Control v. Protection

A banker has been defined as a man who offers you an umbrella, then wants it back when it starts to rain. There has been plenty of rain this year in U. S. economic life and bank vaults are stuffed with umbrellas--$2,500,000,000 in excess reserves. Last week this familiar situation was attacked from a new angle by Chairman Marriner Stoddard Eccles of the Federal Reserve System. Mr. Eccles is a smalltown banker from Utah and so ardent a believer in New Deal theories of credit control that he has often been a White House spokesman on them. He wrote last week in reply to a letter from Senator Vandenberg:

"One reason why bank credit is not flowing adequately into productive business channels is because the banks are under too severe restrictions in their lending and investing operations. This is due both to Federal and State bank-examination policies and to the regulation of the Comptroller of the Currency governing investments by member banks. As to loans, many would-be borrowers cannot get deserved accommodation by the banks, not because the bankers are necessarily at fault, but because of the restrictions imposed upon them.''

These remarks brought to light a behind-the-scenes fight between Mr. Eccles and the Treasury. The Federal Reserve Chairman would relax restrictions on bank investments and use bank regulations and examinations as the Federal Reserve uses its reserve requirements: loosen them in depressions, tighten them in booms. Stoutly opposed to this are Acting Comptroller of the Currency Marshall Diggs, and former Comptroller J. F. T. O'Connor who resigned three months ago to run for Governor of California. Both Mr. O'Connor and Mr. Diggs prefer to consider investment and loan restrictions, as well as bank examinations, not instruments of monetary control but of protection for investors.

Mr. Diggs and Mr. Eccles are now on a committee with Chairman Leo Crowley of the Federal Deposit Insurance Corp. and Economic Adviser Cyril Upham of the Treasury for the specific purpose of rearranging and simplifying bank examinations and investment policies. Arrayed with Mr. Diggs are Messrs. Crowley and Upham. Mr. Eccles is a distinct minority. When the committee sends its report to President Roosevelt Mr. Eccles will probably send a report too. Mr. Roosevelt will then have to decide between stiff bank control and easy money.

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