Evening star. [volume] (Washington, D.C.) 1854-1972, 1935-05-10
The Banking Bill.

The Banking Bill.
The banking bill of 1888, sponsored
by the Roosevelt administration, is
divided into three parts. The first sets
up permanent system Of bank
deposit insurance. The second gives
the Federal Government direct con-
troll over the credit system Of the
country, placing in the hands Of the
Chief Executive greater control of
the Federal Reserve Board. The third
makes a number Of minor changes In
the national banking laws. To the
first and third parts there has been
no particular opposition. The sys-
tenn of deposit insurance, which has
been in operation for couple Of
years. has gained in popularity and
has given the people a greater meas.
ure of confidence in their banks. The
permanent system OF deposit insur-
ance provides for insurance of indi-
vidual deposits tup to 5000.
1t is the second part OF the bill
which both its friends and its opponents
consider the most important piece of
banking legislation since the establish
ment Of the Federal Reserve System,
and perhaps more important even
than that. 1t was over that title of
the bill that the House fought for days
before it finally passed the measure by
vote Of 27l to ITO and sent 1t to the
Senate for its consideration. The
argument Of the supporters Of this
legislation Is that the control of the
credit system of the country should
be in the hands Of a central board,
which Is dominated by the Govern
ment. rather than by private banking
and financial interests. To this the
opponents of the measure reply that
to place the control of the credit
system in the hands of a politically
controlled body is not only unwise, but
an inroad upon the liberty of the
people themselves.
Is the Government wiser or less
selfish, and will 1t be either. in the
control of the credit system of the
country? Political governments rarely
fail to do the thing which seems
most likely to keep them in power
Their opponents feel the heavy hand
of government or know that it hangs
over them.
Just how does the banking bill OF
1885 centralize the power over the
credit system in the hands of the
Federal Government? 1t increases the
power of the President over the Fed
eral Reserve Board since 1t provides
for the first time that the governor
and vice governor of the board shall
serve only at the pleasure of the
Chief Executive. Next, it increases
the power of the Federal Reserve
Board over the Federal reserve banks,
demanding that the chief executive
officer Of each Of these twelve banks
shall be subject to the approval Of
the board. The Federal Reserve
Board. acting through a bare ma
jority. may change at will the re-
serve requirements Of the banks
which are members Of the Federal
reserve system. And finally, it gives
the Federal Reserve Board the right
to force the Federal reserve banks
to participate in open market oper-
ations," meaning, in simple language,
the buying and selling Of Government
and certain other types of obligations.
The right to change reserve re-
quirements means the right to cur
tail or to halt normal banking func-
tons At the same time it is the
right to lower reserve requirements
which might easily endanger the de-
posts of the people in their banks.
The control of open market opera
tons holds many possibilities. The
today Is financing its
deficits through the issuance of Gov
securities. If the Govern
ment has supreme control of open
market operations 1t may force the
purchase by the banks Of its securi-
ties. The banks have only the money
Of the people, in form Of deposits, to
make such purchases. Such an oper-
alton would be neither more nor less
han a forced loan by the people.
Those who favor the bill say that
the financial collapse and depression
Of 1929 and subsequent years were due
TO the fact that there was tremendous
imitation and nothing was done by the
Federal Reserve Board to halt it; that
the board did not have the necessary
power. But If the board had such
power as now proposed and had the
control of the board been vested in
the Federal Government, as now pro-
posed, would anything different have
happened? Very few persons in the
country foresaw the crash. What gov
ernmental administration would do
anything so unpopular as to halt a
boom?
There can be little doubt on the part
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