0
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 excessive
 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 concerning
 the needs of the whole country. If given unrestricted freedom
 in the matter of rediscount rates, it is conceivable that the reserve
 banks could precipitate discrepancies and inequalities of a disturbing
 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 consultative
 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 district
 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 safeguards.


COMMITTEE REPORT

Josition
Taken by Board

Result tor
Reserve Bank

Considerations
Affecting
Reserve Banks

National
Emergencies

Jniform Rate
Nationally

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 estabish
 the same rediscount rate in all the districts would operate to
(Continued on page 12)