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There are certain provisions of this bill which directly affect the interests of particular classes of bankers who are members of our association. These special matters will be presented later by representative bankers who will show how certain provisions of this bill affect them.

I wish in my presentation to indicate to you some of the broader aspects of the bill which affect all bankers and also the general public. I will therefore submit the effects of this bill on the following:

1. Federal reserve system.
2. The Treasury of the United States.
3. The member banks.
4. The securities markets.
5. General business.


One of the fundamental principles of the Federal reserve act was the rejection of the European plan of central banking and the adoption of the American policy of regional or local banking. The act did not set up a single central bank, but, instead, 12 banks, and so gave full recognition to the principle of local independence and decentralization.

The proposed bill in various sections (see sec. 12-A, 11, 8 and 12–g), departs from this regional principle by centralizing powers in the Federal Reserve Board and by impairing the autonomy which each of the 12 Federal reserve banks have so far possessed.


The Federal reserve act wisely provided that the reserve system should act as fiscal agent for the Government, and should facilitate the marketing of United States obligations. In the coming years the volume of such Federal financing is bound to be heavy.

The proposed bill would seriously interfere with such Treasury financing, by checking the ready marketing of United States issues. In section 11 the proposed bill places a penalty on the holding of such securities by member banks which are the most important buyers of United States bonds.


We, as bankers, fully realize that our business is quasi public in nature and therefore Government supervision is necessary. For this reason, Congress in the past has developed the national bank act and the Federal reserve act, with its numerous amendments, but all this legislation has accepted the fundamental principle that final responsibility for bank management and bank policy rests with the individual banker himself.

The proposed billtransfers some of this responsibility to the Federal Reserve Board at Washington. We are of the opinion that such banking powers were not intended, under the Federal reserve act, to be conferred on the Federal Reserve Board, but that the board was intended to be an organization to exercise supervisory powers and not to control banking operations.


There have been four outstanding national movements inaugurated by a nonpartisan movement which were intended to arrest the progress of extreme deflation and to stabilize conditions. We refer to the organization of the National Credit Corporation and the citizens’ reconstruction organization. Also the passage by Conss of the Reconstruction Finance Corporation bill, and the Glassš. bill. We are fearful that the proposed bill will, to a large extent, nullify these efforts by causing a further liquidation of securities which would decrease their market value at a time when the owners are not able to withstand further losses. Senator BLAINE. Mr. Chairman, is there any objection to interrupting there? he CHAIRMAN. I would just ask—would you rather finish the statement first? Mr. HAAs. As you please, Senator. The CHAIRMAN. Go ahead and ask the question. Senator BLAINE. What I was interested in was not an academic discussion of this whole field, because that has been covered by Senator Glass. Mr. HAAs. Yes. Senator BLAINE. But with respect to the specific thing you have just read, will you point out what is in the bill that you fear will do the thing that you fear will be done? Mr. HAAs. This particular point I had in mind is section 15. I spoke to Doctor Willis about it, and he has corrected me on a matter here in section 15 on page 36, the ratio of “15 per cent of the amount of the capital stock of such association actually paid in and unimpaired and 25 per cent of its unimpaired surplus fund.” I had in mind that it referred to the aggregate securities which a bank might hold in its portfolio, but the doctor corrected me on that—and I think the people generally believed that. That is the reason I quoted it, because I understood it in that way, and perhaps the wording of it might be more explicit if it referred to only one security, and I am now told that that is what it means. Senator BrookHART. The governments, you mean? Mr. HAAs. No, outside of governments; other securities. Senator GLAss. No; “governments’ are expressly excluded.

Mr. HAAs. Are excluded; yes. [Reading:]

The business of purchasing and selling investment securities shall hereafter be limited to purchasing and selling such securities without recourse, solely upon the order, and for the account of, customers, and in no case for its own account, and no such association shall underwrite any issue of securities; except that any such association may purchase and hold for its own account investment securities to such an amount and of such kind as may be by regulation prescribed by the Comptroller of the Currency, but in no event shall the total amount of such investment securities of any one obligor or maker held by such association exceed 10 per centum of the total amount of such issue outstanding, nor shall the total amount of the securities so purchased and held for its own account at any time exceed 15 per centum of the amount of the capital stock of such association actually paid in and unimpaired and 25 per centum of its unimpaired surplus fund.

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I think people generally think that that means the total amount of securities which they hold.

Senator FLETCHER. It says distinctly.
Senator Glass.“ One obligor."

Senator FLETCHER. “ Total amount of such investment securities of one obligor or maker.”

Mr. Haas. That referred to the 15 and 25 per cent.

Senator FLETCHER. I do not know if there is any other provision in there

Senator Glass (interposing). I may say to Mr. Haas that I was interrogated on that point by one of the New York newspapers immediately after the first print of the bill came out, and I gave out a statement in which I undertook to point out that it referred to any one obligator. I am rather surprised to be told that people generally think it means something different.

Mr. Haas. I am expressing, Senator, the views that we had in our meeting, and I do not think any of us really got that point until I talked to Doctor Willis about it to-day.

Senator GLASS. That is not our fault.

Mr. Haas. No; that is not your fault. I am perfectly willing to change that on the information which I have gotten here.

The Reconstruction Finance Corporation seeks to enable banks to carry investments which are sound but temporarily unmarketable except at a substantial loss.

Senator BULKLEY. That would not be applicable. Mr. Haas. That would not be applicable. I am very glad to have that straightened out, Senator.

Senator Glass. You ought to be given an opportunity to rewrite that statement.

Mr. Haas. I will be glad to eliminate that, Senator.

Recent national movements have recognized that business recovery can not come about through decreasing the value of investments and commodities, but rather by stabilizing the prices of investments and commodities at somewhere near their real value. This desired condition can not be brought about by reducing the volume of credit, but rather by increasing the amount of available credit.

The Glass-Steagall bill very wisely provided for the release of approximately seven hundred million in gold to secure Federal reserve notes. The enactment of this bill would have just the opposite effect and cause an increase of approximately $227,500,000 in gold reserve through the increase in reserve requirements against time deposits.

I am told that that figure—the sum is quite different, but I have quoted it. I took my figures from a statement which I saw of the amount of deposits affected, and figured 7 per cent on those deposits, and the 35 per cent gold reserve, and got this figure. Their figure is somewhat higher, I think over a hundred millions a year, one hundred and twenty-five millions a year for the year, I believe.

Senator Glass. Our figures based on one set of estimates were seventy millions a year.

Senator BULKLEY. What did you say it should be?

Mr. Haas. My figure was made up from the figures which I saw in a newspaper article, the effect of the deposits and the amount of reserve that would be increased from the savings reserve to the commercial reserve, and figured the gold back of it, the gold back of the deposits with the Federal reserve bank. In other words, as you increase the reserve fund deposits, the only reserve we have now is the reserve carried at the Federal reserve bank, and if the Federal reserve banks deposits increase, their deposits increase, and they have to carry 35 per cent gold, and this 35 per cent gold is represented by my figures $227,500,000.

Senator Glass. That is not necessarily gold. They can carry 35 per cent lawful money. It does not involve any intrenchment upon The free gold. The whole matter can be adjusted by rediscounts.

Mr. Haas. But it does increase the deposits of the Federal reserve bank to that extent, that the member banks have to carry additional reserve, and the Federal reserve bank must carry its reserve against

Senator BROOKHART. Suppose of those reserves the surpluses were deposited in some other bank instead of the Federal reserve bank; would it not have the same effect?

Mr. Haas. Well, you would be multiplying the deposits. You would carry reserve. If they deposit with another bank. That bank would have to carry the reserve.

Senator BROOKHART. You say they deposit in a Federal reserve, and that it increases their reserve they must carry. But if you redeposit in a New York bank, would that not have the same effect

up there?

Mr. Haas. Yes; just pass it on.
Senator BROOKHART. So that is just as broad as it is long.
Mr. Haas. Yes; but if we carry—

Senator BROOKHART. If you kept it in your own bank, it would make your own reserve that much bigger, would it not?

Mr. Haas. In case we pass it on to another bank, Senator, we would deduct it from our gross deposits before calculating reserves. You see, the net deposits is the figure that is calculated.

Senator BROOKHART. Yes; but if you deduct it, they add it in. Mr. Haas. They would have to add it to their deposits, but we could deduct it from our gross deposits before calculating our reserves. If the bank is a member of the Federal reserve bank system, they would have to carry a reserve on it. That is, the Federal reserve bank would have to carry gold or legal against it.

Senator GLASS. The very simple meaning of this reserve provision of the bill, as I stated this morning, is that every time we have undertaken to adjust reserve requirements of the banks we have been confronted with hostile comments, as my colleague, Senator Bulkley, will recall, because to him was confided the reserve section of the original Federal reserve act. We were told at that time that it was impossible to make the proposed readjustments within a 3-year period. As a matter of fact, the first adjustment was made, as I recall, in 11 months. We were told at the time that the banks had not the resources to comply with the law within three years, and they complied with it in much less time. We reduced the reserves from around 25 per cent to 18, and then to 13 per cent, releasing an immense amount of credit for investment banking purposes.

Then not so very long ago we reduced the reserves behind time deposits to 3 per cent, and the testimony and information secured by a subcommittee all is to the effect that at least 80 per cent of the banks of the country have engaged in the practice of so manipulating their demand and time deposit accounts as to take advantage of this low reserve until the average reserve at the banks is ridiculously too small.

Mr. Haas. Senator, may I say—speaking for my own bank and my own experience in the bank, we have never

Senator Glass (interposing). Just let me finish that right there. Now, then, what we are proposing here is not anything of a revolutionary nature. We are simply proposing to restore

Mr. Hans (interposing). I know what you mean.

Senator GLASS. Behind time deposits the reserve that was required until very recently, in order that this manipulation of reserves shall not longer be resorted to. And we do not do it immediately; we do it over a period of five years. We give the banks five years in which gradually to readjust themselves to this situation.

Mr. HAAS. Senator, I have in mind a report of the committee appointed by the Federal Reserve Board to endeavor to find a scientific reserve on the activities of the account, and not on the amount of the balance, and I am just wondering whether you have given that any consideration.

Senator BULKLEY. Do you like that? Mr. Haas. I think it is all right, Senator. I think that the bank that has the active deposits and the bank that has the big turnover, certainly should carry a larger reserve than the bank that does not have the turnover. Doesn't that sound sensible and reasonable?

Senator BULKLEY. That is what I think; yes.
Senator GLASS. I think that, and our committee thought that.

Now, let me ask you one practical question: That proposition is revolutionary, is it not? Mr. Haas. Yes.

Senator Glass. Suppose we were to undertake now to embody it in this bill. What do you think would happen? Mr. Haas. It would be a campaign of education.

Senator GLASS. There would be a campaign against this bill-isn't that a fact? Mr. Haas. I think it would be a campaign of education. Senator Glass. I say Mr. Hans (interposing). I think you have an argument there. I think you can go right before the public and you can educate them to the activity of the account as a scientific means of carrying this reserve.

Senator Glass. You do not require any education to follow this readjusting of the reserves here?

Mr. Haas. No; they are accustomed to them.

Senator Glass. We maintain the existing form, and we simply restore the reserve to avert a continuance of this manipulation, and there is not a country banker in the United States to-day that cannot understand this instantly.

Mr. Haas. They understand this method; that is right.

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