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Hamlin, Charles S., Scrap Book — Volume 177, FRBoard Members P05.001 - Hamlin Charles S Scrap Book - Volume 177 FRBow-d Members CONFIDEN IIAL (FAR.) BOARD OF GOVERNORS OF THE • FEDERAL RESERVE SYSTEM Office Correspondence To The Files Rom Mr. Coe Date July 17, 1941 Subject: 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 177 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 177 Page 49 - Memo to Mr. Hamlin from Mr. Goldenweiser re Open Market Operation. PageMemo to Mr. Hamlin from Mr. Goldenweiser re "Funds put into the market establishing a basis for a tenfold increase in lSans". Page 61 - Confidential opinion re An Appraisal of Factors Composing the Present Credit Situation. Page 65 - Branch banks - Memo of Mr. Smead to Board. Page 67 - Earnings & Expenses of F.R. Banks - January 1928. Letter to Mr. Hamlin from Gov. McDougal of F.R.Bk. of Chicago re conducting F.R. Banks in such a manner as to meet their fnil commitments with respect to expenses and dividends incurred. Page 83--Recommendations of policy by the Open Market Committee. Page 85 - Extracts from C. S. Hamlin i s diaries re meeting of Board and Governors of F.R. Banks at office of Sec'y. of Treasury where Treasury policy, stating the coming issue of 500 millions of Treas. certificates would be issued. Page 87 - Memo to Mr. Hamlin from Mr. Wingfield re Limitation on lS.ns by a State member bank to one borrower. Page 91 - Memo to Mr. Hamlin from Mr. Wyatt re Board's power over foreign transactions of F.R. Banks. Page 97 - Report of Sub-committee of the General Acceptance Committee to the F.R. Board - October 21, 1927. Page 99 - Letter to Mr. Geo. L. Harrison, Counsel of F.R. Board re right of F.R. Board to inate and control discount rates of F.R. Banks. Page 101 - Letter to Gov. Harding from R.C. Leffingwell, Ass't. Sec'y. of Treas., expressing view concerning the proposed increase of rate of the F.R. Bk. of New York. Page 103 - Letter to Gov. Harding from R.C. Leffingwell re offering of 4i% certificates of an average maturity of 3 months. Page 105 - Memo to Mr. Hamlin from Mr. Wyatt re Acceptances Growing out of Transactions Involving the Importation or Exportation of Goods. Page 135 - Correspondence between Frederic A. Delano and Carter Glass in which Senator Glass denies that Paul Warburg was chiefly responsible for the conception and development of what is known as the IS Clearing Fund of the F.R. System - (not members of Board at this time) 1ontri‘k4o. 131. Office Correspondence To Mr. Hamlin From Mr. Goldeilwp FEDERAL RV.SE.RVE BOARD • Date_ February 17_,___1928 Subject:___Ovin Market Operation ( time ago, you asked me what would have happened if there had been no open-market operations by the Federal reserve banks. I think in dis- cussing this subject we might as well eliminate the entire period prior to 1922, when there was no open-market policy and when discounts were very much more important than open-market purchases. personal use. The following is for your own It is more informal than any statement that i should care to make to the Board. In 1922 the reserve banks bought large amounts of securities, because they were alarmed by the decrease in their earnings. They soon learned that this resulted in a decrease in their discounts and that their earnings were not benefitt'ed by the change. It was only in 1923 that the open-market policy with reference to credit conditions was formulated and came to be understood. I think that the course of events in 1923 would have been essentially the same if the securities in the Federal reserve banks' portfolio had not been permitted to run off. The liquidation of these securities did, however, result in increasing indebtedness of the member banks and in some tightening in the money market. Perhaps the boom which appeared to be under way early in 1923 would have lasted a little longer if it had not been for Federal reserve action. In 1924 large-scale purchases of securities contributed to the plethora of funds and put the member banks in the financial centers practically out of debt to the reserve banks. In that year the Federal reserve system was probably responsible for a certain part of the extreme monetary ease and the consequent growth in the investments and security loans of member banks. VOLUME 177 PAGE 49 I think that in 1925 and 1926 open-market operations merely had the effect of smoothing the machinery at the turning points without playing a large part in credit policy. In the early part of 1927 open-market policy resulted in encouraging easy money and thus facilitating gold withdrawals, and later in the year up to the middle of November in offsetting the effects of these exports. After that time open-market purchases were in small volume and gold exports had their full effect on the money market. On the basis of these facts, it is my general impression that: (1) The effects of the open-market policy on the general credit situation are not as great as is generally believei. (2) Open-market operations,except for some errors in judgment, particularly in regard to the timing of operations, have been conducted with wisdom and have supported changes in discount rates. (3) It is often overlooked that one portant reason for open-market operations in a volume larger than what may come to be considered normal has been the unusually large gold movements of recent years. With the re-establishment of the gold standard and the diminution of the volume of international gold movements, it may be expected thaVopen-market operations will be on a smaller scale. (4) It would at times be very difficult to operate the Federal reserve banks without recourse to open-market operations and to limit the banks' authority in this respect would be unfortunate. operates without this power. No central bank in the world Poem :No. 131. • Office Correspondence To FEDERAL RRSERVE BOARD Frmm Date_ February Subject_ _Mr. Hamlin S-44 Ai% • 17,1928 57 Mr. Go In your memorandum of February 14, you asked me to discuss the statement that "funds put into the market either through rediscounts or throuot open-market purchases establish a basis for a ten-fold increase in loans." You wished me to see to what extent these funds were paid out in the form of Federal reserve notes and, therefore, did not establish any basis for credit. In reply, I would like to call your attention to the attached chart, which shows the volume of reserve bank credit; changes in P.old stock, and these two amounts combined, as well as changes in money in circulation, and in member bank reserve balances. The reasoning back of this chart is that gold imports and reserve bank credit either through discounts or purchases, have the effect of placing reserve bank funds at the disposal of member banks. There are two ways in which the member banks can use these funds: either by meetino; an increased demand for money in circulation, or by adding these funds to their reserves, where they constitute a basis for credit expansion at a rate wnich in recent years has been more nearly 15 to 1 than 10 to 1. You will see from the chart that during the past six years there have been considerable fluctuations in the volume of reserve bank credit, but very little net increase. On the other hand, there has been a large increase in gold stock, so that the top line of the chart, which shows the growth in reserve funds from the two sources, has greatly increased. Turning now to tne two lines which show the use made of these funds by the member bans, you will note that in 1922 there was a growth in both money in VOLUME 177 PAGE 51 . 0• Poem No. 131. • Office Correspondence FEDERAL RE-SERVE . BOA RD • Subject_ To From •P 0 — 2circulation and reserve balances; that in 1923 the entire anount was absorbed by additional demand for circulation; that in 1925 and 1926 there was relatively little change in either item and in 1924 and 1927 there were large increases in member bank reserve balaaces. These two years, 1924 and 1927, are the years when member bank credit showed the largest growth. I hope that this chart and explanation will serve the purpose of your inquiry. Conr4dentia1 opinion by F.H.C. LeA 111-A AN APPRAISAL OF FACTORS COMPOSING TUE PRESENT CREDIT SITUATION (February, 1928) There have been so many conflicting views expressed recently on the credit situation that it would appear to be an opportune time to make a careful appraisal of the various factors which stand forth as most important in the present oredit position of the country. Those which most readily come to mind in this connection are: (1) SPECULATION IN REAL ESTATE ADD BUILDING. The situation in regard to real estate and building construction is one which seems to justify considerable apprehension not only with respect to the New England district but throughout the country. have been marked by speculation in various forms. All periods of expansion In 1920, for example, it took the form of commodity speculation, more particularly, but in the last two or three years, aside from the security market, the most marked form of speculation has been in the field of real estate and real estate securities, and although the volume of new building in 1927 was sonewhat less than in 1926 or 1925, nevertheless the total assumed the huge proportion of 43,667,000,000 according to a oempilation for 354 cities which appeared in the Comercial and Financial Chronicle for January 28, 1928. There is reason to believe that a substantial part of this vast sum was not required to moot any definite demand for now construction. In some oases it represents projeots which primarily seam to have been intended as a means of marketing securities and the momentum thus created has become so great that despite the obvious and extensive vacancies in office and apartment buildings, now construction is being oontinually started. Here in Boston we have several of our newest and most modern office buildings, to say nothing of apartment houses and residential property, only partially tenanted and unable VOLUME 177 PAGE 61 -2.- to pay dividends on their preferred stocks, while at the same time we hear of the prospect of construotion of several additional buildings which will be thrown on the market for office or other business purposes. A factor which has made this situation possible is the cheapness of money which has been available for mortgage loans to real estate promoters. These mortgage loans, the market for which is slow, furnished not only through the familiar channels of savings banks and insurance companies but also increasingly through the national banks and trust companies, have been encouraged by and are largely due to the great increase in time deposits and other forms of savings. In some cases this situation has produoed conditions which have made it necessary for banks carrying heavy construetion loans to take over building projects, thereby increasing their real estate investments beyond the limits that prudence and safety should dictate. Thus in the case of member banks investments are becoming less liquid and a smaller proportion of the whole is eligible for rediscount at the Federal Reserve Banks. Further- more, financing for building promotion has also been accomplished extensively through the sale of real estate securities, some of which are based on valuations which there is every reason to believe are so far in excess of real values that it is difficult to escape the conclusion that the securities have been floated at inflated prices such as cannot be maintained on the basis of actual earnings. (2) THE INCREASING VOLUME OF na CAPITAL ISSUES. New security issues in the United States have been stimulated by declining money rates. As a result, the total new capital issues in 1927, according to the figures given in the Financial Chronicle for January 21, 1928, amounted to $7,735,000,000, exclusive of refunding issues. In other words, the country ab- sorbed nearly 08,000,000,000 of new securities during the calendar year 1927, and this affords a fairly accurate measure of the savings capacity of the country, since savings ultimately find their may into new securities (exclusive of refunding securities), and it makes no difference whether those securities are bought by individual investors, savings banks, insurance companies or others. In 1923, the total amounted to only $4,304,000,000, as oompared with 0,700,000,000 in 1927. Expansion has occurred in each of the principal classifications of issues, - corporate, foreign and municipal. This expansion in new oapital requirements is the reflection of several trends, and in part it represents a switching from the praotice of borrowing temporarily at the banks. Local instances of this may be cited in the funding of the floating debt of the Pacific Hills and of the Hood Rubber Company into the form of bonds. As noted above, low mortgage money has made possible a vast expansion in new building, and much of this mortgage money has been obtained through the sale of real estate securities on a wide scale. Low money rates have furthermore stimulated widespread borrowing by state and municipal governments. Lev' money rates also have made the United States an attractive source of supply for loans needed by foreign countries and a large proportion of these have found a resting plaoe in the investment portfolios of member banks. That the market for these foreign loans is not broad is evidenced by the rate at which tlgey are selling in comparison with high grade domestic bonds, - such as industrial bonds issued to refund bank loans and new capital issues in the fora of stooks and bonds which have served to inorease the producing capacity of the country. The large amount of savings in the form of savings deposits in banks, life insurance companies, etc., has made the demand for bonds so great that bond houses have had difficulty in procuring a sufficient supply and have therefore felt obliged in sone oases to accept and to offer their customers a somewhat lower grade of bonds than they would under other circumstances, such bonds sometimes yielding a lover rate of return than the risk would seam to warrant. The volume of these new capital issues amounted in 1926 to approximately 46,000,000 and in 1927 to $8,000, 000, exclusive of bonds issued for refunding purposes. There is evidence both in the case of foreign and domestic loans of large balances being left with banks and bankers, pending the time they are needed by the borrowing company, so that if there should be any decrease in the volume of time deposits there would probably be disclosed evidence of a large amount of undigested bonds; some evidence of this appeared last July and August. There is also evidence, as European coun- tries become stabilized, of their purchasing their own bonds in the American market which would have a stabilizing tendency besides relieving the gold situation. A largo part of all of these various new securities above referred to have found their may into the portfolios of the mecaber banks which are now holding a larger portion of their total loans and investments in the form of stooks and bonds than they have since early in 1925. This whole situation tends to make the condition of the member banks less liquid because long term bonds, even though they may be marketable and actively traded in, would undoubtly fall to price levels which would entail losses if the banks, owing to a loss of deposits, were forced to liquidate their security holdings on a large scale; indeed, experience shows that the volume of holdings of such securities by banks rarely declines, thus indicating an indisposition to liquidate securities of this type, once purchased. Therefore, the conclusion is obvious with respect to loans and investments in general as well as in the specific case of expanding real estate loans as above alluded to, that the banks are tying up an increasing portion of their funds in slow moving investments which are not eligible for rediscount at the reserve banks. (3) INSTALMENT BUYING Irrespective of investigations made by certain economists whose reactions have been on the whole favorable, there is considerable doubt as to haw sound the policy of instalment buying really is. There is no question but that the large volume of production during the last four or five years, has been duo in great measure to instalment buying. For the most part, the terms of instalmenis payment appear to be more severe than they were perhaps two years ago; there is -5- a more careful scrutinising of accounts; - and there does not appear to be any evidence of the policy of instalment buying getting more unsound. On the other hand, if retail sales should fall off, there might be a tendency to increase the period for instalment payments. So far as the retailer is concerned, his burden of carrying instalment accounts has been transferred for the most part from inventory and open accounts, so that the statements of most of the merchants show that the inventories, plus open accounts, plus instalment accounts, are no leiter than they were before the policy of instalment selling became so prevalent. On the other hand, there is evidence of a certain amount of abuse of the instalment payment privilege, - that customers are buying beyond their needs, and if there is any change in the industrial situation which would affect their capacity to pay, the situation might become such in the end as to cause much social unrest; and yet it is quite generally agreed that instalment buying has made labor more efficient and steadier. During 1927 there was some evidence that this method of makinf; purchases was becoming stabilized both as to the amount of instalment credits outstanding at any one time, and as to the methods of financing these credits. As a result, new business is at the present time no longer being stimulated, since instalment buying builds up business only when new purchases on the instalment plan are in excess of those of the preceding period. On the other hand, there is reason to think that there is less credit risk and less hazard in the instalment buying at the present time than was the case a few years ago, when the rapid growth in such sales was stimulating business to a large extent. Doubtless, however, there are still instances of instalment buying of consumers' goods whose useful life is so short as to make questionable the desirability of selling them on the instalment basis. Similarly, Clore are instances of the sale of goods, (e.g. paints and clothing) which in the nature of things could not be repossessed in the ease of failure to pay. The proportion of such unsound practices to the total amount of instalment funds, however, is becoming less and less. -6- (4) THE LARGE INCREASE IN TIMID DEPOSITS. During the phenomenal prosperity of the past five yeare savings have grown to huge proportions. This was indicated in Topic (2) above, whore it was pointed out that each year this country has been able to absorb an increasingly large volume of new capital issues,- a volume which year after year exceeds the previous year by nearly a billion dollars, and which in 3.927 reached the huge total of .7,700,000, 000. ;movement. Practically all ohannels for savings have participated in this Mutual savings banks have been constantly increasing their deposits, although their rate of growth, after excluding interest compounded at the going rates, has not been as groat as in some other fields. Insurance companies have been conspicuous for their rapid expansion in recent years, a vast amount of savings being represented by life insurance. Similarly, private investors have boon buying for investment as never before in the history of the country. The member banks also have been experiencing a rapid expansion in their savings departments. But the expansion in time deposits has probably considerably exceeded the expansion in savings deposits proper, since a substantial part of time deposits represents balances placed in the banks by depositors other than savings depositors. There has been evidence oven of foreign balances being carried in the form of time deposits in the member banks. Similarly, corporations are carrying large balances in the form of time deposits. In many parts of the country, private investors deposit large balances in the form of time deposits, some of which are temporarily so placed pending investment in securities. Deposits of this latter character, al- though classed as time deposits, and carrying the minimum reserve of only 3 per cent, are in reality subject to withdrawal practically on demand and in large amounts. They, therefore, represent a somewhat hazardous feature in the present banking situation. One factor in the increase in time deposits is, no doubt, the unwillingness of the investor to buy the class of securities in which the banks are investing their funds; also, there is not only uncertainty as to market and prices, but -7evidence of a fee1J.ng that the 4 per cent rate whici. has been obtainable on savings deposits is a satisfactory return, besides giving relief from the necessity of cutting coupons, depositing dividend checks, keeping records for income tax returns, and other bookkeeping annoyances incident to the purchase and exchange of securities. In other words, it would appear that a substantial volume of the time deposits represents money which ordinarily would go into the security market, or be used by the depositors in the conduct of their own business. The principal danger in this situation would be the withdrawing of funds on deposit, but insofar as these time deposits represent bona fide savings, permanent investments, or even oorporation money, there would appear to be little danger from that source. In case a large deposit is withdrawn, (with, of course, the exception of a foreign deposit or an amount due to a bank or individual in a foreign country) that deposit would either be made in another bank or in securities which would again relieve, or which would not make any stringency in the credit situation (except through hoarding). (5) THE LARGE INCREASE IN BROKERS' LOADS. Week by week brokers' loans have been rising to new high records, until at the present time (Feb. 1, 1928) they are in the neighborhood of $4,500,000,000. The large increase in brokers' loans does not for the most part appear to consist of credit furnished directly or indirectly by Federal Reserve Banks. There is no doubt but that the open market operations of the reserve banks do to a certain extent increase the amount of floating credit in the New York market, but the principal sources of this increase would appear to come from two places:- First. From surplus funds of member banks. The large increase in savings deposits in banks and the unwillingness to invest the total amount of that increase in securities has led banks to take the conservative method of loaning surplus money on time or demand against well-margined and selected collateral, and as these loans are mostly made through New York banks the chances are that their oharaoter is subject to careful scrutiny. So far as the member bank is con- -8corned there can be little objection to placing money in the form of brokers' loans, provided these loans are well margined, because there is no more liquid form of investment, and probably no form of investment better secured than brokers' loans. It is distinctly more preferable from the point of view of bank liquidity for a bank to loan a portion of its money in the stock market than for it to invest all its funds in the securities direct, i.e. to loan its money in the stock market with a margin rather than for it to purchase the securities direct, or to loan on real estate. On the other hand, the expansion in the stook market has inflated many security prices to levels at whioh there is considerable doubt as to whether or not they are justified by earnings, dividends or future prospects. Therefore, from the point of view of the stock market and of holders of stock market securities, (and this includes investors, savings banks and insurance companies), the present expansion in brokers' loans is disturbing since it represents the placing of an undue proportion of the country's loanable funds in ball Street in the form of call loans. It is well known that call loans represent the excess credit which banks are unable to loan to their commercial customers at home, and are therefore the first to feel contraction when the interior banks experience an expansion in their local demand for commercial loans. This surplus credit of member banks does not appear to come from rediscounts of commercial paper in the Federal Reserve Banks but through the lack of demand for commercial, industrial and agricultural requirements, and from the urge to keep funds employed. Second. From. unemployed proceeds of capital issues. A large vol- ume of capital issues as already pointed out has been placed in this country, more especially since 1923 and 1924, following the substantial progress made in the stabilization of economic conditions in England and Germany. Foreign issues and domestic issues in such volumes as 6,000,000,000 in 1926 and 0,000,000,000 in 1927, have no doubt increased the volume of brokers' loans not only through the amount required in financing their original sale, but also through the amount of unemployed proceeds from such capital issues. There is doubtless also a large amount of credit in the brokers' loans which represents credits controlled outside of the United States, as for instance, by central banks of issue, joint stock banks, foreign bankers and Nationals of outside countries. The danger in this particular factor is the possibility of large amounts being drayn upon and converted into gold for export. Therefore, if and when commercial borrowing expands, or if and when there is a serious withdrawal of deposits, the brokers' loan market will be the first to feel the contraction, because, as stated above, brokers' loans represent surplus funds, funds which are the first line of defense which banks call upon when in need of liquid funds. But the calling of loans, if properly margined, should not so far impair the security as to cause losses to the lenders, though they can conceivably cause serious losses to those forced to liquidate stocks in order to pay off the loans. (6) HIGH LsVEL OF THE STOCK MARKET. Several features of this phase of the situation are deserving of careful study. Prices of stooks at the present time are at the highest levels on record, levels which cannot be justified in all oases easily in the light of current dividends, ourrent earnings or future prospective profits. The yield on many classes of stocks, both investment and semi-investment, is so law as to be less than the yield on investment bonds. on some stooks. Even commercial paper rates are higher than the yields These relationships, therefore, are obviously out of line, and suggest a vulnerable position in the stock market, a decline in which might easily be precipitated by influences outlined in Topic, (5) above. So far as the causes for the present high level of stocks are concerned, there are three in particular to which it may be plausibly attributed: (1) The demand for high grade stocks in excess of the supply; (2) that turning of the public to stocks as media for investments and willingness to accept a lover return on common and preferred stocks than in past years, especially on the well managed and highest grade of these stooks; (3) the rapid rise of investment trusts, further alluded to below. A casual glance at some of the holdings of these trusts and of certain corporations furnishes ample evidence of the demand referred to above. The Banoitaly Corporation, for example, has million dollar investments in a long list of high grade securities. The ability of this corporation to invest has cone from its selling of securities to the public at largo. It would not appear probable that this corporation, or any other of the large trusts, could dump any large volume of one or several stocks on the stock market in justice to itself, and this alone may act as a stabilizer of the general situation. (7) INVESTMENT TRUSTS. The growth in investment trusts in recent years has been phenomenal. Some of these trusts have been organized recently and, therefore, practically at tho top of the market and are, aocordingly, not in a position easily to withstand a Some of theil also are managed loosely, possible sharp drop in the stock market. according to the terms of their constitutions, and in some cases are controlled by men relatively inexperienced in the handling of large investment funds. They represent the assembling under one management of large blocks of securities, which tends to place the voting control of banks and corporations increasingly in the hands of a relatively small group of financiers. Such organizations, on the other hand, if properly and conservatively managed, should not only have a stabilizing effect on the security market but should overcome to quite an extent the undoubtedly enormous waste constantly occurring through the investment of savings in fraudulent and speculative securities. So far as its effect on the credit situa- tion is concerned, therefore, it would appear that the well managed investment trust ought not to be an adverse factor. (8) GOLD EXCHANGE IN RELATION TO THE LARGE VOLUME OF BALANCES AND INVESTMENTS THAT COULD BE INITHDRAWN ON DEMAND BY EUROPE. Under the gold exchange standard, countries adopting that standard are en- -11- ablod to hold their reserves against their own credit structure of bank notes and deposits, not in the form of gold in their own vaults, but in the form of investments in gold standard countries. In this manner the gold reserve of the gold standard countries is called upon to serve two purposes: (1) to support the domestic credit structure, and (2) to support the foreign credit structure of those countries placing their central reserves in the form of gold exchange in gold standard markets. It is, therefore, a form of pyramiding. The subject of gold exchange is one that is being given more and more consideration throughout the world. It was apparently first suggested at the Genoa Conference in 1922 in the belief that there was not sufficient gold in the world to serve as a foundation for the stabilization of Europe and that therefore gold exchange, or balances and investments payable in countries on a gold basis, should be used in lieu of gold. The fact that there is no definite information regarding the volume of balances and investnents in the United States that could be withdrawn on demand by Europe and other continents constitutes an unsatisfactory situation, especially as the estimates of balances and short time loans and investments that are liable to be withdrawn are between one and two billions, a large part of which apparently is due to France,- a country where the political and economic situation is not very satisfactory and where a definite policy could not be assured. Furthermore, this gold exchange has became a part of our credit structure and if withdrawn Jould be withdrawn primarily from the outside market, that is, it does not represent balances in the Federal Reserve Banks. On the other hand, the Federal Reserve System with its high percentage of reserve (74%) could withstand and relieve a reasonable amount of pressure caused by the withdrawal of the gold. Nevertheless if it can be assumed that there is a net minimum of at least 0.,000,000,000 of foreign gold exchange in the American credit structure, it follows that $1,000,000,000 of gold in the Reserve banks may fairly be considered as utilized to support the bank note circulation and deposits in foreign gold exchange countries. If, therefore, acting on that principle, it be considered that the cash reserves of the Federal Reserve Banks applicable to the domestic credit struoture alone amount to something less than 2,000,000,000 instead of to slightly less than 4,000,000,000 as indicated in the Federal Reserve statements, it would be seen that the domestic reserve ratio today would bo in the neighborhood of 50 per cent, instead of 75 per cent, as published in the statement. On the other hand, there is in circulation something like $1,400,000,000 000,000,000 is in the form of gold ' of gold, of whioh, probably, something over 0. certificates which could be brought into the reserves of the reserve banks, - a factor which mould help the situation. Moreover, with the stabilization of Europe, the Nationals of those countries are buying in the American market their own national securities, which, again, mould somewhat relieve the situation. Again, it is to the interest of Europe not to allow a withdrawal of gold from this country that would cause interest rates to rise to such a point as mould affect the placing of foreign securities in this country, and therefore it is probable that only in the event of an extreme crisis in Europe, such as a war, would these large gold exchange balances be oonverted unexpectedly into export gold. Therefore the disquieting factors may be over emphasized in some quarters, but nevertheless the following points stand out: (1) Demand for gold for withdrawal can be made more suddenly than gold can be drawn in from circulation; (2) This demand will probably be liquidated from surplus funds in the call market; (3) Banks hold a declining proportion of eligible paper so that resort to secondary Federal Reserve credits might be delayed; (4) A moderato calling of loans results in sudden and sharp changes in rates on all brokers' loans outstanding; (5) The high level of the stock narket makes it unusually sensitive to any threatened contraction in the supply of call money. (6) Banks are protected by ample margins against these liquid loans, so the public in general, including institutions holding security investments, would be the sufferers. -13- (9) INDUSTRIAL AND OTHER COMPETITION AND THE EAECT ON DECREASED PROFITS. Competition in all lines of business is becoming increasingly acute. It is not confined to manufacturing or agriculture, or mining or retail distribution. It is practically universal. To a large extent, this is a reflection of the over-extension of productive facilities during the war period,- an over-extension to which the country has as yet not fully grown up on a peaoc basis. As a result, prices are being narrowed and in some cases profits have declined to the point where they are practically eliminated. As a consequence of this situation, the volume of production has declined in recent months, and is now substantially below the computed normal. Paralleling the decline in productive activity, there has been a decline in the volume of payrolls the past year, the result not only of reduced employment but also, to some extent, of reduced wage rates. Therefore, the purchasing power of the country is also declining, and at the present time is some 9 per cent lower than two years ago. On the other hand, wholesale com- modity prices are only about 4 per cent lower than two years ago so that there has been a net reduction in the purchasing power with which to market goods. But since the volume of production has fallen much more rapidly than either payrolls or commodity prices, the situation appears to be fairly well in hand. The net result is that the prosperity of the country is not far below normal, and cannot be considered in any sense as being in a depression area at the present time. Nevertheless, industrial profits are suffering, and this fact must be considered in connection with the vulnerability of the stook market which, as pointed out above, is at the present moment at the highest level on record, a level which it is difficult to justify on the basis of existing conditions other than low money rates. Declining production, declining payrolls and declining prices, however, have not been accompanied by rising money rates as is usually the case when depression is threatening. There is no indication that there will not be a plentiful reservoir of immediate credit available for all legitimate commercial needs at reasonable money rates. Since the present specu- lative outburst has been confined largely to the real estate and security markets, and has not been imparted to the commodity markets, or to industrial produotion, it cannot be considered that the present situation industrially is definitely bad. It is simply a shade below normal, and only by contrast with the almost continuously super-normal activity of the past five years does it appear law. (10) INCREASE III LOCAL PUBLIC EXPENDITURES. Mile the Federal government has been reducing taxes in recent years, looal governments have been doing the reverse, and the volume of local taxes is today greater than at any time in the past. Similarly, the volume of local debt has been rising about as fast as the volume of Federal debt has been declining, so that large expenditures, taxes and public debt are substantially where they were at the end of the war, viewing the situation as a whole. Economies on the part of the Federal government are offset by extravagances on the part of the local governments. In so far as these expenditures are made for productive enterprises, such as publio works, and in so far as this work is done economically and efficiently, these expenditures may be justified on the ground that they increase general business activity and increase purchasing power. seldom are handled efficiently. But these public enterprises Many of the large expenditures are directed into non-productive channels of one sort or another which do little to stimulate the general business situation. (11) PROHIBITION. There is considerable to be said on both sides as regards the business aspects of prohibition. On the one hand, may be mentioned the exceedingly heavy cost of prohibition enforcement, together with the loss of revenue both to the federal and the local governments in the form of license fees, whioh oontrastS with the revenue on limited prohibition whioh is in effeot in Ontario and Quebec, producing larse sums for the central government. On the other hand, may be mentioned the fact that prohibition has probably been a direct cause of the vast -15- expansion in productive activity and in retail sales during the past few years. Money which formerly vent into the saloon is being spent by wage workers for clothing, radios, automobiles and all sorts of retail goods. Prohibition, therefore, appears to be expensive so far as public revenues are concerned since it represents a heavy outgo of public funds in place of a substantial income of public funds. On the other hand, it makes possible a vastly increased purchas- ing paver on the part of the population as a -whole, and thereby greatly stimulates business and industrial activity. (12) TREND OF INTERNATIONAL TRADE MOVEMENTS. The United States has loaned or invested large sums in European countries. The first effect has been a stabilization of monetary systems, -which in turn has assisted in a general industrial expansion. As .uropean nations work back toward a sound basis, this country must expeot to have increasing imports from European countries, the chief reason being that foreign loans, as well as reparations, can probably be paid only with ilerohandise, the proceeds of tourist expenditures, and immigrant remittances, and not with gold transfers. The growth of our im- ports is not likely to be extremely rapid, and our country can probably absorb an increasing volume of imports, but nevertheless, as this growth occurs, our own manufacturers are likely to feel the results of the increasing competition. This factor is one vhioh should be taken into account in considering the long-time trend of manufacturing volume and distribution from the point of view of profits. Scale for I anclLf Scale for 2, 3, ge. MILLIONS OF DOLLARS 3000 6000 Ifeserve acmir Cr,,,/„z /z/s Gad Sisc 25.00 — 500 Men4et Banh Reserve Pahoe s 2000 A / II / • A I ul 0 fNe i `ft 4 •A 3 I i t 4„, , ....•• N.-1 • /IP so, "" , 0 . 19 *.fifoner m C/)-caalion 2 • • :SOO 1......)i ••-•..._ i .. •1 .... --•. • e'-- —• ...,.......--/ _ l000 46-oo 'Moo eeserve /3eva CretA/ . ie• ••• 3-00 lf1-2 IP 3 I 9z4/ 3500 /92.6 9 2- 7 144.414 _ • • Februnry 17, 1928 TO: Federal Reserve Board FROM: Mr. Smend S7BJ7,CT: Branches of Member and Nonmember Banks, Feb. 25 and June 30, 1927. (St. 5656) On February 25, 1927, the date on rhich the 'McFadden amendment to the Federal Reserve and National Bank acts became effective, there were in the United States 777 banks in 396 cities which were operating a total of 2,902 domestic branches, the figures by classes of banks being as follows: Total - all banks National banks State bank members State bank nonmembers 7utual savings banks Private banks Number of banks operating branches Number of branches 777 2,902 144 189 1,562 385 50 9 389 .863 76 12 On June 30, 1927, the latest date for which complete figures for both member and nonmember banks are available, the number of banks operating branches was 788, or about 3 -per cent of the total number of banks (about 26,800) in the United States, while the number of branches on the same date was 2,989, about one-tenth the number of banking- offices (parent banks plus branches) in the country. Although the majority of the banks -- 481 out of 788 -- had branches only in the head-office city, there were 978 branches, or one-third of the total number, that were located outside the head-office city. In most cases the size of the individual branch system was small, 442 of the 788 banks having only 1 branch and 136 but 2 'eranches. Of the 210 banks that had more than 2 branches, 58 were located in cities of less than 100,000 population (where national banks may not hereafter establish more than 2 branches), including 3 national banks, 13 state bank members, and 42 nonmembers. There were 51 banks that had more than 10 branches on June 30, 1927, including the following which had 30 or more branches: Number of branches 284 San Francisco 94 101 Los An-sceles VOLUME 177 PAGE 65 52 47 35 64 42 52 47 46 30 70 32 U New York City Cleveland Detroit tt If Buffalo Location and name of parent bank Ban± of Italy National Trust ,Fc Savings Ass 1 n. American Trust Company Pacific Southwest Trust & Savings Bank (now Los Angeles-First National Trust & Savings) Security Trust and Savings Bank California. Dank (nonmember) Merchants National Trust and Savings Bank Corn .ychange Bank Dank of the ",..enhattan Company Cleveland Trust Co. Wayne County and Home Savings Bank Peoples State Bank Central Savings Bank(recently consol. with First ITat.) Peninsular State Bank 7,arine Trust Company There was an increase from 2,782 on December 31, 1926 to 2,902 on February 25, 1927 and to 2,989 on June 30, 1927, in the :lumber of branches in operation, while the number of banks operating branches declined from 794 on December 31, 1926 to 777 on February 25, 1927, due almost entirely to mergers and absorptions, increasing to 7gg on June 30, 1927. Most of the new branches establish ed during the six-month period are located outside the head-office cities, and half of them were established through the purchase of independent banks and their conversion into branches. Between June 1924, when complete figures of branches were first obtained by the Board, and June 1927, three years later, the number of banks operating branches increased from 714 to 78S and the number of branches from 2,293 to 2,989. During this three-year period the number of branches located in the sama city as the parent banks increased from 1,508 to 2,011, and the number of branches located autLide the head-office cities from 7g5 to 97g. Of the 2,989 branches in operation at the end of June 1927, 2,051 were renorted as having been established de novo as branches and 754 as independent ban?-:s purchased and converted into branches , while in 184 cases the method of establishment was not reported. Branch bankinz, as is quite gcnerally known is confined principally to a few states, 2,462 of the 2,989 branches being located in states, and 1,507 of the total being located in 13 of the large cities of the country. The followin g table shows separate figures as of June 30, 1927, for each of the principal states and cities in which branches are in operation: States California New York Michigan Ohio Pennsylvania MaGsachusetts Maryland Louisiana Total, states Total, United States Cities New York City Detroit Los Angeles Philadelphia San Francisco Cleveland Buffalo Baltimore Boston New Orleans Cincinnati Toledo Grand Rapids Total, 13 cities Total, United States • 4 3 It is of interest to note in this comaection that the two largest branch banking systems in the country have converted from state banks into national banks since the passage of the McFadden Bill - the Bank of Italy of San Francisco with 278 branches at the time of conversion and the Pacific Southwest Trust and Savings of Los Angeles with 99 branches. The annual report of the Comptroller of the Currency shows that between February 25, 1927, when the 'AcFadden Bill became a law, and October 31, 1927, the national banking system acquired 400 branches through conversion or consolidation of state banks, in addition to 127 new branches which the national banks were authorized to establish under the provisions of the Act. Attached hereto are tables or statements relating to branch banking, showing -1. A summary for the United States as a whole. 2. The number of banks in each state which were operating branches and the number of branches, as of June 30 and February 25, 1927, December 31, 1926 and 1925, and June 30, 1924. 3. The number of banks, by states and. by classes, which on June 30, 1927, were operating 1 branch, 2 branches, 3-5 branches, 6-10 branches, and over 10 branches; the maximum size of individual branch bank systems; and the number of branches located in head-office cities and outside such cities. 4. A summary of the laws relating to branches of both national and state banks. 5. The status of foreign branches of American banks at the end of 1927. In addition, a list is submitted herewith showing the name, location capital, surplus, and deposits of each member and nonmember bank which was operating in—Inches on February 25, 1927; the number of branches in the headoffice city and outside such city; and the population in 1920 of the town or city in which the parent bank was located. -4 St.5656 Legal Statuo of Branch 3aCeinc, . Urier the 7cFadden Act, motional bnnks may retain all branches which eaere in laTful c?eration on Fetruarv 25, 1927, whether located within or outside the cornorate li:eits of the heed-office city. They may also, with the approval of the Comptroller of the Currency, estathsh new branches within the corporate limis of the head office city in such states as state banks are permitted by law to eo so, subject to the followinP: population restrictions, based on the last decennial census: Under 25,000 - no branches; 25,000 to 50,000.- 1 branch; 50,000 to 100,000 - 2 branches; 100,000 and over indefinite number of branches subject to determination of Comptroller of Currency. In aadition, when a stete beni: converts into or merges with a national bank, such of its branches as were in laerful operation or February 2, 1927, nay be retained regardless of location. State bank memoers, under the terms of the McFadden Act, may retain all branches that were in lawful operation on Februnry 25, 1927, Whether located within or outside the corporate limits of the head-office city. They may also establish new branches within the corporate limits of the city or torn in which the parent bank is located, if in accordance -ith State law, without the arnroval of tne Federal Reserve Board. A digest of the state laws pertainin,s to branch bar:'cing et the close of 1924 was published on Pages of the March 1925 Federel Reserve Bulletin, this digest having been pren9red by the Board's Counsel with the assistance of counsel to the Federal reserve banks. Mile the diz,est has not been brouE;;ht up to date, the followin6 chan,;es in state laws releting to branch barking during the past three years are indicated by availeble information: Tennessee - On April 6, 1925, the law was amended to )rohibit the establishment of branches outside the countx, in which the parent bank is located; New Jersey - In March 1927 the law was amended to permit the establishmey,t of branches'by state banks, subject to the same ieopulation restrictions as are contained in the McFadden Act with reference to national banks. Pennsylvania - On Ae)ril 27, 1927, the law was amended to permit the operation of branches which were established prior to March 1, 1927, but prohibiting the establishment of new branches except in those es in which national banks were operatingebretnches prior to March 1, 1927. Nebraska - An Act aiToroved on April 1, 1927, prohibits the establishment of S ranches. Georgia - On Aue:Lust 25, 1927, an Act was approved Permitting the operation of existin: branches but prohibitinL, the establishment of new branches. Kentucky - The American Bankers Associ?tion Journcl for April 1927 states that a recent opinion handed down t7 the Attorney General holds. that stete banks, under their incidental powers, may establish branches. Test A bill Ires before the Legislature in April 1927 prohibiting the estel)lishment of brnnches, and nSrda in the same month a bill wee introduced e:ivinc; state tanks -)ermission to establish branches in cities of 50,000 or more population, but in neither case did the bill become a lat. At the end of 1927 there were 11 states (includine- the District of Columbia) in which stEte-wide branch banking was permitted by law or by implication, in two of -Lich no branches ware in operation; 12 states in rMch branch banking was restricted to the cities or counties in which the parent banks were loccted or contiguous territory; 18 states in which the establishment Sf branches was proted; and g states in which there was no provision in the law with respect to the establishment • of branches. The details with respect to each state are as follows: 5 St. 5656 Stnte-7ide Branch mking Permitted 1)7 Ln7 or ImPlic - tion Arizona California Dela-are District of Columbia Yaryland North Carolina Rhode Island South Carolina Virginia *West Virginia *Wyoming *No branches in operation. Branches Restricted as to location. Kentucky - City in which parent bank is located Louisiana - Parish (county) in Which parent bank is loca.ted Maine - County in which parent bank is located or adjoining counties Massachusetts - Town in which parent bank is located, except tht mutual savings banks may have branches outside. Michigan - City in which .parent bank is loc:- ted Mississippi - City in which. parent bank is located if 10,000 or more population New Jersey - Same restrictions as provided by McFadden 2.ct for national banks New York - City in which parent bank is located if over 50,000 population Ohio - City in which parent bank is located and territory contiguous thereto. Oregon - Laws of 1921 prohibit the establishment of branches until such time as national banks are authorized to establish branches, '11.en the superintendent of banks may authorize state banks to establish branches under similar terms. Pennsylvania - Cities in which national banks were operating branches Prior to Larch 1, 1927 Tennessee - County in which Parent bank is located Branch Banking Prohibited by Law #Alabama #Arkansas Colorado. Connecticut Florida #Georgia Idaho Illinois #Indiana #Minnesota Missouri #Nebraska Nevada Ne-, ' Mexico Texas Utah #Washington #Wisconsin #Branches in operation, established prior to prohibitory legislation. No Provision in State Law Regarding Branch Banking (no branches in operation) 6 Iowa North Dakota Kansas Montana New Hampshire South Dako ta Vermont Oklahoma 6 St. 5656 Foreii.n branches of Americnn bnl. D,ta in the Boara's files sho- th-t on Decmber 31, 1927, 9 lle-ic7n brf.s -rev; onerlting 93 bralic1r3s, offices or os'encies ou'uside the United Stets, 2 American foreign banking corporations (all subclidiaries of member banks) were o-)erating 11 such offices under agreement with the Federel Reserve 1,cwrd, of 7, ich 4 were non-ban]-_in„; offices in China exercisinL; a note-issue function only, End. 3 foreiqn subsidiaries of American banks were oneratinL, 13 offices. The only changes during the year comprise the takina ovor of 3 branches in China, 3 in India, 4 in Japan, 1 in Java, and 1 in the Straits Settlements, 1-. , the National City Bank of New York from its subsidiary, the Internation1 Banking Cornorrtion; the establishment by the same bank of one new branch in Cuba ana of one in Porto Rico; and the discontinuance of one branch in the Dominican Republic. The names of the banks and banking cornorations operctin:; foreign offices, together with the location of the offices, are shown below: NATIONAL CITY BANK, NEW YORK Argentina 2 Italy 2 Belgium 4 Japan 2 4 Java Brazil 1 China Panama 8 2 Cuba Peru 1 25 Chile Porto '2 Dominican Rico 2 Republic 6 Singanore 1 England 2 Uruguay 1 India 3 Venezuela 1 BANTURS TRUST CO, NEW YORK England 1 France 1 CHASE NA:10EAL BArx, NE7 YORK Canal Zone 1 Panamr 1 1 Cuba EMPIRE' TRUST CO., NEW YORK England 1 EQUITABLE TRUST CO., NE7 YORK England 2 Mexico 1 France 1 **EQUITABLE EASTERN BANYI7G CORP..,N:E China 2 Tofal 69 *NATIONAL CITY BANK, PARIS F.AT7T,RS LOAN & TRUST CO., NEW YORK France 1 France 1 *In..dRITATIONAL BANKING CORP.,Y7W 70RX ***FARM:RS LOAN & TRUST co.,LoroN 4 Philipine China England. 1 England 1 Islands 2 GUARAITT7 TRUST CO., 17EW YORK Spain 2 Belgium 2 France 2 #BANY NATIONALE DE LA RLPUBLIQUE 4 England DE HAITI FIRST NATIONAL BOSTON Haiti 11 Ar,Tntina 2 Cuba 2 AIERICAN TRUST CO.., SAN FRANCISCO England 1 SUMMARY National banks Member state Nonmember state American foreign banking corporations Foreign subsidiaries . Total Number of banks 3 5 1 Number of offices 76 16 1 2 14 *Subsidiary of National Cit BrInk, Naw York. #Stock owned by Bank of Haiti, Inc., subsidiary of National Cit7 Bank, New York **Subsidiary of Equitable Trust Comnany, New York. ***Subsidiary of Farmers Loan & Trust Co. , New York. • TABLE 1. - SUIMARY OF BRANCH BANKING IN THE UNITED STATES St. 5556a June 30 1927 Feb. 251 Dec. 31 1927 1 1926 Dec.311June 30 1925 1 1924 NITABER OF BANKS Total Operating branches 26,781 788 By classes of banks: National banks State bank members . • • • State bank nonmembers • • Mutual savings banks . Private banks 152 186 392 50 8 By location of branches: Only in head office city 481 11 . Only outside " " 262 Both in and outside head office city .. . .45 By size of cities in which parent banks are located:(b) 100,000 or more population 50,000 to 100,000 25,000 to 50,000 375 69 55 Less than 25,000 289 By size of branch systems: 1 branch 2 branches 3-5 branches 5-10 branches Over 10 branches *26,973 777 27,377 794 144 189 145 194 132 196 108 191 385 410 47 387 9 396 50 9 471 262 476 271 466 264 391 283 44 47 55 431 50 28,257 28,996 785 714 28 (a) (a) 374 69 54 297 443 128 124 453 129 124 446 135 33 35 51 47 38 50 39 48 2,902 1,923 2,782 2,293 1,508 979 1,933 849 2,642 1,810 . 2,989 2,011 978 832 785 By classes of banks: National banks State bank members . . State bank nonmembers . Mutual savings banks . Private banks . • • . 721 1,301 861 76 10 389 405 332 248 1,562 863 76 12 1,367 923 1,277 1,033 (a) (a) 1,137 908 (a) (a) 442 135 126 117 NUMBER OF BRANCHES Total In head office city Outside head office city Method of establishment: De Novo (as branches) . . Independent banks purchased and converted into branches Not reported 75 12 2,051 1,964 754 184 643 175 *March 1927. (a) Not separately tabulated; included with "state bank nonmembers.” (b) Based on latest available population figares. NOTE: Figures prior to 1927 have been slightly revised, due to the fact that the establishment or discontinuance of some branches prior to 1927 was not reported until recently. • 4 . I TA7LE 2 - NUYTER OF IANyS 01-7.RTIYG 7RA7CETS I\TUT2ER OF 7Ri.NCHES ITT OPERI.TION, TU117 1924 - JUY7 1927, :17 STATES St. 5656b Numb7r of ly)nks optin.g br,tnchs June Fib. Dc. Jun Thc. 25 31 31 30 30 1927 1927 1926 1925 1924 UNITED ST.',T7S Total Nptional State =nbc,x St,)to nonamber Mutual savings Private Alabama Arizona Arkansas California Nimibr of branch' s Fib. Doc. D:c. 30 25 31 31 1927._ 1927 1926 1925 Jun 788 777 794 785 714 2,969 152 166 392 50 6 144 189 365 50 9 145 194 396 50 132 196 410 47 106 191 387 28 721 1,301 861 5 5 5 2 69 Delaware 5 Dist. of Columbia 10 Florida Georgia 21 2 72 9 2 89 5 7 5 6 2 2 loo 99 June 30 1924 2,902 2,782 2,642 2,293 369 405 332 1,562 1,367 1,277 663 923 1,033 76 76 75 248 1,137 906 10 12 12 19 23 3 781 19 23 3 764 19 23 3 669 19 19 21 20 3 64o 3 538 * 5 5 5 5 13 14 14 15 10 10 20 20 20 1 18 19 1 22 11 1 21 20 21 10 1 23 38 38 38 56 53 4 4 40 24 4 4 39 24 4 4 35 24 4 4 34 23 8 g 8 8 g 17 12 12 12 12 107 51 106 514 103 54 95 50 93 147 35 79 69 35 78 69 113 134 412 6 113 109 88 133 404 6 131 402 6 117 384 lo 98 332 2 27 61 63 3 113 2 36 72 64 3 11 2 23 106 11 2 14 106 11 2 14 107 11 2 14 11 2 14 25 2 36 25 2 21 25 2 21 25 2 21 98 77 25 2 21 542 516 506 459 North Carolina Ohio Oregon Pennsylvania 40 57 4o 53 41 53 39 40 74 74 75 69 66 1 63 1 82 1 52 1 51 1 237 1 230 1 63 85 67 136 130 228 1 126 213 1 122 203 1 96 Rhode Island South Carolina Tennessee Virginia 10 10 10 s 9 9 29 27 27 27 g 9 7 28 9 25 24 21 20 53 45 7 9 Indiana Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Nebraska New Jersey New York Washington Nisconsin 14 5 41 23 35 76 67 2 23 22 22 24 21 56 56 56 37 37 37 33 31 62 60 59 19 58 50 14 7 14 7 14 6 7 5 7 6 a , 6 9 6 9 7 9 7 *Not separately tabulated. NOTE: Figures prior to 1927 have been slightly r3vised, due to the fact that the establishment or discontinuance of Some branches Prior to 1927 was not reported until recently. 11 362 TABLE 3 - SIZE OF 1,3RANIPSYST7S AYD NM.= OF BRNCHESOPUNE 30, 1927, BY STATES AND CLASSES OF BAITS St.5656c Number of banks oneratin- branches Number of branches State and 2 3-5 6-10 Over Maximum In Outside class of bran- bran- 10 size of Total head head 1 branTota branch ches ches ches .ran- system* office office bank ches city city UNITED STATES 284 2,989 2,011 978 33 51 788 442 136 126 TOTAL 284 28 17 721 431 290 152 89 National 7 11 101 1,301 1,063 238 41 15 30 28 State member 186 72 881 47 9 453 428 11 64 State nonmember 73 392 235 13 14 1 76 62 4o 50 Mutual savings 4 5 10 2 2 8 8 2 6 Private BANKS LOCATED IN CITIES WITH POPULATION OF (P) 100,000 or more 50,000 to 100,000 25,000 to 50,000 Less than 25,000 Alabama TOTAL State member Non.-ember An TOTAL State member Nonmember Arkansas Nonmember California TOTAL National State member Nonmember Delaware TOTAL State member Nonmember Dist. of Columbia TOTAL National Nonmember Georgia TOTAL National State member Nonmember Indiana TOTAL State member Nonmember Kentucky TOTAL National State member Louisiana TOTAL National State member Nonmember 47 1 3 284 9 11 20 _ - 1 _ 1 15 1 15 1 1 - 1 1 - - - 11 1 1 9 15 2 1 12 1 1 - 2 2 10 5 5 5 3 2 21 4 4 13 65 10 12 49 79 11 8 28 25 2 5 4 1 3 _ - _ - g 2 6 4 1 3 2 2 2 1 1 69 12 11 46 32 6 4 22 5 1 4 375 69 55 289 158 46 34 204 5 1 4 489 32 36 421 19 1 18 - 19 1 18 11 11 4 23 12 11 - 12 11 - 2 3 - 3 3 1 1 1 8 2 4 2 284 284 101 47 781 343 275 163 317 83 172 162 464 260 143 Si 1 1 1 1 - 6 1 6 17 1 12 1 1 - 12 12 2 1 1 3 1 2 - _ - 4 4 4 20 9 11 20 9 11 - 13 1 3 9 6 1 1 '4 1 1 - 1 1 - - 9 9 2 2 38 1.6 5 17 11 7 4 27 9 5 13 4 1 3 3 3 - 1 1 - - -, - 5 5 1 8 5 3 7 5 2 1 1 - 2 2 - 17 1 - or P 11 ' 6 17 11 6 - 1 2 2 - 41 1 8 32 26 2 24 5 1 4 5 2 3 4 1 2 1 1 1 - 107 8 46 53 54 _ 39 15 53 8 7 35 *Maximum numbr of branches of any one bank. (a) Based on latest available population figures. 2,284 1,795 125 93 64 100 48o 59 J 6 20 8 20 10 ' 23_ _ itTABLE 3- SIZE OF BRANCH ALT AND NUMLn OF BRANCHES, J0111 30, 1927, BY STATES AND CLASS7S OF rAN7S State and class of bank Maine TOTAL State member Nonmember Maryland TOTAL National State member Nonmember Massachusetts TOTAL National State member Nonmember Michigan TOTAL National State member Nonmember Minnesota Netional Mississippi TOTAL National Nonmember Nebraska National New Jersey TOTAL National State member Nonmember New York TOTAL National State member Nonmember North Carolina TOTAL State member Nonmember Ohio TOTAL National State member Nonmember Oreon National Pennsylvania TOTAL National State member Nonmember Rhode Island TOTAL National Stete member Nonmember INumb'.3r of branches lumbr)r of banks opertino. branches Outside In 2 3-5 6-10 Over Maximum head head size of bran- bran- bran- 10 1 Total Total office office branch ches ches ches bran- system* city city ches 13 9 r 3 -5 16 7 2 29 76 16 15 45 67 11 2 14 2 - 5 - 6 39 3 s 1 3 1 1 2 20 2 14 20 113 1 5g 6 7 6 19 88 36 3 g 33 23 14 3 4 - - 7 4 4 - 12 47 9 2 11 - a. 47 22 _ _ 412 20 334 38 5_5__ - 13 - 33 55 134 116 11 53 11 9 5o 4g 11 s 2 3 926 7 42 57 36 6 3 9 13 11 1 lg 2 1 15 4o4 g 19 1 1 5s 333 52 6 3 6 6 - 12 25 - 6 38 27 11 - 24 10 23 15 5 7 4 1 1 1 - 6 15 12 7 108 31 46 22 g 19 2 7 2 5 - 14 6 6 64 27 64 542 153 3o1 2 14 gg 541 153 3o1 g7 1 - 6 -4 g 66 - 5 6 9 61 a. 3 g 58 52 237 2o3 34 13 1 39 g 3g 25 9 5 11 6 4o 26 5 g 4 33 2 22 1 1 - 3 7 1 • - 57 28 6 3 5 23 27 5 5 52 163 135 2g 1 6 7 2 16 3 - lo 67 61 6 g3 56 15 la. - 6 '36 128 20 16 47 16 12 2g 12 3 7 1 - - 6 5 3o 79 28 2 73 6 10 6 - 3 - a. 13 29 12 17 *Maximum number of branches of any one bank. TABLE5-SIZE OF BRANCH SYST=S AND 1=7Z 07 PRIN=7S, JUN7 30, 1927, BY STAT7S :it/7D CL1.SSFS OF BAiTYS (St.5656c) State an l class of bank South Caron a TOTAL National State memb Nonmember Tennessee TOTAL National State memb Nonmember Virginia TOTAL National Stete memb Nonmember Washington TOTAL National - State memb Nonmember Wisconsin TOTAL National State memb Nonmember Number of branches Number of banks operating branches Outsidc In 3-5 IS Over Maximum 2 head hearl bran- bran- bran- 10 size of 1 Total branch ches ches ches 'ran- system* Total office office - city cit7 ches 9 3 2 1 21 6 21 9 is - 18 _ 12 56 25 31 3 28 26 14 5 16 10 3 1 1 i li 76 61 2 - - 5 10 6 6 2 - - 5 4o 13 6 12 S 3 2 - a J 26 lg p , - - - *Maximum. number of branches of any one bank. o i - - 1 2 ' BANKS OPERTING DOVESTIC BRANCHES 07 FEBRUARY 25, 1927: SUT/ARY (Date on which branch-banking amendment to National Bank and Federal Res?rve Acts became a law) St, 5656d Number of banks operating branches States UNITED STATES Alabama Arizona Arkansas California State YaTotal tional members 777 144 5 2 72 13 is Non- Total members 444 2,902 14 19 23 1 2 6 13 2 46 1 14 5 1 5 13 3 76 Delaware Dist. of Col. Georgia Indiana 5 10 Kentucky Louisiana Maine Maryland 4 40 24 35 3 1 14 2 31 20 29 Massachusetts Michigan Minnesota Mississippi 79 69 17 12 2 16 46 33 214 1 1 Nebraska New Jersey New York North Carolina 2 14 2 106 40 28 3 14 5 39 -33 53 1 6 1 22 25 82 10 20 16 1 4 46 5 2 2 22 6 9 1 1 4 15 26 1 2 56 60 6 1 14 2 9 Ohio Oregon Pennsylvania Rhode Island South Carolina Tennessee Virginia Washington Wisconein 5 3 21 14 2 11 37 14 3 1 6 14 20 38 12 106 Number of branches Operated b Location State In Out Nabank Non- H. O. tional memmem. city H.0. banks bers banks city 389 62 9 7 7 s 5)4 1,562 951 1,923 979 1 12 18 11 545 157 19 23 3 299 465 1 13 11 14 5 17 3 5 46 12 52 42 88 113 6 133 404 6 25 49 28 56 21 325 58 6 1 12 12 2 21 518 4 133 74 14 230 1 130 28 25 19 2 27 1 8 1 20 11 13 7 1 12 5)4 5 58 117 396 6 1 2 10 517 27 52 49 55 16 24 293 9 9 92 61 159 65 196 29 22 74 122 11 34 1 8 17 6 24 29 3 19 32 31 3 5 7 9 15 6 45 39 2 2 2 2 2 16 11 1 66 5 NOTE: Of the 1,923 branches located in head-office citis, 360 were operated by national banks, 1,051 by state bank members, and 512 by nonmember benks. Of the 979 branches located outside head-office cities, 29 were operated by national banks, 511 by state bank members, and 1439 bv nonmember banks. ,Z6 ( ( i 7411r C.-6 1-- re_J-A._ • BANKS OPERATING DOMESTIC BRANCHES ON FEBRUARY 25, 1927 (Population as of 1920; capital, surplus and undivided profits, and deposi ts as of iiMI,iisii 1926, in thousands of dollF.rs) St.5656d - 1 urplus Branches PODand unDeCapLoc, )tion ulaName of bank divided posits ital tion profits r ALABA"A Athens Decatur Ensley Georgiana Guin 3,323 4,752 Citizens Ban & Tr. Co. Tennessee Valley Dank g,200 Bank of Ensley 1,550 Butler County Bank 596 *7erion County Banking Co. TOTAL, 1 state bank member 4 nonmember banks ARIZO'TA Chandler Flagstaff Globe Phoenix Prescott Tombstone Tucson ARKANSAS Prescott Yellville Bank of Chandler Arizona Central Bank Old Dominion Bank *Valley rank Bank of Arizona *Cochise County State Bank Arizona Southwest 7ank United Sank & Trust Co. TOTAL, 2 state .bank members 6 nonmember banks 2,691 615 Eank of Prescott Citizens Bank TOT.AL, 2 nonmember banks CALIFORNIA Alameda Alhambra Alturas Alvarado Anaheim Antioch Auburn Citizens Savings Bank *First National Bank Modoc County Bank Bank of Alameda Co. Southern County Eank Bank of Antioch Central rank of California Placer County Bank Bakersfield 18,63S *First National 72ank *Security Trust Co. Balboa 5oo BPnk of 'Balboa Berkeley 56,036 Berkeley 'Bank Dishon 1,304 Inyo County rank Colusa 1,g46 Colusa County Bank Crockett 1,goo *First National Bank Fort Jones 331 Scott Valley Bank Grass Valley 4,006 Nevada County rank Guernovillo goo Sank of Guerneville Hermosa Eaach 2,327 First lank of Hermosa leach Jackson S. Bank of Amador County Lawndale S. First Exchange StLlto Bank Long Beach 55,593 *Californip Nntional :ank *Farmers & Marchants rank Los Anglles 576,673 *First National Tank *Mrch.pnts NPt'l Tr. & Say. *Pacific Yational .rank *Seaboard National T.:ank *United States National 'rank *Pacific Southwest *Security Trust & Sav. :ank Lank of Hollywood California 'rank Citizons Trust & Say. 7ank Metropolitan Trust Co. *Member bank. 3o 25n 26 388 348 6,456 200 25 25 205 24 54 4,421 425 416 4 1,080 g70 307 690 14,04g 9,g52 75 3o 105 87 11 9g 1,524 466 1,990 184 74 49 103 57 68 25 726 7 is3 ioo 3,177 2,373 1,238 2,247 1,057 1,276 1,493 1,g4o 1,512 10,595 S. 4,652 1,600 220 16 2,615 672 75 413 9oo F6. 12 13 238 14o 917 ,4,557 4,697 2 11 2 1 1 1 12 11 1 2 3 1 II 2 2 2 1 3 1 3 3 3 3 1 4,S09 480 415 2,070 255 3,866 10,50g 91,878 127,857 213 7,701 llg4,610 239 g,706 7,514 200,957 3 II 28 8 1 6 46 5,955 233,659 32 3o 1,702 11 2,15g 88,969 39 2,195 52,220 23 I. 6 53 17 • BANKS OPERATING D017STIC FHIP.UARV 21.5, 127 (Ponulation as of 1920; capital, surplus and. undivided profits, and deposits as of December 1926, in th-usands of dollars) St.5656d - 2 -Erinches Surolus PopOutIn Cap- and unulaLocation Name of bank H.O. sido ital divided DE-0°3i tion city H.O. profits citv CALIFORTIA(Cont'd) "ewzian 1,251 Bank of Newman 150 1,833 12 3 216,261 *Central National Bank Oakland 1,200 1 25,643 1,963 Central Savings Bank 1,200 1 31,369 1,937 Oakland Bank 61,434 10 •1,500 3,170 45,354 *Pasadena National Bank PasaCena 100 1,561 2 26 First Tr. & Savings Bank 900 682 11,889 2 Pinole 967 Bank of Pinole 125 121 1,956 3 quincy 520 *Plumas County Bank 4o 100 1 1,212 16,843 Mechanics Bank Richmond 200 256 1 3,069 Sacramento 65,908 *California National Bank 1,500 1,092 22,956 2 Crlifornia Tr. & Say, Bank 450 12,998 606 2 1 Farmers & Mechanics Bank . 350 405 8,485 1 4,30g *Monterey County Benk. Salinas 4,427 276 232 2 San Bernardino 18,721 San Bernardino County Say. Bk. 150 3,106 1 365 San Bernardino Valley Bank 21 175 1,906 2 74,683 First Tr. & Savings Bank San Diego 500 5,406 253 2 2 Security Comil & Sav. Bank 276 9E 1 2,575 San litancisco 506,676 *Bank of California, N.A. 8,500 85,262 9,186 3 *American Trust Company 5,500 32 60 5,299 174,061 *Anglo California Tr. Co. 1,500 2,175 64,936 7 *Bank of Italy 20,000 15,827 416,710 27 251 *French-American Bank 1,057 1,250 21,032 3 *United Bank & Tr. Co. 1,149 4,500 42,664 8 *Wells Fargo Bk. & Union Tr.Co.9,000 8,290 117,599 1 Banca Popolare Fugazi 1,057 187 19,113 2 2 Humboldt Bank 1,421 1,200 28,296 1 San Francisco Bank 3,450 107,227 4 1,000 #Hibernia Say. & Loan Society 77,4g1 7,302 2 San Leandro 5,703 State Dank 94 213 2,395 3 Santa Zonica 15,252 Marine Bank 4g 100 1,000 1 Santa Rosa 311 8,753 Exchange Bank 200 3,261 1 1,493 Analy Savings Bank Sebastopol 50 542 1 35 Stockton 40,296 Union Safe Deposit Bank 310 1,664 1 73 Susanville 918 Lassen Industrial Bank 150 1,366 2 38 Taft State Bank 3,317 1 75 3 593 Turlock 101 1,655 1 3,394 *Commercial Bank 75 Valley Ford 150 Dairyman's Coast Bank 200 105 1,918 2 4,147 Bank of Yolo Woodland 330 48 1,854 1 TOTAL,13 National banks 22,000 22,376 384,597 9 53 13 state bank members 61,526 49,312 1,300,065 149 396 46 nonmember banks 19,406 27,491 566,139 6o 97 DELAWARE Dover 4,o42 Farmers Bank 500 1,566 17,252 2 2,074 Sussex Trust Company Lewes 325 643 6,526 2 Selbyville )462 Baltimore Trust Company 100 163 1,878 2 Wilmington 111), 168 *Wilmington Trust Company 1 1,754 2,000 16,882 Delaware Trust Company 1,000 315 8,724 7 TOTAL, 1 state bank member 2,000 1,754 16,882 4 nonmember banks 1,925 2,687 34,380 13 DIST. OF COLUIMIA Washington 437,571 *District National Bank 1,000 919 8,763 2 *Franklin National Bank 225 4,249 325 1 *Lincoln National Bank 400 551 1 6,378 14 *Riggs National Bank 2,301 2,500 38,453 *Second National Bank 394 500 5,333 *Member bank. #lutual Savings bank.. BAIES DOILESTIC BRANOTS 25, 1927 (Populltion as of 1920; ca-ipital, surplus and undivi C1.3 et. profits, and c3.eposits as of December 190..), in tiaousnnas of dollars.) (3.4_. 5656d) 3 Branches air-11111S) ir.1 OutI Doand :Tame of bank Location 1.0. side ;T. ;osits und. ital (city H.O. profits, city Can-I (Cont'd) - IA S'2. OF CoLum, 437,571 American Soc. & Trust Co. 'Washington McLachlen 31n:d.ng Corp. & Tr. Co. Merchants Washir_gton Loan & Tr. Co. Washington hie chanic s Say:Bk. TOTAL, 5 national banks 5 no:mac:fiber banks 3,400 3.5o 4,490 5,156 29,273 1,455 9,535 1.3,625 1,sio 63,176 55,69 3,725 2,611 48,578 35,800 475 43 28 112 10 35 23 17 40 69 12: 3,37]. 187 323 2,214 • CTTORGIA Atlanta i,000 5o 4,625 5,600 4,000 200,616 *Atlanta &, Lowry Nat. Bank. 1,200 *Pourth National Bank i,000 52,548 Georgia Railroad B Au.gusta 230 Co. Tr. & Bank ck SW/ 14,413 *Bran Brunswick 25 Buford 2,500 Bank. of Buford 40 s 1,908 Farmers & Mo rc',annt Cairo 250 Tr. Co. 31,125 Columbus Say. 1317. Columbus 40 1,274 Cornelia Bank Cornelia anzr 100 7 . Coir.Da:al:in& Union ,401 3 Douglas 75 Dougla.sville 2,139 *Do-,-.:.glasvillo :Banking Co. 15 Citizens Folkston 30 Farmers Glenwood. 65 Co. *Greenville Brag:lug Greenville 100 Griffi 7.1 arlkiag Company Griffin 30 Farmer s Bank Hahira Mt. Vernon 33,ra: Mt. Vernon loo Bank *Farmers Pelham I. Bank City oirll *Nati Rome 3,000 Bazik Southern fc ze *Citi Savannah 230 Exc.:La:age (tic 25 Bezikers 1*Redwine Brothers, ' Senoia 5,400 onal banks TOTAL, 3 I 5 state b rank memb e rs 3,47o 1,920 13 nonmember banks 90',s 53 271 2,920 12S 8 6,507 3,189 1,o83 SIANA Alexondria Arabi Bogalusa Colfax Coushatta 234,C91 *Citizens Union "..17..t. BarLk. *Louisville National Ba.ak. *National Bank of Kentgc-17*Liberty Insurance Bank TOTAL, 3 national banks 1 stn.te bank member Grt.a.ra.nty Bank fe,„ Tr. Co. St. Bernard B ara & Tr. Co. First State Bank & Tr. co. B.3,nk. of Colfax Bank of Coushatta **Private bank. c. 3 2 9 2 - io,o148 3 1 1 - 310 - 2 2,S3'6 2 - 834 381 439 - 2 1 1 c)08 - 1 341 2,32S 51,o71 1,8g0 55 86,904 64,314 19,167 INDIA:LTA s Bank Farmer s & Clay Ci ty Compa.ny Trust Lincoln 1 86,51-39 Fort Wayne I ndianapolis 3.14,194 I*21etcher Savings & Tr. Co. Union Trust Company TOTAL, 1 state 'oa,nk member 3 nonrnoiab er baras ieNTUCKY Louiswine 4 1 1 1 1 2 1. 6 1 13 4 13 1 1 9 1 5 Low 5oo 2,5oo 5oo 4,coo fjoo 2,o23. 52o 4,073 1,374 6,614 1,374 650 50 6o 75 50 507 3g g2 23 11 25,852 9,275 44,431. 19,057 79,55s 19,o37 7,132 3c) -.: -.). 1,O1'.) ' 70-, 214 •••• 5 7 5 BANKS OPE1111FNG DOIEbTIC .-13. .a.k,iCH.LlaS ON EEBRT.T. 25, 1927 -(Population as of 1920; capital, surplus and undivided profits, and deposits as of December 1925, in thousands of dollars.) (St. 5696d) 4 Branches Surplus PopIn Outand CapDeside H.O. ulaLocation Name of bank und. posits ital H.O. tion city profits city LOUISIANA (Contld) Covington 2,942 Commercial Bank & Tr. Co. 50 Covington Bank & Tr. Co. 100 Crowley 6,108 Bank of Commerce 50 Denham Springs 500 Livingston Bank Si Franklin 3,504 Commercial Bank & Tr. Co. 100 Franklinton 064 Washington Bank & Tr. Co. 50 Gretna 100 7,197 Gretna Trust & Say. Bank *Jefferson Trust & Say. Bank 80 Haynesville 903 Planters Bank & Trust Co. 100 Homer 50 3,305 Homer Trust & Say. Bank Yumma 5,160 Bourg State Bank & Tr. Co. 50 Lafayette 7,55 Bank of Lafayette & Tr. Co. 250 Lake Charles 13,0SC *Calcasieu Nat. Bk. of Southwest Louisiana 1,000 Leesville First State Bank & Tr. Co. loo 2,5l Mansura S29 Peoples Svgs. 3h. & Tr. Co. 50 Many 663 Sabine State Lk. & Tr. Co. 50 Marksville 1,1S5 Avo-c,relles Bank 3c Tr. Co. 75 Morgan City 5,429 Bank of Morgan City & Tr. Co. 6o Napoleonville 1,171 Bank of Napoleonville 140 New Orleans 387,219 *Canal Bank & Trust Company 4,75o *Hibernia Balf.s & Irust Co. 2,000 t *Interstate Trust C'z Bank. Co. 750 1)walarine Bank a Trust Co. 2,000 Whitney-Central Tr. & Svg.Bk. 1,403 Opelousas 4,437 *Parish Bank & Trust Co. 50 Bk.&Tr. Landry 200 Opelousas-St. Port Allen 50 920 Port Allen Bk. a Tr. Co. 300 Shreveport 43,874 *Continental Bank & Trust City Say. Bk. & Trust Co. 500 50 St. Joseph 734 Bk. of St. Joseph & Tr. Co. 50 3,526 Bank of Lafourche Thibodaux 50 Trust Co. 1,256 Concordia Bank & Vidalia Ville Platte 1,364 *Evangeline Bank & Trust Co. 75 loo Winnsboro 1,176 Franklin St.Bk. & Trust Co. 50 Winnsboro St. Bk. & Trust Co. 1,000 TOTAL, 1 national bank 8 state bk. members 10,005 4,664 31 nonmember banks MAINE Augusta Bangor 14,114 Augusta Trust Company 25,978 *Merrill Trust Company Eastern Trust a. Bank Co. Bar Harbor 3,622 Bar Harbor Bank. & Tr. Co Belfast 5,083 Waldo Trust Company 6,064 InternPtional Tr. & Bank. Co. calais DtYviy:7-7-oxor of t 2,071 Kineo Trust Company Ellsworth 3,058 *Union Trust Company Fort Kent 4,237 Fort Kent Trust Company Guilford 1,587 Guilford Trust Company 31,791 Lewiston Trust Company Lewiston 1,586 Lincoln Trust Company Lincoln Old Town 6,956 Old TONT1 Trust Company 1 ,498 K-Itanuin Irust Company Patten Portland 69,272 *Fidelity Trust Company Casco Mercantile Trust Co Forest City Trust Company *Member bank. 300 500 175 loo 6o 50 loo loo 50 loo 75 25 50 55 400 500 150 30 107 1 6 145 77 53 43 144 64 11 285 700 1,553 319 500 1,129 1,105 1,363 1,105 2,984 1,482 184 2,747 11,698 253 2,106 lo6 950 13 16 559 887 38 1,282 55 525 70 76,552 3,316 52,122 2,720 13,863 1,429 1,302 26,253 25,552 1,117 527 18 132 3,251 222 16 4,951 216 8,546 5' 85 336 31 1,019 112 504 13 142 605 1,121 32 821 45 11,698 253 9,066 176,178 72,092 3,965 627 )485 9110 537 15 (C? 241 209 52 265 345 54 SG 54 1,057 577 56 10,771 11,s3c 6,622 3,795 843 1,350 2,006 2,964 762 2,340 7,)1)11 802 1,256 874 17,(e32 13,560 1,647 1 1 1 1 1 2 2 2 1 1 1 5 3 3 1 2 1 1 20 9 3 0 10 1 1 1 1 1 1 1 1 14 1 39 15 7 37 ^ 6 14 2 2 1 2 3 1 2 3 1 2 3 1 1 1 2 3 BANKS 077.11P.TC4 DO".E STI 3RA.\711-7S ON 171R7T-',P025 , 1927 (Population as of 1920; capital, surplus and. undivided profit s, nu. deposits as of December 1926, in thousands of d.ollq-rs.) - 5 St. _ :r3ranches Location Populationi N/2,1:10 of bank c • and -tind. I profi t ! t 1 Deposits In OutH.O. side city H.0. city ^ :f.AINT_': (Cont id.) 100 8,1091 Security Trust Company Rockland Cc. 200 Trust Rumford Falls 7,0161 umfor d. 100 Co:1-1.:7any Trust ord Sanford 10,6911*Sa.nf 50 5,9811 Skowhegan Trust Comigany Skowhegr.n 50 I pany Co.11,7931 Paris Trust South Paris 100 9,4531 Westbrook Trust Company Te stbrook 80 York County Trust Co. 8831 York Village i - TOTAL, L. state bank members 1,100 20 nonme;siber banks 2,370 2r..1RYLAITD Annapolis 11, 214 Annapolis Bank. & Tr. Co. 300 Baltimore 733,826 *Ci t ze us ilational inz 3,000 *Drovc:.rs & Mechanics 'Jot. Bank 600 *Farmers & Merchants Nat. Bank 650 *Merchants National Bank 4,00o *Baltimore Cornil. Bank 1,000 *Baltimore Trust Company 3,5oo Calvert Bank 200 Chesapeake Bank 50 Commercial Bk.. of Maryland. 100 Equitable Trust Company 1,250 Mercantile Sayings Bank 25 Union Tr. Co. of Maryland 1,000 #Commorcial Savings Bank iHuntingdon. Savings Bank +St. James Savings Bank #Provident Savings Bank 1,091 Harford Bank Be]. Air 5o Cambridge 654 7,467 Eastern Shore-Trust Co. Cho stertown .2,537 Chestertow-a Bk. of Maryland 27 Peoples Bank 25 Crisfield 4,116 Bank of Crisfield. 50 Marine Bank 50 7,1kton 2,660 Elkton Bank. C.'ic Tr. Co. 125 11,066 Central Tr. Co. of Maryland. 7rederick L'-00 Commercial State Bank Hagerstown 28 ,o64. Maryland Surety & Tr. Co. 250 ..1.eene Anne Bank Hillsboro 222 Hillsboro-q, 12 Hyattsville 2,675 Prince Georges 6o Overlea 100 Overlea Baia 50 Rockville 1,1145 Farmers Bank. ci rust Go. 55 Seat Pleasant 3,000 Southern Maryland Tr. Co. 200 Sparrows Point 4,800 Bank of Sparrows Point 100 Takoma Park 3,168 Takoma Park Bank 50 Towson 125 3,70c Baltimore County Bank iOTAL, 14 national banks ,250 2 state bk. members )4,500 29 nonmember banks 5;4 D8 41••• MASSACF.USETTS 100 12,967 *2ir st National Bank Adams Five Cents Sav.3k. +Arlington Arlington 18,665 100 Belmont 10,7)49 Waverly Trust Company +Belmont Savings Bank 100 22,561 Beverly Trust Company 7,everly 5,G00 Boston 748,060 *Atlantic :Tattonal Bank 400 *Boston 1Tatio4r1 Bank #Mutual Savings Bank. *!:ember bank. •••• 179 4,044 4,467 1,978 1,384 r,103 2,7140 53 1,887 902 3)4,662 70,068 181 405 136 83 76 150 5,634 1,277 457 3,002 486 4,204 357 136 12c3 1,627 33 1629 3S 3 114 555 32 7)43 74 35 244 29 56 Q714 91 609 61 111 44 92 96 170 150 49 2,261 - 4 1 1 1 1 2 2 2 10 39 2,1;7 2 32,821 16,723 7,511 50,619 11,122 1 1 2 2 3,0)41 1,256 20,231 1,56)4 25,1436 2 1 2 1 5 149,623 114 7,892 4 243 146 1,484 13,539 1,250 14,363 1,071. 728 2,162 5)43 1,657 7,924, 2,618 4,310 551 1,604 1,695 1,157 810 1,331 0.1 -1 5 1 1 1 1 12 1 3 20 - 3 3 1 1 1 3 5 3 3 1 1 1 1 1 1 1 1 2,298 1,617 107,679 6 60,745 19 6,373 125,288 33 55 10,370 4,690 146 58)4 97 107 68 4,769 100 781 6,527 1,932 1,310 1,352 1 2 1 1 1 112,137 3,920 7 1 3ANKS OPERAIIIG DOIESTIC 231:ANCIES ON FLMUAAII/5, 1927 (Population as of I92C; capital, surplus and undivided profits, and deposits as of December 1926; in thousam.s of dollars) Location Ponula tion Name cf bank Sur7aus and Capund. ital profits islASSACHUSETTS(ContU. ) Boston 748,060 *Citizens National Danic *Federal National Bank *First National Bank *National Rockland Bank *National Shawmut Bank *American Trust Company wBeacon Trust Company *Exchange Trust Company *New England Trust Co. *Old Colony Trust Co. *State Strcet Trust Co. Jamaica Plain Trust Co Roxbury Trust Company iBrighton Five Cents Sav.Bk. iDorchester Savings Bank #Grove Hall Savings Bank Brockton 55,254 *Brockton National Lank Plz:mouth County Trust Co. Brookline 37,748 Brookline Trust Company Cambridge 109,694 *Harvard Trust Company *Inman Trust Company Cambridge Trust Company Central Trust Company Fall River 120,485 Fall River Trust Company Fitchburg 41,029 *Safety Fund National Bank *Fitchburg Bank 4Fitchburg SavinL;s Bank Gardner 16,971 Gardner Trust Company Harwich 1,846 +Cape Cod Five Cents Savings Bk Holyoke 60,203 *Hadley Falls Trust Co. Lawrence 94,270 *Merchants Trust Company Lowell 112,759 #Liwell Institution for Sav. Lynn 99,148 *Security Trust Company Sagamore Trust C ompany 4Commonwealth Savings Bank #Lynn Five Cents Sav. Bank Medford 39,038 Medford Trust Company Mystic Trust Company i:16edford Savings Bank Melrose 18,204 Melrose Trust Company Needham 7,012 Needham Trust Company New Bedford 121,217 *Merchants National Bank *Safe Deposit Nat. Bank 4New Bedford Institute for Sav. Newton 46,054 *Newton Trust Company Newton Centro 6,000 .11ewton Centre Savings Bk. North Atleboraug7 #Attleborough SavinLs Bank Palmer 4Palmer Savings Bank Pittsfield :- #City Savings Bank Plymouth liPlymouth Five Cents Sav. Bk. Quincy *Quincy Trust Company GranitaTrust Company Rockland 7,544 Rockland Trust Company Somerville 93,091 Highland Trust Company Somerville Trust Company il4Somerville institution for Sav. *Member Bank. I#Mutual Savings Bank. --1 Branches OutDeside posits H.O. city 485 8,173 27,r35 510 24,307 26b,586 21,812 2,708 7,867 171,993 2,811 27,391 2,282 25,620 1,140 17,623 22,314 2,880 13,297 169,991 I. 64,432 4,672 152 44 477 271 95 682 125 422 1,189 187 420 1,579 192 650 513 1,155 116 250 566 574 1,241 634 67 123 1,187 222 10 551 129 193 1,949 846 2,861 1,223 139 1,153 562 467 475 167 667 381 130 I. 221 1,876 5,973 5,114 2,4o9 9,513 3,707 9,510 16,873 3,304 5,737 13,636 2,954 6,396 4,26o 14,355 2,953 2,64g 10,838 8,628 11,752 8,031 1 5 11 2 1 1 1 2 2 2 1 1 1 1,918 2,208 13,42S I. .51 5,990 2,684 2,455 9,752 7,231 30,283 14,312 2,095 11,078 5,325 8,603 4,391 5,151 4,88'3 4,240 3,699 6,og2 4,606 1 1 2 1 3 5 1 1 1 1 1 1 2 1 1 BANKS OPERATING DOMESTIC BRANCHES ON FEBRUARY 25, 1927 (Population as of 19241,apital, surplus and undividedlikfi ts, and deposits as of December 1926, in thousands of dollars.) (St5656d)- 7 Branches Surplus In OutPopand CapH.O. side Name of bank Location ula-, posits city H.O. ital undtionJ profits city MASSACHUSETTS(Ccnt,)1 South Weyloo mouth 4,0001 Weymouth Trust Company 500 Bank National ,614 *Chapin Springfield125 Co. 1,000 (*Third Nat. Bank & Trust 350 I Commercial Trust Company Uxbridge 5,384,Nxbridge Sayings Bank Wakefield 13,025,Wakefield Sayings Bank 300 Waltham 30,915 *Waltham Trust Company 4co Bank Nat. Market Watertown 21,457(*Union Ware 8,5254Ware Sayings Bank Tareham 4,415l#Wareham Savings Bank 150 Wellesley 6,224I*Wellesley National Bank Whitinsville 4,5001-:7=lhitinsvi1le Sayings Bank 1,500 Torcester 179,7541'r.:ercilants .at., Bank 1,500 *Torcester Bank & Trust Co. 300 Bancroft Trust Co=any . v7orcester County Inst.for Say,_ .45,900 10'21;1,17 natio - 1 tns 16 st- to ivnk m=bers24,c;00 3,825 46 nonmo,2br b - nks MICHIGAN Adrian Albion Alpena Ann Arber 125 584 1,905 167 93 267 474 2,008 7,102 16,332 3,865 2,918 3,794 6,945 9,155 5,780 4,785 3,364 4,701 26,740 33,032 4,052 42,106 647 178 447 319 )431 771 2,241 176 3,956 49,045 710,822 314, 102 433,748 22,933 290,113 2 3 1 1 1 1 2 1 1 3 1 3 49 27 1 41 15 1 1,800 189 150 *Adrian State Bank 1 728 11 50 *Albion State Bank 1 3,573 100 387 *Alpena County Say. Bank 1 193 200 3,553 *Farmers & Mechanics Bank 1 6,159 408 400 Bank 1 Ann Arbor Savings 3,84 15 20 471 'slake County Bank Baldwin 1 316 5,367 500 Battle Cro'-:36,164 *City National Bank 1 155 250 3,873 Merchants Sayings Bank 2 287 4,939 47,554 *Bay City Bank 350 Bay City 1 8,300 850 400 *Peoples Comil. & Say. Bk. 14 6,390 310 400 Bay County Savings Bank ***2 7,239 99,165 7,500 993,678 *First Nat. Bk. Detroit 1 16,203 1,070 2,000 *Griswold National Bank 1 59,051 3,222 2,000 *National Bank of Commerce 24 31,542 1,006 2,000 *American State Bank 17 4,000 1,451 *Bank of Detroit 35,925 29 2,132 2,000 *Central Savings Bank 25 38,329 1,500 2,735 Bank *Detroit Sayings 24 bo,53 1,500 3,559 *Dime Sayings Bank 15 21,130 925 2,500 *First State Bank 2,500 2,055 46,735 29 *Peninsular State Bank 6,000 14,166 134,108 46 *Peoples State Bank 5,000 10,512 104,735 45 *Wayne County & Home Say.Bk. 8,079 238 1,000 Comtl. State Savings Bank 14 14,655 448 750 Say.Bk. Commonwealth-Federal 4 2,527 62 250 richigan State Bk. 2 1,754 25 53 Northwestern State Bank 1 1,388 48 100 4,3r)4 Ecorse State Bank Morse 1 7,275 200 585 Bank I'lational *First Flint 91,599 1 6,246 497 450 *Citizens Comil. Say. Bank 10,877 3 730 500 *Genesee County Say. Bank 6 14,645 45o 1,000 Bank Sayings *Industrial 1 87 1,970 100 1,515 Union State Bank Fordson 1 2,092 149 100 Grand Haven 7,205 *rand Haven State Bank 18,332 9 1,000 605 I *Grand Rapids Nat. Bank Grand Rapid F.) 137 , 15 21,685 927 503 1*Grand Rapids Sayings Bank 20,657i 12 1,057 1,000 i*Kent Stat,?, Bank Bank. Savings Mutual **Private Bank. *Member bank. ***Deposits also received at branches of Central Savings Bank, an affiliated Institution. 11,878 8,354 11,101 19,516 63)4 ^ 1 ^ BANKS C7E11:111VG DO},2STICANCIMS ON 171.2.1-14111p5, 1927. (Population as of 1920; capital, surplus and undivided profits, and deposits as of December 1023, in thowands of dollars) St. 5653a) - S Branches Surnlus In GutPopDeand. CapH.O. side Location Name of bank ulaital • und. _posits city H.O. !profits tion city MICHIGAN (Cont'd) Grosse Pointe Park 1,355 Hamtramck 45,615 Highland Pai146,499 Ionia Ironwood Jackson 4alamazoo Lansing Lenox Ludington 6,935 15,739 45,374 45,457 57,327 350 8,810 Menominee Monroe Muskegon 8,907 11,573 36,570 Oscoda Plymouth Pontiac 564 2,557 34,273 Port Huron 25,94)4 Saginaw 61,903 1,288 Shelby Three Rivers 5,209 13,851 Tyandotte Jefferson Sayings Bank 100 100 First State Bank 100 Liberty State Bank 4ctrchants & Mechanics Bank 10 *American St.Bank of Highland Park 200 1,000 *Highland Park St. Bank 100 Peninsular State Bank *State Savings Bank 100 100 *Merchants & Minors Nat. Bank 400 *National Union Bank Goo Kalamazoo Trust & Say. Bank 750 *American State Say. Bank 50 *Macomb County Say. Bank 100 *First National Bank 100 *Ludington St. Bank 100 *Commercial Bank 200 *Dansard State Bank 400 *Union National Barth: 100 Peoples St. Bk. for Savings 100 Bank 6av. idiuskegon 20 Bank • Oscoda State Say. 100 Plymouth United Savings Bk. 400 *First National Bank 800 *Pontiac Comil. & Say. Bank IK)0 *Federal Comil. & Say. Bank 150 U. S. Savings Bank 1,250 *Second National Bank 200 *American State Bank 1,000 4(.3ank of Saginaw 23 )°11Churchi11 & Wilb er ,Banke r s 6o First State Sayings Bank 400 Wyandotte Sayings Bank 15,850 Total, 12 national banks 33 state bk. members36,700 5,255 24 nonmember banks MINNESOTA I J.aneapoli s 350,552 *71.r st National Bank *7orthwestern Nat. Bank Tote'.1, 2 national banks ; lid SSI SSIPPI 1,050 Bank of Batesville Batesville Bay St.Loui s 3,033 Hancock County Bank Blue Mountain • 654 Bank of Blue Mountain 3,402 *Grenada Bank Grenada Holly Springs 2,113 Merchants & Farmers Bank 22,817 The Merchants Bk. & Tr. Co. Jackson 2,051 Merchants & Farmers Bank Macon 3,340 *Pascagoula Nat. Bank Moss Point 6,082 Merchant & Marine Bank Pascagoula 5,055 Bank of Tupelo Tupelo Peoples Lank & Trust Co. Total, 1 national bank I 1 state bk. member • 9 nonmember banks **Private bank. *:,iembor bank. 30 120 39 41 120 1,796 150 114 20 33b 346 410 34 34 69 37 59 300 16 145 166 175 364 314 111 1,720 228 1,339 5 27 364 15,602 49,152 3,354 925 1,595 1,332 1,126i 4,294 2 7 1 1 60 25 139 20 250 20 21 458 145 450 75 75 75 864 100 ls 17 55 750 1,932 310 7,183 1,240 8,029 925 1,299 1,067 2,172 3,423 1,299 7,163 19,848 50 100 200 75 8 041 160,9)46 8,6149 152 18 458 1 ,5_9_ 1 1 3 2 9,693 1,176 1 1,679 1 2,072 1 1,309 1 2,584 1 3,199 1 952 1 2,344 (r) 1 2,630 1 7,077 2 15,255 4 6,559 2 2,833 1 13,825 1 4,459 16,536 3 0,) 1 1,521 1 7,049 238,796 20 707,460 324 79,215 52 52,905 9,500 2 25,651 2,843 1,419 1,008 6,b12 6,241 5,900 2 4 5,500 4,000 1 1 3 250 1,050 (a) 7ot -vailable. 2 ^ 1 1 1 6 3 3 6 1 1 1 1 2 2 1 BANKS UERIIVG DMESTIC ',21- 11TCHES ON F12.UA41,29, 1.927 (Population as of 1920; ca2ital, sur-flus and undivided profits, and (1.e.1)osits as of December 1926, in thousands of jolThrs.) St. :- .6155L) - 9 Branchec 1 Surplus PopIn OutDeand Capalaside H.O. of Location Name bank posits ital I und. tion city H.O. 'profits city , NEBRASKA 64 3,500 1 450 Omaha 101,601 *Live Stock National Bank 3,205 1 Packers National .banic 200 13q 2 7,005 203 Total, 2 national banks o50 NEW JERSEY 400 Asbury Park 12,400 Asbury Park & Ocean Grove Bk. 500 Bayonne 76,754 Mechanics Trust Company loo Camden 116,309 *Camden National Bank 1,000 *First National State Bank 200 Security Trust Company East Orange 50,710 *Sav. Investment & Tr. Cc. 750 900 Essex County Trust Co. 750 Co.Nat.3k. Hudson LI Trust Jersey City 298,103 *Union 2,000 *Commercial Trust Company *N. J. Title Guarantee & Tr.Co. 1,300 3,000 Trust Co. of New Jersey 500 414,524 *Ironbound Trust Company Newark Soo 7:ompany Trust *Hamilton Paterson 135,75 1,000 Company Trust *Hudson City 63,117 Union 1,550 Total, 3 national banks 0,150 6 st. bank members 4,5oo 5 nonmember banks NEW YORK Albany 1,500 113,344 *Nat. Comtl. Bk. & Trust Co. 1,000 *First Trust Company 750 506,775 *Canmunity Nat. Bank Buffalo 3,500 *Liberty Bank of Buffalo *I.:anufacturers ec Traders Tr.Co. 3,000 10,000 *Marine Trust Company 1,000 *Peoples Bank of :uffalo 20 Sons & S. "Lunghino, 250 25,680 *Kingston Trust Co. Kingston 500 42,726 Mt. Vernon Trust Company Mt. Vernon 250 New Rochelle 35,213 Huuenot Trust Company 3,000 New Iork 5,620,045 *Bowery & East River Nat. Bk. 300 (Bronx) *Bronx National Bank 2,000 Bank National *Capitol 40,000 *Chase National Bank *Chatham c3c Phenix Nat.Bk/Tr.Co. 13,500 4,500 *Chemical National Bank 1,000 (Brooklyn) *First National Bank 200 (FLI9hing) *Flushing National Bank 1,500 *Hamilton National Bank 200 (Jamaica) ,*Jamaica National Bank 1,500 :*Liberty National Bank 50,000 0'..5ationa1 City Bank ' 10,000 !*National Park Bank 200 (Ozone P1-.) *Ozone Park Nat. Bank 5,000 *Public National Bank 200 (R2chmond Hill) *Richmond Hill Nat. Bank 200 Bank Nat. Beach (Rockaway Bch) *Rockaway 6,000 Bank l*Seaboard National 1,000 l*Seventh National Bank 500 (Port Richmond) *Staten Island Nat.Bk.&Tr.Co. *Lrierican-Exchange Irving Tr.Co 32,000 4,000 *Am,rican Trust Company 1,500 *American Union Bank **Private bank. *Member bank. so6 611 627 1,627 567 757 485 1,C22 2,670 1,591 3,708 766 582 3,c33 3,275 9,432 6,180 7,478 10,56 6,962 21,823 4,919 15,790 9,289 23,150 55,760 25,609 55,605 19,773 12,305 33,703 51,965 160,960 90,859 1 1 1 2 1 1 2 1 1 1 5 4 4,103 33,543 1 1,927 25,415 2 654 14,325 5 5,932 60,961 10 5,259 87,169 9 17,644 201,927 32 28,341 1,504 901 125 1 5,326 435 2 17,45 807 1 5,509 213 3,525 67,362 14 8,656 1 384 1,003 26,785 6 42,442 840,193 20 13,329 252,909 13 19,061 157,987 2 1,447 17,536 1 198 3,655 1 591 15,924 4 3,678 1 167 549 14,205, 1 73,925 859,O7)4 j 18 24,319 170,372 2 1 2,503 152 27 110,294 8,159 145 5,335 2 1 2,111 so 11,101 173,158 2 1 9,206 339 2,670 1 1 161 30,960 520,321 23 3,597 53,942 5 702 12,553 2 1 2 1 3 3 5 1 BAS OP.16. 1.,2A1CHES ON iBRU.25, 1927 (Population as cf 1920; 0,Tpita1, surplus and undivided profits, and de7)osits as of December 1926, in thousands of dollar.) (St. 516d) - 10 Branches Surplus In OutPopDeCapand side H.O. Yazie of bank Location ulaposits ital und. city H.O. tion Profits city NEW YORK (contld) 5,620,048 1Q/71t . N '7.' 20,000 *Bankers Trust Company 6,500 *Bank of America 200 Island (Coney Is) *Bank of Coney 10,700 *Bank of the Manhattan Co. *Bank of New York & Tr. Co. 4,000 5,000 *Bank of United States 2,000 (Brooklyn) *Brooklyn Trust Company I*Central Mercantile Ek.&.Tr.Co. 2,500 *Central Union Trust Co. 12,500 soo *Commonwealth Bank 10.000 *Corn Exchange Bank 30,000 *Equitable Trust Company 10,000 *Farmers Loans & Tr. Co. 4,000 *Fidelity Trust Company 25,000 *Guaranty Trust Company 10,000 *Ylanufacturers Trust Co. 2,150 (Brooklyn) *Mechanics Bank 1,000 (Brooklyn) *Midwood Trust Company 2,000 Bank (Brooklyn) 10,000 *New York Trust Company 3,000 *U.S. Mortgage & Tr. Co. 300 Bank State Atlantic (Brooklyn) 1,000 Tr.Co. Italiaaa Banca Com'l. 400 Bank of Washington Heights 150 (Bronx) Bronx Borough Bank 1,000 (Bronx) Bronx County Trust Co. 1,500 Chelsea Exchange Bank 1,200 Colonial Bank 1,500 Commercial Exchange Bank 600 (Bronx) Cosmopolitan Bank 4,000 Company Empire Trust 1,000 Greenwich Bank 200 Harlem Bank of Commerce 3,000 Lawyers Trust Company 250 Standard Bank 5,000 State Bank 10,000 Title Guarantee & Tr. Co. (Brooklyn) +:.Bay Ridge Say. Bank (Bronx) #Bronx Savings Bank +Central Savings Bank +Emigrant Indust'l. Say. Bk. (Brooklyn) +Greater N.Y. Savings Bank Oreenwich Savings Bank 7Atnlian Savings Bank (Brooklyn) lings County Savings Bank (Brooklyn) +Lincoln Savings Bank (L.I.City) #Long Island City Savings Bk. +Manhattan Savings Inst. (Flushilig) +Zueens County Savings Bank 100 (Brooklyn) **Sossa, Jos. Bank Savings (Brooklyn) +Williamsburgh 500 **Perera, Lionello & Co. 10 **Tarabella, C. & Co. Niagara 50,760 *Power City Bank Falls North Tona15,482 State Tr.Co. wanda **Private bank. *Member bank. (a) Not available. 1,000 37,148 5,265 210 150586 13,174 4,658 5,255 2,025 32,756 650 15,221 22,14 20,798 3,225 25,959 15,647 3,607 506 1,214 23,656 5,272 1G0 876 1,031 865 go6 896 3,305 1,000 359 4,176 2,580 150 3,415 469 5,682 18,662 1,175 1,286 23,543 38,801 1,873 16,286 2,587 2,494 6,893 4,332 2,619 1,475 395 24,262 727 7 11.21,626 168,062 4,7o6 261,909 103,354 63,953 56,410 39,933 272,08s 16,094 241,311 347,349 146,942 53,094 560,553 214,382 56,398 10,147 26,625 278,647 78,336 1,815 10,540 10,448 9,532 15,966 17,640 37,499 (r.) 9,383 76,476 28,285 2,585 22,644 7,941 114,169 45,680 20,810 18,610 146,460 286,887 35,676 115,377 29,128 27,268 79,792 39,525 25,000 14,451 3,873 166,121 11,804 71 896 15,795 7,155 459 600 bank. Savings +Mutual 2 7 1 4o 1 • 4 5 2 3 62 3 2 14. 2 14 10 3 8 2 14. 2 1 2 1 3 5 12 1 3 2 10 1 1 1 13 5 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 ^ BAJHS 07,22111vG D0:7STIC OM TDRacter, 1927 (Popul.ation as of 1920; caital, sur.07.-as and -andivided proiits, and deposits as of December 1926, in thousands of dollars.) 1St. 9595d1- 11 ..:,rancncs Surplus :op. i In OutDcCa-)and Name of bank Location H. T. side 7posits ital und. tion city H.O. -)rofits city 7.7.17'7 YORK (cant 1J) T 3,SO4 52,660 905,790 *TAncoln-Mianco 7-mk 2,000 Trust Comoany 118,175 1,01 Union 2,20') 3LLi 1 52,793 yRoclacst3r Savins Dank 1 16,493 1 1,140 Schenectady 8d,723 *Schnlectady Trust Corn any 500 1 4,501 1 182 300 Syracuse 171,717 *Liberty Jational Bank 3 30,074 1,420 *City Bank & Trust Com)any 2,500 5 50,351 *irst Trust & Deposit Co. 2,027 2,500 1 36,186 1,497 1,500 *Syracuse Trust Company 1 28,097 1,652 Troy 1,000 72,013 *ManrIfacturers Fat. Bank 5,368 2 1,000 Utica 91 ,156. *Utica Nat. Bank & Tr. Co. 377 1 17,240 1,235 *Citizens Trust Co. of Utica 1,000 2 18,579 2,373 I *1:irst Bank & Tr. of Utica 1,500 2 14,547 555 *Utica Trust & Deposit Co. 1,000 7,096 1 7:atertown 31,285 *Jefferson County Mat. Bank 500 579 9,850 1 300 570 100,176 *First jational Bank 7onkers 7,167 2 *Yonkers vat. Bk. & Tr. Co. 2(:)10 298 2 8,151 162 Yonkers Trust Company 330 Total, 26 national banks 146,350 209,792 2,061,753 133 39 st. b diemburs 241,100 338,533 4,812,571 293 39 nonmember banks 35,630 183,165 1,571,675 91 1Rocbestr-r - JORTH CAROLINA Aberdeen 855 Ahoskie 1,429 Asheville Avondale Biltmore Ponlee Chapel Hill Concord . .Durham 28,504 525 172 170 1,483 9,903 21,719 Elizabeth City 0,925 Erwin 5L-D Fayetteville 8,e77 Forest City 2,312 Gastonia 12,871 Greensboro 19,861 Greenville 5,772 Hendersonville 3,720 Leaksville 1,603 Marshall 74g :.00resboro 226 ._jt. Airy 4,752 Mt. Olive 2,297 New Bern 12,196 Rutherfordton 1,693 Shelby 3,b09 Stanley 58L: Tarboro 4,568 Wallace 648 Walnut Cove 651 Wendell *Member bank. Page Trust Company 250 47 Bank of Ahoskie Farmers Atlantic Bank 70 Central Bk. & Trust Co. 500 Haynes Bank 50 Biltmore - Oteen Bank 35 Peoples Bank & Trust Co. 26 Bank of Chapel Hill 30 Cabarrus Savings Bank Fidelity Bank 100 Mechanics & Farmers Bank 114 Merchants Bank 100 *Carolina Bank. & Tr. Co. 270 Bank of Harnett 35 La Fayette Bk. & Tr. co. 50 *Farmers Bank & Trust Company 250 400 Commercial Bk. & Trust Co. *American Exchange National Bk. 1,000 Atlantic Bank & Trust Co. 1,250 Greenville Bank. & Tr. C. 100 First Bank & Trust Co. 150 Luaksville Bank & Trust Co. 100 Citizens Bank 50 Farmers & Merchants Dank 23 Surrey County Loan & Tr. Co. 25 Citizens Bank of Mt. Olive 50 astern Bank & Trust Co. 145 Citizens Bank & Trust Cc. Union .irust eompany 2armors 6e. Merchants Bank *7:armers :Banking & Trust Co. Bank of alxplin Bank of Stokes Caunt7 Bank of Wendell Mutual Savings bank. 166 47 1 0 1 2 1 1 1 1 103 150 4,938 443 679 17,960 311 867 202 1,403 3,600 1 _ _ 990 16 159 7,165 500 1,847 - 12 ;14 _) 26 281 Q47 770 655 - 1 2 1 1 116 512 2,533 1,885 10,399 - 1 4 977 10,287 75 106 1,742 - 4 1 2,600 454 1 1 1 15 560 21 19 7 11 2 1 3 1 1 - G48 - 1 - 1 1 1 51 182 125 600 2,151 So 38 609 - 2 100 17 10C 25 63 617 _ 3 15 76 300 834 1 -1 50 70 885 1,750 1 44 100 31 37 5 r 6 Go 5 _ - 3 4271 - 1 BS OiApti DOM'ESTIC 2RA1CH:S ON ri.)RUAllip, 1927 (Poplation as of 1920; capital, sur:?lus and undivided profits, and deposits RS of December 192O, in thousands of dollars) st. 66d - 12 i 1 Branches Surplus PopIn OutDeand CapName of bank ulaLocation side H.O. posits ital und. tion city H.O. profits city NORTH CA-3.0LINA(Con.) Bank of 1Nhiteville i,66 Whiteville Wilson 10,612 Branch Banking & Tr. Co. Planters Bank WinstonSalem Liz,395 *Farmers Nat. Bank & Tr. Co. *Peoples National Bank *Wachovia Bk. & Tr. Co. Total, 3 national banks 4 st. bk. members 33 nonmember banks 300 150 2,175 1,45o 2,775 4,821 OHIO Akron 1,000 208,435 *Central Say. & Trust Co. 250 100 500 *Depositors Say. & Tr. Co. 1,500 Bank a Say. *First Trust 300 Commercial Say. & Tr. Co. 500 Ohio St. Bank & Tr. Co. Count7 6o Berea of Bank Berea 2,959 50 Berlin Heights 514 Berlin Heights Bank. Co. 250 Canton 87,091 First Tr. & Savings Bank 500 Cincinnati 401,247 *Brighton Bank & Tr. Co. 2,000 Company *Central Trust 1,000 *eifth-Third Union Tr. Co. 400 *Pearl Market Bank *Provident Say. Bk. & Tr. Co. 1,620 1,000 *Western Bank & Trust Co. 500 Bank of Commerce & Tr. Co Co. Tr. & Bank Cosmopolitan 350 loo Oakley Bank 200 Peoples Bank & Say. Co. 250 Washington Bank & Say. Co. Cleveland 796,841 *Brotherhood of Loco. Engineers 1,000 Cooperative Nat. Bank ',goo Bala National *Central 8,600 (*Cleveland Trust Company 4,000 l*Guardian Trust Company 1,500 *Pearl St. Say. a Tr. Co. 2,850 *Union Trust Company 271 Merchants Tr. & Say.Bk. 125 North American Bk. & Sav.qo. 150 Washington Savings Bank 300 Commerce 237,0311*City-National Bk. of Columbus 1,500 *Citizens Tr. & Say. Bank Columbus 60 Grove 1,7681 Peoples Exchange Bank 125 Co. Tr. & Loan Mutual *Conneaut 9,343 Conneaut 250 152,559 City Trust & savings Bank Dayton 600 Dayton Say. & Trust Co. 250 17i-021 *American-First Nat. Bank Findlay 400 Bank • Buckeye Comll. Say. 50 5,842 Citizens Bank Jackson 400 41,326 1 Lima Trust Company Lima 50 4,007 *First National Bank Lockland Martins 200 11,634 Peoples Say. Bank Co. Ferry 45 iiarysvilie 3,635 Union Banking Company 150 Middletown 23,774 *American Tr. & Say. Ban_ 125 Co. Tr. & Say. *Minerva 2,261 Minerva *Lember bank 10 346 660 2,566 28 783 52 43 2,252 2,256 1,539 40,176 1)4,194 4)4,)490 70,656 6o7 2,621 14,508 870 563 2,568 359 647 go 31 400 367 2,527 5,242 556 1,520 1,513 155 303 131 323 119 1 14 1 1 1 14 14 3 58 14,932 8,259 1 28,641 4 5,139 3 9,505 1 2,154 834 11,030 4 15,078 2 21,061 4 34,754 11 9,577 2 31,802 11 16,806 2 3,917 3 8,418 2,877 1 4,919 3 3,014 1 1 398 23,173 1 3,460 43,752 1 5,340 205,201 40 5,915 119,115 0 1,091 27,885 3 14,014 286,461 14 1,934 1 73 3,467 1 178 2,276 77 1 5,802 505 754 25,495 11 120 750 3,098 7,157 17,982 3,455 5,202 786 4,913 2,344 345 3,192 25 83 535 _ 2,475 2 51 1,31 18 135 173 754 201 125 20 342 1 1 1 1 1 12 4 14 1 1 6 4 1 1 1 1 1 1 1 BANKS OP717ATI7G DUESTIC B1A7C7ES ON 772RUARY 25, 1927 (Population as of 19241kapita1, surplus and undiyidedlikofits, and de7)osits as of December 1926, in thousands of dollars) (St. 5656d) - 13 Branches In Out and PopCapDe- IH.O. und. Name of bank Location ulaposits Icity H.O. ital profits tion city OHIO (Cont 'd) Toledo 2)43,164 *Ccmmerce-Guardian Tr.ScSay.B1r.. 1,400 200 *Com'l. Say. Bk. & Tr. Co. 5,000 *Toledo Trust Company 300 Dime Soy. Bank & Tr. Co. 1,000 Ohio Say. Bank Se Tr. Co. 200 Peoples Bank & Trust Co. 500 Security Say. 317.. dc Ti'. Co & Tr.Co. 300 Troy 7,20 *First-Troy Nat. Bo 1,000 Youngstown 132,358 *Cit: Trust & Sayings Banlf. 2,500 *Dollar Sayin,s-s & Tr. Co. Total, 6 national banks 3,700 50,470 22 st. bk. members 7,411 25 nonmember banks 1,432 oil 3,605 453 2,661 150 1,208 214 1,387 2,189 4,590 52,433 9,350 25,4481 4 15,065 10 35,192! 1 10,0001 5 41,728' 10 2 2,500 b 13,246 1 2,984 10,554 19,932 3 81,510 959,272 131 167,481 59 1 1 1 28 6 OREGON 1,747 *First National Bank 50 21 L.. A. PENNSYLVANIA Altoona 60,331 *7irst National Bank *Second National Bank Ardmore 3,700 iderion Title & Trust Co. 50,358 E.P. Wilbur Trust Co. Beth14hem .nk ,, ' Chester 53,030 *Delaware County National 2 *First National Dank *Pennsylvania National Ernk *Cambridge Trust Company Delaware County Trust Co. Trust Co. Conshohocken 451 5 Conshohocken Trust Co. & Bank Erie 93,372 Peoples Glenside 1 500 *Glenside Bank c'z Trust Co. Glenside Trust Company Hazleton 32,277 *American Bank Cc Trust Co. Johnstown 67,324'*First National Bank U. S. Trust Company McKees Rocks16,713 *First National Bank 4,109 Media Title & Trust Co. Media Norristown 32,319 *Norristown Penn. Tr. Co. 150 100 750 66o 650 200 150 500 500 125 200 300 250 400 400 320 loo 250 1,000 Philadel500 phia 1,523,779 *Broad Street :ational Dan:: 1,500 Bank 7ationa1 *Central 2,700 *Corn Exchange Nat. Bank 1,000 Bank Nat. *Drovers & Mer. 1,950 *First National Bank 6,000 Bank *Franklin Fourth St.Nat. 500 *Manayunk National Bank 40o *Northern National Bank 300 40yerbrook National Bank NPhiladelphia-Girard Nat.Bank 5,000 500 i *Southwarkational Bank 500 Dank *Tenth National Tr.Co.5,000 & America 1*Bank of North 1,000 *ColonialTrust Company 6,700 *Fidelity-Philadelphia Tr.Co. 750 *Ninth Bank & Trust Company 500 *Oxford Bank & Trust Co. *Penn. Co. for Insurance on Lives 4,00o & Granting- Annuities 2,000 Company *ProvicLeat Trust Title *The 'Nest Philadelphia 500 & Trust Com-oany *ember bank. 527 601 1,269 221 1,322 334 973 1,643 12 328 153 06 496 1,706 66 292 687 1,357 4,575 3,294 8,575 5,944 5,165 1 1 2,311 2 1 3,239 6,48 5,1)-49 455 6,214 2,531 800 4,811 14,277 4,234 3,266 4,197 0,491 2 2 1 1 1 1 1 1 1 1 1 1 524 7,733 5,973 39,702 8,400 74,163 3,042 325 4,990 55,614 18,511 133,520 1,456 8,653 8,6-74 797 3,6o0 95 200,188 2o,A.7 9)48 12,540 4 7,25 752 6,604 49,658 1,382 13,321 2 1 1 1 2 1 1 1 1 1 1 1 1 14 560 32,342 16,517 6,097 1 't 15,277 11,050 71,547 15,955 1 1 25,093 2,080 99A g,720, 1 02iiirIIG DOLIESTIC DEAUCHES ON FELRU 4" Y 25, 1927 (Population as of 1920; ca-pital, surplus and undivided profits, and deposits as of December 1926, in thoasands of dollars) Location Population Name of bank Sarplas Oapand ital und. profits Deposits Branches In OutH.O. side city H.O. city PENNSYL1rANIA(Con t Philadelphia 1,823,779 Bankers Trust Company Belmont Trust Company Broad St. III' Company Central Tr. & Sayins Co. Chelten Trust Company Columbus Title & Tr. Co. Empire Title & Tr. Co. First Trust Company Fox Chase Dank & Tr. Co. Franklin Trust Company Germantown Trust Company Guarantee Tr. & Safe Dep.Co. Integrity Trast Company Kensington Trast Company I Manayunk Trust Comany Metlitan ropo 2r.r_st Co. Mitten :Aen & Management 3ank & rsSO Mutual Trust Company Northern Central Tr. Co. Oak Lane Trust Company Olney ank & Trust Co. Real Estate Title Ins.&Tr.Co. Southwark Title & Tr. Co. Susquehanna Title & Tr. Co. Tacony Trust Company Tioga Trust Company United Sec. Life Ins. & Tr.Co. 1,000 i4Beneficial Say. Fund Society I li:First Penny Savings Bank Sav. Fund Society 'iSavings Fund Society, of Germantown and vicinity iWestern Say. Fund Society Pine Grove 1,778**Pine Grove Bpnk Pittsburgh 588,343 Franklin Sav. & Trust Co. Peoples Say. a Trust Co. Reading 107,784 *Reaainj: E!'Atoacf.1. Lah. *Berks Ouunty Trust Co.' *Northeastern Trust Co. Pennsylvania Trust Co. Salix 200 Salix State Bank Upper Darby 500 Suburban Title & Tr. Co. Williamsport 36,193 *Lycoming Trust Company *Susquehanna Trust CompaAY Total, 20 national banks 16 st. bk. members 46 nonmember banks l RHOD3 ISLAND Providence 257 271 32g 1,435 348 111 129 3 382 2,938 2,16o 1,317 4,o71 1,406 564 249 247 779 215 377 448 4,153 208 24 305 156 1,232 2,823 9g1 15,088 1,97g 6,621 3g 345 8,563 1,4o5 1,367 3oo 2,537 25 141 521 7G4 7o,o6s 72,533 67,565 237,595 12,266 4,791 1,795 1,569 2 2,295 32,473 18,468 12,575 17,429 12,9914 3,211 3,483 9,884 9,410 3,76g 2,267 6,986 12,23 1,709 551 2,203 1,4o3 6,416 31,g37 17,610 225,35o 2o,529 54,8og S. 3,323 29,s86 12,599 6,827 2,844 13,975 242 1,838 14,477 S. 6°7,683 314,933 624,004 *Providence National Bank 7,920 1,222 850 *ColuMbus Exchange Bank 2,636 121 200 *Industrial Trust Company 4,000 g,1,35 138,793 *Rhode Island Hospital Tr.Co. 3,000 7,916 97,323 *Union Trust Company 1,096 22,3oo 1,000 #Providence Institution for Say. 2,301 43,064 qreenville 990 iSmithfield Sayings Bank 7o 792 ,gakefield 2,7% Wakefield Trust CompanY 243 100 3.985 *Member bank. **Private bank. iMutual Savin_s bank. • L 2 3 4 2 2 2 1 3 5 2 2 4 4 27 27 2 68 6 BANKS OPERATING D01,ESTIC BRAITCHFS ON P7PRUARY 25, 1927 ,r. (Population as of 1920; capital, surplus and 71.ndivided as of December 1926, in thousands of dollars) fits, and deposits (St. 1-i656d Population Location aHODE ISLAND (Cont'd) Westerly 9,952 .joonsocket 43,496 SOUTH CAROLINA Aiken Charleston Chesterfield 1orence !larion iTavy Yard TENNESSEE Bells Bolivar Bristol Chattanooga Trenton Waynesboro Winchester 300 75 Bank of Western Carolina 289 *Peoples First Nat. Bank 1,000 *South Carolina 'Tat. Bank 1,100 *Carolina Savings Bank 200 856 Bank of Chesterfield County 125 10,968 *Commercial cc Savins Bank 250 3,692 Farmers C.'c Merchants Bank 100 850 S. C. Savings Bank 100 Total, 2 national banks 2,100 450 2 state bank members 4 nonmember banks 61)4 920 10,316 2,047 57,295 1,215 162,351 1,445 113,342 2,751 357 2,203 Surplus and und. profits 726 175 850 1,222 8,200 17,292 475 3,515 4,103 VIRGINIA Abingdon 2,532 3,243 Bedford Charlottes10,682 ville Gherrydale • 800 460 Clintwcod 185 Columbia 000 Drakes Branch Falls Church 1,659 Gloucester 200 Keller 200 493 Keysville 469 Lebanon *Member Washington Trust Co. Woonsocket Trust Co. Total, 1 national bank 4 st. bank members 5 nonmember; bnks 67,957 Covington 3,400 Jefferson City 1,414 Johnson City 12,1442 Knoxville 77,216 Livingston jemrhis Monterey Nashville Name of bank Capital , 25 Bank of Crockett Hardeman County Savings Bk. 50 200 Bank of Bristol 1,250 *First National Dank 250 Hamilton Tr. S: Savings Bk. Tipton County-Farmers Union Bk. 200 60 Mossy Creek Bank 400 *Unaka & City National 13-nk 6010 *City Naticnal Bank 200 East Tenn. Savings Bank Citizens Bank Jc, Trust Co. 50 *Union c1-4- Planters Bk.& Tr. Co. 2,500 Bank of Monterey 30 1,500 *American National Dank 300 *Broadway National Dank 1,500 *.-Zonrth & First National Bank 500 American Trust Company Commerce Union Bank 500 500 Fourth c3c First Ea.ik & Tr. co. Givson Count:, Bank 56 25 Bank of Waynesboro 100 Home Ban): & Trust Company Tot.11, 6 national banks 5,550 1 state bank member 2,500 ?,746 15 nonmember banks 311 553 1,053 129 35 loo 94 47 1,606 Deposits 10,059 3,277 7,92o 261,052 55,727 3,343 2,497 23,925 3,258 900 1,964 1,089 1,273 289 427 32,422 5,222 7,205 12 234 107 1,344 231 352 717 1,544 19,741 3,9e4 79 6 1,027 255 2,775 211 514 157 11 547 13,109 4,204 300 26,336 16 1,14019 342 236 19,412 4,396 1,657 204 20,420 4,854 5,523 6,298 7,493 404 16'7 5651 79,253 547 1,604 26,336 32,940 372 306 42 15 - 15 B .---.anche; In OutH.0. side city H.O. 1 1 1 7 3 15 2 9 2 3 2 1 4 1 2 cz 1 2 1 16 1 3 1 1 2 6 1 1 1 1 1 1 1 3 1 1 10 10 2 1 2 9 2 13 *First siational Bank Bedford Tr. c^c Savins Bank 200 185 123 27 2,176 845 1 *Peoples National B;.-nk Peoples State Bank Dickenson County .73an',c, Inc. Ihe State Bank State Bk. of Charlotte County Falls Church' Bank Bank of Gloucester Eastern Shore Bank.Co., Inc. Planters Bank, .Inc. Bank of Russell Co. 400 352 20 51 5,764 305 1,200 1 50 100 30 44 5 146 25 59 53 475 323 350 644 316 178 1 1 1 1 17 202 1 100 50 23 25 25 1 2 2 1 1 • BANKS 07IMATING DOM;JSTIC 3=CHES ON JTSRUHY 25, i927 (Population as of 1920; capital, surplus and undivided profits, and deposits as of December 1926, in thousanas of dollars) (St. 5656d) - 16 / Branches aarnlus n In Outlopuand CapDeLocation O. side laName of bankH. und. posits ital city H.O. tion profits city VIRGINIA (Cont 'd) Leesturg 1,545 *Peoples National Bank 100 2,410 217 Louisa 289 Bank of Louisa 1,001 53 95 Norfolk 115,777 *Norfolk Nat. Bk. of Corn. & Tr. 1,200 2 17,898 1,503 *Seaboard National Bank 8,896 79S 1,000 1 *Virginia National Bank 4,814 258 1 500 Merchants c'c Planters Bank 394 50 1 1,720 Morris Plan Bank L-34 1 512 100 ^ Virginia Bank & Trust Co. 1/16 100 73 Sol Accomack Bank. Co., Inc. Parksley 678 210 3g Portsmouth 54,387 State Bank of Portsmouth 10 75 ^ l'adford 4,627 Peoples Bank 25 141 10 Richmond 171,667 *Lmerican National Bank 16,n3 1,538 2,000 *First & Merchants Nat. Bank 44,984 3,000 2 3,421 *Bank of Commerce & Trusts 740 4,45 1 500 *State Planters Bk. & Tr. Co. 2,500 2,280 35,734 5 American Trust Company 4 2 1,200 308 Morris Plan Bk. of Richmond 2,715 161 352 3 Richmond Trust Compan,1 1,000 1 199 3,558 West End :Bank 1 1,534 187 100 Staunton 10,6-23 Planters Bank 456 La 75 Tapp@hannock 422 Southside Bank 711 23 93 Urbanna 345 21 25 37 Bnmk of Middlesex 7akefield 784 Dank of Sussex & a:x/7 711 150 loo Warrenton 1,545 *Fauquier National Dank 2,121 179 Williamsburg 2,4(DO Peninsula Bank 'e.e Trust Co. 24 775 Total, 9 national banks 8,550 8,389 105,878 12 6 4°,189 2 state bank members 3,000 3,020 20,468 11 2,286 26 nonmember banks 4,148 WASHINGTON Ole Elurn Colville Everett Seattle 2,1 65 Ole Elum State Bank 1,718 Bank of Colville 27,644 *Bank of Commerce 315,312 *Dexter Horton Nat. Bank Total, 1 national bank 1 state bank member 2 nonmember banks WISCONSIN De Pere Ellsworth Madison Milwaukee 5,165 State Bank of Do Pere 1,043 Bank of Ellsworth 38,378 *Bank of Wisconsin 457,147 *American iational Bank *Marshall & Illsley Bank 'ocSecond Ward Savings Bank Sturgeon Bar 4,553s*Bank of Sturgeon Bay Total, 1 national bank 4 state bank members 2 nonmember banks 1 *Merber bank. 50 100 150 2 200 2,200 150 150 25 13 )43 1,310 1,310 43 3g 915 600 2,018 36,5_28 36,528 2,018 1,515 100 50 500 1,000 1,250 1,000 100 51 34 153 427 1,701 3,708 62 427 5,654 115 1,480 1,218 5,051 11,640 26,351 36,950 2,787 11,64.8 71,139 2,698 2,850 150 1 2 2 1 - 1 1 1 1 2 1 1 ^ 2 1 ^ 1 2 1 2 1 1 3 28 1 1 1 1 2 1 1 1 c_ 1 2 5 EARMNGS AND EXPENSES OF TEEERAL R2SERVE BANKS JANUARY 1928. Total earnings of the Federal reserve banks in January were $3,994,000 - 532,000 less than in December but $137,000 more than in Jaauary 1927. Ail classes of earnings declined during the month, earnings from U. S. securities by $226,000, from discounted bills by $167,000, from miscellaneous sources by $130,000 and from purchased bills by :,69,000. Current expenses (exclusive of cost of Federal reserve curroncy) aggregated $2,174,000 as compared with $2,121,000 in the month preceding and $2,167,000 in January, 1927. Current net earnings (total earnin:,:s less current expenses) were 'D260,000 more than in January, 1927, and the anaual rate of current net earnings on average paid-in capital was 14.9 per cent, as compared with 14.4 per cent a year ago. (St. 5686a) VOLIINCE 177 PAGE 67 67,3a Mr. Hamlin CONFLD-ENTIAL Not for publication Federal Reserve Bank 411Boston Discounted bills 44, EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, JANUARY 1928 Month Earnings from ParU. S. chased secubills rities Other sources Total t68,911 $136,105 $84,911 *$2,315 $287,612 New York 469,942 232,905 326,132 Philadelphia 133,433 98,404 116,666 3,o40 Cleveland 153,271 69,915, 164,301 Richmond 79,597 108,599 Atlanta 87,466 Chicago *4,098 1,024,881 St. 5686 January Month of January 1928 1928 Balance for Current net I Current expenses earnings Current Dividends reserves, Exclusive accrued surplus, net Ratio to of cost of franchise paid-in Amount earnings Total FR currency tax, etc. capital Per cent $156,366 $158,392 $129,220 16.2 $82,193 n.29,220 $47,027 497,578 532,197 492,684 14.1 492,684 205,075 287,609 351,543 171,602 191,086 160,457 14.3 160,457 66,167 94,290 40,010 427,497 212,677 232,391 195,106 16.3 195,106 70,367 124,739 29,328 2,306 219,830 112,508 118,564 101,266 19.1 101,266 31,212 70,054 14,760 32,542 7,555 142,323 96,612 99,778 42,545 9.7 42,545 25,877 16,668 177,099 164,354 233,121 26,534 601,108 307,675 332,871 268,237 17.q 268,237 90,024 1/8,213 St. Louis 49,123 22,207 103,028 *2,806 171,552 107,284 112,210 59,342 13.1 59,342 26,706 32,636 Ydrincapolis 11,123 43,477 64,551 2,632 121,783 82,055 82,237 39,546 15.4 3,9,546 15,083 24,463 411Kansas City 37,618 25,692 105,082 23,166 191,558 135,114 141,284 50,274 13.9 50,274 21,236 29,038 12,569 61,006 85,232 2,726 161,583 102,858 103,304 58,279 16.1 58,279 21,316 36,963 San Francisco 40,374 115,187 14,499 292,425 122,365 TOTAL Jan. 1928 1,402,517 1,017,798 1,460,131 113,2450- 3,993,695 Dec. 1927 1,569,894 1,026,409 1,686,625 242,819 4,525,747 Jan. 1927 1,654,1871,094,772 936,684 171,027 3,856,670 191,460 200,171 92,254 11.6 2,2 4 46,713 45,541 Dallas FEDERAL RESERVE BOARD DIVISION OF BAAK OPERATIONS FEBRUARY 16, 1928. 2,173,789 2,304,485 1,689,210 2,121,307 2,267,966 2,257,781 2,167,140 2,327,261 1,529,409 *Debit . 14.9 1,689,210 20.1 14.4 1 1,529,409 666,803 1,022,407 626,163 903,246 4,,eA. 644 FEDERAL RESERVE BANK OF CHICAGO 230 SOUTH LA SALLE STREET OFFICE OF THE GOVERNOR April 22, 1927. Mr. C. S. Hamlin, Federal Reserve Board, Washington, D. C. Dear Yr. Hamlin: I have just returned from New York and find your letter instant 18th the awaiting. of You are quite right in your understanding as to the contention of Yr. James B. Forgan that the Federal reserve banks should be conducted in such a manner as to meet their full commitments with respect to expenses and dividends incurred. The address referred to in your letter, a copy of which is enclosed herewith, was delivered by Er. Forgan before the Bankers' Club of Chicago in December, 1915. On pages 6, 7 and 8 thereof the question involved is discussed, and Yr. Forgan's views thereon are fully set forth. I quote from this address the following: "We cannot afford to have these banks, the custodians of our cash reserves, limping along and creating the impression in the minds of our own public as well as in the minds of our foreign banking competitors, that the Federal Reserve System is a failure or at best a weak institution. This must be the impression created so long as they are not operating on a paying basis and we cannot afford to have it so." Mr. McKay has endeavored to locate the table to which reference is made in your letter, showing that the competition of Federal reserve banks made necessary by t1 earning of dividends would not materially affect member banks, but has been unable to find any such tabulation. However, the address referred to contains the following: "The amount each Federal reserve bank must keep invested in order to meet its expenses and pay its dividends is comparatively insignificant. It does not exceed the amount of the hen investments of an ordinary city bank of moderate size. sufficient reserve banks are the Federal of the investments for that purpose, they should be held there pending a change in financial conditions which will legitimately call for an This much, expansion of their credit-making facilities. VOLUME 177 PAGE 79 4 FEDERAL RESERVE BANK OF CHICAGO 77 Mr. C. S. Hamlin - 2- April 22, 1927. it seems to me, the member banks can stand without suffering from their competition more than they will be compensated for by the dividends they will receive." Mr. McKay informs me that Mr. Forgan did prepare a table showing the probable investments of the National Reserve Association which was proposed under the Aldrich Bill some years before the Federal Reserve Act was passed, which showed that he had in mind at that time that it would be necessary for the reserve banks to make investments to pay their expenses. These figures I believe were used in an address by Mr. Forgan at Nashville long before the passage of the Federal Reserve Act. If these figures are of interest to you, I shall be very glad to endeavor to secure the same, and if I can be of any further assistance in respect to the matter under discussion or any other matters, please let me know. Very truly yours, Governor. HS. Enclosure. 4SJAfi44 • • • A' • 4.44., May 11, 1927. The Open Earket Committee, after considering the attached memorandum, and after discussion with the Federal Reserve Board, submits the following recommendations of policy for the period ending August 1 nezt4 (1) That no further sales of System securities be made in ardor to offset arrivals of gold from abroad now known or anticipated. (2) That it shall be the policy of the committee between now and August 1 next, gradually to acquire, if possible to do so without undue effect upon the money market, sufficient additional short-time government obligations to bring the total or the committee's investment account up to $250,000,000. In interpreting the expression "undue effect upon the money market," the commtWmewould expect to keep in mind any changes which might occur in the general level of money rates, as well as the extent to which these purchases might effect a reduction in the amount of borrowings by member banks. While this policy is not directed towards bringing about a reduction in disoount rates by any Federal reserve bank, nor is that immediately anticipated, it is recognised that some lowering of market rates for Amoy might nevertheless justify such a reduction later in the year, especially at the principal financial centers. The recommendation in paragraph two is also made after consideration of the fact that somewhat lower interest rates ordinarily operate to check gold imports; in fact, that was one of the effects of purchases of securities made in 1924. VOLUME 177 PAGE 83 • 2 The committee further expects to continue studies of those methods set out in the preliminary memorandum by which increases in the System's portfolio might be brought about without increasing the amount of Federal reserve, credit in the market. It expects to dis- cuss with the Treasury Department those methods with which the Treasury is concerned, and requests that the Federal Reserve Board give consideration to those particular items, such as reserves on time deposits, which relate to the regulations of the Federal Reserve Board. af.44,4* mber 9, 1927. • ..,e (1 ) (// (2ixtracts fran C.S.H.Is diaries). November 19, 1919. (Page 66) 12;45 the Board and the Governors of the Federal Reserve banks met at the office of the Secretary of the Treasury. Secretary Glass outlined briefly, and Mr. Leffingwell in more detail, the Treasury policy, stating that the coming issue of 500 millions of Treasury certificates would be issued at 4e0 and the remainder needed, - about 1400 million - probably at SecretaryGlass then cited Council advising against further He said tht the rate should not out of the market, but that what put down the speculators. the action of the Federal Advisory rate increases before Januaryi, 1920. be increased until the Treasury was was needed was credit rationing to Governor Strong replied to this with SOMB vehemence, saying it could not be done, that the only way was a radical increase in discount rates. Secretary Glass re-)lied with some heat, - that it could be done and mast be done; that it was successfully done by the '..loney Com_ittee at New York during the war. Governor Strong re-died that t;le way it was done was to pay off the loans made to the call Loan market, 4nd that that would require today 700 millions of dollare. Secretary Glass said that the New York Bznk had fallen down and had permitted its assets to be encroached upon by s2eculators. Governor Strong renlied with some warmth that the New York Bank had done muCh to exercise a restraining influence. The matter will come up again tomorrow, and Governor .Strong will try to carry the Governors with him. • Later Secretary Glass came into my office. I reminded him that Governor Strong had said that nothinE could be done while money from other districts poured into the call loan market, and that we must meet this and put a stop to it. He aEreed and said he would consult with Governor Harding. C.S.H. fears that Governor Strong: , ls health impairs his ability to cope with the situation, and feels also that he will realize that he cannot stand the strain'and will rosign. VOLUME 177 PAGE 85 Secretary Glass told C.S.H. that at one interview Governor Strong denied even the right of the Board to review the New Yolk rates. At the Boara meeting this morning Mr. Forgan came in and read the recomAndation of the Federal Advisory Council against rate increases prior to January 1920. He said that before Assistant Secretary Leffingwell came to the meeting, the Council were all for a vigorous aavance in rates, ignoring the effect on Treasury policies, but that Mr. Leffingwell convinced them that this would be a grave error and would seriously affect the outstanding securities. Thursday, Uovember 20. 1919. The meeting of the Governors was continued. Most of the Governors said that they aia not concur in the recommendation of the Federal Advisory Council aEainst increase in rates. Governor McDougal pointed out that the Council's recommendation was that rates Should not be advanced at present; that the heading of their report, -"rates up to January 1" - was merely the heading of this aspect as made by the Federal Reserve Board. On this statement some of the Governors changed their o-plosition. Many, however, followed Governor Strong in wanting a change in rates before the coming issue of Treasury certificates on December 1 at 4, 14. Governor Strong winted out that if no chan.qe were made prior to this issue, the Federal Reserve banks would be morally bollnd to kee2 in a rate of 4410 during the life of the issue. Governor Morss pointed out that there was much speculative activity in business, that, e.g., a cotton concern rould be offered a contract for a year ahead; credit being dheap it could borrow at low rates in order to buy raw materials and be able to take advantage of high or higher rates for its unfinished product. He strongly advocated higher rates, even for commercial paper, in order to regulate production and consumption. He said that the country was being flooded with products of the kind known as uluxuries" which also Should be restricted by higher rates. He also said that the vast majority of new credits were for business transactions as opposed to stock market transactions. Governor Strong took the same attitude. He pointed out that the Treasury called, usually, for larger sums than were at once needed, in order to give the subscribing banks a Government deposit for which no reserve was necessary, whidh they could keep for periods of 60 days or so and loan out; that they I,ade over 0 out of these deposits of the proceeds of the 4;11; certificates. • ested the feasibility of cutting down the offerings to the absolute He sug, needs of the Treasury, the proceeds to be drawn by the Treasury at once and put in Federal Reserve banks. And, to compensate for the loss of the use of the deposits, the certificates should be given a higher rate; that in this way the credits could not be used for inflationary purposes. I November 21 2221. Conference with Governors resumed. They all feel that Mr. Leffingwell is absolutely wrong in putting oat Treasury certificates on December 1 at 4, as the banks will loan out the funds created by their purchase of the certificates on the call loan market, thus increasing speculation and inflation. LT.r. Leffingwell told me this mornine that Governor Harding had no authority to throw out to the Governors the inclination or suggestion that Treasury certificates might be issued in smaller amounts to be paid for by the banks at once and for a higher rate, to compensate them for loss of the deposits. He said the banks would never :0 this unless they were paid a commission for placing the notes. C.S.H. feels that Mr. Leffingwell is too positive; that he is in a personal controversy with Governor Strong, and that neither will yield. Tuesday. November 25, 1919, Mr. Strauss, at the meeting of the Board, stated that Governor Strong had called him up last evening at 6 p.m. and stated that his directors insisted on putting in new and increased rates, and gave him the schedule. He said that as Governor Strong read it, it apparently put a higher rate than 4on paper secelred by 4i1 certificates. Mr. Strauss said Federal Reserve Agent Jay would not agree to this, and believed that the rate should be the same as the certificate rate, whether that was 4e or 4Wo. The Board voted to acknowledge the commnication and advise the directors that we would consider the new schedule and advise them shortly. Mr. Strauss said Boston also had voted to increase rates, and the proposed schedule was ready. Mr. Strauss said Boston kept the certificate rate differing from New York. The Board then voted to have a special meeting on Governor Harding's return about 4:30 p.m. We also directed Chapman to prepare the schedule showing these rate changes. When the schedule was sent in C.S.H. found that Nee York had kept the certificate rates, but had put up rates on paper secured by Liberty bonds and Victory notes, and had advanced 90-day commercial paper from 4,t, to 5345). New York put up paper secured by Liberty bonds and Victory notes 1/4 of and 90-day commercial paper 1/2, While Boston put up paper secured by Liberty bonds and Victory notes 1/2 and commercial 90-day paper 1/4%, The meeting was called for 11 a.m. and re were notified that the Secretary of the Treasury wished to talk with the Board. When we Eot there 1:r. Strauss said the Secretary had to Eo to a Cabinet meeting and Mr. LeffinEwell had to go to the State Denartment, and as Governor Harding was away, we postponed the meeting until 4:30 p.m. C.S.H. went to the Board room at 4:30 and on his way met Governor Harding's secretary who said the Governor had returned and was in his room. C.S.H. opened the Governor's door and saw Mr. Leffincwell, Strauss, and the Governor in consultation, - evidently on the Yew York rate Question. C.S.H. rent badk to his room ana waited some time, but received no word. He then sent his secretary to Governor Harding's secretary askinr when the meeting was to take place, and he came back and said there would be no meeting until tomorrow. C.S.H. thought this very strange and rent to Dr. :iillerts office but he had cone for the day. Fe then went to Mr. noehlenpah's office, but he had someone withhim, but later came into C.S.H.Is office and we had a general talk tocether while Governor Harding, Strauss and Leffinswell were discussing rates in Governor Harding's roam. C.S.H. was distuxbed at this as he felt that the other members of the Board should have been in at this conference. C.S.H. realizes that Governor Strong and Leffingwell are engared in a bitter personal controversy, and are in dansTer of forgetting the larger issues. Wednesday. November 26. 1919. Before the meeting Secretary Glass came into C.S.H.Is Office and said he had almost made up his mind that Governor Strong should be removed. C.S.H. suggested that before considering or taking any suCh action it would be well to talk with our Governor and the directors of the New York bank, and he agreed to this. At the meeting Secretary Glass sent word asking the Board to hear Assistant Secretary Leffingvell on the Nevi York bank matter. Mr. LeffinEwell came in and said that Governor Strong had been at the Bank of England meeting and encouraged them to put up rates so as to force the British Treasury to pay higher rates for their borrowings, and that Governor Strong had pledEed the Federal Reserve Bank of Yew York to do the same; that Governor Strong was unable to fulfill his paxt of the agreement, and vas determined to wredk the Treasury policies in revenge; that putting up the 4., certificate rate to 4-1% was Oeliberately desiened to prevent the sale oftenew 4ido certificateR that puttingincreased rates on paper secured by Liberty bonds would play havoc with the bond market; that a ruIII r had gotten out that the New York bank was to put up rates just after the GovErnors had left Washington, and that az a result large quantities of United States securities had been thrown on the market, and the Treasury had to buy a very large amount to steady the market; that yesterday the Treasury had to buy 12 mons; that one grade of Liberty bonds was now selling on a basis; that he believed these bond sales had been made by "insiders" - either directors of the Federal Reserve Bank of New York or their friends who had inside knowledge that rates were to be put up. He also said that Governor Strong had said he did not eroect our Board to apnrove this proposed increase. He also said that friends of his in tTew York had said that certain of the New York directors had said that they were whipped into agreeing to this increase; also Governor Stronc- claimed thatthey had forced him into it. He also said that a prominent banker and intimate friend of Governor Strong said that all of Governor Strong's friends were worried about him; that in his state of health that he and the other New York directors mic'ht do something impulsively to rock the boat and do great damage. He said that Governor Strong had dominated the other Governors, mentioning Morse. C.S.H. cuickly denied this, and said that Morss was absolutely independent and a man of great wealth who stood on his own feet, and that he said this disarfreeing A.th MorssIs o2inions. Leffingwell then said the Governors had dined with Governor Strong twice before caninE to our Conference, - once in New York and again in 7iaehington; he also said that Governor Strong had told Secretary Glass that his bank had the right to fix rates wholly apart from the Federal Reserve Board. Mr. Leffinf2yell said that Governor Strong had said that he wanted the greatest increase which our Board granted to help him: 1. In an effort to control stock market sneculation 2. To do away rith the dependence of interest on bank deposits on commercial rates, originally approved by the Board. cease buying bills in the market at such attractive rates. Mr. Leffingwell said that having got these rates Governor Strong had done nothing either as to 1, 2, or 3 above, but absented himself from the Bahk and played golf in WashinPlon. F!he Mr. Leffingwell also said that if the bond maeket kept steady, the situation was critical and that the Board should act at once to save -6- • Treasury nolicies and protect innocent bond holders; that if the banks did not take the new 4e0 certificates the Federal Reserve banks must. Dr. Miller said he believed on principle that rates should be advanced, but that he should vote to protect the Treasury. Mr. Strauss said he believed there was no occasion for increase in rates, and that it would have little effect on merchants, but would merely add to the cost of credit. C.S.H. suggested that we summon the Governor and Directors of the Federal Reserve Bank of New York to Washington and ask for their reasons, but that this should not affect an immediate decision. Governor Harding said they should have consulted us before action, but all opposed this. Mr. Strauss said he had no confidence in Peabody,that he was too old, etc. Mr. Strauss said that all of the bankers he and Governor Harding had seen in New York were against increasing rates except Mr. Hepburn, and that Governor Strong brought Hepburn to the Directors meeting,and that he told them he did not concur in the vote of the Federal Advisory Council that in view of Treasury conditions there should be no increase in rates at present. C.S.H. wrote Mr. Forgan as to this. Mr. Leffingwell said he thought the Treasury would be safe about January 15th. C.S.H. said that if anything disastrous occurred, - e.g. as to our reserves in a few reeks, would we not feel at liberty to reopen the matter. Mr. Leffingwell said certainly, - that he had to reserve that right also as to his own predictions. Dr. Miller then said he would support the Treasury even though the reserves went smash, which somewhat surprised us in view of his statement that rates should in theory be advanced. Mr. Leffingwell said that if he sustained the Treasury that Liberty bonds would all reach par in a comparatively short time. C.S.H. said he was ready to vote and on motion of Mr.c6trauss the Board voted to disapprove the action of the New York Bank, and by another motion that of the Boston Bank also. Saturday, November 29, 1919. Governor Strong is in Washin&-ton. Governor Harding said he was in a panic; that he feared an industrial panic; that he said it would not do to increase rates now; that it should have been done long ago; that to do it now would bring on a crisis. Thursday. December 9. 1919. Leffinmell sent Governor Harding a draft of letter to him which he said he would send formally to him as soon as he got the consent of Secretary Glass Who is away. In this letter Mr. Leffingwell said that the coal strike and other disturbances would probably soon be over, and that he feared there might be a revival of the speculative mania; that he therefore felt that in view of the improved Treasury position he should not longer object to the Federal Reserve banks increasing the rates on war paper to the same level as commercial paper, wining out the preference. He said, however, that he wanted the rate on Treasury certificates kept at but that he would not object to a rate of 4e, even on the Wo certificates because these could be refunded into ills if anyone wanted it, but as they were tax and not loan certificaes people would probably hold them to pay taxes with. The Board then discussed a proposed circular to the banks stating that if they offered such rates we would approve them. Mr. Leffingwell has evidently been impressed with the fact pointed out by Governor Strone ana others that the Board mmst do something in the way of rate increase even while LA the same time rationing credit. ••••....11•111, Y.ondEv. December 29. 1919. Secretary Glass tells C.S.H. that if it had not been for Governor Strong's illness he would sometime ago have urged that his resignation be callea for. He said that Governor Strong had not been loyal to the Federal Reserve System; that he tried to organize the Governors against the Board; that he tried to amash the Treasury policies by'putting up rates in order to force the Treasury to pay higher rates in accordance with his agreement with the Bank of England; that his feeling of domination as Governor was disloyal to the System; that he claimed at one interview that the New York Bank had the ri5jht to -out in any rate it chose in spite of the Federal Reserve Board. He said, howcver, that Governor Strong was a desperately ill man, and that he did not want to IS anything to retard his recovery, Ti he added that he had undoubtedly done most brilliant work in connection with the Liberty loans. He said Governor Strong's condon distressed him, and he inti:ciated he might consent to eSv Sf the bank directors giving him leave of absence for t'rlis reason alone. 111 _8- 111 Tuesday, December 30. 1919. Governor Harding stated that Mr. Leffingwell had told him of a new issue of tax certificates dated. January 2; that Leffingwell said that if the Board would make no chance in discount rates (that is, leave the certificate rate of discount at 46) for a week or 10 days, the Treasury would consider itself divorced from the Federal Reserve banks, and henceforth would have no sugp;estions to make as to rates; that this divorce would be more a))arent if we made no change for a week or 10 aays. The Board discussed this fully. Strauss raised the point that to leave 37 0 with the certainty in the minds of the bank that it this rate at 42, would soon be raised, would result in an avalanche of these certific'es on the Federal Reserve banks to take advantage of the lower rates. Mr. Strauss said that there was nothing in this, as these were tax certificates. Governor Harding said Governor Strong felt the same way, and was perfectly content to keep the rate at 41% for a week or 10 days. Dr. Miller wanted the am-louncement made that after a week or 10 days the rate, would be increased. We all agreed that such an announcement would certainly precipitate an avalanche. The departure of Dr. Miller for lunch broke the quorum, but Mr. Strauss, Williams and c.s.H. went over the matter and in view of Governor Strong's statement decided it was best to ap.irove the request of Leffingwell, and Williams made a motion to that effect. V:e could not vote, however, for lack of a quorum, although Governor Harding before leaving had said he favored this. We then adjourned until afternoon. At 3 p.m. Governor Harding told the Board that Jay had called him up and said the New York directors were unanimous in favor of at once increasing all certificate rates to 4, and that nr. Alexander who was consulted, favored this. The Board then decided to call in Mr. Leffingwell who said he thought the directors were in error, but that if he were a member of the Board he would vote to sustain them, and he felt it would not injure the sale of the new certificates. The Board accordingly voted to avrove this, although Mr. Williams for some unaccountable reason voted No, Wednesday, December 31. 1919. Meeting called to decide on Governor Strong's salary and leave of absence; Secretary Glass precided. Harding and Strauss strongly favored approving the vote of the New York directors - leave of absence for one year at 1/2 the salary, Case to act as _Acting Governor. :liner and Williams approved this. C.S.H. said he had opposed certain views and actions of Governor Strong; that Leffingwell had told the Board that he made an ..greement with the Bank of England directors to put up New York rates in order to force the Treasury to pay more for its money, but that he dismissed all -9- these considerations from his mind, as he regarded Governor Strong as practically a dying man, and that he vas prepared to vote to approve the action of the Board; that if Governor Case could not fill the position the Board at any time could call for Strong's resignation. Secretary Glass said we might agree to give Governor Strong an indefinite leave, and C.S.H. agreed to this, but alliams raised the question whether we could legally vote a gratuity, and C.S.H. pointed out that we had done this in Governor Seay's case, and that Harrison, our Counsel, had said we dould do this. C.S.H. pointed out that an officer of the Government could draw full salary whether he did any work or not, under the decision of the Supreme Court, and that While Governor Strong was not a public officer the analogy seemed to hold. Secretary Glass then said that if Governor Strong was a well man, he would favor calling for his resignation; that his views and actions were not consistent with the underlying principles of the Federal Reserve act. Governor Harding said that Governor Strong had written him a personal and confidential letter practically recanting all his past views criticised by Glass, and that this letter would satisfy anyone, and that he would try to get authority from him to show it to the Board. Secretary Glass finally said he regarded Governor Strong as a dying man, but he had done most brilliant work for the Liberty loans and that he entertained almost an affectionLte feeline: towards him; that while he should prefer an indefinite leave, he would not vote against a year's leave on half pay. Strauss moved to approve the vote of the New York directors. 7i1liams moved to substitute indefinite leave. C.S.H. moved as an amendment to the amendment that the vote of the New York directors be approved and that the action in making Case Acting Governor be merely noted, as this did not require ap?roval. Governor Harding, Strauss and C.S.H. vote Aye,and Williams and Miller No. Am not sure whether Secretary Glass voted, but he had previously said he would vote to anorove the New York directors' vote. Form No. 131. Office Corresportence Te5 Mr. Hamlin. From.. Mr. Wingfield. FEDERAL RESERVE BOARD Date October 19, 1927. Subject: Illustration of coneluelon_ reached in memorandum of Sept.30,1927, with reference te_11Mitation on loans by a State member bank to one borrowdV,' You have reauested a concrete illustration of the conclusions reached in my memorandum of September 30th. These conclusions may be applied to the facts in a concrete case as follows: A makes a note payable to B, the note arisieg out of a commercial transaction. B. endorses the note and discounts it with a State member bank. At maturity the note is not paid but is renewed. Under the Oomptrollerls ralings and the conclusion reached in my memorandum this note When renewed no longer constitutes connercial or business paper within the meanieg of the exception to section 5200. If, therefore, the liabilities of A, the maker of the note, to the State member bank inclu.ding his liability on tais note are more than 10% of the bank's ca,Atal and surplus, a Federal Reserve Bank may not rediscount any of Ale paper for such State member bank. Under the further conclusion reached in my memorandum, however, B, the enuorser on this note, is not to be considered the borrower within the weaning of section 9 and his liabilities as endorser on this or any other paper (except when the maker is an accommodation maker) are not to be considered as part of his liabilities to the State member bank in determining whether the Federal Reserve Bank may rediscount any of his paper for such State member bank. VOLUME A 177 PAGE 87 Respectfully, d Assistant Cou-sel 0:C • tlictober 12, 1927. Mr. Haalin Mr. Wingfield. Short statement of conclusions reached with reference to the amount of rwnewed comae cial or busi..ess paper w ich may be discounted for any one borrower by a State member bank. In accordance with your request, there iu set out below a memorandum to the Board short statement of the conclusions reached in of renewed commercial amount the to nce of September30, 1927, with refere nt for Emy one discou my bank or business paper which a State member ineligible for er borrow borrower without rendering t -e paper of such Federal reserve bank. rediscount with (1) In comouting the amount which may be loaned by a State section 9 of the member bank to any one borrower under the irovisions of es of the United StElut d Federal Reserve Act f)nd section 5200 of the Revise business paper or cial States as im orted into that section renewed commer the meanwithin should not be considered as commercial or business paner n, but sectio that ing of tection 5200 SD as to come within exception 2 to bask member iState such paper should c,e counted in determining whether a set tion limita has loaned to any one borrower an amount in excess of the and l the capita out in section 520) of the Revised Statutes,tie., 10% of 1927). 30, ber Septem of anda. memor of 4 surplus of the bank. (Page (2) The provisions of S ction 5200 of the Revised Statutes of endorser he United States requiring both the maker or a 'ceptor and the in loaned as bank al nation a r to be considered in determining whethe ining determ in z'ble qpplic not excess of the limit to any one person are sions who is the N borrower " from a State member hank under the :)rovi word the of tion defini rt of section 9 of the4ederal Reserve Act—la in Section "borrower" which the Board has applied to that word as used in Secused as it 13 of the Federal heserve Act should be aiJplied to be taken should 9 tion 9, i.e., the word "borrower" as used in section accommoan is he to mean the maker of the note unless it appears that t of benefi the dation maker, in which evetthe endorser who receives of ndum memora the loan should be considered the borrower. (Pae 5 of September 30,1927). Board (3) The apdlication of the interpretation which the Federal the of 13 n sectio in used as wer" has placed upon the word "borro of the act will place Reserve Act to that term as used in section 9 age over national banks State member banks in a position of some advant e banks. This inequaltty with reference to rediscounts with Federal reserv not one which can be lawis brought about by the terms of the law and is order for State and nationfully remedied by a ruling of the Board. In equality in this respect, it al banks to be placed upon a position of mended by Congress. (Page 8 of will be necessary for section 9 to be memorandum of September 30, 19-1.) Respectfully, BE. cmc-sad B.M. Wingfield Assistant Counsel. September 30, 1927. The Federal Reserve Board. Mr. Wingfield. Ltitation on renewed oommercial or business pape of any one borrower which ma;; be rediscounted with a Federal reserve bank. There is attached hereto a request by the Board's supervisor of examinations, Mr. Gilbert, for an opinion by this office as to wheth r renewed commercial or business paper should be charge d to the endorser who offered the paper for discount to a State member bank as part of his direct line of accommodation in undertaking to determine whether he is borrowing in excess of the limitation prescribed in Section 9 of the Federal Reserve Act. that : It is provided in Section 9 of the Federal Reserve Act "No Federal reserve bank shall be permitted to discount for any State bank or trust company notes, drafts, or bills of exchange of any one borrower who is liable for borrowed money to such State bank or trust company in an amount greater than that which could be borrowed lawfully from such State bank or trust company were it a national banking association. " The limitation on the amount which may be loaned by a national bank to any one borrower to which the above provision of Section 9 refers and with which a State member bank is required to comply in order that the borrower's paper may be eligible for rediscount with a Federal reserve bank is contained in Section 5200 of the Revise d Statutes of the United States. This section reads in part as follows: "fhe total obligations to any national bankimassociation of any person, coppatnership, as ociation, or corporation shall at no time exceed 10 per centum of the amount of the capital stock of such association actually paid in and unimpaired add 10 per centum of its tnimpaired surplus fund. The term Ibbligations, shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such association and the liability of the indorser, drawer, or guarantor who obtains a loan from or discounts paper with or sells paper under his guaranty to such association and shall include in the case of obligations of a copartnership or association the obligations of the several members thereof. Such limitation of 10 per centum shall be subject to the following exceptions: * * * * * * (2) Obligations arising out ef the discount of commercial or business paper actually owned by the per- "son, copartnership, association, or corporation negotiating the same shall not be oubject unCier this section to any limitation based upon such capital and surplus. * * * * * * * * * * * * * * * * "(4) Obligations as indorser or guarantor of notes, other than commercial or business paper excepted under 02) hereof, having a maturity of not more than six months, and owned by the person, corporation, association, or copartnership indorsing and negotiating the same, shall be subject under this section to a limitation of 15 per centum of such capital and surilus in aidition to such 10 per centum of such capital and surplus." * It will be noted that under the provision of exception 2 to Section '3200 above quoted, commercial or business paper actually owned by the person, copartnership, avoci:tion or corporation negotiating such paper is excepted from the limitation. Hence a state member bank may discount any amount of commercial or business paper for one borrower without rendering the paper of such borrower ineligible for rediscount with a Federal reserve bank. It will also be noted at this point that as to certain other paoer which comes within exception 4 to Section 5200, above quoted, the obligation of the endorser or guarantor thereon is excepted from the limitation to an amount equal to 15 per centum of a national bank's caoital and surplus in additioni to the 10% limitation on loans to one person contained in that sectioL. As I understand Mr. Gilbert's question he wishes to know whether if commercial or business papenets renewed the renewed paper can prererly be considered as commercial or business paper within the meaning of exception 2 to Section 5200. If it cannot be so considered, Mr. Gilbert whales to know who should be considered as the borrower under the )rovisions of Section 9 of the Federal Reserve Act in determining whether a state member bank has granted loans to one borrower in excess of the limitation. Under the provisions of Section 9 the amount which a state member bank may lend to one borrower is made to depend upon the provisions of Section 5200 of the Revised Statates; therefore, it may be well at this point to set out briefly that part of the legislative history of these two sections which throws light on the reason why the provision in Section 9 was enacted. -3-- At the time of the passage of the Federal Reserve Act in 1913 and until September 24, 1918, Section 5200 of the Revised Statutes contained only two exceptions -- commercial or business paper actually owned by the person negotiating such paper and bills of exchange drawn in good faith against actually existing values -- to the limitation on the amount which a national bank might lend to one borrower. When Section 9 of the Federal Reserve Act was enacted in 1913 it was provided that State member banks should be required to conform to the provisions of law imposed on national banks respecting the limitation of liability which might be incurred by any person, firm or corporation to such banks. When Section 9 was amended by the lct of June 21, 1917, this provision was %mended so as to provide that no Federal reserve bank should be permitted to discount for any State member bank the paper of any one borrower Who was liable for borrowed money to such bank in an amount greater than 10% of the carital and surplus of the state bank. Bills of exchange drawn against actually existing values and commercial or business paper actually owned by the person negotiating such paper, however, were excepted in computing the amount loaned to any one borrower. It will be noted that this provision of Section 9 as amended was substantially the same as that contained in Section 5200 of the Revised Statutes at that time so that national banks and state banks were still on a basis of equality as to the amount Which might nbe loaned to any one borrower. By Acts of September 24, 1918, 7.nd October 22. 1919, however, Section 5200 of the Revised Statutes was amended so as to make additiona l exceptions to the paper which should be counted in computing the amount which a national bakk could ioatt_to one borrowed: After these amendiaents state member banks were, of course, not on an equal basis with national banks in making rediscounts with Federal reserve banks for a national bank might lawfully make loans in excess of 10 per centum of its capital and surplus to one borrower which came within the exceptions to Section 5200 as amended while if a state member bank made similar loans in excess of 10 per centum of their capital and surplus it could not rediscount any of the Paper of the borrower with a Federal reserve bank. Congress, therefore , in order to put state member banks on an equal basis with national banks in this respect on July 1, 1922, amended Section 9 of the Federal Reserve Act so as to make it read as it is above quoted. That this was the purpose of Congress in passing the amendment of July 1, 1922, is clearly shown by the statements matie by various members of Congress when the amendment was before the House and Senate and which may be found in the Congressional Record (Volume 62 of the Congressional Record. pages 8355, 9217, 9292, 9444). In this connection attention is also called to a statement made by Mr. Platte as Vice Governor of the Board in a letter addressed to %0ati.McLean on June 23, 1922, with reference to this amendment. This statemeht is as follows: "My attention has just been called to the amendments made upon the floor of the House to S. 831 on June 7, 1922, just prior to the Passage of that bill by the House. The purpose of this bill is to amend the 10th paragraph of Section 9 of the Federal Reserve Act so as to put State member banks -4- "upon a basis of equality with national banks in regard to the privilege of making rediscounts with Federal reserve banks." In view of the fact that the amount which may be borrowed from a state member bank by one borrower depends upon the provisions of Section 5200 which section comes under the jurisdiction of the office of the Comptroller of the Currency and since it is clear that the amendment of July 1, 1922, was enacted SD as to place State banks on a basis of equality with national banks in making rediscounts with Federal reserve banks, I am of the opinion that any ruling made by the Board with reference to the amount which may be loaned by a state member bank to any one borrower should be in harmonyywith the interpretation which the Comptroller's office has put upon Section 5200. I understand that the Comptroller of the Currency has ruled that for in order paper to be classed as business or commercial paper under the provisions of Section 5200 it must have been given in payment for a commodity and that if such paper is reneved the renewal is equivalent to granting a loan and cannot be considered as commercial or business paper within the meaning of exception no. 2 of Section 5200. It a7pears that these rulings of the Comntroller of the Currency have been in effect for a number of years and that the courts have never defined commercial or business paper in connection with Section 5200 nor rendered a decision as to whether a renewal of such paper should be considered as commercial or business paper within the meaning of that section. 0.-A-4,44444 Since the Comptroller's rulings above referred to have been in effect for a number of years and have not been reversed by the courts ant-3 in view of the obvious intention of Congress that state membersbanks should be on the basis of equality with national batiks in computing the amount which might be loaned to any one borrower, I am of the opinion that the ,Comptroller's interpretation of Section 5200 should be controlling in this matter and that his rulinR.s should be applied to state member banks. I am accordingly of the opinion that in computing the amount which may be loaned by a state member bank to one borrower under the provisions of section 9 of the Federal Reserve Act and Section 5200 of the Revised Statutes as imported into that section renewed commercial or business paper should not he considered as commercial or business paper and that such paper Should be counted in determining whether a state member bank has loaned an amount in excess of 10 per centum of its capital and surplus to one borrower. Since renewed commercial or business paper does not come with,in exception no. 2of Section 5200, the question arises as to who should be considered the borrower under the provisions of Section 9 of the Federal Reserve Act. -5- Under the provisions of Section 13 of the Federal Reserve Act a Federal reserve bank may not rediscount notes, drafts, and bills bearing the signature or endorsement of any one borrower for any one bank enether a state member bank or a national 'ban& in an amount greater than 10% of the unimpaired capital and surplus of the bank. In this connection the Board has ruled that the word "borrower" means the maker of the note unless it appears that he is an accommodation maker, in which event the endorser who receives the benefit of the loan dnould be considered as the borrower. Under the provisions of Section 5200 of the Revised Statutes as amended by the McFadden :.ct. ,both, the maker or the acceptor of paper rediscounted with a national bank and the endorser who discounts the paper with th--: national bank must be considered in computing the amount which may be lawfully loaned to any one person. In Oectien 9 of the Federal Eeserve Act it is provided as noted above that a Federal reserve bank may not discount for a etate member bank any of the paper of any one borrower who is liable for borrowed money to such state bank in an amount greater than that which could be lawfully borrowed if the state bank were a national bank. The question to be determined, therefore, is whether the Board's definition of the word "borrower" made in connection with the provisions of Section 13 should be applied to that term as used in Section 9, or whether the provisions of Section 5200 should determine who should be considered in computing the amount which may be lawfully loaned to any one person by a state member bank under the provisions of Section 9. It will be noted that under the provisions of Section 9 of the Federal Reserve Act, Section 5200 of the Revieed Statutes is referred to only with respect to the amannt which may be loaned by a state member bank to one borrower. No reference, however, is made by Section 9 to the provision of Section 5200 with reference to who should be considered the borrower. I am of the opinion, therefore, tht the provisions of Section 5200 of the Revised Statutes are not applicable in determining who is the borrower from a state member bank under the provisions of Section 9 of the Federal Reserve Act. I am further of the opinion that the definition of the word "borrower" which the Board has made of that word as used in '-lection 13 of the Federal Reserve Act should be applied to the provision in Section 9. The reasons for these conclusions may be more fully set out as follows: -6- SectiJn l of the Federal Reserve Act provides in part that : "The rgcregate of such notds, drafts, and bills bearing the signature or indorsement of any one borrower, whether a person, company, firm or oorparation, rediscounted for any one bank shall at no time exceed ten per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the discount of bills of exchange drawn in pod faith against actually existing values." As arigina lly enacted in 1913 this portion of Section L rtd as follows: "The aggregate of such notes and bills bearing the signature or endorsement of any one person, company, firm or corporation rediscounted for any one bank shell at no time exceed 10 per contain of the unimpaired ca:ital and suralus of said bank; but this restriction shall not apply to the discount of bills of exchange drawn in good faith against actually existing values." Under the law as it was originally enacted, it was found that paper which was otherwise eligible for rediscount with a Federal reserve bank became ineligible by the endorsement of any person who was already Indebted to the discounting member bank in an amount in excess of 10% of the member bankts capital mad surplus. At the instance of the Federal Reserve Board, therefore, the law was changed by the amendment of Seetember 7, 1916, to read as it does at present. In a letter from Governor Hamlin to Senator Owen, Chairmen of the Senate Currency, dated March 10, 1916, several Reserve Act were ,aligested, among which vision of Section 13 above quoted. With the letter states; of the Federal Reserve Board Committee on Bakking and amendraents to the Federal was the anendment to the proreference to this amendnent, "The ,Aararaph beginning in line 20 on page 3 has been changed so as to restrict the rediscount of notes, drafts and bills bearing the signature or endorsement of any one borrower. This amendment is suggested because as the Federal Reserve Act reads at present a bill which inmay otherwise be eligible for rediscount is rendered a of ment endorse nal eligible by the extra or additio d person, firm, or corporation which has already borrowe the ert up to its limit. By inserting the word lborrow Secrestriction is made analogous to that contained in the tion 5200 of the Revised Statutes, which limits ed." borrow money or liability of a nationallbankf ii -7- rt of uded in the repo cl in is , 16 19 , rch 10 391 which beThis letter of Ma rrency on Ka. 17 Cu d an g in nk Ba tee on the Senate Commit etember 7, 1916. Se of came the Act anings ble of several me ti ep sc su be to wer" seems ear that as used The word "borro used but it is cl is it h ic wh the endore sense in th the maker and bo an me according to th to n ke endment of cannot be ta rpose at' the am pu e tb in Section 13 it at th t en 13 from r it is evid tion in Section ta mi li e th ser of a note fo t en rty to a , was to prev more than one pa of t en em September 7, 1916 rs do ful e signature or en after a very care d, ar Bo e Th applying to th . ge bill•of exchan ld be placed upon a note, draft or tion which shou ta re ker rp te in e th to ined that the ma rm te de 13 n consideration as io ct s that be as used in Se unless it appear er ow rr the word"borrower" bo e th ives the be considered endorser who rece e th t en of a note should ev h ic finition ion maker in wh borrower. This de e th ed er is an accommodat id ns an should be co of the Revised benefit of the lo of Section 5200 ns io is ov pr e th with was in harmony then read. it Statutes as was orovided to Section 13 it t en dm en ae e th d by the CompAt the time of ,as intererete es ut at St d se vi ered the borof the Re should be consid by Section 5200 r ke ma e th ly a s to any , that on bank had made lo al on troller's office ti na a r that he ing whethe less it appeared un , on rower in determin ti ta mi li received the cess of the e endorser who th so ca h one person in ex ic wh , 19278 tion maker in . On February 23 ed er id ns was an accoalmoda co so me amended loan should be dden Act. As ti Fa Mc e th by benefit of the d de shall be n 5200 was amen d the endorser an r ke ma e however, Sectio th liable to a quires that both y one oerson is an Section 5200 re r ion he et wh ng endment to Sect , etermini am e in Th . ed on er ti id ta ns mi co l Ree li .of the Federa in excess of th 13 nk or Ba 9 n al io on et ti Na otions d Se its terms amen er of these be th by ei t no d en es am do t 00 no 52 rower" o inion it does esid3red a "bor my ce in be an l t al Ac sh e serv to lin with reference or 13. be imnlication io ns of Sect n 9 io is ov pr e th under Reserve Act of the Federal 9 n io ct Se e, should not d abov l reserve bank ra In 1917 as note de Fe a at th rrower ide r of any one bo d no as to prov pe pa e th nk WRS amende ba anount y State manber State bank in an ch su to discount for an y ne mo ch State bank. for borrowed d surplus of su an a who was liable l ta pi ca e te provide that % of th 10 as an so th d r de te en ee am gr bank rther y State member section was fu an r is th fo nt 22 ou 19 sc In t di rrowed money e bank should no liable for bo s wa o wh Federal reserv er h could be y one borrow than that whic r te ea the paper of an gr nt tional bank. It bank in an amou were it a na nk ba e to such State at St term ly from such deents the same en am e es borrowed lawful th of to Section 13 that in both the amendment in will be noted ed us s wa is used in ed as that the term d te "borrower" is us no be so ns, that is, will al in both sectio on above noted. It ti ec nn co l reserve the same s with Federa nt ou sc substantially di re th reference to it is used wi -81 these facts and since the balks in boivh' instances. In view of made subsequent to the anendment to amendments to SectieL 9 were that Congress used the word "borrower" Section 13, it seems evident that in which it was used in in Section 9 in a sense similar to the ojnion that the term as used Section 13. I am accordingly of it has in Section 13 and that in Section 9 has the sage oJeaeing as ied te Section 13 ehould be the definition that the Board as appl applied to Section 9. the intentioe of AE stated heretofore, it was apAerantly the Federal eserve Act on Congress When it meaded Section 9 of s on a basis of equality July 1, 19L-32, to piece State member eank with Federal reserve banks. nts with national berace in =eking rediscou Section 9 was ap)ropriate The language used in the amendeaat to h reference to the amount loaned to maintain this basis of equality wit ver, did not, in my opinion, use to any one borrower. Coegress, howe e the basis of equality between Stat language api:ropriate to maintain the ed ider cons be who should and Nattbflat langs with reference to ision in Section 9 depend upon prov the e borrower, felt it did not nuk d this respect. It deteuld bs note the provisions of Section 5200 in the of made re nition it hae heretofo that if the Board applies the defi Fed the of it is used in Sectton 9 word "borrower?' to that term as ks and. National beaks will no eral Reserve Act, State member ban poState member banes will be in a longer be on the calm basis but State , under the Board's definition sition of some advantage. Fer an endorser unlimited remount of peper for menter balks can discount an the leene mmodation maker so long as unless the maker is an acco and surplus tel ce2i ;ls eed 1(4 of the tee exc not do er :Lak one aay to ount will stiU be eligible for disc and the paper of such endorser d ite lim be will k ban while a Katieeel with Le Federal reserve bank the to as utes Stat 5200 of the Reeised by the provisions of Section apfor an :endorser. Although the ed amount which may be discount that as r" rowe nition of the word "bor bring plication of the Board's defi thus will the Federal Reserve Act term is used in Section 9 of ks, ban onal ty between State and Nati about a condition of inequali / am of with Federal reserve ba.ks, with reference to rediscounts ns of isio anot lawfully adopt the prov the opinion that the Board visions le.o Whots the borrower under the Section 5200 in determining ded amen necessary for Section 9 to be of Section 9, but It will be that n ry eut its apparent intentio by Oonaess if it wihes to car reference ll be on en equal basis with StEte and national beaks sha rve bars. to rediscounts with Federal rese Re spectfully, jel B.M.Wingfield Assistant Counsel. BMW 011C-SAd MD .S4A Form No. 131. Office Correspork„,ence FBDERAL RESERVE BOARD Viyat t- General Counsel. From Oct. 22,1927 The Board's pcwer over foreign transenctions of Federal reserve banks. Subject: Mr,Hamlin TO . Date_ -144416 2 “Pn Dear Mr. Hamlin: a copy For your information I an handing you herrwith the law Comof aa opinion on the above subject which I filed with nce of this mittee on October 20th. In view of the unusual importo member of the each to opinion this subject I am furnishing a copy of Board. R es-o ec Walter Gener Cn inion attached. VOLUME 177 PAGE 91 At, Counsel. (Confidential) • OctobVic , To: The Federal Reserve Board, From:Mr. Wyatt- General Counsel. Subject: The Boardts power over foreign transactions of Federal Reserve Banks. The Board has requested an opinion with respect to rhat regulations, limitations and restrictions it is authorized to nrescribe as to foreign or international transactions of Federal reserv e banks, and as to its general authority over such transactions. I understand that the Board desires to have the following points covere d in tills opinion: (1) Whether the Board has power to regulate, limit, or restrict transactions involving the opening of accounts, the appointment of correspondents, or tne establishment of agenci es in forein [ISIIiSiIIXII (2) Whether the Board has power to regulate, limit, or restrict dealings in bills of exchange and banker s' acce-otances between Federal reserve banks and foreign central banks; (3) Whether the Board has power to regulate, limit, or restrict dealings in gold between Federal reserv e banks and foreign central banks; and (4) Whethor the Federal reserve banks may lawfully charge a commission or fee in connection with •Juch foreign transactions. CONCLUSIONS. After careful consideration of these quostions, I have reached the following conclusions: • (1) Under the specific terms of section 14(e) of the Federal Reserve Act, no Federal reserve bank m-ly lawful ly open or main 2- ) X-490 tam n accounts, appoint correspondents, or establish .1cencies in foreign countries without first obtaining the consent of the Federal Reserve Board; and the opening and maintenance of such accounts, the appointment of such correspondents, the establishment of such agencies and the conduct through such correspondents or agencies of "any transaction" auth- orized by section 14 of the Federal Reserve Act for or on behalf of other Federal reserve banks is expressly made subject to such rules and regulations as the Federal Reserve Board may prescribe. In addition, the Board has the power to order or direct Federal reserve banks to open and maintain accounts, appoint correspondents and establish agencies in foreign countries. (2) By virtue of specific provisions of the Federal Reserve Act, the Federal Reserve Board is authorized and empowered to prescribe regulations, restrictions and limitations governing dealings in bills of exchange between Federal reserve banks and foreign central banks. (3) By virtue of its right to exercise general supervision over Federal reserve banks, and by virtue of certain other powers specifically granted in the Federal Reserve Act, the Federal Reserve Board is authorized to regulate, limit or restrict important dealings in gold involving large amounts between Federal reserve banks and foreign central banks under section 14(a) of the Federal Reserve Act. (4) Whenever the Federal reserve banks enter into any lawful transaction involving the extension of credit to, or the -performance of any service for, a foreign central bank, they may lawfully charge a reasonable commission or fee for the extension of such credit or the rendition of such services. X-4980 DISCUSSION. T-le only one of these questions which Iresents any difficulty is the question whether the Board has the power to reL.ulate, limit or res-urict dealings in j)ld between Federal reserve banks and foreign central banks. I ghall, therefore, discuss the other questions first and take up this more difficult question last. FOREIGN ACCOUNTS, CORRESPONDENTS AND AGENCIES. The authority for Federal reserve banks to open and maintain accounts, appoint correspondents, and establish agencies in forein coulAries is conferred by the following language of Section 14: "Every Federal reserve bank shall have power: "(e) To establish accounts with other Federal reserve banks for exchange purposes and, with the consent or upon the order and direction of the Federal Reserve Board and under remlations to be prescribed by said board, to open and maintain accounts in foreizn countries, appoint correspondents, and establish agencies in guch countries wheresoever it may be deemed best for the purpose of purchasing, selling, and collecting' bills of exdhange, and to buy and sell, with or without its indorsement, through such correspondents or aE?,encies, bills of exchange (or acceptances) arising out of actual commercial transactions which have not more than ninety days to run, exclusive of days of grace, and which bear the signature of two or more responsible parties, and, with the consent of the Federal Reserve Board, to open and maintain banking accounts for guch foreign correspondents or agencies. Whenever any guch account has been o)ened or agency or correspondent has been appointed by a Federal reserve bank, with the consent of or under the order and direction of the Federel Reserve Board, any other Federal reserve bank may, with thc consont and a=oval of tHe Federal Reserve Board, bs permitted to carry on or conduct, through the Federal reserve bank opening guch account or appointing such agency or correspondent, any transaction authorized by this section under rules and regulations to be nrescribed bv the hoard." • • X-4980 (- 4- From a mere reading of this language it is obvious that the Federal Reserve Board is given full control of all transactions conducted thereunder. No FederD1 reserve bank may open or maintain accounts, appoint correspondents, or establish agencies in foreign countries except with the consent and sUbject to thc regulations of the Federal Reserve Board; and any Federal reserve bank must open and maintain accounts, appoint correspondents, or establish agencies in foreign countries if ordered or directed to do so by the Federal Reserve Board. The opening and maintaining of such accounts, the aproointment of such correspondents, and the establishment of such agencies is expressly made subject to "regulations to be prescribed by said board." No Fed- eral reserve bank may open and maintain banking accounts through such foreign correspondents or agencies without the consent of the Federal Reserve Board. Other Federal reserve banks may participate in such transactions only with the consent and approval of the Federal Reserve Board. And all transactions through such correspondents or agencies in which other Federal reserve banks participate must be conducted "under rules and regulations to be prescribed by the Board." This gives the Board the fullest possible measure of control, and it is important to note that the rules and regulations Which may be prescribed by the Board governing transactions in which other of the Federal reserve banks participate pertain to all transactions authorized by liny part of Section 14, and is not limited to transactions under subdivision (e). DEALINGS ra BILLS OF EXCHANGE AND ACCEPTANCES. The power of the Federal reserve. banks to deal on the open market in bills of exchange and bankers' acceptances is conferred by the X-4980 first parai-:ranh of section 14, which reads 'le follows: "Sec. 14. Any Federal reserve bank may, -under rules nd regulations prescribed by the Federal Reserve Board, F puxchase and sell in the open market, at home or abroad, either from or to domestic or foreign banks, firms, corporations, or individuals, cable transfers and bank.ersi acceptances and bills of exchange of the kinds and maturities by this Act made eligible for rediscount, with or without the indorsement of a member bank." It is obvious that all transactions conducted under authority of this paraexaph are ex7oressly made subject to "rules and regulations prescribed by the Federal Reserve 3oard." Further and more comolete authority to control such transactions is confel..red upon the Federal Reserve Board by the following paragraph of section 13: "The discount and rediscount and the puxchase and - sale "cy any Federal reserve bank of any bills receivable anS of domestic and foreign bills of exchan,;e, aid of acceptances authorized by this Act, shall be subject to such restrictions, limitations, and regulations as may be imposed by tne Federal Reserve Loal'd." It has been suggested that this paragraph pertains only to domestic transactions and gives the Board no power over transactions in foreign countries; but, the broad lan,e;nAge used by ConEress is not subject to any such restricted interpretation. It will be noted that it applies not only to the discount and rediscount but also to the purchase and eale by any Federal reserve banks of 2 . r_iz bills receivable and of domestic and foreign bills of exchange and of acceptances authorized by this Act. It is not limited in terms to domestic trnnsactions but is couched in t'ae broadest possible language and is obviously intended to include all purchases and sales by any Federal reserve bank of any bills receivable, domestic and foreiE]n bills of exchange, or acceptances authorized by the Federal Reserve Act. X-4980 It has been sug,ested thet it was intended to ap.21y only to transactiS ns under sectioe. 13 and does not appiy to dealings under section 14. A glance at the legislative history of this proon, however, shows that it could not possibly have be n intended to apply I nly to section 13. As contained in the oriEinal Federal Reserve Act, this provision epplied only to rediscounts but it was amended by the Act of September 7, 1916, so as to alply also to purchases and sales. At thLttime section 13 did not authorize Federal reser ve banks to purchase and sell bills receivable, bills of exchange or bankers' acceptances but dealt with discounts and redis counts and the only authority for the purchase and sale of bills of exchange and acceptances by Federal reserve banks was contained in section 14. Even at this late date, the only authority in secti on 13 to purchase and sell bills of exchanEe is the authority added by teA ruura Credits Act of March 4, 1923, to purchase and sell bills of exchange -2eyable at sight or on demand which are drawn to finan ce the domestic shipment of nonperishable readily marketable staple agric ultural products. It is obvious, therefore, that the authority conferred upon the Federal Reserve Board by the above quote d provision of section 13 is intended to apply to the purchase and sale of bills of exchange and bankers' acceptances by Federal reserve banks at home or abroad under sectiSn 14. In my opinion, thorefore, the gpecc provisions of the Federal Reserve Act authorize and empower the Feder al Reserve Beard to scribe regulations, restrictione, and limitation s covering dealings in bills of exchange Ind bankers! acceptances betwe en Federal reserve banks and foreign central banks. - 7 - ) X-4980 RIGHT OZ FEDERAL RESERVE BANKS TO MAKE A REASMBLE CH;IRGE Th CONNECTION 7I:2H "ZOR:I0 TaANSACTIONS. Assuming that Federal reserve banks have -eower to engage in transactions whereby they eell oe lend :old to foreign banks, purchase bills for the account of foreign banks or extend credit in any way to foreign banks, have the Federal reserve banks the right to charge a reasonable commission or fee for eo do ig' In my opinion it is an incidental Dower of Federal reserve banks to make a reasonable charge for any service lawfully rendered by them, unless such charge is nrohibited by statute or is contrary to public policy. There is no statute prohibiting the making of charges by Federal reserve banks in connection with dealings in gold or bills of exchange with foreign central banks, nor is there anything in the Federal Reserve Act to indicate that such a charge should be considered contrary to public policy. Assuming that the Federal reserve banks have power to engage in these foreign transactions, I Fim of the opinion, therefore, that they are legally authorized to make a reasonable charge for the services which they render in that connection. GOLD TRANSACTIONS. Section l4(a) authorizes and empowers the Federal reserve banks: "(a) To deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal reserve banks are authorized to hold;" This section does not expressly authorize the Federal Reserve Board to legulate, limit or restrict the exercise of the powers conferred thereby; but I am of the opinion that such authority is to be found else— X-4980 where in the Act. I am not familiar with the details of the arrangements between the Federal Reserve Bank of New York and the varioua central banks of foreign countries; but it is my underst:Inding that, whenever the Federal Reserve Banka have undertaken to enter into transactions with foreign central banks involving the purchase and sale of bills of exchange or dealings in gold, the Federal Reserve Bank of New York has first entered into mutual arranEements with uach central banks whereby each bank appoints the other its correspondent or agent, and that the transactions which take place under these arrangements are conducted by the Federal Reserve Bank of Yew York on behalf of all Federal Reserve Banks on a pro rata basis. rhere this is done there can be no doubt of the Board's power to prescribe rules and regulations governing all such transactions Which are authorized by any part of Section 14; because the last sentence of Section 14(e) 7rovidcs thati "Whenever any such account has been ormed or agency or correspondent has been appointed by a Federal reserve with the consent of or under the order and direction of the Federal Reserve 3oard, any other Federal reserve bank may, with the consent and approval of the Federal Reserve Board, be .permitted to carry on or conduct, through the Federal reserve bank opening uach account or appointing such agency or correspondent, any transaction authorized by this section under rules and regulations to be prescribed by the board." It has been suggested that the words "any transactions" as used here refer only to the purchasing, Gelling and collectind of bills of exchange under authority of subdivision (e) of Section 14; but, in my opinion, no uach restric-6ed interpretation can properly be given to thes words. The words "any transaction authorized by this section" - 9-) X-4980 are very broad in their sco?e and clearly include every transaction authorized by any nart of Section 14, including the power granted by Subdivision (a) to deal in gold coin anl bullion at home or abroad. In my opinion, therefore, this rrovision of subdivision (e) of Section 14 specifically authorizes the Board to rescribe rules and regulations governing any and all transactions in gold between a Federal reserve bank and a foreign central bank which has been appoin ted as the agent or correspondent of such Federal reserv e bank, if other Federal reserve banks participate in such transactions. Independently of the power conferred by section 14(e), howeve r, I am further of the opinion that the Federal Reserve Board is authorized to receulate, limit or restrict international gold transactions of the Federal reserve bans, even when such transactions are not conducted through correspondents or a-zencies opened or established pursuant to section 14(e). This power in my opinion is included in the power con- ferred by section 11(j) "to exercise general superv ision over said Federal reserve banks" and the power conferred by Section 11(i) to "Perform the duties, functions, or services a;ecified in this Act, and make all rules and regulations necessary to enable said Board effectively to perform the same. In view of the great importance of this question, I shall discuss at length the nature and extent of the Bor=rdi s power of general supervision, the legislative history of the open market powers of the Federal reserve banks, the respective functi ons of the Federal reserve banks and the Federal Reserve Board in the Federal Reserve System and the relation of international gold transa ctions to other transactions over which the Board has been Liven aoecific t)owers. Before entering upon such a lengthy discussion , however, I shall state briefly my reasons for the above conclusion . 1. It has long been recognized that banki n is a business af- fected with the public interest and that bltnks are subject to regulation under the police power for the protection of the reneral welfare of the people. 2. Because of their very nature and becau se of the far-reaching effects of their policies Ind timnsactio ns on the general welfare of the people, this is especially true of Federal reserve banks. 3. Federal reserve banks are instrumentae s of the Federal government created for public purposes and are at all times and in all respects subject to the paramount authority of the 7ederal government. 4. The Federal Reserve Board is an arm of tIle Federal overnment created for the purpose of administering the Federal aeserve Aet and exercising general aupervision over the Federal reserve banks, to the enS that they may function ta a manner best calaulated to carry out the purposes of the Federal Reserve Act, to serve the public policy of the United States, and to benefit tne )eople of the United States. 5. The Board's general power of aupervision includes the power to sec that the Federal reserve banks :preserve and protect the banking reserves of the country with which they are entrusted, that they do nothing which may endanger tho solvency or soundness of their aurrency, that they carry out faithfully the nwpo ses of the Federal Reserve Act and that they comely in all respe cts with loth the letter anS the spirit of the law. This power carries with it tlie power to ( - 11 - ) X-4980 require the Federal reserve banks to cease doing anything rhich is ultravires or which might defeat the purposes of the Federal Reserve Act or which might be detrimental to the public interest. Moreover, this power is to be construed liberally so as to enable the Board effectively to safeguard the :;reat -public interests confided to it. 6. From an examination of the Committee reports and legislative debates on the Federal Reserve Act it is Perfectly clear that the power of carrying on the re,mlar routine everyday business of the Federal re:,erve banks and the power of determining local policies was entrusted to their resrective board of directors, but the Federal Reserve Board was created as "a general board of management" entrusted with the power to overlook and direct the general functions of the bans in order that the Board, on behalf of the government, might retain some power over the exorcise of the "broader banking functions" affecting the country as a whole. 7. To this and, the Board was given power, among other things, to review and determine the rates of discount to be fixed by each Federal reserve bank from time to time, to regulate the open market transactions of the Federal reserve banks, to exercise general supervision over the Federal reserve banks, and to make all rules and regulations necessary to enable the Board to perform the duties, functions or services specified in the Federal Reserve Act. 8. The power to purchase and sell bills of exchange and bankers' acceptances in the open market was conferred upon the Federal reserve banks in order to enable them to make their rediscount rates effective and to protect their gold reserves, but this power was subjected to X-4980 • 12 - - reEulation by the Federci. Reserve Board in order that the Board might have some control over the reserve positions of the banks, the rediscount rates, and general credit conditions throuchout the country. 9. For the same reason, the Board was ;iven a great measure of control over the other open mar":et operations of the Federal reserve banks, over their power to appoint correspondents, open account s and establish agencies abroad, and over the transactions which mit be conducted through such foreign correspondents and agencies. 10. The effectiveness of the Powers thus conferred upon the Board would be seriously impaired and the Board's ability to 0-..ercise some control over the rediscount rates, open market operations and foreign transactions of th.2 Federal reserve ban.c.,.; with a view to protecting the general credit situf.,tion and overseeing the "broader bankin, functio ns" affecting the country as a whole might be rendered nugatory if the Federal reserve banks could enter into transaction:, with foreign banks involving the purchase and sale, lending, borrowing and earmarking of J;old, thereby moving groat quantities of gold into or out of the country, without being subject to any regulation or check by the Federal Reserve Board. 11. Any statute must be construed as a whole and in such a way as to carry out the intent of the legislature. The int:mt of the loislature must be obtained by reading the act as a whole and not by construing isolated orovisions of the sDuie without any refercace to their relation to hc other provisions of the act or the effect of such construction -u:on other 7)rovisioas of the act. 12. To construe the Board's DOWC2S "to .2xercise general super- vision over the Federal reserve banks" and "to perform the duties, • ( - 13 - ) X-4980 functions or services specified in te.is act and to make all rules and regulations necessary to enable said Board effectively to perform the same" strictly and in such a way as not to include the power to exercise some control over international gold transactions, would clearly defeat the broad purposes of the Federal Reserve Act and greatly impair tne Board's function as a "general board of management" entrusted with the power to overlook and direct the general functiens of the banks in order that the Board, on behalf of the government, might retain selee power over the exercise of the fibrocder banking functions" affecttng the country as a whole. 13. Dealine;s in gold between the Federal reserve banks and foreign central banks are trnsactions ef imnoetance to the entire Feacrol Reserve System and to tale public interests of the United States as a whole. Normally large amountt are involved in these dealings. Frequently in such transactions the funds of the Federal reserve ban'cs are invested in or represented by assets located in foreign countries. This use of lalse amaunts of the funds of the Federel Reserve System mignt cause a serious restriction troon the mount of fands available for use in this country aad harmful rasults upon the Federal Reserve Sistem or rpm the business interests of this country might ensue. It could seriauely affect the gold reserves of the country and the effectiveness of tae rediscount rate. 14. Under these circumstances, the question whether and to what extent Federal reserve banks should engao in transactions of this kind is an important question of policy to the 'Federal Reserve System as a whole. The practical responsibility of such transactions is one • • _ 14 - ) X-4980 which in the last analysis, must rest upon the Federal Reserve Board. If the Federal Reserve Board's power of general supervision over Federal reserve banks is to have any practical effect or is to be given any substantial meaning, it must be considered to extend to and include the regulation or restriction of such important activities of Federal reserve banks as these international dealings in sold, which may impair the effectiveness of the rediscount rate and the open market transactions over which the Board is expressly given a large measure of control. I am of the opinion, therefore, that by virtue of its right to exercise general su,)ervision over Federal reserve banks the Federal Reserve Board is empowered and authorized to restrict or regulate important dealings in gold involving substantial amounts between Federal reserve banks and foreign central banks under section 14(a) of the Federal Reserve Act and that accordingly the Federal Reserve Board may, if it so desires , require Federal reserve banks to obtain its approval before entering into such transactions. .FURTHER DISCUSSION AND CITATION OF AUTHDRITIES. The above is only a summary of the reasons for my conclusions regarding the Board's power to exercise supervision and control over international gold transactions. In view of the vast importance of this subject, I have made a very lengthy and complete study and feel that I should submit below for future reference the results of that study and the citations of such authorities as I have found. GENERAL SUPERVISORY POWER. I have made a careful and thorough study of the Board's general supervisory power and of the legal authorities regarding the general supervisory or visitatorial powers in 6ennral. I submit the followin.z discussion of that subject for the Board's further information. ( - 15 - X-4980 It is customary in American law to vest in some board, commission, or officer, the rower to exercise general supervision over certai n types of corporations such as common carriers, insurance compan ies, and banks, which are affected with a public interest. Furthermore, under American law all corporations are chartered by the Government and have only such powers as are expressly granted in their charters or in the laws under which they are incorporated and such incidantal powers as are necessary to the exercise of the powers expressly granted. It is well settled that by implication they are forbidden to exercise any other powers. The State, therefore, is interested in any attempt by a corpor ation to exceed its corporate powers and it is well settled that the State is the one to complain of any ultra vires acts of a corporation and is the only one which can institute quo warranto proceedings to compel a corporation to cease performing ultra vires acts. The duties of boards, commissions or officers charged with general supervision over corporations affected with a public interest, therefore, are primar ily to sea that such cor-oorations do not exceed their lawful powers and that they carry out the purposes of their organization in such a way as to benefit rather than injure the public, and to prevent or check any abuses of any character. This Dower, in its general nature and purpose is quite simila r to, if not the same as, the common law power of visita tion. 4 discussion of the authorities on the subject of visitatorial power s, therefore, may throw some light on the extent of the Board's duties and powers in the premises. The visitors of eleemosynary and ecclesiastical corpor ations at common law, however, frequently performed all the functions and possessed all the powers which are now divided between the directors of banks and the governmental authorities having superv ision over them; azdit is im X-4980 portant to keep this in mind while reading the authorities quoted below: Bouvier's Law Dictionnry. (p. 3404) diecusses this subject as follows: tion. "Visitation. The act of exareining into the affairs of a corpora- "The power of visitation ie applice:olo only to ecclesiastical and eleemosynery corporations. 1 Bla. Com. 480. The visitation of civil corporations is by the government itself, through the medium of the courts of justice. See 2 Kent, 240. In the United States, the legislatu re is the visitor of all corporations founded by it for public y.7,37,....oses; Dartmouth Collee v. Woodwnxd, 4 Wheat. (U.S.) 518 4 L. Ed. 629. * * * * * * * * * * * * "All eleemosynary corportions who are to receive the charity of the founder have visitors if they are ecclesiastical cor,?orations ; and if a particulnr visitor is not provided by the founder, then the Ordinary of the place is the visitor; if ;.hey are lay corporations, the founder and his heirs are perpetual visitors; 5 Mod. 014. It is a necessary incident of an eleemosynary corporation; 1 Med. 82; "a power to correct abuses and to enforce due observance of the statutes of the charity,lout not a power to revoke the Lifts, to change uses or divest rights;" Allen v. McKean 1 Sumn. 273, ved. Cas. No. 229, per Story, J. "A visitor has the rii;ht of inspecting the affairs of the corporation, and auperintending all officers who have charEe of them according to the statutes of the i'ounder, withuut any control or revision ofiany other person or body, except the judicial tribunals, by whose authority and jurisdiction he may be restrained and llept within the limits of the granted powers, and made to regard the general laws of fhe land; in re Murdock, 24 Mass. 303. No. apPeal lay from a visitor unless he visits qua Ordinary, when an appeal lay to the Crown in Chancery. It was d. by Lord Cmden that visitation is despotism uncontrolled and %Ti11 appeal; Grant, Corp. 534. See, generally, Tudor, Charitable Trusts; F Stephens, Statutes Relating to Ecclesiastical, etc., Institutione; Report of Oxford Comminsion (1852); 7 Com. Dig. 545; 21 Viner, Abr. 587. See 34 and Rev. 40, as to Oxford and Cambridge Univereities. "In Massachusetts it is held thnt the visitation of eleemosynary corporations according to the common law is in force except as altered by statute; In re Murdock, 24 Mass. 303; auch statutes may vest visitatorial power in the Courts, in the absence of a personal visitor, or even where there is one; In re Taylor Orphan Asylum, 36 7is. 534; but where visitatorial power is conferred on certain public officers, the courts may not interfere unlees such visitors should act contrary to law; Nelson v. Cushing, 2 Cush. (56 Mass.) 519. "Even where a testator, in foundinE a hospital, directed that the trustees should annually report their acts to the court and give bonds, it was held that the court had no visitatorial Dower or other aunervisi on; • e L980 ( -17- ) Jenkins Berry, .1 i9 Ky. 350, 83 S.'. 594.. "The visitatOrial power of a court over a cemetery as-ociation does not authorize it to substitute its own business judgreent for that of the association; Roanoke Cemetery Co. v. Goodwin, 101 Va. 605, 44 S.E. 769. "Under the visitatorial Powers of a state over corporations doing business within its borders, it is competent for it to compel such corrorations to produce their books and papers for investigation ,end to require the testimony of their officers and employees to ascertain whether its laws have been complied with, andthis power extends to the production of books and papers kept outside of the state, and a statute reauiring such production does not amount to an unreasonable search or seizure or a denial of due process of law; Consolidated R. Co. v. Vermont, 207 U. S. 541, 28 Sup. Ct. 178, 52 L. Ed. 327, 12 Ann. Cas. b58; Hammond P. Co. v. Arkansas, 212 U.S. 322, 29 Sup. Ct. 370, 53 I. Ed. 570, 15 Ann. Cas. 645. A corporation, being the creature of the state, has not the constitutional right to refuse to submit its books and papers for an examination at the suit of the state, and an officer of corporation charged with criminal violation of a statute cannot Plead the criminality of the corporation as a refusal to Produce its books; Hale v. Henkel, 201 U. S. 43, 25 Sur. Ct. 370, 50 L. 7d. 552. A corporation is bound to furnish information -hen called for by the state, so fe.r as reasonably possible, and state the facts which excuse them from answering more fully; State v. Express Co., El !ann. 87, 83 N.7. 465, 50 L.R.A. 667, 83 Am. St. 'Rep. 366; by statute the right exis.zs in Kansas; See 7estern U. Tel. Co. v. Austin, 67 Kan. 20, 72 Pee. 850. "It may be considered that, to a certain extent, railroad commissions are the machinery created by lew for the exercise of visittori. ,1 power. "This Power does not include the common law right of the shareholder to inspect the books of the cor-oration; Guthrie v. Harkness, 199 U.S. 148, 26 Sup. Ct. 4, 50 L. Ed. 130, 4 Ann. Cas. 433." In the famous Dartmouth College Case, 17 U.S. ()4 Meat) 517, 672, Mr. Justice Story discusses the subject of visitors of eleemosynary corporations as follows: "To all eleemosynary corporations, a visitatorial power attaches, as a necessary incident; for these corporations being composed of individuals, subject to human infirmities, are liable, as well as private persons, to deviate from the end of their institution. The 1e.7, therefore, has nrovided, that there shall some-here exist a power to visit, inquire into, and correct all irregularities and abuses in such corrortions, and to compel the original purposes of charity to be faithfully fulfilled. 1 31. Com1-480. The nature and extent of this visitatorial power has been expounded with admirable fulness and accuracy by Lord Holt in one of his most celebrated judgments. Phillips v. Bury, 1 Ld. Raym. 5; s.c. 2 T.R. 346. And of common right, by the dotation, the founder pnd his heirs are the legal visitors, unless the founder has anointed and assigned another person to be visitor. For the founder may, if he please, at the time of the • x-49so endowment, part with his visitatorial rower, and the person to whom it is assigned will, in that case, possess it in exclusion of the founder's heirs. 1. Bl. Corn. 4g2. *** But where trustees or governors are incorrorated to manage the charity, the visitatorial power is deemed to belong to them in their corporate character. Philips v. Bury, 1 Ld. Raym. 5; s.c. 2 T.R. 346; Green v. Rutherforth, 1 Ves. 472; Attorney-General v. Middleton, 2 Ibid.327; Case of Sutton Hospital, 10 Co. 23,31." That the power to surervise and examine banks is a visitorial power is indicated by the following passage in Morse on Banks and Banking (5 Fd.) Vol 1, p.44: "A state may invest the supervision of banks in a bank commissioner or other examiner, and grant to him visitorial powers over banks and impose upon him the duty of examination of banks, the investigation of their solvency, and the winding un of their affairs if the protection of the depositors demands such action. He may examine the records of the bank, change the personnel of the board of directors, and establish rules for the proper discharP,.e of his duty. His power should not be unduly narrowed by construction, nor can he be removed by the governor." In Guthrie v. Harkness, 199 U.S. 14g, a stockholder in a national bank applied for leave to inspect the books, accounts and loans of the bank for the purpose of ascertaining the value of his stock. Upon refusal to allow proceedings such inspection, he instituted/to compel the officers of the bank to permit him to examine the books. One of the defenses made on behalf of the officers was that the common law right of the stockholder to inspect the books of a corporation is cut off as to stockholders of national banks by Section 5241 of the Revised Statutes, which provides that "No association shall be subject to any visitorial powers other than such as are authorized by this title or are vested in the courts of justice." The court held that the stockholder was entitled to examine the books of the bank and that the officers thereof must permit him to do so. Mr. Justice Day said: X-4980 ( -19- ) "But, it is sPid, the right of the shareholder to inspect the books is cut off by section 5241, providing 'no association shall be subject to any visitorial powers other than such as are authorized by this Title, or .Dre vested in the courts of justice. 'We are unable to find any definition of lvisitorial powers' which can be held to include the common 1n7 right of the shareholder to inspect the books of the corporation * * *. * * * * * * * * * * * "The meaning of this section was before Judge Baxter in the case of First Nat. Bank of Youngstown v. Hughes, 6 Fed. Rep. 737, and of the meaning of the term Ivisitorial powers', as used in section 5241, that learned judge said: 'Visitation, in law, is the act of a superior or superintending officer, who visits a c -)rporation to examine into its manner of conducting business, and enforce an .:bservance of its 1..-s and regulations. Burrill defines the word to mean "inspection; superintendence; direction; remiletion." ' "At common law the right of visitation was exercise, by the King as to civil corporations and as to eleemosynary ones by the founder or donor. 1 Cooley's Blackstone, 4S1. 'In the United States the legislature is the visitor of all corporations created by it, where there is no individual founder or donor, and may direct judicial proceedings against such corporations for such abuses or neglects as would at common law cause forfeiture of their charters.' 1 Cooley's Blackstone, 4S2,note. "In the case before us the Sunreme Court of Utah quotes from Yierrill on Mandamus as follows: 'Visitors of corrorations have power to keep them within the legitimate sphere of their onerations, and to correct all abuses of authority, and to nullify all irregular Proceedings. In America there are very few corporations which have nrivate visitors, and in the absence of such, the State is the visitor of all corporations.' "In no case or authority that -e have been able to find has there been a definition of this right, which would inclncie the private right of the shareholder to have an examination of the business in which he interested, and the right of discovery of the methods and means by which the aeents of the corporation are conducting its affrurs.The rip:hk of visitation being a public riEht, existing in the State for the purpose of examining into the conduct of the corporation with a view to keeping it within its legal nolrers, Cress had in mind in passing this section that in other sections o' the law it had me full and complete provision for investigation by the Comptroller of the Currency. and examiners appointed by him, and, authorizing the aprointment of a receiver, to take Possession of the business with a view to winding up the affairs cf the bank. It was the intention that this statute should contain a full code of • ( -20- ) X-4980 "provisions upon the subject, and that no state law or enactment should undertake to exercise the richt of visitation over a national corporation. Exceot in so fax as such corporation was liable to control in the courts of _Iustice this act was to be the full measure of visitorial power." The Board's power to exercise general supervision over Federal reserve banks and examine into their affairs is quite similar to the corresponding power of the Comptroller of the Currency over national banks, and it would seem that the nature and purpose of the Board's power Liust be practically the same as that of the Comptroller's. In the case of State v. Morehead, (Nebr.) 155 N. W. 879, the court in discussing the right of the State Banking Board to refuse to issue a charter to a savings bank said: "Then the general rule of statutory construction is applied and section 16 is considered in connection with the other provisions, it must be held that the board is vested with authority not only to correct evils that may creep into the management of an existing bank, but to guard against dangers, that may threate institu n tions about to be formed. "'The power to compel,beforehand, co-operation, and thus, it is believed, to make El failure unlikely and a general panic almost impossible, must be recognized, if government is to do its proper work, unless we can say that the means have no reasonable relation to the end. Noble State Bank v. Haskell, 219 U.S. 104, 112, 31 Sup. Ct. 186, 188 (55 L. Ed. 112, 32 L.R.A.(Y.S.) 1062, Am. Cas. 1912A,487).' "* * * V.e think the intention of the Legislature was to vest the banking board with general control and with authority to do all things reasonably necessary for the protection of depositors throughout the state. The Board also stands in the nature of a trustee for this guarantee fund, and it is its duty to take such precautions as may be necessary to protect its integrity. The terms 'general supervision and control' vest the banking board with duties of a very high order, and they are not to be perfunctoril,y dischc:r:;ed, but to be administered with the highest deFree of i_telligence and discretion. "It is customary for Legislatures to grant to administrative bodies of this character the oower to adopt rules, by-laws, and regulations reasonably necessary to carry out the purpose for which they are created, and this grant is not an improper delegation • • ( --21- ) X-4980 'of authority. Blue v. Beach, 155 Ind.. 121, 56 N.E. 89, 50 L.R.A. 64, 8C Alc.. St. Rep. 195 and cases cited. This is held generally to be the rule in matters coming within the police power of the state. That the banking business comes within that power is no longer an open question. "'The police power extends to all the great t'ublic needs (Camfield v. United States, 167 U.. 51E, (17 Sup. Ct. 864, 42 L. Ed. 260) and includes the enforcement of commercial conditions such as the protection of bank deposits and checks drawn against them by compelling cooperation so as to nrevent failure and panic.' (Noble State Sank v. Haskell, 219 U. S. 104) "The business of tanking coming within the police power of the state, the same rule of construction may be applied to banking acts and to rules and reculations established by banking boards as applies to acts creating other administrative bodies coming within the police nower. Thc Supreme Court of Judicature of Indiana, in discussing this phase of the ouestion, in Blue v. -Beach, supra, says: " 'Milo it is true that the character or nature of such boards is administrative only, still the powers conferred u-oon them by the Legislature, in view of the great public interests confided to them, have always receiind from the courts a liberal construction, and the right of the Legislature to confer upon them the power to make reasonable rules, by-laws, and regulations, is generally reco, ,nized by the authorities.'" The case of Great Northern Railway Com-rany v. Snohomish County, 48 7;ash. 478, 93 Pac. 924, involved the construction of a State statute requiring the State Board of Tax Commissioners to exercise "general supervision" over assessors and county boards of equalization and the assessment of taxable property in order to secure equality in taxation. The case turned upon the proper meaning of the term "general supervision" - whether it authorized the Commissioners to act merely in an advisory capacity or whether it authorized them to classify inter-county railroads and fix the value thereof for the purpose of taxation. The court held that the statute authorized the Com- missioners to classify inter-county railroads and fix the value thereof for purposes of taxation; that the words "general suer'zisie'lflimply something ( -22- ) X-4980 more than a mere pover to advise ad suggest; that they confer authority to oversee and review the acts and correct errors of those over whom the right of supervision is granted. In the course of the oninion the court said: "Mile these several - rovisions bear more or less directly on the question under consideration, the case turns principally on the meaning of the term 'general supervision' in the act defining the powers and duties of the state board of tax commissioners. * * * The state board of tax commissioners is given general supervision over assessors and county boards of equalization, to the end that all taxable property shall be placed on the assessment rolls and eoualized as between the different counties and municipalities, so that equality of taxation shall be secured according to the provisions of law. Rhat is meant by 'general supervision'? Counsel for respondents contend that it means to confer with, to advise, and that the board acts in an advisory capacity only. We cannot believe that the Legislature went through the idle formality of creating a board thus impotent. Defining the term 'general supervision' in Vantongeren v. Hefferman, 5 Dak. 160, 38 IT.W. 53, the court said: 'The Secretary of the Interior, and u:..Ider his direction, the Commissioner of the General Land Office, has a general "supervision over all public business relating to the public lands." That is meant by "supervision"? Webster says supervision means "to oversee for direction; to superintend; to insocct; as to supervise the press for correction." And, used in its general and accepted meaning, the Secretary has the power to oversee all the acts of the local officers for their direction, or, as illustrated by Mr. 5ebster, he has the power to supervise their acts for the purpose of correcting the same; and the sane power is exercised by the Commissioner under the Secretary of th:. Interior. It is clear, then, that a fair construction of the statute gives the Secretary of the Interior, and under his direction, the Commissioner of the General Land Office, the power to review all the acts of the local officers, and to correct, or direct a correction of, any errors committed by them. Any less, power than this would make the "Supervision" an idle act - a mere overlooking without power of correction or suggestion.' Defining the like term in State v. F.E. R.R. Co., 22 Nebr. 313, 35 N.T. 119, the court said: 'Tebster defines the word "supervision" to be "the act of overseeing; inspection; superintending." The board therefore is clothed with the power of overseeing, inspecting, and superintending the railways within the state for the purpose of carrying into effect the provisions of this act, and they are clothed with the power to prevent unjust discrimination against either persons or places.' It seems to us that the term 'general supervision' is correctly defined in these cases. Certainly a person or officer who can only advise or suggest to another has no general supervision over him, his acts or his conduct Similarly, it would seem that the Board's -tower to exercise "general aunervision" over the Federal reserve banks wuuld include the power to reouire the Federal reserve banks to carry out the Tmrposes of the Act and to Check any practices which wauld be detrimental to the puIlic interest or inconsistent with the nurnoses of the Act. Certainly, the Board's -power of general aunervision s-iould not be construed in such a way as to "make the 'supervision' an idle act - a 1:,er'.3 overlooking without power of correction or su&gestion." On the other hand, there are some cases indicating the limitations on this pouer of general suoervision. One of such cases is that of State v. Eronson, (1i.o.) 21 S..1125. The constitution of kissouri provides that "The suoervision of instruction in the public schools shall be vested in a board of education whose powers and duties shall be prescribed by law." The legislature passed a law creating a commission to nurchase the books necessary for use in the schools. This law was objected to by the directors of a school district as being unconstitutional on the ground that it was in violation of the powers vested in thc board of education Iv the constitution. The court held that the selection and -purchase of the school books does not come r,ithin the fair meaning of the words "the supervisi on of instruction" and the law does not violate the constitutional nrovision. In so holding the court said: "With such a g;enerr,1 system of public schools it must be evident that when the constitution says the sunervision of instruction shall be vested Li the state board of education, it does not mean that this board shall enter into the details of -iving instruction or carrying on the schools. All this is and be left to subordinate officers. It means no more than a general oversig'nt over the matter of instruction." ( -24- ) X-4280 In the case of Roanoke Cemetery Co.v. Goodwin, 101 Va. 605, 44 S.E. 769, the lower court had reviewed the reasonableness of regulations prescribed by the cemetery association for the conduct of its business and the fees charged for opening graves and had issued a decree whereby the court undertook to prescribe its own rules and regulations for the management of the affairs of the company, even going to the extent of determining the fund out of which the salary of the superintendent should be paid. that the decree The Supreme Court of Appeals in Virginia held exceeded the power of the court and said: "It is not permissible for a court to thus substitute its own business discretion and judgment for that of the company; its visitorial powers have no such scope. 1 Clark & IharLhall, p. 547. " Similarly, it might be said that the authority to exercise general supervision over the Federal reserve banks does not carry with it the duty to enter into the details of operating the banks nor the authority for the Federal Reserve Board to substitute its own business judgment and discretion for that of the directors. Without attempting to lay down a precise definition of the Board's power of general supervision, it may be said that generally it includes the power and carries with it the duty to see that Federal reserve banks do not exceed their corporate powers; that they do not discriminate in favor of or against any class of the public or any member banks; that they preserve and -protect the banking reserves of the country with whidh they are entrusted; that they do not do anything which may endanger their solvency or the coundness of their currency; that they carry out faithfully the purposes of the Federal Reserve .;ict; and that they comply in all respects with both the letter and apirit of X-4980 the law. I am further of the opinion that this power carries with it the power to require the Federal reserve banks to cease d.oing anythi-ng which is ultra vires vrhich might defeat the purposes of the Federal Reserve Act or -ohich might be detrimental to the public interest. 1..oreover, this power is to be construed liberally so a.s to enable the Board effectively to safeguard the great public interests it. Blue v. Beach, 135 Ind. 121, 45 N.E. 89. confided to As stated in State v. Ivioreland, suI ra, "The terms 'general supervision and control' vest the banking 'board with duties of a very high order, and they are not to 'be perfunctorily discharged, but to be administered with the hiEhest degree of intelligence and discretion." On the other hand, I am of the 0-. Y-Anion that this power does not carry with it either the duty or the po,Aer to interfere in the details of teS.eraon of the Federal reserve banks or to substitute the Board's own business judgment and discretion for that of teIrectors of the Federal reserve banks. It does, hOwever, include the power to check any actions on the part of the Federal reserve banks which would nullify or impair the effective exercise of any lawful powers of the Federal Reserve Board or which would constitute an evasion of any control which the Federal Reserve Board is authorized to exercise over the general credit policies Sf the System as a whole. Vdthin this class of actions which are subject to regulation under the Board's general supervisory poy,er would clearly be included international dealings in gold, 1-thich 1::.ight tend th affect or impair the effectiveness of the rediscount rate, which is expressly made subject to review and determination by the Fed.eral Reserve Board, or which would nullify the effect of the Board's restrictions on teS- e market operations of the banks. ( ) X-4.980 THE RELATI UNTI=S OF THE IOD 4ND Ta BNKS AS Sh0-....1; BY LLGI:..L.,TIVE HISTORY. That these views, basedu)on a purely legal interpretation of the Board's powers, are in accordance with the intent of Congress at the time it enacted the Federal Reserve Act appears from the following passage s in the report on the original Federal Reserve Act submitted to the House of Representatives by Mr. Glass, on behalf of the Banking and Currency Committ ee, under date of September 9, 1913 (pages 16, 18, 19, 42 and 46): 'In order that the banks may be effectively inspected, and in order that they may pursue a banking policy which shall be uniform and harmonious for the country as a whole, the committee proposes a general board of management intrusted with the power to overlook and direct the general functions of the banks referred to. To this it aEsiEns the title of 'The Federal reserve board.'" "The only factor of centralization which has been provided in the committee's plan is found in the Federal reserve board, which is to be a strictly Government organization created for the purpose of inspecting existing banking institutions and of regulating relationships between Federal reserve banks and between them and the Goverment itself. Careful study of the elements of the problem has convinced the committee that every element of advantage found to exist in cooperative or central banks abroad can be realized by the degree of cooperation which will be secured through the reserve-ban::: plan recommended, while many dangers and possibilities of undue control of the resources of one section by another will be avoided. Local control of banking, local application of resources to necessities, combined with Federal supervision, and limited by Federal authority to compel the joint a)plication of bank resources to the relief of dangerous or stringent conditions in any locality are the characteristic features of the plan as now put forward. The limitation of business which is proposed in the sections governing rediscounts, and the maintenance of all operations upon a footing of relatively short time will keep the assets of the proposed institutions in a strictly fluid and availab le condition, and will insure the presence of the means cf acco=odation when banks apply for loans to enable them to extend to their clients larger degrees of assistance in business. It is proposed that the Government shall retain a sufficient power over the reserve banks to enable it to exercise a directing authority when necessary to do so, but that it shall in no way attempt to carry on through its own mechanism the routine operations of banking which require detaile d ( -27- ) X-4980 knowledge of local and individual credits and which determine the actual use of the funds of the community in any given instance. In other words, the reserve-bank ulan retains to the Government power over the exercise of the broader banking functions, while it leaves to individuals and -Drivately owned institutions the actual direction of routine." "In this section urovision has been made for the creation of a c-eneral board of control acting on behalf of the national Government for the purpose of over-seeing the reserve banks and of adjusting the banking transactions of one portion of the country, as well as the Government deposits therein, to those of other portions." "(e) In paraEraphs(e), (f), (g), (h), and (i) are conveyed powers which are largely self-explanatory and about which there can be little or no ouestion, gasanting the general idea of effective Government oversight through a Federal reserve board or some similar organization." The power of carrying on the regular routine every-day business of the Federal reserve banks, therefore, and of determining the local policies was entrusted to their respective boards of directors, but the Federal Reserve Eoard was created as "a general board of mana-,gument" entrusted with the power to overlook and direct the general functions of the banks in order that the Board, on behalf of the Government, might retain sone power over the exercise of the "broader banking functions" affecting the country as a whole. That the open market operations of the Federal reserve banks and their transactions with foreign central banks in gold, credits and bills of exchange is a function affecting the country as a whole, seems purfectly obvious, and it would seem to follow that the Board was intended to have a control over all such operations. This will appear more clearly from a con- sideration of the history and nature of such transactions. S ( -28- ) X-4980 HISTORY AND FATT:R7 OF OPEN Y.A.LIKET FUrCTIONS. The report of the House Banlr.in7 and Currency Comittee (pp. 52 and 53) discusses section 15 of the original Federal Reserve Bill, which later became section 14 of the Federal Reserve Act as follows: "Section 15. "it will have been observed that the transactions authorized in section 14 (now section 13 of the Federal Reserve Act) were entirely of a nature originating with member banks and involving a rediscount operation. It is clearly necessary to extend the permitted transactions of the Federal reserve banks beyond this very narrow scope for two reasons: "1. The desirability of enabling Federal reserve banks to make their rate of discount effective in the general market at those times and under those conditions when rediscounts were slack and when therefore there might have been accumulDtion of funds in the reserve banks without any motive on the part of member banks to apply for rediscounts or perhaps with a strong motive on their part not to do so. "2. The desirability of opening an outlet through which the funds of rederal reserve banks might be profitably used at times when it was sought to facilitate transactions in foreign exchange or to regulate gold movements. "In order to attain these ends it is deemed wise to allow a reserve bank, first of all, to buy and sell from anyone whom it chooses the classes of bills which it is authorized to rediscount. The reserve bank evidently would not do this unless it should be in a position which, as already stated, furnished a strong motive for so doing. Outright purchases in the open market would of course require the payment of the face of the paper less discount, whereas rediscount operations would require simply the holding of a reserve of 33 1/3 per cent behind the notes issued or deposit accounts created in the course of the rediscount operation. Apart from this fundamental permission, it was deemed wise to allow the banks to buy coin and bullion and borrow or loan thereon and to deal in Government bonds. The power granted in subsection (d) to fix a rate of discount is an obvious incident to the existence of the reserve banks, but the power has been vested in the Federal reserve board to review this rate of discount when fixed by the local reserve bank at its discretion. This is intended to -provide against the possibility thEet the local bank might be establishin a dangerously low rate of interest, which the reserve board, =IUML familiar as it would be with credit conditions throughout the country, ould deem best to raise. "The final power to o'Den and maintain 'eanking accounts in foreign countries for the pur ese of dealing in exchange and of buying foreign bills is necessary in order to enable a reserve bank to exercise its full power in controlling gold movements and in facilitating payments and collections abroad." The open market povers granted to Federal reserve banks under Section 14, therefore, were designed Drimarily to enable the Federal reserve banks to make their discount rates effective, to facilitate transactions in foreign exchange, and to regulate and control gold movements. The banks were given power to fix discount rates subject to review and determination by the Federal Reserve Board, and it was explained that the power to revie:, discount rates was vested in the Federal Reserve Board in order to provide against the possibility that a Federal reserve bank might establish a dangerously low rate which the Federal Reserve Board, in view of general credit conditions throughout the country, might conSider inadvisable. Having the nower to review and determine rediscount rates it would seem necessary that the Federal Reserve Board should also have power to review, regulate, and restrict any transactions Which might have a bearing on the effectiveness of the rediscount rate. Obviously, the investment of Federal reserve funds abroad would have a bearing on the effectiveness of the rediscount rate and the Federal Reserve Board was given specific power to regulate, limit and restrict the purchase and s.ale of bills of exchange. .;lhile no specific power to control gold movements was given to the Federal Reserve Board, it uld seem clear that the Federal i.eserve Board was intended, in the exercise X-4980 of its general supervisory power, to have some contr ol over gold transactions which might have a bearing on the effectiven ess of the rediscount rate or which might affect general credit cond.tions in this country. This is entirely consistent with the theory that the Boards of Directors of the Federal reserve banks are intended to manage the local transactions of the Federal reserve banks, but that the Federal Reserve Board is given power to control any transactions which might have a bearing on general credit condi tions in this country, or in the position of this country in the international money narket. RELATIONS BEIL,IEN OPEN MARKET TRANSACTIONS, REDISCOUNT RATES AND GOLD =RTES. The intimate relation between open market trans actions, the rediscount rate and international gold movem ents is further illustrated by a report submitted to the Feder al Reserve Board under date of October 12, 1915, by Messrs. :arburg and Delano. The Board at that time had been giving very careful study to a proposal made by Mr. McAdoo, Secretary of the Treasury, to have the Federal reserve banks establish branches or agencies in Latin -merican countries; and the above mentioned report discussed the open market powers of the Federal reserve banks in great detail, pointed out the proper scope and purpose of such transactions, and the disad vantage of having too large a proportion of the Federal reser ve banks' funds invested in foreign countries. This entire report is very illuminating and the following passage is of especial interest in this connection: • X-4980 IIIhe Federel Ileserve a-mks havebeen organized as custodians and conservators of the reserve reof,ey of the meleber banks. The law ner-dts e=ber bnrks to count as part of their reserve the balances kept by them with these Federal Resorvo Banks, and it is tho first duty of the Federal Reserve Banks to .-1,3,intain their funds in a condition so liquid that their emmber bnnks eeT confidently rely uoon the ability of the Reservo Be..nks to provide ,7old and credit rhon required. This function of thc Federal Reserve Banks is at no tirle to 1:e considered lie.htly, and in times of stress involves grave responsibilities and diffigulties. It is fro:e this point of vier that the law has ire,, - osed very distinct restrictions as to the dharacter of the invest=nts rhich :eay be made by the Federal Reserve Banks, pereitting only a certain proportion of their funds to be noreeally invested and requiring that such investments as are mrele be essentially of a self-liquidating character, and of a short maturity. It would be unsafe and would shake the foundations of confidence on the part of the member banks as well as of other nations should Poicral Reserve Banks use a substantial portion of their resources for investment in Latin A:eorican credits. "Such procedure would run counter to all banking practice in those countries where binks of the character of the Federal Reserve Banks have been in successful operationfor generations. Neither the Bnnk of England, the German Reichsbank, the Banque of France, nor any other of the government banks of the less important countries has ever adopted such a policy. The operations of those banks are primarily confined to transactions at home, and foreign exchange transactions are one:aged in only as far ,as they may be considered necessary for the protection of tho .eold holdinEs of those 3overnment benks. The leading covernieont brnam normally znintain a substantial holding of ninety-day bills on such foreign countries as are 4pt to become important creditor nations from time to time, but these bills aro drawn only on such countries as have a well-established gold standlrd, well-developed discount facilities, and a broad market where these bills can be promptly resold. The object of these foreign holdings can best be illustrated by a concrete case, should the B-mk of the Netherlands find that exchanse on London advanced to a -Joint where cold becan to move fram Holland to Encland, it rould offer for sale drafts on London in oraer to countoract this ::ovement. When its English cash balance had been exhausted, the Bank of the Netherlands would rediscount in London the long bills that it might previously have accumulated and thus create ner balances witI which to stop the outflow of gold. • • X-4980 "Such foroicn bills nro taken only on the few foremost financi-d powers. It is to be expected that Ar.lerican bankers! acceptances will in the future, when peace shall have been restored, bemle one of the privileged investr:.ents of these covern:ent b-nks. In order to maintain their 'position! in the forei-2 - exchange ,arkt, it is necessary for ,s'overnment banks to renew fro...-. time to tine their foreign paper as it rmtures, and it is for this gurposo thrt they use accounts with correspondents in those few countries, none but the strongest firms being selected to act in this capacity. These firms or banks are perrdtted to buy only first class banking paper, and they endorse this paper to the 6;overrrient banks so that such government banks do not run any risk of loss of capital in the transactions and so that the (2overnment banks hold only paper which can at any time be resold in the open market or to the foreign government banks if need be. "It was this function of foreign correspondents or agents that the writers of the Federal Reserve Act had in mind when they provided that Federal Reserve Banks should have the right, with the consent of the Federal Reserve Board, III Ito open and maintain banking accounts in foreign countries, appoint correspondents, and establish agencies in such countries wheresoever it may deem best for the purpose of purchasing, selling, and collecting bills of exchange, and to buy and sell with or without its indorsement, through such correspondents or agencies, bills of exchange arising out of actual commercial transactions which have not more than ninety days to Tunand which bear the signature of two or more responsible parties.t "For operations as above described the powers granted by the Act will no doubt be availed of to good advantage, when normal conditions shall have been restored in the important foreign exchange markets. "Your committee wishes to emphasize the fact that the purpose of this paragraph was to give to the Ibderal Reserve Banks a greater strength and addonal liquidity by enabling them to maintain a secondary gold reserve and to possess themselves of assets upon which the Federal Reserve Banks could realize in case of need without being forced to contract the credit facilities granted at home - the liquid element of these foreign investments and the additional protection that they would give to the Federal Reserve System being the essential ground for permitting Federal Reserve Banks to enter a foreign field." X-4980 (-33-) The following passage from a preliminary report on this subject prepared by Yr. Warburg under date of October 4, 1915, also throws much light on the history and purpose of Section 14 of the Federal Reserve Act: 'Mien dealing with interpretations of the Act, a groat deal has often been said concerning the 'intention of the writers of the law'. Inasmuch as paragraph (e) of Section 14 has been bodily taken over from the Aldrich Plan, we have to go beyond the writers of the Federal Reserve Act in order to find the true intent of this paragraph, and inasmuch as Senator Aldrich consulted T:e concerning this particular phase of the intended act, and inasmuch P,s I suggested. to Senator Aldrich the insertion of this very paragraph, I ::,ay be pardoned for venturin7 to explain what its original intention was. "The two paragraphs read as follows: Section 14(e) of the Federal Reserve Act provides that every Federal Reserve Bank shn.11 have power; "with the consent of the Federal Reserve Board, to open and maintain banking accounts in foreign countries, appoint correspondents, and establish agencies in such countries wheresoever it may deem best. for the purpose of purchasing, selling, and collecting bills of exchange, and to buy and sell, with or without its indorsement, through such correspondents or agencies, bills of exchange arising out of actual commercial transactions which have not ore than ninety days to run and which bear the signature of two or more responsible parties.' Section 36 of the Aldrich Plan reads: "17-_tiona1 Reserve Association to have power to open and maintain banking accounts in foreign countries; to estlish agencies in foreign countries for the purpose of purchasing, selling and collecting foreign bills of exchange; to buy and sell, with or without its indorsement, throucjh such correspondents or agencies, checks or prime foreign bills arising out of commercial transactions having not exceeding 90 days to ran and bearing the signature of two or more responsible parties.' "It will be seen that the only substantial change was the insertion of the words 'bill of exchange' where the Aldrich Plan read 'foreign bills of exchange' and 'prime foreign bills'. "From actual operation (having been active in several banks • X-4930 (-34-) "in foreign countries acting as correspondents or agents for government bans in other countries) I was in a position to appreciate from my own experience the importance of the functions of foreign correspondents or agents, and w,ls anxious to secure the advantages of such connqctions for our future financial system. The operations of these foreign aents for their government banks are substantially as follows: "Let me choose the Bank of the Netherlands as an illustration, though practically all important government banks have been operatitg on similar lines. "There will be certain times when, for economic reasons, through the movement of products from or to the Netherlands into or from other countries, or for extraordinary reasons, exchange on Holland will move up to the gold exporting point or down to the gold importing point. When the point is reached where gold may leave the country, the Bank of the Netherlands has two main means of protecting itself; one is by increasing the discount rate, which measure will result in higher interest rates apt to attract foreign money into Holland and thereby to counteract the flow of money from the country. The other is to sell from its portfolio bills on foreign countries in order to create balances in those countries and thereby provide means of payment without shipping the yellow metal. It, therefore, has been the policy of foreign government banks to acquire foreign bills of exchange on such countries as are apt to be creditor nations from time to time and such countries only as have safe gold standards and enjoy first class banking credit. These purchases of foreign exchange on such countries are being carried on whenever exchange is low or when interest rates in the home country are so low that it would seem prudent for the government bank to withdraw its funds from active employment at home and invest the funds thus withdrawn in foreign countries, whence they can be called back whenever rates become active at home and whenever the influence of the government bank may be used to advantage in preventing home rates from becoming burdensome to the borrowing coralunity. "When acquiring a ninety day draft on a British bank, the Bank of the Netherlands will draw interest on this bill at the discount rate; but when the bill matures or if the Bank of the Netherlands acquires checks on London, it creates a balance which needs to be converted into an interest beoring investment. These balances will then be employed by the correspondents or agencies (whichever r.a.le we may give to them) for the purchase of other ninety day drafts on London. According to its requirements, the Bank of the Netherlands will renew from time to time its foreign investments. The Bank 4 • X-4980 (-35-) of the Natharlands considers these foreign holdinLs as a secondary gold reserve and continues them almost perpetually, with such casual interruptions as may become necessary for the protection of its own gold holdings., "It was the consideration of these conditions that led to the insertion in the Aldrich draft of the clause above quoted, and it will now become apparent what wns meant when it was provided that the National Reserve Association - or the Federal Reserve Banks - should have power to 'open and maintain banking accounts in foreign countries * * *, establish agencies in such countries * * * for the purpose of purchasing, selling and collecting bills of exchange! and that they should be able to 'buy and sell with or without its indorsement, through such correspondents or agencies, bills of exchnne * * *1. In case of a 'pinch the Bank of the Netherlands was to be in a position of ordering its correspondent to rediscount with the Bank of England or in the open market millions of its holdings of British acceptances so as to enable the Bank of the Netherlands to draw a check against the balance so produced and so to protect its gold. That is why it was sti?ulated that the bills to be purchased by these agents should be 'prime bills and should not run beyond ninety days and should bear the signature of two or more responsible parties, so that these bills should be current bills that the correspondents should be able to sell freely at all times and bills on which a loss should "practically be excluded. "It ought to be stated that the foreign governments select the stron,--est possible firms in foreign countries to act for them as agents, and that they invariably buy these bills with the indorsement of their agent (or correspondent) so that they could lose only in case, not only the foreign correspondent or agent should fail, but also the two additional signatures on the bill. "I am well aware of the fact that these banking habits have developed as a protection in times of peace but that in times of war these large foreign balances may be a source of some anxiety. It must be borne in mind, however, that government banks normally work in times of peace and that these methods of . protecting their country against acute gold withdrawals or against the tendency of too low rates of interest have effectually met many an acute emerency, and furthermore that even in times of war these balances have eventually been paid. I might draw attention to the fact that a year ago, when we were called upon to meet our large debts abroad, it would have been a great protection for us if at that time balances could have been made available in London to meet this first onrush. • X-4980 (-36-) "My object in rovierrir; :the origin and ori -jnal intent of this paragraph is to Show that this clause was inserted for the sole purpose of providin,; - an additional piece of machinery for the protection of the Federel Reserve System. Clearly, no other intention was underlyinc this section:" The question whether the Federal reserve banks should establish branches or agencies in Latin American countries was submitted to the Governors' Conference, the Conference of Federal Reserve Agents and the Federal Advisory Council, and, after obtaining the views of those three different bodies, a further report was submitted to the Federal Reserve Board under date of January 8, 1916, by a committee consisting of Governor Harding and Messrs. Delano and Warburg. This final report reads in part as follows: "Your Cemmittee is happy to report that complete agreement was found to exist in all three bodies with the principles expressed by the Board at its meeting on October 27th, the substance of which was published on that day in a notice (Mimeograph 385) of which a copy is appended hereto. * * * It is the first duty of the Federal reserve banks to maintain their funds in a condition so liquid that their member banks may confidently rely upon the ability of the Federal reserve banks to provide gold and credit when required. This function of the Federal reserve banks is at no time to be considered lightly and in times of stress involves grave responsibilities and difficulties. * * * It would be unsafe and would shake the foundation of confidence on the part of the member banks as well as of other nations, should Federal reserve banks use a ,;:..7o..tantial portion of their resources for investment in Latin-American credit. Such procedure would run counter to all banking practices in those countries where banks of the character of the Federal reserve banks have been successfully operated for encrations * * *. The operations of these banks are primarily confined to transactions at home,and foreign exchange transactions are engaged in only as far as they may be considered necessary for the protection of the gold Aholdins of these Government banks. * * * (Discussion of operations of European Central banks). In order to maintain their 'position in the foreign exchange market, it will be necessary for Government banks to renew from time to time their foreign paper as it matures, and it is for this purpose (-37-) X-4980 that they use accounts with correspondents in those foreign countries, none but the strongest firms being selected to act in this capacity.. * * * It was this function of foreign correspondents or a7eneies that your committee is confident the writers of the Federal Reserve Act had in mind when they Provided thot the Federal reserve banks should have the right, with the consent of the Federal Reserve Board, to exercise the powers conferred under Section 14 (e) * * * . Your committee has no doubt that the purpose of this paragraph was to give to the Federal reserve banks greater strength and additional liquidity by enabling them to maintain a secondary gold reserve and to T)ossess themselves of assets upon which the Federal reserve bans could realize in case of need without being forced to contract the credit facilities r:ranted at home the liquid element of these foreign investments and the additional protection that they would give to the Federal Reserve System being the essential ground for permitting Federal reserve banks to enter a foreign field. * * * Should Federal reserve b2nks be empowered to lend to foreign Governments notwithstanding the law 'listinctly provides that Federal reserve banks can now purchase only United States Government securities and warrants of United States municipalities, carefully circumscribed and having a maturity of not exceeding six months ? * * * Should Federal reserve banks be allowed to embarrass the Government by being themselves important creditors of foreign Goverm7ents in case of war with, or revolution in, such countries? Your committee is very positive in its view that such enlarged powers should not be -Tranted; * * * " While these reports arose out of a controversy entirely different from, and extraneous to, the question now under consideration, they serve to show the intimate connection between the open market powers of the Federal reserve banks, the effectiveness of the rediscount rate, and the protection of the gold reserves of the Federal Reserve System. They show clearly that one of the most important purposes of the rediscount rate and the open mIlrket purchase of bills of exchange is to protect the gold reserves of the Federal Reserve System. Over the re- discount rates and the open market transactions the Federal Reserve X-4980 Board is Given a 7reat mersure of control. To say that the Federal Reserve Bcy.,.rd could exercise this control over rediscount rates and open market transactions with a view of protectinc; the Eold reserves of.sthe Federal Reserve System but that it could do nothing to prevent the Faderal reserve brmks from engaging in international transactions in cold in Tach a way as to impair the cold reserves would be to give the Federal Reserve Act an interpretation which clearly would defeat the will of Congress. Respectfully, Wqlter Wyatt General Counsel 17411,11-0MO-SAD Form No. 131. Office Corresporience To _ From_ Hamlin FEDERAL RESERVE BOARD 111 Date October 29. 1927• Subject: 3ddy On October 10, 1927 the Board conferred with r. Kemal, Deputy Governor of the iederal Aeserve Bank of New York, with respect to developments in acceptance practices and possible necessary amendments to the .tegulations of the Board relating to the handling of acceptances by iederal Aeserve banks and mIn..ran2. Kenzel advised the Board that no amenaments to the Aegulations appear to be necessary, but that it might be necessary for the Board to consider changes in oert:An of its rulings. It was suggested to lir. Kenzel that the developments rerorted to the Board should be taken up with the General Acceptance Committee, and recomm endations made to the Board in writing for any changes which the Committee believes necessary in the existing rulings of the Board• Aocordingly, a meeting of the Sub-camittee of the Genera l Acceptance Jonmittee was held on October 21st, and there is attached herAo report of the 3ub-c'amittee which will be brou0at up for consideration at a lLter HMIeting of tile Board. VOLUME 177 PAGE 97 REPORT OF / THE SUB-COMMITTEE OF THE GENERAL ACCEPTANCE COMMITTEE TO THE FEDERAL RESERVE BOARD OCTOBER 21, 1927. The Sub-Committee of the General Acceptance Committee held a meeting in New York on October 21, at which the following were present: Messrs. Zurlinden, Paddock, McKay and Wyatt, Mr. Kenzel chairman, and Mr. O'Hara, secretary Consideration was given to a proposal to recommend to the Federal Reserve Board certain modifications of its existing rulings with reference to acceptances growing out of the importation and exportation of goods which will make it possible for American banks to accept bills drawn upon them for the purpose of financing such transactions where it is necessary for such bills to be drawn after the goods have reached their destination, in order to conform to usual commercial and credit practices. After full discussion of the subject and consideration of a statement of facts related by the Chairman substantially as expressed in the accompanying memo... randum it was unanimously voted by the Committee to recommend to the Board as follows: That the Board revoke its previous rulings to the effect that a bill cannot be eligible for acceptance by a member bank or for rediscount or purchase by a Federal reserve bank as a bill growing out of the importation or exportation of goods if it is accepted after the gods have reached their destination, and rule in lieu thereof: That bankers acceptance may properly be considered as growing out of transactions involving the importation or exportation of goods when given for the purpose of financing the sale and distribution on usual credit terms of imported or exported gods into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed. : . 4 ''.• 1:k • • • MEMORANDUM OF MENT BY THE CHAIRMAN OF THE SUB-COUVITE OF THE GENERAL ACptPriliCE COISthri MADE A MEETING OF THE COMMIWKNP NEd YORK ON OCT. 21 1927 The question of the manner and extent to which use of American acceptance credit was hindered in competition with foreign credit in financing foreign trade was the subject of inquiry recently made by the Federal Reserve Board of your Chairman. On a visit to Jashington last week, your Chairman explained to Governor Young and to the Federal Reserve Board that, according to his observations and from information gained from interviews with many banker s from England, Holland, Switzerland, Germany, France and Italy, the only practical obstacles lay in rulings of the Board which had the effect of prohibiting bills from being accepted at all by national banks or as eligible by other banks and bankers after the physical exportation or import ation of goods was completed. He stated that these foreign bankers had told him that industry in the industrial countries of the Continent had always had to look to foreign credit for the purchase of imported raw materials and in the export of finished goods; that due to various causes, such credit was requir ed for longer periods than was customary in the United States. Among the causes named were lack of working capital in the American sense, slow transportati on, the closing of river navigation during the cold months, and the economic imprac ticability of industries closing down temporarily or for longer periods, as is frequently done in the United States without serious economic consequences . The combined effect of these conditions requires manufacturers seasonally to carry raw materials for six months of operation and they, accordingly, requir e credit up to six months with respect to a considerable portion of their purchases. The fact that banks on the Continent are much more closely identified with the industries than is the general case in l*meric a normally permitted them to discount freely for their manufacturing client s and also to procure for them from abroad the additional foreign credit that they required. Englnd, Holland, Switzerland, and to some extent, France, were normally the credit or countries and the first three continue at the present time to extend the kinds of credits for the time required to the Continental indust ries; generally through the medium of Continental banks. It was explained that, owing to the higher price levels at the present time as compared with pre-war, the volume of domest ic bills in Germany and other industrial sections of the Continent represented a physic al volume of goods considerably less, perhaps 75 of the quantity of goods, than would have been represented by an equal amount of bills pre-war, and that, accordingly, the rise in the price level required relatively greater recour se to foreign credit than before the war. It was explained that both before and since the war it was the practice of London banks and bankers to extend commercial accfetance credit for the benefit of Continental industry and trade freely and that the restrictions in the American practice had doubtless caused a great deal of financing to go to London that otherwise would have come to New York on account of the ability of J'cierica to create credit and the lower American discount rates. 2 4." The cutting of acceptance commissions by London banks for Continental' banks to attract this kind of business to London was also referred to as consti.. tuting a substantial competition but one which would not be so serious if Itme,rican banks could give the credits that the Continental trade requires on terms otherwise equal with London. Since your Chairman advised the Board in these respects, he has conferred with a considerable number of prominent New York bankers who create the large bulk of American acceptances to inquire of them what in their experience had. prevented -them from giving acceptance credits abroad such as London bankers habitually grant, and he was informed by each of them that the rule against accepting after goods had arrived in the country of import and the rule against permitting customers to redraw after goods had arrived in the country of import were the only two points upon which they felt their disability depended. They felt that they would not wish to extend credits in Europe for purely domestic purposes, explaining that by that they meant the purchase of goods of domestic origin, the fabrication of such goods and its sale for domestic consumption within any European country, but that they did feel that they • should be permitted to finance through acceptance credits the sale within European countries .0'of goods of origin foreign to those countries, and the fabrication and sale of goods for export, Many of them cited the familiar problem of American cotton which is now sent so largely to European countries on consignment by American shippers and is sold to European spinners out of warehouses in Europe. Spinners require credit of ninety days or more. Under the present rules, American banks can give such credits where the cotton crosses a frontier in Europe, that is, where it is exi:orted from one European country to another, but they cannot give such credits if the cotton is sold -to spinners located in the same European country in which it is stored pending sale. A similar negative position arises with respect to cotton which is sold and shipped from America on terms that have become quite usual, i. e., that at the buyer's option he may pay cash on arrival or give ninety days b mkers credit. It frequently happens that the cotton has arrived and so the physical export completed before the buyer elects how he shall pay. If he elects to give ninety days b mkers credit the banker may not accept the bill if the cotton has arrived at the foreign destination named in the shipping documents. The American bankers consulted felt that the time has certainly arrived in the development of American acceptance business when American accepting bankers should be permitted the free exercise of their discretion within the law and regulations and that, within those limits, full latitude should be granted them in the accommodation of business as it is done in foreign countries. They stressed particularly the point that they regarded it as preferable to give a three months credit with a renewal for a further period, if it were found that a renewal were required at the expiration of the original period, -than to grant the credit originally for a period of six months, and that if the rule against accepting a bill after the goods had arrived were rescinded, the end sought would be practically accomplished without a specific ruling in favor of renewal bills. It was pointed out that from the bankerst point of view it was preferable to be able to review credits at r.,ore frequent intervals than is the case when credits up to six months are being insisted upon by the borrower as a precaution against being unable to redraw at the end of a shorter period in case of need even for a small part of the credit. 97 ( py) October 30, 1919. g94 My dear George : I have your memorandum of the 29th, which refers to the right of the Federal Reserve Board to initiate and control discount rates of Federal reserve banks, and note that the Board desiresaay opinion on this subject. The determination of this question involves an interpretation of that part of Section 14 which reads as followsi "Every Federal reserve beak shall have power ****(a) to establish from tine to time, subject to review and determination of the Federal Reserve *'3oard, rates of discount to be charged by the Federal reserve bank for each class of paper which has been fixed with a view of accommodating commerce and business.“ It is, of course, clear from this that any rate established by a Federal reserve bank is subject to review and determination by the Federal Reserve Board, but the quAstion you have under consideration is whether the Board, on its own motion, may initiate or estblish discount rates for Vederal reserve banks, or if a rate has been established, reviewed and approved by the Board, whether the Board subsequsatly may require the bank to change this rate. This involves a consideration of the relative powers of the Federal e:serve Board and of the board ot directors of a Federal reserve bank to control and supervise the operations of the bank. Section 4 of the Federal eserve Act provides in part as follows: very Federal reserve bank shall be conducted under supervision and control of a Board of Directors. The Board of Directors shall perfira the duties usually appertaining to the office of airectors of banking associations, and'all such duties as are prescribed by law. Said board shall administer the affairs of said bank fairly and impartially and without discretion In favor of or against any member bank or beaks, and shall, subject to the provisions of law and the order of the Federal Reserve Board, extend to each member bank such discounts, advancements and accommodations as may be safely sad reasonably made, with due regard for the claims and demands of other banks." Section 11 of the Federal eserve Act, which deals with tiv.) powers of the Moral Reserve Board, provides in part as follows: "The Federal aeserve Board shall be authorised and empowered * * • * * (j) to exercise general supervision over said Federal reserve banks." Oynsidering these two provisions of the Act which relate to the supervision and control of the operations of the Federal reserve banks, it appears that the directors of the bank are intrusted with the operations or manapment of the bank's affairs; that they are vested with the power to perform the imaal ordinary duties of bank directors. In the exercise of these powere, however, they are subject to the orders and to the general supervision of the Federal ReVOLUME 177, PAGE 99 - 2- serve Board. Considering the context and the vaeral purposes of the Act, it msy be aJsumed that Congress did not intend that the Federal Reserve ",aard should perform the functions usually performed by the board of directors of aback. Congress, however, did A.ve the Federal leserve Board very broad general porers to supervise the operations of a bank and to see that these operations are conducted in strict accordance with the provisions of the Act and with those regulations and rulings which the Federal Reserve Board, under the terms of the Act, is smith,-orised to make and enforce. It is hardly necessary to call attention to the various provizions in the &ct which sustain the theory, but to illustrate the extent of the control over the badk's operations thlt is vested in the Federal Reserve Board, it will be recalled that one of the powers enumerated in Section 11, is the power "to suspend or remove any officer or director of any Pederal Reserve Beak, the cause of such removal to be forthwith communiwated in writing to the Federal eserve Board, to the removed officer, or director, tad to said beak." To sunup briefly the relative powers of the Federal Reserve Board and of the Board of Directors of a bank, it appears(a) That the Board of directors of a bank may supervise and control the operationa of the bank so long as its affairs are conducted in accordance with the provisions of law, the regulations of the Board authorised by law, and suCh orders issued by the Board as the Board is authorised by law to isaus; (b) That the Federal Reserve 3oard is vested with power to see that the operations of the bank are conducted in strict accordance with the law, its authorised regalationa and orders, to impose penalties for violations of the law, even te the extent of removing offending officers and directors. Coming now to con:ider the particalar provision of the Act involved in the pending question, it t necessary to determine first to what extent and subject to what limitations the Board of Directors of a bank is given control over the establishment of discount rates. Sec.41, which prescribes the general corporate powers of the bank, contains among others, the following °Seventh.- To exercise by its board of directors, or duly authorised officers or agents, all powers specifically granted by the provisions of the Act, wad such incidental powers as &tall be necess7xy to carry on the business of banking within the limitations prescribed by this Ast." If no limitations were prescribed by the Act and no specific reference had been made to the fixing of discount rates, it would seem to b0 clear that the Board of Directors would have power from time to time to establish discount rates as an incidental power necessary to carry on the business f banking within the limitations prescribed by the Act. 4. 3 If m limitations were prescribed, by the Act and no specific reference had been wasp to the fixing of discount rates, it would twem to be clear that the Dealt of Directors would have power from time to time to establish discount rates as an Incidental powor neeessary to Carry on the hustmees of bfinAng withia the limitationz i,?revoribed by the jet. Seotion 14, however, which eamnsrates certain ave.:dal powers of the Tederal reserve bank*, impoces tow limitations or rostriotions eft Me power to fix diicount rates. It provides in terms that rates so established by the brlik (a) shall be subject to rmrilw end determiw+tion of the rederel Reserve (b) *ball be fixed with a view of acoommo,2:' tine comrerce and bulinese. Any rate established must, therefore, oonform to these two oonditions and if the directors of the beak fix a rate which fails to conform to either of these oonditions, the establishment of smah rate becomes a violation of the provisions of the not amd the Doard under its ompsrvisoey Weer Wir clearly require the readjustment of reestablishment of is rate. In ether oard, an established rate does not words whenever .in the opinion of th it may'require the direotort of the hoth commerce and Isitinesas Ae accommod, meet this to requireamat. as se rate the to oha . It mg be argued that the discrAion is vested in the beard of 11. rectors of the hank to determine whether or not a rate fixed is fired with a view ofaccommedatiag commerce and haminnqs. 7,onsidorieg, however, the contest and 'general purposes of the Act it is not believed that this view can be maintained, Concres clearly intended this discretion to be vested in the Vaderal Tie.7rve '')ord.. To aosist the Board in the control of this and other mattere, it created by Section 12„ the /*demi Advisory ::louncil, and authorized that aouncil * to confer directly with the l'ederal Reserve Board on gene:vI bwAnote conditions * * * to call inor inforis. tion and to m6ke recommendations in regard, to discount rates. A. centralized control of the diP,count rates is fnadanitiel to the purposes of the Act and provision wig accorainsly—mmde to rural* the Pederal Ren:Arve loe.rd with the best possible inforation to enable it to exercise a proper discretion in this important matter. It is harily necessary to emphasise the importance of this control. It *Mete international as well as our domestic banking and trade relations. conolusions, therefore, are, first, that the discretion is vested in the Pederal Deserve Board to determine whether any discount rate of Federal reser', task aocemmedItes commerce and tonsinseet second1 that the power to review and determine diseount rtes is a continuing power, Which way be exercised at any time. It neosesari4 follows from this that the Board of its own motion may require a federal ree4frve bank to Change an existing rate n% any time, if in thwopinion of the Beard such rate does not nee% the requirement of the statute. Very aincerly yours. ($timed) mr. George L. narriemi, Counsel, Federal Reserve Board • TRU,' SURY DF:PART:2NT Assistant Secretary. '::ASHINGTON November 29, 1919. Dear Governor Harding: The following is a brief summary of the views which I exnressed to the Federal Reserve Board 7Tednesday concerning the nronosed increase of rates of the Federal Reserve Bank of New York. 1. The elimination of the 4110 rate on 4k% Certificates of Indebt1% edness, determined upon by the bank after the announcement of the 4-4 issue dated December 1st, result in the failure of that iSSIIB and ..ffrave financial embarrasszent to the Treasury. 2. The proposed increase in the rate on Liberty Bonds and Victory Notes would r. ravely in:ern the market for those securities, which is - lready severely shaken. , "In general the Treasury would regard any increase in rates on Government war securites at tais tise as fraught with grave -.ern to the Governnent's credit", because of the fact that to meet maturities ;standing the Government must sell certificates' of certificates now ou, c,e amount of $500,000,000 semi-monthly beginning December , in the avera, 1st cnd ending January 15th, a total of roughly S2,000,000,000. I pointed out that when the discussion of rates became acute in October the Treasury called attention to the fact that it could not long postnone the resumotion of certificate issues and that it was of tile most urgent importance that the matter sho,Ild be disnosed of at once so that the country might have an o-.)ortunity to adjust itself to the new rates and the Treasury to adjust its plans to resulting conditions; thst the VOLUME 177 PAGE 101 -2 111 411 rates estrblished early in November eliminated any spread between the Reserve Banks' discount rate and the established rates on Treasury Certificates; and that now the time had come rhen every effort should be turned to the ureent problem of financing the Treasury's imperative necessities. Though, of course, no commitment was made or exists not to make a further increase in rates at this time, nevertheless it cannot seriously be contended that the increase of 1/45 proposed in the rate on 434 - Certificates and of 1/4% in the rate on bonds and notes would have any other imnortant effect than to embarrass the Treasury. I may add that from June 6th to November 14th all reporting member banks' reduced their holdings of Liberty Bonds from .. . t or ; O $ 646,259,000 631,730,000 •• * $ 14,529,000 of Victory Notes from to or 438,589,000 278 659,000 .. and of Certificates of Indebtedness from to or 159,930,000 1,514,342,000 831 281 000 683,061,000 and their loans secured by United States secues, exclusive of rediscounts,from .... 1,420,568,000 to .... 1,061,4381000 359,130,000 Or making a total reduction of . . S1,216,650,000 and that in the period frcm June ?th to November 21st Federal Reserve Banks' - 6iscounts secured by Government war obligations have increased from . to or only while their holdings of bills bouzht in the open market have increased from . to cr and their total earnine assets from tc or .. $1,621,000,000 1,674,000,000 $ 53,000,000 198,000,000 489,000,000 282,000,000 2,264,000,000 2 917,000,000 653,000,0(10 Frorr this I conclude that the expansion of credit which has taken place since the flotation of the Victory Liberty Loan has not been based unon Government war securities, but that on the contrary there has been a very gratifying normal and healthyabsorption of these securities by the investing public; and that therefore there exists no indication of a present necessity for a further increase in the discount rates on Government war securities. 3. "As to the ninety-day rate on commercial rape:, without at the moment expressing a view upon the subject in general, the Treasury urged that certainly no increase should at any time be made until effective steps should be taken to put an end to the existing arrangeaent under which it is understood that that increase would result automatically in an increase in the rate alloyed by clearing banks -Toon interbank de, ?osits and to nrevent any increase in such rate or a scramble for denosits which could ohly be injurious to the Treasury's financial nlans, as well as to the general situation." 4. As to the rate for bills, although this is not a matter in which .. 4 the Treasury was directly concerned, I ventured the personal opinion that the artificially low rates which had been established and were being maintained could not have the result of creating a normal and healthy bill market, but on the contrary were loading the Federal Reserve 3amks with the bills and effectively destroying the possibility of an outside market; that the difficulty here seemed to be not with the riublished rate for loans and discounts, but with the New York Federal Reserve Bank's open market buying rate. I have endeavored to summarize as briefly and uncontentiously as possible the views which I expressed at the meeting. If inadvertently I have omitted anything which you regard as material, I shall be glad to supplement this letter in that respect. May I add that it appears to me that the steps which have already been taken with a view to Preventing expansion of credit for illegitimate "purposes are entirely sufficient for the time being; that there exists at the present moment grave apprehension concerning the conditions in Europe and the foreign exchanges, the coal strike, the Mexican situation, etc.; that the banks, called u-oon, for the first time unaided, to move the crops, are being subjected to a Particularly heavy strain on account of delay in their movement resulting from transpollation difficulties; that they are said to be burdened with loans secured by whiskey, etc., which, under the new prohibition law, will be slaw of liquidation; that they are to be called upon December 15th to finance, for the first time in that month, a heavy income and profits tax installment; that the market for Liberty Bonds, which has been subjected to heavy pressure since the discussion of discount rates began in October, has been ex- tremely weak and very active beginning last Saturday, November 22nd, Immediately after the termination of the confereace of the Governors of the Federal Reserve Banks in Washington; and that from these and other indications it appears to me that it would be perilous in the extreme to attemnt at this ttme to force contraction of credit, whether by the increase of discount rates or otherwise. As Secretary Glass ex- plained in his letter of November 5, 1919, the rates of the Federal Reserve banks cannot operate internationally under existing conditions. If I am right about affairs at the moment, contraction forced at this time, whether by discount rates or denial of credit, can only Penalize legitimate business and the holder of Government securities who was urged to borrow and buy them and is manfully struggling to save and Day for them. I think there has been too much talk of liquidation. What the country needs is quiet and healthy absorDtion of theundigested portion of the war debt. The conditions to which I have directed atten- tion can only be remedied by following the Federal Reserve Board's slogan to "work and save.11 We need Production more than we need contraction. As you know, my own belief is tnat world conditions are such that an early period of liquidation, Probably acute, is inevitable, with or without action by the Federal Reserve Board. I am at the moment Profoundly annrehensive that exaggerated anxiety on the part of some of the Governors of the Federal Reserve Banks concerning their reserves, expressed both in increase of rates and denial of credit at _ 6_ the particular season of the year when some expansion of credit is essential to the transaction of the country's necessary business, may bring about disaster within the few short weeks which remain before the arrival of the season of healthy and normal liquidation. If I were a member of the Federal Reserve Board, I should at this moment do all in my power to restore confidence which has been subjected to a series of very grave shocks,and when the mid-winter season of liquidation arises I should then, and then only, determine what, if any, steps might be necessary to prevent renewed expansion. The road before us is a long and difficult one. In consequence of the removal of our embargoes on the export of gold and silver and the maintenance of embargoes by our creditors, our metallic reserves are being, and apparently will continue to be, for an indefinite period, depleted. The demoralization of Europe and European credit in conse- quence of the protracted delay in the conclusion of peace must result in postponing indefinitely, perhaps for decades, the time when Europe vill be able to resume specie payment. We are paying in specie the in- debtedness in current account of the occidental world to the oriental, while accepting payment by credit for Europe's indebtedness to us. problems before us appear to me to b, infinitely those behind us. The -.ore difficult than The most I can say for the moment is, (1) that this Government's credit must be preserved; (2) that credit must not be denied nor made unduly expensive to legitimate business, nor to the patriotic citizen who was urged to borrow and buy Liberty Bonds and who is working and saving to pay for them; and (3) that as opportunity arises within the limitations above described the Federal Reserve System • • _ 7 _ by should, by rates and/discrimination against the abuse of its facilities, gradually and with extreme caution, by measures and steps carefully adapted to dealing with the exquisitely delicate financial machinery, (a) Prevent such expansion as is not purely seasonal in character, and (b) take up and hold the slack when liauidation occurs. Very truly yours, (Signed) R. C. Leffingwell. Hon. W. P. G. Harding, Governor, Federal Reserve Board, Washington, D.C. / 67 • • (Copy) • '3:TREASURY DEPARLIZ.ZT Washington Assistant Secretary. December 10, 1919. Dear Governor Harding: Since my letter of November 29th was written the situation has changed materially. The offering of 4% certificates of an average maturity of three months was conspicuously successful and this relieved the Treasury of risk of immediate embarrassment as to its cash. position. The Treasury has offered a new series of 414 six-months certificates with the privilege to the holders of outstanding certificates of earlier maturity to make payment for the new certificates in the old, and the Treasury looks forward confidently to the success of this offering. Aniprehension concerning the coal strike and the Mexican situation is allayed and there have been some indications of renewed speculative activity and of expansion of credit for speculative purposes. Under these altered cir- cumstances, while I would not be understood as Proposing any specific action by the Federal Reserve Board at this time, whether as to rates or otherwise, I should not wish the views expressed in my letter of 1R)vember 29th to stand in the way of any action which the Federal Reserve Board might now desire to take. You v, ill, of course, have in mind that on December 15th some $850,000,000 of income and profits taxes are Payable, while the Certificates due on that date amount only to $640,000,000, and that payment for the new issue of 414 six-months Certificates will be • VOLUME 177 PAGE 103 ( • • • / 03 -2- made on and after December 15th. These things will involve a very heavy strain upon the money market and the possibility of grave financial stringency. The Treasury is taking steps to relieve the situation by offering to redeem on and after December 15th the Certificates due on January 2nd. thrown UD Danger signals have already been in the form of high call money rates this week. The sit- uation at the moment is, therefore, one which to my mind" ugzests the importance of aztra_le caution on general grounds rather than because of the Treasury's nosition. Very truly yours, (Signed) R. C. Leffingwell. Hon. W. P. G. Harding, Governor, Federal Reserve Board, Washington, D.C. .44. Alt Form No. 111. Office Correspoillence FEDERAL RESERVE BOARD At • To Ir. Hamlin. jyatt, ileneral Counsel From November 1i927.. Subject:c_Cenc.es G.roviiaz Ottt Of .2ransactions involvine the Importation or:Exportation of Goods. 2.--S495 /asDa:4r I am handinz :i'ou herewith for your information a memorandum on.the above aubject which I prepared at the request of Governor -ZoliiL. and which I have delivered to him. espectfully, UL ,alter .t Crenera Counsel. ,/ , 1.:_emorandum ..,...,VOLUME 177 PAGE 105 November 1, 1927. Federal Reserve Board Mr. Wyatt - General Counsel Acceptances Growing Out of Transactions Involving the Importation or Exportation of Goods. The attached report addressed to the Federal Reserve Board under date of October 21, 1927, by the Sub-Committee of the General Acceptance Committee recommends that: "That the Board revoke its previous rulings to the effect that a bill cannot be eligible for acceptance by a member bank or for rediscount or purchase by a Federal reserve bank as a bill growing out of the importation or exportation of goods if it is accepted after the goods have reached their destination, and rule in lieu thereof: "That bankers acceptance may properly be considered as growing out of transactions involving the importation or exportation of goods when given for the purpose of financing the sale and distribution on usual credit terms of imported or exported goods into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed." OPINION. In order for the Board to adopt this recommendation it will be necessary for it to reverse certain of its well established rulings to the effect that a bill cannot be eligible for acceptance by a member bank or for rediscount or purchase by a Federal reserve bank as a bill growing out of the impartation or exportation of goods if it is accepted. after the goods have reached their destination. I am of the opinion, how- ever, that the language of the law is broad enough to justify a ruling such as that recommended in the attached report and that the Board may legally promulgate such a ruling if it so desires. RECOMMITDA,TION. Believing that a ruling such as that recommended in the attached report is entirely consistent with the purposes of the Federal Reserve Act and would be helpful in the promotion of our foreign trade, I concur in the recommendation of the Sub-Committee of the General Acceptance Committee. A -2proposed draft of a ruling along the lines recommended by the Committee is respectfully submitted herewith. DIscussig. The question Whether the Board may properly make such a ruling depends upon the proper construction of the following provision of Section 13 of the Federal Reserve kct: "Any member bank may accept drafts or bills of exchange drawn upon it * * * which grow out of transactions involving the importation qr exportation of gpods." This language is very broad and indefinite and is susceptible of different constructions. The Bo..xd has heretofore taken the position that Congress intended that the drafts in question should be drawn for the purpose of financing the importation or exportation of goods, and on this theory it has ruled that a bill may not be considered eligible for acceptance by a member bank or for rediscount or purchase by a Federal reserve bank as a bill growing out of the importation or exportation of goods if it is accepted after the goods have reached their destination. It was argued that when the goods reached their destination the import or ex:,- ort transaction is completed and its financing has necessarily been accomplished. This principle, however, was adopted by the Board at a time when the acceptance business was new to American banks and the Board was exercising great care to restrict it wit':in narrow and vary safe limits. In later years the Board has broadened to some extent its rulings regarding bankers' acceptances and particularly those growing out of the importation or exportation of goods, on the theory thf_tt the acceptance business has developed to a point where greater latitude may safely be permitted and the accept ing banks may be given a broader discretion in determining the propriety of issuing bankers' acceptances under varying circumstances. (See printed letter transmitting RegAation A as amended March 29, 1922, page 433, April 1922 Bulletin). The promulgation of a ruling -3... alon6 the line of that reconuEnded above would be a further application of thib theory. The theory heretofore followed by the Board that by acceptances "which grow out of transactions involving the importation or exportation of goods" n Congress meant acceptances drawn for the purpose of financing the importatio t of being or exportation of gooets is eatirely plausible and has the added weigh of the accepted Literpretation which the Board has placed upon this provision gs on this the Act for several years and was made the basis for several rulin subject. importation The words 'which grow out of trnsactions involving the e of a broader interor exportation of goods," however, are clearly susceptibl to include acceptances arising out pretation and in my opinion are broad enough goods after such goods reach of transactions involving imported or exported some reasonable connection between their destination; provided that there is tation. such transactions and the imr)ortation sad ex?or cotton to Germany Thus where am American exporter of cotton ships ny and Later sells it from that wareand stores it in his own warehouse in Germa the sale from the warehouse house to a German spinner, it seems clear that tation of cotton from the United to the German spinner "grows out of' the expor cotton to the German spinner from States to Germaayp The sale of the American had not first been exported the warehouse could not take place if the cotton Moreover, it is but a from the United States and placed in the warehouse. action. contInuation and congo.1:ation of the export trans foreign goods and, after Similarly, where an AmHrican impo ter buys ls them, it would seem that such their arrival in the United States, resel within the broad meaning of resale grows out of the importation of goods ce such resale of the goods might the Act, and that a draft drawn to finan . properly be said to grow out of the imortation of the goods essary to place some restricm On the other hand, it would see nec all erwise it might be argued that tion upon this interpretation; for oth m the origed go de, no matter how remote fro dealiiigs in imuorted or export importation could be said to grow out of the inal importation or exportation, urdity4 iciple might be reduced to an abs or exportation and thus the ,all s principle Comnlitte recommended that thi the t tha t ugh tho s thi h wit was financing the ances "given for the purpose of ept acc to d cte tri res be uld sho orted goods dit terms of im ,orted or exp cre al usu on ion but tri dis and sale the financing of This would sec.= to confine into the channels of trades'. de Pnd would ds into the channels of tra goo the of ion but tri dis and the sale long periods, the ng of the goods for unusually seem to eliminate the carryi ufacture. their resale sabsequmat to man manufacture of the goods, or Board e 854 of the 1926 Bulletin, the In a ruling published on pag June, 1920, to page 610 of the Bulletin for reversed a ru_ing published on ntary draft may ch has purchased a foreign docume the effect that lino bank whi by the docudraft on a member bank secured refinance itself by drawing a may be said u thereof thatusuch acceptances lie in ed rul and ft" dra y tar men the Federal provisions of section 13 of tue of ms ter ad bro the hin wit to come wn upon them ber banks to accept drafts dra Reserve Act which authorise mem exportation of involving the importation or 'which grow out of transactions erl4in.g export fts are drawn before the und goods', provided that such dra a t it had ruling, the Board stated tha so In . ted ple com is on cti transa its previous and was of the Wanton that on sti que s thi red sid con carefully interpretation ned an unnecessarily strict rulings on this subject contai retation broadening of the interp al eri mat a was elf its in of the law. This of the Act and pl-ced upon this provision which the Board had previously nciple that each ict application of the pri str the m fro ure art dep a was 0/ acceptances must be drawn for the purpose of financing the import or export transaction, since the import or export transaction had been financed by means of a documentary draft and the purpose of the acceptance vas merely to refinance the bank which had purchased the documentary draft. Before making that ruling the Board had the subject under consideration for many months and had been advised by this office that such a change in its rulings would lead to a change in its fundamental construction of that provision of the Act which authorizes member banks to accept drafts drawn upon them "which grow out of transactions involving the importation or exportation of goods." The Board, therefore, acted with full knowledge of the effect of this action and clearly intended to broaden the strict interpretation which it hadtheretofore placed upon this provision of the Act. It did not, however, abandon the principle that in order for an acceptance to be considered one which grows out of a transaction involving the importation or exportation cf goods it must be drawn before the underlying import or export transaction is completed. On the con- trary, it ruled that, "national banks may not legally accept drafts drawn upon them by other banks against the security of import or export bills of exchange previously discounted by such other banks when such drafts are drawn after the underlying import or export transactions are comvletede" To adopt the attached recommendation of the Committee on Acceptances would be a further broadening of the Boara's rulings on this subject, but in my opinion would ue one which could be much more easily justified than thb ruling published on page 854 of the 1926 Bull tin. Where a bill is drawn for the purpose of financing the sale and distribution of imported or exported goods into the channels of trade, it is, in my opinion, much more clearly a bill which grows out of a transaction involving the importation or exportation of goods than is a bill drawn by the bank against the security of a iocumentary ,/ -6- draft for the purpose of refinancing the bank which has purchased the documentary draft. CONCLUSION In my opinion, therefore, the law is brold enough to justify the Board in reversing its previous rulings on this subject and promulgating the ruling recommended in the attached report. Am0nE the published rulings which would be reversed, in whole or in part, by the promulgation of such a new ruling are the following: 1915 Bull:Ain, pc'e 276 1917 BIllictin, page 30 1918 Bulltin, page 435 1921 Bull tin, pRge 699 1924 BullPtin, page 638 1926 Bull,,tin, page 854 Respectfully, Walter Wyatt, GenPral Counsel. WW MD OMC (PROPOSED RULING OF 7XIMAL R7ntRVE BOARD.) ing the imortation Acceptances Pirowing out of transactions involv or exportation of Roods. Federal Reserve In a number of rulings published heretofore, the eligible for acceptance by Board has ruled in effect that a bill cannot be Federal reserve bank ac a a member bank or for rediscount or lourchase by a exportation of goods banker's acceptance growing out of the importation or destination. if it is accepted after the goods have reached their is of After careful reconsideration of this question, the Board interpretation the opinion that sch rulings contain an unnecessarily strict member banks of that provision of the Federal Peserve Pct which authorizes to accept drafts drawn upon them "which grow out of transactions involving rethe importation or exportation of goods" and which autillrizes Fedcral serve banks to r.ldiscount such acceptances. The Board Is now of the opinion that the broad lanuage of this provislon of the Act Is clearly susceptible our of a more liberAl interpretation ./hich would facilitate thf financing of foreign trade and particularly thc sale of tmerican goods abroad under 638 circumstances similar to thoee Isvcribed iz the ruling published on page of the Federal Reserve Bull,Itin for lxguat, 1924. The Board, therefore, rules that bankers' acceptances may properly be considered as growing out of transactions involving the imiortation or exportation of goods when drawn for the purpose of financing the sale and distribution on usual credit terms of imported or exported goods into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed. All previous rulings in conflict with this ruling are hereby reversed in so far as they conflict with this ruling. November 1. 1927. REPORT OF THE SUB-COMMITTEE OF THE GENERAL ACCEPTANCE COMMITTEE TO THE FEDERAL RESERVE BOARD OCTOBER 21, 1927, The Sub-Committee of the General Acceptance Committee held a meeting in New York on October 21, at which the following were present: Messrs. Zurlinden, Paddock, McKay and Wyatt, Mr. Kenzel chairman, and Mr. O'Hara, secretary Consideration was given to a proposal to recommend to the Federal Reserve Board certain modifications of its existing rulings with reference to acceptances growing out of the importation and exportation of goods which will make it possible for American banks to accept bills drawn upon them for the purpose of financing such transactions where it is necessary for such bills to be drawn after the goods have reached their destination, in order to conform to usual commercial and credit practices. After full discussion of the subject and consideration of a statement of facts related by the Chairman substantially as expressed in the accompanying memo.. randum it was unanimously voted by the Committee to recommend to the Board as follows: That the Board revoke its previous rulings to the effect that a bill cannot be eligible for acceptance by a member bank or for rediscount or purchase by a Federal reserve bank as a bill growing out of the importation or exportation of goods if it is accepted after the oods have reached their destination, and rule in lieu thereof: That bankers acceptance may properly be considered as growing out of transactions involving the importation or exportation of goods when given for the purpose of financing the sale and distribution on usual credit terms of imported or exported gds into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed. MEMORANDUM OF STATEMENT BY THE CHAIRMItN OF THE SUB-COMMITih.b, OF THE GENERAL ACCEPTANCE DOMMITTEE MADEIP A MEETING OF THE COMMITT1E IN NE4 YORK ON OCT. 21, 1927 The question of the manner and extent to which use of American acceptance credit was hindered in competition with foreign credit in financing foreign trade was the subject of inquiry recently made by the Federal Reserve Board of your Chairman. Cn a visit to aashington last week, your Chairman explained to Governor Young and to the Federal Reserve Board that, according to his observations and from information gained from interviews with many bankers from England, Holland, Switzerland, Germany, France and Italy, the only practical obstacles lay in rulings of the Board which had the effect of prohibiting bills from being accepted at all by national banks or as eligible by other banks and bankers after the physical exportation or importation of goods was completed. He stated that these foreign bankers had told him that industry in the industrial countries of the Continent had always had to look to foreign credit for the purchase of imported raw materials and in the export of finished goods; that due to various causes, such credit was required for longer periods than was customry in the United States. Among the causes named were lack of working capital in the American sense, slow transportation, the closing of riI-r navigation during the cold months, and the economic impracticability of industries closing down temporarily or for longer periods) as is frequently done in the United States without serious economic consequences. The combined effect of these conditions requires m.anufacturers seasonally to carry raw material s for six months of operation and they, accordingly, require credit up to six months with respect to a considerable portion of their purchases. The fact that banks on the Continent are much more closely identifi ed -iith the industries than is the general case in AvLerica normily permitte d them to discount freely for their manufacturing clients and also to procure for them from abroad the additional foreign credit that they required. Englaid, Holland, Switzerland, and to sme extent, France, were normlly the creditor countrie s and the first three continue at the present time to extend the kinds of credits for the time required to the Continental industries; generall through y the medium of Continental banks. It was explained that, owing to the higher price levels at the present time as compared with pre-war, the volume of domestic bills in Germany and other industrial sections of the Continent represented a physical volume of goods con,. siderably less, perhaps 75% of the quantity of goods, than would have been represented by an equal amount of bills pre-war, and that, accordingly, the rise in the price level required relatively greater recourse to foreign credit than before the war. It was explained that both before and since the war it was the practice of London banks and bankers to extend commercial accFetance credit for the benefit of Continental industry and trade freely md that the restrictions in the American practice had doubtless caused a great deal of financin g to go to London that otherwise would have come to New York on account of the dbility of America to create credit and the lcr.yer &rierican discount rates. • GD: are /0.5 • • ••• 2 The Cutting of acceptance commissions by London banks for Continental' "banks to attract this - kind of business to London was also referred to as consti., tuting a substantial competition but one which would not be so serious if American banks could give the credits that the Continental trade requires on terms otherwise equal with London. Since your Chairman advised the Board in these respects, he has conferred with a considerable number of prominent New York bankers who create the large bulk of American acceptances to inquire of them what in their experience had prevented them from giving acceptance credits abroad such as London bankers habitually grant, and he was informed by each of them that the rule against accepting after goods had arrived in the country of import and the rule against permitting customers to redraw after goods had arrived in the country of import were the only two points upon which they felt their disability depended. They felt that they would not wish to extend credits in Europe for purely domestic purposes, explaining that by that they meant the purchase of goods of domestic origin, the fabrication of such goods and its sale for domestic consumption within any European country, but that they did feel that they should be permitted to finance through acceptance credits the sale within European countries of goods of origin foreign to those countries, and the fabrication and sale of goods for export. Many of them cited the familiar problem of American cotton which is now sent so largely to European countries on consignment by American shippers and is sold to European spinners out of warehouses in Europe. Spinners require credit of ninety days or more. Under the present rules, American banks can give such credits where the cotton crosses a frontier in Europe, that is, where it is excorted from one European country to another, but they cannot give such credits if the cotton is sold to spinners located in the same European country in which it is stored pending sale. A similar negative position arises with respect to cotton which is sold and shipped from America on terms that have become quite usual, i. e., that at the buyer's option he may pay cash on arrival or give ninety days bankers credit. It frequently happens that the cotton has arrived and so the physical export completed before the buyer elects how he shall pay. If he elects to give ninety days b miters credit the b anker may not accept the bill if the cotton has arrived at the foreign destination named in the shipping documents. The American bankers consulted felt that the time has certainly arrived in the development of American acceptance business when American accepting bankers should be permitted the free exercise of their discretion within the law and regulations and that, within those limits, full latitude should be granted them in the accommodation of business as it is done in foreign countries. They stressed particularly the point that they regarded it as preferable to give a three months credit with a renewal for a further period, if it were found that a renewal were required at the expiration of the original period, than to grant the credit originally for a period of six months, and that if the rule against accepting a bill after the goods had arrived were rescinded, the end sought would be practically accomplished without a specific ruling in favor of renewal bills. It was pointed out that from the bankers' point of view it was preferable to be able to review credits at more frequent intervals than is the case when credits up to six months are being insisted upon by the borrower as a precaution against being unable to redraw at the end of a shorter period in case of need even for a small part of the credit. 414 • EnoNib (13 /1514 January 18, 1928. Dear Mr. Delano: Some friend was good enouil to place on py desk a copy of The Credit -orld, official organ of the National Retail Credit Association, for December containing yoar article on the federal reserve banks and the discount rate. I have just finished reading the artIcle and am pleased to find pyself in agreement with pretty men everything contained in it. However, you make one statei3eat which was rather startling and to which I feel inclined to demur. The statement in question is to the effect that your former colleague, Mr. Paul M. Warburg, "was chiefly responsible for the conception an:i development of what is known as the Gold Clearing Fund of the Federal Reserve System." I should be much interested to have you substantiate this assertion. According to my recollection of events, Dr. Willis, exnert of the Banking and Currency Committee of the Fouse of Representatives, and I, as chairman of that Committee, discussed this feature of the Federal Reserve Act before I had ever seen !'r. 'larburg or knew of his existence beyond the frequently reported fact that he was foremost among a group of Ne* York bankers in insisting that I should not be made chairman of the Banking and Currency Coernittee of the Rouse because of my hostility to the Aldrich bank plan. Dr. ?dills and I discussed this central Gold Clearing Fund as a corollary to the exchange and par collection feature of the federal reserve bill. At my request Dr. Willis took the matter up with Secretary McAdoo in order to get the latter's judgment as to the effect of such a proposed provision upon the chances for the legislation in hand. If Mr. 7:arburg offered or thought of offering a suggestion on the subject I do not recall it nor does Dr. Willis. There was something akin to this provision in the Aldrich scheme, but of such an indefinite nature as scarcely to be tangible; and there was nothing in the Aldrich plan relating to par collections among the individual banks. 1:y further recollection of the matter is that the Secretary of the Treasury named Dr. Willis as chairman of a committee of experts to prepare a preliminary report for tee organization of the reserve banks. The report of this committee embodied the Gold Clearing Fund plan which, as I vias told, was adopted by the Federal Reserve Board practically as reported by the committee and I understood that 'Or. Willis personally drafted the regulation of the Board relating to this Gold Clearing Fund. Not only so, but I seem pretty distinctly to recall that Mr. arburg was antagonistic to putting into effect this Gold Clearing Fund as I positively know he so persistently opposed putting into effect the par collection system as to provoke MB to prepare an amendment to the Act ranking it compulsory upon the Board to inaugurate this system. I think it was about te.is time that jou prepared a lucid and convincing brief on the subject of par collections, a copy of which I think I have among my papers in Virginia, which caused me to discard my proposed amendment. :ot only have I no disposition to deprive Mr. Warburg of credit for any VOLUME 177 PAGE 135 II CoUY 2. Frederic A. Delano. part he had in banking reform; but, on the contrary, in my recent federal reserve narrative I treated him with so much generosity as to have drawn the severe criticism of persons wino had a peculiar right to comment. I am not, however, inclined to remin silent when his kinsman. Frofeszer SelLsman, and others ascribed to him things with which he had nothing whatsoever to do. I am venturing to ',rite you thus because I thin;: you. are entirely mistaken in. attributigs to Mr. '1w:burg either the conception or development, except in a very reluctant way, of the Gold Clearing Fund. AlwaLrs with cordial regards and best wishes, Sincerely yours, (Signed). CA.I.27.11 GLASS. Frederic A. Delano, 7sq., 2244 S Street, N. W., 7ashington, D. C. (letterhead) c Dy Fa=7,RIC A. DELANO, 407 HIBBS BUILDING. WASHINGTON, D. C., January 19, 1928. My dear Senator Glass: My letter to you of yesterday and yours to me have crossed in transit. My recollection of this matter of the Gold Settlement Fund causes me to thii that there is some coufusion ofAdeas in your mind as between the Checic Clearing System, which was cleerly coatemlated by Lie. Federal Reserve Act, an te Gold S3ttleicaut ?and wuich, so far as I can recall, was not referred to ia the Act. leading, I took a very active, and in some respects I think I may claim in of onoosition deal good a had I part in advocating the Check Clearing System. as December, early as However, the Board and amon the Governors of the Banks. 1914, I was able to induce the St. Louis and Kansas City Banks to start check clearing operations in their districts. The fight continued through the early montis of 1915, and it was not until April, 1915, when Mr. Farding, who had been more or less opposed to me up to that time, changed his attitude and came to my assistance. 7rom that time on we made pretty rapid prof,ress. On June 15, 1915, we began a system of clearing in which member banks could join voluntarily or not as they chose. This, syltem of voluntary clearins;remained in effect until July, 1916, when it was waae compulsory on all member banks. During the early days of s amon7 those who claimed that my views of the check clearing, Mr. 7arburg free clearing of checks by Reserve Banks were not practicable. In fact that was the attit-ide of ninety-nine out of a hundred of all bankers and of nearly all the Governors of the Reserve Banks. After the plan of voluntary check clearing was adopted by the action of the Board in April, 1915. Mr. "varburg came forward in favor of a plan of creating a Gold Settlement Fund at Washington. Of course, I am aware that Dr. Willis ,has strongly in favor of the check clearing plan from the start, and when the Gold Settlement Fund was urged he was in accord with it, but I should not have said he had anythim; to do with originating the idea. Perhaps I am wrong, but that is my recollection. I recomized, of course, that the establishment of a Gold Settlement Fund -ould help the proble 1 of check clearing as between districts, and I was very strong for it, but I am fran': to say that the idea had never occurred to me, and I was, therefore, grateful to Mr. '7arburg for suggesting it. As originally started, we got an authorization to put nart of the funds required by law to be in the hands of the Federal Reserve Agents, on deposit with the Treasury in a sense as trustee. The Fund, as originally established, was less than $20,000,000, and the clearances were made once a week beginning with May 27, 1915. In July, 1918, we began to make the clearances daily. I left the service of the Board at the beginning of that very month, but I have always taken a very active interest in this feature of the development. I have not a full record of the proceedings of the Board, and am speaking largely from recollection, reinforced by the printed annual reports of the Board, which I have checked up in writing this letter. I had no thought of depriving the framers of the Act, or you personally, or Dr. 7illis, of any cre,At in connection with the establishment of the Gold Settlement Fund, and if I had • (C% 2. Frederic:!: A. Delano to Hon. Carter Glass. l thought that my statement would be questioned, I would have been inclined to omit the mention of any names in my article. As Admiral Schley said in connection Ath the Battle of Santiago Bay, the achievoments of the Federal Reserve Act shed enough glory to sntisfy all ,zho toot: a palt, great o. mall, in bringing it about. Very truly yours, (Signed) Honorable Carter Glass: United States Sennte, Washington, D. C. FRTDERIC A. DELANO. January 21, 1928. Dear Mr. Delano: Touching my recent letter concerning the Gold Settlement ?land and your reply thereto, I had no confusion of mind with respect to the check clearing system because I knor very definitely that that provision of the Federal Reserve Act eas among those incornorated upon my own initiative, and I endured with no little iranatience the failure of the Board to nut it into effect promptly. I recall clearly Mr. 'farbure.'s opposition to doing this and your effort' to have it eone. I have here none of my data on federal reserve matters, all of it being at my home in Virginia, and I wrote hastily and altogether from recollection in respect to the Gold Settlement Fund. I had in mind a provision of the original Federal Reserve Act directing the Federal -Reserve Board to establish a syctem of transfer of funds Letween federal reserve banks end their branches and authorizing the Board itself to exercise the functions of a clearing house between federal reserve banks. I seemed to remember that it was in pursuance of this provision of the bill that the committee of experts designated by the Secretary of the Treasury to deal with the preliminary organization of the reserve banks reported in favor of a central Gold Clearing Fund which subsequently was embodied in a regulation of the Board. This report preceded the appointment of the Federal Reserve Board. As I recall, Dr. 'Tanis was chairmae of this committee of experts and largely drafted the plan reported by the committee. The report of these experts, I think, was printed as an appendix to the first report of the Board; and, as stated in my previous letter, I had a very distinct impression that Dr. Willis, Secretary of the Board at the time the Gold Settlement Fund was put into effect, drafted the regulation adopted by the Board, which substantively was added as an nmendment to the statute itself. As indicated, I may be mistaken about these things; and, in the light of your letter, I am inclined to abate the measure of my confidence in my own recollection of events, particularly as I have no data at hand to substantiate the imnressions I have long held. I have not the remotest disposition to detract from any contributions made by Mr. 7arburg to federal reserve leeislation or administration. I urged the President to put him on the Board because I thought his banking genius would be of inestimable advantage in the initial stages of the experiment; but I have resented the attempt of some of his friends, with his acquiescence, to disparage everybody else and grossly to exaggerate his part. Perhaps I would not have bothered you with my hasty demurrer had I taken time, after reading your article, to reflect. Cordially yours, Frederic A. Delano, 2244 S Street, N. W., Washington, D. C. (Signed) CATTM GLASS. January 23, 1928. Dear Mr. Delano: After dispatching my letter of Saturday to you. I felt so disturbed to think that I had apparently forgotten a very important incident of federal reserve legislation and administration that I searched my bookcases here for a copy of the first printed report of tLe Federal Reserve Board to see if I might not confirm my recollection of the event. Failing to find this document I called Dr. Willis on long distance 'phone in New York to ask if he could supply me with a copy of the report on the organization of the syste.a made by the committee of experts of which he was chairman. Dr. -hills suggested that I might procure this from the office of the Secretary of the Board in Washington; and, upon my request, Mr. Eddy's office was good enough to send me to my hotel Saturday night a printed copy of the first report of the Board. I find in the appendix a copy of the report of this committee of exerts with this introduction on pages 119-20: "In order to promote a desirable uniformity in the organization of the Federal reserve banks, the Federal Reserve Board presents for consideration the outline of a tentative organization for the banks in certain essential aspects of their business. The outline has not been finally approved by the Federal Reserve Board. It --nresents the work of certain experts who were amnointed by the organization comittee to examine into the details of organization. It is, therefore, offered simply as a basis for furter discussion." On page 140 of the report., in continuation of this tentative plan of or7aniz-tion, T find, under the sub-head of "Federal Reserve Clearing House" an entire page devoted to the establishment of a central Gold Settlement Fund. As stated in my letter of January 18th and repeated in my letter of the 21st, this report of the committee of experts was prepared and presented to the Secretary of the Treasury, as chairman of the federal reserve organization committee, before the Federal Reserve Board was appointed and, therefore, before !:r. arburg came into the picture. You will note also that my recollection is confirmed as to this feature of the experts' report being based on that specific authorization of the original Federal Reserve Act which reads: "The Federal Reserve Board shall make and. promulgate from time to time regulations governing the transfer of funds and charges therefor among Federal Reserve Banks and their branches, and may at its discretion exercise the functions of a clearing house for such Federal Reserve Banks, or may designate a Federal Reserve Bank to exercise such functions." In view of the facts here stated, I do not think it may fairly be 2. Frederic A. Delano. said that the central Gold SettlerAent Fund was the conception of Mr. Warburg, whatever part he may have taken in the development of the system. As to this, my recollection of the circumstances is not in agreement with yours. I am not disposed to dissent from your suggestion that there was glory enough for all in the establishment and successful administration of the federal reserve system in its initial stages; but Mr. Warburg does not think so, since he would appropriate to himself almost exclusive credit for the entire transaction. Always with cordial regards, Sincerely yours, (Signed) Frederic A. Delano, Esq., 2244 S Street, N. W., '%ashin,7ton, D. C. CARTER GLASS. (Letterhead) FREDMLIC A. TUIANO 407 Er3BS BUILDING. 7ASHI1GT0N, D. C., January 30,1928. My deee: Senator Glass: I have been out of the city ever since receiving your two letters of January 21st and 26rd, and hence iv delay ir resnonding to Vers. I once read the report of L.-e Organization Committee, and suppose, therefore, that I mu:A have known of the recommendation of Cent Committee, but that had entirely gone out of my mind; and even now, as I think back, my feelino: is very clear and distinct that Mr. 7arburg not only sue-ested the Go3d Settlement Fund, but showed us how it could be put through. I remember he told me of an inter-city settlement fund in use in Germany. When it was first suggested there were some doubts expressed as to the lee;ality of putting Federal Reserve Agents' money in the hands of the Secretary of the Treasury as a pool, but when that point was settled it was not aifficult to work out the details. In my rather long railroad exnerienee, I had a (T03-1 deal to do with inventors and inventions, and found that there is a -ide difference between the men who have ideas and the men who are able to carry those ideas through; and I remember particularly well the practical difficulties we had in getting the check clearing scheme to work. The Federal Reserve Act authorized the establishment of a check clearing syetem, but it did not pretend to go into details. There was nothing new about check clearing, as there were clearing houses in every bi city in the country; but clearing checl:s between different sections of the country for a negligible charge and still meet the views of over-cautious and sometimes selfish bankers, was not easy. There were at least ninety-nine men who could tell us that our scheme was either unjust, unsafe or impossible, to one who was confident that it could be done in spite of difficulties. In spite of the evidence which you suo-91y, I feel that Mr. 7larburg made a very real contribution to the Tederal Reserve System in his assistance, you may call it, in putting through the Gold Settlement Fund, I am told that in the Dominion of Canada, although five or six central - banks with branches control the entire banking of the country, they have been unable (at least up to six months ago) to work out a Gold Settlement Fund. It was at about that time that a Canadian banker told me that he considered that the greatest single achievement of our Federal deserve System. I would not go so far as to say that, and believe in the old adage that "Comparisons are odious:" but I do think it was a very imnortant achievement and whoever contributed in originating the idea and in working it out in practice is entitled to an immense aelount of credit. Very sincerely yours, (Signed) FREDERIC A. DELANO. Hon. Carter Glass, United States Senate, -Tashington, D. C. A February 1, 1928. Dear Mr. Delano: Acknowledging yours of January 30th, I may say that, in the light of indisputable documentary evidence to the contrary, I must insist that r. :arburg had nothing whatsoever to do with the conception of the Gold Settlement Fund. As stated in my previous letters, the idea was embodied in the original Federal Reserve Act itself, was developed in detail in the report of the organization cortnittee before t_e Federal Reserve Board was even apdrafted the pointed, and I am riionfirrad in my recollection that Dr. effect. into it putting Board the of regulation I am also pretty certain that you are totally mistaken in the supposition that Mr. Tarburg showed the Board "how it could be put through." As stated in my first letter to you on the subject, my recollection was that Mr. 77arburg vigorously opposed the Gold Settlement Fund as originally put through the Board; and this is now definitely confirmed by Mr. Hamlin, one of the original members of the Board, who sends me an extract from a letter written by him to Mr. Warburg under date of December 30, 1915, having reference to another policy of the Board, in which Mr. Hamlin uses this language: "You may also remember that originally you vigorously opposed a Gold Settlement Fund at 7ashington, claiming that the Federal Reserve Bank of Chicago should be permitted to undertake this. May I ask if you have not since radically changed your views upon this important matter?" I quite agree with you as to the vast importance of this Gold Clearing I do not seek to appropriate to myself credit for its conception. and system I do know perfectly well, however, that Dr. Mlis, expert advisor of the House Committee, discussed the matter with me before I 1:new of the existence of Er. Tarburg. The Federal Reserve Act itself shows that the idea was incorporated in its rovisions. The organization committee's report, drafted by Dr. Willis, shows its development in considerable detail. The subsequent modification of 'the Federal Reserve Act, drlfted by Dr. Willis, perfected the system as it now exists. In these circumstances I am not willing that the entire credit for the conception and development of t_e Gold Settlement Fund shall be appropriated by Mr. 71arburg or by his friends for him, any more than I have been willing that Professor Seligman and others should undert2.ke to exploit !:r. -Arburg as the father of the federal reserve banking system. 'Athout desiring to prolong a controversy, I might draw your attention to the fact that, at the first and for quite awhile, Mr. -arburg was openly hostile to the federal reserve system as it was later developed and administered. Ee regarded it as purely an emergency scheme and urged that the activities of the banks be confined to that conception of the law. In the very first public address he delivered, at Raleigh, North Carolina, after a year of operation, he said that he would have been ashamed of the federal reserve system had the banks 2. Frederic A. Delano. cleared the costs of operation. That was his persistent idea of the system; and I could mention various instances in which he opposed or obstructed the development of the system along lines which he considered competitive as to the larger Eastern banks. I beg you to believe that I have had a high personal regard for r. Warburg, and treated him with the greatest consideration when I recently had occasion to write in extenso about the federal reserve system; but, now that I am informed he has employed a college professor to further exploit his imaginary part in federal reserve history, it is my fixed purpose to hold him strictly to the establi*hed record. Sincerely yours, (Signed) Frederic A. Delano, Esq., 407 Hibbs Building, Washington, D. C. CART1R a P • (Letterhead) F117DERIC A. DELANO, 407 HIBBS BUILDING. WAS1INGT0'2, D. C.,February 7,1928. t7onorabla Cartcli Glass, United States Sanate, -las]lington, D. C. My dear Senator Glass: I think there is only one thi ng that I can add to what I have already said, and that is that I would like to make it clear to your mind that my article for the Credit mag:azine was not writ ten with the 1cno7,1edge of either -r. 'arburz or Professor Seligman. The latter I scarcely know. Mile I was tryi nr, to give credit to a man I thollht deserving cif it, and confin ed my statelLent to the facts, as I recalled them, was not trying to pull anybody down. Sincerely yours, (Signed) FR7DERIC A. DELANO.
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