Full text: Referendum on the report of the Special Federal Reserve Committee

standing American economists has concluded that the Reserve Board has almost un- 
imited powers over the reserve banks. 
Central banks are now generally recognized as having two characteristic func- 
dons, 1) the issue of their notes for currency purposes on a basis which at once main: 
:ains the soundness of the currency and permits volume to expand and contract with the 
needs of business and 2) influence for the same purposes on the credit available for 
business. As to note issues the reserve banks do not have autonomous powers; for the 
law prevents them from issuing notes except with the permission of the Reserve 
Board, and puts into each reserve bank an agent of the Reserve Board. That the re 
serve banks are not now autonomous in regard to the second function mentioned above 
was the conclusion of the federal Court of Appeals last summer in the case of 
Raichle v. Federal Reserve Bank of New York, from which quotation has been made 
:arlier in this pamphlet. The court held that if suit were to be brought for injunction 
against activities with respect to credit and its uses the suit would have to be brought 
against the Federal Reserve Board as well as the federal reserve bank, saying the 
Board “is specifically empowered to regulate open market transactions, to review and 
determine rates of discount, and to make reports as to conditions in the federal reserve 
system. In such circumstances, the bank is, as to the matters complained of here, a 
governmental agency under the direction of the Federal Reserve Board. If the plain- 
iff prevailed in his contention, the bank would be enjoined from fixing a discount rate 
which the board had presumptively directed. Such a situation under familiar principles 
renders the Federal Reserve Board an indispensable party to the suit.” Of course, the 
decision of the Court of Appeals in the Raichle case may be later reviewed by the 
United States Supreme Court, but there is no apparent reason for expecting the Su. 
sreme Court to reach a contrary conclusion. 
Relations to Credit 
That the Reserve Board has substantial activities would seem to appear from its 
=xpenditures. In 1928 its expenditures for its own purposes were $763,000—a figure 
which has been fairly constant over the last seven or eight years, having earlier heer 
Activities of Board 
For illustration of the manner in which the reserve system is now operated 
reference might be made to the manner in which the reserve banks engage in open- 
market operations, the procedure they follow in buying and selling government se- 
curities, and other devices which have been set up in order to maintain the semblance 
of regional banks with autonomous powers. Space will permit, however, only ref- 
erence to the facts set out in one of the auxiliary reports accompanying the report of 
the Banking and Currency Committee. These facts raise a question whether or not 
there is justification for continuance of some of the reserve banks. The facts to which 
the auxiliary report draws attention are that in 1926 the average daily holdings of re 
discounted bills at one reserve bank were but 26% of its total holdings of bills and 
securities, at another were 25%, and at a third were 20%. This percentage may vary 
widely in a central banking institution for which there is complete justification and 
which is under active and wise management, but in the case of a considerable number 
of the reserve banks it tends to be low, thus suggesting that after years of experience 
there is not justification for these banks as they now exist. In 1928, when the average 
{Continued on page 19) 
Question as to 
Usefulness of Some 

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