Secretary of Treasury
Title
Secretary of Treasury
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18414
Date
No date
Description
Strong comments on several lines in a Federal Reserve bill, stating that the Secretary of the Treasury has been given far too much power over financial matters in the U.S.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
Secretary of Treasury
May Sell Stock of Bank.
Page 8, Lines 16 - 21. “Said United States stock shall be paid for at par out of any money in the Treasury not otherwise appropriated, and shall be held by the Secretary of the Treasury and disposed of for the benefit of the United States in such manner, at such times, and at such price, not less than par, as the Secretary of the Treasury shall determine.”
Is this unrestricted authority warranted, when it might as readily be provided that the stock owned by the Government be sold to the highest bidder upon public offering, with no opportunity for discrimination or favoritism
Discretionary Power to Distribute Insurance Fund.
Page 26, Lines 3 - 7. “the money to be kept in and losses from failures to be paid from it as a depositors' insurance fund under a division of the Treasury to be constituted and managed under such regulations as may be prescribed by the Secretary of the Treasury.”Can Use Earnings to Purchase Government Debt.
Page 26, Lines 7 - 12. “All net earnings derived by the United States from Federal reserve banks shall be applied to the reduction of the outstanding bonded indebtedness of the United States, under regulations to be prescribed by the Secretary of the Treasury.”
The Secretary of the Treasury may buy from his friends, at any price that he fixes. This is an unwarranted, indiscreet delegation of authority to an officer of the Government, which even private corporations would not countenance today.Authority to Distribute Public Funds, and Authority to Overrule theFederal Reserve Board, of which he is a member.
Page 35, Lines 5 - 13. “Nothing in this Act contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management and control of the Treasury Department and bureaus under such department, and whenever any power vested by this Act in the Federal Reserve Board or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.”Simply another indication of the intention to make the Secretary of the Treasury the supreme authority in the monetary affairs of the country. It certainly has the effect, in connection with other provisions referred to, of giving him absolute unrestricted control over the distribution of Federal funds. In 1907, the distribution of the general fund at the time of the panic was the subject of Congressional inquiry. Going back to the days of Andrew Jackson, “pet” banks have been a recurring cause of scandal. The present system is bad enough, and such bad features as it has will be magnified under the provisions of this bill.Additional Authority to Distribute Government Funds.
Page 47, Lines 7 - 18. “Sec. 15. The moneys held in the general fund of the Treasury, except the five per centum fund for the redemption of outstanding national-bank notes and the funds provided in this Act for the redemption of Federal reserve notes may, upon the direction of the Secretary of the Treasury, be deposited in Federal reserve banks, which banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks, and disbursements may be made by checks drawn against such deposits.”The Secretary of the Treasury is placed in unrestricted control of over $200,000,000. of Government funds to be deposited with the Federal reserve banks, of which $90,000,000. is now on deposit with National banks. He may say where it shall be so deposited, or whether it shall continue to be deposited in National banks or held in lawful money in the Treasury. No single officer of the Government should have this power. As stated before, the exercise of the power now vested in the Secretary of the Treasury, whether lawful or not, is unwise. This will simply make it worse. Favoritism to localities is possible. The use of the Government's funds for political or partisan purposes as to sections of the country is possible. No such construction could enter into the handling of the Government's deposits with a central bank.The Secretary of the Treasury would have a power, under this provision, that would make it possible for him to nullify sound banking in the regional banks and make it dangerous banking. By being in a position to transfer such large sums from one regional bank to another and from one part of the country to another, he could upset all of the arrangements of any or every regional bank. If the Federal Reserve Board would not yield to his demands because they did not agree with his opinions,- which, while entirely honest might be dangerous to the country,- he could carry out his opinions in spite of it. For instance, suppose the Federal Reserve Board, of which the Secretary of the Treasury was a member, feeling that a certain regional bank was unduly inflated and should not be allowed to borrow from other regional banks, but should be forced to curtail its operations, and every member of the Board with the exception of the Secretary of the Treasury so voted, this majority opinion could be rendered void through the action of the Secretary of the Treasury in transferring balances of the Government in other regional banks, to the regional bank under criticism. If this particular regional bank happened to be situated in a district strongly of the political belief of the Secretary of the Treasury, great pressure could be brought to bear upon him. Again, if such regional district happened to be a crucial one, as far as its votes for President were concerned, the pressure might even be stronger to help it out. It has been admitted by those favoring this Bill that the present power of the Secretary of the Treasury, in being able to deposit money with such National banks as he might see fit, is subject to abuse, and it has been claimed in some quarters that this power has been abused. The extent of such abuse, however, at present is limited in the case of each favored institution, to its capital and the security it can put up, and no such extraordinary amount can be placed with one bank as will be possible in the case of a regional bank, where the Secretary of the Treasury could, if he wished, place $200,000,000. with a bank having a capital of $3,000,000. Every change of Administration involving a large difference in policies strongly affects business. How much greater will such changes of policy influence business, if any system is grafted upon this country that will subject our whole banking system to action based upon the whims of one individual?Special Examinations.
Page 69, Lines 16 - 21. “Sec. 21. Every member bank shall be examined by the Comptroller of the Currency at least twice in each calendar year and as much oftener as the Federal Reserve Board shall consider necessary.”As to special examinations, this places the Comptroller of the Currency under the direction of the Federal Reserve Board, although he is now by law subject to the direction of the Secretary of the Treasury. As the Secretary of the Treasury, in the paragraph on Page 35, Lines 5 to 13 (quoted on page 2 of this memo.), is authorized to act in opposition to any provision of this Act which might curtail his existing rights, he would, under this provision, again be able to overrule the Federal Reserve Board is he so desired. The Comptroller of the Currency is placed at the service of the Federal Reserve Board and the power is apparently given to them to require such examinations. If six members of the Federal Reserve Board voted to have any special examination made, and the Secretary of the Treasury voted against it, he would be able to prevent the examination, as his instructions to the Comptroller would be greater authority than those of the Federal Reserve Board.General Powers.You will find, upon analysis of this Bill, that the Secretary of the Treasury is given a power beyond that accorded the President of the United States, the King of England, or the Emperor of Germany, in his relation to the financial matters of the country. The Secretary of the Treasury, who is not elected by the people and whose personality is unknown to them when they elect the man who appoints him, is given such power that he could, of his own volition, in collusion with some banker, cause the failure of any regional bank, or of all of them, and could bring a panic upon this country, if he wished to abuse the power that he would have, such as has never been seen in the history of the world.
May Sell Stock of Bank.
Page 8, Lines 16 - 21. “Said United States stock shall be paid for at par out of any money in the Treasury not otherwise appropriated, and shall be held by the Secretary of the Treasury and disposed of for the benefit of the United States in such manner, at such times, and at such price, not less than par, as the Secretary of the Treasury shall determine.”
Is this unrestricted authority warranted, when it might as readily be provided that the stock owned by the Government be sold to the highest bidder upon public offering, with no opportunity for discrimination or favoritism
Discretionary Power to Distribute Insurance Fund.
Page 26, Lines 3 - 7. “the money to be kept in and losses from failures to be paid from it as a depositors' insurance fund under a division of the Treasury to be constituted and managed under such regulations as may be prescribed by the Secretary of the Treasury.”Can Use Earnings to Purchase Government Debt.
Page 26, Lines 7 - 12. “All net earnings derived by the United States from Federal reserve banks shall be applied to the reduction of the outstanding bonded indebtedness of the United States, under regulations to be prescribed by the Secretary of the Treasury.”
The Secretary of the Treasury may buy from his friends, at any price that he fixes. This is an unwarranted, indiscreet delegation of authority to an officer of the Government, which even private corporations would not countenance today.Authority to Distribute Public Funds, and Authority to Overrule theFederal Reserve Board, of which he is a member.
Page 35, Lines 5 - 13. “Nothing in this Act contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management and control of the Treasury Department and bureaus under such department, and whenever any power vested by this Act in the Federal Reserve Board or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.”Simply another indication of the intention to make the Secretary of the Treasury the supreme authority in the monetary affairs of the country. It certainly has the effect, in connection with other provisions referred to, of giving him absolute unrestricted control over the distribution of Federal funds. In 1907, the distribution of the general fund at the time of the panic was the subject of Congressional inquiry. Going back to the days of Andrew Jackson, “pet” banks have been a recurring cause of scandal. The present system is bad enough, and such bad features as it has will be magnified under the provisions of this bill.Additional Authority to Distribute Government Funds.
Page 47, Lines 7 - 18. “Sec. 15. The moneys held in the general fund of the Treasury, except the five per centum fund for the redemption of outstanding national-bank notes and the funds provided in this Act for the redemption of Federal reserve notes may, upon the direction of the Secretary of the Treasury, be deposited in Federal reserve banks, which banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks, and disbursements may be made by checks drawn against such deposits.”The Secretary of the Treasury is placed in unrestricted control of over $200,000,000. of Government funds to be deposited with the Federal reserve banks, of which $90,000,000. is now on deposit with National banks. He may say where it shall be so deposited, or whether it shall continue to be deposited in National banks or held in lawful money in the Treasury. No single officer of the Government should have this power. As stated before, the exercise of the power now vested in the Secretary of the Treasury, whether lawful or not, is unwise. This will simply make it worse. Favoritism to localities is possible. The use of the Government's funds for political or partisan purposes as to sections of the country is possible. No such construction could enter into the handling of the Government's deposits with a central bank.The Secretary of the Treasury would have a power, under this provision, that would make it possible for him to nullify sound banking in the regional banks and make it dangerous banking. By being in a position to transfer such large sums from one regional bank to another and from one part of the country to another, he could upset all of the arrangements of any or every regional bank. If the Federal Reserve Board would not yield to his demands because they did not agree with his opinions,- which, while entirely honest might be dangerous to the country,- he could carry out his opinions in spite of it. For instance, suppose the Federal Reserve Board, of which the Secretary of the Treasury was a member, feeling that a certain regional bank was unduly inflated and should not be allowed to borrow from other regional banks, but should be forced to curtail its operations, and every member of the Board with the exception of the Secretary of the Treasury so voted, this majority opinion could be rendered void through the action of the Secretary of the Treasury in transferring balances of the Government in other regional banks, to the regional bank under criticism. If this particular regional bank happened to be situated in a district strongly of the political belief of the Secretary of the Treasury, great pressure could be brought to bear upon him. Again, if such regional district happened to be a crucial one, as far as its votes for President were concerned, the pressure might even be stronger to help it out. It has been admitted by those favoring this Bill that the present power of the Secretary of the Treasury, in being able to deposit money with such National banks as he might see fit, is subject to abuse, and it has been claimed in some quarters that this power has been abused. The extent of such abuse, however, at present is limited in the case of each favored institution, to its capital and the security it can put up, and no such extraordinary amount can be placed with one bank as will be possible in the case of a regional bank, where the Secretary of the Treasury could, if he wished, place $200,000,000. with a bank having a capital of $3,000,000. Every change of Administration involving a large difference in policies strongly affects business. How much greater will such changes of policy influence business, if any system is grafted upon this country that will subject our whole banking system to action based upon the whims of one individual?Special Examinations.
Page 69, Lines 16 - 21. “Sec. 21. Every member bank shall be examined by the Comptroller of the Currency at least twice in each calendar year and as much oftener as the Federal Reserve Board shall consider necessary.”As to special examinations, this places the Comptroller of the Currency under the direction of the Federal Reserve Board, although he is now by law subject to the direction of the Secretary of the Treasury. As the Secretary of the Treasury, in the paragraph on Page 35, Lines 5 to 13 (quoted on page 2 of this memo.), is authorized to act in opposition to any provision of this Act which might curtail his existing rights, he would, under this provision, again be able to overrule the Federal Reserve Board is he so desired. The Comptroller of the Currency is placed at the service of the Federal Reserve Board and the power is apparently given to them to require such examinations. If six members of the Federal Reserve Board voted to have any special examination made, and the Secretary of the Treasury voted against it, he would be able to prevent the examination, as his instructions to the Comptroller would be greater authority than those of the Federal Reserve Board.General Powers.You will find, upon analysis of this Bill, that the Secretary of the Treasury is given a power beyond that accorded the President of the United States, the King of England, or the Emperor of Germany, in his relation to the financial matters of the country. The Secretary of the Treasury, who is not elected by the people and whose personality is unknown to them when they elect the man who appoints him, is given such power that he could, of his own volition, in collusion with some banker, cause the failure of any regional bank, or of all of them, and could bring a panic upon this country, if he wished to abuse the power that he would have, such as has never been seen in the history of the world.
Original Format
Notes
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Secretary of Treasury,” No date, WWP18414, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.