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The author comments on articles by economics Greenbaum and Haywood (G&H) and Bloch concerning the major factors that must be considered in analyzing changes in the financial sector and their resulting impact on the economy. He states that G&H argue that demand for financial assets is dependent on standard variables, income, interest rates, and more. He suggests that G&H didn't delve far enough into government policy on the financial sector and states his belief that the introduction of large quantities of U.S. Treasury Bills is the most important financial innovation from 1940-70. He states that Bloch's view of the U.S. Federal Reserve's behavior is instructive, and said that while he doesn't question Bloch's analysis, he does question if the reasons are correct.

The article addresses the democratization of money. The author equates the economic importance of the use of checks or deposit currency with the ability to physically distribute goods through railways. The author considers government intervention into the regulation of deposit currency, as it is beginning to replace the use of currency and coins, which are provided to the public free of charge. The author argues against the criticism that this is a socialization of the banking system by stating that this subsidy would take the place of the costs of generating paper currency and coins, and would strengthen the banking system by the increase in individual bank business.

This article examines the practice of the federal reserve banks in requiring eligible or near-eligible paper as so-called "marginal" or "additional collateral," to paper discounted by them, in contradistinction to advances on member bank' notes payable collateraled by United States securities or eligible paper. As a setting for collateraled discounts, the history and purposes of collateraled advances are stated, as well as the reasons for the ascendancy of such advances over discount. In their publications the federal reserve authorities fail to acknowledge any difference between (1) rediscounting and (2) allowing advances against eligible paper pledged; nor do they report separately the absolute or relative amount of discounts to which "additional collateral" is required, nor the "margin" required, nor the number of members putting up such margins, nor any other data relative thereto. There are no provisions in the Federal Reserve act or regulations for the practice; and yet it is no mean method of credit control. The reasons offered by the reserve banks for the practice are: (1) to repress excessive borrowing by the applicant member, in the Interest of the reserve bank, of the applicant member, or of the system as a whole, using this device as a supplement to credit rationing, discount rate variation, and moral suasion; (2) to increase the protection to the reserve banks themselves for credits granted; (8) to compensate for the less rigid insistence by the reserve banks on technical qualifications in credit granting and thus to make possible greater extensions of credit to members than can be had on the strict merit of the paper offered for discount; and (4) to acquiesce in greater degree to the traditional methods of Inter-bank finance and to break down the isolation of the reserve banks from the business and financial world. Each of these reasons is examined and criticized. [ABSTRACT FROM AUTHOR]

The article analyzes the factors that helped Canada escape from the effect of prolonged silver agitation in the U.S. despite a strong commercial dependence of the nation on the U.S. The silver agitation was aimed at abolishing the silver certificate currency notes to save money on paper. Financial causes like solidarity of the banking system is held responsible for the reproduction of the same commercial and financial conditions in the two countries. Emergence of local branches of the banks in Canada has not only ensured security to the community, but also resulted risk management at local level.

The article criticizes the U.S. banking system for its failure to adapt to the present requirements of the country. The banking system failed to provide uniform bank note currency throughout the country. The banking system failed to provide a return flow of notes under the effective plan of redemption due to circumstances under which the laws pertaining to the national banks were passed. The lack of investments in U.S. bonds and confining capital in a non-banking security are serious problems in the functioning of the banking system.

The article comments on the papers "The Changing Role of U.S. Banks in International Financing," by George H. Chittenden, "The International Money Market: Structure, Scope and Instruments," by Fred H. Klopstock, and "The Integration of European Capital Markets," by Oscar L. Altman, all published within the issue. The author looks at changes occurring in European capital markets, international money markets, and commercial bank lending. The movement toward better organized markets for long-term capital in Western Europe is discussed.

This article presents a comment on the paper "Deposit Insurance in the United States -- Evaluation and Reform." The author discusses some of the proposals that are presented in the paper and offers suggestions related to these policy measures. Some of the concerns that are raised by the author include the complexity of risk assessment and the responsibilities that the Federal Deposit Insurance Corporation and the U.S. Federal Reserve are given in the paper. The author discusses bank failure and the role that large investors play in the success of small banks. The author also offers some policy suggestions of his own.

The article presents commentary from Robert Lindsay about a paper by Donald P. Jacobs and Almarin Phillips (J&P), "The Commission on Financial Structure and Regulation: Its Organization and Recommendations," which appeared in the May, 1972 issue of the "Journal of Finance." He briefly outlines his understanding of the Commission's report as reported by J&P, and then notes several questions it raises. He wonders why the Commission would permit nonbank institutions to encroach upon certain markets that are traditionally the province of banks, but not others. He is also surprised at how little the Commission's report had to say about monetary policy.

A conference paper is presented that examines the distribution of bank deposits in the U.S. and the implications this has for the flow of funds analysis. A study was conducted in southern California in an attempt to examine how the funds from this region moved throughout the surrounding area. The author was interested in examining the validity of the growth center concept. The author's findings support the idea of a funds flow; however, he suggests that further analysis is needed.

The article sheds light on commercial banking in the United States during the sixties. The article makes the conclusion that if the trends emerging in the late 1950s and in 1960 are not reversed by major changes in economic conditions or tax and regulatory policy, then the commercial banks will be unable to play as important a role in financing the 1960s as they have done in previous years. The article's conclusion is based on the expectation that in all years, except those of recession, bank deposits will continue to expand at a slower rate than the growth of the gross national product.

A central question of many previous monetary studies has been the determination of the effects of various forces upon the actual supply of money in the economy. One of a number of competing monetary supply hypotheses (Brunner and Meltzer) has focused on the relationship between bank reserves and deposit creation. This theoretical structure was first suggested in earlier works by Phillips and Crick. Recent studies of similar nature, including those of Mellon and Orr, Morrison, and Brown and Lloyd, have employed the techniques of inventory theory to examine the factors influencing bank credit expansion. Similar inventory treatments of other cash balance and portfolio adjustment models are presented in the works of Baumol, Eppen and Fama, Lloyd, and Chitre. In the present paper, the effects of various forces on the optimal expansion of credit and the holding of reserves are investigated using the techniques of dynamic programming (see, for example, Bellman and Dreyfus). Discussed in the paper are the effects on bank credit expansion of uncertainty about reserve losses, various types of penalty costs, costs of adjustment, uncertain future interest rates, and of various institutional structures under which the bank must operate. This latter topic is important because of the Federal Reserve policy change of September 1968. Prior to that time, required reserves and actual reserves were computed over the same reserve period. Since that time, however, the required reserves in any period are known with certainty at the beginning of the period and depend upon deposit levels two periods earlier. For purposes of mathematical convenience, this latter structure is treated here as a one-period lag. [ABSTRACT FROM AUTHOR]

The Robinson paper directs itself to the discussion of the research that may be done by the Bank Administration Institute on the subject of measuring the risk dimension of investment performance. It did not itself involve any empirical testing--at least at this stage of the paper. There is little one can say concerning any model or testing procedures. However, the thrust of the paper seemed to be to suggest that we should apply modern methods of measuring investment performance to specific types of portfolios--particularly pension funds and profit-sharing portfolios and to other situations as well. Secondly, although the paper states they intend to forge new frontiers in risk measurement, there appears to be a hint at a desire to fill the gap between theory and implementation. Little effort seems directed precisely at measuring risk (once the academy agrees on how it should be defined). [ABSTRACT FROM AUTHOR]

This article examines the difference between reserves and free reserves as they relate to open market operations (OMO) by the Federal Reserve System. There are two types of OMOs: defensive operations, being those transactions which are designed to offset disturbances in member bank reserves, and dynamic operations, which seek to change reserves to permit monetary expansion or contraction. The author uses regression methods to estimate the changes affecting reserves and free reserves. The paper builds upon previous research by W.G. Dewald.

This paper presents data which describe the extent to which ownership and control have been separated among the 200 largest member commercial banks. Management control has become the more common form of control among the large banks. The large banks were classified as owner controlled or if 10% of their voting stock was concentrated in a single party. If not, then they were classified as management controlled. The two major categories then were divided into subcategories reflecting levels of owner and management control.

The purpose of Part I of this paper is to place the contribution of Guttentag-Lindsay in historical perspective and in particular to relate the entire controversy concerning the uniqueness of commercial banks to the nineteenth century dispute regarding the uniqueness of the Bank of England. My objective will be accomplished primarily by showing how closely the Guttentag-Lindsay model parallels the framework used by Bagehot. Bagehot's objectives in Lombard Street (1873) were to disabuse the politicians and the financial community of the view that the Bank of England was not unique (i.e., that it was "like any other bank"), to show in what ways the Bank was unique, and to draw the implications of the Bank's uniqueness for Bank policies. [ABSTRACT FROM AUTHOR]

The article focuses on the development of the concept of "automatic stabilizers." The purpose of this financial research paper is to extensively evaluate the research dealing with the alleged automatic stabilizers with the precise hope of tracing the history and origin of this economic concept. Also included will be a brief definitional analysis and some concluding statements on suggested improvements in the stabilizers that still exist. Additional stabilizers will also be proposed in this article.

A conference paper is presented that examines several issues that are related to postwar bank lending policies in the U.S. The author investigates whether or not bank lending policies are the cause of price increases in markets such as real estate and consumer goods, if these policies lead to the deterioration in the quality of the debt structure and how to prevent these policies from leading to inflationary expansion of demand deposits.

The article presents a diversity of recommendations of monetary policy. Several policies ended by one speaker are rejected by another. Most of the policies followed by U.S. President Franklin D. Roosevelt Administration are rejected. There is little sympathy with the stagnation doctrine, with government spending on a long-time basis, with promoting recovery by easy money or with giving monetary policy a dominant role in control of national economic activity. With the total volume of eligible paper in the portfolios of the Federal reserve banks amounting to only 3 million dollars, out of total assets of 19 billion for the Federal reserve banks and of 74 billion for the banks of the country and with excess cash and bank balances of 16 billion dollars and no likelihood of members borrowing from the reserve banks in the near future, it is difficult to see how any control can be exercised by qualitative considerations. To enforce the rule that banks match their total demand deposits by cash and self-liquidating paper and dispose of the non-self-liquidating loans and investments in excess of their savings deposits would be ruinous to the banks. Finally, it is becoming increasingly clear that unless taxation and labor policies, in particular, are harmonized with public investment policy, the latter can do but little to promote a higher level of private investment.

The article discusses the continued existence of bank-notes as a part of United States currency and the question of rights of their issue in the 1890s. According to the author, for several years past the majority of the Americans and their political representatives have observed with great equanimity the gradual disappearance of national bank-notes, and the approach to the point where the trifling profits upon circulation and the extinction of the national bonded debt would leave no paper in use except the notes and coin certificates of the United States. A sudden change of ground like this, involving a proposed revolution in the system of paper currency and in much besides, may betoken a decisive and durable alteration in the lines on which the bank-note question is to be discussed hereafter, or it may only be one more instance of the facility with which large numbers of Amercians are ready for a brief space to seize upon the last new idea, especially in matters of finance. The author remarks that, so far as the legislation of the several states still retains its provisions for the issue of notes, there is the same variety which existed before the Civil War.

The article presents a critical discussion of the papers by Seymour E. Harris and John V. Van Sickle on interregional competition and economic adjustments. According to the author Harris has developed his topic in a most interesting and stimulating fashion. He is to be complimented for this able presentation of the difficulties facing the Northeast in its attempt to maintain its competitive position in the U.S. Harris appears at the outset to favor the regional adjustment process of classical economics. After a brief description of this process, he contends that the expected adjustments do not take place or do so only after costly delays. Some policies of government such as banking policy and government relief and spending policies hamper adjustments, other policies that are classified as favoritism toward developing regions add to the burden of adjustment in the older regions. Harris' paper represents an important addition to interregional economic analysis, with particular reference to an area in which much investigation already has been undertaken.

In this article Nelson W. Aldrich, Senator, U.S. suggests the plan for monetary legislation. The plan of Senator Aldrich contains a valuable provision designed to meet contingencies. By special vote of the executive committee and with the approval of the secretary of the guaranteed by the local association and secured by the deposit with it of securities taken at two thirds of their market value. Under the terms of this clause it will be possible to assist threatened banking institutions, following the precedents established by European central banks and our own clearing-houses. If the Reserve Association is to serve a useful purpose it should be clearly understood by the public generally as well as by bankers that it is not to be one of its functions to contribute largely to the aggregate amount of credit regularly at the disposal of borrowers. It is, however, most doubtful whether the resources of the Bank proposed by Senator Aldrich would be adequate even for this purpose. Far from tending toward any considerable amount of credit expansion it may prove that its resources will be so limited that practically all of them will be held in reserve to meet emergencies.

This article presents information on the plan presented by the U.S. senator Nelson W. Aldrich on bank Co-operation. Senator Aldrich has presented to the National Monetary Commission a plan by which banks may cooperate much as they have on occasion cooperated through their clearing houses, but far more generally and effectively. The national banks are to organize the Reserve Association of America, with certain banking functions. Bankers who wished to get out of the Reserve Association could liquidate, collect for their stock and organize new banks that would not join the Association. One half only of the subscription is to be paid in at the outset, the rest is subject to call. The plan clearly provides adequately for such representation. The boards of directors will be thoroughly representative of the stockholding banks, for three fifths of the directors are to be chosen by majority vote of the member banks, each bank, large and small, casting a single vote. The remaining two fifths of the directors, however, are to be chosen by stock representation, each bank casting as many votes as it holds shares in the Association. The chief function of a local Association is to guarantee for a commission the commercial paper its members may wish to rediscount at the district branch of the Reserve Association.

This paper is concerned with formulating, exploring and interpreting the uses and constructs which may be derived from a mathematical model of programming type which expresses more realistically than past efforts the actual conditions of current operations. It is an attempt to provide a means of attaining thereby an objective understanding of the implications of actual Federal Reserve liquidity policy on the actions and opportunities of banking institutions. The model presented corresponds to the problem of determining an optimal portfolio for an individual bank over several time periods in accordance with requirements laid down by bank examiners which are interpreted as defining limits within which the level of risk associated with the return on the portfolio is an acceptable one. The problem is transformed into an equivalent one offering advantages of analysis and of computation. Some methods of effective computation are explored. [ABSTRACT FROM AUTHOR]

The volume of literature on the credit-creating powers of the Euro-dollar market, although small, is growing. This paper contends that the stock of net Euro-dollar deposits (E[sub n]) can be expressed as the product of a Euro-dollar base (B) and a Euro-dollar multiplier (k). As in domestic models, the terms of the multiplier reflect asset choices of the sectors reflected by them. A parallel between the flow of funds within the Euro-dollar market and most domestic banking systems exists. Except that no single institution serves as a Euro-dollar central bank, the two systems are highly comparable. [ABSTRACT FROM AUTHOR]

Money supply control and behavior are importantly influenced by the institutional and legal framework in which money is produced. An important change in that framework was activated on September 12, 1968 when drastically revised procedures for calculating and meeting the Federal Reserve's reserve requirement (Regulation D) were put into effect. The implications of these rule changes have been examined elsewhere; it is the more limited objective of this paper to examine the evidence for what I call the vault cash game. Under the new rules of 1968, reserves eligible for meeting the current week's reserve requirement consist of the current week's average daily deposits at the Fed plus the average daily vault cash held two weeks ago. This provision inadvertently introduces a source of potential reserve adjustment not present under the earlier rules where vault cash was not lagged in the reserve calculation. Although shifting reserves from vault cash to deposits at the Fed does not affect the level of reserves (R), it does affect the volume of reserves eligible for meeting the reserve requirement in the current period (R[sup a]). This occurs because vault cash in the current period is not counted toward the current reserve requirement while deposits at the Fed are. The purpose of the 1968 changes in Regulation D was to improve the reserve adjustment mechanism, and thereby smooth the behavior of the money markets where reserves are traded, and improve the Federal Reserve's control over the relation between reserves and deposits, and hence over the money supply. The particular contribution of lagging vault cash was that its fairly regular monthly cycle then tended to offset the similar monthly cycle in Federal Reserve Float. The vault cash game, however, tends to weaken the Federal Reserve's control over reserves (R[sup a]), hence over the money mechanism. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to determine whether the bank supervisory influence appears to be significant for bank capital positions. This would appear to depend on whether or not different methods of capital analysis result in different prescriptions for capital funds for otherwise comparable banks and on the degree to which banks are responsive to supervisory pressure for capital increments. Once initial requirements for beginning operations are met, the determination of capital is essentially a matter for a bank's board of directors. The possibility exists that there may be differences in the degree of conservatism among directors of the three supervisory classes of banks, that is, other things being equal, one group may be more receptive to supervisory prodding for additions to capital funds or may desire a higher level of capital than another. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to quantify supply and demand functions for the Euro-dollar deposits borrowed by New York banks from their own foreign branches. Reduced form equations are estimated from weekly data covering the period 1966-68 and tested by predicting the first seven months of 1969. All data are from the Federal Reserve Bulletin, except where noted otherwise, and are denominated in millions of dollars or per cent. [ABSTRACT FROM AUTHOR]