Forecasting Needs 
Adaptation of 
Credit Volume 
Administrative 
Problem 
Legislative 
Restrictions 
Dpposed 
Recommendation 
Recommendation 
COMMITTEE REPORT 
instead of the present requirement that the entire legal reserve be 
maintained with the regional reserve banks; (b) prohibition of the 
present right to issue federal reserve notes against gold or against 
acceptances purchased in the open market; (c) repeal of the pres- 
=nt provision that gold serving as collateral for federal reserve notes 
also may be counted by a reserve bank as part of its required reserve; 
‘d) a drastic requirement that federal reserve notes be issued only 
against the collateral of paper obtained by rediscount. 
In general, these and similar suggestions seem to assume that 
it is possible to gauge in advance the exact amount of lending power 
that the reserve banks may require at any time. That is not the case. 
They overlook the fact that the need for reserve credit is subject to 
wide and unforeseeable variations. In our view it is not a matter 
of great consequence if the credit powers and resources of the reserve 
hanks are at times even materially in excess of immediate require- 
nents. 
Furthermore, the precise adaptation of the volume of reserve 
credit to the needs of business is of necessity a problem of adminis- 
ration rather than of law. In the exercise of such powers to regulate 
credit as the federal reserve system possesses, it is better for the 
country to rely positively upon experienced administration rather 
‘han upon rigid statutory limitation. No automatically operative 
statute can be substituted in this particular for prudent judgment 
and discretion. The reserve administration is acquiring by experience 
an art and technique that will produce more definite and continuous 
progress than prescription by the legislative body. Successful man- 
agement of our federal reserve system should be sought through 
development of the administrative ability of its officers and govern- 
‘ng board to meet changing conditions instead of through limitation 
»f power by legislation. 
We do not believe that the changes referred to above or other 
changes should be made in the provisions of the Federal Reserve 
Act relating to the issue of federal reserve notes or to reserve require- 
ments, pertaining either to reserve banks or to member banks, solely 
for the purpose of restricting the lending powers of the reserve banks. 
The Committee recommends that: 
(a) As the future need for reserve credit and currency cannot 
be definitely foretold, the reserve banks should possess powers of 
credit and currency expansion sufficient to insure the largest measure 
of serviceability in any periods of strain. 
(b) The precise adaptation of the volume of reserve credit in 
all its forms, including note issues, to the requirement of trade should 
be regarded as a problem of administrative instead of legislative 
rontrol. 
‘Continued on paae 
AY