Statement on Financial and Economic Problems.
[Released October 7, 1931. Dated October 6, 1931]
THE PRESIDENT said:
"The prolongation of the depression by the succession of events in Europe, affecting as they have both commodity and security prices, has produced in some localities in the United States an apprehension wholly unjustified in view of the thousandfold resources we have for meeting any demand. Foolish alarm in these sections has been accompanied by wholly unjustifiable withdrawal of currency from the banks. Such action results in limiting the ability of the banks in these localities to extend credit to businessmen and farmers for the normal conduct of business, but beyond this, to be prepared to meet the possibility of unreasoning demands of depositors, the banks are compelled to place their assets in liquid form by sales of securities and restrictions of credits so as to enable them to meet unnecessary and unjustified drains. This affects the conduct of banking further afield. It is unnecessary to specify the unfortunate consequences of such a situation in the districts affected both in its further effect on national prices of agricultural products, upon securities, and upon the normal conduct of business and employment of labor. It is a deflationary factor and a definite impediment to agricultural and business recovery.
"There is no justification for any such situation in view of the strength of our banking system and the strong position of our Federal Reserve System. Our difficulty is a diffusion of resources and the primary need is to mobilize them in such a way as to restore, in a number of localities, the confidence of the banker in his ability to continue normal business and to dispel any conceivable doubt in the mind of those who do business with him.
"In order to deal with this wholly abnormal situation and to bring about an early restoration of confidence, unity of action on the part of our bankers and cooperative action on the part of the Government is essential. Therefore, I propose the following definite program of action, to which I ask our citizens to give their full cooperation:
1. To mobilize the banking resources of the country to meet these conditions, I request the bankers of the Nation to form a national institution of at least $500 million. The purpose of this institution to be the rediscount of banking assets not now eligible for rediscount at the Federal Reserve banks in order to assure our banks, being sound, that they may attain liquidity in case of necessity, and thereby enable them to continue their business without the restriction of credits or the sacrifice of their assets. I have submitted my proposal to the leading bankers of New York. I have been advised by them that it will receive their support, and that at my request they will assume the leadership in the formation of such an organization. The members of the New York City Clearing House Association have unanimously agreed to contribute their share by pledging $150 million, which is 2 percent of their net demand and time deposits. I have been assured from other large centers, as far as I have been able to reach, of their support also. I consider that it is in the national interest including the interest of all individual banks and depositors that all the banks of the country should support this movement to their full responsibility. It is a movement of national assurance and of unity of action in an American way to assist business, employment, and agriculture.
2. On September 8, I requested the Governors of the Federal Reserve banks to endeavor to secure the cooperation of the bankers of their territory to make some advances on the security of the assets of closed banks or to take over some of these assets in order that the receivers of those banks may pay some dividends to their depositors in advance of what would otherwise be the case pending liquidation. Such a measure will contribute to free many business activities and to relieve many families from hardship over the forthcoming winter, and in a measure reverse the process of deflation involved in the tying up of deposits. Several of the districts have already made considerable progress to this end, and I request that it should be taken up vigorously as a community responsibility.
3. In order that the above program of unification and solidarity of action may be carried out and that all parts of the country be enlisted, I request the Governors of the Federal Reserve banks in each district to secure the appointment of working committees of bankers for each Reserve district to cooperate with the New York group and in carrying out the other activities which I have mentioned.
4. I shall propose to the Congress that the eligibility provisions of the Federal Reserve Act should be broadened in order to give greater liquidity to the assets of the banks, and thus a greater assurance to the bankers in the granting of credits by enabling them to obtain legitimate accommodation on sound security in times of stress. Such measures are already under consideration by the Senate Committee on Currency and Banking.
5. Furthermore, if necessity requires, I will recommend the creation of a finance corporation similar in character and purpose to the War Finance Corporation, with available funds sufficient for any legitimate call in support of credit.
6. I shall recommend to Congress the subscription of further capital stock by the Government to the Federal land banks (as was done at their founding) to strengthen their resources, so that on the one hand the farmer may be assured of such accommodation as he may require and on the other hand their credit may be of such high character that they may obtain their funds at low rates of interest.
7. I have submitted the above mentioned proposals which require legislation to the Members of Congress whose attendance I was able to secure on short notice at this evening's meeting--being largely the Members of committees particularly concerned--and they approve of them in principle.
8. Premier Laval of France is visiting the United States. It is my purpose to discuss with him the question of such further arrangements as are imperative during the period of the depression in respect of intergovernmental debts. The policy of the American Government in this matter is well known and was set out by me in a public statement on June 20 in announcing the American proposal for a year's postponement of debt payments. Our problem in this respect is one of such adjustment during the period of depression as will at the same time aid our own and world recovery. This being a subject first of negotiation with foreign governments was not submitted for determination at this evening's conference.
9. The times call for unity of action on the part of our people. We have met with great difficulties not of our own making. It requires determination to overcome these difficulties and above all to restore and maintain confidence. Our people owe it not only, to themselves and in their own interest but they can by such an example of stability and purpose give hope and confidence in our own country and to the rest of the world."
Note: The White House issued the statement at 12:40 a.m. on October 7, 1931, following the President's conference with certain Members of Congress on economic problems, which was held on the evening of October 6.
Herbert Hoover, Statement on Financial and Economic Problems. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/207812