The Suggested Pro Rata Ownership of Federal Reserve Banks

Title

The Suggested Pro Rata Ownership of Federal Reserve Banks

Creator

Strong, Benjamin, 1872-1928

Identifier

WWP18846

Date

No date

Description

Benjamin Strong reports on different aspects in consideration regarding the ownership of Federal Reserve Banks.

Source

Benjamin Strong Jr. Papers, New York Federal Reserve Bank

Language

English

Text

The suggested prorata ownership of Federal Reserve Banks must be considered upon one of two hypotheses. One that all member banks would participate in the management of all F. R. Banks.— the other that they would simply own stock but in all the F. R. Banks have no voice in the management of any FR bank outside the one in their own district.As to the first hypothesis, the present bill would require thoro.' revision in respect of Boards of Directors, Federal Reserve Board and Advisory Board to make the change feaseable. To give broker representation would require a general board, elected by all member banks, with a central office and management. It to would not be a long step to the creation in the law of one central bank, as these would develop to be in fact. It would go along way toward harmonizing possible sectional differences which arising be between the management of Federal Reserve Banks, but would open the door to possible differences of opinion within the local Boards of the various F. R. banks.— One or two directors representing outside districts having might possibly have interests at variance with the interests of the districts within which the particular bank was located. It is hard to see how a plan of management can be devised to suit such a plan of ownership without arriving creating in the end with but one bank with branches.As to the second hypothesis:— There is only one sound principal upon which capital is safely employed and business is profitably conducted. The owner who has capital at risk must and will always insist upon participation in management. Even the management of our large corporations with the vast powers delegated to Directors, are in the end, governed by this fundamental relationship between owner and manager. But where does the suggestion lead us in this case, upon the second hypothesis? Not only would your institution and mine have no voice in the policy and management adopted at San Francisco or New Orleans,— but it is possible,— in fact well nigh certain— that interests and purposes radically different from and seriously conflicting would control the man with those of our own district, would at times prevail, and the capital furnished by our own stockholders would then be inevitably applied to the furthering interests of other than those of its owners. The injurious effects of lack of harmony in operation of the F. R. Banks would be intensified by the financial interests of the stockholding banks in of foreign districts and would necessitate even greater the exercise of even greater mandatory powers by the Federal Reserve Board.I do not feel willing to state that the idea could not be developed in some way so that it would prove far superior to the plan as now proposed. The difficulties above suggested might be met by changing the character of the advisory Board and enlarging its powers. If, for instance, representation of F. R. Banks on the Advisory Board were made somewhat in the proportion of size of the various F. R. Banks, and the F. R. Boards power to require discount made subject to the approval or disapproval of the Advisory Board, it would partly meet the difficulties suggested,— but the power of veto alone would accomplish most that is needed, without the pro rata ownership.The suggestion however is encouraging. At least one member of the Senate Committee seems to realize the weakness of the proposed plan of control. I hope it may prove to to be the beginning of a better understanding, by the Committee, of the desire you and I and many others here feel, to assist and not hinder this important work.-

Original Format

Miscellaneous

Files

http://resources.presidentwilson.org/wp-content/uploads/2017/03/D08456.pdf

Tags

Citation

Strong, Benjamin, 1872-1928, “The Suggested Pro Rata Ownership of Federal Reserve Banks,” No date, WWP18846, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.