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L I B R A R T " a \v/>7)„ Talk by JAMES K. VARDAMAN JR., member, Board of Governors, Federal Reserve System, Given at a dinner meeting of the annual conference of National Association of Supervisors of State Banks at Cleveland, Ohio, on Thursday evening, September 19, 19^6. FOR RELEASE: FRIDAY, SEPTEMBER 20, or after Mrs. Vardaman and I are happy to be here on this occasion when the Federal Reserve Bank of Cleveland honors itself and the entire Federal Reserve System by keing host to a group of men who may well be considered the best friends of the ttost influential group of individuals and institutions in American life today. In my opinion the h8 great State banking systems of the respective states ^ m the securest foundation upon which rests our entire structure of private en Wprisc. Without those banks it is hard for me to conceive just how our present s ^3tem of political and social and business economy can continue. Without them Ending at the bulwark and forefront of individual effort and individual accom^•"hment, the world trend toward collectivism will certainly sweep all before it • 'this country as it lias in nearly all other countries of the world. After spending more than 20 years in investment and commercial banking, I Rented rryself for 6 years to do a job - a purely destructive job - with the i^tod States Mavy. On my return I have been fortunate enough to become connected this great Federal Reserve System which is potentially one of the most conductive influences in government and is the biggest single- wheel in our financial ^ monetary machinery. But there are other wheels in this machinery just as im~ as the Federal Reserve System and all of these wheels must mesh and work t Sether, else we are certain to strip our gears and find ourselves an imnobile along the roadside of human progress. more JUL op 19-17 ) if if ""2- James K. Vardaman There is the Secretary of the Treasury and the Comptroller of the Currency wh ose efficient and foresighted administration of the National Banking System has that group of banks strong and powerful and helpful in our economy. Then there is the Federal Deposit Insurance Corporation to which enough credit will ^obably never be given for the fearless and constructive way in which it has Ministered and caused to succeed a system of deposit guarantees which many of us n °t so far-sighted had thought to be fantastic and impossible of sound administra- tion. i figuratively doff my hat to this organization and wish for its continued ene rgetic life to carry on the splendid work already accomplished* And then there are the ).|8 wheels consisting of the State banking systems member and nonmember banks - and it is to these that I bow tonight in c orn- a m e n t of their achievement and present prestige and their future potentialities. The future of these all-important State banking systems largely rests with ,y u ° j Mr. State Supervisor. And whether they live or die is largely dependent upon manner of your leadership and administration of these systems. If under your Ministration they continue the dynamic constructive force in their respective c °^munities, if they perform their duties as trustees for their depositors as the °0urces of sound loans for legitimate enterprise and expansion, if they take to hearts the interests of their people and carry out their mission as guides financial and social development in their communities, if they do these things, ^eir future is secure. But these things they cannot do without a constructive, sympathetic and ^derstanding leadership on the part of their supervising examiners, both in the and in the Federal Reserve System. more ""2- James K. Vardaman During recent years, in the plague of government securities, government guarantees 0 f all sorts and government participation in loans, the science of r Ates and risks has been all but lost and many banks and many examiners now hesi- tate to take a business risk in the making of a loan; but rather prefer to take the easiest way and when in doubt buy government paper or government guaranteed Paper. I think this is a bad trend and it is one which will surely lead to the total absorption of our banking system by the Federal government. The trend toward government participation (as distinguished from government re gulations) should be stopped and the local bankers should again take their s. Position as the financiers for their communities, and get as far away as is Practicable from eternal government guarantee and participation. Banks cannot do this without the cooperative help and understanding of the examiners and it is to be hoped that all of us in a supervisory capacity will do what we can to help the bf --nks make sound loans outside of the government field. Gentloneh, I am particularly grateful for this opportunity to have met with and listened to you talk at this early stage of my experience as a member of the Board of Governors of the Federal Reserve System. ! out my first 6 months in this position. At the moment I am rounding Being a new man on a very old job, I ^alizod that I had a great deal to learn if I were to serve you constructively, ^ so I have given all this first 6 months to study, listening and learning. I have traveled many thousands of miles, talked personally to hundreds of bankers an 3 listened to dozens upon dozens of talks in meetings and in private conversa- tion by individual business men and bankers^ The more I have listened, the more v have realized how little I know and I hope very much to continue the remaining more Janes K. Vardaman years of my administration of the position in studying and learning as well as in execution. In my mind there is just one source of accurate knowledge and information an d that is the business man, the farmer and the banker, themselves in their own c omraunities• The atmosphere of Washington is so artificial that it is really hard get direct accurate information there. Even when men come to Washington from the various states for the purpose of expressing their opinions they apparently become somewhat subdued and awed by the atmosphere of the place and I have per°°nally found that I can get more candid impressions on the citizen^ home ground 'than if they come to Washington. Therefore, I have made for myself a schedule calls for travel about l/3 of time, and in following this schedule I to visit each one of you from time to time in your respective state capitols talk with you on the problems as seen through your local eyes of farming, ln tfustry and banking. Because I am a new public servant, I feel that you may be interested because "the position which I occupy in knowing the trend of my thoughts along certain lin n es and I am going to give you an outline of some of my views. I am doing this because I want you to tell me personally or by letter or by telephone if you disagree with me, and if I get no signs of disagreement then I am bound to conclude ^ t my thoughts are not far out of line with your own. The reason I am doing this that I believe the soundest administration of this job which I can accomplish be to reflect as far as I can a consensus of the best contemporary thought. * have very definite ideas about most things but I hope they are not arbitrary and hope I am not too hard-headed or too stubborn to give weight to contrary opinions ^ Matter from what source they may come; and I shall certainly give weight to any Pinion expressed to me from any reliable source. more James K. Var daman You notice that I have used the words just now "public servant". I chose those words deliberately as having considerable difference in meaning from the Y ^ds "government official" and "public official", I am afraid that some of us in '^shington may be inclined to forget that we are public servants and remember too VfG U that we are government officials, and as such we are apt to forget the purpose presence in Washington, and what is worse, we are liable to inject ourselves ln to the business life of our country to a degree far beyond that v/hich is necessary 0r that was intended by the Congress, There has already been too much of that in °Pinion and after six years of absence, I am surprised at the complacency with ^ich American labor, business people, farmers and industrialists, and all other e ^sses, have accopted regimentation, government interference and government I am surprised at the complacency with which bankers have permitted th • prerogatives to be more and more absorbed by the government. Some of this regimentation and control and government competition was doubtedly necessary during the war. ^ Will continue to be so. Many controls are undoubtedly now necessary But only a few instances of government participation ^petition were actually necessary during the war and I know of but few Stances off hand where they are necessary or desirable. You probably know, I am sure, that once a board or bureau is created in •hgton it is extremely difficult to ever eliminate it and there is always a 4 an 8er that it may become more concerned with self-perpetuation than in being of C n3 ° tructive help. i There is also a danger that some bureaus and boards may by- the Congress to issue regulations and make orders and take action without to Congressional expression or Congressional intention. more James K. Vardaman I consider the Congress is supreme, and I am in hearty accord with the eff orts of this administration to turn the government of the United States back its people through their duly elected representatives in Congress. ancl I resent I will always fight any effort that may be made by our Board or any other to take action on any matter where such action is not definitely authorized ^ the Congress• ea • I realize that the Congress cannot pas~s a bill of particulars./ ch instance, and that some things have to be left to discretion; but I think ] discretionary powers should be few and far between and exercised with great and deliberation. Because of my fear that some of 'the regulations issued as war measures may av ° outlived their usefulness, no I ask that we review such regulations. can come from a reconsideration of any action. Certainly If, in the light of present circumstances, our regulations should be continued and in their present status 1 they are soundly based on Congressional authority, then I shall certainly p them. But if in the light of present day circumstances they are antiquated, certainly hope that they be either brought up to date or dropped. And if thej, . 3 is no clearly indicated Congressional authority for such regulations, then i)0 Pe we will ask the Congress for an expression of its desires. Referring again to the Congress, I hope you will bear in mind that these •e are human, just as we are, and that they are subjected to tremendous &Ves^ure from organized groups and that they are pushed, pulled and shoved from ,f n '"togle. But if some twenty five years' experience in and out of Washington °t deceive me, you will find that one good personal conversation with your *-ssman m i l have more effect on him than any memorial or petition. more James K. Vardaman I I advocate personal contact with our legislators. If you believe in the type of private economy which we now have and which has carried us successfully through the trying years of war, and will see us through even more trying years of ^conversion, then go to your Congressman, and tell him so personally. Give him ^our support in his efforts to check the present necessity and status of all these §°verriment bureaus and corporations and boards created during the emergency. Ask im to eliminate those which are not necessary and return their functions to Private enterprise* But above all, give him your personal contact. I am proud to be in the Federal Reserve System, gentlemen, and I look forv ar ' d to the day when all banks which can profitable become members, will do so. most of all gentlemen, I am proud of our present form of government and our Resent policy of private enterprise. Therefore, I am a devout believer in the or quadruple banking system as we now know it5 that is, the national banks, stja te member banks and state non-member banks, with the Comptroller of the Currency, th e federal Deposit Insurance Corporation, the Federal Reserve System, and the St ste Banking Systems. Ours is the only central banking system which is privately ^ o d (if you can call the Federal Reserve Banks privately owned) left in the today. ^Unism All the others have gone the route of collectivism, nationalization, socialism. I hope and pray for a continuation of our present system. I admit our systems overlap, that they are inefficient to some degree, ?nd "they are irritating in many respects. But all these acknowledged short- are made worthwhile when they are considered as insurance of a continuan of our over-all system of private economy. more James K. Vardaman Just as sure as fate, if all our banks are forced into one great system, controlled by one master button, pushed by one master hand in Washington, private banking and private enterprise in this country vrill find itself in its dying days. Let us keep what we have and try to pass on to our children and to our grandchildren at least some part of 'the splendid heritage of private enterprise •^ich our forefathers handed down to .us. ###
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