Glass Bill

Great economic reforms move slowly. It was 25 years after the panic of 1837 before the National Banking Act was passed. Six years after the Depression of 1907 the Federal Reserve System came into being.

Hero of the Federal Reserve Act was little Carter Glass of Virginia. Last week Senator Glass, now 74, sharper in voice and crustier in manner than in 1913, was again cast in a heroic role. An archfoe of speculation for many a long year, he was bitterly chagrined with 1929--5 great wave of stock inflation in defiance of the Federal Reserve. After a year's investigation he proposed reforms which he felt would halt speculation for good and all--reforms which would alter the entire conduct of a nation's banking, which law-makers called sweeping, bankers devastating.

Tightly packed into a null 61-page document, the Glass reforms last week lay on a table of a subcommittee of the Senate Committee on Banking & Currency. The document was headed: A bill to provide for the safer and more effective use of the assets of Federal Reserve Banks and of National Banking Associations, to regulate interbank control, to prevent the undue diversion of funds into speculative operations and for other purposes. Should it become law, it would go down in history as "The Banking Act of 1932."

Fortnight ago it looked as if the Glass Bill might pass Congress without serious difficulty. Democrats stood solidly behind the little Virginian. Insurgents were for anything that would discomfort Wall Street. But that was before the big bankers of the land had read the bill's text, made their outraged feelings known to Washington. The Treasury scowled a scowl of disapproval; Governor Meyer of the Federal Reserve Board looked displeased. Last week it was clear that the Glass Bill was scheduled for a major operation-by-amendment.

Most drastic of the changes proposed was an elaborate set of provisions to curb credit for speculation. Borrowings from the Federal Reserve on commercial paper would be conducted as they are now, but borrowings on banks' promissory notes and Government bonds would be 1% more expensive. Borrowings would be for 15 days, but should a bank increase its loans on securities during that period it would be barred from further loans. In addition, Federal Reserve Banks would have to keep a strict watch on the loan policies of members in each district, would have to be given complete reports on what security affiliates were up to. Corporations doing an interstate business would be severely penalized for lending money on securities, hence for making call loans. Their deposits could not be kept in private banks. A strict regulation of what, percentage of capital and surplus could be loaned in any one category, such as real estate, was also proposed.

To these proposals bankers last week replied that credit can be roughly controlled only by the cost of borrowing, that any attempt to direct credit into special channels was impossibly foolhardy. They likewise said that the bill tended to aid small enterprises at the expense of large ones.

Less distasteful to them was a plan to form a corporation within the Federal Reserve to aid banks in trouble and conduct orderly liquidation of closed banks. The Federal Liquidation Corp. would exist for 20 years, supplanting the emergency work of Reconstruction Finance Corp. which was granted $200,000,000 for this special purpose. The corporation's funds would come from two sources: 1) about $215,000,000 in a fractional levy on member banks' deposits to aid other member banks; 2) $200,000,000 from the Treasury for nonmember State banks. The first fund would be supplemented by all Federal Reserve Bank earnings in excess of 6% dividend requirements. Last week it was likely that, whatever the fate of the Glass Bill was as a whole, this part might be lifted out bodily and passed by itself.

Senator Glass also proposed that: 1) No bank should hold the securities of corporations not earning 4% on their capital stock for the previous five years, which would eliminate many high-grade bonds from present bank portfolios. 2) National banks of $1,000,000 capital or more could have State-wide branches where State laws permitted such branch banking. 3) National bank shares must have $100 par, to eliminate cheap shares and weak holders. 4) The Federal Reserve rediscount base should be broadened by allowing loans on paper now ineligible where ten or more banks in one district combine to endorse it. 5) The Secretary of the Treasury should be removed from the Federal Reserve Board. 6) The Federal Reserve's open market policy should be determined by domestic conditions. 7) Control of all foreign loans and acceptance business should be transferred from the District banks to the Federal Reserve Board at Washington.

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