The Birmingham age-herald., 1921-08-07

member bank which s made the basis of most of your charges. the report of the examination evidencing the facts upon which you base those charges was not delivered by you to the federal reserve bank of New York until January ', 1921, some months after the examination was begun and after you had written your letter of December 2s, 1920 ad- dressed to me. The previous exan:- nation of that bank was, as you know, made in 1919, more than 10 months previous to the examination begun in the fall of 1920 and did not present any information calculated to put either the federal reserve board or the federal reserve bank of New York upon notice of the conditions which you now charge existed throughout the year, 1920. If the 191g exanniua- ton had evidenced such condi tiors, there can seem to be no justif fica ' ton for your having failed for 10 months to institute a second exami- nation Ca delay which you are aware resulted in your violating the. laws of the United States, Section 5240 tY ,. k S.) or to. take any of the cor rective steps which you actually did take after the examination made in the fall of 1920. You state in your
 
 to the large loans of this bank to it's officers, that the Comptroller of the Currency has no power under the law as it now stands to prevent such loans and thsh the federal reserve bank in extending credit to the bank referred to-, could have limited the amount of money which the borrow ing banks could lend to their own officers for speculative or other pur- poses.'
 The federal reserve board has maintained, and the federal reserve bank of New York has maintaine1, that 1t is not the duty of either the federal reserve board or the fed eral reserve bank of New York to control the internal management or policies of banks coming within the Jurisdiction of the office of the comp troller of the currency by means of arbitrary restrictions of credit The only possible corrective step which the federal reserve bank of New T York could have taken, even had It been aware of the facts subsequently reported in the 1920 examination, is that which you now have affirma- lively stated in your letter of March Pc, 1921, that is to withhold credit, but 1t is believed that you yourself did not seriously think that that would have been the proper proce- dure for the federal reserve bank to take. In fact, you wrote q letter to me suggesting the importance of prompt consideration to the matter of amending the federal re- serve act so as to make it possible Tor the reserve banks in an emer- gency to render aid to and perhaps prevent the suspension of banks whose eligible paper represents but small proportion of their deposit liabilities.'
 On January 6, 1921, at personal conference in your office, you showed copy of your letter of December 2S, 1920. addressed to me, to an of ficer of the federal reserve bank of New York and in referring to .he particular national bank under con sideration, you stated to him that yoiI intended to recommend to Congress an amendment making possible the rediscount of paper now held to be ineligible in order to permit of even further extensions of credit that might be necessary to protect inno- cent depositors and creditors of such banks as this particular one which you cited as an illustration of the ne- cessity of the amendment. It is clear from your letter of January 5, quoted above, and from your discussion sub. sequent thereto, that you realized the dangers which would result from the, suspension of any large bank in New York city, and that you were anxious to provide means for the further eX-. tensions of credit to such a bank The inference in your subsequent let ters and finally your statement in your letter of March 26, 1921, that the federal reserve bank of New York should or could have corrected de- tails of the management of this bank. or any other bank which might ue making excessive loans to it's ofIi- cers or which might be charging ex- cessive rates of interest, by refusing to extend further credit, were entire ly inconsistent with your own ex- pressed ideas and with the ideas and convictions of all of those most fla miliar with the scope and purposes of the federal reserve act.
 Duty of Comptroller
 "FurtheFmore. the Comptroller of the Currency is charged with the ra- supervision over national banks. That responsibility rests upon him and him alone. It is not believed that if the management of any national bank Is guilty of any abuses or indiscre- tions that there Is any reason in law or policy that the federal re- serve bank should undertake to cor rect that mismanagement in the man. Ter in which you have suggested. You know, or should know, that if a fed eral reserve bank were to attempt to direct or control the affairs of any missnanaged bank by declining ar bitrarily to make further loans the result would be an aggravation rath- CT than a lessening of the dangers cadsed by the mismanagement and might readily precipitate the condi- tions which you and all of us would depIore. conditions that might cause the greatest suffering and hardship on account of an innocent public. These are matters which were fully discussed at length in the board meetings of February 26 and 2S their views to be contrary to your own. A failure on the part of the board to agree with you or a failure to alter it's convictions cannot now properly be charged as a failure to- answer or a failure to challenge your complaints
 Tt is interesting to note in this connection that although you deny the power of the comptroller of the currency. under the law to prevent such loans as those under discussion. nevertheless, you did take steps, sub sequent to the last examination of the bank in question, which 1t has been understood were most effectivel In eliminating from the assets of that bank most of the loans that