, 1921-06-23
ABUSE OF POWER.

Making warfare upon legitimate creations of the
states" is the way the supreme court of the United
States puts it in a decision involving the coercion of
certain federal reserve banks TO compel state banks
to become members of the reserve system.
Although there has been hint of the facts in the
past a full statement of the manner in which the fed
eral reserve board abused its powers has not hereto
fore come to public attention. II appears that the
board undertook to use its official authority in an
illegal way to force state banks to become members
of the reserve system against their wishes Various
schemes were resorted to but in spite Of these meas
ures many of the banks undertook to preserve their
independence and their right to conduct their busi-
ness in accordance with the laws of the state rather
than of the nation. This right the federal law guar
anteed them
As a last resort, in its efforts 10 punish state banks
that refused to become members, the federal reserve
bank would have one of its agents gradually accu-
mulate checks on the state bank until the amount of
such checks exceeded the amount of currency
said state bank was required to carry IN IT'S
vaults. 1t would then send its men hurr1edly and un-
pectedly to demand payment Of the checks in cash,
in default Of which the checks were sent to protest
and the news spread about the community that the
bank was being questioned by the government; that
it had dishonored checks, and the result would be,
very likely, a run on the bank and its destruction.
The bank could save itself from this disaster by sign
ing an agreement to submit itself to the orders of the
federal reserve system.
To protect itself from the danger Of proceedings of
this kind the American Bank and Trust Company Of
Georgia appealed to the courts to prevent the Fed
eral Reserve Bank of Atlanta from continuing coer-
Give methods, as indicated. In its defense the fed
eral reserve bank asserted that the holder of checks
had a right 10 retain them and present them at his
pleasure
The supreme court held that while this was true
SO long as the motive is an honest one but the right
cannot be exercised for a dishonorable purpose. Ihe
court said: Banks as we know them could not exist
if they could not rely upon averages and lend a large
part of the money that they receive from their de-
positors on the assumption that not more than a GER
tain fraction Of it will be demanded on any one day.
If without a word of falsehood but acting from what
we have called disnterested malevolence, a man by
persuasion should organize and carry into effect a
run upon a bank and ruin it, we cannot doubt that
an action would lie. A similar result, even if less
complete in its effect, is to be expected from the
course that the defendants are alleged to intend, and
to determine whether they are authorized to follow
that course it is not enough to refer to the general
right of a holder of checks TO present them, but it is
necessary to consider whether the collection of
checks and presenting them in a body for the pur-
pose of breaking down the petitioners business as now
conducted is justified by the Interior purpose in view.
We do not need aid from the debates upon the stat
ute under which the reserve banks exist to assume
that the United States did not intend by that stat
ute to Sanction this sort of warfare upon legitimate
creations of the states"
This ins.ance of the dictatorship OF an arrogant
bureaucracy will discourage the granting of similar
powers to boards created by the congress in the
future. and is good argument for aboishing some of
the numerous aid societies created for the purposes
of handling war conditions.