Offsetting
Factor
recommendation
Recommendation
Importance of
Management
“
COMMITTEE REPORT
almost fifty millions of dollars. Last year, after meeting dividend
and surplus requirements, the net earnings of the reserve banks
amounted to two and a half million dollars, and in the previous
year to only two hundred fifty thousand dollars. Thus it is seen that
the interest which could be paid upon reserve balances would be
negligible. Last year, for. instance, only one-tenth of one percent
could have been so paid. In rejecting the interest payment proposal
attention should be directed to the fact that under the Reserve Act
the reserve percentages have been reduced by amounts calculated to
be sufficient to offset the loss of interest earned .on reserve balances
when carried with other banks.
The Committee recommends that:
(a) Member banks should be given a larger participation in
earnings of reserve banks with proportionate reduction in earnings
required to be paid to the federal government.
(6) The reserve system should maintain the policy of refusal
‘o pay interest to member banks upon their reserve balances.
In this report the Committee has endeavored to stress as a.factor
of utmost importance the necessity for capable management through-
out the system. Upon capacity for good management and its increas-
ing efficiency as distinguished from legislative devices, must now
rest the well-being of the system and its ability to realize the high
purposes for which it was created in the interest of all the people.
No banking system is self-operating, no matter how perfect its
structure, nor how smooth its working parts. This is especially true
of central or supplementary banking systems; and peculiarly so of
the federal reserve system.
Jnusual Problems.
Function of
Reserve Board
Certain unusual management problems are encountered in the
reserve system. The special needs of twelve, largely autonomous,
districts must be met, while at the same time the policies and activi-
ties of district organizations must be blended into a national policy
conceived in the interest of long-sustained business stability. In the
direction of meeting these two-fold requirements the Federal Re-
serve Act provides for a balanced system of administration, wherein
the activities and policies of the district banks are integrated with
those of the Federal Reserve Board. The function of coordinating
he activities in a national way must rest with the Federal Reserve
Board.
It is obvious that the Board cannot concern itself in any high
degree with the minutiz of operation. The Board could not acquire
such knowledge of local conditions as is required in passing upon
the large number of rediscount applications which may be made by
Continued on page 42)