America's Money Machine

The New Deal and the Federal Reserve
member banks as to lead to the elimination of important and necessary
activities and to the eventual surrender of individual bank management to
the Federal Reserve Board.
Sec. 8 gives power to the Federal Reserve Board to fix the percentage of
capital and surplus which any member bank may lend in the form ofcollateral
loans, and it is within the power of the Federal Reserve Board to change this
percentage at any time upon 10 days notice.
The power of control of the Federal Reserve Board over actions of the
Federal Reserve Open Market Committee, as authorized in Section 10, might
possibly tend to slow up open market operations. l
At the same time that the bill was under consideration in the Senate,
Henry Steagall, chairman of the House Banking and Currency Committee,
had been hammering out a bill for the guarantee of bank deposits,
but the conservative Glass, whose influence in the Senate was still paramount,
refused to accept it, even though it may have meant a compromise
acceptance of his own measure.
As the crisis subsided, banking legislation had come again to the fore.
The Senate was now under Democratic Party control, and Glass in control
of the Banking and Currency Committee.* Glass now undertook a
major investigation into banking practices with a vigorous young lawyer,
Ferdinand Pecora, as chief counsel. The disclosures-among them that
twenty Morgan partners had not paid income tax for two yearst-added
to the opprobrium which Roosevelt had visited upon banking in his
inaugural address, and assured passage of whatever legislation Glass
might ask. However, he seems to have modified some ofhis own conservative
views. In any case he now agreed with Steagall's deposit guarantee
scheme, and the new bill went through the Senate without a dissenting
vote. Except for the deposit guarantee, however, the bill was pretty much
a Glass bill, and indeed for some time Administration approval, and
Presidential signature, were in doubt.t
*His seniority entitled him to chairmanship, but Roosevelt wanted him to head the
Appropriations Committee, rather than Senator Kenneth McKellar, and it was arranged
that Senator Duncan Fletcher would head the Banking and Currency Committee but allow
Glass to run it as vice-chairman.
tThis was hardly extraordinary, in view ofthe business losses that were being sustained,
but the legal devices they employed to establish the amount of their losses struck many as
unethical.
tit is curious that the annual reports of the Secretary of the Treasury for both the fiscal
years 1933 and 1934 omit the text, and .any discussion ofthis act, although often going into
great detail in regard to monetary legislation and decrees, and giving the text of major
legislation. Particularly, a chronology of action relating to gold in the Report for 1934
(Exhibit 25) fails to mention this act.