The Daily Alaska empire., 1935-06-19
Why a Great Central Bank?
CKansas City Star.)

(Kansas City StarO
 The testimony that Owen D. Young has just given before the Senate Banking Committee strong lily opposing certain provisions of the bank reform bill pending in Congress, undoubtedly reflects the opinion of many laynen well as experts on the subject, who have considered the proposals with any care. According to MT. Young, himself la director of the New York Federal Reserve Bank and a leading American authority upon matters of finance the bill, as it stands, would create a great central bank Gin place of the regional struc- ture of the present Federal Reserve system) place
 that bank under political control and in general would retard the country's economic recovery. The bill consists of three divisions. The first and third of these amend the Federal deposit in-
 surance law and the banking act of 1883. There has been objection to them, but it is the
 second division profoundly altering the Federal Re serve system which has produced increasing volume of opposition.
 lof twelve regional banks, one of which is located in Kansas City. These institutions set up about twenty years ago intended to be bankers bank; mot to deal directly with the public but to exercise la general supervision the supply of credit in their respective districts chiefly through their power ito lend to the so-caled member" banks of the system certain types of security. Each regional bank serves territory having in general the same economic interests and is largely self-governing although there is central reserve board in Wash ington that acts co-ordinating agency.
 Division two of the current banking bill would radically change this whole set-up Instead of the regional system, serving regional needs, the bill would give the Federal Reserve Board at Washing ton virtually complete charge of all the banks At the time it would abolish any sembance of that boards independence by providing that the Governor of the Reserve Board should hold office at the pleasure of the President And finally the bill would greatly broaden the so-called open mar ket" and rediseount operations of the Federal Reserve system, in effort to extend its control over the supply of bank credit available in the country
 These changes may Io laymen merely technical but they involve vast alteration of our banking and economic structure They reflect a theory popular among certain new dealers that our recent economic difficulties due in large measure to our decentraized control of credit But as George B. Roberts points out in the current
 issue of the Atlantic Monthly this assumption will hardly bear analysis in the light of events over the last ten years" After discussing the effect of the cheap money program of 1927 (which helped promote the boom that ended in the stock market colapse) and other attempts to interfere with the operation of economic forces through the manipu- lation of bank credit MT. Roberts concludes that the Federal Reserve system has suffered from too mach central management rather than too little 7" The central board repeatedly showed itself less wise than the local reserve banks
 Founded on a false assumption the pending bill
 is designed to make possible greater economic stab- ity by a highly centralized and political control of credit The idea that prices may be controlled by credit is dear to many dealers, but ex- perience has shown that the expansion and con- traction Of bank credit accompany corresponding changes in the volume of the counrys business but do not in themselves cause such developments
 The relation of bank credit to business activity MT. Roberts observes is like a piece of string. You may push end of it (by lowering the interest rate money. for example,, but unless business sees opportunity for profits and takes up the slack nothing else will happen. The sug- gestion that direct political control of the bank-
 ing system would be an improvement over the present situation is contrary to experience
 The American banking system is far from per- feet. It may need reform. but not by any such nasty and illconsidered legislation as is proposed in the second division Of the pending bill The problem of what is practical in the realm Of credit control and whether not the regional banks may be co-ordnated to better effect calls for careful study It cannot be solved by few theorists work ing on pet hobby