32
Conclusions
Summarized
Recommendation
Reserves of
Member Banks
Effects of
Changes
COMMITTEE REPORT
ment of reserve provisions. While the discussion of this phase in-
volves highly technical banking arrangements, it should be evident
that no inflationary effect is produced by permitting the circulation
of reserve notes against the full collateral of gold.
The Committee has already stated that changes should not be
made in the provisions of the Federal Reserve Act relating to the
issuance of federal reserve notes solely for the purpose of restricting
the lending powers of the reserve banks. It has observed that it is im-
possible to gauge in advance the exact amount of lending power the
reserve banks may require at any one time; that it is not a matter
of great consequence if the credit powers and resources of the
reserve banks are at times even materially in excess of immediate
requirements. It has taken the position that reserve banks should
possess powers of currency and credit expansion sufficient to insure
the largest measure of serviceability in any periods of strain. It has
also concluded that the precise adaptation of the volume of reserve
credit in all its phases, including note issues, to the requirements of
trade should be regarded as a problem of administrative instead of
legislative control.
In the light of the foregoing the Committee recommends that
the powers of issuance of currency against gold. bankers’ acceptances
and eligible pader be continued.
The Federal Reserve Act specifies the reserves which member
banks must maintain against deposits. These reserves must be carried
with the regional reserve banks. Because they are so concentrated,
it has been possible to reduce materially the reserve requirements
from those which were usual before the establishment of the system.
Changes in the legal reserve requirements would affect either
the total volume of credit the member banks can extend or the rela-
tive credit granting powers of the different classes of member banks.
The desirability of encouraging an expansion in the aggregate
volume of member bank credit by means of a general reduction in
reserve requirements depends upon the need of business for more
abundant supplies of credit. The reserve banks are in a position to
meet any demands of the immediate future. The increase of lending
powers of member banks that would result from a lowering of their
reserve requirements would not coincide, save by accident, with any
need of business for more credit. Once the country has become ad-
justed to certain reserve requirements it is undesirable to subject
them to serious and sudden alteration. The extent to which such
reduction would benefit the average bank may also be questioned.
The increased lending power thereby acquired by any one bank
would be offset to some extent, at least, by the intensified competition
{Continued on page 34)