[발췌] The 1935 Banking Act & the Fed

자료 1: "Federal Reserve System," in The Concise Encyclopedia of Economics ( 항목 기술자: Richard H. Timberlake )

※ 위 경제백과 속의 연준(연방준비제도) 항목은 연준과 통화정책의 변천을 쭉 개관하는 데 좋은 글로 보인다. 아래는 1935년 은행법 즈음의 상황만 발췌한 것이다.

The Original Federal Reserve System: (...)

The Federal Reserve System during the 1920s:

(...) The downturn in business that became the Great Contraction of 1929–1933 began in 1928. Federal Reserve officials, and many financial analysts and politicians, believed that a financial purging of speculative and nonproductive bank credit was needed. They argued that the slackening of production in the economy indicated a diminished “need” for money. Since they had taken monetary control away from the gold standard, their faulty decision to do nothing to keep the money supply from falling allowed the recession to degenerate into a depression. As it did so through 1930 and 1931, the commercial banking system suffered three major crises. By early 1933, it and the economy were in shambles (see great depression).

The Banking Act of 1935:

In 1935, Congress, at the behest of President Roosevelt, passed the Banking Act of 1935. This act converted the autonomous regional system of reserve-holding banks into a monolithic central bank with positive and deliberate control over the U.S. monetary system.

One major change was the creation of the Federal Open Market Committee (FOMC). This agency included the seven governors (as they were now labeled) of the Fed Board, the president of the New York Fed, and four of the other eleven Fed Bank presidents, who rotated membership on the committee. The FOMC controlled open market operations in government securities, which now became system-wide. Reserve Banks still set their own discount rates, but discounting never again figured prominently in Fed policies.

A 1917 amendment to the original act of 1913 had fixed member bank reserve requirements at 7, 10, and 13 percent for member banks in small to larger cities. The act of 1935 extended these percentages to a range double the original values, that is, to 7–14, 10–20, and 13–26 percent, the exact percentages to be set by decision of the Board of Governors. This change added to the board’s policymaking powers. While the new act gave the Fed these additional monetary controls, it nowhere specified goals or targets for Fed policy beyond the general terms in the original act.

The Banking Act also removed the secretary of the treasury and his second-in-command, the comptroller of the currency, from the Fed Board. (They had been chairman and vice chairman of the board.) However, the board’s decisions were even more under the control of the secretary of the treasury than they had been in the past. From 1935 to 1951, the secretary of the treasury, with the compliance of Fed Board Chairman Marriner Eccles, continued to dominate Fed policies.

Gold kept coming into the United States due to both the higher price (thirty-five dollars per ounce) that Congress had legislated in 1934 and the political instability in Europe. By 1936, the commercial banking system had enormous “excess” reserves—double the required amount of currency and reserve-deposit accounts with Fed Banks, which also had double the amount of required gold reserves. Observing the volume of reserves in the banking system and arguing that it would fuel inflation, the Fed Board—with the approval of the secretary of the treasury, most financial experts, and many academicians—doubled commercial bank reserve requirements in three steps: by 50 percent in August 1936, 25 percent in March 1937, and the final 25 percent in May 1937. This momentous change stifled the recovery and initiated the 1937 recession. In fact, even had the banks used all of their excess reserves to expand credit and the money supply, virtually no inflation was possible. The high unemployment of 1936 and 1937 meant that even a fully expanded banking system could not have created enough money to raise prices more than a few percent above their 1929 level. Complete economic recovery did not occur until after the start of World War II. (...)


자료 2: http://www.spartacus.schoolnet.co.uk/USAecclesM.htm

(...) In 1935 Eccles and Currie drafted a new banking bill to secure radical reform of the central bank for the first time since the formation of the Federal Reserve Board in 1913. It emphasized budget deficits as a way out of the Great Depression and it was fiercely resisted by bankers and the conservatives in the Senate. The banker, James P. Warburg commented that the bill was: “Curried Keynes... a large, half-cooked lump of J. Maynard Keynes... liberally seasoned with a sauce prepared by professor Lauchlin Currie.” With strong support from California bankers eager to undermine New York City domination of national banking, the 1935 Banking Act was passed by Congress.


자료 3: A History of Money and Banking in the United States: The Colonial Era to World War II (Murrary N. Rothbard, 2002 Ludwig von Mises Institute)


In Congress, Eccles’s nomination sailed through, with struggles concentrated on the banking act. In the hearings, particularly interesting in opposition was James P. Warburg of Kuhn, Loeb, and chairman of the board of the Kuhn, Loeb–run Bank of Manhattan. Warburg, who as an old-line banker had been allied with the Morgans at the London Economic Conference, denounced the banking bill as “Curried Keynes.”95 In the
course of the controversy, the highly influential New York Times and the Washington Post (owned and directed by Eugene Meyer) changed their initial opposition to support for the bill. Essentially, Eccles won almost all of his points: the shift of banking control from Morgan’s New York Fed to the non-Morgan Washington politicians had been completed. In the Senate, Eccles only had to make one important concession to Glass: instead of the Federal Open Market Committee consisting solely of the governors of the Federal Reserve Board, it would be instead comprised of the seven members of the Federal
Reserve Board plus five rotating representatives of the Federal Reserve banks (in practice, their presidents) and hence of private bankers.

But despite this compromise, the decisive act had taken place: open market policy would be initiated in, dominated by, and enforced by the Federal Reserve Board in Washington.
Actual open market operations would be carried out, most conveniently, in New York, but strictly under the orders of the Federal Reserve Board–dominated FOMC. Individual Federal Reserve banks (in practice, the New York Fed) were prohibited from buying or selling government securities for their own account, except under the direction, or with the explicit permission, of the FOMC. To further reduce the power of the Federal
Reserve banks, it was explicitly provided that the bank elected members of the FOMC were not to serve in any way as agents of the banks that elected them; indeed, the banks were not to know what was going to happen but only to have a chance to be heard through an advisory committee. Indeed, the bank presidents serving on the FOMC were not even allowed to divulge actions taken at FOMC meetings to their own board of directors! Harrison fought unsuccessfully against this provision; and in a last-ditch and finally failing battle in 1937, Harrison tried to get the FOMC to allow Reserve banks to conduct open market operations on their own in case of individual bank emergencies.
In addition, the Federal Reserve Board was given veto power over the election of the president and first vice president of each district Federal Reserve bank. And, in a symbolic gesture, all district Fed “governors,” the hoary name for heads of the central banks, were demoted to “presidents,” whereas the old ”members” of the Federal Reserve Board in Washington were upgraded to “governors,” while the previous “governor”
of the Federal Reserve Board now became the board’s august “chairman of the board of governors.” Furthermore, cementing Chairman Eccles’s power within Washington, the
Treasury secretary and the comptroller of the currency were both removed as ex officio members of the Federal Reserve Board.

Finally, the last shred of qualitativist restraint upon the Fed’s expansion of credit was removed, as bank assets deemed eligible for Fed rediscounting were broadened totally to
include any paper whatever deemed “satisfactory” by the Fed—that is, any assets the Fed wished to declare eligible.96

The Banking Act of 1935 was important for being the final
settled piece of New Deal banking legislation that consolidated
all the revolutionary changes from the beginning of the
Roosevelt administration. The Morgans tried desperately, for
example, to alter the 1933 Glass-Steagall provision, compelling
the separation of commercial and investment banking, but this
reversion was successfully blocked by Winthrop Aldrich.
Specifically, Senator Glass’s amendment to the Banking Act of
1935, restoring limited securities power to deposit banks,
was able to reach the congressional conference committee;
for a while, it looked like this Morgan maneuver would succeed,
but presumably at the behest of Aldrich, however, FDR personally interceded with the committee to kill the Glass amendment.97

For his part, Aldrich, as a Wall Street banker himself, was not very happy about the permanent shift of power from Wall Street to Washington, but he was content to go along with the overall result, as part of the anti-Morgan coalition with Western banking.
The centralization of power over the banking system in Washington was now complete. It is no wonder that the irrepressible H. Parker Willis, writing the following year, lamented the centralized monetary and banking tyranny that the Federal Reserve had become. Willis wisely perceived that the course of inflationary centralization to have begun in the
1920s as Morgan control in the hands of the New York Fed, and now, with the New Deal, was immeasurably accelerated and shifted to Washington:

The Eccles group which advocated the Act of 1935 sought to
obtain for themselves those powers which the more ambitious
of the banking clique in New York and elsewhere had
already arrogated to the Federal Reserve Bank of New York
and to the small group by which the institution was practically
directed [the House of Morgan]. There was no change in
the conception or notion of centralization, but only in the
agency or personnel through which such centralization should
be put into effect.98

The New Deal, Willis went on, had passed various allegedly temporary and emergency measures in its first three years, which were now permanently consolidated into the Banking Act of 1935, and thus “was built up perhaps the most highly centralized and irresponsible financial and banking machine of which the modern world holds record.”
The result, Willis pointed out, was that the years of “tremendous deficit” from 1931 on were marked by a process of “gradually diverting the funds and savings of the community
to the support of governmentally directed enterprises.” It was “an extraordinary development—an extreme application of central banking which brought the system of the United States to a condition of even higher concentration” than in other countries.
Willis ominously and prophetically concluded, Today, the United States thus stands out as a nation of despotically controlled central banking; one in which, as all now admit, moreover, business paper of every kind is gradually taking the form of government paper which is then financed through a governmentally controlled central banking organization.99

EPILOGUE: RETURN OF THE MORGANS : (...)