The Glass Banking Bill

April 9, 1932

Report Outline
Scope and Purposes of Glass Bank Reform Bill
Use of Bank Funds in Stock Speculation
Security Company Affiliates: Group Banking
Limitations on Real Estate Loans
Changes in Member Bank Reserve Requirements
Power and Independence of Federal Reserve Board

Scope and Purposes of Glass Bank Reform Bill

Two Emergency Acts dealing with banking and credit have been passed by Congress during the current session: the Reconstruction Finance Corporation Act and the Glass-Steagall Act. These measures were designed to alleviate the credit strain inherent in the existing depression and to avert more bank failures; the first through extension of temporary government loans to financial institutions, railroads, and farmers; the second through temporary relaxation of limitations upon loans to member banks by Federal reserve banks and the admission of United States government bonds as security for the issue of Federal reserve notes. A third bill dealing with banking and credit, the Glass bill, is now under consideration by the Senate Committee on Banking and Currency.

In contrast to the earlier legislation, the Glass bill proposes permanent banking reforms—on the basis of experience during the preceding boom as well as the present depression. Its final section, providing for a more rapid liquidation of closed banks, through the creation of a “Federal Liquidating Corporation,” has been discussed in an earlier report. The bulk of the bill, from which the liquidating provisions are quite distinct, deals with prevention rather than alleviation of financial ills and applies to conditions which may arise in the future rather than to those that now exist.

In the opinion of some of the witnesses who have testified on the bill before the Senate Banking and Currency Committee, the present is an inauspicious time for such legislation, directed as it is against the recurrence of boom conditions, for it is contended that it would delay recovery from the present depression. Senator Glass (D., Va.) has taken the position, however, that only during such a period, when the bad effects of the preceding speculative movement are being experienced, can reforms be brought about.

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