The Administration ADDRESS BY GEORGE M. REYNOLDS President of the Continental and Commercial UNIV. OF BEFORE THE DELEGATES TO THE CONVENTION OF THE UNIV or Mr. President and Gentlemen of the Minnesota Bankers' Association: Recognizing as I do that the need for early currency legislation is imperative, it is with conflicting emotions that I undertake a public discussion of the Administration Currency Bill. While I hope for the earliest possible enactment of a good currency law, still, my great desire in this respect cannot, and I feel should not, stifle my convictions as to the soundness and probable efficiency of the plan covered by the bill which has been introduced. I do not want to criticise the legislative measure offered for enactment into a law simply for the sake of opposing the plan embodied in that measure, but, rather, I want to be clearly understood as being willing to waive all petty and technical objections to the plan, in the hope that discussion and analysis of it may result in its modification to the extent that it will conform as nearly as possible to the legitimate and pressing needs of the business of the country, and at the same time be fair to the banks and also assure a just and equitable treatment of the public when the new plan is put into operation. I am well aware that the enactment of legislation is very largely the result of the application of a "give and take" policy, for there are so many in Congress whose views must be considered that any bill finally passed must, to some extent, be a compromise bill, and I have long since abandoned the hope of securing such legislation as I, or any other individual, might regard as ideal. Inasmuch as no one individual can possibly know all upon this or any other subject, it is to be presumed that a consensus of opinion of many should represent greater wisdom than the opinion of one. However, to make this literally true, the consensus of opinion of the many must be the result of a broad-gauged and open-minded consideration of the subject, free from all prejudice and preconceived notions, so that their conclusions will reflect equity and justice in all their ramifications. As a result of personal interviews with President Wilson and his administration heads who have been charged with the responsibility of preparing a currency bill, I have been impressed it is the earnest desire of all concerned to devise the best plan which it may be possible to enact into a law. Therefore, I believe they will welcome constructive criticism of the bill, for I feel that they, too, will recognize the wisdom of accepting the consensus of opinion of the many rather than to rely upon the knowledge or belief of but a small number. The bill is intended to provide for a system of banking and currency in the United States which, while it will give a greater elasticity in our credit and banknote issues, should also protect our organization of credit and give stability to our business. It is 268725 sought to bring this about through a provision for the establishment of twelve Federal Reserve banks, one each in twelve important commercial cities so geographically located as to be best calculated to serve the needs of all sections of the country. It is proposed these Federal Reserve banks shall be organized by means of having the banks, both National and State, of any one district subscribe to the stock of the Federal Reserve Bank of that district to the extent of 20 per cent of the capital of the subscribing bank, one-half, or 10 per cent, of which is to be paid in cash, the balance to stand as a liability against the subscribing bank. The amount of capital of any Federal Reserve Bank would, therefore, depend upon the number of subscribing banks in any district and the amount of their capital. It is stipulated, however, that no Federal Reserve Bank shall start with a paid-up capital of less than $5,000,000. Thus it will be seen that to establish a Federal Reserve Bank in any region, the banks in that region subscribing to its capital stock would necessarily have to have a capital aggregating $50,000,000; they might have more, with the result that the Federal Reserve Bank would have as much larger capital than $5,000,000 as 10 per cent of the aggregate capital of all member banks would exceed $50,000,000. It is provided that each of these Federal Reserve banks shall have nine directors, three of whom shall be elected by the member banks from bankers in the district, and three by the member banks from among the business men of the district who are not bankers and who shall fairly represent the agricultural, commercial, and industrial interests of that section. Three additional are to be selected by the Federal Reserve Board at Washington, one of whom shall be designated by that board as Federal Reserve Agent and who shall have an office in the premises of the Federal Reserve Bank and be the chairman of its Board of Directors. The board thus constituted shall have the right to elect its own officers and manage its own business, subject to such supervision and control of the Federal Reserve Board as has been provided. So far as I can see this is satisfactory, except that I think the Federal Reserve Agent, who, it is provided, will represent the Government on the board, should not be its chairman even though, as as I understand from the authors of the bill, this is meant to be only an honorary position and it is not intended he should have anything more to do with managing the business than his influence as one director would give to him. The provision made for allowing member banks to discount commercial paper is satisfactory also, except, that the bill does not limit the amount of rediscount to which any one bank shall be entitled. I think this should be modified to make the limit of rediscounts for any member bank an amount equal to its capital. Otherwise the door will be open for inflation. 4 Assuming that you have read and are somewhat familiar with the bill, and appreciating I could not in the short time allotted to me undertake an exhaustive discussion of its details, I ask your kind indulgence while I call your attention to and discuss briefly four sections of the bill which I regard as comprising its most important special features. Placed in the order of their importance from the standpoint of principle as well as in their practical effect, should they be adopted, I would group the sections as follows: (1) The one providing for the organization of the Federal Reserve Board; (2) That relating to the proposed treatment of the NationalBank-United-States-bond-secured notes; (3) The note issues; (4) The reserves. Believing that in the interest of the public welfare the Government should exercise a certain supervision or control over the new system, in a regulatory way, the framers of the bill have provided in it for the creation of a Federal Reserve Board of seven members, which will include the Secretary of the Treasury, the Secretary of Agriculture, and the Comptroller of the Currency, respectively, the four additional to be appointed by the President of the United States. Inasmuch as the three first named would be members of the President's official family, receiving their office through appointment by him, it will be seen that the entire Federal Reserve Board would be appointees of the President; and since by the terms of the bill itself not more than one of the directors appointed to serve on that board must be a banker of wide experience, thereby prohibiting the sole owners of the stock from the right of representation, in fact, excluding them from any participation in the deliberations of the board, bankers, business men, and thinking people, generally, regard this prohibition as most revolutionary in character and calculated to place our whole system of banking under the domination and control of a purely Political board. Inasmuch as it is made obligatory upon the National banks of the country to become subscribers to the stock of the Federal Reserve banks (and it will be necessary for the National banks, generally, to comply with this requirement if the plan becomes successful) they would be compelled to subscribe for $200,000,000 of stock, one-half, or $100,000,000, of which they would have to pay in, and in addition they would, in accordance with the reserve requirements, upon which I will touch later, be compelled by law to carry about $550,000,000 of their reserves with the Federal Reserve banks, over which the Federal Reserve Board, composed exclusively of the partisans of the particular political party in control, would exercise a dominating or controlling power. Do you not think the people of this country should deliberate upon this fact and carefully weigh the possibilities involved? |