Eccles into Glass

Last week the New Deal was to be seen standing with Carter Glass instead of Carter Glass against the New Deal. This remarkable conjunction occurred on an omnibus banking bill which the Virginian and a Senate Banking & Currency sub-committee spent more than two months working over. When the measure was unanimously reported to the Senate last week, all hands agreed that a neat job of compromise had been executed on the ticklish issue of centralizing the U. S. Banking System under White House (i. e. political) control. The Senate bill will centralize bank credit but not under direct political control.

Last February when a 20,000-word banking bill was slapped down under the nose of Congress, the White House hastily disclaimed responsibility for the measure. Hence it was called the Eccles Bill after its sponsor, Marriner Stoddard Eccles. But because the Governor of the Federal Reserve Board was the New Deal's financial philosopher, the substance if not the form of its proposals was plainly the Administration's idea of what a Banking Act of 1935 should be.

Born amid suspicion, confusion and recrimination, the Banking Bill seemed headed for heavy weather. Although Governor Eccles had promised to confer with Senator Glass on new legislation, the Banking Bill was inadvertently cleared by the White House before the testy little Virginian saw a copy. Moreover, the Eccles Bill proposed to change the whole theory of the Federal Reserve Act, toward which, as its jealous father, Carter Glass had a distinctly possessive attitude. If there really was a Glass-Eccles feud, as some newspapers made out, the Banking Bill promised fireworks.

No one knows better than Senator Glass that fireworks are not conducive to the drafting of sound and significant legislation. The House, prodded by Chairman Steagall of the Banking & Currency Committee, passed the Eccles measure with a whoop last May. Apparently jealous Congressman Steagall's prime purpose was to embarrass his old rival Senator Glass with a demonstration of the House's enthusiasm for the bill--whether its members understood it or not. The House made a few concessions to country bankers, self-righteously struck out one of the best features--pensions for Federal Reserve Board members to insure their independence--and left it to the Senate to put the bill in shape.

Actually the work was left not to the Senate nor even to the Senate Banking & Currency Committee but to a subcommittee headed by Carter Glass. Having dutifully listened to both friends & foes of the Eccles Bill, the Senator corralled his colleagues for a series of secret sessions, even working them Saturdays.

The White House was kept informed on the bill's progress but President Roosevelt was much too busy to heed Governor Eccles' plaintive pleas for moral support. All Mr. Eccles knew was that something drastic was happening to his bill. Indeed, the subcommittee was so secretive that banker-baiting newspapers suspected skulduggery. When it was discovered that Chairman Winthrop Aldrich of Chase National Bank had been in touch with Messrs. Glass and Townsend on the telephone, the Senators were loudly accused of selling out to Wall Street.

Last week, its work done, the Glass committee emerged from its solitude with a bill which was promptly approved with few changes by the full Senate Banking & Currency Committee. Not a line of the House version had been retained except the first phrase: "This act may be cited as the 'Banking Act of 1935.' " And in Capitol parlance the Eccles Bill became the Glass Bill. Said the Gentleman from Virginia: "It's a damn sight better bill than the original." Said Banking & Currency Chairman Fletcher who generally disagrees with Senator Glass: "It's a fairly good compromise and better than I expected." Even Governor Eccles managed to muster something more than faint praise for the new draft. Walter Lippmann was inspired to write:

"By an unusual combination of circumstances the bill fell into the hands of uninflammable men. . . . None of them felt called upon to go forth and make a brawl of it. ... The result is a bill which is fundamentally stronger than the first draft, a bill which is not a victory or a defeat for any one, but is simply the outcome of a useful discussion by honest and reasonable and modest men. ... If the Utility Bill is a shining example of how not to go about a reform, the Banking Bill is an excellent example of how to go about it. ... The essential difference lies in the fact that the Banking Bill was in the hands of moderate men looking for results, whereas the Utility Bill was in the hands of fanatics looking for a fight."

The Bill. The chief argument was not over Title I, which sets up permanent deposit insurance on accounts up to $5,000, nor over Title III, which is largely comprised of technical amendments to the banking laws, but over Title II, dealing with the powers and prerogatives of the Federal Reserve Board. Under the Eccles draft, control of the Federal Reserve System, and hence the nation's currency & credit, stemmed straight down from the White House through the Reserve Board Governor, who would serve at the President's pleasure. Stripped would have been the twelve regional Reserve Banks of what little autonomy they have left, leaving a highly-centralized banking system right under the thumb of the President of the U. S.

If Governor Eccles is something of a Hamiltonian in his central banking philosophy, Senator Glass is a thoroughgoing Jeffersonian, defending the rights of the regional Reserve Banks and fearful of political contamination. In the Glass draft the Reserve Banks have a strong voice in, though not control of, the country's credit policies. The Secretary of the Treasury and the Comptroller of the Currency are dropped as ex officio members of the Board, thus breaking that political tie. The name of the Federal Reserve Board is changed to Board of Governors--seven men, not more than four of whom belong to the same party, serving for 14 years and removable only for cause. The President will designate one as chairman for a four-year term. Furthermore, the Reserve Banks are forbidden to purchase securities direct from the Treasury.

Governor Eccles wanted to give the Board power to alter at will and in any degree the reserves that member banks must by law maintain, so that it might apply brakes to any runaway credit inflation. The Glass Bill limits the possible upping of reserve requirements to double the present ratios. The Eccles draft would have made any & all bank assets, short-or longterm, liquid or frozen, eligible for rediscount. The Glass Bill provides for special Reserve Bank advances on ineligible paper in emergencies only. And thus throughout Title II Governor Eccles and Senator Glass both achieved their original aims, although delimited and adjusted to banking and political realities.

Horrifying to most conservative bankers was a proposal to ease the rules governing national bank investments in real estate mortgages. As everyone now knows. "frozen" real estate was one of the principal causes of the Depression banking debacle. And despite the strenuous opposition of Senators Glass & Adams, the original mortgage plan, slightly modified, is still in the Banking Bill.

But Senator Glass had one swift surprise for the Administration--permission for commercial banks to resume underwriting of securities. Divorce of deposit banking and securities selling was almost the first New Deal financial reform. The Glass provision would not allow banks to return to the retailing of securities through affiliates but it would allow them the profits of underwriting and wholesaling. Consequently shares of big Manhattan and Chicago banks soared on the news last week. One of the biggest beneficiaries would be J. P. Morgan & Co., which under the Banking Act of 1955 chose to surrender its commanding position in security underwriting rather than its hundreds of millions of deposits.

President Roosevelt was at no pains to conceal his displeasure over this threat to one of his pet reforms. And on his side he has all investment bankers, who have no desire to share their current prosperity. However, some Washington quidnuncs suspected that the underwriting section might have been inserted for no other reason than to have something to throw out in the Course of final bargaining between the House and Senate.

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