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THE RESPECTIVE ROLES OF CENTRAL AND COMMERCIAL BANKING by Karl R. Bopp Vice President, Federal Reserve Bank of Philadelphia before the Executive Conference on Coordination and Policy Formation sponsored by the Wharton School of Finance and Commerce, University of Pennsylvania June 18-29- 1951> Philadelphia, Pa. (KRB-June 21, 1951) (Below is small outline made by KRB before going to meeting; attached is outline sent in advance for use in program) Who takes initiative for changes in volume of money and how is volume adjusted to 1 1needs” of economy? 1. 2. Gold standard - miners - theory of equilibrium Productive credit - commercial banks - with central banks controlling thru rate - 3. 4. bank reserves Stable prices - central bank thru open market The Great Depression - Full employment central bank + Government deficit or surplus Low rates - Generalization of credit institutions 5. Stable Government bonds - interest rates any holder of securities Role played by commercial banks in distributing life blood of industry ) ) ) ) reserve requirements to absorb excess selective controls THE RESPECTIVE ROLES OF CENTRAL AND COMMERCIAL BANKING Preliminary Statement II. A. The central bank regulates the supply, availability, and cost of money and bank reserves B. The commercial banks distribute available credit among prospective borrowers C. Qualifications Alternative Objectives and Related Central Banking Policies A. B. C. D. E. III. IV. Convertibility 1. Expansion permitted when gold holdings are high and/or rising 2. Contraction called for when gold holdings are low and/or declining "Productive credit” 1. Expansion called for when monetary volume of "real bills” is expanding 2. Contraction called for when monetary volume of Hreal bills" is decreasing Stable prices 1. Expansion called for when prices are declining 2. Contraction called for when prices are rising "Full employment" 1. Expansion called for when there is less than full employment 2. Contraction permitted when jobs are in excess of workers Supporting government finance 1. Expansion called for when the Government is unable to secure all the funds it wishes at market rates 2. Contraction permitted when the Government is able to secure more funds than it wishes at market rates Commercial Banks and Decentralized Distribution of Credit Recent Develomerit s in Central and Commercial Banking
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