Evening star., 1932-05-01
erinning. Without the fiotation

have been impossible to build up the
/ large enterprises which have contrib
uted SO much to the progress of indus
trial development in this country"
Won't Abolish Affiliates.
Banking Affiliates-An affiliate, within
the meaning of the bill, is defined as
any corporation or association con-
trolled directly or indirectly by mem
Der bank These affihateS often gain
public confidence by using names SINH
lar to that of the parent bank. They
devote themselves in many cases to
'perilous underwriting operations, stock
speculation and other enterprises in
which the banks are forbidden by law
to engage"
The committee decided not to abolish
affiliates outright because of the diff
Guilty of enforcing such a law, and also
because of the fact that the various
States still permit them. The bill pro-
poses:
Cd To separate as far as possible ma
tional and member banks from afhliates
of all kinds.
(2) To limit the amount Of advances
or loans which can be obtained by af-
filiates from the parent institutions with
which they are connected.
(3) To install satisfactory examina-
ton of aff1liateS, working simultane-
ously with the present system of ex-
animation applicable to the parent banks.
The principle of divorcing national
and member banks from afiliates has
met with general approval. In some
quarters, however, the bill is interpreted
as meaning that banks must sever their
connections with affiliates within three
years If this is the case, it is contend
ed, the affiliates will be forced to liq-
uidate their securities in an already de-
pressed market, step which would re-
suit in driving security prices still lower.
Group Banking.-In many respects
the group banking plan Is similar to
the system of affiliates. In the former
holding company is organized under
State law. The holding company then
buys a majority of the stock Of a
series of banks, which are then operat-
ed through the holding company If
these holding companies can acquire
the stock of enough national banks
they may, by voting the stock of these
banks at elections of Federal Reserve
Bank directors, actually control the
Federal Reserve Bank. To guard
against such a contingency, the bill
definitely restricts their voting powers.
Recognize No Remedy.
! Insolvency of Banks.-The insolven-
cy of banks grows out of weaknesses
! in the banking system, and the franz
ers of the bill frankly recognize the
! fact that there is no sovereign remedy
! for this condition. In an effort to cor
rect the constitutional weaknesses of
the system, however, the following gen.
/ eral steps are recommended
! % Strengthening of the capital of
| banks.
(2) Provisions for closer and strong
er supervisions.
go More careful restriction of in
vestments.
a. Requirments for the truthful
valuation Of assets.
(5) Protection of depositors through
the liquidating corporation.
Senator Glass does not believe that
these measures are guarantee against
| future failures or a panacea for all
banking ills. He does. however, be-
lieve that these provisions if acted upon
in good faith by administrators will
do something to correct the insolvency
situation.
Finally, the Senator from Virginia
would strengthen the Federal Reserve
System which he conceived some l9
years ago.
The Federal Reserve System" he
said. has been seriously impaired of
recent years and has wandered far
away from its original function. This
is the result of many complex condi-
tions Among these conditions has been
the uncertainty of policy in the mat
ter OF exercising plainly authorized
control by the central supervising
authority at Washington and the tend
ency to submit rather timidly to con-
siderationS of immediate eXpediency.
Among the Reserve Banks themselves
there has been a decidedly dangerous
drift toward the conversion of the Sys-
tenn into a medium for transacting
financial rather than commercial busi-
ness"
To reform these conditions the bill
recommends:
% Improvement Of membership and
increase of independence of Federal
Reserve Board
90 Restoration Of the requirement
that two members of the board shall be
men of experience in banking
90 Elimination of the Secretary of
the Treasury from membership
(4) Better definition of powers with
respect to speculative transactions
60 Definition of the powers of the
board in management of foreign affairs
Unified System Essential.
Many enemies of the bill say these
recommendations havet he effect of
making the Federal Reserve System a
centralized banking institution. Elo-
quently they assert that the trend to-
ward centralized banking control in
the Federal Reserve Board is in direct
conflict with the constantly increasing
opposition of the American people to
further assumption of local powers by
the Federal Government"
In this connection an excerpt from
letter by Eugene Meyer, governor of
the Federal Reserve Board, to Senator
Norbeck, chairman of the committee in
charge of the bill, is of interest.
1T should be recognized" Gov.
Meyer wrote, that effective super
vision of banking in this country has
been seriously hampered by the COM
petition between member and nom
member banks and that the establish
ment of unified system of banking
under national supervision is essential
to fundamental banking reform"
Unperturbed by the claims and coun-
ter-claimS, however, and Skeptical of
the sincerity OF those who oppose the
for fight on the measure when it
comes up for a vote in the Senate.
He does not believe his bill will make
procedure perfect overnight, for he
knows that no man can see far enough
ahead to work such miracle. At best
he expects his proposals to do little
more than remedy a few immediate
evils.
And as for the future-"our bank
ing system" he says, sis going through
period of great change and its ulti-
mate destination is not yet fully clear"