Reservists Out

Like the U. S. Constitution, the Federal Reserve System was originally designed with a full set of checks and balances. A check: to have the chairmen of the twelve regional Reserve Banks appointed by the Reserve Board in Washington. A balance: to have the governors (now presidents) named by the local directors of each Reserve Bank. Last year when the New Deal architects remodeled the Federal Reserve System into what for all practical purposes is a central bank of issue under political control, the reconstituted Reserve Board was given the power to veto the choices of the twelve Reserve Banks for both presidents and first vice presidents.

Having thus obtained a potent voice in the naming of the two ranking officers in each Reserve Bank, Marriner Stoddard Eccles, the New Deal's chief banking architect, proposed to abolish the office of Reserve Bank chairman which, so far as the need for centralized control was concerned, was now wholly superfluous. On that point, however, Mr. Eccles had to give in to Congress. Last week Federal Reserve Board Chairman Eccles apparently set out to abolish the office anyhow.

This was to be accomplished by the simple expedient of putting the Reserve Bank chairmanships on a "purely honorary basis." Net result in the first week was the laconic announcement that services of six of the ten present chairmen (there are two vacancies) would be "terminated" at the end of April. Presumably they found an "honorary basis" somewhat hollow. Two other chairmen-- Atlanta's H. Warner Martin and Cleveland's E. S. Burke Jr. -- apparently accepted the "honor." Another two were lucky.

Chairman John Jacob Thomas of the Kansas City Reserve Bank had already received his appointment at $20,000 per year. A 67-year-old Nebraska farmer-lawyer, he was a Roosevelt appointee to the old Reserve Board but was dropped when the new Board took office (TIME, Feb. 10). His retirement was not with out compensations, for he got only $12,000 in Washington.

Chairman William Beckwith ("Bill") Gerry of the Minneapolis Reserve also stayed on at $20,000 per year. Kindly, spindly, 68-year-old Banker Gerry was governor until a fortnight ago, when he swapped jobs with John Newton Peyton, the chairman, who was 18 years his junior. Duly elected president, Banker Peyton met the Board's new requirement that a Reserve Bank president must be under 65 when elected, and not over 70 in any event.

One reason given by the Reserve Board for its campaign to liquidate chairmen is that it will put an "end to dual executive responsibility," something Chairman Eccles abhors. Another excuse was economy. Total salaries of the twelve chairmanships amounted to $285,000 annually. However, the Reserve Board has not the slightest legitimate interest in profits of the Reserve Banks, for the stockholders are the System's 6,400 member banks.

Most famed of the six chairmen to be liquidated is J. (for James) Herbert Case of the New York Reserve Bank, whose President George Leslie Harrison already has the Board's approval (TIME, March 9). Mr. Case drew the top Reserve Bank chairman salary ($50,000) and by reputation earned every penny of it. Now 63, he has been a banker since 1888, when he started as a clerk in a small New Jersey institution, was a crack Manhattan Bank vice president before he entered the New York Reserve as a deputy governor in 1917. Cerebral, conservative, intensely public-minded, he is a profound student of central banking. His son, Everett Needham Case, married Owen D. Young's only daughter Josephine. Mr. Case declined to comment on his sudden ousting, but his old Manhattan colleagues were anonymously incensed, declaring that it was "perfectly awful" and made them "sick at heart."

Nearly as much banking wrath was stirred up by the Reserve Board's veto of the Philadelphia Reserve Bank's choice for President, George W. (for Washington) Norris, who is no kin of Senator George W. (for William) Norris; or that other Nebraskan, Grocer George W. Norris, who ran against him for the Senate. A short, peppery, white-mustached gentleman of 71, Philadelphia's George W. Norris has been head of his city's Reserve Bank since 1920. A longtime partner in the private banking house of Edward B. Smith & Co., he entered the Reserve the year it was founded, withdrew to become Wartime Federal Farm Loan Commissioner and one of the chief builders of the present Federal Farm Loan Bank System. According to the Reserve Board, Banker Norris was automatically disqualified for the Philadelphia presidency by his age. "An absurd camouflage!" boiled President Donald McCormick of Harrisburg's Dauphin Deposit Trust Co.

Presumably the head of this curiously Bourbon bank was referring to a brush that occurred between Mr. Norris and Chairman Eccles last summer at a local banking convention. In a long address old Mr. Norris ripped into the Banking Bill, not then passed, with such statements as: "I hope never to see a central bank in this country, either in name or in fact, but if we should have to suffer such a bank, I would rather see it located anywhere else than in Washington!"

Mr. Eccles, whose work the Banking Bill was, did not arrive at the convention in time to hear the Norris philippic. But, on reading a copy of it, he almost tore up his own speech with the idea of delivering an extemporaneous rebuttal. In the end Mr. Eccles merely interlarded his prepared address with heavy broadsides aimed in Mr. Norris' direction. And last week on learning of his rejection, Mr. Norris declared: "I leave it to an informed and intelligent public to judge whether the reasons assigned by the Board of Governors are their real reasons."

Banker Norris was not the only presidential choice turned down by the Board. It also vetoed the names of Richmond's President George James Seay, 74, and San Francisco's John U. Calkins, 72. But just why U. S. bankers professed such loud surprise at the Board's wholesale house-cleaning was by no means clear. Their indignation was understandable, for the ousted Reservists were able, experienced bankers in their own banking tradition. Chairman Eccles has exceedingly precise ideas of what the Federal Reserve System should be, which is certainly not what old-line bankers think it should be. That Chairman Eccles would try to run a Reserve system staffed with antagonistic executives could not in reason be expected, any more than a private banker could be expected to tolerate a large group of hostile vice presidents in his own institution.

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