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tions were followed in substance and changes were made in the bill, and the bill was greatly improved in order to properly effectuate its purposes.

The bill, known as "H.R. 8720", introduced in the House by Mr. Rayburn embraces these recommended changes. It is the feeling of the Reserve Board that the revised bill H.R. 8720 is workable, is right in principle, and will accomplish the purpose of regulating national securities exchanges under fair practices, that undue and excessive speculation will be properly curbed, that exchange credit will be properly restrained, and the undue use of credit in speculation be prevented. The Board is therefore prepared to approve the bill as revised.

The Board requests the privileges of making such further constructive suggestions as to the bill as may appear necessary or desirable as the result of the further study of the bill, and this request applies especially to questions affecting technical operations of the exchanges covered by the bill.

I am authorized to say that that is the attitude of the Federal Reserve Board on this bili.

I will be glad now to answer any questions the committee desires to ask, in respect to the position of the Board.

Mr. WOLVERTON. Mr. Chairman
The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Governor Black, I interpret your statement to mean that the Federal Reserve Board is satisfied with this bill and that it would not be disastrous to the business of the country?

Mr. BLACK. I do not think it would be disastrous and I do not think the Board thinks

So,

sir. Mr. WOLVERTON. And you and your board feel that they can approve it, subject to any changes that you might wish to suggest that would come as a result of any testimony that would be or has been entered here since you gave it consideration; is that correct?

Mr. BLACK. And, for any further study that might develop, Mr. Wolverton, relative to the technical operations required by the bill, not fundamental principles.

The CHAIRMAN. Any further questions?
Mr. MERRITT. Mr. Chairman-
The CHAIRMAN. Mr. Merritt.

Mr. MERRITT. Governor Black, since the Federal Reserve Board is to take charge of the margin requirements, do you think it would be better to leave in the formula that is in the bill, or give the Board full discretion and let them make their own regulations subject to existing conditions?

Governor BLACK. Mr. Merritt, you remember that this bill as drawn places the right to fix marginal requirements in the Federal Trade Commission.

Mr. MERRITT. I did not get that.

Governor Black. I say, you recall this bill as originally drawn fixed, or put the right, to fix margin requirements in the Federal Trade Commission.

Mr. MERRITT. Yes.

Governor Black. The bill was redrafted by the time it got to the Federal Reserve Board and under the final redraft it gave these figures as to margin requirements, plus the right in the Federal

Reserve Board to alter those marginal requirements at any time it wanted to in a higher measure, margin, and lower as it might want to in case of extreme national emergency,

The Board was not willing to accept the responsibility under that provision, and so stated. Then this bill as now drawn was prepared, which does give fixed requirements as to margins, as an expression, I take it, of legislative opinion as to what would be a proper marginal requirement under ordinary circumstances, and then does state under exigent circumstances, or words to that effect, the Board may fix the margin requirements in the interest of agriculture, commerce, and industry, and the credit conditions of the country.

The Board is willing to accept the responsibility of doing that under the terms of the act. I personally think that it would be much more scientific for that flexibility of these margin requirements to be left entirely to the Federal Reserve Board; but, I am making no require. ment as to that, and what is in the bill now was reached after the study of the different representatives, and the Board is willing to undertake the responsibility under the terms set forth in the bill

. I think it would be more scientific to have that matter flexible and the responsibility be on the Reserve Board and to leave it to their judgment.

Mr. Mares. Mr. Chairman-
The CHAIRMAN. Mr. Mapes.

Mr. Mapes. Governor Black, I understand you to say in substance that the Federal Reserve Board approves of the bill, subject to the right to make any recommendations in regard to the technical features of it after further study.

Governor Black. The technical features of the exchange operations.
Mr. Mapes. Yes.
Governor BLACK. Yes.

Mr. Mapes. I am curious to know how material you think that those conditions or exceptions are. In other words, do you think this committee would be justified in acting favorably upon this bill as it is without having the benefit of further studies and recommendations of the Federal Reserve Board?

Governor BLACK. Well, Mr. Mapes, I would not like to give an opinion as to what the committee should or should not do. We have studied it.

Mr. Mapes. We of course are not controlled by your opinion, but personally I would like to have it. If we enact this legislation and this bill became a law, it is the fixed law of the land, and we have got to take the responsibility for it, and I would like to have your judg. ment in regard to it.

Governor BLACK. Mr. Mapes, if I were a member of the committee and, unless constructive suggestions were made to me relative to any technical operations of the exchanges, showing that I was wrong in what has been reached here, because this has been reached after very intensive study of those operations, I would feel fully justified in voting for the bill, sir. Does that answer you?

Mr. Mapes. Very largely. I would like to ask you this further question.

Mr. MERRITT. It answers it diplomatically.
Governor Black. I would rather answer it directly, if I can.

Mr. MAPES. Is your organization making a more intensive study of the technical part of the operation of the exchanges so that we can have the benefit of your advice on that?

Governor BLACK. We are, Mr. Mapes. We are continually continuing our studies upon this bill, but what has been reached here has been studied for the last 10 days and is the best results we can reach from that study.

Mr. Mapes. I would like to ask your opinion about the so-called "segregation provisions" of the bill.

The CHAIRMAN. Let me say before you do that, Mr. Mapes—and I say this for the benefit of the committee-when we get into executive session on this bill, which will probably take several days, I certainly intend to stay in touch with the Federal Reserve Board in order that the committee may have any additional suggestions that they have to offer.

Mr. BLACK. Thank you very much.

Mr. MAPES. I would like to ask your judgment about the segregation provisions of the bill. Do you think this committee should enact that provision into law, or allow the subject matter of that section to be fixed by regulations of the Federal Trade Commission or any other agency that is set up to administer the law?

Governor BLACK. You are talking now about the segregation between broker and dealer regulations?

Mr. MAPES. Yes.

Governor Black. Mr. Mapes, I am not an expert in stock exchange operations.

Mr. MAPES. I do not think any of us are either.

Governor Black. We have studied that provision as well as we could, although that provision really was handled by the Treasury people and not by us. We were more concerned about the credit situation. I understand at the conclusion of our studies, that the results reached in this bill were practically a satisfactory solution of that. I cannot answer myself whether it is or not, because I am not enough of a stock exchange expert.

Mr. MAPES. In the language of Mr. Merritt, I think that that also might be called a diplomatic answer.

Governor BLACK. I am going to try to tell you, and leave out diplomacy.

Mr. MAPES. I am trying to get your individual judgment.

Governor Black. Mr. Napes, I do not know enough about it to give you a judgment. I can only answer this by giving you the results of the expert's treatment. That is the view they took .

Mr. Mapes. For one, let me say that it is refreshing to hear one witness on this bill who is conservative in his answers and the expression of his opinion about it.

Governor BLACK. Thank you.
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Governor Black, when you say that the bill, in the light of your present study, has the approval of the Board, do I understand that it has had the study of every member of the Board; that it represents the unanimous views of the Board?

Governor BLACK. A meeting was held of the Board yesterday afternoon and this report was read and is the unanimous report of the Board, and when I say that, I again bave got to be diplomatic,

because they were the active members. The Secretary of the Treasury was not present and the Comptroller of the Currency was not present. The other members of the Board were.

Mr. PETTENGILL. Thank you.
Mr. LEA. Mr. Chairman-
The CHAIRMAN. Mr. Lea.

Mr. LEA. Would you regard the exercise of control, or control given to the Federal Reserve Board by this bill, as a desirable supplement to the powers that have been given to the Federal Reserve in this Congress?

Governor Black. I think it would be a very desirable supplement to the powers given, especially in the Glass bill, and that is not diplomatic, because those powers were largely vested in the Glass bill, you remember.

Mr. LEA. Yes. If the Federal Reserve Board were granted these additional powers, do you think it would exercise more effective control over speculation than it had power to exercise in 1929?

Governor BLACK. A great deal more. We have had a great many additional powers given to us since 1929. Our control in 1929 was the rates. These other powers have been given since then.

Mr. LEA. So you feel that there would be a very substantial increased power in the Federal Reserve Board?

Governor BLACK. Yes.

Mr. LEA. Sufficient to prevent the repetition of the wild speculation of 1929?

Governor Black. I think so, sir.

Mr. PETTENGILL. Is it your judgment, sir, that if this bill had been in effect in 1927, 1928, and 1929, and had been administered by a courageous board in sympathy with the objects of the bill, that the tremendous overexpansion of speculative credit would have been stopped?

Governor BLACK. I do not think anything could have stopped the gambling mania of 1929 after it got underway. I think if the Federal Reserve Board had had these authorities in 1929, and had exercised them early enough, it would have curbed those excesses to a very great extent.

Mr. BULWINKLE. Mr. Chairman, may I ask a question?
The CHAIRMAN. Mr. Bulwinkle.
Mr. BULWINKLE. Governor, you are a lawyer, are you not?
Governor BLACK. I used to be a lawyer; yes.

Mr. BuLWINKLE. You are recognized as a very able lawyer in Atlanta, are you not?

Governor Black. Let me answer that question. You have given me a chance to brag a little now. Nobody ever told me that until after I had quit practicing law. If they had, I would not have quit.

Mr. BULWINKLE. What do you think about the constitutionality of this bill? Governor Black. Well, you elevate me to the Supreme Court

sir. Mr. BULWINKLE. No;I do not. I will take your opinion.

Governor BLACK. I am just awfully sorry, but I have not studied it with respect to that at all. That is not diplomatic. That is honest. I have not studied it in relation to that.

now,

Mr. BULWINKLE. All right.
Mr. COLE. Mr. Chairman-
The CHAIRMAN. Mr. Cole.

Mr. COLE. Governor, I would like to have you state what effect, in your judgment, the passage of this bill would have upon State banks and trust companies not members of the Federal Reserve System.

Governor BLACK. By reason of limiting brokers' loans to member banks? Is that the object?

Mr. COLE. Under section 7 of the act.

Governor BLACK. Well, I do not think it will have but very little effect. Our banks out in the country do not go in for much of this business.

Mr. COLE. How about the trust companies in the cities that are not members of the Federal Reserve?

Governor BLACK. Well, I do not know but a very few of them who are not members of the Federal Reserve; down in my country, the trust companies are all members, but just to answer your question directly, of course, it would limit the lending power on equities in the operation of trust companies which are not members of the Federal Reserve System.

Mr. COLE. And have a tendency to bring them into the Federal Reserve, would it not?

Governor BLACK. If they wanted to do this business, yes; necessarily so.

Mr. COLE. That is all.

Mr. Holmes. On that particular point, would that apply to the mutual savings banks?

Governor BLACK. Yes; I think it would.
Mr. Holmes. Just as much as to any other nonmember banks?
Governor BLACK. Yes.

Mr. HUDDLESTON. Governor Black, I wonder what legal hold we have on nonmember banks to limit them as to the loans they should make, and what kind of securities they should accept.

Governor Black. You do not have any, sir, and the bill does not undertake to have any Your hold is through the Federal Trade Commission's hold on the members of the exchange. You tell them that they cannot borrow. But you do not tell a nonmember that it cannot lend. You cannot tell them that. At least, I take it that you cannot.

Mr. HUDDLESTON. That is the question I had in mind.

May I ask if the Reserve Board considered this bill in its entirety or merely the provisions which related to credits and other things like that?

Governor BLACK. The Board considered every sentence in the bill and suggested changes relative to everything in the bill that looked to us that needed changes to make this a more acceptable bill to accomplish its purpose.

Mr. HuddLESTON. And the approval of the Board extends to the entire bill?

Governor Black. That is correct.

Mr. HUDDLESTON. May I ask what your view is with reference to the effect of this bill on the listing of securities by corporations? It has some provisions extending liabilities to officers, and having

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