It has long been known1 that a central bank exercises only very imperfect control over the volume and composition of commercial bank earning assets when its operations are directed primarily towards influencing the amount of excess reserves and the level of reserve requirements against demand and time deposits. Such a measure of control may, indeed, not be the aim of the central bank. However, it is largely through its influence on earning assets, whether intended or not, that central bank actions affect aggregate demand. Increased reliance on the general (or quantitative) monetary instruments in promoting economic stability has, in recent years, become more or less a political fact. At the same time, a number of arguments have appeared which cast considerable doubt on the Federal Reserve's ability, under certain circumstances, both 1) to restrain total bank lending and investing and 2) to avoid an undesirable degree of selectivity from the standpoint of certain social objectives (e.g., widespread home ownership or optimal economic growth).2 The former set of arguments can be traced to two so-called destabilizers: portfolio shifts and deposit shifts. In the first case it is argued that, during periods of rising interest rates and pressure on bank reserves, banks may attempt to maintain their lending activity by selling short-term investments (chiefly Treasury securities) to businesses, nonbank financial institutions, and the general public. If the buyers of these highly liquid assets, attracted by the higher yields, dispose of idle cash balances in payment and if banks, in turn, fill their earning asset vacancies with loans to active spenders, an increase in velocity, though not necessarily in the ney suppply, may result.' Th deposit shift argument states that banks (and possibly other financial institutions) may attempt to counteract monetary restriction, i.e., to restore reserves and maintain lending, by attracting time deposits (or intermediary claims) via higher interest rates. If this precipitates shifts from currency or demand deposits to time deposits (or shifts from any of these to intermediary claims), there may be several consequences: th generation of excess reserves and a low ring of average reserve requirements against the total of time and demand deposits (and, with intermediaries in the picture, a pyramiding of reserves).' The proponents of perverse selectivity argu*ments, on the other hand, maintain that general monetary restriction does not necessarily guarantee that all supermarginal loans, from society's point of view, will be satisfied. This may be partly the result of market imperfections, e.g., discrimination against small borrowers or the sluggishness of FHA loan rates and public utility ra es. But it may also be the result of inadequate provision for certain social wants by private market processes of credit allocation, e.g., loan financed public schools and roads at low debt service cost.