Regional President Speech

THE FEDERAL RESERVE SYSTEM AFTER FIFTY YEARS Statement of KARL R. BOPP Before the Subcommittee on Domestic Finance of the COMMITTEE ON BANKING AND CURRENCY HOUSE OF REPRESENTATIVES January 30» 1964 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis (February 1964 issue) BUSINESS REVIEW Statement of KARL R. BOPP PRESIDENT, FEDERAL RESERVE BANK OF PHILADELPHIA before the SUBCOMMITTEE ON DOMESTIC FINANCE of the COMMITTEE ON BANKING AND CURRENCY HOUSE OF REPRESENTATIVES Thursday, January 30, 1964 Mr. Chairman and Members of the Committee: seems to me that a board consisting of eleven My name is Karl R. Bopp. I have been a members who devote their entire time to the member of the staff of the Federal Reserve Bank business of the Board would be unwieldy. Chair­ of Philadelphia since September 1941 and Presi­ men of the Board of Governors who have ex­ dent since March 1, 1958. Before I came to the pressed their view on the matter of size have Bank I was on the faculty of the University of favored a reduction rather than an enlargement Missouri. It is a privilege to appear before you from the present number. Certainly membership to testify on several of the bills that are before on the Board would be less attractive as one of you relating to the Federal Reserve System. My eleven or twelve than as one of seven or five. introductory statement is brief. Although there As to term and tenure, the bill would reduce might be some advantage to the Committee to the term from fourteen years to four and would hear the full statement before you raise ques­ make tenure of appointive members subject to tions, please do not hesitate to interrupt me at removal by the President. An appointive member any point if you prefer to do so. would be ineligible for reappointment for four years. Since the maximum term is four years, H.R. 9631: average tenure would be shorter and turnover I begin with H.R. 9631, “A bill to increase to would necessarily be rapid; there could be little twelve the number of members of the Federal continuity except that provided by the staff. An Reserve Board, and for other purposes.” individual without independent wealth and in­ Section 1 would reorganize the Federal Re­ come would be forced to give thought to his next serve Board by increasing its size, reducing the position almost from the time he began to learn term and tenure of its appointed members, and about the responsibilities of membership; and changing its structure and composition. his next position would necessarily become a With respect to size, the bill would increase matter of increasing concern as the end of his the membership from seven to twelve, including term approached, since even top performance the Secretary of the Treasury as Chairman. It would not qualify him for another term. 9 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis biwii icw The bill would change the structure and com­ Committee to replace the present Federal Ad­ position of the Board. It would make the Secre­ visory Council. The proposed Committee would tary of the Treasury Chairman. This would place be so large that its deliberations would likely be on the Secretary a new responsibility that is too time consuming to hold able members or its inconsistent with an existing responsibility. As results would likely be perfunctory. Secretary, he is the largest borrower in the Section 3 would transfer the powers, duties, world by a wide margin. As borrower he ap­ and functions of the Federal Open Market Com­ propriately desires the lowest borrowing cost mittee to the new Board. To abolish the Federal possible. As Chairman of the new Board, he Open Market Committee would change the basic would head the agency with the largest single character of the System. It would eliminate the portfolio of government securities, an agency most important opportunity for public service whose primary concern is to promote credit and hence seriously reduce the attractiveness of conditions appropriate to the entire economy, the presidencies of the Federal Reserve Banks, including but not limited to the Government. with resulting deterioration in the quality of the The sad experience of many countries, includ­ managements and of the services performed by ing our own, with putting these conflicting re­ those banks. I continue to agree with the view sponsibilities in the hands of a single individual expressed by the Patman Subcommittee in 1952 leads me to conclude that it should not be done. that “the present arrangement serves a useful An additional difficulty would be occasioned purpose and (that there is) . .. no reason to by having the Secretary serve as Chairman of disturb it.” the Board. He would rarely find time actually to Section 4 would direct the Comptroller Gen­ attend meetings. This, at any rate, was the ex­ eral to make an annual financial and manage­ perience before 1936 and I would anticipate ment audit of the Board, the Reserve Banks and no change. Unfortunately, this is a function that their Branches. Chairman Martin has described should not be delegated. present auditing procedures which, by deliberate The bill would provide also for a Vice Chair­ design, are independent of operating manage­ man, designated by the President from among ment. President Bryan submitted a statement to the appointive members, who would be the ac­ the Patman Subcommittee in 1952 which demon­ tive executive officer of the Board. It is probably strates that this change would not produce the desirable to have a chief executive officer but the desired results. It would reduce the authority of brevity of the maximum term would militate the directors, who are a driving force to in­ against efficiency and continuity of operations. crease efficiency. It would divert the attention of In describing the qualifications of appointive management from continuous and occasionally members, the bill requires fair representation of bold new efforts aimed at promoting efficiency certain specified interests and of geographic di­ to the negative approach of concentrating on visions. I would prefer the law to specify that avoiding risks. every member be qualified and selected to repre­ sent the public interest and that residential H.R. 9685: qualifications be eliminated. This bill would subject the Board and the Re­ Section 2 would create a Federal Advisory serve Banks to appropriations by the Congress. 10 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis business review The supplementary statement by President purely logical proposition a Federal Reserve Bryan, to which I have already referred, demon- Bank could operate not only without capital stock states that this change would not achieve either and surplus but with a very large deficiency better monetary policy or greater operational (i.e., with liabilities far in excess of assets). efficiency. The reason is that the only logical needs for The Congress could expose the country to the assets are to secure earnings and to meet the hazard of seriously interupting our payments claims of creditors as they arise. Since earnings mechanism by subjecting the Reserve System to are now far in excess of expenses, fewer earning Congressional appropriations. An efficient sys­ assets would still be adequate to meet this need. tem of payments: collection of checks, provision Thè two large liability accounts are for Federal of currency and coin, is indispensable to sus­ Reserve notes and member bank reserve deposits. tained economic growth. Interruption in the There is no possibility that these accounts, which smooth flow of checks or inability to secure now total about $50 billion will fall below, say cash could cause panic. To assure that there $30 billion—or even $40 billion. Logically, no would be no such interruption in these functions assets are needed to meet claims that will never —which vary widely and at times unpredictably be made, hence the Reserve Banks could operate —the System would either (1) have to be given logically with liabilities far in excess of assets. wide discretionary authority by the Congress, or I develop this logic of the case to indicate that (2) would have to defend a budget of sufficient meaningful living involves more than logic. size to meet maximum possible needs. Grant of Reserve Bank stock is a means of tying mem­ wide discretionary authority would defeat the ber banks and bankers more closely to the Sys­ purpose of subjecting the System to Con­ tem. It provides a business-like method for elect­ gressional appropriations. Budgets designed to ing six directors. Dividends on the stock are a meet maximum needs, on the other hand* would partial offset against the lower earnings of mem­ tend inevitably to increase costs. Experience with ber banks which result from their higher effective the severe coin shortages is recent years demon- reserve requirements. Elimination of stock would states that deficiency appropriations are no de­ make some observers restive because they would pendable solution. view it as indicative of a movement toward basic monetary changes such as nationalization of the H R. 3783: banking system. There is no demonstrated need The billwottld retire Federal Reserve Bank stock or prospect of benefit to offset these advantages and substitute certificates of membership; As a of the change. 11 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1964, January 29). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19640130_karl_r_bopp

@misc{wtfs_regional_speeche_19640130_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1964},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19640130_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}