Evening star., 1935-12-17

these acts is Capitalization Of power
and control over the banking and
credit facilities of the Nation in the
Board Of Governors of the Federal
Reserve System, whose official head
quarters is in Washington, all of
whose members are appointed by the
President. Whether they are remov-
able by the President Is, under exist
ing Supreme Court decisions, a mat
ter of some doubt.
Chairman Is Executive.
The President also appoints for a
flve-year term one member of the
board as chairman of the Board of
Governors, who acts as the chief ex-
ecutive officer. Some idea of this
Capitalization of authority may be
obtained from the following summary
OF some of the powers of the Board
OF Governors:
CD The selection of the president
OF each of the IL Federal Reserve
banks, who is the chief executive
officer Of the bank and who serves for
five years, must be approved by the
board. This gives the board a rather
direct voice in the operation and man
agement of the Reserve banks.
(2) The Board of Governors may
regulate the interest rate on time and
savings deposits in individual banks.
BY the exercise of this power the
Board of Governors may readily in
crease or decrease the amount of de-
positS and the earnings of the indi-
| vidual banks.
90 The Board of Governors has
the power to increase reserve require
mentS of individual banks, not, how
ever, in excess of double the present
requirements. This power gives the
board degree of control both over
the earnings of individual banks and
substantial voice as to the available
credit supply of the Nation, as an in
crease in the reserve requirements les
sens both the earning and the loaning
capacity of the banks.
"a While the Federal Reserve
banks establish discount rates, such
rates are subject to revision by the
board. BY the exercise of this power
the board may exert large control over
the credits extended, and earnings
made by individual banks.
(5) The board is also given the
power to regulate the character of
paper eligible for purchase or dis
count by the Federal Reserve banks
and thus regulate the ability and op-
portunitieS of individual banks to bor-
row money or dispose of its paper.
(6) The board may remove an off,
Ger or director of an individual bank
for what they regard as good cause.
Open Market Committee.
Cd The most important power
given the Board of Governors arises
from control of the Open Market
Committee. This committee consists
of IL members, comprising five repre-
SentatiVeS of the Federal Reserve
Banks and all seven members of the
Board Of Governors. The significance
and power of the Open Market Com
mittee is not generally understood.
The Open Market Committee, under
the existing statute, may exercise
powers not only vital to banking and
financial operations, but to the ma
t1onal welfare. Under the new stat
ute, the Open Market Committee has
a direct control over the money sup
ply of the country. It may compel
the IL Federal Reserve Banks to buy
or sell securities. The Open Market
Committee under the new banking
acts will have under its control for
the purchase of securities all Of the
resources of the Federal Reserve Banks
and for the purpose of sale, all of their
vast holdings of Federal and other Sc
curities. A program of security selling
on the part of Federal Reserve Banks
under direction of the committee
will reduce the amount of money
available for agriculture, industry and
commerce, will increase interest rates
and lower the market value of securi-
ties. On the other hand, q program
OF security purchases will increase the
available supply Of money and credit
for the business of the country, inter-
est rates naturally will be lowered
through the increased volume of avail
able credit and securities increased in
value. As the price, not only Of Sc
curities. but Of commodities, is af-
fected by the supply Of money, the
operations of this committee will
have an effect on all prices and con.
sequently, upon all business and in.
dustry. While a majority of the
members of the Open Market Com
mittee is composed Of the member
ship of the Board of Governors, and
while its operations will affect every