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REMARKS BY STEPHEN S, GARDNER VICE CHAIRMAN BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V BEFORE THE TENNESSTE BANKERS ASSOCIATION ii 86TH ANNUAL CONVENTION NASHVILLE, G M TENNESSEE MAY 25, 1976 OOD MORNING: • I AM VERY HAPPY TO BE HERE FOR A PERSONAL REASON A ND FOR A SOMEWHAT DOCTRINAIRE REASON, THIRTY FOUR YEARS AG O CONNIE AND I WERE MARRIED IN CHRIST CHURCH HERE IN NASHVILLE, WE MOVED INTO AN APARTMENT IN DONALDSON AND HELPED THE 12TH ARMORED DIVISION ON MANEUVERS RUIN SOME 0FR A YOUR BEST FARMLAND AROUND MURFREESBORO, CHANCE TO APOLOGIZE UNTIL TODAY, §I • ^ I HAVE NOT HAD THE SECOND REASON IS JUST CURIOUS INTEREST IN A GREAT PRESIDENT, ANDREW JACKSON. HISTORY GIVES HIM SOME HIGH MARKS WITH WHICH I MUST AGREE, °N THE OTHER HAND, WHEN HE REFUSED TO RENEW THE CHARTER OF T H E SECOND BANK OF THE UNITED STATES IN PHILADELPHIA A LOT ° F EASTERN ESTABLISHMENT TYPES THINK THAT HE WAS AWFULLY ^ONG. I AT LEAST THE GOOD CITIZENS OF PHILADELPHIA DID AT • T H E TIME, T H A T THERE WAS AN IMPORTANT PROBLEM AND ADDRESSED SERIOUSLY, YOUR PRESIDENT CORRECTLY HIS TYPICAL COLORFUL AND DYNAMIC WAY, PERCEIVED IT IN UNFORTUNATELY, HIS IDEAS PREVAILED AND AS I SAID HE WAS WRONG ON THE ISSUE. *T IS EVEN POSSIBLE TO CONCLUDE, THROUGH A TORTUROUS ft ' . ' '. ANALYSIS, THAT THESE EVENTS ARE AT LEAST IN PART THE GENESIS OF MANY OF THE PROBLEMS THAT PEOPLE SEE IN OUR BANKING SYSTEM -2R ODAY. I DON'T REALLY SUBSCRIBE TO THAT VIEW BUT IT IS FUN THINK THAT WHAT MIGHT HAVE HAPPENED IF WE HAD HAD FEDERAL CHARTERING OF BANKS AND AN INDEPENDENT MONETARY AUTHORITY L IKE THE FEDERAL RESERVE FROM 1830 ON, 1 IF THAT HAD HAPPENED SUSPECT BANKERS WOULD HAVE A BETTER REPUTATION, ONE THING WE CAN SAY, HOWEVER, IS THAT AMERICA WAS AN ISSUES-ORIENTED SOCIETY THEN AND STILL IS IN 1976. B AND ANKING ISSUES SEEM TO BE JUST AS SENSITIVE AND JUST AS CONs T ROVERSIAL AS THEY WERE IN JACKSON'S TIME. I THINK THAT'S WHY THE LAST THREE YEARS CONGRESS HAS MADE MANY SERIOUS EFFORTS T 0 ADDRESS BANKING ISSUES, I NEED NOT REPEAT THEM DEFINITA - T IVELY FOR YOU BUT I WOULD LIKE TO ALLUDE TO THEM GENERALLY. STRUCTURAL REFORM IS PROBABLY NEEDED AND PROBABLY WILL COME, ALTHOUGH THE FIA OF 1975 AND THE FINANCIAL REFORM ACT OF 1975 ARE STILL, FOR THE TIME BEING, STALLED IN THE LEGISLAT E , I EXPRESSED THIS THOUGHT IN A DIFFERENT FORUM RECENTLY, THERE IS JUST TOO MUCH DISSATISFACTION WITH THE STATUS QUO T O NOT EXPECT IMPORTANT CHANGES IN THE RULES GOVERNING THE STRUCTURE AND POWERS OF DEPOSITORY • INSTITUTIONS, • UNDERLYING THIS DISSATISFACTION, IT IS CLEAR, IS THE FACT THAT IN A GROWING AND CHANGING INDUSTRIAL SOCIETY IT IS THAT SOCIETY THAT IS THE REAL ARBITRATOR OF THE KIND OF FINANCIAL STRUCTURE AND SERVICES THAT THE NATION WILL HAVE, WHEN ONE CONSIDERS THE FINANCIAL SERVICES TYPICALLY AVAILABLE TO INDIVIDUALS AND BUSINESSES AT THE END OF WORLD WAR II AND COMPARES THEM WITH THE VARIETY AND TYPES OF -3~ SERVICES AVAILABLE TODAY/ T I THINK MY ARGUMENT IS SECURE, HIS TREND HAS ONLY MODESTLY BEEN AIDED BY FEDERAL LEGIS- LATIVE CHANGE, IT HAS BEEN ENCOURAGED MORE DYNAMICALLY IN THE REGIONAL ACTIVITIES OF STATE LEGISLATURES AND STATE NANKING COMMISSIONS, IT IS STILL GOING ON, ONE GROUP OF STATES HAS PETITIONED THE FEDERAL REGULATORS REQUESTING BELIEF FROM THE INTEREST RATE DIFFERENTIAL FOR COMMERCIAL B ANKS AND CITING THE UNIQUE COMPETITIVE POWERS OF THRIFTS X WITHIN THEIR BORDERS, THE DIVERSITY OF STRUCTURE AND TYPE PERMISSIBLE ACTIVITIES ALLOWED FINANCIAL INSTITUTIONS IN °UR 50 STATES IS NOT EASY TO RATIONALIZE, WE OBVIOUSLY DO NOT HAVE A SINGLE FORM OF NATIONAL FINANCIAL STRUCTURE, I HOPE THESE TRENDS WILL CONTINUE AND THAT IS BASED ON MY BELIEF THAT ONLY THROUGH INNOVATION AND CHANGE WILL FINANCIAL INSTITUTIONS BE ABLE TO KEEP UP WITH SOCIETY'S DEMANDS. I THINK THE PARTISAN FIGHTS IN THE HALLS OF CONGRESS OVER STRUCTURAL REFORM OFTEN OVERLOOK THE KEY LESSON OF HISTORY, ONE CAN NEVER LEGISLATE :THE STATUS QUO, AND AT THE PRESENT TIME, THERE IS GREAT DISSATISFACTION WITH THE STATUS QUO. - I HAVE BEEN TALKING BASICALLY ABOUT STRUCTURAL REFORM, I THINK THAT IS FIRST IN A PROPER ORDER OF PRIORI- TIES BECAUSE OF MY CONVICTION THAT REGULATORY AGENCY REFORM SHOULD BEGIN WITH A CONSENSUS VIEW, NOT ONLY OF WHAT KIND OF A SYSTEM OF FINANCIAL INSTITUTIONS WE SHOULD HAVE, BUT ALSO, AND MOST IMPORTANTLY, WHAT WE PERCEIVE TO BE THE WEAKNESSES -4AND STRENGTHS OF THE PRESENT SYSTEM, OBVIOUSLY WE HAVE A UNIQUE FINANCIAL SYSTEM IN THE UNITED STATES, B IT IS MY ELIFF THAT WE HAVE A VERY COMPETITIVE SYSTEM, IT IS ALSO NY BELIEF THAT CONCENTRATION HAS NOT PROCEEDED A PACE IN THE F INANCIAL INDUSTRY AS IT MAY HAVE IN OTHER CORPORATE FORMS, T HE SHEER NUMBER OF OUR BANKS AND THRIFT INSTITUTIONS AND CREDIT UNIONS -- DON'T FORGET CREDIT UNIONS, THERE ARE 23,009 THEM — AND THEY PROVIDE AN EFFECTIVE AND GROWING TYPE OF FINANCIAL INTERMEDIARY SERVICE TO THEIR MEMBERS, IS DIFFERENT T HAN MOST OTHER INDUSTRIES. F IRST TIER, SAY THE 200 LARGEST REGIONAL BANKS, IT SEEMS TO THE CAPABILITIES OF BANKS IN THE ^E, ARE MORE EQUAL TODAY THAN THEY WERE 30 YEARS AGO. THIS HAS COME NOT ONLY FROM ELECTRONICS AND OTHER MECHANICAL C HANGE BUT ALSO FROM THE GREAT INTER-REGIONAL MIGRATION OF POPULATION, MANUFACTURE, AND COMMERCE, THE HUNT COMMISSION REPORT COMMENTED ON THE UNIQUENESS OF AMERICA'S SYSTEM SIX Y EARS AGO, THAT WAS NOT ENOUGH APPARENTLY, THUS if is STILL NECESSARY TO FIND A PUBLIC CONSENSUS UNDERSTANDING TO GUIDE T H E LAWMAKERS, I SUGGEST WE CAN BEST DO THIS BY COMPARING OUR BANKING SYSTEM BOTH WITH THE PAST AND WITH THE SYSTEMS IN THE OTHER INDUSTRIALIZED DEMOCRACIES. REGULATORY REFORM WHICH COINCIDES WITH STRUCTURAL REFORM AND IS BASED ON A RESPONSIBLE MAJORITY VIEW OF THE ECONOMIC AND SOCIAL EFFECTIVENESS OF OUR SYSTEM WILL PROBABLY BE A LOT BETTER REGULATORY REFORM THAN OTHERWISE MIGHT -5EMERGE. THIS IS THE REASON I TESTIFIED YESTERDAY ON A SERIES REGULATORY REFORM MEASURES BEFORE THE SENATE THAT WOULD SUBJECT ALL FEDERAL GOVERNMENT REGULATORS TO A SCHEDULED FOUROR FIVE- YEAR REVIEW, THE STATED PURPOSE OF THE EFFORT IS TO DEDUCE THE BURDEN OF REGULATION ON THE ECONOMY AND TO ASSURE T HAT COMPETITIVENESS EXISTS IN OUR INDUSTRY AND TRADE AND T HAT THE CONSUMER, WHO IS ALL OF US, IS PROTECTED FROM MONOP- OLISTIC AND CARTEL-LIKE COMPETITION THAT MAINTAINS HIGHER ^ I C E S AND COSTS THAN WOULD OTHERWISE OBTAIN, AS AN ISSUES- °RJENTED SOCIETY THAT TYPICALLY HAS ADDRESSED PROBLEMS INDIVIDUALLY AND APPLIED REGULATION NARROWLY TO CORRECT A PERCEIVED INEQUITY WE HAVE NOT ALWAYS FOCUSED ON THE INTERRELATIONSHIP OF ECONOMIC PROBLEMS, UH" "THERE OUGHT TO BE A IS AN AMERICAN IDIOM, EXPRESSING OUR NATIONAL PREOCCUPA- TION WITH THE IDEA THAT WE CAN CORRECT EVERY PROBLEM BY AN ORDINANCE, ACTUALLY WE CAN ALSO CREATE A COMPLEXITY OF FEDERAL AND STATE REGULATIONS SUCH THAT THE SHEER VOLUME OF CONTROLS MAY BE OR WILL 'BECOME UNMANAGEABLE, A FREE SOCIETY INCURS SOME RISKS AND PARTICULARLY A SOCIETY AS SENSITIVE AND AS SOCIALLY AWARE AS AMERICANS, REDUCE THOSE RISKS TO A MINIMUM, WE MUST STRIVE TO BUT THERE SEEMS TO BE A GROWING UNDERSTANDING AND AGREEMENT THAT MAYBE WE OUGHT TO LOOK AT ALL OF THE REGULATIONS THAT WE HAVE VISITED ON THE NATION AND THE UNINTENDED EFFECTS OF THESE REGULATIONS ON OTHER VALUABLE SOCIAL GOALS, -6I AM IMPRESSED WITH THE BI-PARTISAN SPONSORSHIP OF T HE PERCY-BYRD BILL AND ADMINISTRATION PROPOSAL AND THE COM- PAN I ON BILLS. IN T H TH.rs IS THE KIND OF EFFORT THAT BUILDS ALLIANCES E BEGINNING BEHIND A CONCEPT THAT WILL BE TESTED SEVERELY W HEN SPECIFIC MEASURES ARE DEBATED, WITHOUT SUCH "GOING IN" J 0INING OF HANDS THERE WOULD BE LITTLE OPPORTUNITY TO REPEL ORGANIZED ATTACKS ON SPECIFIC PLANS, 0NLY °SHA AGENCY REFORM BUT INTERAGENCY AND I HOPE THIS IS NOT INTERACTION REFORM, THUS AND EPA REGULATIONS, FOR EXAMPLE, WILL BE REVIEWED NOT °NLY IN THE CONTEXT OF THEIR SPECIFIC GOALS AND ALSO IN THE C °NTEXT OF HOW THEY EFFECT JOBS AND SMALL BUSINESS AND THE ECONOMY AND OUR OTHER SOCIAL GOALS, YOU KNOW ALL ABOUT THE STRUCTURAL REFORM MEASURES W HICH I HAVE MENTIONED AND REGULATORY AGENCY REFORM PROPOSALS T0 CHANGE THE ORGANIZATION OF FEDERAL REGULATORS OF FINANCIAL INSTITUTIONS, AND THE PROPOSALS THAT AFFECT ANOTHER OF OUR &ASIC RESPONSIBILITIES, THE CONSUMER PROTECTION LEGISLATION IN T HE FINANCIAL AREA THAT HAS RECENTLY BEEN EXPANDED, C OUPLE THIS THRUST FOR CHANGE WITH A PERCY-BYRD OR ADMINIS- IF YOU TRATION BILL WHICH WILL SUBJECT EVERY FEDERAL REGULATOR AND HIS REGULATION TO A FOUR- OR FIVE- YEAR COMPREHENSIVE P PROGRAM' OR INTENSIVE REVIEW AND ANALYSIS YOU HAVE A POWERFUL TIVE FOR CHANGE. INITIA- I DO NOT DOUBT THAT THERE WILL BE SOME DRAMATIC AND INTERESTING NEW DEVELOPMENTS FOR FINANCIAL TUTIONS, INSTI- AND I HOPE THAT AS THIS EFFORT PROCEEDS THE BANKING INSTITUTIONS AND THE THRIFT INSTITUTIONS WILL NOT CONTINUE TO MARCH UP TO THE HILL AND ADDRESS ONLY NARROW PARTISAN INTEREST, • 1 UNDERSTAND THAT THEY MUST ADDRESS THEIR OWN INTEREST, AMD 1 EXPECT THEM L TO, THAT IS PART OF THE SYSTEM, BUT I WOULD IKE TO SEE THEM ALSO EXPAND THEIR virws AND ADDRESS THE LOADER ISSUES, I KNOW THIS IS DIFFICULT, YOU HAVE A MEM- BERSHIP THAT DOES NOT EXPECT AGREEMENTS ON SOMETHING THAT CANNOT BE PRECISELY AND DIRECTLY RELATED TO THE INTEREST OF TRADE ASSOCIATION CONCERNED, WEAKNESS• CONGRESS BUT I THINK THAT THAT IS A IS RESPONSIVE TO ITS CONSTITUENTS — THEY NEED TO HEAR FROM EXPERT WITNESSES NOT ONLY ON ISSUES AS NARROW A $ INTERSTATE TAXATION OF DEPOSITORIES, BUT ALSO ON THE SUB- J ECTS AS BROAD AS ALL REGULATORY REFORM, THE ECONOMY MAY BE GROWING BETTER THAN EVEN THE M °ST OPTIMISTIC ANALYSES IN THE SHORT RUN, THE LONGER RANGE ^ O B L E M S ; UNEMPLOYMENT, PRODUCTIVITY, CAPITAL FORMATION, ENERGY CONVERSION, LARGE GOVERNMENT DEFICITS, AND ARE STILL TO BE RESOLVED, INFLATION I SUGGEST THAT A COMPREHENSIVE REGULATORY REFORM REVIEW CAN BE USEFUL TO THE RESOLUTION OF T HESE ISSUES. IN THE MOST UTOPIAN VIEW WE CAN GET RID OF ^ I N T E N D E D AND DEBILITATING SIDE EFFECTS FROM PRESENT LAW AND REGULATION. WE MAY EVEN GET RID OF BAD LAW PERHAPS, ALTHOUGH I'M NOT TOO OPTIMISTIC ABOUT THAT, T BUT SURELY HIS IS ALSO A PROCESS OF NATIONAL EDUCATION THAT WILL HELP IDENTIFY PRIORITIES AND BALANCE THEM IN FULL VIEW OF THE ELECTORATE, ALL OF THIS WILL BE A VERY POLITICALLY DIFFICULT PROGRAM BUT JUST AS IMPORTANT TO THE TENNESSEE BANKER'S ASSOCIATION AS REGULATION Q OR THE FTC DECISION ON THE LIABILITIES OF A HOLDER IN DUE COURSE. I AM SURE YOU WILL HAVE A GOOD CONVENTION AND I AM ^ L I G H T E D TO HAVE BEEN ABLE TO JOIN YOU, B I THINK I WILL GO Y THE HERMITAGE THIS AFTERNOON ON MY WAY OUT OF TOWN, FROM WHAT ANDREW JACKSON SAID WHEN HE OPPOSED GRANTING CONTROL OF THE CURRENCY TO THE GENERAL GOVERNMENT, I THINK HE WOULD BE PLEASED THAT MONETARY POLICY IS IN THE HANDS OF THE FEDERAL RESERVE, THANK YOU,
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