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MINUTES OF M j2BTING or THE FEDERAL ADVISORY COUNCIL May 20, 1918 A regular st&tutery matt lag of tha Federal Advisory Council was held in the Federal Reserve Board room, Metro politan Baak building, Washington, D.C., on Monday, May 20, 1918. Present: Janes B. Forgaa, President, in the chair, L L Rue, Vice-President, Messrs. D. G. Wing, J P Morgan, W S Rove, C A Lyerly, F 0 Watts, E F Swinney, E P filmot, J R Mitchell and Herbert Fleiahhacker, and Merritt H Grim, Secretary. Absent: Mr. J W Norwood, because of illness. The chair announcing that Mr. Norwood telegraphed his inability to bo present because of illness on motion Mr Forgan was au thorized to sead him a telegram expressiag the regret of the mnbere at his illaeee and their hope for hie epeedy recovery. Minutes of the Council meetings, held February 18th and 19th, and thoee of the Executiye Committee on earns dates, copiee of which had been eeat to membere by the secretary, were oa motioa approved. The president preseated a letter frenGoveraor Hardiag, sub mitting for the Council's consideration certain topice by the Federal Reserve Board. suggested He aleo etated that Governor Harding and the members of the Federal Reserve Board would be pree•nt at eleven o'clock when the governor would probably announce Mae additional topice for discuesioa. latter is as follows: Governor Harding'e FKDKRAL RESERVE BOARD WASHINGTON Office of the Governor April 29, 1918. yy dear Mr. Forgan:Referring again to your letter of the 24th instant, suggest, after consultation with members of the Board, that the Advisory Council discuss the following: I would (1) Curtailment of unnecessary credits. The Board’s views on this subject, as far as matured, can be found on page 260, et seq, of the Bulletin for April 1918. (2) The proper means of extending banking operations in foreign countries. This should involve a discussion cf foreign branches of national banks having a million dollars or more of capital and surplus, and banks organized to do a foreign banking business in which national banks are stockholders to an amount not exceeding 10jt of their capital and surplus. (3) Foreign agencies of Federal Reserve banks and the prop osition to establish a Government Foreign exchange bank. On this subject an interesting report has been submit ted by a committee of the Chamber of Commerce of the United States, of which I presume you have a copy. (4) Senate Bill No. 4426, which the Board understands has been favorably reported by the Senate Committee on Banking and Currency. This bill provides for the levy and collection each year from each national bank of a tax not in excess of one-tenth of one per centum of the aggregate of all deposits averaging $5,000 or less, and a tax not in excess of one-tenth of one per centum on ,000 of the aggregate of each of the other deposits averaging more than $5,000, in order to provide a fund for the payment on not more than $5,000 to each depositor in a bank for which a receiver has been appointed, whose claim has been estab lished. A copy of this bill is enclosed herewith. There will no doubt be other matters of interest which fill come up for discussion before the Council, but the foregoing •mbodies everything that the Board has to suggest at the present tine. Very truly yours, (Signed) W. P. G. Harding, Governor ***• James B. Forgan, President Federal Advisory http://fraser.stlouisfed.org/ Chicago, 111. Federal Reserve Bank of St. Louis Council, #3 F A C The topics were than informally discussed until lily 20, 1918, Cont. 11 o'cloek, when members of tho Federal Reserve Board arrived for a joint session. Secretary Joint meeting of the Federal Reserve Board and the Federal Advisory Council May 20, 1918 Present: Governor W P G Harding, kes^ra. F M Warburg, A C Miller, John S Williams, F A Delano, C S Hamlin and H Parker Willis, Secretary of the Federal Reserve Board; and Messrs. J B Forgan, L L Rue, D G Wing, J P Morgan, W S Rowe, G A Lyerly, F 0 Watte, J R Mitchell, 2£ F Swinney, S P Wilmot, Herbert Fleiehhacker and Merritt H Grim, secretary, of the Federal Advisory Council. Governor Harding addreesed the meeting, explaing to some extent the Board's viewe on the topics submitted in his letter and also sug gested the following as additional topice: Trade Acceptancee Bankers Accept emcee. He also asked that the Council meet informally with the Directors of the War Finance Corporation at a convenient time tomorrow. At the request of Mr. Lyerly, Mr. Williams, the Controller of the Currency, addreesed the meeting on the subject of the Guaranty of National Bank Deposits, his proposed bill for which, S 4426, is submitted by the Board in the fourth topic. Mr. Williams then spoke in favor of the 4 Joint s ta tio n , May 20, cont. 8#a0ur«, after which some informal discussion was had by those presentf rtg&rding this and all the other topics submitted. Governor Harding having to leave the meeting he asked Vice-Governor fafburg to take the chair. Mr Warburg spoke briefly on the necessity of restrictly unessential c r e d i t s and suggested that the Council in thie connection should make a recommendation as to whether Discount rates of Federal Reserve banks should at this time be raised. The joint session then adjourned. Secretary Thereafter the Federal Advisory Council resumed its meeting and proceeded to discuss the topics submitted by the Federal Rsserve Board, with the idea that the Exe&tive Committee would formulate the views expressed into suitable recommendations on all the topics. Mr. Forgan because of his recent illness asked to be excused from seating with the Executive Committee after adjournment of the Council aaeting, and on motion of Mr. Fleishhacker, Mr. F. 0. JSfotts was requested to act with the Executive Committee in formulating its report for this session. On motion of Mr. L. L. Rue, duly seconded, the following recommen dation was unanimously adopted on Topic No. 1. essary credits.": "Curtailment of unnec 5 FAC May 2 0 ,1 9 1 8 , C o n t. ” Ths Federal Advisory Council concurs in the principle laid iown and ths rscommsndations mads by ths Federal Rsssrre Board in re gard to tho conservation of credite and ve urge upon the bankers of tho Country ths grsat importance ef their hearty cooperation in the adoption of the policy as outlined by the Federal Ressrvs Bank in its April bulletin. H In rsgsrd to Topic No. 4, S. Bill 4426, the Guaranty of National Bank deposits, on motion of Mr F 0 Vatts, duly ssconded, the following rec omendat ion was approved by the Council, Mr. C. A. Lyerly voting in the negative: ” fe are oppesed to the principle of the guaranty of bank de posits, under whatever guise it may appear, and with the loss to deposi tors of national banks reduced as set out in the rsport of the Comptrollsr if the Currency to three-one thousandths of one per cent and with the Government offering the highest possible sscurity to indues ths use of hoarded funds the necessity of such lsgislation ie net apparent. Ths Couneil reaffirms its declaration of April 18, 1917, which said : " 1 A plan might however be devised by ths Fsderal Reserve Board Aich would provide for prompt relief to be given depositors of failed ***ber banks. * " ( This however w b .e changed by the Executive Committee and appears kter in the printed recommendations as modified. ) It was decided that the Council should not at this time make any raoommsndation on the subject of "Trade Acceptances. M After discussion of the other topics they vere referred to tho Sxeoative Committee to formulate recommendations in accord ance with the views expressed and to report at next meeting of the Council. The Chair was requested to make arrangements with the Federal Reserve Board for a joint session tomorrow to wceive the Council's recommendations and also with the Directors of the War Finance Corpora tion. On motion of Mr. Swinney, the Council adjourned until ten o'clock tomorrow morning, May 21st . S ecreta ry . 7 Minutes of a meeting ef the Executive Committee ef The Federal Advisory Council. May 20, 1918 Ths Executive Committee met after adjournemnt of the Couneil aeating and proceeded to formulate tentative recommendations on the topics submitted based on the views expressed by Council at its meeting. meaebrs Ur. Hue was authorised to present the Committee's report to the meeting tomorrow if Mr Forgan was not present, ftsa recommendations as finally adopted at Council meeting May 21st. Secretary. 8 Minutes sf netting ef The Federal Advisory Council May 21, 1913. Council net at ten o'oleek in the Federal Reserve Board room ia arranged. present: Messrs. James B. Forgan, President, in the chair, L L Rue, Yice-Preeident, D. G. Wing, J P liorgan, W S Rewe, C A Lyerly, FO fatts, S F Swinney, S P Wilmet, J R Mitchell, Herbert Fleiehhacker, «*d Merritt H. Grin, Secretary. Absent. Mr J f Norwood, because of illneee. Ths ehair laid before the Council the Sxecutive Committee's report ih ic h was c a r e f u l l y considered, after which the following recommenda tions were finally approved by the Council and ordered submitted to the Federal Reserve Beard at the joint meeting arranged for eleven s . r ,-Ar,, , p ..... , s i. ., ^ >| o'click: See printed recoimaendations hereto attached. The Council then adjourned pending the arrival of the Federal Reserve Board. S e cre ta ry . RECOMMENDATION OF THE FEDERAL ADVISORY COUNCIL TO THE FEDERAL RESERVE BOARD M ay 21. 1918 T O P I C N O . I— Curtailment of unnecessary credits. Recom m endation: The Federal Advisory Council concurs in the principle laid down and the recommendations made by the Federal Reserve Board in regard to the conservation of credits and we urge upon the bankers of the country the great importance of their hearty co-operation in the adoption of the policy as outlined by the Federal Reserve Board in its April Bulletin. T O P I C N O . 2 — T h e proper means of extending banking operations in foreign countries. This should involve a discussion of foreign branches of national banks having a million dollars or more of capital and surplus, and banks organized to do a foreign banking business in which national banks are stockholders to an amount not exceeding ten per cent of their capital and surplus. Recommendation: The Council believes that member banks and banks authorized to do a foreign business in which member banks are stockholders should be en couraged to take care of the foreign business of the country during the continuance of the war. T he Council reaffirms its statement made on February 19, 1917, as follows: “ T he Council recommends that the foreign business of the Federal Reserve Banks should for the present be conducted through correspondents and that neither agencies nor branches should be established in foreign coun tries by any Federal Reserve Bank until world conditions are more settled and until the efficiency of the service rendered by correspondents be thor oughly tested.” T O P I C N O . 3 — Foreign agencies of Federal Reserve Banks and the proposition to establish a government foreign exchange bank. O n this sub ject an interesting report has been submitted by a committee of the Chamber cf Commerce of the United States, of which I presume you have a copy. Recommendation: The Council is of the opinion that it would be unwise under present conditions to establish a government foreign exchange bank or for the Federal Reserve Board to undertake to regulate foreign exchange operations further than it is now doing in connection with the Treasury Department. We —8 — unanimously endorse the recommendations of the Federal Reserve Board that Federal charters be granted to banks which are now engaged in foreign banking business, the stock of which is owned by member banks. T O P I C N O . 4 — Senate Bill N o . 4 4 2 6 which the Board understands has been favorably reported by the Senate Committee on Banking and Cur rency. Gotli Congress, 2(1 Session. Calendar No. 368 S. 4426 (Report No. 407.) IN T H E S E N A T E OF T H E U N I T E D STATES. April 23, 1918. Mr. Shafrotli introduced the following bill; which was read twice and referred to tlie Committee on Banking and Currency. April 24, 1918. Reported by Mr. Owen, without amendment. A BILL To amend and reenact section fifty -tw o hundred and th irty -fiv e and fifty -tw o hundred and th irty-six of the Revised Statu tes of the U nited S ta tes by providing for a guaranty fund for payment of certain deposits, and for other purposes. 1 2 3 4 Be it enacted by the Senate and House of R epresentatives of the United States of America in Congress assem bled, T h at section fifty -tw o hundred and thirty-five and fifty -tw o hundred and th irty -six of the Revised S ta tu te s of the United States be. and they are hereby, amended and reenacted to read as fo llo w s: •”> ” Sec. 5235. T hat the com ptroller shall, upon appointing a receiver, cause notice 0 to be given, by advertisement in such newspapers as he m ay direct, for three consecu7 live months, calling on all persons who m a y have claim s against such association to 8 present the same and to make legal proof thereof. A t the expiration of thirty days 9 after such notice has been first published the com ptroller shall pay in full the claim 10 of each depositor which has been proven to his satisfa ction , or which has been adjudi11 cated in a court of com petent jurisdiction and which does not exceed the sum of $5,000, 12 and shall pay* the sum of $5,000 to each depositor whose claim has been established 13 as herein provided and w hich is in excess of th a t am ou n t. Such paym ents shall be 1 4 made by the comptroller ou t of m on eys deposited to his credit by the receiver and by 15 the Secretary o f the Treasury as hereinafter provided. The Secretary of the Treasury 16 shall advance £0 the comptroller, out of funds in the T reasury not otherwise appro17 priated, such s iim o r sums as m ay be necessary to enable him to make the payments 18 herein provided fori - : ‘ 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 •’!* ‘'Sec. 5236. From tim e to tim e, a fte r full provision has been first made for refunding to the United S tates any deficiency in redeeming the notes of such association, the comptroller shall make a ratable dividend of the m oney paid over to him by such receiver on all such claims as m ay have been proved to his satisfaction or adjudicated in a court of competent jurisdiction, which have not been paid in full as provided in section, tifty.^two hundted and thirty-five of the Revised S ta tu te s as herein amended, and as the proceeds of the assets of such association are paid over to him he shall make furiher dividends on all unpaid claim s previously proved or adjudicated, and the remainder’ of the., proceeds, if any, a fte r all claim s against the estate of the bank have been paid or satisfied, shall be used to reimburse the T reasury for advances made as provided in «aid section fifty -tw o hundred and th irty -fiv e as herein amended, and the balance, if any, shall be paid over to the shareholders of such shares, or their legal representatives, in proportion to the stock by them , respectively, held. In order to indemnify the United S tates against loss 011 account ot advances made as herein provided and to provide funds for the purpose of m aking such advances, there shall be levied and collected yearly from each n ational bank a tax not in excess of o n e -t e n t h of one per centum 'of ttie aggregate of all deposits a v r rnping $3,000 or less, and a ia\ not in excess of one-te-ivth. of,. one per centum on $5,000 of the aggregate o f each of the other deposits averaging more than $5,000. ‘‘N o deposit bearing over four per centum interest per annum shall be the beneficiary of this A c t.” Recommendation: W e are opposed to the guaranty of bank deposits in any form believ ing it to be wrong in principle. In as much as the official report of the Comp troller of the Currency shows the loss to depositors in failed national banks to be less than three one-thousandths of one per cent, during the last three years and with the Government offering the highest possible security to in duce the use of hoarded funds the necessity of such legislation is not apparent. The Council reaffirms its declaration of April 18th, 1917, which said: “A plan might however be devised by the Federal Reserve Board which would provide for prompt relief to be given depositors of failed member banks.” (Passed with one dissenting vote.) T O P I C N O . 5— Bankers Acceptances. Recommendation: This Council is of opinion that the use of bankers acceptances should be encouraged and developed as it will be of great service to the country in meeting its necessary financial requirements particularly during the period of the war. In order to accomplish this legislation may be necessary grant ing the banks greater accepting power. Every effort should be made to en courage and develop a broad open discount market for these acceptances. T O P I C N O . 6 — Discount rates. Recommendation: It is the opinion of the Council that in view of the large payments for taxes and government bonds which will be made shortly it is undesirable at this time to change the discount rates at the Federal Reserve Banks. The following members of the Federal Advisory Council were present at this meeting: President, James B . Forgan, in the chair; Vice-President, L. L . R u e ; D . G . W in g , J. P . Morgan, W . S. Rowe, C . A . Lyerly, F. O . W atts, J. R . Mitchell, E . F. Swinney, E . Fleishhacker, and Merritt H . Grim, Secretary. — 10 — P . W ilm ot, Herbert Minut 68 ctf Joint Meeting ef The Federal Reserve Beard and The Federal Advisory Council. May 21, 1918 As arranged a joint seeeion of the Federal Reserve Board and the federal Advisory Council vas held in the Board room at eleven A M May 21, 1913. Present: Messrs. P M //arburg, Vice-Governor, in the Chair, F A Delano, A C Miller, C S Hamlin, J S Williams and H Parker Willis, Secretary of the Federal Reserve Board; and Messrs. J B Forgan, L L Rue, D G Wing, J P iiorgan, £ 3 Rowe, C A Lyerly, F 0 v/atts, 2 F Svinney, E P Wilaet, J R Mitchell, Herbert Fleishhacker, and kerritt H. Grim, Secretary, of the Federal Advisory Council. Mr Warburg asked Mr. Forgan to make the report of the Federal Ad visory Council. Accordingly Mr. Forgan read the Council's recommenda tions as adopted, after vhich the members of both boards freely dis cussed them. Conqptroller Williams again addressed the meeting in favor of the guaranty of bank deposits. At the request of Mr. *ferburg the members of the Council indi vidually reported on conditions obtaining in their various Federal Re serve Districts, after which Mr. Forgan announced that the Council vould meet with the Directors of the tfar Finance Corporation in the Board room at Two P M for an informal conference. The taseting them adjourned. Secretary. Minutes of Joint Meeting with ths Directors of ths Ha.r finance Corporation and the Federal Advisory Council. May 21, 1913 As arranged a joint meeting of the directors of the War Finance Corporation and the Federal Advisory Council was held in the Federal Reserve Board room at 2 F k, iresent: uay 21, 1918 M I G Harding, Vice-President and General Manager, Messrs. Eugene Meyer, Jr., C & Leonard, and McLain, directors of the H/ar Finance Corporation; and -ossrs. D G «7ing, J P Morgan, L L Hue, f S Rowe, C A Lyerly, J B Forgan, F 0 Watts, J R Mitchell, P Wilmot, Herbert Fleishhacker, and lierritt H Grim, Secretary, of the Federal Advisory Council. Mr. J B Forgan called the meeting tc order and asked Mr. Harding if he would outline anything he had in mind for discussion. Mr* Hard ing addressed the meeting and the other directors also made statements and propounded some questions for discussion, on which the advice of the members of the Council would be welcome. Members of the two bodies then freely expressed their individual views in regard to the problems confronting the War Finance Corporation in performing its functions in accordance with the Act of Congress under which it was created. The meeting adjourned at four P M. Secretary.
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