Reserve Banks Are Independent

He called attention to the fact that while the twelve Federal Reserve Banks are independently controlled and operated, each intended to serve the interests of its district, no financial transaction of any moment in one market is without its reaction in other markets, and that the credit policy of the Federal Reserve System should therefore be considered with recognition of the fact that the administrators of the System have a national responsibility.

Governor Norris denied the extreme view that the System controls the volume of credit, calling attention to the facts that it has no dealings with the speculative markets and no direct contact with the general public; that two-thirds in number of the banks of the country have no discount relations with it at any time, and that it is seldom that more than half of the remaining third, or one-sixth of the total, are borrowing from Reserve Banks.

Must Assure Sufficient Credit

He admitted, however, that a banking system which has demonstrated its capacity to add nearly three and a half billion dollars to the volume of credit, which supplies half of the currency in circulation, and engages in investments and open market operations, exercises a sufficient influence to make its operations a matter of public interest and concern. For these reasons, he said, it is important that the administrators of the System should have a clear conception of the goal at which they are aiming, and that the public should know what that goal is. He said that repeated discussions of the subject had crystallized in the opinion that it is the duty of the System to assure to the business world the availability of credit and currency in volume sufficient to provide for the production and distribution of goods, with the collateral duty to see to it that credit expansion, necessary and proper in a period of business expansion, shall not degenerate into credit inflation in a period of speculative activity.

He spoke of the constant effort that is being made by economists and statisticians both inside and outside the System, to keep track of production, of the activity of business, of the general price level, and of credit conditions, with the view of giving such timely notice as will tend to check inflation, and of utilizing the facilities of the System to abate the inevitable rigors of deflation. He expressed the hope that business men will in the future make increasing use of the monthly bulletins issued by the Federal Reserve Board and by the regional banks, watch carefully the reserve ratio of the banks as reported weekly, and take timely warning of the changes in credit conditions indicated by changes in the discount rates of the Reserve banks