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The Papers of Charles Hamlin (mss24661)
360_11_001-
Hamlin, Charles S., Scrap Book — Volume 174, FRBoard Members
205.001 - Hqmlin Charles S
Scrap Book - Volume 174
FRBosrd Members
CONFIDENTIAL (FR.)
BOARD OF GOVERNORS
111
•
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
The Files
From
Mr. Coe
Dee July 17, 1941
Subject:
Ive?'
After correspondence with Mrs. Hamlin (see letters of
May 25 and June 4, 1941) the items attached hereto and listed
below, because of their possible confidential character, were
taken from Volume 174 of Mr. Hamlin's scrap book and placed in
the Board's files:
VOLUME
114
Page 53
Earnings & Expenses, F.R. Banks.
Page 118
Earnings and Expenses of F.R. Banks.
Page 112
Open Market Investment Committee Report.
Page 133
Memo to Governors' Conference from J. H. Case re Finance
Companies Specializing in Bank Stock Investments.
Page 135
Report of the Committee on Bank and Public Relations to
the Agents' Conference - November 1927.
•
EARYIYGS AYD EXP77SES OF FEDERAL RE3EP.77 DA7KS
Se-otember 1927. Total ePrnings of the Federal
reserve banks were about $200,000 more thPn in
August though earnings were accrued for one day
less in Sentember. Earnings from discounted
bills declined $85,000 but this decrease was
more than offset by an increase of $203,000 in
earnings from nurchased bills and U. S. securities and of $80,000 in miscellaneous earnings.
Current exoenses (exclusive of cost of
currency) aggregateC, $2,096,000 as comlpared with
$2,167,000 in the month nreceding and $2,111,000
in September 1926.
Tine months ending September 30, 1927. During
the nine months ending Se-:tember 30 earnings
totaled $31,029,000, as courpared with
,34,393,000
last year and $29,293,000 for the
corresponding period in 1925.
Current exnenses (exclusive of cost of
Federal reserve currency) amounted to $19,280,000
during the nine-month )eriod,
an increase of
$51,000 over the corres-ponding neriod. last year.
After -providing for all current ex:Jense and
dividend requirements, the Federal reserve banks
on September 30 had a balance of $4,583,000 available for depreciation allowances, sur,
21us and
franchise taxes, as com-pP.red with a balance of
$8,468,00c at the end of September 1926.
The Federal Reserve Bank of Richmone., whose
earnings have been less than expense and dividend
requirements on each month-end since the first of
the.year, retorts on Se7tember 30 a balance of
$71,899 available for depreciation allowances,
sur-olus, franchise tax, etc., after Tyrovirling for
all current expense and dividend requirements.
VOLUME 174
PAGE 53
(St.5529a)
MR. &no
..
0
J.
0
J. I)
EIT:L.TLIGS
'ot 1:or .r.l.olication
7:onth
-,;;arninFs
:
II
Fran T- From par,rom
chased bills
othur
ond U.S.
counted
-,curces
securities
bills
4IVtoh
7ew Zork
Cleve12.A.
of
EXTE.:2I
S OF
st. 5529
. TT:DM:Ea 1927.
, S:
3
R...;
144.44t
Year
1927
September
34_2.1
1 Balanc availablo for
ratc
Current expenses
Current DividJnds aoprociation allowCurrent of c'urent net
ancos, uarplus
nct uarn- accrued
oarn1nLs on
net
cost
Total
iranchiso tax, Jtc.
to
avora&)
ings to
earninf_p
I,f
paid-in capital Sept. 30 Sept. 30 On Sept. 30 On Av).L.31
c=ency
Per cent
•
958 .1;409429 $174,829
157,842
so9,421
536,977
236,577
193,6°5
LS4,375
464,318
3.3
51,0,530
469,656
14._
151,304
157,000
109,024
10.0
819,329
,2
502,75'
334,3,92
197,318
213,781
116,111
10.1
1,124,187
623,261
454,510
223,Lao
105,392
113,090
110,714
21.6
350,362
278,46-3
*7,5711
-24,7oo
!2,40S
121,508
403,70"'
707,744
93,790 1,olo,":55
120,1411
11,352
26,261
101,502
190,242
43,14e
124,304
21,518
Richmond
5:3
2,537,o5o 1,727,S2(2,
Thnta
93,9,9
56,147
34,3oo
S1,137
93,842
90,594
21.4
679,59
22s',74o
335,843
uhicaf.-.o
9s,5Z3
273,0d,;
79,35
2190,18
316,021
135,019
0 r
_; •
1,523,618
763,136
707,0)3
10,j,647
18,307
206,905
109,872
111,117
97,738
22.5
677,371
2370332
St. Louis
11V
439,969
6o,00l
47,299
109,307
244,396
209,71-1
297,359
192,10
105,176
79,129
1,146,o96
407,309
73,739
67.6,85J
nenpolis
11!,0,40
01,006
15,825
111,862
03,741
84,148
27,714
11.2
195,5&9
135,5J
Kansns City
32,77o
117,953
37,951
186,674
126,616
132,921
55,753
16.1
433,7°3
Dnllas
34,1',72
106,997
17,b0L;
159,277
103,198
111,S53
47A-24
13. -)
111,,JJ3
.3
152,2(2
34,814
30J,770
10q rw)6
200,657
lo ,113
14.2
1,25,J,j09
1,343,) 5
2,101:,934
1,9)9,43
.,095,6,7 2,244,392
2
2,136,765 2,320,342
2,111,405 2,196,113
1,432,22
1,157,503
1,734,871
13.3
io,360,503 5,73o,359 4,50es,2o4 J,do9,917
17.1
13,93°,938 5,462,5),S 3,463,372 (,352,298
'02n:
Sept. 1927
7
)
kag. 19'
6e'Jt. 1S).06
1,675,743
Or•
TIO7'S
- 11, 1927.
Oal.OET,-_:
3,676,620
3,477,612,5
3,930,984
*Deficit.
EARNINGS AND EXPEMES OF FEDERAL RESERVE BANKS
October 1927. Total earni2cs of the Federal
reserve banks were $15,000 less than in September thow.;11 earnings were accrued for one day
more in October. Earnings from purchased bills
increased $174,000, from U. S. securities
$65,000, and from discounted bills $17,000, but
these increases were more than offset by a decrease of $271,000 in miscellaneous earnings.
The decrease in miscellaneous earnings was due
to losses on U. S. securities sold and to a decrease in earnings on transactions with foreign
banks.
Current expenses (exclusive of cost of
Federal reserve currency) aggregated $2,156,000
as compared with $2,096,000 in the month preceding and $2,133,000 in October 1926.
Ten months ending October 31, 1927. During the
ten months ending October 31 earnings totaled
$34,690,000, as compared with $3S,653,000 last
year and $33,223,000 for the corresponding
period in 1925.
Current expenses (exclusive of cost of
Federal reserve currency) amounted to $21,436,000
during the ten-month period, an increase of
about $75,000 over the corresponding period
last year.
After providing for all current expense
and dividend requirements, the Federal reserve
banks on October 31 had a balance of $5,275,000
available for depreciation allowances, surplus
and franchise taxes, as compared with a balance
of $9,802,000 at the end of October 1926.
VOLUME 174
PAGE 118
.0•1,
(St. 5569-a)
HA:AILIN
OUT' DENTIAL
Not for publication
EARNINGS AND EXPENSES OF FETTRAL RESERVE BANKS, OCTOBER 1927.
-6'ederal
Yonth
of
Earnings from -
Reserve
Purchased
Lills
U. S.
securities
$9(2,710
$so,342
$76 534
Now York
330,152
279,404
Philadelphia
117,023
Cleveland
counted
bills
Pletober
Current expenses
Exclusive
of cost of
currency
st. 5569
10 Months endin
192/
Current net
earninP-s
Ratio to
Amount paid-in
capital
Per cent
Current
net
earnings
12.7
$ 79,727 $456,347
2,964,71g 1,9
6: 954
297
October 31, 19P7
Balance for
Dividends
reserves,
accrued
surplus,
franchise tax,
etc.
Other
sources
Total
$263,284
291,873
g
22,935
974,364
$95,769
427,66s
34,5g4
105,363
6,367
263,842
92,719
8.2
912,043
131,516
47,529
160,794
16,234
356,073
132,159
11.2
1,256,336
Richmond
07,276
93,554
53,67s
7,753
252,2.)-1
133,691
25.2
434,054
Atlanta
73,466
7,995
15,959
139,925
31,06s
7.1
710,527
3
2°
59
4,742
4°
3
456,0s4
C*Iica;.?;o
108,249
122,29e
g.3
1,645,9'6
85)4,661
791,235
105,35o
39,463
4,o41
446,104
64,301
77,31g
11,025
37,505
221,074-
134,717
69,436
15.4
264,43G
432,921
Minneapolis
8,782
3o,652
70,435
11,583
121,457
37,050
14.5
747,357
232,619
150,611
82,008
illras City
47,785
27,465
077
31,050
21o,377
56,275
15.7
4s9,97s
21o,414
279,564
Dallas
21,300
37,120
90,914
5,616
154,950
43,971
12.1
341,329
213,574
127,755
131,507
25,o2o
123,859
s,645
294,031
100,127
12.6
1,246,225
453,924
792,301
2,319,064 1,342,321
2,244,392 1,432,22g
2,304,26511,950,609
12.0
13.3
18.5
11,710,884 6,436,372
5,274,512
15,881,547 6,079,059
9,802,48g
Banh:
Ft. Louis
F5n Francisco
TOTAL:
Oct. 1927
1,276,067
757,0os
Sept. 1927
1,250,089
5s3,221
Oct. 1326
2,254,394
912,549
FEDETZAL RES7RVE :BOARD
DIVISIOJ OF BANK OPERATIONS
NOVEMBER 12, 1927.
1,451,561 176,749 3,661,3S5
1,386,222 448,28g 3,676,620
942,261 145,670 4,254,874
2,156,185
2,095,SE',7
2,132,613
Total
11.9
4;223,3so
1,038,424
263,091
692,971
563,415
174,334
CONFIDENTIAL
Preliminary Memorandum
for the
Open Market Investment Committee
October 18, 1927.
Ia accordance with the general policy forecast by discussions
at the governors
conference in May and at the meeting of the Open
Market Investment Committee on July 27, all of the Federal Reserve Banks
have since that meeting reduced their discount rates from 4 per cent to
3 1/2 per cent. The timing of these changes was as follows:
July 29 Aug. 4
5612 13 16 Sept. 7 8"
10 13 -
Kansas City
St. Louis
Boston, Nev; York
Cleveland
Dallas
Atlanta
Richmond
Chicago
Philadelphia
San Francisco
Minneapolis
In order to make the change of discount rate effective in New
York it was found necessary to purchase 50 million dollars of Government
securities for account of the System, as previously authorized.
The
reduction of the rate in New York was followed by large transfers of funds
to other districts, principally to the west.
Between August 3 and
September 7 Hum the Chicago bank reduced its rate) the gold reserves of
the New York bank declined 109 million dollars, most of the loss
going
to the Reserve Banks which still maintained a 4 per cent rate. Over the
whole period from July 20 to October 12 the New York Bank lost 181 millions
of gold, including transfers to other districts as well as gold exports,
and withdrawals of gold currency for circulation.
As a consequence the
•
•
BILLIONS c1DOLLAR5
1.2
1927
1.0
•
A
/1
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s
r—
I
4
I
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,.
,
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•
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dr
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8
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1% 4
•
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•
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.
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l''''';
•".•
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...
I i
•
--•_._„._
I•
„ra
/1925
•
•
I
/
1
II
,r—
,
GOLD RESERVES
F. R.t3ANK
1
•
J.
F
PLY.
MA
1
MIT
A
N
D
3
borrowing of New York City member banks increased about 75 million dollars
and, with prospects of oven larger borrowings, it was necessary to purchase
in August the 50 million of securities.
Otherwise money rates would have
experienced a sharp advance which would have defeated the purposes of the
policies adopted.
In this same period it has been possible to liquidate all of
the special sterling account with the Bank of England i at a profit of
e163,000.
In order to offset the loss of funds to the New York money
market resulting from these sales a corresponding amount of securities
has been purchased, a reversal of the operation which took place in the
Spring when purchases of gold abroad were offset by sales of securities.
The transactions in the account since early in the year, exclusive of
temporary or minor adjustments, are shown in the following table:
1:La'or Transactions For
System Special Investment Account
001,000,000
Approximate amount in account January to May 1
Sale of securities, nay 1 to May 9, to offset
654000,000
purchase of gold (mostly gold held abroad)
Balance in account May 9. . . 436,000,000
Purchases to offset gold earmarked in May and
100,000,000
June...... •
Purchases during Juno and July under authorization
29,000,000 *
of Committee meeting, held week of May 9
265,000,000
Balance in account July 18. .
Purchases in August under authorization of Open
Market Committee meeting of July 27. .. . • • . . 504000,000
Balance in account. .... . 015,000,000
•
•
•
0
Purchases in August, September and October to
60,000,000
offset sales of sterling
.• . a
Balance in account October 18. . 075,000,000
* out of an authorization of 400,000,000.
It will be observed that as a net result of the year's operations
to date the Special Investment account has been increased
174,000,000.
Of
4
this 05,000,000 represents offsets to market losses through earmarkings,
etc., and $79,000,000 represents purchases made in keeping with policy aims.
A further result of the movement of funds from New York to other
districts has been that member banks in districts other than New York have
been able to meet the seasonal increase in credit requirements without any
increase in their borrowings at their Reserve Banks, whereas banks in New
York have increased their borrowings.
The figures are as follows:
Discounts and Advances
(In Millions of Dollars)
(Monthly Averages)
New York District
Other Districts
166
383
549
182
460
642
1927
123
331
454
Sopt., 1927
142
280
422
July,
1926
Sept., 1126 .
. July,
Total System
The decrease in total member bank borrowings as compared with a year ago
arises partly from a lessened demand for Federal Reserve credit due to smaller
currency requirements and gold imports and partly from the increase in the Systeml s
holdings of securities.
The average figures for September for total bills and
securities are as follows:
Bills discounted
Bills bought
U. S. Securities
Total bills and
securities
Se9t. 1926
641,797
263,992
3154 747
Sept. 1927
422,192
215,926
500,637
1,225,236
1,139,342
Under these conditions money rates have become relatively stable at
,levels about 1/4 to 1/2 of 1 per cent lower than at the middle of July and sub—
stantially lower than a year ago.
ing table;
The changes in rates are shown in the follow6.
•
S
,
5
Money Rates at New York
Sept. 20
1926
Call money
Time money - 90 day
krime commercial papor
Bills - 90 day unendorsed
Treasury certificates and notes
maturing 'December 15
March 15
Feder1 Reserve Bank of Now York
rediscount rate
Federal Reserve Balk of New York
buying rate for 90 day bills
July 15
1927
*5-5 1/2
5 1/8
4 1/2-4 3/4
3 7/8
3..54
3.56
4
3 3/4
Oct,. 17
1927
*4
4 1/2
4 1/4
3 5/8
*4
4 3/8
4
3 1/4
3603
3.24
2.89
3.08
4
3 1/2
3 3/4
3 1/4
*Prevailing rate for preceding week
Consequences of Lower Rates
Aside from the domestic movement of funds from New York to other
districts,
sailiwomos••••..iiiiamwmprimmise,
the following changes, related in
some measure to the lower rate level, have taken place in the money market
situation.
1,
Hi2-her Sterlin,r, Exchan-e:
Whereas a year ago sterling exchange
moved steadily downward from early July until the end of Uctober, and such a
movement had begun early in July this year, the lower level of interest rates
prevailing has been an influence toward stronger sterling exchange, and the
demand rate has moved from a little above
4.85 the middle of July to nearly
);4.86 3/4 recently, and the cable rate from k4.85 1/2 to k4.87 1/8, - this
notwithstanding sales of over 12 million pounds of sterling by the Reserve
Banks.
This strength in the exchange rellectsthe tendency for funds to move
from New York to London, and some tendency for short and long term financing
to be shifted from London to New York.
The rates London banks are now paying
for detosits are about 4 1/4 to 4 1/2 per cent, and are higher rates . than those
at which funds can be employed at short notice in the New York money market,
Acceptance credits are now cheaper to obtain in New York than they were and
• ;,
1927
1925\
•
CALL RATES
Tx/ft/rill AVE AGES
•
,
5TERL/N6 EXCHANGE
PA tvO RATES
•
LI
I,0— 1..4,1?.5
81L,L5
015COUNTED
N.Y. C/TY.
0
-00.
'
,
BILLS 0/5COUNTED
'•,
(
;
- # 71 7
-7
TOTAL DILLS
&5ECURIT/E5
ALL F.R LANKS
,- _
_ _
•
LOANS &INVE.Srtinirs
iic:r ,A/E,",7t3.6/t'. PA Ail< 5
•
,
,
-
S
• t.
7
the dollar volume of bills outstanding
in this market is as large as at
any time since 1920.
Sterling lonr; bills are also bought here by our banks
and "carried" in London after acceptance instead
of being discounted.
2.
Net Geld Ex.:orts in September.
In every month this year up to
September there had been a net iralzort of gold (if we exclude earmark
ings).
But in Septernter there has at last been
a net export movement of gold and
-ryvnevkAX
gold imports for the-immenumb- are
A net outgo of about 13
arrested.,
million dollars was largely the result of a shipment of 23 million to
the
rlrgentine, more than offsetting imports of about 10 million from
ustrali
ia.
...flail° the argentine shipment was in the nAure of a special transac
tion, the
relation of exchalge rates made it cheaper to purchase this gold in Ne,.7
York than in London.
So far this yoar all movements of gold (exports, imports, and
earmarking operations) have reculted in a net gain to this country
of about
(
49 million dollars,
This is contrary to general views, which are based
on rel:orts that omit earmarked gold held by us.
In this connection it is
interesting -to note that in -the past three years, 1925, 1926, and
1927,
durin7 which there has been considerable discussion of our sterili
zing gold,
this country has gained as a net result of gold operations only
about 18
million dollars of :;old, which is 1es:.3 th=_-n seasonal movemen
ts of single
years at times prior to the war.
3.
Growth in Speculation.
ti further and less favorable result of
easier money, and one which was anticipated, has been some
stimulation of
stock exchange speculation.
There has been a growth of 336 million dollars
since the middle of July in loans to brokers and dealers in New
York, accompanying an irregular advance in stock prices.
Thoro is no means of knowing beyond question how far this
recent
rise in stock prices represents excessive speculation and how far
it represents
BILLIONS u/I)OLLA I?5
MONEY IN
CIRCULATION
.5.0
I.9 7
4.6
1927
21.6
T
J.
N
Ni
A
S
J
A
5
)
Amount of Currency in Circulation at Frsi of'
eccosi. Mouth, U.S. Treasury Departnent
Reports.
N12,731v,
.
-
!Y;
)
,
GOLD
/101/EllENT
0.6.
1111.1r,
.......***#
...00°
'
...
„
-
-150
Net Gain or
of Gold through Exporte,Imports,
and Earmarking.
Lobe
8
a gradual readjustment of values to increased industrial efficiency,
larger profits, higher commodity prices, and a lower basic interest rate
level than for sobs years past. It is clear from a study of such relationships as those of stock yields with bond yields and with money
rates, that the current level of stock market prices is less abnormal
than a casual inspection of prices alone would suest. The investment trust and the growing popularity of common stocks as investments
are factors which may also be changing somewhat the old price and yield
relationships.
4.
Growth in Volume of Credit. There has been a considerable
growth in the volume of bank credit, more rapid in fact than took place
in either 1925 or 1926. The figures of repartee. member banks in principal cities for this year to date, in comparison with the three years
previous, are as follows:
Increase January i to October 1 (In Millions)
1924
Total loans and invest1,571
ments
275
Commercial loans
Loans on stocks and
440
bonds
856
Investments
1925
1926
1927
611
153
404
301
911
23
5/3
115
8/
190
333
554 *
* Includes 300 increase in governments, with
biggest change at March tax period.
The increases in these items between the middle of July and the
first of October have been as follows:
Increase Middle of July to first week of 9ctober (In Millions)
1924
Total loans and investments
Commercial loans
Loans on stocks and bonds
Investments
1,029
301
209
519
1925
1926
1927
495
360
171
36
359
298
107
46
634
271
321
42
9
5.
Greater Firmness in Commodity Prices.
An index of prices of
basic commodities, computed by the New York Reserve Bank, has been tending generally upward since early in the spring, due almost wholly to increases in agricultural prices, which may be
ascribed largely to particu-
lar crop conditions but partly to success in marketing surplus production
abroad. The . upward movement has been accelerated, however, in the past
two months and the larger index of the Lepartment of Labor, made up from
quotations for over 500 different commodities, also moved upward in July
and August.
This index is still, however, a number of points lower than
it was a year ago.
•
PERCEivr.
1701
WHOLESA L. E
P/21 C.E
cp
/Go
Federal Reserve Po/1.rd' e Index
of Production of
gureau of Labor 6tatistics Ir.dex or ::holesale
Price6.
Manufacturere.
(
-" -
iTOCK PR/C.ES
1
BOND PRICES
3
Standard Statistics Coopany Index of Prices of
I.
229 Stocks.
New York Times Price Averaie of 40 C,orporation
Bonde.
BANK DEBIT3
Out5rcie
4
wI
F
jA.
11
General Condition of Business
There has been no marked change in the general business outlook.
The general volume of manufacturing production is somewhat lower than a
year ago and lower than it was early this year, a. change which is reflected
in a smaller currency demand than last year.
The agricultural situation,
however, has improved and there are prospects for larger crops than had
been anticiated early in the spring, and an increase in the purchasing
power of the farm population.
The general business outlook is, however,
for a continued fairly good volume of business activity during the balance
of the year, without either a recession or a boom.
Many authorities agree
that increasing domestic competition is affecting profits adversely.
Developments Abroad
The outstanding new developments in European money markets aro
the increases of the discount rates by the Reichsbank from 6 to 7 per cent,
and its Lombard rate from 7 to 8 per cent and but recently of Holland from
3 1/2 to 4 1/2
. Aside from those changes the rates of central banks
abroad have been at the same level as in July.
The explanation of the
change of rate by the Reichsbank is its reduced reserve assets, and in
general it illustrates the narrowness of margin within which the banks of
issue af Europe are operating and probably reflects some strain in meeting
payments due to the U. S.
The reserves of most European banks of issue
are not adequate generally to undergo any considerable or continued strain
without the necessity for increases in rates. The latest moves emphasize
the importance of this country's maintaining, if possible, a rate relationship with Europe, such that at least the world's new gold output available
for monetary purposes may not be diverted to this country but may flow to
those centers where the reserves are most in need of reinforcement.
1
.•
•
•
12
The Sterling Position
'jhile our rate reductions, together with a recent increase in
foreign loans placed in this market, a movement by American banks to
accumulate balances in London, and probably some covering of short positions in sterling have led to the sharp advance in sterling rates commented upon earlier, there remains some question as to the position of
sterling for the balance of this year, The movement of cotton, while
smaller than last year, is at much higher prices and the delayed move.
ment has probably not reduced total dollar requirements. The larger
amount of bills being drawn in dollars than last year, simply dafers
the demand abroad for dollars.
Some of these developments simply defer but do not finally
effect dollar payments.
It is hoped that the ultimate demand for
dollars may go over until the period of liquidation and ease of rates
immediately after January 1st.
In the meantime, however, the committee
should be prepared to intervene, if necessary, and again accumulate a
London portfolio at the London gold export point, or buy gold in London
when offered for export to New York.
In case of such purchases the
committee should consider whether offsetting sales of securities should
not be made in New York just as they were in the spring when gold was
acquired abroad.
The Guilder Position
The holiday delayed cable exchanges which might have enabled us
otherwise to agree with the Nederlandsche Bank upon a plan to avoid their
rate increase or limit it to 1/2 per cent, instead of 1 per cent. This
situation may recur and should be considered by the committee.
13
As to Offsetting Gold Movements or the Equivalent
The experiences of this year have provided a demonstration of the
effectiveness of the policy of offsetting gains and losses of gold through
import, export, or earmarking by purchases or sales of securities. Purchases or sales of gold abroad or of exchange, which have just the some
effect on. the market as gold movementsj have been similarly offset, as
indicated by the table on page 2. That table indicates, that whereas the
open market account increased from 136 million in May to 375 million in
'October, only 79 million of the purchases were of a nature to affect the
I
credit situation; the balance represented offsets.
The effect of such offsetting purchases or sales has been to
prevent disturbance to the credit situation from artificial causes.
purchases or sales of this sort are
If
not made promptly, not only will
money rates be affected, sometimes quite sharply, but the borrowings from
the reserve banks will become readjusted ,automatically at times when not
desirable. In the case of imports of gold, unless repayalents of loans
are at once made to the reserve banks, loan expansion occurs at once in
the market.
Failure to "offset" a gold import or export (or equivalent earmark
transaction) has the same result as a purchase or a sale of securities when
no gold movement occurs. The same situation arises whenever large transac.tions for foreign banks alter the reserve position, and occasionally when
,.
changes occur in Treasury balances with the Reserve Banks.
It should be understood that these necessary adjustments will be
made from time to time, within reasonable limits and for a round amount, the
members of the committee being consulted by telephone.
At times action must
be. taken at once, - for example, when a foreign bank desires to sell securities and earmark gold, or when our own foreign balances are being liquidatea
S
•
14
as recently.
Sales of Securities in January
In addition to any sales of securities which may be necessary
to offset any purchases of foreign exchange, or gold abroad, it will be
necessary to consider whether sales should be made in January. In case
borrowings at the New York Reserve Bank, and possibly other Reserve
Banks, are not sufficient to absorb the January return flow of currency
and Reserve Bank credit, the committee should consider sales of securi—
ties,
Futlite Program
At to specific cans
The committee should consider the following 1.
The Reserve Banks being prepared to repeat the
operation of buying gold or balances abroad,
if necessary, to prevent gold movement from
London or some other foreign center.
2.
A continuance of the general understanding that
the committee will undertake to offset by
purchases and sales of securities any such
major gold, or equivalent, operations as have
been offset this year. This would include
the offsetting of purchases or sales of
sterling or other foreign currencies.
3.
The desirability of sales of securities in January,
if it appears necessary, to take up slack in the
money market.
As to R.eneral policy.
A review of the events of the past two months makes it clear
that the policies agreed upon in July have so far been successful,
more so perhaps than could have been anticipated.
Concerning the future,
the principal questions are 1.
How long will the firmness of sterling and other
European exchanges be maintained, even with
present rate relationships, when the full
seasonal strain for making American purchases
appears!
2
2.
Will money rates in this country rise later
in ths, year with Christmas demands for funds,
so as to disturb the international rate
relationships'
3.
Is there likely to be increasing difficulty
for Europe in meeting payments due in the
United States'
4.
Is there likelihood of speculation in stocks
or commodities, using so large an amount of
credit as to constitute a danger?
5.
In view of these possibilities what flexibility
in operations should be given the Open Market
Committee'
•
CO 4FILIE1
(4 4.
October 29, 1927)
Supplementary Note on Gold Earmarking
Since the preceding pages wore written we have received instructions
from -I foreign correspondent to earmark 50 million dollars of gold for their aecount.
This earmarking operation has precisely the same
-effect in withdrawing
funds from the money market as the export of 50 mill ion dollars of gold, or the
sale of 50 million dollars of securities by the Reserve System., In order that
this operation may not disturb the money market and de feat the policy we have
been pursuing, the committee is undertaking to offset these earmark ings by a
purchase of 50 million dollars of securities, so that the net result of the operat ion will .be to leave the money market unaffected.
This transaction illustrates precisely what occurs when gold is earmarked.
Under the instruct ions which have been received, 30 million dollars of
the earmarked gold will be paid for by applying the proceeds of bankers acceptances now held for the account of this correspondent, which mature between now
and November 11.
The remaining 20 million will be paid for by funds to be de-
posited with the New York Reserve Bank by a number of the New York City banks,
which hold balances for the account of this correspondent.
The procedure which we have agreed upon for the earmarking of gold
results in our setting as -ide gold in the amounts and on the dates indicated below:
GOLD TO BE EARMARKED FOR FOREIGN CORRESPONDENT
Date
October
Proceeds
Maturing
Bills
To be received
From New York
Banks
25
,'`,10, 000,000
$ 4,000,000
26
2,0001 000
27
2,000,000
28
2,000,000
31
5, 000,000
2,0001 000
November 1
2,000,000
5,000,000
2
2,000,000
3
2,000,000
000,000
42,
7
5,000,000
5,000,000
11
$30,000,000
$20,000,000
Total
000
0.4,000,
21 000,000
2,000,000
2,0001 000
7,000,000
2, 000,000
7,000,000
2,000,000
2,000,000
5,000,000
5,000,„ 000
$50,000,000
(4 - October 291 1927)
2
Should any of the payments from the New York banks be made in
Clearing House funds, it would result in delaying one day the earmarking of
gold.
It will be seen that, as the bills held for this correspondent
mature, the market pays to the Federal Reserve Bank the amounts due, and
that as these sums are applied to the purchase of gold and are not reinvested
in the market they will constitute a loss to the market, reduce the reserves
of the New York City banks, and (in the absence of offsetting operations)
force those banks to increase their borrowings at the Federal Reserve Banks.
Payments to the Reserve Bank by New York City banks have a precisely similar
result.
In order to maintain the present status quo it is necessary, there-
fore, to put 50 million dollars into the market to replace the 50 million
dollars withdrawn by this earmarking operation.
Securities are being pur-
chased a little more slowly than gold is being earmarked and thus a daily
test is made of market conditions.
At present the New York City banks owe the Federal Reserve Bank
of New York about 90 million dollars, and this amount of borrowing will
normally be increased somewhat as Christmas approaches.
Any large extended
increase in this borrowing would be followed inevitably by firmer money rates,
and would imperil the policy which the Reserve System has been following.
One other phase of this earmarking operation is worthy of consideration.
Exports and imports of gold from and into this country since the be-
ginning of this year resulted in a net import of about 125 million dollars.
If, however, earmarking operations are taken into account the net gain to
the market through imports will, after the completion of this transaction,
(4 — October 29, 1927)
3
have been entirely offset by losses through the earmarking of gold,
Thus the
actual facts as to gold movements are quite contrary to the general belief
based upon the published figures for gold exports and imports.
The s -me thing is true if we go back a few years.
Since the autumn
of 1924 the figures for gold imports and exports indicate a net movement to
this country of about 100 mill ion dollars, and it is the common impress ion that
in the past three years we have been absorbing and sterilizing the world's
gold. 'Nhen earmark ings are taken into consideration, however, the past three
years (including this current transaction) show a net loss of
5O,000,000 of
gold rather than a net gain.
In view of the important influence of gold movements upon money conditions, and the somewhat misleading character of statements which are now
made public, it is believed that we should consider some weekly statement as
to gold held under earmark.
It is true that figures given out once a month
by the Department of Commerce for the stock of gold in the United States do
make allowance for earmarking, but these figures are published only once a
month and some time after the event.
The publishing of weekly figures for
gold earmarkings would correct possible erroneous impressions and aid in a
general public understanding of Federal Reserve policies.
•
CONFIDENTIAL
To
Governor Stron
October li, 1927
From
W. R. Burgess
Memorandum en the Stock D:arket
The concern of the Federal Reserve System as to the stock market has
to do with its use of credit.
There are two principal ways in which the amount
of credit employed by the market can be judged.
First.
A comparison ef changes in such use of credit with such related
factors as the prices of securities, the volume of trading,
and changes in other forms of credit.
Second.
The soundness, i.e. permanence, of current market values against
which the credit is advanced.
1.
Use of Credit in Security iiiarkets
Security Loans and Stock i'rices
The following chart shows the changes in recent years in loans on
stocks and bonds of the reporting member banks in principal cities, in compariso
n
with prices of common stocks.
In general the two lines move closely together, but
in the past year security loans have increased less rapidly than stock
prices.
The spread between these two lines would appear to indicate some tendency
toward
4reater conservatism in the use of credit in security market operations, vihich
may be due to such factors as larger margins or a larger proportion of investment
buying for cash.
at /510
STOCK
PRICEINVEX
I.C.)Ati3
BILLI0N5ofDOLLARS
7
1175
672
•
4 7 -7//,
/
5
1
LOANS SECURED
by STOCKS &3O1'05
•
STOCK
PR I CE5
0•
•(
•
I ez
1919
19RO
192.1
1922
192,3
1924-
192,5
1926
1927
3
Security Loans and Volume of Security Operations
A further test of the present volume of loans on securities may be
found in the concurrence of the movement of security loans, the volume of
trading, and the volume of new financing.
This comparison is made on the
following diagram and indicates that increases in extensions of credit have
been no greater than the increases in the volume of security operations.
Security Loans in Relation to Total Bank Credit
The second chart on the page shows the ratio of bank loans on
securities to the total amount of loans and investments of the repusting member
banks.
It indicates that, while in 1925 the ratio of security loans to total
bank credit increased from 25 to 29 per cent, since that date this ratio has
fluctuated within narrow limits.
The proportion of brokers loans to total loans on stocks and bonds
has been rising since early this year but remains slightly lower than in
January and February 1926, though higher than at any other time in recent months.
These ratios are shown in the following table.
l'ercentage of Brokers Loans to Loans on Stocks and Bonds
of all Reporting Member Banks of System
Last Reporting Date
January
February
March
April
May
June
July
August
September
October
November
Lecember
1926
1927
56.2
57.3
47.6
46.6
45.9
46.0
47.8
49.7
50.2
48.2
48.6
48.8
49.9
50.7
50.2
51.1
52.1
53.4
53.6
54.4
.74 ,*•!*
•
13/LL/ON5o//YJLh4/?5•
7
I
6
LOANS ON
.570C1(5 &DOND5
\
,
ESTI/FATD
/#
'
,
AGI/WER of TRANSACTIONS
3
of,iN.Y. STOCK
e
e'
2
4,
S.
••
S.
1919 '20
NfW OlePORATE
FiNA A C/N6
X ee
e eole
e
'21
'22.
24
'2.3
'26-
'2C
'27
Yearly Averages of 'i'oekly Figures on Loans on 6tocics and Bonds by
Reporting Member Banks, Lompared aith Volume of New Corporate
Financing and Estimated dumber of Transactions on
New York Stock Exchange. (1927 estimated)
PER CENT
32
30
RATIO OF
LOANS ON 5fOUR?TMS
to TOTAL LOANS &
28
IN
NTS
26
21
Ratio of Loans on Stocks and Bonds to Total Loans
and Investments of All Reporting
Member Banks.
az
1922
1923
192-1
1925
1926
1927
5
Summary as to 1.
The foregoing facts may be summarized by saying that while loans on
securities are very large and have been increasing they
do not appear, if
they may be judged by previous experie
nce, to be seriously disproportionate
to:
A.
Stock prices
B.
Volume of trading
C.
Total bank credit
6
2.
Soundness of Current Market Values
While the foregoing comparisons are interesting and give some
security
indication that the present relation of the use of credit in the
markets to the general growth of credit in the country and the general
trend of stock market prices and volume of trading is not unprecedented,
the more important related question is whether present values in the security market have a sound basis, for the danger to be feared is a collapse
of the market, which would react upon business and bring serious losses to
many people.
The likelihood of such a crash is increased when stock market
prices get out of touch with reality.
There are two general tests as to the soundness of current stock
market prices.
Stocks are dealt in the same as commodities at varying prices,
and presumably there should be some relation between their price movement and
the movement of the prices of commodities.
But stocks are also a particular
kind of commodity, the value of which consists in the current and prospective
yield.
Thus a more important test of stock prices is their yield compared with
the yield of other forms of investment.
7
Stocks and Commodity Frices
The following diagram compares prices of stocks with the movement
of commodity prices and indicates that up until comparatively recently the
prices of stocks have increased less since 1913 than the wholesale prices of
commodities, but that in the past two years the prices of stocks have tended
to exceed the prices of commodities.
is very rough and very general.
This comparison for a number of reasons
The industrial plants, stores, etc.,which
7tocks represent4 are commodities the prices of which would not normlly move
with a general index which includes largely basic commodities.
Noreover,
industrial concerns are continuously expanding their plants and equipment by
ihe use of surplus earnings, and hence increasing the value of their stocks.
This factor is partly compensated for by additional issues of stock.
no way of knowing how precise is this compensation.
There is
2p 11 G6
PER ceNy.
300
200n--
TAI1-/OLL5A L
CON/VD/TY
PR/CES
100
STOCK
PRICL5
5o
_
1913 .11 '15 '1G '17
_ _
18 '19 '20 '21
'22, '23 '24 "),5- 'a '27 '28
Stock Price Index, Computed by Combining Dow-Jones Averages of
Industrial and Railroad Stocks in the Proportion of 3 to
1, Compared with Bureau of Labor Statistics Index of
(Both indexes on 1913
Wholesale Prices.
base, 1927 estimated.)
9
Yields on Stocks Compared with Other Investments
Over a long term of years it has been clearly demonstrated that the
dividend yields on stocks at their currently quoted prices bear a significant
relation to the yields on bonds or money invested for short periods.
Stock
yilds have in this country tended to be one or two per cent higher than bond
yields, and also higher than time money rates (as an example of short money
rates) hut there have been times when stock yields have gone below both
bond
yields and short money rates, The general relationship of these rates over a
period of years is shown in the following diagram.
/2‘6.
OA
•
YIELD
PER CENT.
33
COMMON
STOCKS
HIGH GRADE
BONDS
,
2
1916 1917
1918 1919 1920 1921
1922 1923 192.q 1925 1926
Yields on Dividend Payini Common stooks Compared with Yields on
Preferred Stocks and bonds and Rates on 60-90 day
Time Money.
1927
10
The normality or abnormality of stock market prices can perhaps be
measured more precisely by observing the deviations of stock yields from bond
yields
and current money rates.
diagram.
Such computations are made in the following
They indicate that while stock yields are low, they are not as low
relative to bond yields and money rates as they have been a number of times
in the past.
Moreover, there is some reason to believe that a fundamental change
71:7
be going on in the relative popularity of stocks and bonds in this country.
In our historic emphasis upon bonds rather than stocks as a vehicle for invest.
ment, we have not followed the usual European practice.
In many of the older
European countries in which industries have been very firmly established,
stocks of old industries have frequently sold on a yield basis lower than highgrade bonds.
This relationship has been justified by the expectancy of increases
in prices and yields of industrial shares.
The very heavy losses suffered by bond holders in this country in the
past 20 years due to declines in bond values have led to some questioni
ng of the
soundness of our historic practice, and more latterly a number of statistical
studies have shown that over the past 50 years purchases of common stocks Would
have constituted sounder investments than bonds.
These findings have undoubtedly
led to some change in the popular relative esteem of stocks and bonds, which
..las found expression also in the establishment of many investment trusts
a considerable proportion of the funds of which has been invested in common
stocks.
of this may be leading to a new relationship between the yields on
common
stocks, on bonds, and on short time money.
Sp MO
MARGIN BETWEEN l'IELD ON COMMON STOCKS AND
('TIME MONEY RATES AlliD (24'f301VD Y1EL D5
Pe-rce
MARGIN
srocir YIELD
ovkm
TINE LOAN RATE
MARGIN 570C-4' YIELD
oVtR
TIME LOAN RATE
NA/e6/N 5706r YIELD
ovER
BOND YIELD
'914
1916
191 -
/1AR4/N 5TOCA' Y/ELD
oVER
DONE) YIELD
918
/9:9
190
1901
1922
/923
1924
1925
/926
1,927
(/
12
Money Rates an Important Factor
The foregoing charts make
large influence upon stock prices.
it clear that money rates have a
It seems reasonably clear that an in—
crease or reduction in short money rates of 1 per cent, for example,
might be almost a determining factor in the immediate trend of stock prices,
and the permanence of present stock market values depends not a little on
the future prospects for money.
Summary as to 2.
A comparison of stock prices and commodity prices indicates that
stock prices are now higher relative to 1913 than are
wholesale commodity
prices, but this compLxison is inconclusive because of the number of differ—
ences in the two things being compared.
A study of stock yields compared with yields on bonds and short
money rates indicates that, from this point of view, stock prices are high,
but no higher than they have been a number of times in the past, and there
may be going on today also fundamental changes in this relationship.
The
present level of stock prices appears to be closely related to current money
rates.
Scurity Frices Abroad
Some collateral light on security price movements here is thrown
o7 comparing them with movements abroad.
This is done in the following two
charts, which indicate that both in stocks and bonds we have been dealing
recently with a world tendency toward higher prices, which in a number of
countries has exceeded the movement here.
13
various
The figures are shown in terms of the domestic currencies of
and Italy
countries converted to a January 1925 base and in tho cases of France
The decline
are, affected by fluctuations in the gold value of those currencies.
middle
shown by Italian stock prices, in terms of lire, particularly since the
of 1926 is duo largely to appreciation in the value of the lire.
In the case of
middle
France) if allowance were made for the appreciation of the franc since the
of 1926) stock prices would be even higher than shown in the chart.
It would take further analysis than has yet been given to account fully
for this world-wide movement.
One of the possible explanations is that for the
world as a whole we have been going through a period of readjustment to new
bases of values,
Another theory is that it is an era of unbridled speculation.
In any event it is clear that the movement of security prices in this country
cannot be laid wholly to our domestic monetary policy.
sp 115-6
Indexes of Prices of Variable Interest Securities, Unadjusted for
Variations ir Exchanese Value of Currencies.
ViiIfBLE
INTEREST
SEcuev-riEs (TAK. 19),S-
foo)
jja2,fi,
FRAt4ce.
I6
*•4;
4 •••••••• •
ITALY
swprzEieLfimp
ERMANY
CANADA
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I o
4
•
I'
%
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i
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4t
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4
14.
Sp I45-5
Indexes of Prices of Fixed Interest Securities, Unadjusted for
Variations in Exchange Value of Currencies.
FIXED INTEREST
130
(TAN.
Sect/Rs -ries
=
U. s.A.
FRA rice.
•—• ITALY
Sv/iTz.E.
$.4-4-+4 GERMANY
C A NA DA
15-0-0
ENGLAND
110
110
••••11
.
00
o
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/ •—•-••.*
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0 -.--0••••••7••••„0......
\
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19).6
q
•
a
REPORT OF THE SECRETARY OF THE OPEN MARKET INVESTMENT COMMITTEE
TO THE GOVERNORS' CONFERENCE_, NOVEMBER 2, 1927
The holdings of Government securities in the Special Investment
Account at the time of the last Governors' Conference held in Washington,
during the week commencing May 9, 1927, amounted to approximately $136,000,000k
The holdings in the account since last May have been increased to
375,000,000 by the following purchases:
May & June
June ec July
July & Aug.
Aug. & Sept.
To offset earmarked gold for account of
foreign correspondents
1001 000 000
Additional purchases made under authority
given the Committee at Governors'
Conference in May (for purchases not
to exceed $100,000,000) which authority
terminated on August 1, 1927
29,000,000
Additional purchases pursuant to action taken
at a meeting of the Open Market Investment Committee held in Washington on
July 27, 1927
50,000,000
To off set the sale in this mark et of the
System's sterling balances
60,000.000
Total holdings
$375,000,000
There have been various other changes which have not affected the
total holdings in the account (with the exception of purchases made in re.-placement of June and September 15 maturities which only temporarily changed
the total holdings), the principal transactions being:
June 1927
June 1927
Purchases in replacement of June 15
maturities for System and Foreign
Accounts
Exchange of Second 4 1/4°,10 Liberty Loan
bonds for new 3 3/8. Treasury bonds
due 1943/47 pursuant to terms of
Treasury off ering. These Treasury
bonds were subsequently sold at a
profit in the market in August and a
like amount of 3 1/8-4 certificates
due September 15, 1927 were acquired.
$115,000,000
20,000,000
2
July 1927
July & Aug.
September
September
Exchange with other Federal reserve banks
whereby we purchased from their hold—
ings outside of System Account, Treasury certificates and notes maturing
September and December 15, 1927, and
sold them a like amount of Third 4 1/4%
Liberty Loan bonds (approximately)
20,000,000
Exchange with a foreign correspondent
whereby we purchased from them 3 1/4%
certificates maturing September 15,
1927 and sold to them a like amount
of 3 1/45 certificates maturing March
15, 1928. In August, the September
15 certificates were exchanged in
the market for a like amount of Third
4 lAs.
30,000,000
Purchases made in replacement of September
15 maturities for System and Foreign
Accounts. The Open Market Investment
Committee approved, including in these
purchases, a block of $25,000,000
Fourth 4 1/4s against which authoriz a
tion a total of $22,500,000 of this
issue of bonds was purchased.
Exchange of Second 4 1/4% Liberty Loan bonds
for like amount of new Treasury 3 1/2%
notes due September 15, 1930/32 pur—
suant to terms of Treasury offering
155,000,000
24,100,000
On June 3 the Federal Reserve Bank of St. Louis asked to be
relieved temporarily of $8,000,000 of their participation of Govern—
ment securities held in the System Account.
This amount of Governments
was sold from their participation on that date an4 allotted to all
the other participating banks, and on June 9 the Federal Reserve Bank
of St. Louis repurchased these securities.
On June 29 and July 1
the Federal Reserve Bank of St. Louis again asked to be relieved
temporarily of $10,000,000 aggregate amount of their participation of
Government securities held in the System Account.
$5,000,000 of these
securities were allotted to the other participating banks and the
remaining $5,000,000 was apportioned to the Federal Reserve Br-Ark of Richmond
•
•
3
(having in mind their urgent need for earnings to cover current expenses, etc.)
On July 13 the Reserve Bank of St. Louis advised that they Qsuld take back the
$10,000,000 of Government securities which they temporarily sold and accordingly
a sale was made to them on that day of the 0,000,000 which had been allytted to
the other participating banks and $5,000,000 from New York's participation in the
System Account to replace the $5,000,000 which had been sold to Richmond.
Due to their low reserve position, the Federal Reserve Bank of Richmond
requested on October 17 and 19 that they be temporarily relieved of $5,000,000
and $10,000,000, respectively, of their participation of Government securities
held in the System Special Investment Account. This sale was accordingly made
and the securities were allotted to the other participating banks on the prevail.
ing allotment ratios.
During the first half of the current year System purchases of bankers
acceptances and new purchases of Government securities were apportioned to
reserve banks on percentages based on each bank's expenses, dividends and chargeoffs.
With the approval of all the banks, new ratios were put into effect on
July 8 based on each bank's earning requirements for the balance of the year.
These ratios were again adjusted on September 1, September 19 and October 13,
and further adjustments on the same basis will be made from now until the end of
the year if the figures submitted by the banks indicate that further changes are
necessary.
On September 21 the Federal Reserve Bank of Richmond requested that we
discontinue for the present allotting them their
Government securities.
share of any new purchases lf
They further advised that they wished to continue their
. participation in allotments of bankers acceptances and replacement purchases of
Government securities.
4
Attached are statements showing:
Exhibit A - Actual net earnings of all Federal reserve
banks for the first nine months of the
year 1927 and estimated net earnings for
last three months of year 1927, and estimated amount of net earnings or net
deficit at end of year.
Exhibit B - Participation of Federal reserve banks in
System Special Investment Account Government securities and classification of
issues held in the account by maturities.
Exhibit C
Purchases of bankers acceptances since the
beginning of the year and amount each bank
has received in excess or short of its
pro rata share.
Exhibit D - Earning asset holdings of Federal reserve
banks October 19, 1927 as compared with
previous week, also weekly average from
December 29, 1926 to October 19, 1927 as
compared with corresponding period of 1926.
•
S
EXHIBIT "A"
STATEMENT SWUNG ACTUAL NET EARNINGS OF ALL FEDERAL RESERVE BANKS FOR THE FIRST
NINE MONTHS OF THE YEAR 1927 AND ESTIMATED NET EARNINGS FOR LAST THREE
MONTHS OF YEAR 1927, AND ESTIMATED AMOUNT OF NET EARNINGS
OR NET DEFICIT AT END OF YEAR
Actual Net Earnings in Excess
of Expenses and
Dividends, but
Before Chargeoffs, 9 Months
Ended Sept. 30/27
3oston
138,000
New York
842,000
Philadelphia
175,000
Cleveland
474,000
Estimated Net Earnings in Excess of
Expenses and Dividends, but Before
Charge-offs, for
Balance of
Year 1927
Estimated
Charge-offs
for Year
1927
Estimated Net
Earnings After
All Charge-offs
Available for
Surplus and
Franchise Tax
for Year 1927
143,000
$ 172,000
109,000
397,000
475,000
764,000
78,000
94,000
178,000
285,000
367,000
39,000
124,000
147,000
16,000
Atlanta
406,000
139,000
135,000
410,000
Chicago
647,000
346,000
697,000
296,000
St. Louis
435,000
130,000
317,000
248,000
Minneapolis
89,000
2,000
102,000
Kansas City
239,000
82,000
166,000
155,000
82,000
8,000
41,000
49,000
629,000
50,000
140,000
549,000
;,4,195,000
::;1.,606,000
$2,755,000
$3,046,000
Richmond
Dallas
San Francisco
Totals
*Deficit
$
3,000*
11,000*
EXHIBIT "B"
STATEMENT SHOWING PARTICIPATION BY FEDERAL RESERVE BANKS IN SYSTEM
SPECIAL INVESTMENT ACCOUNT AND CLASSIFICATION OF ISSUES HELD
OCTOBER 19 1927 IN THE ACCOUNT BY MATURITIES
Boston
25,853,500
Dec.
New York
96,994,800
March 15, 1928 - 3 1/4% Cert. of Ind.
Philadelphia
22,987,500
March 15, 1928 -
Cleveland
31,102,500
Sept. 15, 1928 - 4 1/4% 3rd L/L bonds
idchitond
11,214,000
March 15, 1932 - 3 1/2% Treas, Notes
60,889,800
,ktianta
9,860,000
Sept. 15, 1932 - 3 1/2°7. Treas. Notes
18,244,000
o
53)979,500
Chic
St. Louis
20,280,000
Minneapolis
16,672,000
Kansas City
26,019,000
Dallas
23,821,500
San Francisco
:1,6,105,500
Totals
$374,889,800
Oct.
15, 1927 - 4 1/2% Treas. Notes
II
II
II
15, 1938 - 4 1/4% 4th L/I, bonds
19,327,500
60,283,500
48,506,000
145,049,000
22,5000 000
$374,889,800
•
EXHIBIT "C"
PURCHASES OF BANKERS ACCEPTANCES SINCE THE BEGINNING OF THE YEAR, AND
AMOUNT EACH BANK NOW HOLDS IN EXCESS OR SHORT OF ITS PRO RATA
SHARE UNDER THE APPORTIONMENT PLAN PUT INTO E:FFECT IN
THE EARLY PART OF THE YEAR AND REVISED ON JULY 8
SEPTEMBER 1, SEPTEMBER 19 AND OCT_913Ep, 1 3
Bills Over
Bills Short
Pro Rata Share Pro Rata Share
Bills Acquired
Bills Entitled
to Ac quire
95,808,000
93,456,000
,,2, 352,000
309,294,000
309,832,000
0
538,000
91,519,000
94,737,000
0
3,218,000
11 4,105,000
11 4,023,000
Richmond
96,457,000
97,9 38,000
t1 anta
49,6 48,000
49,081,000
567,000
0
Chicago
168,174,000
167,421,000
753,000
0
3t. Louis
61,230,000
61,600,000
0
370,000
Minneapolis
52,016,000
5 3,728,000
0
1,712,000
Kansas City
69,755,000
70,434,000
0
679,000
Dallas
52,412,000
53,487,000
0
1,075,000
San Francisco
81,060,000
75,741,000
5,319,000
0
39,073,000
39,073,000
---,ston
-,:ew York
Philadelphia
,
. 1 ev el and
ti
Totals
$
3l,241,478,000
$1,241,478,000 '
82,000
0
0
0
1,481,000
The overages shown in the above statement are being adjusted in the
usual manner by making distribution to other reserve banks.
•
•
- Oct. 12
" 19
Net Change
Bills Purchased
$33,932
27,641
6,291-
- Oct. 12
"
19
Net Change
28,873
30,366
1,493+
Goverment Securities - Oct. 12
et
ft
"
19
Net Change
Total Earning Assets
27,049
27,592
54i+
- Oct. 12
"
19
Net Change
89,854
85,599
4,255-
New York
$119,787
96,873
22,914-
111,125
102,843
8,282-
105,216
102,026
3,190-
336,128
301,742
34,386-
Phila.
$35,404
35,563
3,159+
11,940
12,601
661+
36,222
38,172
1,950+
83,566
89,436
5,870+
Con.parison of Weekly Average
of Earnin_g_Assets
Dec. 29, 197- to (1 t. 19,1927
Same period 1926
Entire year 1926
71,647
80,818
82,511
259,977
272,491 .
278,628
81,087
90,072
91,705
Net change from same period 1926
" entire year 1926
9,17110,864-
12,51418,651-
8,98510,618-
_Comparison of EarninE Assets
October 19, 1927
October 20, 1926
85,599
65,285
Not Change
io
STA2EMENT SHOWING EAR'ING ASSET hOLDINGS OF ALL FEDERAL REsERvE BArKs ocToBFR 19, 1927 COrPAR-D :
1 7TH PREVIOUS WEEK AND OCTOBER 20, 1926, ALSO WFXKLY AVERAGE
OF_EARNING_AsSETs_FRam DEGEmBER 29, 1926 TO OCTOBER 19, 1927 AS CO”PARED WITH CORRESPONDING PERIOD 1926 AND ERE YEAR 1926
(000 OMITTedrBoston
Bills Discounted
EXHIBIT
20,314+
301,742
205,574
96,168+
89,436
94,846
5,410-
Cleveland
$54,590
43,306
11,284-
16,620
18,757
2,137+
55,585
57,203
1,618+
126,795
119,266
7,529-
107,012
106,914
115,174
98+
8,162-
119,266
136,604
17,338-
Richmond
$29,014
33,375
4,361+
33,251
38,053
4,802+
27,455
12,455
15,000-
89,720
83,883
5,837-
Atlanta
$22,505
25,129
$33,043
51,129
St.Louis
$18,805
28,260
2,624+
18,086+
9,455+
2,404
2,414
25,014
30,533
3,866
3,700
10+
12,988
15,570
j82+
38,197,
40,913
2,716+
48,804
61,342
59,659
49,214
75,957
76,645
12,53810,855-
26,74327,431-
83,883
67,883
40,913
92,479
16,000+
Chicc.go
51,566-
5,519+
74,227
74,585
356+
132,284
156,245
20,961+
146,389
153,674
164,144
7,28517,755-
156,245
173,788
17,543-
Yinn.
1,356+
$ 4,797
7,756
$ 59,363
41,851
1,466+ .
22,880
24,230
1,350+
40,079
38,40
1,670-
32,447
37,973
37,874
5,5265,427-
3,9334,564-
68,860
67,504
$ 12,516
21,707
10,186
11,652
9,589+
59,277
63,210
63,841
Sari Fran.
4,486-
300+
59,271
68,86o
Dallas
$ 6,493
2,007
166-
36,600
.36,900
Kan. City
38,409
50,788
12,379-
SUM'ARY FOR SYSTFN
Bills Discounted for week
$12,652Bills Purchased for week
Government Securities for week
2:
;:2
46
14,446To al Earnin,c Assets for week
t
Com9arison of Weekly Average of Earning Assets Dec. 29, 1926 to
120,442Oct. 19, 1927 with sere period 1926
Comparison of Weekly Average of Egrning Assets Dec. 29, 1926 to
Oct. 19, 1927 wit4 entire year 1926
147,84212,203+
Comparison of Earning Assets Oct. 19, 1927 with Oct. 20, 1926
9,191+
9,822
10,656
834+
35,082
35,832
750+
57,420
68,195
10,775+
2,959+
11,672
13,504
1,832+
31,023
32,227
1,2C4+
47,492
53,487
5,995+
53,141
63,902
63,528
43,018
53,501
52,777
10,76110,387-
10,4839,759-
68,195
59,070
53,487
52,045
9,125+
1,442+
_
17,512-
9,588
7,424
2,164-
45,802
45,803
1+
114,753
95,078
19,675-
102,678
115,279
116,047
12,60113,369-
95,078
123,044
27,966-
Totals
$
430,249
417,597
12,652-
274,361
282,503
8,142+
510,129
500,393
9,736-
1,215,559
1,201,113
14,446-
1,054,691
1,175,133
1,202,533
120,442147,842-
1,201,113
1,188,910
12,203+
November 1, 1927.
The committee has considered the confidential preliminary
memoranda submitted by the Chairman, and upon the basis of the memor—
anda proposes that the open market policy of the System until March 1st
next, unless developments not now anticipated recuire a further review,
shall be: to maintain stable rates for money at about present levels and
prevent further imports of gold.
In order to carry out the above policy, the committee would
adopt the following program and procedure:
(1)
The plan of offsetting gold movements by narchases and
sales of securities would be continued as heretofore.
(2)
Any considerable advance in rates for money towards the
end of the year would be dealt with only if necessary by temporary pur—
chases of securities.
(3)
During the return flow of currency which usually occurs
in January, sales of securities would be made in amounts sufficient to
Insure retirement of the seasonal issue and prevent its being added to
member bank reserves.
(4) /n event of the renewal of a gold movement to the United
States, gold may be purchased abroad in London, and possibly in Holland
and Switzerland, if necessary, at approximately their gold export points,
or exchange on those countries may be purdhased, so as to arrest, if
possible, a further importation of gold.
The limit unon such purchases
to be t1C0,000,000.
Such nurchases would also be offset the same as
the gold movement.
Gold or exchange purchased may be invested in bills
or employed at interest, as in the case of the bank of England account.
I
2
(5) The considerations which will guide the committee as to
when and for what amounts such transactions shall be made, are;
(a) The amount of borrowings by member banks from
the Reserve banks;
(b) The general level of interest rates;
(c) The movement of foreign exchange rates as an
indication of possible gold imports.
The committee would expect to be charged with the execution of
the program for account of those Reserve banks Which approve and partici-oate.
1
November 2, 19,
V1A4
OPEN MART COMMITTEE MEETINGS.
1927, March 21.
1.
Committee requested authority:
To replace 25 millions of Government securities
which had run off, leaving System account at
only 200 millions. Passed unanimously.
2. Buying 50 millions to replace that amount taken
from market by turning 50 millions of Federal
Reserve investments for foreign banks into
acceptances taken from portfolio of Federal
Reserve banks.
C.S.H. moved to approve above, but Board, on
Millers motion, voted to postpone, stating it was ready
to meet Committee at short notice, or would meet Directors
of Federal Reserve Bank of New York should the Committee
authorize them to speak for it.
C.S.H. alone voted No.
1927, May 12.
Meeting.
Committee recommended:
1.
Replacing 90 millions sold to pay for the 60
millions gold bought from Bank of France, and
about 30 millions sent by Bank oT: Fraace to
United States, thus reducing System account to
about 100 millions.
2.
Committee recommended that System account be
gradually increased to 250 millions. C.S.H.
moved to ap?rove increasing system account to
250 millions.
On motion of Miller postpcneuzatil another meeting
be called by Governor Cris,after consultation with Secretary
Mellon,
Secretary Mellon, C.S.H. and James voted No.
1927, May 13. C.S.H. moves apnroval of Committee recommendation
to increase snecial account to 250 millions. Platt
moved approval, but that purchase should proceed slowly
with a view to the possibility that it may not be
advisable to purchase the full amount within the time
fixed, that is, up to Au7ust 1. 1927.
Secretary Mellon said he did not object to this, and C.S.H.
withdrew his motion.
Miller moved in substitution:
1.
Ap-)roving statement in report tnat no further
securities be sold at the present time.
2.
Disapproving further purchases up to 250 millions.
Miller's motion was lost, Secretary Mellon, tae Comptroller,
C.S.H., Platt and James voting No.
Governor Seay, Miller,
and Cunningham voted Aye.
Platt's motion of anproval was tnen carried, everyone voting
aye except Dr. Miller, who voted No.
1927, June 23. Board confers with Governor Strong. question
arose whether the authority given on May 13th to increase the special
account to 25U millions was exhausted by the offsetting purchase of
100 millions against the withdrawal by tne Bank of France fram its
New York correspondents of 100 millions.
C.S.H. moved that the offsetting purdhases were not to be counted
as part of the 250 millions. Passed.
2-..ye: Secretary Mellon, C.S.H., Governor Crissinger, and James
No: Miller and Cunninghmn.
•
lbw
v
Cony
nsc. 31
SOM 7-26
77707RAL RE7RVE BA.77
OF NET=
Date October 7, 1927
OFFICE CORRES'ONDEITCE
Subject: Finaace Co=anies "Dec-
To Governors Conference
Frum
ializing
J.H. Case
in Bank Stock Investments.
During the past few years several financial cornorations
s-oecializing in the ownershio of bank stocks have had rather s-oectaaalar success and have had a widespread effect on bank owner.shin.
Their onerations annear to be likely ultimately to bring 'about a
widespread develo-oment of branch bankin
where nermitted by State
- -)orlaws, cr of chain banking where o7eration of branches is not :
mitted 7z7 lnpv.
The nioneer in this development has been the Bancitaly
Colloration, New York City, Which is headed by A. P. Giannini of San
Francisco.
Its onerations have e77.tended over a number of years and
have resulted in buildinp:.
the Bank of Italy 7ational Trust and
Savings Association into an institUtion of over $600,000,000 denosits
with Pg2 branches in tho State of California.
The Bancitaly Cor-
Doration also has a chain of banks and branches in New York City consisting of the Bowery Ec East River 7ational Bank with 15 branches and
denosits of over 490,000,000, and three gmeller rev, 'Tork institutions rihich 7111 nrobably be consolidated into t:hel;ower7
River Yational Bank.
rast
It also 7nas a heavy investment in a number of
Euro-oean banking institutions.
In addition to the "Bancitaly Cor-
')oration4 s holdina.s of bank stodk for control -7arnoses, it owns a
very large amount of bank stock as investments. "he 7ancitalv Corporation on July 22, 1927
reported a ca7dtal of t7S,750,000, oar-
nlus and nrofits of $13g,627,S17 or a total of t217,377,511.
VOLUME 174
PAGE 133
narlret value of its outstanding stodk is at
c
Tesent over $595,000,000.
-2In 7ew vo& City the
inanciel & Industrial Securiides Cornora-
tion is oneratinp in connection with the vanufacturers Trust Com-nr-Inv in
a manner somewhat similar to that of the
encitaly Cornorption.
It is
controlled bir 1:21nh Jones -liose brother, rathan S. Jonas, is rrc.siOrnt
o' the "-,nufgT,turers Trust Co-,nrinv ,nr1 it lias been used by them in ncouirinr7 honks to be absorbc(1 by the •ranufacturers Trust Corn any.
These
interests use also several other a"iliated cornorations including the
Cnrnorption & qencral Securities, Inc., To-Yer ".anufncturinfr ComnanY,
Rodmore Cornoratinn, r,tional Liberty Insurance Com-lanY, /coPles
Yationnl vire Tnsurnnce Comnany glad 7n1ti7ore A-crican Insurance Comnanv
to carr7- stock of the "grru'rcturers Trust Comnrnv and other financial
institutions in -7)-,ich they
interested. '0 assist in fl-ose 0n-ra-
tions the Financial Rc Inc'usrial Securities Cornoration has at times
received larp-e loans from the "anufaetarers Trust Co-nany -rhich have
stock
later been liauidated from the nroceeds of sole to the nublic of/in
the Financial &
industrial Securities Cornoration.
Its state-
ment of February 2, 1027 showed canital stock consisting of preferred t25,0n0,()00, common t20,016,0n0, total ta5,01,000 rthich has a
present market value of approximately tleS,nnO,n00.
of this corporation annear to 11:-Ive been
The transactions
or the nurnose of acauirinP:
control of banks rather than to hold stocks as investments.
Other Comnanies:
1The annarent success of the to above comnanies ^nc' the snectacular rise in the market value of their stocks has recently led to
the organization of a considerable ntmber of comnanies of similar
character and nur--,ose—i-7:eh are briefly commented unon as follw,,s:
National American Company, Inc., 26 Broadway, New York City
The capital and aurplus of this company was reported June 30, 1927
as $5,372,046.01.
This company is affiliated with the Central Mercan-
tile Bank & Trust Comnany whose president, C. Stanley Mitchell is Chairman of the National American Co., Inc.
The active officers are: David
H. Knott, President; John A. Dilliard, Vice-President; Harold G. _Aron,
Treaaurer; Toney A. Hardy, Secretary.
This company has recently pur-
chased control of several New York City banks, including the Bronx National Bank, Cosmopolitan Dank, Terminal Trust Company and Bank of Coney
Island.
We are informed that the purpose in purchasing these banks is
for resale at a profit rather than for holding as investment or consolidation with the Central Hercantile Bank & Trust Co. and it has recently resold the Bronx National Tiank to the Bank of the Manhattan Company.
The National American Co.,Inc. has a aubsidiary known as the National
American Secures Company with capital of $250,000.
City Financial Corporation, 5th Ave. & 32ndNew York City.
The stock of this corporation was offered to shareholders of the
Bank of United States on Sgptember 1, 1927.
It has been announced that
the aggregate capital is to be over $20,000,000 and that the stock offered to the shareholders of the Bank of United States in units of 1,13 ahares
Sf Class A and 1 share of Class B at $85.50 per unit has been greatly
oversubscribed.
The Class B stock has sole voting power.
Only the Class
A stock has becn offered to the general public, the price being $63 per
share.
The corporation will be under the management of B. K. Marcus,
President, and Saul Singer, Executive Vice-President, of the Bank of
ted States, who is presently to resign his bank position to become President of the City Financial Corporation.
_4_
Hub Financial Corporation, Yew York City.
Announcement of the issuance ond sale of stock of this corporation
was made September 21, 1927 by Harry H. Heyman and Julius Blauner who
are President and Vice President, respectively, of the Seventh National
Bank.
The announcement stated that there would be presently issued
100,000 shares of Class A stock and 100,000 Class B stock, the latter
to have the sole voting power.
At the announced price the stock to be
sold 'would bring in capital funds of $6,400,000.
Manhattan Financial C,orT.)oration. New York City.
On September 26, 1927 an
offering of stock in this company was
announced with list of directors which include a number of men affiliated with the Times Square Trust Co., New York City.
Bernard
Reich and John H. Brennen, Chairman of the Board and President, respectively, of the Times Square Trust Company, will be President and Chairman of the Dcecutive Committee of the new cor-ooration.
Stock is of
three classes, A, B and C, and the advertisement indicates that voting
power will rest in the 4,500 shares of Class ri stock which are called
II manazement shares".
It also apnears that the con-roan:7 will have ca-oital
funds of over $6,000,000 as a result of the sale of the stock offered.
United Investors Securities Corporation, 551 Fifth Avenue, New York City.
The organization of this corporation has been announced by Archibald C. Emery, President of the Hamilton National Bank, Ne--T York City,
who is also President and. Chairman of the Investment Committee of this
company.
The company plans to issue 50,000 shares of 6% preferred
stock at $50 per share, 400,000 shares of P.: common non-voting shares
at 310, and 20,000 shares of A common voting shares.
cate capital funds of $6,500,000 or more.
This would indi-
It is stated :that the company
is formed for the purpose of purchasing, holding and selling high grade
securities of municipalities, utilities, industrial companies, railroads and banks.
Murray Hill Allied Corporation, New York City.
This corporation has been organized as an affiliation of the
\ Murray Hill Trust Company.
Its capital is reported as $200,000 (10,000
shares at $20 per share) and its purpose is the making of investments
not permissible to the trust company under State banking law.
Municipal Financial Corporation, 27 Cedar St., N.Y.C., and 3.50 Stone
Ave., Brooklyn, N.Y.
It was announced on September 14, 1927 that the Municipal Bank of
Brooklyn had organized a subsidiary securities company to be known as
the Municipal Financial Corporation with an authorized capital of
300,000 shares of no par value of which 170,000 shares were to be offered for public subscription; also that it is expected the corporation
will start business with a capital of $10,000,000.
President Samuel
Barnett of the Municipal Bank has stated that the corporation would
do business somewhat along the lines of an investment trust, dealirg
in the securities of banks, trust aumpanies, surety companies and
other financial institutions.
It has also been stated that a primary
purpose of this corporation will be to protect the manage.nent of the
Municipal Bank from losing control of the institution.
First Trust Bank, Inc. (a Delaware Corporation) - New York City.
This is a proposition organized by a group consisting of Charles
G. Gates, President, formerly of Clarence Hodson, Inc.; Thomas J.
Torpey who is reported to be Vice President of the National Surety
Company; Harry E. Wheeler, Treasurer, formerly of Sperry & Hutchinson
Company; William H. Foss of the Astor MortgaEe Co., 165 Broadway, New
York City and Don S. Hutchinson, son of Shelley B. Hutchinson.
Shelley
B. Hutchinson, formerly of Sperry & Hutchinson Co., is apparently the
prime mover in this organization and its stodk is being sold through
the First Fiscal Corporation, 522 Fifth Avenue,
those connected have poor records.
New
York City.
Some of
The amount of authorized capital
stock is 120,000 shares and the First Fiscal Corporation recently an—
nounced offering of 3,000 shares at $125 per share.
The purpose of
the company is stated as "chain banking", i.e., the acquisition of the
controlling interest in numerous national and state banks and trust
companies located in the various cities of the United States.
Bankers Capital Corporation, 44 Wall Street, Nev York City.
This corporation was incorporated January 19, 1923 to take over
the investment banking business of Gunder, Mann & Co.
It apnears to
operate as a subsidiary, the Eastern Bankers Corporation, 44 Wall
Street, New York City.
The claimed outstanding capital on December
31, 1926 was $188,900 preferred and $1,000,000 common.
It appears to
be operating as an investment trust.
Bankstoeks Corporation, 27 Pine Street, New York City.
This corporation is understood to be affiliated with Shields &
Co. and to be operated as an investment trust., A. report obtained
March 9, 1925 indicated that its capital has been supplied by issuance
of $1,000,000 5% secured gold notes and 150,000 shares
no par value
common stock.
United States Shares Corporation,
This is a corporation headed by Travis H. Whitney, Chairman of
the Board, who is a Vice President of the Brooklyn Manhattan Transit
Company and a former Public Service Commissioner.. Its President is
Herbert L. Raekliff.
This company buys securities, deposits them
r-+
with trustees, 7ho in turn issue participating trust certificates to
the purchaser.
The Directors have po7er to substitute securities and
upon such substitution shareholders ore
iven fall information.
Among
the issues rhich it has announced are tyro series of bank stock trast
shares covering ownership in stocks of 30 leading financial institutions of Ne7 York and other large cities.
It has recaatly announced
the issuance of a series of Canadian bank stock trust shares representing ownership in stock of 9 leading Canadian banks.
Bell Financial Corporation, NeT York City.
Announcement of the organization of this corporation was made
surplus $1,000go.
It is re$10,000,000.,/
as
October , 1927, its ca-oital being reported
ported to have acqaired the Century Bank of Ne7 York, at 23rd. Street
between 8th and 9t1, Avenues, and the De7ey State Bank of Brooklyn, N.Y.
at Avenue M and East 17th Street.
It has also taken over control of
the Bell Invostnent Company of 1170 BroadTay, the Elneco Trading Company
and the Mortga.r4.e Guarantee & Title Company, Eroadwry & Park Place, New
York City.
Its directors arc as follo7s: 'Jathan Sado7sky, President of
the Bell Investment Co. and Prob. & Trea6. of R. Sadowsky, Inc., cloak
manufacturer; Louis Margolis, President of Dewey State Dank; Elias Preiss,
President of the Elpeco Tradinz Company; Samuel Kaufman, Director of
Times Saunre Trust Company, Philip Maslansky of the Ne7 York Merchandise
Company and Samuel Katz of the fur house of that name.
Ullited States Financial Cornoration, New York City.
It has been reported that this corporation has been organized to
deal in bank stocks and it is understood to be closely affiliated -rith
the United States Bond & Mortgage Corporation of 8 East 41st Street,
NerT York City which advertises itself as tne largest second mortgage institution in Aaerica.
It is rumored to have bought control of the
zens National Bank of Freeport, N.Y. and to be negotiating to purchase
control of the First National Bank of Bell'nore, Y.Y.
New Jersey Bankers Securities Coraoration, Passaic, N. J.
This company was organized August 18, 1927 7ith authorized capital
of 300,000 shares no par valac rhich wes sold to the public at $12.50
Per skare yielding capital fands of approximately $3,750,000.
An addi-
tional issue of a like number of shares of stock has since been offe,red,
the price to the general public being $17.50 per share, and to denositors in banks controlled by the company price is to be $16.50 per share
and to original stockholders $15.50 per share,
This should give the
company additional fands of close to $5,000,000, so that its total capital funds will be close to $8,750,000.
The company has already acqui-
red control through stock ownership in the following banks: Hobart Trust
Company, Service Trust Company, Equitable Title & Mortgage Company of
Passaic, N. J., and 7oshingtoa Trust Co., Guaranty Trust Company, Weequahic Trust Com-Dany and Liberty Trust Company of Newark,
active movers in the company are Harry .Serer President, and
William Harris, Director, both of whom have been subject to unfavorable
cSill,ent in the past.
They have associated with them on the directorate
several men prominent in -public life including United States Senator
Edward
.Iwz3rs.
Our information is that prices paid by the company
for banks acquired by it are in some cases considerably above sound
value making it very daubtfal i7hether the company can obtain earnings
sufficient to yield a reasonable return on the investment.
Columbia Investina
Company
44 Pine Street, Ne77 York City.
The organization of this company was announced September 24, 1927
al.:a it hes offcred 25,000 units of pr ferred rnd comaion stock rhich
will .=ive aa
ca )itcl of ,P,S25,000.
Tho Board of directors
will include amoag oth3rs, Michael Hollander, Chairman of
e•Sard
-9of the Guardian Trust Cempany of Near, T. J., James Rattrv, President
of the Guardian Securities Co. of Ne7ark and Arthur M. Lamport, President
of the investment banking house of .... M. 11:::ffro rt & Co.,
New
York City.
New Jersey Bond & Shareholdim7 Corporation. 17-25 Academy Str., Newark,
Announcement of the organization of this company was made October 10,
1927 and following securities offered for sale to the public: 532:- debenture
bonds $1,000,000, 71) cumulative preferred stock $500,000, common stock no
par value 100,000 shares to be sold at $12.50.
The announcement
lists a
board of directors of 21 members and an advisory council of about 50 members
representative of all tarts of the State of Ye- Jersey.
Purpose of Finance Companies Specializinp, in Purchase of Bank Stocks
The purposes of companies such as those above reviewed in the acquisition of bank stocks may be summarized as follows:
1. To o-Ltain control of banks for ournose of consolidation,
2. To obtain control of banks to be operated as part of a so-called chain.
3. To obtain control for nurpose of early resale at a profit.
4. To control ownership in the interest of the existing management.
5. To obtain and hold relatively moderate amounts of stock for investment purposes.
6. To sell stock to the public at values excessive in relation to the
value of the assets acquired by the corporation, the difference accruing to the benefit of the promoters.
Probable Effects of the 0.nerations of Comnanies of this Kind:
It is well at this time to give careful consideration to the probable
effects of the continued and expanded operations of companies such as those
which have been mentioned above and new comnanies of similar character whida
are likely to be organized.
In the ease of a successful and anparently weil
managed organization such as that of the Bancitaly Corporation aria the banks
which it controls, it may in general be said that the effects
-10thus far appear not to have been harmful.
Several of the banks in this
city which the Bancitaly Corporation interests have taken over were in
distinctly unsatisfactory condition and good Tork has been done in clearing un the poor loans.
However, the tremendous banking powers which may
be 1-ielded by thus controlling a corporation with over „,217,000,000 capital funds invested mostly in bank stocks is a matter of serious concern
in a country where the desirability of independent banking units is generally recognized.
Moreover, the ability of the corporation to obtain
large additional amounts of capital by the sale of its stock to the public has been well demonstrated and it therefore appears Possible that
its operations may be and probably will be greatly expanded even from
their present wide scope.
That has been said of the Bancitaly Corporation is true, though to
a smaller degree as yet, of the Financial & Industrial Securities Corporation which is operating along very similar lines although confining its
operations thus far, we understand, to New York City.
It is to be ex-
pected that as imitators engage in similar activities, there will be
many instances in which the management of the banks taken over will become poorer rather than be improved.
Such a condition, it is to be
feared, is already to be noted in the case of the New Jersey Bankers
Securities Corporation, as the President of the corporation has, according to authentic information in our files, heretofore engaged in operations, through a trust company of which he is president, of such character as to indicate very definitely that he is not a suitable person to
manage banking institutions
A very important effect of the operations of corporations
specializing in the purchase of bank stocks h. s been to force the
prices of
•
•
-11-
such stocks to new high levels in many instances not justified by the
asset value of the stock nor its present or prospective earning power.
While it may be that the rise which has taken place in bank stocks is a
part of the general upward movement in securities, it is worthy of note
that banks which have been the subject of special attention from financial corporations of this kind had by far the largest increase in market
value.
The following tabulation Shows the course of average New York
City bank stock prices as related to book values and also the movement
in the case of individual banks.
Market Value of Stocks of Several Selected Now York City Banks
1 9 2 5
Apr.1 Sept.1
350
Bowery & East River N/B $ 230
480
400
Bank
Chase National
608
517
National City Bank
377
National Bank of Commerce 343
2,390 2,850
First National Bank
590
450
Seaboard National Bank
290
255
Bank of America
460
506
Corn Exchange Bank
250
250
Municipal Bank
225
225
Mechanics Bank
445
502
Bankers Trust Co.
260
Central Mere. Bank & Tr. 235
300
250
Equitable Trust Co.
370
307
Gaaranty Trust Co.
315
440
Manufacturers Trust Co.
1 9 2 6
Feb.6 Oct.18
1 9 2 7
Feb.3 Aug.1
390
360
405
532
610
605
384
375
2,800 2,525
690
670
300
300
560
585
300
295
285
320
625
640
275
315
270
290
400
380
510
520
400
422
518
425
2,675
695
300
535
315
340
670
295
305
4'15
548
Ratio of Market Value to Book Value
(Book Value - 100)
1 9 26
19 25
6 Cct.18
Feb.
Apr. 1 Sept.1
188
178
175
117
Bowery & East River N/B
211
315
298
253
Chase National Bank
270
263
234
270
National City Bank
143
144
142
132
Nat'l Bank of Commerce
334
298
314
356
First National Bank
252
255
219
175
Seaboard National Ek.
168
169
162
139
America
of
Bank
226
238
213
196
Corn Exchange Bank
630
540
575
524
3,450
905
345
575
390
345
880
328
385
572
835
19 27
Feb.3 Aug. 1
280
184
271
215
299
222
191
157
380
306
306
246
191
166
230
211
•
•
(Confd)
Ratio of Market Vnlue to Book Value
100)
(Book 7alue
1 9 2 7
1 9 26
1 9 25
3 Aug. 1
Feb.
18
Oct.
Feb. 6
Apr. 1. Sept. 1
Municipal Bank
Mechantos Bank
Bankers Trust Company
Central Mere, Bk.& Tr.
Equitable Trust Company
Guaranty Trust Co.
Manufacturers Trust Co.
185
186
191
147
169
173
148
180
179
209
156
199
204
198
209
242
251
181
173
202
226
203
216
229
149
155
202
208
210
254
239
168
174
218
217
236
245
300
183
215
274
312
It appears obvious that in general the price of these stocks has
been advanced to a point where earnings cannot yield more than a very
moderate return on the investment and that in some instances the banks
earnings must be phenomenal to give even a fair return.
When it is re-
called that bank earnings for the past few years have been in considerable nart due to nrofit on security transactions due to a continuously
rising security market, it appears clear that bank stock prices have
been driven to a point considerably above sound values.
It is not at
all improbable that the spread of the investment trust idea has had an
important part in causing the upward movement of stocks of other classes,
such as insurance companies, etc.
Comment has been frequently made that
many of these investment trusts are beginning their operations at a time
when the prices of the securities which they will acquire are very high
and it is greatly to be feared that should it later develop that such
organizations cannot meet the expectations of profit which investors
to
therein have been led to entertain, a denouement highly dangerous
the general situation may result.
It seems very certain therefore that while the operations of some
as a whole
of the companies of this kind may not be harmful, the movement
scrutiny
is accompanied by grave dangers and should be subjected to close
rff
ll
a
7
46
46
•
w
-13-
on, both State
ilities of bank sunervisi
sib
pon
res
h
wit
d
rge
cha
se
by tho
ly published
kes of :ew Jersey recent
Sto
or
ern
Gov
mer
For
al.
ion
and Nat
g against
king Department protestin
Ban
sey
Jer
New
the
to
ter
an open let
that a law be enacted
of banks and suggesting
corporations owing chain
ates falling
cks to individuals and est
restricting ownership of bank sto
h the New Jersey
d. Parties associated wit
heir to such securities handle
-Governor Stokes'
have taken exce-Dtion to Ex
on
ati
por
Cor
s
tie
uri
Sec
s
ker
Ban
to the New Jerzey
that he does not refer
ted
sta
now
has
he
and
,
ent
statem
ws advanced
announcement. The vie
his
in
on
ati
por
Cor
s
tie
uri
Bankers Sec
Tide support among
r, will undoubtedly have
by Ex-Governor Stokes, howeve
desirable that conmen and it appears most
careful bankers and business
be kept within
whereby this movement may
ns
mea
to
en
giv
be
n
tio
era
sid
safe bounds.
ences of the
e there be held confer
dat
ly
ear
an
at
t
Tha
:1
on
ati
Recommend
the Curwith the Comptroller of
ks
Ban
e
erv
Res
l
era
Fed
officers of the
erintendents of Banks
k Examiners and the Sup
rency, the Chief National Ban
and working out plans
ng this general problem
for the purpose of consideri
Among the measures
eral Reserve District.
for dealing with it in each Fed
lowing:
which seem desirable are the fol
1.
in purchase
ns of companies engaged
Examinations or investigatio
authorby the appropriate State
of bank stocks should be made
ies pliolish
made to have such compan
ities and efforts should be
dition and
of their financial con
from time to time statements
which
d by them and the price at
lists of the securities hel
they are being carried.
2.
in
ations of banks included
Frequent and searching examin
panies should be made.
chains controlled by these com
-14-
3.
That in the examinations of all banks, loans to comnanies
of this kind or loans based upon their stock,should be set
out in the examination report.
4.
That in case where circumstances warrant, the attention of
Attorney General of the State be called to the operations
of any particular company which is engagingln illegal
practices.
Copy
Report of the Committee on Bank and Public Relations
to the Agents! Conference - November 1927.
The amendment to the Federal Reserve Act, which provides for indeterminate charters for the Federal Reserve Banks leaves us free to devise a system public
relations program which may have for its aim the gradual development of better understanding of the System over a long period of years.
The discussion which cen-
tered about the passage of this amendment has moreover indicated wide public appreciation of the value of the Federal Reserve System.
Future Public Relations Program
In this generally favorable atmosphere it becomes possible to consider
broadly the System's public relations policy for coming years, and it is proposed
in this report to sketch some of the principles which may well determine that policy and some of the methods which may well be cm-oloyed.
At the outset a few axiomatic principles may be set forth which are
basic to Federal Reserve public relations work.
1.
It must in no way savor of propaganda. As a public
institution the Federal Reserve System must always
be in a dignified position. Propaganda arouses
hostility and disrespect.
VOLUME 174
PAGE 135
-2-
2.
Public relati3ns work cannot be done by an organized
publicity staff, because it would savor of propaganda;
sudh a staff would not have the
necessary technical knowledge
for dealing with Federal
Reserve questions;
(c) public relations is a matter of
personal relations in the
last analysis and hence must
be done by people who are an
integral part of each Reserve
Bank.
(a)
(b)
3.
It must not be ccntroversial.
and is dangerous.
4.
There are three general fields of public relations work in
the following order of importance (a)
Controversy arouses enmity
The member and nonmember banks.
The best advertisement is a
satisfied customer.
Schools and colleges.
These are the
places where public opinion
is basically formed.
(c)
The general public.
Su.ested methods for public relations work in these three fields,
now
together with a summary of what the System is/doing, are contained in
the following paragraphs.
4..
Member and NTonmember Banks.
In every community it is the bank.er and the college teacher who
are the experts on the Federal Reserve System, and the banker's opinion
carries the weight of personal know1c4;c.
The banker is the customer of
the Federal Reserve System, who must be satisfied.
,3-
Thefe are three ways in which th.1 banker gets his impression of
his Federal Reserve Bank, - personal contact, correspondence, and literature.
By far the most important of these is, I am sure we would all agree,
the personal contact.
Pvsonal Contact.
The maintaining of effective personal contacts with the banks in
our districts is laborious, but essential to a common understanding.
The
three usual methods of contact are, - when we go to see the banker, when he
comes to see us, and when we meet on common ground at conventions and group
meetings.
Visits to Banks.
Of these three the most effective is our visit to the member banker.
Such a visit at once indicates our regard for him and puts him in the position
of the courteous host.
Hothing can take the place of these visits.
In this
connection the following table gives the customary report of the visits made
to banks in the different districts.
It indicates that during the year,
from September 1, 1926 through August 31, 1927, the member banks in the Boston,
Yew York, Cleveland, and St. Louis districts were visited on the average twice
a year; that the member banks in the Philadelphia, Chicago, Dallas, and San
Francisco districts were visited on the average about once a year, but that
the member banks in the Richmond, Atlanta, Minneapolis, and Kansas City districts were visited considerably less than once a year on the average.
Some
of the Reserve Banks have to contend with the isolation of many of their
member banks, but some whose districts are most difficult to cover have
averaged a visit a year.
VISITS TO BAYKS
Numbor of
lember Banks
Aug. 31, 1927
Sept. 1925
to
Aug. 1926
Sept. 1928
to
Aug. 1927
BolAon
414
902
865
Yew York
929
1,283
1,963
Philadelphia
774
923
869
Cleveland
837
1,818
1,361
Richmond
568
804
154
Atlanta
469
52
51
Chicago
1,304
1,945
1,219
St. Louis
597
1,842
1,085
Minneapolis
741
135
121
Kansas City
975
445
4'18
Dallas
818
1,134
1,003
673
9,029
827
12,110
693
10,133
San Francisco
In this connection note should be taken of the fact that the total
number of visits to banks this year, numbering: 10,000, was approximately
2,000 less than in the preceding year, which in turn was 1e.
before.
than the year
Your committee is of the view that decreases in bank visits are of
doubtful wisdom, and believes that there is no single method of public relations work which is so fruitful of better understanding as visits to member
banko.
-5-
The quality of the visits is fully as important as the quantity,
and in this connection data collected at the suggestion of Governor Norris
ate of interest.
Range of Salaries:
The salaries paid in the eleven reporting banks
are shown by the following figures of number of outside men or officers
devoting practically their entire time to Bank Relations work:
Number of Men
1
Range of Salaries
$2,000 to $ 2,499
3
2,500 "
2,999
4
3,000 "
3,499
4
3,500 "
3,999
6
4,000 "
4,499
2
4,50Q "
4,999
1
6,000
1
7,000 "
1
7,499
10,000
Thus, of the 20 outside men (other than officers) 8 received $4,000 or more,
and 12 less than $4,000 per annum.
It appears to your committee that it
would be wise to work in the direction of using in this important work higher
class men than appear to be indicated by some of the salaries paid.
It is clearly true that the effectiveness of visits depends on the
character of the personv21 makes the visits, and a visit by an important
officer of a Reserve Bank will often do more in demonstrating the Reserve
Bank's interest in the member bank, and more in clearing up difficulties,
than several visits by a bank clerk.
,A. number of the Reserve Banks have
•
•
•
1
followed the practice of sending out Deputy Governors, or even the Governor
or Chairman, for rapid trips to visit a number of member banks, and they have
always reported most favorable results.
From a study of the answers received to questionnaire from eleven
banks so far reporting, the following comments are suggested:
The organization of the Bank: Relations work varies greatly in the
different districts.
In three, namely: Atlanta, Minneapolis and San Francisco,
there is no special department for the work, it being carried on by officers
as their time permits.
In some districts it is the chief or sole work of an
officer supervising it, and in others it appears to be a secondary consideration.
In some, both member and nonmember banks are visited; in others
little attention is given to nonmember banks.
The frequency of visits to
banks varies widely, some aiming: to cover all banks regularly twice a year;
some once a rear, and others even less.
Bankers' Visits to Reserve Banks.
Second only to a visit to the member bank itself may be ranked
the entertainment of member and nonmember banks at a Reserve Bank.
guest always feels more kindly toward his host.
A
The methods of carrying out
this plan which have been followed by the Reserve Banks, are the stock.holders' meeting, the small group meeting, and the less formal entertainment
of visiting bankers.
a
Bankers' Conventions and Group Meetings:
We believe the general principle to be followed is that the Reserve
Bank should be represented at every bankers' convention or group meeting
in the district, whenever it is at all possible.
Correspondence.
Our most frequent contact with member banks L. through correspon-
-7
dence, and from time to time it seems worth shile to survey this correspondence to see that it is as human as possible and is conducted by people who
deal intelligently with problems which come to them.
Printed :aterial.
There is such a large mass of -)rinted material coming to the desk
of every banker, so little of it is read, and the preparation of such
material is so
time-consuming that the principle of selection needs to be
observed in deciding how much energy may be given to any project for the
preparation of an article.
Fortunately the System has many friends who
write, and many sympathetic articles appear from their pens without any
solicitation from the Resrve Banks.
Perhaps the -srime essential in this
connection is that each Reserve Bank should have someone on its staff who
is qualified to deal with the writing fraternity, to provide material, to
discuss problems, and when necessary to take his own pen in hand.
Most
writers are human beings and can be reached by precisely the same methods
of personal contact as have been cited above for member banks.
Schools and Colleges.
Some years ago economics was taught in small doses only in colleges; today it is taught in large doses in colleges and in small doses
in high schools, preparatory schools, and in the American Institute of
Banking, and similar organizations.
Thousands of students who graduate
from our schools and colleges each year have been inoculated with some
kind of idea about the Federal Reserve System.
Then one considers over
a term of years the influence of these -)eople on public opinion, it becomes
clear that here is a point at which the System may well spend considerable
•
-8-
energy to see that the inoculation is properly done.
The following means
of influencing the teaching of banking in schools and colleges are suggested.
1.
Textbook.. Offic_rs of the System have already done much in
the preparation of textbook material in the publication of
the Richmond letters, and books by Harding, Goldenweiser,
and Burgess.
2.
Discussions in professional journals. Teachers of economics
read and get neny of their ideas from these journals. Here
the problem is to see that there are alwa7s in the System a
number of officers qualified to write acceptably and to deal
with economics and writers. Every Reserve Bank should have
someone who talks the language of the economist, can help in
the writing of articles, and perhaps write and speak himself.
3.
Visits to the Reserve Eanks. A number of the Reserve Banks have
had excellent results from inviting college and school classes
to visit the Reserve Bank buildings, to see the Federal Reserve
film, and have the operations explained by a guide. In this
way many thousands of students have been given some definite
conception of what the Federal Reserve System is. The Federal
Reserve film has proved particularly valuable. It has also
proved valuable to have some simple liter-Iture about the System
to distribute.
General Public
There are two principal ways in which the Reserve Banks can maintain some contact with the general public.
The first is through the press,
and the problem here is not to create interest for that exists already,
but to make available to writers facts and explanations as to the System's
operations.
The prime necessity at this point is that each Reserve Bank
shall have some officer who is qualified to deal with journalists and
writers, and who has authority to talk with them freely, though not for
quotation.
The second means of contact with the public is through speaking
•
•
h
at such organizations as rotary clubs, churches, etc. 'Then one considers
the small proportion of the -population that can be reached through speaking, the efforts may seem futile, and vet it remains true, as it always
has been
and as is recognized in every political campaign, that the
public address is one of the best methods of influencing Ipublic thought.
The people who come to such meetings are likely to be the leaders in any
community, and whcn an important Federal .eserve officer goes to such a
meeting half of his otject is achieved by his very attendance, because he
has shown himself ready to take -people into his confidence and has not remained aloof.
For these reasons your committee believes that each Reserve
Bank should have an organized plan for providing speakers for meetings and
that these speakers should be, as far as -possible, responsible officers of
the
eserve Banks Tho are able to speak with authority.
The following figtroes show the number of soeeches reported by
each Reserve Bank during the year, September 1926 through August 1927.
SPEECHES MADE
Sept.1925
to
Aug. 1923
Sept.1926
to
Aug. 1927
Boston
57
37
New York
71
62
Philadelphia
17
10
Cleveland
43
31
Richmond
16
8
Atlanta
5
3
Chicago
25
15
St. Louis
32
21
,e2e
•
A
-10-
Minneapolis
65
52
Kansas City
25
25
Dallas
25
33
36
418
31
328
San Francisco
Total
The Program in Summary
In order to summarize the foregoing the committee suggests the
adoption by this conference, and by each one of the Federal Reserve Banks,
of the following minimum program of bonk and public relations:
Bank and Public Relations 11.inimum Program
Banks.
1.
At least one visit a year to each member bank.
2.
Representation at bankers' conventions, or group meetings
in the district, whenever possible.
Schools and.Colleges.
Someone on the staff of each Reaerve Bank who talks the
language of the economist and maintains contact
with schools, colleges, and professional literature.
2.
A plan for visits by college classes to the Reserve Bank
- including the distribution of suitable literature.
The General Public.
1.
Someone on the staff of each Reserve Bank who is available
for contaCt with journalists and writers.
2.
An organized plan for providinE speakers for meetings.
W. A. geath
Geo. DeCamp
Oscar Newton
@FedFRASER