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Statement of
Harry A. Shuford
President, Federal Reserve Bank of St. Louis
before the
Subcommittee on Domestic Finance
of the
Committee on Banking and Currency
House of Representatives

January 29, 1964

Mr. Chairman and Members of the Committee:
I appreciate this opportunity to appear before the Committee
and to comment on some phases of the Federal Reserve System which are
under consideration.

I shall not undertake to cover all the specific pro-

visions of the bills before the Committee, but would like to refer to
several points.
The power over money i s , of course, vested with the Congress
of the United States.

Under our System, money includes not only currency

and coin but bank r e s e r v e s and deposits.

Due to the heavy responsibilities

of the Congress and to the technical and complicated nature of monetary
administration, Congress has found it desirable to delegate the responsibility for formulating and implementing monetary policy to others in order
that the many factors and considerations involved may be followed closely
week by week and day by day.

In making the delegation Congress has

created and developed the Federal Reserve System which is a governmental
institution with responsibility to e x e r c i s e judgment regarding monetary
It is constructive for institutions to be reviewed from time to
time and for changes to be made when found to be necessary.

The Federal

Reserve System was created 50 years ago, and during the years since has
properly been under repeated review by Congress, private organizations,
and the System itself.

Many constructive changes have been made.


it all, the principle of independence of judgment for determining an appropriate amount of money in the economy has been adhered to and, at t i m e s ,

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I regard as sound the policy of delegating monetary responsibilities to an instrumentality which is accountable only to Congress and
separated from the Treasury.
The Reserve Banks, as instruments of the Federal Government,
operate under the authority of Congress with their powers, duties, and
responsibilities provided for by law. While member banks are required
to pay in capital to the Reserve Banks, they do not own stock in the usual
sense of the word as it applies to private corporations.

The member banks

do not control the Reserve Banks or set their policies. They do not share
in the earnings above the statutory limitation and they have no claim on
the assets.
Member banks do, through the method prescribed by law,
elect six directors of a Reserve Bank, three of whom are bankers.


other three directors are appointed by the Board of Governors; one of these
is named Chairman and another Vice Chairman, each for a one-year t e r m .
In my experience, the directors are able and competent men of high

They come from varied walks of life and bring to the Banks

valuable experience and informed judgment.

They make important contri-

butions, not only in the formulation of audit, budget, personnel and operating policies, but in the presentation of grass root information with respect
to economic and financial conditions in various sections of the country.
In carrying out their responsibilities as directors, I have found that these
men act in the general interest and without regard to who elected them.

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While the Reserve Banks are expected to e x e r c i s e judgment
and initiative in carrying out their responsibilities, they are subject to
general supervision.

The Board of Governors must approve the appoint-

ment of the President and F i r s t Vice President and the salaries of all
officers of the Banks.

In addition, it coordinates the activities of the

Banks and examines each of them annually.

The supervision and coordi-

nation includes the issuance of uniform operating instructions and letters
of interpretation of regulations.

The Board must also approve each Bank's

The examinations of the Federal Reserve Banks cover all
phases of operations and are made by a staff which answers only to the

In addition to these examinations, the resident auditor at each

Federal Reserve Bank and a staff under his supervision conduct continuing
audits of operations.

In performing his functions and duties the auditor

answers only to the directors of the Bank through an Audit Review Committee and the Chairman of the Board.

I think that the present structure

and control of Federal Reserve Banks provide a desirable and effective
blending of the national and regional.
Board in Washington.

There is strong control by the

There is benefit from the knowledge and judgment

of the local Boards of D i r e c t o r s .
The composition of the Federal Open Market Committee is an
important matter in view of the vital functions which the Committee p e r forms.

I believe the present arrangement for five of the Federal Reserve

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Bank Presidents to serve as members of the Committee is a desirable

In serving on the Committee, the Presidents fully recognize that

they are public servants performing a governmental function.


commitment is supported by the usual public oath.
They, with their Research Staffs, study the economic and
financial conditions in their particular districts as well as in the nation.
As members of the Committee they formulate their independent views
and conclusions.

This arrangement has permitted determination of m o n e -

tary policy upon a basis of views centered in Washington but, in an important measure, coming from various sections of the country.

This has

facilitated close contact with current and developing grass root trends.
The present structure and composition of the Open Market
Committee has worked especially well since the procedure was changed
to enable all the Presidents of the banks to participate in the meetings of
the Committee.
I would favor a continuation of the present Open Market