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

a It has been generally accepted that when a reserve bank applies 
to the Board for permission to raise or lower its rediscount rate, the 
Board can grant or refuse that permission—a power of veto. It has 
not been so generally accepted that the Act gives to the Board the 
authority to force a regional bank to change its rate. 
There have been occasions when it has appeared proper to the 
Board to initiate and insist upon a change in rate against the active 
and determined opposition of the reserve bank concerned. If the 
Board compels a reserve bank to lower its rate, the reserve bank 
may be deprived of its most effective method of discouraging ex- 
cessive local rediscount applications. As a corrective it might then 
be compelled to arbitrarily refuse applications for rediscount at the 
risk of threatening the good will of member banks, thus impairing 
the spirit of willing cooperation so essential to the operation of the 
federal reserve system. Similarly, if the Board orders a reserve. bank 
0 maintain or increase a rate, it may result in special disadvantage 
‘0 the commerce and industry of the particular district. 
It can be recognized that regional banks may be swayed in their 
judgment by the special problems of their districts and may not hold 
so impartial an attitude as would the Federal Reserve Board con- 
cerning the needs of the whole country. If given unrestricted free- 
dom in the matter of rediscount rates, it is conceivable that the re- 
serve banks could precipitate discrepancies and inequalities of a dis- 
turbing nature. As a rule, however, general financial developments 
would shortly indicate to any reserve bank whose rate is out of line 
‘he necessity of correcting its rate. 
Even if it be admitted that the Federal Reserve Board should 
=xercise an authority to compel rate changes in a presumed national 
:mergency, the country has a right to expect that it adopt a con- 
sultative attitude toward the reserve banks and take action only after 
conference with regional bank directors and after full consideration 
of the resulting influence upon the commerce and industry of the 
districts especially affected. The persistent refusal of the Federal 
Reserve Board to permit a change in rate can be as violative of dis- 
trict autonomy as the actual forcing of a rate change. 
The Committee does not believe that the proper solution of 
this difficulty lies in legislative enactment. It should be left to the 
zoverning bodies of the svstem to agree upon mutually helpful safe- 
Taken by Board 
Result tor 
Reserve Bank 
Reserve Banks 
Jniform Rate 
In this connection another question of general application which 
has emerged with respect to the rediscount rate is whether or not 
it should be uniform throughout the country. Because the Federal 
Reserve Board's jurisdiction is nation-wide, a determination to estab- 
ish the same rediscount rate in all the districts would operate to 
(Continued on page 12)

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