Regional President Speech

released before time of delivery - 11:20 a.m., CDST. REMARKS OF ALLAN SPROUL, PRESIDENT, FEp:JIBAL R~§ERVE ~~NK .QF ~W XQRK, DEC 9 1959 - BEFORE THE GOLDEN ANNIVERSARY CONVENTION OF THE NATIONAL ASSOCIATION OF SUPERVISORS OF STATE BANKS ST~ LOUIS, MISSOURI SEPTEMBER 28, 1951 WHO SPEAKS FOR BANKING? It has been a pleasure for my associates in the Federal Reserve System, and for me, to join you in this Golden Anniversary meeting. My own immediate pleas·ure, and perhaps that of my associates, has been somewhat frayed, however, by the fact that I committea myself to take part in this program. The promptings of instinct and the teaching of experience counselled against promising in June to talk in Septe~ber. That is risky business unless you are a master of the lofty platitude or at home in those timeless subjects which men of religion, philosophers, and educators use as the basis for frequent public speech. As it happened, the persuasiveness of Bill Lyon and my friendship for him overcame my doubts. After all, I have known Bill Lyon for the past twenty years, starting in the days when he was the ace financial reporter of the New York Herald Tribune, and I was new in the New York financial community. He knows what to expect from me, and if he thought it appropriate to provide me with an audience from the 48 states and Hawaii and Puerto Rico, I could do no less than embrace the oppor tunity. In fact, I believe this is an appropriate forum in which to express some views which may be of interest not only to this audience, but to the larger audience of bankers which you, in one sense, represent. If what I have to say strikes a provocative note, or rakes the embers of smouldering controversy, I can only assure you that it is said without rancor and, I hope, without narrow self-interest. I assume that we are all dedicated to the development of a better Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 2 banking system in the United States and its territories, and that free discussion of the possible shortcomings of the system we have will, in nowise, detract from its virtues and its manifold accomplishments. Both because of what I am going to say and because of things that have been said in the past which have caused some friction among us, I must begin by putting three things straight. First, I am speaking only for myself. I have not been charged or briefed to speak for the Federal Reserve System. Second, I think bankers are just like other people - no better and no worse. I do not share the view of their critics that they are all unprogressive· or lacking in the qualities which make our economic system work so well. Theirs is a highly regulated business. It no longer has the scope or the freedom of the great industrial and commercial undertakings, and it therefore no longer produces the names and the news that excite the imagination of the public, and create the fact and the fiction of our business literature. But banks and bankers still have great opportunities for constructive leadership in economic affairs. I want those opportunities to be grasped and that leadership exercised. Third, I am for the dual banking system and have never consciously advocated anything which I thought would destroy that system. A dual banking system is consistent with the Federal principle upon which this country was founded, and under which it has developed a responsive political machinery and a bountiful economic life. I would not want to destroy it. Now, if I am honest and if you are tolerant, we can proceed without suspicion of motives. There will be no cards under the table. I have been and am greatly disturbed oy what seems to me to be the fact that banking does not speak with a voice that is in touch with the great underly ing social movements of our time, with a voice that reaches the public and enlists Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 3 • its support. I am not talking about local issues or about individual banks and bankers, of course. We all know of many instances where the individual bank or banker has done and i s doing a great community job. I am speaking of those national issues which involve the integrity of our money, the functioning of I our central banking system, and the preservation of our private commercial and savings banking facilities. And I am speaking about the participation of indi vidual bankers and organized banking in the ,democratic· process of hammering out solutions of these problems. The bankers and their organizations have been active and effective in securing legislative action on some matters favorable to banking, and they have been even more active and effective in preventing the adoption of a variety of measures unfavorable to banking and, presumably, unwise in the public interest. But bankers do not seem to have been able to give voice to an underlying philoso phy of the developing and changing role of banking in the economy of the country. If there has been one thread that has run through the attitude of "bankers" and "banking" in these later years, it has been a high degree of sensitiveness to the centralization of power. That is a good thing, in itself, but the danger is that it will degenerate into mere obstructiveness, into a wholly negative atti tude. In fact, if the charge of undue centralization of power can be levelled against a proposal, for whatever purpose and on whatever grounds, it is likely to obscure all discussion of the merits of the proposal, and to bring into opposition a large number of bankers and a shifting group of supervisory authori ties. It is somewhat like pinning a pro-communist label on issues which we oppose. If you look back over recent years I think you will find that this is what has happened. On the great issues of the times, in the field of monetary and banking affairs, the banking community as a whole, or at least in any Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 4 organized capacity, usually has taken a negative or neutral attitude. It has left it to others to propose broad legislative programs and to devise changes in our banking and credit system. And then, in combatting flaws in such programs and proposed changes, it has allowed itself to be cast in the role of opposition, of resistance to change. In following up its antagonism to too great centralization of authority, the banking community has also allowed itself to appear to be the champion of divided banking authorities at the Federal level - a sort of advocacy of in efficiency and duplication - and a not unhappy spectator of differences between Federal and State authorities. As Bill Lyon said last year, there is sufficient difference in the primary and essential functions of the three Federal banking agencies, and between them and the State agencies, to provide reason for the belief that there might be division of authority without sacrifice of effective ness. I have no hesitancy in saying, as I have said before, that the Federal Reserve System is and must be the most important of the Federal banking agencies, and that attempts to line it up with the Office of the ._Comptroller of the Currency and the Federal Deposit Insurance Corporation, or to play off one of these agencies against the other, is a disservice to banking and to the country. The Federal Reserve System is primarily concerned with no less than providing those monetary and credit conditions which will preserve the integrity of the dollar and facilitate the continuance of a high level of production and employ ment in this country. There can be no higher economic aim and no more important economic task. The primary and essential role of the Federal Deposit Insurance Corporation is the trusteeship of a great deposit insurance fund covering nearly all of the banks of the country. The primary and essential role of the Office of the Comptroller of the Currency is the chartering and supervision, including examination, of the national banks of the country, and the State banking Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 5 authorities have the same primary responsibility with respect to the State banks. To be sure, we are all interested in a better banking system, in the soundness of the banks, in improving bank capital positions, in encouraging progress and development in banking methods and service to the public, but it is not necessary to permit these general objectives to scramble our functions, unless we are really more interested in entrenched positions or greater powers, than in these accepted and approved goals. This is not a question of personalities, nor of states' rights and the dual system of banking. I am not striking at the charm and dignity of a Preston Delano nor the wizardry of a Maple Harl. I am not seeking to undermine the authority of State bank supervisors. I am asking why the voice of the bank ing community has only or largely been heard repeating slogans which excite or exaggerate our ,conflicts and our differences. This attitude has been represented as an attempt to preserve the checks and balances which are a fundamental feature of our Federal system. I have characterized it in the past as all check and no balance. A sincere concern for balance would find the bankers of the country, organized and as individuals, addressing themselves to two fundamental questions. What is the necessary amount of intrusion by the Federal and State Governments in the business of banking, consistent with present day concepts of social wel fare, economic progress, and democratic capitalism? How should this governmental participation be organized and directed so as to bring the intended benefits to the .public while preserving the maximum amount of individual enterprise and initiative in the banking business? Except for pious platitudes, and vocal forays against' sin and the man-eating tiger, these questions are seldom publicly discussed by the banking community. An organized and constructive attack on the problems - the difficult problems - they involve, is yet to be forthcoming. / Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 6 Subsidiary to these general questions are a number of others on which the banking community might try to eschew the role of pressure group for the role of banking statesmen. What sort of guidance or leadership or education has been given to the public and to the legislatures, Federal and State, on such questions as the integration of debt management and credit policy, the present day role of reserves in our banking system, branch banking, the par collection of checks, selective credit controls, and bank supervision and examination, to mention a few of the matters which have been the meat of agitation and contro versy within the experience of all of us? The integration of debt management and credit policy is not an easy job in these days of a $250 billion Federal debt, frequent Treasury financing and an economy which, more often than not, requires the discipline of credit ~estraint. Debt management and credit policy cannot work separately, but they can work badly or well ~ogether. Fortunately, a workable accord between the Treasury and the Federal Reserve System has been achieved, for the present. I cannot say that the banking community helped much in reaching that accord. Nor can we rely indefinitely on the loose formulations of such an accord in a world of changing personalities and economic situations. Here is a problem which must be thought through and worked out, if we are going to make it continuously possible for general monetary controls and debt management to do their jobs. I don't think there is any monetary gadget which will enable us to dodge this fundamental problem. It demands the best thought of the banking community in its solution, and the support of that com munity in making the solution work. Believing, as I do, that effective general credit controls are one defense against more direct governmental intrusion in our private and personal economic affairs, I would say that this problem is worthy of the thought of anyone, or any organization, interested in fighting un due centralization of power. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 7 We have had the question of bank reserves presented as involving socialism and the confiscation of private property, or as involving the survival of the dual banking system, whereas the real ground of debate is the control of the money supply of the country, and how it is to be exercised in the public interest. The essence of central banking, and the primary job of the Federal Reserve System, is control and administration of the availability and cost of bank reserves. The amount of leverage the private banks are to have in expand ing deposits and investments on a given reserve base is not a question of property rights or states' rights, but of "coining money and regulating the value thereof", a function specifically conferred upon the Federal Government by the Constitution of the United States. I know, of course, that when our Constitution was written 164 years ago these words applied to metal coins and their content, but they embrace the present situation in which readily transferable bank deposits have become the principl;Ll "money" of the country. This process of change and development was recognized when state bank note issues were taxed out of exist ence. That didn't destroy the dual banking system but it did help to preserve our monetary system. Another question concerning which there has been more heat than light is the question of branch banking. It should be considered and decided on the basis of the best possible service to the agricultural and business community and to the public in general. It has been too much argued, by banks and bankers, on the basis of immediate self-interest, sectional prejudices, and the competing and conflicting claims and aims of existing institutions, fighting to preserve or improve their positions. Par collection of checks has been a matter of acrid controversy at least since the establishment of the Federal Reserve System thirty-seven years ago. It has befouled the public and political relations of the System, and been Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 8 used to pit the agencies of bank supervision one against another, over all these years. In all that time the voice of banking has usually been muddled or muffled. No clear and recent discussion of the desirability of these toll charges on com mercial intercourse, and of where and by whom and on whom the charge should properly be levied, if justified, has emerged from the banking community. Or take the question of selective credit controls. There has been continued organized banker opposition to the regulation of consumer instalment credit. That opposition may be justified. My own first choice in the field of credit control measures is certainly the general or quantitative control, which permits the private sector of the economy to decide freely which activities should be facilitated and which restricted. But selective credit controls in a few areas, such as consumer instalment credit, also have much to recommend them, both as a supplement to quantitative credit controls, and as the specific monetary means of helping to direct resources to where we need them and away from less essential uses. The opposition to consumer credit regulation has con tained little that would lead to a wise evaluation of such controls and public understanding of them. And banking comment and criticism did little to correct public mtsconceptions and misrepresentations, which tended to bring the adminis tering authority, our central banking system, into disrepute. The result was a legislative miscarriage. When the question of the administration of consumer credit control was at issue in the Congress, at the time of the extension of the Defense Production Act of 1950, an important principle of Government was allowed to be come submerged in the policy of general opposition to controls. The Congress continued the control, but prescribed not only the duties and powers of the administering agency, but also the exact terms of maximum down payment and minimum maturity in some instances. If there was any organized banker opposition Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 9 to this violation of good Government procedure, which was duplicated in the case of mortgage credit controls, I failed to hear it. I was reminded of the old vaudeville song which had a recurring refrain, based on the line, "When I was in that railroad wreck, who took the engine off my neck, nobody". I do not deny that there was need to determine whether the power to control consumer instalment credit and real estate credit, previously granted by the Congress, had been found unwise or not generally administered in accord with Congressional intent. This was particularly so in view of the public attitude toward these measures, for without public support they could not function well. But so long as the power was continued, which I certainly favored, its detailed administration should have been left with the credit authorities. And it should have been of interest to bankers, as citizens as well as bankers, to urge that this be done. To come even closer home to the interests of this meeting, there is the question of bank supervision, including bank examinations. Here you would expect the banking community to be working steadily for the improvement of the quality of the supervision to which it must be subjected, and for the modifica tion or elimination of overlapping jurisdictions and duplication of supervisory intervention in their affairs. It seems to have been one of those subjects for which Ed Wynn requisitioned an eleven foot pole, in order that he might touch things he wouldn't touch with a ten foot pole. Maybe the bankers, or the organized bankers, need an eleven foot pole. And so also, perhaps, do the super visory authorities. A year ago, at your Boston meeting, Bill Lyon made some suggestions concerning bank supervision and bank examinations, which to my untutored ear and eye seemed to contain the seed of constructive development. If that seed fell on fertile ground, I have missed even the first signs of the growth and possible future flowering of the plant. Each of the Federal agencies Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 10 is able to bring forth what it deems to be good and sufficient reasons for con tinuing whatever it is doing in the field of bank supervision, including examina tions, and signs are not lacking of tendencies to expand the scope of present examination activities. And your State group does not seem to have picked up Bill Lyon's challenge and substituted substance for shadow. Admitting my own lack of expert and first-hand knowledge of bank super visory arrangements in the several states and territories, I hope I may rely on the second-hand information which has come to me as a result of my interest in Mr. Lyon's proposals. I am told that there are only a few states where the ten ure of office of commissioners and staff, and the amount of the annual budgets, give continuing promise of an adequate and sustained bank examination program; adequate alike for the needs of state supervision, and the special interests of the Federal Reserve System and the Federal Deposit Insurance Corporation in banking management and condition. I am told that in some states it would be physically impossible, on the grounds of staff and funds alone, to have any real examination program if it were not for the examinations of the Federal authorities. I am told that in many states increasing costs of examination, which are assessed against the banks, have tended to interfere with the maintenance or improvement of state bank examining procedures and practices. Mr. Lyon said that dual system should not mean double standard, but here we have the makings and, in some cases, the actuality of a double standard. So long as this situation exists it avails little to talk in terms of principles while doing nothing about practices. I still think that something can and should be done by the Federal agencies along the lines of Mr. Lyon's suggestion. But a lot will also have to be done by the State agencies and the banking communities which they serve as well as supervise. Unless there is aggressive action on the part of the State supervisory agencies and their banking constituents to improve the conditions under which many of the State supervisory Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 11 agencies work, to make bank supervision a properly financed professional under taking instead of a political waif, I do not see much chance of wide progress. I do not, however, put all or even most of the burden of such reforms on you men and your organization. I think it should more largely be placed on the bankers of the country, as individuals and in their banker organizations. That such action can achieve results was shown in Texas earlier this year. And so I come back to my main theme - Who Speaks for Banking? I would say that by and large nobody speaks with authority and with clarity for banking. It is represented at state capitals and at Washington by groups intent upon legislation favorable to banks, and upon stopping legislation unfavorable to banking, a necessary kind of activity in our kind of democracy. It is represented by state and national organizations which do a lot of fine work in areas where controversy ✓ does not blaze too brightly. It is represented by many individuals who are leaders in their communities, but who too often tend to leave it to someone else when it comes to the great issues of monetary, credit, and banking policy. No where, as I see it, does banking find a voice, or voices, which can and will provide constructive leadership in dealing with these problems. Nowhere does banking find a voice which gives a clear expression of banking opinion, or of banking differences of opinion, which will attract public interest and, perhaps, a public following. This is a dangerous situation so far as the institution of private banking is concerned. It is not enough for banking to look after its own special interests, to see that it is not unfairly taxed, that it is not subjected to unfair competition by Government lending agencies, to fight in legislative halls and lobbies what it deems to be unwise legislative proposals relating to the rules of the banking business. It is not enough to hold aloft the banner of states' rights, to proclaim the need for checks and balances, and to fight against undue centralization of power. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 12 A positive affirmative approach to the great economic issues of the day is a plain duty of the banking community, as I see it - and also of the bank supervisory authorities. If such an approach were forthcoming, I would not ex pect the banker to become a popular hero. I would not expect banking to become a popular study among the millions. But I would expect the public to get the idea that banking stands for something besides its own special interests. I would expect banking to take its place with progressive industry and organized labor in trying to influence and mould public opinion on the critical economic issues of our times. Banking needs to speak with a clearer voice on matters which are necessarily controversial because they involve deep-seated and con flicting interests. We who are charged with the continued development of the private banking system of the United States should help banking to find that voice. Your organi zation w~i~h is concerned with banking in the 48 states and the territories can play a role here which could dwarf in importance anything which you have done in the past. I hope that you will find it in your hearts and minds to enlist in this cause. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Allan Sproul (1951, September 27). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19510928_allan_sproul

@misc{wtfs_regional_speeche_19510928_allan_sproul,
  author = {Allan Sproul},
  title = {Regional President Speech},
  year = {1951},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19510928_allan_sproul},
  note = {Retrieved via When the Fed Speaks corpus}
}