Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-11-23
CENTRAL BANKING
| CONTROL IS URGED
Business Magazine Suggests
Unified System as Remedy
for Credit Ills.
Special Dispatch to The Star.

special Dispatch 10 Inc star.
NEW YORK, N. Y. November %
The first and fundamental step in
strengthening our banking structure is
to centralize control over general credit
conditions in the Federal Reserve
System by requiring membership In IL
of all banks of deposit engaged in any
form of interstate financial transac-
tons, says the leading editorial in the
current issue of the Business Week.
This would make it practically in
elusive of all banking institutions OF
any Importance, since the clearing and
collection of checks, by which at least
80 per cent of all business is done, in
evitably involves every institution IN
some degree in banking transactions
across State lines.
The interstate commerce clause OF
the Constitution provides ample au-
thority for such exercise of congress
sional power; but if this were not con-
sidered sufficient the constitutional au-
thority conferred on Congress to regu-
late the currency certainly would be
So since deposit currency has almost
wholly superseded ordinary currency in
our modern business system and this
is not now subject to any Federal regu-
lation save as the Federal Reserve au-
thorities exercise it over their member
banks under the Reserveact and the
national bank act Suitable changes
can be made in the capital subscrip-
ton requirements to facilitate member
ship and at the same time these may
serve as a convenient means Of eliml-
mating some of the weaker or unneces-
sary institutions from the system.
Minimum Standards.
There is no escape from such Federal
regulation of what has become the ac-
tual medium of exchange If we are
to secure any stability in our monetary
and credit system. The only alterna-
tive would be outright governmental
banking, for which this country Is GER
tainly not prepared. In any case 1t
is practically impossible to assure pro-
lection of bank depositors and provide
adeuate, elastic credit facilities for in
dustry and trade without such centrall-
zation of control in the Reserve system.
The chaotic and uncomfortable Situa-
ton that has resulted from the ex-
istence of a national banking system
alongside a system Of State member
and non-member banks, the diversity
of standards of bank regulation in the
States, and the competitive discrimina-
lions that arise from these regulations
have become an uncomfortable handicap
to stable business progress. Certain
minimum standards of banking prac-
tice uniformly applied throughout the
entire commercial banking system OF
this country are essential to maintain
public confidence and provide con-
tinuous credit facilities.
AS Owen Young said last year IN
recommending to Congress this prin-
ciple of compulsory unification of our
banking system, the line member of
the Federal Reserve System" on a bank
window must be made to mean some
thing. 1t hasn't meant as much as II
should largely because so large part
of our banking resources has been out
side the influence of the Reserve sys-
TEN, so that the system itself has been
unable to exercise effective control over
general credit conditions and banking
practices in the face Of which the
member banks themselves have been
almost helpless. Any one who under
stands the part played by banking
policies in this depression will realize
that bank failures are more than a
matter of individual bank management,
important as this is. During defation
periods the utmost that bank manage
ment is able to do is to convert its
institution into a safe-deposit box. But
this also is a bank failure"
Appeal for UnifcatiOn.
After all, the ultimate appeal for
uniflcation of our banking system and
centralized control of basic credit con-
ditions lies in the fact that credit is a
public utility quite as important to the
stability and security of modern eco
nomic society as is the continuous sup
ply of electric energy, water, or trans
portation. While it should be left to
private enterprise to provide, until such
enterprise proves incapable of doing
so, there must be some measure of eff
fective control over it in the social
interest.