of Governors determine the policy to be followed by Federal Reserve banks?
2. What has been the function of the open-market committee? Is
there any good reason why final responsibility for open-market policy
and for rediscount rates should rest in different hands?
3. As a practical matter, what is the relative influence of the Board
of Governors, the Federal Reserve Bank of New York, the other
Reserve banks, and the open-market committee, in determining the
policy of the Federal Reserve System with respect to the following
matters:
(a) Rediscount rates;
(ib) Open-market operations;
(c) Reserve requirements;
(id) Standards for extension of Federal Reserve credit; and
(e) Bank examinations?
4. What function does the Federal Advisory Council perform?
5. Is it desirable to change the composition of the boards of directors of the Federal Reserve banks to give wider representation to the
general public?
6. Would it be desirable to transfer the ownership of the Federal
Reserve banks to the United States Government? Would this transfer result in any benefit to the Government infinancingits bonds and
other evidence of debt?
7. Should any change be made in the disposition of Federal Reserve
bank earnings? In the rate of dividends on Reserve bank stock?
8. Do the provisions of the Federal Reserve Act concerning taxes
on any deficiency of the reserve of Federal Reserve banks serve any
useful purpose?
9. Would the Reserve System be improved, if a single Reserve bank
with necessary branches were substituted for the present 12 banks?
10. In a report submitted to the Senate Select Committee to Investigate the Execu tive Agencies of the Government (75th Cong. 1st
sess., S. Rept 1275, at pp. 198-203,213-223) certain recommendations
were made affecting the Federal Reserve System. Comment on the
advisability of carrying out such of these recommendations as are
still applicable.
I I . M O N E T A R Y P O W E R S AND P O L I C I E S

1. What is the present significance, from the standpoint of credit
control, (a) of the regulations governing the eligibility for rediscount,
(6) of rediscount rates? Does it appear likely that the significance of
these regulations will increase materially in the near future?




41

NATIONAL MONETARY AND BANKING POLICYJ5

2. Is it desirable to increase the significance of eligibility regulations
and rediscount rates? If so, would it be practicable to do so by selling
bonds from the Reserve banks' portfolios in the hope that banks would
thereby be put under pressure to rediscount?
3. What is the volume of eligible paper held by member banks of
the Federal Reserve System? • Does it appear likely that the amount
of such paper would increase if eligibility became more important?
4. What is the nature of the tradition with reference to (a) interbank borrowing? (b) rediscounting at a Federal Reserve bank?
Do the Reserve banks or their examiners encourage this tradition?
5. Should Reserve System authority over reserve requirements.be
extended? Within what limits?
6. What were the principal original purposes in establishing the
Federal Reserve System? How far have these purposes been achieved?
7. Have the objectives been modified in the last 20 years? Have
these modifications been embodied in legislation, or are they part of
an oral tradition? Is the public aware of these objectives, so that it
can predict the action of the system under given conditions?
8. What criteria have been and are employed by the Board of
Governors of the Federal Reserve System, and by the Federal Reserve
banks, in determining how far each of the following powers should be
employed either in checking expansion or in promoting expansion:
(a) market operations, (6) the rediscount rate, (c) reserve requirements
of member banks?
9. To what extent, if any, are open-market operations influenced
by the need of the Federal Reserve banks to earn profits to pay operating expenses and dividends on stock? By fiscal operations of the
Treasury? To support the bond market?
10. Is this an appropriate time to formulate permanent rules of
monetary policy? Should such rules be embodied in legislative enactment? If not, should the Board of Governors adopt such rules and
specify them in a public pronouncement? Are the present general
objectives adequate?
11. What are the present criteria of monetaiy policy? For legislative enactment or Board pronouncement, what are the merits of the
following criteria, singly or in some combination? (Specify the
combination.)
(a) Stability of prices:
(1) Index of general wholesale prices.
(2) Cost of living index.
(3) Nonfarm ^ commodity prices.
(4) Any specially devised composite price index.
(b) A stable relationship between price indexes of various
significant groups of commodities.
(c) A price level declining in accordance with increased
efficiency of production^
(d) A slowly rising price level.
(e) Amount of unemployment.
(f) An index of production.
(<7) An index of national money-income,
(A) Stability of foreign exchange rates. .
(i) Reserve position of Reserve banks.




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(J) Stable quantity of money or a secular increase in the
quantity of money (including or excluding rate of turn-over
of money).
(k) Stable relationship among the various categories of income
groups.
(I) Prices of Government bonds.
(m) Interest rates.
12. Specify the lines of action that would be appropriate on the
adoption of any of the above criteria.
13. In what sense, if any, is it true that stock-market loans can
absorb the lending capacity of banks? Can a reduction of such loans
(otherwise than through an inflow of funds from abroad) make funds
more readily available forfinancingindustry, commerce, and agriculture?
14. Apart from considerations involved in the preceding question,
is it desirable to restrict the volume of activity or control the level of
prices at the stock exchange? If so, by what kinds of criteria is the
need for action best judged?
15. Is it desirable that the lending activities of the Government
agencies be coordinated more closely with monetary and credit policy?
If so, how can this be achieved?
16. What, in your judgment, were the causes of the marked increase
in the ratio of the volume of time deposits to that of demand deposits
which occurred during the twenties? Of the increase in the proportion of demand deposits during recent years? What changes, if any,
in banking policy are rendered necessary by major shifts in the proportion of time and demand deposits?
17. Is there any good reason for requiring a different reserve ratio
against demand and time deposits?
18. What are the causes of the relatively low rate of turn-over of
bank deposits in recent years as compared with the period of the
middle twenties?
19. In 1931 a committee of the Federal Reserve System recommended a plan under which the velocity of turn-over, as well as the
volume of deposits, would be taken into consideration in computing
reserve requirements. Please comment on the merits of this recommendation.
20. What determines the magnitude of excess reserves held by
banks? Are there important variations as to excess reserves in different types of banks?
21. What is the cause of the great volume of excess reserves? Is it
likely that the banking system will return to a position where excess
reserves will not exist? If so, describe the process by which this will
most likely come about.
22. Should the problem of excess reserves be dealt with now, or
only after undesirable monetary expansion is under way? If no action
to reduce reserves is now appropriate, should any legislative power
necessary to control excess reserves be enacted now?
23. WTiat are the merits and demerits of each of the following
methods of dealing with excess reserves:
(a) Raising reserve requirements;
Ib) Establishing different and high reserve requirements against
additional deposits;
223191—40

i




NATIONAL MONETARY AND BANKING POLICYJ5

(c) Relating deposit increases to an increasing ratio of capital
to deposits;
(d) Supplementing existing requirements with special requirements of reserve privilege bonds?
(e) Sale of bonds by the Treasury or the Reserve System?
(/) Other?
24. What factors have been mainly responsible ior the low interest
rates which have obtained in recent years? What is likely to be the
course of interest rates in the near future? Is there any considerable
chance of a serious decline in bond prices and necessity for banks to
sell bonds with resulting enormous losses to the banks and bank
failures? Explain.
25. What would be the effect of levying taxes on (a) bank deposits,
(b) on currency holdings?
26. Can and should credit control include control over the uses to
which bank credit is put, rather than merely control of the volume of
outstanding credit?
I I I . GOLD AND FOREIGN EXCHANGE

A. The Gold Standard.
1. What were the essential features of the traditional gold standard?
Specifically, what function did gold perform under this standard?
2. In what countries of the world does gold still perform its traditional functions? Why has it ceased to do so in others?
3. What function does gold perform in (a) foreign monetary systems; (6) international affairs?
4. Why have so many countries "abandoned the gold standard?
How widespread is the desire in each of the leading countries to return
to the gold standard?
5. What are the probabilities of a general restoration of the gold
standard?
6. What line of action on the part of the United States would facilitate such restoration—if deemed desirable?
7. Would measures tending to reduce the production of gold be
appropriate? If so, what are the merits of the following:
(а) International agreement to reduce the price of gold;
(б) Unilateral reduction of the price by the United States;
(c) Agreement among gold-importing countries to restrict its
importation?
8. Why has the United States been getting so much gold? in the
current inflow of gold, what has been the importance of:
(а) The price of gold;
(б) Capital movements;
(c) The balance of trade; and
(d) Action of foreign governments?
9. With the continuation of our present gold policy, what will be
the probable nature of gold movements (a) as long as the current war
continues; (6) when the war ends?
10. Assuming that we continue to purchase gold at the present price,
what factors will be likely to prevent the demonetizatioi of gold
by the rest of the world? What would be the influence on possible




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demonetization of a reduction of the price? Of an embargo on gold
imports?
11. What is the legal status of gold held on earmark? What are the
economic advantages of earmarking gold? Are there any disadvantages?
B. Gold and Domestic Monetary Policy.
1. What has been the traditional role of gold in determining our
domestic monetary policy? What developments since 1930 have
altered this role? Do the size of our gold reserves and/or the volume
of gold inflows (or outflows) have any influence on the credit policy
of the Reserve System? On the volume of excess reserves?
2. Do our present gold reserves and/or the prospective gold inflow
interfere with making effective the credit policies now deemed appropriate? Are circumstances likely to arise in which gold would so
interfere?
3. In particular, is there danger that our large gold holdings may
interfere with a program of monetary control at some time when it is
deemed necessary to check monetary expansion:
4. What effect would follow if restrictions on the convertibility of
currency into gold coins or bullion at a fixed rate were removed?
What amount of gold coins or bullion would the public be likely to
absorb?
5. What would be the results of reintroducing gold certificates
into circulation?
6. Specifically, would private holding of gold and/or gold certificates
make monetary control more or less difficult?
7. Assuming that there is reason to expect the ultimate restoration
and indefinite retention of gold in the world's monetary systems,
which of the following methods of reducing the gold inflow into this
country would be most appropriate? (In evaluating them, consideration should be given both to the immediate and to the long-run
effects, on our international relations and trade, and on our domestic
economy and price levels.
(a) An embargo on gold imports; cessation of purchases by the
United States.
(1b) Reduction in the price the Treasury pays for gold.
(c) Buying only a certain amount of gold in the open market.
{d) Purchasing only gold that comes from certain countries.
(e) Requiring that foreign governments acquire a definite
agreed portion of their dollar needs through liquidation of their
holdings of American securities, rather than through gold
shipments.
(/) Reduction of our tariff schedules. On what category of
items and to what extent, if any?
(g) Extension of foreign loans. To whom and on what terms?
(h) Increasing the spread between the Treasury buying and
selling prices for gold.
(i) Segregating monetary gold from nonmonetary gold, and
acquiring only monetary gold.
(j) Exchange control.
(A:) Resumption by international agreement of (a) convertibility; (b) use of specie reserve against notes and deposits.




NATIONAL MONETARY AND BANKING POLICYJ5

C. Foreign exchange.
1. What are the advantages and disadvantages of fixed versus
fluctuating exchange rates with respect to:
(а) The volume of foreign trade;
(б) Exporters and importers;
(c) The "terms of trade";
(d) The tourist, shipping, and other service items in the
balance of payments;
(e) Capital movements and foreign investment;
(f) The stability of domestic economic activity and domestic
price levels ;
(g) Speculation in foreign exchange;
Ih) National control of monetary policy;
(i) International commercial relations?
2. What are the prerequisites of long-run stability of exchange
rates? Are these likely to be fulfilled?
3. What are the monetary consequences of:
(а) Exchange control;
(б) Clearing, compensation, and payment agreements;
(c) Barter agreements;
(d) Multivalued currencies;
(e) Export subsidies?
4. In view of the extensive and increasing use by foreign powers of
such devices as those listed in the preceding question, is there any
advantage in our maintaining stability in terms of gold? Any
disadvantage?
5. If fixed exchange rates are preferable, what lines of policy are
open to us to achieve this objective? If flexible rates are preferable,
should they be freely fluctuating, or flexible by international
agreement?
6. Should we actively take steps to establish a dollar bloc? What
role could the Inter-American Bank play in a dollar bloc?
7. What special measures should the administration take to promote
the foreign exchange stability of Latin-American countries? Appraise each of the following as an aid in achieving such stability:
(<z) Widening thefieldfor capital investments in Latin America;
(6) Debt settlements;
(c) Gold or currency loans;
(d) Commercial policy;
(e) Proposed Inter-American Bank.
8. What measures can we take, and should we prepare to take,
to protect ourselves against the possibility * of complete collapse of
the currencies of any of the belligerent countries in Europe or Asia
during or after the war?
9. Is there any danger of an era of intensified competitive currency
depreciation at the end of the war? If so, what should be done
about it?
10. When is a country justified in adopting and maintaining exchange controls? Is the abolition of exchange restrictions the
sine qua non of a higher level of world trade? Is it expected that
most countries will abandon exchange restrictions after the war?




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11. What consideration should be given to the possibility of gold
loans for the stabilization of world currencies when the war is over?
12. What is meant by equilibrium in discussions of exchange rates?
Is it possible to tell when a currency is too high or too low with
relation to other currencies, or when a country is indulging in competitive currency depreciation? Can overvaluation or undervaluation
of a currency be measured, and if so, how?
13. What are the consequences of overvaluation or undervaluation
of a currency upon:
(d) Our export trade;
(1b) Competition from imports;
(e) General level of prices;
(d) Agricultural prices;
(e) Employment in the United States;
(f) World distribution of gold;
(g) Monetary stability ;
. (h) Restrictions on international trade?
14. Has the dollar been too high or too low in terms of the leading
currencies in the last 6 years? Is it too high or too low now?
15. What are the best methods for correcting overvaluation or
undervaluation?
16. Under what conditions should the dollar be permitted to
appreciate or depreciate?
17. Should the present powers of our stabilization fund with relation
4to foreign exchanges be retained, modified, or abolished?
V. International Capital Movements.
1. How large are the holdings of foreign governments or central
banks of: (a) Dollar balances—both time and demand; (6) United
States Government obligations? Is there any significant difference
between these holdings and the holdings of foreign individuals and
private banks?
2. Why has capital come to this country in such large amounts
since 1935? To what extent has each of the following factors been
significant in the flow of capital to the United States?
(a) Safety.
(b) Higher interest rates.
(c) Prospective speculative exchange gains.
(d) Prospective capital gains on securities.
(e) Evasion of taxation in home countries.
(f) Increase in the price of gold from $20.67 to $35 an ounce.
(g) Better investment opportunities.
3. Is it expected that the inflow of capital will be maintained with
the continuation of the war? Will foreigners continue to purchase
our securities and accumulate dollar deposits? How much capital
has come to this country since the outbreak of war, and how much
is expected in 1940?
4. What is the effect of capital inflows on (a) bank reserves; (6)
interest rates; (c) exchange rates; (d) gold flows; (e) amount of capital
investment in the United States; ( / ) our security markets; (g) tax
revenues; (h) foreign capital markets; ^ fluctuations in business
activity; (J) national income?




NATIONAL MONETARY AND BANKING POLICYJ5

5. Under what conditions is it desirable to prevent or discourage
further inflows of foreign capital? Under what conditions would it
be desirable to control the outflow of capital already here?
6. Will free international movements of capital contribute to or
detract from the stability of foreign exchanges and the prospects of
world economic recovery?
I V . SUPERVISION

A. General.
1. What characteristics of the banking business justify or explain
the relatively greater amount of public supervision which is given to
it than to most other businesses?
2. What are the objectives of bank supervision? Do they include
any or all of the following:
(а) Promotion of business stability, through easing or tightening credit conditions as needed;
(б) Maintenance of competition between banks;
(c) Protection of banks against competition;
(<d) Prevention of usurious or oppressive tactics toward borrowers;
(e) Keeping local money at home;
(J) Maldng funds more readily available for particular groups
(e. g., agriculture, small business) or less available for other
groups (e. g., stock-market operation);
(#) Supporting the Government's fiscal program;
(A) Any other objectives?
3. Is any change of law with regard to objectives of supervision
desirable?
4. What effect, in your judgment, does bank supervision have
upon—
(а) The quantity and quality of the debt owed to commercial
banks;
(б) The total volume of debt in the country?
5. How does bank supervision affect the outstanding volume of
bank credit? In what way does supervision influence the expansion
or contraction of credit during the different phases of the business
cycle? If supervisory policy were to be so directed as to contribute
to the protection of the economy from the effects of undue expansion
or contraction of credit, how could this best be done? Would appropriate policy require a revision of supervisory standards during the
course of the cycle, or can standards be devised which will give the
desired results at every stage in the cycle?
_ 6. Describe the work cf a bank examiner. Does he simply engage
in fact finding, or does he also engage in corrective or advisory
activities?
7. Does the Federal Reserve System, through its supervisory activities, make any attempt to restrict speculative trading in securities on
the part of banks? If so, why? Is any revision of law in this
connection desirable?
8. Explain in detail the allocation of functions in bank supervision
and examination among the Board of Governors of the Federal Reserve
System, the respective Federal Reserve banks, and their examiners.
How is uniformity of practice achieved?




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9. Is there any evidence that bank examiners (under any supervisory
agency) have at any time since 1933 exercised a retarding influence
upon the development of recovery in this countiy?
10. Is it necessary for the Federal Reserve System to examine State
member banks, thus duplicating the examinations of the States?
11. Do you think that the bank-failure experience of the period
1921-33 was in any substantial measure due to inadequate principles
or practices of bank supervision? If not, to what do you ascribe that
unfavorable experience? If not, do you know any means whereby
such unfavorable experience can be avoided in the future? If so,
have the principles and practices been altered in a proper manner?
Do you have any suggestions as to needed changes of law which will
permit more adequate supervision?
12. What policies should a commercial bank be required to follow
in order to be able to meet abnormal demands for cash? Do you in
any way control the practice of the banks in this respect?
13. To what extent do you or your examiners give banks "advice"
with regard to policies or practices in the operation of a bank which
are not the subject of supervisory control enforced by legal sanctions?
Do you think that the giving of "advice" and the enforcement of requirements of law can properly be carried out simultaneously by the
same agency? Do bankers and examiners see a clear demarcation
between the two functions?
14. Do your standards of supervisory responsibility differ in any
respect as between large and small banks? Give details.
15. Are the principles, procedures, and practices which you require
banks to follow available to banks in the form of published rules and
regulations, or are they made known to banks on a case-by-case basis?
Which of the two methods do you consider the more satisfactory?
B. Asset Quality and Type.
1. What principles guide your policy with respect to the types and
quality of bank assets? Which of these principles are now embodied
in law? Should any of the principles now in law be revised; and should
any other additional principles be enacted into law?
2. Does the influence of bank examiners keep many banks from
making loans or investments they would otherwise be willing to make?
If so, what kinds of loans and investments?
3. What is the justification for the requirement that all securities
purchased by banks, members of the Federal Reserve System, must be
marketable? Would you favor any modification of the law in this
respect?
4. Would you favor altering the law to permit national banks to
invest in high-grade preferred stock? Why, or why not?
5. What use is made of the securities ratings of the recognized rating
agencies in your examination and supervision of banks? By what
means do you ascertain that the ratings are made in a manner appropriate to the use to which you put them?
6. Do many State member banks hold securities which they have
bought in violation of section 5136 of the United States Revised
Statutes? What steps do you take in such cases?
7. What steps do you take with respect to securities held by State
member banks which were eligible for investment when purchased but
which subsequently become ineligible?




NATIONAL MONETARY AND BANKING POLICYJ5

8. Do your examiners discourage (a) long-term loans as such?
(b) capital loans as such? (c) real-estate loans as such? 9. Which, if any, of the following do you consider as inappropriate
assets for purchase, either by banks having demand deposits in
substantial volume, or by banks having chiefly time and savings
deposits:
(а) Real estate mortgages:
(1) Farm?
(2) Urban, uninsured?
(3) Urban, insured by Federal Housing Administration?
(4) Limited to 3 or 5 years' duration?
(б) Loans to customers for working-capital purposes:
(1) Repayable over a period of 5 years; 10 years?
(2) Nominally repayable within 90 days but actually
repayable only by liquidating the business?
(c) Stock market call loans?
(id) Railroad and industrial bonds of corporations with good
credit standing?
(e) Bonds issued by local industries of good credit standing but
having only restricted market?
f/) Finance company paper secured by installment notes?
(g) Acceptance issued by high-grade institutions covering goods
in storage?
(h) Notes collateraled by warehouse receipts for commodities:
(1) Hedged?
(2) Unhedged?
10. Do you have authority or responsibility to exercise control over
policies of the banks with regard to any of the types of assets mentioned in the preceding question?
11. If any of the items listed in question 9 are deemed acceptable
for a restricted proportion of a bank's assets, indicate the criteria oi
a proper proportion.
12. Should banks be permitted to operate personal loan depart-,
ments making small loans on a high interest basis (for instance, 4 to
6 percent deducted in advance, on a monthly installment loan spread
over 1 year)?
13. What is the effect of the law that national banks may not hold
real estate which they have held for a period longer than 5 years
(U. S. Rev. Stat.^sec. 5137)? Is it practicable to enforce this? Do
you favor any revision?
15. What do you estimate to be the total amount of securities now
outstanding which are eligible for investment by member banks under
regulations issued pursuant to United States Revised Statutes, section
5136? What proportion of the total do you estimate to be held by
commercial banks?^
16. In determining upon supervisory standards with respect to
bank asset quality, how are the needs for bank safety and the credit
needs of business weighted or reconciled? What consideration do you
give to the undesirability of placing obstructions in the way of the
mvestment process?




NATIONAL MONETARY AND BANKING POLICYJ5

L7. What is the nature of each of the four classes in which loans
are placed by examiners? What is the purpose of the classification?
Do you require or influence banks to collect class II loans?
C. Valuation of Assets.
1. What principles should guide public policy with respect to the
valuation of bank assets? Which of these principles could and
should be enacted into law?
2* What new principles were established by the agreement between
Federal supervisory agencies of June 1938 ((published in Federal
Reserve Bulletin, July 1938, and in the Annual Report of the Federal
Deposit Insurance Coloration for 1938)? Wliat have been the
results?
3. In a discussion of the revision of bank-examination procedure
and of investment-securities regulation which was agreed upon in
June 1938, appearing in the Federal Reserve Bulletin (July 1938,
pp. 563-564), the following comments were made:
Under the new designations, the principle is clearly recognized that in making
loans, whether for working capital or fixed capital purposes, the banks should be
encouraged to place the emphasis upon intrinsic value rather than upon liquidity
or quick maturity.
Similarly, the revised examination procedure recognizes the principle that bank
investments should be considered in the light of inherent soundness rather than on
a basis of day-today market fluctuations.

In the light of experience since that time has the revised procedure
been effective in accomplishing the purposes indicated in this quotation? To what extent does examination and valuation procedure
differ from that which was prevalent before June 1938? . Has the
change been beneficial, and if so in what way?
4. If the capital and. required surplus of a bank are unimpaired
when its assets are valued in accordance with the agreement of June
1938, but are impaired when its securities are valued at current market
price, is the payment of dividends illegal, unsafe, or unsound?
5. What benefit or harm follows from requiring publication of bank
balance sheets? Would you favor any change in the current law on
this subject? Does any harm follow from requiring banks to make
public the amount of their borrowings?
6. Should banks be required to adjust their books to the examiner's
valuation of assets? If not, what control should be exercised over
the valuation of bank assets? If supervisors do not control the valuation of assets as set up on books of the banks, is it desirable that publication of bank statements be required? Is any revision or clarification
of law in this respect needed?
D. Capital.
1. What capital standards other than those specified by law do
you require or urge banks to meet? Are present minimum capital
requirements adequate? Should there be minimum capital ratio requirements? If so, what bases and ratios would be appropriate? Outline the procedure for putting your suggestion into effect.
2. Give your reaction to a proposal that supervisory authorities
be given power to require the retention of earnings by banks which
are found to have an madequate amount of capital.
3. Does the taxation of banks in accordance with the provisions of
section 5219 of the United States Revised Statutes keep , down the




NATIONAL MONETARY AND BANKING POLICYJ5

volume of bank capital? Do you favor any change in this section
of law?
4. Would retirement of all the stock of national banks now held
by the Reconstruction Finance Corporation be desirable?
E. Procedures and Sanctions.
1. List the sanctions which you may invoke in order to secure
compliance with your supervisory requirements. Indicate by what
specific or general legislative grant you exercise each sanction. Have
you found these sanctions effective? Indicate any additions to or
changes in your sanctions which you consider desirable.
2. What right of appeal do banks have from the requirements of
your examiners or other supervisory requirements?
3. Analyze in full the power of, and principles followed in, the
expulsion of a bank from the Federal Reserve System.
F. Granting of National Charters.
.1. Discuss the relative merits of granting charters to all banks
which meet minimum specific requirements fixed by law and agree
to operate in accordance with the laws and regulations applicable
to banks, as compared with the present system of case-by-case
decisions.
2. What standards guide you in determining whether each of the
following characteristics of a bank is such as to permit a bank to be
admitted to membership in the Federal Reserve System: (a) The
financial history and condition of the bank; (6) the adequacy of its
capital structure; (c) its future earnings prospects; (d) the general
character of its management; (e) the convenience and needs of the
community to be served by the bank? How do you determine
whether the standards enumerated in answer to this question are met
by an applicant bank?
3. Are there too many banks Or banking offices in your Federal
Reserve district? To what extent are there communities not adequately supplied with banking facilities? What method do you
suggest for determining the proper number of banking offices in a
given area?
V . LEGAL STATUS OF BANKS

A. National Charters.
1. Is it desirable to maintain the present dual (national and State)
system of chartering banks and/or bank supervision?
2. Are you inhibited from effectively supervising member banks by
the possibility that they may withdraw from the Reserve System?
How many cases are known in which a bank has withdrawn from the
System because of the relatively lax supervision anticipated under
State law?
3. What advantages or disadvantages would follow from requiring
all banks holding demand deposits, or all insured banks, to operate
under national charters and Federal supervision? Under State
charters and State supervision?
B. Membership in the Federal Reserve System.
1. Do you think any substantial economic disadvantages have
resulted (a) from the fact that a considerable number of banks have
not had full access to Federal Reserve credit facilities over the past




NATIONAL MONETARY AND BANKING POLICY

J

5

25 years; (6) from the fact that a considerable number of banks have
not been in the par collection system over the past 25 years; (e) from
the fact that a considerable number of banks have not been subject
to the Federal Reserve requirements for reserve against deposits?
2. Should all insured banks, or all banks which hold demand deposits, be required to be members of the Federal Reserve System
under present requirements for membership? Under some other requirements for membership? If the latter, what alterations in requirements do you suggest?
C. Deposit Insurance.
1. Should Federal deposit insurance be retained permanently in its
present form? Retained in a specified revised form? Abandoned if
certain specified conditions appear? Abandoned at once?
2. Is it desirable that insurance coverage be extended to deposits
up to $10,000? $25,000? $100,000? to all deposits? to all liabilities?
direct or contingent?
3. Do you lavor requiring all banks which hold demand deposits to
be insured? If so, why?
4.^ Please state your reaction and the reasons therefor to the contention that the existence of Federal deposit insurance tends to cause
bad banking.
5. If the Federal Deposit Insurance Corporation insured all the
liabilities of the insured banks, both direct and contingent, would the
Federal Reserve banks be more willing to make cash available to
banks in case of need than it is at present? If so, would bank failures
be rendered less likely?
V I . RELATIONS AMONG SUPERVISORY AGENCIES

1. Should the bank supervisory and bank examining functions of
the Federal Government be concentrated in the hands of a single
agency and a single integrated examining force?
2. Should all Federal bank supervisory law be unified and codified
and made to apply uniformly to all insured banks, or to all banks
holding demand deposits? Please submit a tentative uniform banksupervision code which you think should be applied to all insured
banks or all banks holding demand deposits and which you think
would give the best possible supervision,
V I I . B A N K EARNINGS

1. Are the earnings and profits of commercial banks of particular
public interest? If so, in what respects? If so, evaluate those
aspects of law and supervision which pertain thereto, indicating any
desirable alteration of law and regulations. Are earnings of commercial banks sufficient from the standpoint of the public interest?^
2. Should earnings statements submitted to the supervisory
authority be required to be published?
3. Can you visualize any possible developments which would render
inadvisable a continuation of the present prohibition of payment of
interest on demand deposits and limitation of interest on time deposits?
Please enumerate and discuss. What, in your opinion, are the chief
justifications for this particular form of price fixing?




NATIONAL MONETARY AND BANKING POLICYJ5
V I I I . B A N K ORGANIZATION AND STRUCTURE

1. Indicate in detail what, if any, changes you think should be made
in existing laws which affect the banking structure of the country,
that is, branch banking, unit banking, group and chain banking,
bank competition, concentration of banking power.
2. Give in detail your appraisal of the following: (1) Nation-wide
branch banking; (2) Federal Reserve district-wide branch banking;
(3) "trade area" branch banking; (4) prohibiting further extension of
branch banking; (5) breaking up existing branch banking; (6) prohibiting further extension of group and chain banking; (7) breaking
up existing groups and chains ; (8) prohibition of the concentration of
more than a given percentage of the bank deposits and offices of a
given area under common control.
IX.

D I R E C T LOANS OF R E S E R V E B A N K S TO INDUSTRY

1. What is the dollar volume of your outstanding direct loans to
business under section 13 (b) of the Federal Reserve Act? What is
the dollar volume of financial institution participation in such loans?
Carry this information back as time series (on an annual basis as of
December 31) to the beginning of such disbursements.
^ 2. What is the outstanding volume of your commitments to make
direct loans to business under section 13 (b)? Carry answer back
as time series (on an annual basis as of December 31) to the beginning
of such commitments.
3. What are your definitely known losses to date on direct loans
to business, and your estimated future losses? How does this compare with income from this source?
4. What proportion, by number and amount, of applications for
direct loans to industry have been rejected, by years, since the program
started? What are the principal reasons for such rejections?
5. To what extent do you stand ready to make loans under section
13 (b) which you would not consider proper or desirable for a member
bank?
6. Is there any significant difference between the loans made by
you under section 13 (b) and those made by the Reconstruction
Finance Corporation under section 5 (d) of the Reconstruction Finance
Corporation Act? Is there any advantage in having two agencies
offer a service as nearly alike as these? If not, which is the more
appropriate agency?
7. Does your experience with industrial loans under section 13 (b)
indicate that there is need for a continued or a greatly expanded
service, whether in the Federal Reserve banks or elsewhere, in the
making of direct loans to industry? Are there ways in which the
present service could be made more useful by appropriate legislation?
8. Does your experience with applications for industrial loans indicate that bank examiner criticism prevents banks from making loans
that would be desirable bank investments? If so, what types of
loans are most affected?




NATIONAL MONETARY AND BANKING POLICY
X.

J

5

MISCELLANEOUS

1. Even if no changes are to be made in the content of the Federal
banking law, should that law be rewritten and codified with a view
to clarity and unambiguity ? If so, indicate at what points the present
law is most in need of clarification, and submit a rough outline of such
clarification.
2. Do you have any suggestion for changes in the holding company
and affiliates provisions of law?
3. What benefit or harm arose from divorcing banks from securities
companies and prohibiting banks from doing a securities business?
4. Does the limitation of interest on time and savings deposits have
any effect on the total volume of such deposits?
5. In a report submitted to the Senate Select Committee to Investigate the Executive Agencies of the Government (75th Cong., 1st sess.,
S. Rept. 1275,1937, at pp. 198-203,213-223), certain recommendations
were made affecting the Federal Reserve System. Comment on the
advisability of carrying out such of these recommendations as are
still applicable.
6. What is the present role of inter-bank deposits? What advantages and disadvantages would follow^ from the prevention of all
inter-bank deposits, other than those with Reserve banks?







5. DEPARTMENT OF COMMERCE

1. What is the volume, character, and source of foreign capital in
the United States? Of American investments abroad? What
changes have taken place in the last two decades?
2. How large are the holdings of foreign governments or central
banks of: (a) Dollar balances—both time and demand; (b) United
States Government obligations? Is there any significant difference
between these holdings and the holdings of foreign individuals and
private banks?
3. Last year our balance of payments contained an item of 1.2 billion
dollars classified as *'residual." What proportion of the residual item
can be explained by unrecorded capital inflows?
4. What have been the principal factors underlying international
capital movements as reflected in the United States balance of international payments? How have these movements been related to
gold movements?
5. Why has capital come to this country in such large amounts since
1935? To what extent has each of the following factors been significant in the flow of capital to the United States?
(a) Safety;
(ib) Higher interest rates;
(c) Prospective speculative exchange gains;
(d) Prospective capital gains on securities;
(e) Evasion of taxation in home countries;
(J) Increase in the price of gold from $20.67 to $35 an ounce;
(g) Better investment opportunity.
6. From which countries have Americans repatriated their capital
from abroad in the last few years? What are the prospects that they
will continue to do so?
7. Is it expected that the inflow of capital will be maintained with
the continuation of the war? Will foreigners continue to purchase
our securities and accumulate dollar deposits? How much capital
has come to this country since the outbreak of the war, and how much
is expected in 1940?
8. What is the effect of capital inflows on: (a) Amount of capital
investment in the United States; (6) our security markets; (c) tax
revenues; (d) foreign capital markets; (e) fluctuations in business activity.
9. Under what conditions is it desirable to prevent or discourage
further inflows of foreign capital? Under what conditions would it
be desirable to control the outflow of capital already here?
10. What are the prospects of an outflow of capital from the United
States after the resumption of world peace? Will private capital seek
foreign investment after the resumption of peace?
llT Should foreign investment by Americans be subjected to greater
restrictions or should the restrictions which now exist be removed?




57




6. FEDERAL DEPOSIT INSURANCE CORPORATION
I.

ORGANIZATION:

RELATIONSHIP

TO O T H E R

AGENCIES

1. Should Federal deposit insurance be retained permanently in
substantially its present form, retained in a specified revised form;
abandoned in the near future, abandoned if certain specified conditions appear, or abandoned at once?
2. Assuming that deposit insurance is to be continued in substantially its present form, are the present form of organization and corporate powers of the Federal Deposit Insurance Corporation appropriate and adequate?
3. What advantage results from the provision that the Comptroller
of the Currency shall be a member of the Board of Directors of the
Corporation? Should the Board of Directors be enlarged to include
representatives of any other Federal agencies?
4. Would there be any economy or gain in efficiency in enlarging the
scope of the Corporation's work to include any other insurance
activities of the Federal Government?
5. Should the Federal Deposit Insurance Corporation be receiver
for all failed insured banks? What would be the advantage? How
important is this? In what manner does the Comptroller of the
Currency supervise your receivership of failed national banks? How
much undesirable duplication of effort is involved? Outline the
principles and practices whereby the Federal Deposit Insurance Corporation liquidates the assets of banks for which it is receiver and
assets which it has acquired or upon which it has made loans.
6. In a report submitted to the Senate Select Committee to Investigate the Executive Agencies o'f the Government (75th Cong., 1st sess.,
S. Rept. 1275,1937, at pp. 199-201 and 213-223) certain recommendations were made affecting the Federal Deposit Insurance Corporation.
Comment on the advisability of carrying out such of these recommendations as are still applicable.
II.

FEDERAL DEPOSIT

INSURANCE

1. Is it desirable that insurance coverage be extended to deposits
up to $10,000, $25,000, $100,000, to all deposits, all liabilities?
2. How does the Federal Deposit Insurance Corporation decide
whether to permit a distressed bank to fail or to assist it, by a loan
or purchase of assets, to merge with another bank?
3. Is the deposit insurance assessment adequate to build up reserves
to cover your estimate of future losses? If the present assessment is
inadequate, is it desirable to increase it?
4. Should the Government meet deposit-insurance losses if the
reserves and current assessments prove inadequate?
; ; 5. Do you favor any change in present law, regulation, or practice
•
governing the computation of the base upon which deposit-insurance
assessments are levied?
223191—40

5




59

NATIONAL MONETARY AND BANKING POLICYJ5

6. Please state your reaction to the contention that the existence
of Federal deposit insurance tends to cause bad banking.
I I I . SUPERVISION

A. General.
1. What characteristics of the banking business justify or explain
the relatively greater amount of public supervision which is given to
it than to most other businesses?
2. What are the objectives of bank supervision? Do they include
any or all of the following:
(a) Promotion of business stability, through easing or tightening credit conditions as needed;
(b) Maintenance of competition between banks;
(c) Protection of banks against competition;
(d) Prevention of usurious or oppressive tactics toward
borrowers;
(e) Keeping local money at home;
(/) Making funds more readily available for particular groups
(e. g., agriculture, small business) or less available for other
groups (e. g., stock market operation); and
(g) Facilitating the Government's fiscal operations?
3. Is any change of law with regard to objectives of supervision
desirable?
4. What effect in your judgment does bank supervision have upon—
(а) The quantity and quality of the debt owed to commercial banks; and
(б) The total volume of debt in the country?
5. How does bank supervision affect the outstanding volume of bank
credit? In what way does supervision influence the expansion or
contraction of credit during the different phases of the business
cycle? If supervisory policy were to be so directed as to contribute
to the protection of the economy from the effects of undue expansion
or contraction of credit, how could this best be done? Would appropriate policy require a revision of supervisory standards during the
course of the cycle, or can standards be devised which will give the desired results at every stage in the cycle?
6. To what extent does the Federal Deposit Insurance Corporation
have power to impose standards of bank operation?
7. Describe the work of a bank examiner. Does he simply engage
in fact finding, or does he also engage in corrective or advisory activities? What measures do you take to insure uniform application of
your supervisory standards by examiners?
8. Do your standards or practices of supervisory responsibility
differ in any respect as between large and small banks? Give details.
9. Enumerate the unsafe or unsound practices in w^hich you have
found any insured bank or its directors or trustees to have engaged
since the effective date of the Banking Act of 1933.
10. In how many cases have you found it necessary to give to the
appropriate supervisory agency a statement with respect to (a) unsafe
or unsound practices, (6) violation of law, for the purpose of securing
correction thereof?




NATIONAL MONETARY AND BANKING POLICYJ5

11. Do you think that the bank-failure experience of the period
1921-33 was in any substantial measure due to inadequate principles
or practices of bank supervision? If not, to what do you ascribe
that unfavorable experience? If not, do you know any means whereby
such unfavorable experience can be avoided in the future? If so,
have the principles and practices been altered in a proper manner?
Do you have any suggestions as to needed changes of law which
will permit more adequate supervision?
12. Does your office or its examiners make any attempt to restrict
speculative trading in securities on the part of banks? If so, why?
Is any revision of law in this connection desirable?
13. What policies should a commercial bank be required to follow in
order to be able to meet abnormal demands for cash? Do you in
any way control the practices of the banks in this respect?
14. Is there any evidence that bank examiners (under any supervisory agency) have at any time since 1933 exercised a retarding
influence upon the development of recovery in this country?
15. To what extent do you or your examiners give banks "advice"
with regard to policies or practices in the operation of a bank which
are not the subject of supervisory control enforced by legal sanctions?
Do you think that the giving of "advice" and the enforcement of
requirements of law can properly be carried out simultaneously by
the same agency? Do bankers and examiners see a clear demarcation
between the two functions?
16. Are the principles, procedures, and practices which you require
banks to follow available to banks in the form of published rides and
regulations, or are they made known to banks on a case by case basis?
Which of the two methods do you consider the more satisfactory?
Which would banks prefer?
B. Asset Quality and Type.
1. What principles guide your policy with respect to the types and
quality of bank assets? Which of these principles are now embodied
in law? Should any of the principles now in law be revised; and
should any other additional principles be enacted into law?
2. Does the influence of bank examiners keep many banks from
making loans or investments they would otherwise be willing to
make? If so, what kinds of loans and investments?
3. What is the justification for the requirement that all securities
purchased by banks, members of the Federal Reserve System, must
be marketable? Would you favor any modification of the law in this
respect?
4. Would you favor permitting commercial banks to invest in
high-grade preferred stock? Why, or why not?
5. What, if any, merit do you see in the proposal that certain
assets be segregated in savings departments to offset time and savings
deposits?
6. What use is made of the securities ratings of the recognized
rating agencies in your examination and supervision of banks? By
what means do you ascertain that the ratings are made in a manner
appropriate to tiie use to which you put them?
7. Which, if any, of the following do you consider as inappropriate
assets for purchase, either by banks having demand deposits in




NATIONAL MONETARY AND BANKING POLICYJ5

substantial volume, or by banks having chiefly time and savings
deposits:
(a) Real-estate mortgages:
(1) Farm;
(2) Urban, uninsured;
(3) Urban, insured by F. H. A.;
(4) Limited to 3 or 5 years' duration?
(b) Loans to customers for working-capital purposes:
(1) Repayable over a period of 5 years; 10 years?
(2) Nominally repayable within 90 days but actually
repayable only by liquidating the business?
(c) Stock market call loans?
(d) Railroad and industrial bonds of corporations with good
credit standing?
(e) Bonds issued by local industries of good credit standing
but having only restricted market?
(f) Finance company paper secured by installment notes?
\g) Acceptances issued by high-grade institutions covering
goods in storage?
(A) Notes collateraled by warehouse receipts for commodities:
(1) Hedged;
(2) Unhedged?
8. Does an examiner have authority or responsibility to exercise
control over policies of the banks with regard to any of the types of
assets mentioned in the preceding question?
9. If any of the items listed in question 7 are deemed acceptable
for a restricted proportion of a bank's assets, indicate the criterion
of a proper proportion.
*
10. Can and does the Federal Deposit Insurance Corporation control minimum quality of bond purchases of insured banks? Are
there any regulations?
11. Should banks be permitted to operate personal-loan departments making small loans on a high interest basis (for instance, 4 to
6 percent deducted in advance, on a monthly installment loan spread
over 1 year)?
12. What is the policy with respect to the holding or disposition
of real estate other than bank premises acquired by a bank in settlement of a debt previously contracted?
13. What do you estimate to be the total amount of securities now
outstanding which are eligible for investment by member banks
under regulations issued pursuant to United States Revised Statutes
5136? What proportion of the total do you estimate to be held by
commercial banks?
14. In determining upon supervisory standards with respect to
bank asset quality, how are the needs for bank safety and the credit
needs of business weighted or reconciled? What consideration do you
give to the undesirability of placing obstructions in the way of the
investment process?
15. What is the nature of $ach of the four classes in which loans
are placed by examiners? What is the purpose of the classification?
Do you require or influence banks to collect class II loans?




NATIONAL MONETARY AND BANKING POLICYJ5

16. Is there a danger that bank supervision in the hands of the
Federal Deposit Insurance Corporation will be so stringent, so designed to reduce to the absolute minimum the losses to that Corporation, that the restrictions on bank credit extension will unduly
hamper business enterprise?
C. Valuation of Assets.
1. What principles should guide public policy with respect to the
valuation of bank assets? Which of these principles or evidences
could and should be enacted into law?
2. What new principles were established by the agreement between
Federal supervisory agencies of June 1938 (published in the Annual
Report of the Federal Deposit Insurance Corporation for 1938)?
What have been the results?
3. In a discussion of the revision of bank examination procedure
and of investment securities regulation which was agreed upon in
June 1938, appearing in the Federal Reserve Bulletin (July 1938, pp.
563-564), the following comments were made:
Under the new designations, the principle is clearly recognized that in making
loans, whether for working capital or fixed capital purposes, the banks should be
encouraged to place the emphasis upon intrinsic value rather than upon liquidity
or quick maturity.
Similarly, the revised examination procedure recognizes the principle that bank
investments should be considered in the light of inherent soundness rather than
on a basis of day-to-day market fluctuations.

In the light of experience since that time has the revised procedure
been effective in accomplishing the purposes indicated in this quotation? To what extent does examination and valuation procedure
differ from that which was prevalent before June 1938? Has the
change been beneficial and if so in what way?
4. If the capital and required surplus of a bank are unimpaired
when its assets are valued in accordance with the agreement of June
1938, but are impaired when its securities are valued at current market
price, is the payment of dividends illegal, unsafe, or unsound?
5. What benefit or harm follows from requiring publication of bank
balance sheets? Would you favor any change in the current law on
this subject? Does any harm follow from requiring banks to make
public the amount of their borrowings?
6. Does the law as now interpreted authorize you to require banks
to adjust their books to the examiner's valuation of assets? If not,
what control, if any, is exercised over the valuation of bank assets?
If you do not control the valuation of assets as set up on books of the
banks, is it desirable to continue requiring the publication of bank
statements? Is any revision or clarification of law in this respect
needed?
D. Capital.
1. Can and does the Federal Deposit Insurance Corporation control
the capital ratios of insured banks? Are there any regulations on this
subject? What principles should guide public policy with respect to
the capital of banks? Which of these principles should be enacted
into law? Should there be capital-ratio requirements? If so, what
bases and ratios would be appropriate? Outline the procedure for
putting your suggestion into effect.




NATIONAL MONETARY AND BANKING POLICYJ5

2. Give your reaction to a proposal that supervisory authorities
be given power to require the retention of earnings by banks which
are found by their supervisory authority to have an inadequate
amount of capital.
3. Does the taxation of banks in accordance with the provisions
of section 5219 of the United States Revised Statutes keep down the
volume of bank capital? Do you favor any change in this section
of law?
E. Procedures and Sanctions.
1. List the sanctions which you may invoke in order to secure compliance with your supervisory requirements. Indicate by what
specific or general legislative grant you exercise each sanction. Have
you found these sanctions effective? Indicate any additions to or
changes in your sanctions which you consider desirable.
2. What right of appeal do banks have from the requirements of
your examiners or other supervisory requirements?
3. Analyze in full the power of, and principles followed in terminating the insurance of an insured bank. Of influencing the closing
of a bank.
F. Admission to Insurance.
1. Discuss the relative merits of admitting to insurance all banks
which meet minimum specific requirements fixed by law and agree to
operate in accordance with the laws and regulations applicable to
insured banks, as compared with the present system of case-by-case
decisions.
2. What standards guide you in determining whether each of the
following characteristics of a bank is such as to permit a bank to be
admitted to insurance: (a) The financial history and condition of the
bank; (6) the adequacy of its capital structure; (c) its future earnings
prospects; (d) the general character of its management; (e) the convenience and needs of the community to be served by the bank?
How do you determine whether the standards enumerated in answer
to this question are met?
3. Are there too many banks or banking offices in the United States?
To what extent are there communities not adequately supplied with
banking facilities? What method do you suggest for determining the
proper number of banking offices in a given area?
I V . LEGAL STATUS OF BANKS

1. Are there any advantages in maintaining the present dual system
of commercial banking and bank supervision (Federal and State)?
2. Are you inhibited from effectively supervising banks by the possibility that they may withdraw from the insurance system and continue operations under State charters? In how many cases has a
bank withdrawn from the insurance system?
3. What advantages or disadvantages would follow from requiring
all banks holding demand deposits, or all insured banks, to operate
under National charters and Federal supervision? Under State
charters and State supervision?
4. Do you think any substantial economic disadvantages have resulted (a) from the fact that a considerable number of banks have not
had full access to Federal Reserve credit facilities over the past




NATIONAL MONETARY AND BANKING POLICY

J

5

25 years; (6) from the fact that a considerable number of banks have
not been in the par collection system over the past 25 years? (c) from
the fact that a considerable number of banks have not been subject
to the Federal Reserve requirements for reserve against deposits?
5. Should all insured banks be required to be members of the Federal Reserve System under present requirements for membership?
Under some other requirements for membership? If the latter, what
alterations in requirements do you suggest?
6. Do you favor requiring all banks which hold demand deposits to
be insured? Why?
7. Is it better from the general monetary and economic standpoint
for a bank with $15,000 capital to be uninsured than to carry on banking operations on an insured basis?
8. As measured both by number of banks and by volume of deposits,
to what extent are the noninsured commercial banks in that condition
by choice and to what extent by necessity?
V . RELATIONS AMONG SUPERVISORY AGENCIES

1. Should the bank supervisory and bank examining functions of the
Federal Government be concentrated in the hands of a single agency
and a single integrated examining force?
2. Should all Federal bank supervisory law be unified and codified
and made to apply uniformly to all insured banks, or to all banks
holding demand deposits? Please s'ubmit a tentative uniform bank
supervision code which you think should be applied to all insured banks
or all banks holding demand deposits and which you think would give
the best possible supervision.
3. In what manner does the Comptroller of the Currency supervise
the receiverships of national banks in which the Federal Deposit
Insurance Corporation is the receiver? Is undesirable duplication of
effort involved? Do you favor any alteration of the law in this
respect?
4. Do you review bank examinations made by the national bank
examiners and by examiners of the Federal Reserve System? What is
the nature of this review? What is its purpose? Does it not involve
an unwarranted duplication of activities? Do you review the examinations of insured banks made by the State supervisors?
V I . B A N K EARNINGS AND INTEREST PAYMENTS

1. Are the earnings and profits of commercial banks of particular
public interest? If so, in what respects? If so, evaluate those
aspects of law and supervision which pertain thereto, indicating any
desirable alteration of law and regulations. Are earnings of commercial banks sufficient from the standpoint of the public interest?
2. Should earnings statements submitted to the supervisory
authority be required to be published?
3. How do you determine what maximum interest rate to permit to
be paid on time and savings deposits?
4. Do you think your power to control interest paid on time
deposits should be a permanent or temporary power? What is the
justification for this particular kind of price fixing? Do you think
you should also have power to control interest rates charged by
banks?




NATIONAL MONETARY AND BANKING POLICYJ5

5. Does the question of bank service charges need legislation or
governmental regulation? Is it in the public interest to promote or
discourage competition among banks in such charges?
6. Does the limitation of interest on time and savings deposits have
any effect on the total volume of such deposits?
7. Do you visualize any possible developments which would render
inadvisable a continuation of the present prohibition of payment of
interest on demand deposits? Please enumerate and discuss. What,
in your opinion, are the chief justifications for this regulation?
V I I . B A N K ORGANIZATION AND STRUCTURE

1. Indicate in detail what, if any, changes you think should be made
in existing laws which affect the banking structure of the country;
that is, branch banking, unit banking, group and chain banking, bank
competition, concentration of banking power.
2. Give in detail your appraisal of the following: (1) Nation-wide
branch banking; (2) Federal Reserve district-wide branch banking;
(3) "trade area" branch banking; (4) prohibiting further extension of
branch banking; (5) breaking up existing branch banking; (6) prohibiting further extension of group and chain banking; (7) breaking
up existing groups and chains; (8) prohibition of the concentration of
more than a given percentage of the bank deposits and offices of a given
area under common control.
VIII.

MISCELLANEOUS

1. Even if no changes are to be made in the content of the Federal
banking law, should that law be rewritten and codified with a view to
clarity and unambiguity? If so, indicate at what points the present
law is most in need of clarification, and submit a rough outline of such
codification.
2. Do you have any suggestion for changes in the holding-company
and affiliates provisions of law?
3. Should officers or directors removed under section 30 of the
Banking Act of 1933 be prohibited from ever again engaging in the
operation of insured banks?
4. Should there be provided some effective remedy against unsound
control when exercised by stockholders rather than by officers and
directors?
5. Does the experience of your corporation indicate that the abandonment of double liability was wise?
6. What benefit or harm arose from divorcing banks from securities
companies and prohibiting banks from doing a securities business?




7. RECONSTRUCTION FINANCE CORPORATION

1. What is the dollar volume currently outstanding of loans on and
purchases of preferred stock and capital notes and debentures of open
commercial banks? Give distribution between National, State
member, and nonmember banks.
2. What are your definitely known losses to date on these investments? What are your estimated losses?
3. Wliat is the number and dollar amount of the cases in which
the retirable value of Reconstruction Finance Corporation investment
in bank stock or capital notes originally exceeded book value? Describe the experience with these cases, the present status, and the
future prospects.
4. In general, what degree of supervision do you exercise over banks
in which you have holdings of preferred stock?
5. In how many banks have you formally taken a hand in management? In how many banks have you informally taken a hand in
management? What has been the nature of such participations in
management?
6. Describe in full the present provisions for retirement of this
preferred stock, including a discussion of the differential dividend
requirements.
7. What criteria are applied in determining whether a bank shall
be permitted to retire preferred stock owned by you? In making a
decision on this point, how much cooperation exists between your
office and the bank supervisory agency or agencies having supervision
of such banks? Does the responsibility of deciding whether a bank
shall be permitted to retire preferred stock rest primarily with you or
with the supervisory agency or agencies?
8. Do you favor any revision of current programs and practices
in retirement of preferred bank stock held by the Reconstruction
Finance Corporation?
9. What should be the permanent policy of the Federal Government
in respect to continuation of the power of the Reconstruction Finance
Corporation to invest in preferred stock of banks?
10. What is the dollar volume of your outstanding direct loans to
business under section 5 (d) of the Reconstruction Finance Corporation Act? Carry this answer back as time series to the beginning
of such disbursements.
11. What volume of bank loans are currently outstanding in which
you participated at the time the loan was disbursed? ^ What is the
present volume of these loans not covered by the participations?
(a) Carry these back as time series to the beginning of such
participations.
12. What is the dollar volume of currently outstanding bank loans
in which you have a deferred participation? What is the volume of
your commitments on these loans? What part of these commitments
has been disbursed? Carry these items back as time series to the
beginning of such participations.




67

NATIONAL MONETARY AND BANKING POLICYJ5

13. What are your definitely known losses to date on direct loans
to business, and your estimated future losses? How does this compare
with income from this source?
14. What are your definitely known losses to date on deferred participations in bank loans to business, and your estimated future losses?
How does this compare with income from this source?
15. What proportion, by number and amount, of applications for
direct loans to industry have been rejected, by years, since the program started? What are the principal reasons for such rejections?
16. To what extent do you stand ready to make loans under section
5 (d) of the Reconstruction Finance Corporation Act which you would
not consider proper or desirable for a commercial bank in which you
hold preferred stock?
17. Is there any significant difference between the loans made by
you under section 5 (d) of the Reconstruction Finance Corporation
Act and those made by the Federal Reserve banks under section 13 (b)
of the Federal Reserve Act? Is there any advantage in having two
agencies offer a service as nearly alike as these? If not, which is the
more appropriate agency?
18. Does your experience with industrial loans under section 5 (d)
indicate that there is need for a continued or a greatly expanded
service, whether in the Reconstruction Finance Corporation or elsewhere, in the making of direct loans to industry? Are there ways in
which the present service could be made more useful by appropriate
legislation?
19. What is the volume of currently outstanding Reconstruction
Finance Corporation loans to closed banks? To open banks? Carry
both series back at quarterly intervals to their origin. Do you favor
a continuation of the powers to make these loans? Explain.
20. What was the original purpose of the provision for loans to
closed banks? Under what circumstances are loans now made to
closed banks? In view of the existence of a system of insurance of
bank deposits and in view of the F. D. I. C. having power to make
loans to closed banks, is it necessary or desirable that provision be
made for further loans to closed banks by you?
21. What has been the loss and net income experience of the two
types of loans mentioned in question 19?
22. Does your experience with applications for industrial loans indicate that bank-examiner criticism prevents banks from making loans
that would be desirable bank investments? If so, what types of loans
are most affected?
23. Does the Reconstruction Finance Corporation have power
under section 5 (d) to purchase securities or make loans which are
not secured? Does the Reconstruction Finance Corporation make
such loans?
24. In a report submitted to the Senate Select Committee to Investigate the Executive Agencies of the Government (75th Cong.,
1st sess., S. Rept. 1275, 1937, at pp. 199-203), certain recommendations were made affecting the Reconstruction Finance Corporation.
Comment on the advisability of cariying out such of these recommendations as are still applicable.




8. S T A T E
I.

BANK

SUPERVISORS

SUPERVISION—GENERAL

1. Describe the work of a bank examiner in your State. Does he
simply engage in fact finding or does he also during his examination
engage in direct corrective activities?
2. To what extent do the Federal Deposit Insurance Corporation
and the Federal Reserve System have power to impose standards on
State banks which are not imposed by State law or regulation? For
example, can they prevent banks from purchasing preferred stock in
States in which such purchases are legal?
3. Do you think that the bank-failure experience of your State for
the period 1921-33 was in any substantial measure due to inadequate
principles or practices of bank supervision? If not, to what do you
ascribe that unfavorable experience? If not, do you know any means
whereby such unfavorable experience can be avoided in the future?
If so, have the principles and practices been altered in the proper
manner? Please detail. If so, do you have any suggestions as to
needed changes of law which will permit more adequate supervision?
4. Do you or your examiners make any attempt to restrict speculative trading in securities on the part of banks? If so, why?
5. What policy if any do you think a commercial bank should
follow in order to be able to meet abnormal demands for cash? Do
you in any way influence the policy of commercial banks in this
respect?
6. Should a bank supervisor have power to proscribe any and all
banking practices which he may deem unsafe or unsound or should
he simply have power to enforce the proscriptions of law; what is
the case m this respect in your State? Should a bank supervisor have
power to remove officers and directors for any and all continued
violations of law? Do you have such power under the laws of your
State?
7. What public benefit derives from your supervision of commercial
banks? Has the prime purpose of your supervision changed since
1933?
8. To what extent do you or your examiners give banks "advice"
with regard to policies or practices in the operation of a bank which
are not the subject of supervisory control enforced by legal sanctions?
Do you think that the giving of "advice" and the enforcement of
requirements of law can properly be carried out simultaneously by
the same agency? Do the bankers and examiners see a clear demarcation between the two functions?
9. Are the principles, procedures, and practices which you require
banks to follow available to banks in the form of published rules and
regulations, or are they made known to banks on a case-by-case basis?
Which of the two methods would banks prefer?




69

NATIONAL MONETARY AND BANKING POLICYJ5
I I . ASSET QUALITY AND T Y P E

1. Does the influence of bank examiners keep many banks from
making loans or investments they would otherwise be willing to make?
If so, what kinds of loans and investments are thus forestalled?
2. What use is made of the securities ratings of the recognized
rating agencies in your examination and supervision of banks? What
alternative criteria may be suggested?
3. What is your policy with respect to the holding or disposition of
real estate acquired by a bank in settlement of a debt previously contracted?
4. Do your examiners in the line of duty discriminate against
(a) long-term loans as such; (6) capital loans as such; (c) real-estate
loans as such?
5. Do you favor allowing commercial banks to invest in high-grade
preferred stock? Why or why not?
I I I . A S S E T VALUATION

1. What was the purpose of the supervisory agreement of June
1938? For what purposes, if any, do you use any valuation principles
in the supervision of banks other than the principles contained in that
agreement?
2. Do you require commercial banks to adjust their books to the
examiner's valuation of assets? If not, what control do you exercise
over the values as presented in a banker's books? If you do not
control this bookkeeping, what virtue is there in requiring the publication of bank statements?
3. What benefit or harm follows from requiring publication of bank
balance sheets? Would you favor any change in the current law on
this subject? Does any harm follow from requiring banks to make
public the amount of their borrowings?
IV.

CAPITAL

1. What principles should guide public policy with respect to the
capital of banks? Which of these principles should be enacted into
law? Should there be capital ratio requirements? If so, what bases
and ratios would be appropriate? Outline the procedure for putting
your suggestion into effect.
2. Does the taxation of banks keep down the volume of bank capital?
If so, what suggestions do you have for changing the situation?
V . PROCEDURES AND SANCTIONS

1. List the sanctions which you may invoke in order to secure compliance with your supervisory requirements. Indicate by what specific
or general legislative grant you exercise each sanction. Have you
found these sanctions effective?
2. What right of appeal do banks have from your requirements or
those of your examiners?
3. Set forth your views with respect to the relative merits of granting
charters to all banks which meet minimum specific requirements
fixed by law and agree to operate in accordance with all laws and




NATIONAL MONETARY AND BANKING POLICYJ5

regulations applicable to commercial banks as compared with the
present system of case-by-case decisions with respect to charters.
4. By what standards do you determine whether to grant or withhold your approval of a proposed consolidation of two or more commercial banks?
V I . LEGAL STATUS OF BANKS

1. Do you favor requiring all banks which hold demand deposits to
be insured?
2. Should Federal deposit insurance be retained permanently in
substantially its present form, retained in a specified revised form,
abandoned if certain specified conditions appear, or abandoned at
once?
3. Is it desirable that insurance coverage be extended to deposits
up to $10,000, $25,000, $100,000, to all deposits, to all liabilities?
- 5. Is the present assessment on insured banks adequate to build up
reserves to cover future losses? If the present assessment is inadequate, is it desirable to increase it?
6. Are you inhibited from effectively supervising State banks by
the possibility that they may withdraw from the State system and
continue operations under national charters? How many known cases
are there in your State in which a bank has withdrawn from the State
system because of the relatively lax supervision anticipated under
Federal law?
7. What advantages or disadvantages would follow from requiring
all banks holding demand deposits, or all insured banks, to operate
under national charters and Federal supervision? Under State
charters and State supervision?
8. Should all insured banks or all banks holding demand deposits
be required to be members of the Federal Reserve System under
present requirements for membership? Under some other requirements for membership? If the latter, what alterations in requirements do you suggest?
9. Should banks which meet the standards set by their respective
State laws be given access to Federal Reserve credit even though they
do not meet the standards now required for membership in the
Reserve System?
10. Are there any advantages in maintaining the present dual
system of commercial banking and bank supervision (Federal and
State)?
10. Please state your reaction and the reasons therefor to the contention that the existence of Federal deposit insurance tends to cause
bad banking.
11. In what respects is it your observation that the supervision
and examination of state member banks in your state by the Federal
Reserve System differs from the supervision and examination of nonmember insured banks by the Federal Deposit Insurance Corporation?
12. In what respects i o you consider the banking law and regulations applicable to state banks in your state to be either more liberal
or less liberal than the National Banldng Act?
13. What considerations, in general, lead bank managements in
your State to prefer State charters to national, or national charters
to State?




NATIONAL MONETARY AND BANKING POLICYJ5
V I I . RELATIONS AMONG SUPERVISORY

AGENCIES

1. Should the bank-supervisory and bank-examining functions of
the Federal Government relating to State banks be concentrated in
the hands of a single agency and a single integrated examining force?
2. Should all Federal bank supervisory law be unified and codified
and made to apply uniformly (a) to all insured banks, or (b) to all
banks holding demand deposits?
3. What case can be made for or against the examination and supervision by the Federal Reserve System and the Federal Deposit Insurance Corporation of banks supervised by you? Would you favor
elimination of either the examining activities of these Federal agencies
or your own examining activities?
4. Is there a danger that bank supervision in the hands of the
Federal Deposit Insurance Corporation will be so stringent, because
designed to reduce to the absolute minimum the losses to that corporation, that the restrictions on bank-credit extension will unduly
hamper business enterprise?
VIII.

B A N K ORGANIZATION AND STRUCTURE

1. What, if any, merit do you see in the proposal that certain assets
be segregated in savings departments to offset time and savings
deposits?
2. Indicate in detail what, if any, changes you think should be made
in existing laws which affect the banking structure of the country.
That is, branch banking, group and chain banking, bank competition,
concentration of banking power.
3. Give in detail your appraisal of the following: (1) Nation-wide
banking; (2) Federal Reserve district-wide branch banking; (3) tradearea branch banking; (4) prohibition of further extension of branch
banking; (5) dissolution of existing branch banking; (6) prohibition of
further extension of group and chain banking; (7) dissolution of existing groups and chains; (8) prohibition of the concentration of more
than a given percentage of the bank deposits and offices of a given area
under common control.
4. Are there too many banks or banking offices in your state? To
what extent are there communities not adequately supplied with
banking facilities? What method do you suggest for determining the
proper number of banking offices in a given area?
IX.

MISCELLANEOUS

1. Is there any considerable chance of a decline in bond prices and
concomitant necessity for banks in your state to sell bonds with resulting enormous losses to the banks and bank failures? Explain.
2. Do you think that bankers and bank examiners in your state have
been unduly prejudiced against bank borrowings? What do you think
could and should be done to reduce this prejudice?
3. To what extent have bank failures since 1921 been due to the
adverse conditions of the agricultural community?
4. Have many agricultural communities in your State been left
with inadequate banking facilities in consequence of the large number
of bank failures?




NATIONAL MONETARY AND BANKING POLICY

J

5

5. Have banks been inclined to pursue a more cautious policy of
extending credit to the agricultural community in consequence of the
bank failures through 1933? If so, has this been an important factor
in the agricultural depression?
6. Do the Reserve eligibility regulations tend to restrict the credit
facilities open to the agricultural community? If so, are changes of
law or regulation appropriate?
7. To what extent does the present practice of keeping country bank
balances with city bank correspondents increase the cost of borrowing in rural areas?
8. To what extent has the relative increase of bank investments and
loans on securities made it more difficult for the agricultural community to obtain bank credit?







9. A M E R I C A N

BANKERS

ASSOCIATION

OF RESERVE CITY
I . DEPOSIT

AND

ASSOCIATION

BANKERS

INSURANCE

1. Should Federal deposit insurance be retained permanently in
substantially its present form? retained in a specified revised form?
abandoned if certain specified conditions appear? or abandoned at
once?
2. Is it desirable that the insurance coverage be increased to deposits
up to $10,000? $25,000? $100,000? to all deposits? to all liabilities?
3. Should the Government meet deposit insurance losses if the
reserves and current assessments of the Federal Deposit Insurance
Corporation prove inadequate?
4. Should the Federal Deposit Insurance Corporation be receiver
for all failed insured banks? What would be the advantages? How
important is this? How much undesirable duplication of effort do
you think is involved by the Comptroller of the Currency supervising
the Federal Deposit Insurance Corporation's receivership of failed
national banks? Outline the purposes and practices you think should
apply in the liquidation of assets of banks in receivership and of assets
which the Federal Deposit Insurance Corporation has acquired or
upon which it has made loans.
5. Please state your reaction and the reasons therefor to the contention that the existence of Federal deposit insurance tends to cause
bad banking.
6. Do you favor any change in present law or regulation governing
the computation of the base upon which deposit insurance assessments are levied?
7. If the deposit insurance assessment is not adequate to build up
reserves to cover probable future losses should the assessment be
increased?
II.

SUPERVISION

A. General.
1. What characteristics of the banking business justify or explain
the relatively greater amount of public supervision which is given to
it than to most other businesses?
2. How does bank supervision affect the outstanding volume of
bank credit? In what way does supervision influence the expansion
or contraction of credit during the different phases of the business
cycle? If supervisory policy were to be so directed as to contribute
to the protection of the economy from the effects of undue expansion
or contraction of credit, how could this best be done? Would appror
priate policy require a revision of supervisory standards during the
course of the cycle or can standards be devised which will give the
desired results at every stage in the cycle? Appraise the influence
of present supervisory standards upon credit conditions now and under
other cyclical conditions.
3». Do you think that the bank failure experience of the period
1921-33 was in any substantial measure due to inadequate principles
223X91—40

6




75

NATIONAL MONETARY AND BANKING POLICYJ5

or practices of bank supervision? If not, to what do you ascribe that
unfavorable experience? If not, do you know any means whereby
such unfavorable experience can be avoided in the future? If so, have
the principles and practices been altered in a proper manner? Please
detail. If so, do you have any suggestions as to needed changes of
law which will permit more adequate supervision?
4. To what extent do bank supervisors and examiners give banks
"advice" with regard to policies or practices in the operation of a bank
which are not the subject of supervisory control enforced by legal
sanctions? Do you think that the giving of "advice" and the enforcer
ment of requirements of law can properly be carried out simultaneously
by the same agency? What evidence do you have that the bankers
and examiners see a clear demarcation between the two functions?
5. Submit any arguments or evidence which create a presumption
that bank examiners have or have not at any time since 1933 exercised
a socially undesirable influence upon the development of recovery in
this country.
6. What policy, if any, do you think a commercial bank should
follow in order to be able to meet abnormal demands for cash? Do
supervisors and examiners in any way influence the policy of banks in
this respect?
7. Do supervisors and examiners make any attempt to limit the
speculative activities of banks? If so, is this desirable? Would you
suggest any revision of law or policies in this connection?
B. Asset Quality and Type.
1. Does the influence of bank examiners keep many banks from
making loans or investments they would otherwise be willing to make?
If so, what kinds of loans and investments are thus forestalled?
2. What is your opinion of current methods whereby the supervisors exercise control over the credit quality of bonds purchased and
held by banks? Particularly what is your opinion of any use made by
them in this connection of any recognized rating agencies? What is
your opinion of any requirements which they make concerning the
marketability of securities purchased and held?
3. What is your opinion of current methods whereby the supervisory
authorities exercise control over the credit quality of loans made by
banks? Do examiners discriminate against (a) long term loans as such;
(6) capital loans as such; (c) real estate loans as such?
4. What determines the relative amounts of various types of assets
held by commercial banks? Should Federal law and supervisoiy
policy be altered in any manner with a view to affecting the
distribution?
5. Should commercial banks be permitted by law to invest in highgrade preferred stock? Why or why not?
6. Which, if any, of the following do you consider as inappropriate
assets for purchase (a) by banks having demand deposits in substantial
volume, (6) by banks having chiefly time and savings deposits:
(a) Real-estate mortgages:
(1) Farm?
(2) Urban, uninsured?
(3) Urban, insured by Federal Housing Administration?
(4) limited to 3 or 5 years' duration?




NATIONAL MONETARY AND BANKING POLICY

J

5

(ib) Loans to customers for working capital purposes:
(1) Repayable over a period of 5 years; 10 years?
(2) Nominally repayable within 90 days but actually
repayable only by liquidating the business?
(c) Stock-market call loans?
(d) Railroad and industrial bonds of corporations with good
credit standing?
(e) Bonds issued by local industries of good credit standing but
naving only restricted market?
(J) Finance company paper secured by installment notes?
(g) Acceptances issued by high-grade institutions covering
goods in storage?
(h) Notes collateraled by warehouse receipts for commodities;
(1) Hedged?
(2) Unhedged?
7. If any of the items listed in the preceding question are deemed
acceptable for a restricted proportion of a bank's assets, indicate the
criteria of a proper proportion.
8. Should banks be permitted to operate personal-loan departments
making small loans on a high interest basis (for instance, 4 to 6
percent deducted in advance, on a monthly installment loan spread
over 1 year)?
C. Valuation of Assets.
1. What are the purposes served by the valuation of bank assets
by supervisors and examiners?
2. For purposes of bank supervision and examination what principles should guide public policy with respect to the valuation of bank
assets? For these purposes what are appropriate evidences of the
value of bank assets? Which of these principles or evidences can
and should be law? How do and should these principles manifest
themselves in practical application?
3. Should commercial banks be required by law or practice to
charge off their books all losses as determined by bank examiners and
supervisors?
4. What benefit or harm follows from requiring publication of bank
balance sheets? Would you favor any change in the current law on
this subject? Can any harm follow from requiring banks to make
public the amount of their borrowings?
D. Capital,
1. What principles should guide public policy with respect to the
capital of banks? Which of these principles should be enacted into
law? What is your opinion of minimum capital ratio requirements?
What are the respective merits of various capital ratio bases? What
is a proper minimum ratio? Outline the procedure for putting your
suggestion into effect.
2. Are the capital ratios of commercial banks currently controlled
by the supervisory authorities? If so, explain the nature and extent
of this control.
3. Give your reaction to a proposal that supervisory authorities
be given the power to require the retention of earnings by banks which




NATIONAL MONETARY AND BANKING POLICYJ5

are found by their supervisory authority to have an inadequate
amount of capital.
4. Does the taxation of banks in accordance with the provisions of
section 5219 of the United States Revised Statutes keep down the
volume of bank capital? Do you favor any change in this section
of law?
5. Do you have any suggestions for any change of Government
policy with respect to retirement of the stock of commercial banks
held by the Reconstruction Finance Corporation? Please indicate
the nature of any desirable changes.
E. Procedures and Sanctions.
1. Are the principles, procedures, and practices which the supervisory authorities require banks to follow available to banks in the
form of published rules and regulations, or are they made known to
banks on a case by case basis? Which of the two methods would
banks prefer?
2. What are the sanctions which supervisors of commercial banks
invoke in order to secure compliance with their requirements? Do you
have any suggestions for changes in these sanctions? Specifically,
have you any criticisms or suggestions for revision of those sections
of law which provide for the removal of officers or directors or the
termination of deposit insurance in cases of violation of law, or of
unsafe or unsound practices?
3. What rights of appeal and appeal procedures do banks have from
the requirements of supervisors and examiners? Do these procedures
offer adequate protection?
F. Relations Among Supervisory Agencies.
1. Should the bank supervisory and bank examining functions of the
Federal Government be concentrated in the hands of a single agency
and a single integrated examining force?
2. Should all Federal bank supervisory laws be unified and codified
and made to apply uniformly to all insured banks, or to all banks
holding demand deposits?
3. Is there a danger that bank supervision in the hands of the
Federal Deposit Insurance Corporation will be so stringent, because
designed to reduce to the absolute minimum the losses to that Corporation, that the restrictions on bank-credit extension will unduly
hamper business enterprise? Has there been any evidence of this
during the past 6 years?
4. In your opinion is there at present any significant undesirable
duplication of bank supervision by Federal and State authorities?
If so, what suggestions do you have for remedying this situation?
I I I . LEGAL STATUS OP BANKS

A. Granting of Charters, and Admission to Insurance.
1. Set forth your views with respect to the relative merits of
granting charters to all banks and admitting to insurance all banks
which meet certain specific requirements fixed by law and agree to
operate in accordance with all laws and regulations applicable to them
as compared with the present system of case by case decisions with
respect to the granting of charters and admission to insurance. If
you prefer the former alternative, what should be the specific legal
requirements?




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2. By what standards should a supervisor determine whether to
grant or withhold approval of a consolidation or merger of two or
more commercial banks? Should permission be granted for the
merger or consolidation of banks which could not legally have interlocking directorates?
3. Are there too many banks or backing offices in the United
States at the present time? To what extent are there communities
not adequately supplied with banking facilities? What method do
you suggest for determining the proper number of banks or banking
offices for the country?
4. Are bank supervisors in any substantial degree inhibited from
effectively supervising banks by the possibility that they may avoid
their current supervision by transfer of charter or change of status
with respect to the Federal Reserve System? What evidence is there
on this subject? If there is a major problem involved, what solution
do you suggest?
5. What advantages or disadvantages would follow from requiring s
all banks holding demand deposits, or all insured banks, to operate
under national charters and Federal supervision? Under State charters
and State supervision?
6. Do you favor requiring all banks which hold demand deposits
to be insured? Why?
B. Federal Reserve Membership.
1. Do you think any substantial economic disadvantages have resulted from the fact that: (a) a considerable number of banks have
not had full access to Federal Reserve credit facilities over the past
25 years; (6) a considerable number of banks have not been in the
Ear collection system over the past 25 years; (c) a considerable numer of banks have not been subject to the Federal Reserve requirements of reserve against deposits?
2. Should all insured banks be required to be members of the
Federal Reserve System under present requirements for membership?
Under some other requirements for membership? If the latter, what
alterations and requirements do you suggest?
IV.

EARNINGS AND INTEREST PAYMENTS

1. Are the earnings and profits of commercial banks of particular
public interest? If so, in what respect? If so, evaluate those aspects
of law and supervision which pertain thereto, indicating any desirable
alteration of law and regulations. Are earnings of commercial banks
sufficient from the standpoint of the public interest? How do and
how have they compared with the earnings of other types of businesses?
2. Would you favor a requirement for publication of all earnings
statements submitted to the supervisory authority?
3. How should supervisory authorities determine the maximum permissible rate of interest payable on time and savings deposits? Should
the power of bank supervisors to control interest paid on time deposits be a permanent or temporary power? What is the justification
for this particular kind of price control? Should supervisors also
have power to control interest rates charged by banks?
4. Can you visualize any possible developments which would render
inadvisable a continuation of the present prohibition on payment of
Interest on demand deposits? Please enumerate and discuss. What,




NATIONAL MONETARY AND BANKING POLICYJ5

in your opinion, are the chief justifications for the prohibition at the
present time?
5. Does the question of bank service charges need legislation or
governmental regulation? Is it in the public interest to promote or
discourage competition among banks in such charges?
V . B A N K ORGANIZATION AND STRUCTURE

1. Indicate in detail what, if any, changes you think should be
made in existing law ..which affects the banking structure of the
country; that is, branch banking/ unit banking, group and chain
banking, bank competition, concentration of banking power.
2. Give in detail your appraisal of the following:. (1) Nation-wide
branch banking; (2) Federal Reserve district-wide branch banking;
(3) "trade area" branch banking; (4) prohibition of further extension
of branch banking; (5) dissolution of existing branch banking; (6) prohibition of further extension of group and chain banking; (7) dissolution of existing groups and chains; (8) prohibition of the concentration of more than a given percentage of the bank deposits and
offices of a given area under common control.
3. Even if no changes are to be made in the Federal law with
relation to banking, should that law be rewritten and codified with a
view to clarity and removal of ambiguity? If so, submit a rough
ouiline of such codification and indicate at what points the present
law is most in need of clarification.
4. What, if any, merit do you see in the proposal that certain assets
be segregated in savings departments to offset time and savings
deposits?
5. Did benefit or harm arise from divorcing banks from securities
companies and prohibiting banks from doing* securities business?
6. Do you have any suggestion for changes in the holding company
and affiliates provisions of law?
V I . CREDIT CONTROL

1. Is there any reason for altering the present number of members
of the Board of Governors of the Federal Reserve System, their tenure
of*office, or annual salaries? What changes, if any, should be made in
the requirements for eligibility for nomination to the Board?
2. Is it desirable to change the composition of the boards of directors
of the Federal Reserve banks to give wider representation to the
general public? Are any changes desirable in their method of appointment, or in their annual salaries?
3. Would it be desirable to transfer the ownership of the Federal
Reserve banks to the United States Government? Should any change
be made in the disposition of Federal Reserve bank earnings? In. the
rate of dividends on Reserve bank stock?
4. Should the Secretary of the Treasury become a member of the
Board of Governors of the Federal Reserve System? Should any
other Government officials be added to the Board?
5. Would the Reserve System be improved; if a single Reserve bank
with necessary branches were substituted for the present 12 banks?
6. What is the present significance, from the standpoint of credit
control, (a) of the regulations governing the eligibility for rediscount,




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(6) of rediscount rates? Does it appear likely that the significance of
these regulations will increase materially in the near future?
7. Is it desirable to increase the significance of eligibility regulations
and rediscount rates? If so, would it be practicable to do so by selling
bonds from the Reserve banks' portfolio in the hope that banks would
thereby be put under pressure to rediscount?
8. What is the nature of the tradition with reference to (a) interbank borrowing; (b) rediscounting at a Federal Reserve bank? Do
the Board of Governors of the Reserve System, the Reserve banks,
or the examiners encourage this tradition?
9. Is. this an appropriate time to formulate permanent rules of
monetary policy? Should such rules be embodied in legislative
enactment? If not, should the Board of Governors adopt such rules,
and specify them in a public pronouacement? Are the present
general objectives adequate?
10. What are the present criteria of monetaiy policy? For legislative enactment or Board pronouncement, what are the merits of
the following criteria, singly or in some combination? (Specify the
combination.)
(a) Stability of prices:
(1) Index of general wholesale prices.
(2) Cost-of-living index.
(3) Nonfarm commodity prices.
(4) Any specially devised composite price index.
(b) A stable relationship between price indexes of various
significant groups of commodities.
(c) A price level declining in. accordance with increased efficiency of production.
(d) A slowly rising price level.
(e) Amount of unemployment.
(f) An index of production.
(ff) An index of national money income.
(h) Stability of foreign exchange rates.
(i) Reserve position of Reserve banks.
(j) Stable quantity of money or a secular increase in the
quantity of money (including or excluding rate of turn-over
of money).
(k) Stable relationship among the various categories of
income groups.
(I) Prices of Government bonds.
(m) Interest rates.
11. Specify the action that would be appropriate on the adoption
of any of the above criteria.
12. Can fiscal policies (such as deficit or surplus financing, control
.of cash balance, choice of securities to be issued or retired, forms of
taxation) advantageously be used as instruments of monetary credit
«policy? If so, can you suggest any means by which fiscal policy and
credit policy could be more closely coordinated?
13. Is it possible for a policy of monetary ease to be carried too far
in a period of depression?
14. Would there ever be occasion when a policy of monetary ease
should be limited, abandoned, or revised before the restoration of




NATIONAL MONETARY AND BANKING POLICYJ5

full employment, because of danger that the monetary expansion
could not be controlled? Or for other reasons?
15. What facts would indicate that a policy of monetary ease had
gone too far? Have there been indications that a policy of monetary
ease was carried too far at any time within the last 20 years? Was
this an important factor in bringing on the depression of 1929?
16. Is it possible to check monetary expansion without at the same
time initiating a contraction of business activity? Is it possible by
such means to check price increases in any particular field (for instance
in the stock market) without initiating a general contraction of
business activity?
17. Why has the rediscount rate apparently lost its effectiveness?
Is the discount rate likely to be of any influence in controlling the
level of interest rates and the volume of business activity in the
foreseeable future?
18. What factors have been mainly responsible for the low interest
rates which have obtained in recent years? What is likely to be the
course of interest rates in the near future? Is there any considerable
chance of a serious decline in bond prices and necessity for banks to
sell bonds with resulting enormous losses to the banks and bank
failures? What Federal Reserve policy would you consider appropriate in this connection?
19. What determines the magnitude of excess reserves held by
banks? Are there important variations as to excess reserves in
different types of banks?
20. What is the cause of the great volume of excess reserves? Is it
likely that the banking system will return to a position where excess
reserves will not exist? If so, describe the process by which this will
most likely come about.
21. In the light of experience of the past 10 years, what can be said
as to the influence of cheap money (a) on stock-market prices, (6) on
commodity prices, (c) on the level of employment?
22. What, in your judgment, were the causes of the marked increase
in the ratio of the volume of time deposits to that of demand deposits
which occurred during the twenties? Of the increase in the proportion
of demand deposits during recent years? What changes, if any, in
banking policy are rendered necessary by major shifts in the proportion
of time and demand deposits?
23. -Is there any- good reason for requiring a different reserve ratio
against demand and time deposits?
24. What are the causes of the relatively low rate of turn-over of
bank deposits in recent years as compared with the period of the
middle twenties?
25. In 1931 a committee of the Federal Reserve System recommended
a plan under which the velocity of turn-over, as well as the volume of
deposits, would be taken into consideration in computing reserve
requirements. Please comment on the merits of this recommendation.
26. Should the problem of excess reserves be dealt with now, or only
after undesirable monetary expansion is under way? If no action to
reduce reserves is now appropriate, should any legislative power
necessarylto control excess reserves be enacted now?




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27. What are the merits and demerits of each of the following
methods of dealing with excess reserves?
(а) Raising reserve requirements.
(б) Establishing different and high reserve requirements against
additional deposits.
(c) Relating deposit increases to an increasing ratio of capital
to deposits.
(d) Supplementing existing requirements with special requirements of reserve privilege bonds.
(e) Sale of bonds by the Treasury or the Reserve System?
(J) Other?
28. To what extent were the policies followed in the exercise of
monetary pow;ers by the Federal Reserve System and the Treasury's
management of the inactive gold account in the spring of 1937, and
the reversal of those policies in the autumn of 1937, responsible for
the changes in business activity which followed them?
29. Would you favor the proposal that no inter-bank deposits, other
than those with Reserve banks, should be permitted?