Evening star., 1932-04-26

depends very largely on the quality of
their management. AS a step toward
improvement in management, or at
least toward the elimination of bad,
dangerous or dishonest management,
the bill proposes to give the Federal
Reserve Board the power in extreme
cases, after due warning and hear
ing, to remove such officers or directors
of banks as have persistently conducted
its affairs in an unsafe manner. 1t Is
not expected that this provision will be
often used but its very existence will
have tendency to make bank man
agement toe the mark.
Related to the problem of specula-
tion is the practice which has grown up
for corporations and individuals to lend
their funds, through banks, directly to
the stock market. In 1929 a large part
of the last phases of the speculative
boom was financed by loans not made
by banks, but by non-banking lenders
through the banks. This had the bad
effect of leaving considerable part of
the credit in the market outside the
supervision or regulation of banking
authorities. 1t made the problem of re-
straining speculation much more diff
cult This practice is now prohibited
by rule of the New York Clearing
House. But this rule may be revoked
at any time, and this bill proposes to
give it legal sanction.
In regard to the Federal Reserve
system, the bill proposes to increase
the independence of the Federal Re-
serve Board by removing the Secretary
of the Treasury from its membership
and to assure its competence by requir
ing that at least two of its members
must have tested banking experience
Aside from that, the bill proposes to
clarity the authority of the Federal Re-
serve Board over any operations con-
Quoted by the regional Reserve banks in
the so-called open market; that is,
operations that are not in the nature Of
loans to its member banks, and to in
vest it with special supervisory powers
over all resations with foreign banks.
In order to strengthen the Federal
Reserve system in coping with undeSir-
able speculative developments, the bill
contains section that makes it abso-
lutely clear that a Reserve bank is not
obliged to lend money to a member
bank just because that bank presents
paper that is eligible for discount under
the law and is acceptable as credit
risk. The Reserve bank may, and under
this section is required, to watch the
general behavior of member banks, and
in passing on loan applications to take
into consideration whether the bank
has been conducting a safe business in
the service of its community, or whether
1t has engaged in undue expansion or
in speculation in securities, commodi-
ties or real estate. And if bank con-
tinuously engages in bad practices the
Federal Reserve Board has authority
after due notice and after granting the
bank an opportunity for a hearing, to
suspend the bank from the use of the
credit facilities of the Federal Reserve
system. In this way the Federal Re-
serve banks and the Federal Reserve
Board will be able to exert a powerful
influence against the recurrence of
speculative excesses among its member
banks
Il firmly believe that the banking
and credit conditions in this country
will be greatly improved by the passage
OF this bill, the so-called Glass bill;
that bank failures will be reduced, and
that it will exert an influence toward
greater stability in business and en-
ployment-in fact, in the country's en-
tire economic life"