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The Papers of Charles Hamlin (mss24661) 361_04_001- Hamlin, Charles S., Scrap Book — Volume 180, FRBoard Members 205.001 - Hamlin Charles S Scrap Book - Volume 180 FRBoard Members 111 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence To The Files From Mr. Coe Dee July 24, 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 180 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 180 Page 7 Earnings & Expenses of F.R. Banks. Page 13 (X-6006) Re New Clayton Act Regulation and Forms. Page 17 Memo to Board from Mr. Smead re Report on member bank reserve requirements. Page 25 Report of the Open Market Investment Committee. Page 71 Earnings & Expenses of F.R. Banks. Page 97 Preliminary memorandum for the Open Market Inv. Committee. Page 113 Memo to Mr. Hamlin from Mr. Van Fossen re Fiscal Agency Operations of the Federal Reserve Banks. Page Total Bills and Securities, by Classes, Member Reserve Deposits, Monetary Gold Stock, and Amount of Money in Circulation, October 31, 1922. • . • r • EARYINGS MD EXPT=S OF =PAL R7ST.11117 PA717S March 1928. Total earnings of the Federal reserve banks in March were $385,000 more than in February, princinalli- because they were accrued for 2 days more than in the Previous month. As cI mpared with March 1927, there was an increase of $537,C00. 'Current ex-nenses (exclusive of cost of currency) anregated $2,168,000, as comrared rith $2,137,000 in tha month preceding and $2,145,000 in March of laSt year. First Quarter 192g. ruring the first 3 months of the year earnings totaled $11,601,000 as compared with $10,349,000 for the corresponding period last :var, end $11,460,000 for the first quarter of 1926. Currant exnenses (3xclueive of the cost of Federal reserve curreno7) emountld to $6,479,000 durinE the 3-month period, an increase of about $66,oco over the corresponding p-:riod last y)ar.. After providing for all current expenses end dividend raquirem-nts, the Federal reserve banks on Warch 31 had a balance of $2,740,000 available for depreciation allowances, surplus, nnd franchise taxes as comnar,d i-ith a balance of $1,570,000 at the end of Varch 1927. VOLUME 180 PAGE 7 (St. 5752a) LTJ HALLIN 00NotN'FID ENTIAL for publication Reserve Bank EARNINGS AND EXPENSES OF FEDESNOPTESERVE BANKS, MARCH 1928. !'onth Earnings from Federal Discounted bills sealti (1;;? • Ki Parchased bills of U. S. securities Other sources Total March Current expenses Exclusive of cost of Total currency 1928 Current nut earnings Ratio to Amount paid-in capital Per cent $207,107 25.6 St. Year Current net earnings 5752 1928 Balance for Dividends reserves, surplus, accrued franchise, tax, etc. Boston ,1.68,292 $130,921 $59,788 *$476 or York $358,525 $149,975 $151,418 434,060 281,553 273,387 44,190 984,810 507,269 545,118 439,692 1 2.2 1,254,323 627,313 627,010 Philadelphia 167,360 84,759 97,007 *1,809 347,317 151,607 156,874 190,443 16.4 518,364 201,612 316,752 Cleveland 188,613 84,243 1)40,234 16,085 429,175 207,330 216,138 213,037 17.6 565,273 212,437 352,836 Richmond 93,277 41,6'44 21,711 1,160 157,792 116,369 120,538 37,254 7.0 196,126 93,698 102,428 369 26,317 8,160 146,453 101,869 109,035 37,418 8.5 130,562 77,676 52,886 192,481 39,129 570,556 310,151 320,595 249,961 15.6 694,701 277,678 417,023 Atlanta Chicago $481,660 $141,807 $339,853 St. Louis 25,990 90,024 3,927 207,002 111,322 116,683 90,319 19.9 238,130 80,136 157,094 Minneapolts 34,594 '54,762 6,024 106,084 81,856 89,211 16,873 r 0.0 70,754 45,337 25,417 142,390 37,750 10.5 124,725 63,718 61,007 101,397 25,533 411L Francisco 214,468 77,8148 91,839 *2,311 381,8)44 191,290 204,653 177,191 TOTAL Mar. 1928 1,715,862 982,810 1,211,562 86,394 3,996,628 2,167,553 2,274,050 1,722,578 Feb. 1928 1,412,460 942,402 1,110,802 145,019 3,610,683 2,137,379 2,255,967 1,354,716 Mar. 1927 1,453,135 796,634 1,022,947 186,593 3,459,309 2,144,905 2,310,700 1,148,609 FEDERAL RESERVE BOARD DIVISION OF BANK OPERATIONS • *Debit. 4.PRIL 13, 1928. C. 7.0 107,674 64,246 43,428 22.4 384,2i6 '40,722 243,494 14.9 12.6 lo.6 4,766,508 2,026,380 2,140,128 3,464,386 1,894,127 1,5:!0,259 Kansas City 34,u6, 34,7'52 92,159 19,144 180,140 137,437 Dallas 12,630 40,896 71,853 1,551 126,930 101,080 • • .C4.4.114i • FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-6006 March 29, 1928. SUBJECT: New Clayton Act Regulation and Forms. Dear Sir: There is enclosed for your information a copy of the Act of March 9, 1928, amending Section 8 of the Clayton Antitrust Act so as to broaden the powers of the Federal Reserve Board in the matter of granting permits for interlocking bank directorates. You will observe that the Board is now authorizea to grant such permits whenever in its judgment it is not incompatible with the public interest, and also that it is no longer necessary for a member bank to be involved in order for the Board to be authorized to grant such permits. The Board has recently revised its Regulation L pertaining to interlocking bank directorates so as to conform to the law as amended. This regulation has not yet been printed but a mimeographed copy is enclosed herewith for your advance information. The various forms used in connection with the administration of the Clayton Act are also being revised an a supply of such forms will be forwarded to you as soon as they can be printed. Hereafter, all applications should be submitted to the Board on the new forms. Please advise the Board as soon as possible how many copies of the new regulation and forms you will require. Very truly yours, J. C. Noell, Assistant Secretary. VOLUME 180 PAGE 13 Enclosures. TO ALL FEDERAL RESERVE AGENTS. X-6006-a FEDERAL RESERVE BOARD REGULATION L, SECOYD SERIES OF 1928. (Superseding Regulation L of 1928) IN=LOCKING BANK DIRECTORATES UNDER THE CLAYTON ACT Section I. Definitions Within the meaning of this regulation-The term "bank" shall include any bank, banl,:inir association or trust company organized or operating under the laws of the United States or of any State thereof. The term "national bank" shall be construed to apply not only to national banking associations but also to banks, tanking associaticns, and trust companies organized Dr operating under the laws of the United States, including all banks and trust companies doing business in the District of Columbia, regardless of the sources of their charters. The term "resources" shall be construed to mean an amount equal to the sum of the deposits, ca-Dital, sur151us, and undivided profits. The term "State bank" shall include any bank, banking association, or trust company incorporated under State law. The term "private banker" shall apply to any unincorporated individual engaging in one or more phases of the banking business as that term is generally understood and to any member of an unincorporated firm engaging in such business. The term "Edge corporation" shall mean any corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended. The term "city of over 200,000 inhabitants" includes any city, incorTporated town, or village of mere than 200,000 inhabitants, as shown by the last preceding decennial census of the United States. Any bank located anywhere within the corporate limits of such city is located in a city of over 200,000 inhabitants within the meaning of the Clayton Act, even though it is located in a suburb or an outlying district at some distance from the princioal part of the city. Section II.Prohibitions of Clayton Act Under section 8 of the ',1ayton Antitrust Act-- , (1) No person who is a director or other officer or emoloyee of a national bank having resources aggregating more than $5,000,000 can legally serve at the same time as director, officer, or employee of any other national bank, regardless of its location. • I - X-6006-a (2) No person who is a director in a State bank or trust company having resources aggregating more than $5,000,000 or who is a private banker having resources aggregating more than $5,000,00L can legally serve at the same time as director of any national bank, regardless of its location. (3) No person can leLally be a director, officer, or employee of a national bank located in a city of more than 200,000 inhabitants who is at the same time a private banker in the same city or a director, officer, or employee of any other bank (State or national) located in the same city, regardless of the size of such bank. The eligibility of a director i officer i or employee under the foregoing provisions is determined by tae average amount of de-posits, capital, surplus, and undivided profits as shown in the official statements of such bank, banking association, or trust company filed as provided by law during the fiscal year next preceding the date set for the annual election of directors, and when a director, officer, or employee has been elected or selected in accordance with the provisions of the Clayton Act it is lawful for him to continue as such for one year thereafter under said election or employment. When any person elected or Chosen as a director, officer, or employee of any bank is eligible at the time of his election or selection to act for such bank in such capacity his eligibility to act in such capacity is not affected by reason of any change in the affairs of such bank from whatsoever cause until the expiration of one year from the date of his election or employment. Section III. Exceptions The provisions of section 8 of the Clayton Act-(1) Do not a/yoly to mutual savings banks not having a capital stock represented by shares. (2) Do not prohibit a person from being at the same time a director, officer, or employee of a national bank and not more than one other national bank, State bank, or trust company, where the entire capital stock of one is owned by the stockholders of the other. (3) Do not prohibit a person from being at the same time a class A director of a Federal reserve bank and also an officer or director, or both an officer and a director, in one member bank. (4) Do not prohibit a person who is serving as director, officer, or employee of a national bank, even though it has resources aggregating over $5,000,000, from serving at the same time as director, officer, or employee of any number of State banks and trust companies, provided such State institutions are not located in the same city of over 200,000 inhabitants as the national bank and do not have resources aggregating in the case of any one bank more than $5,000,000. (5) Do not prohibit a person from serving at the same time as director, officer, or emnloyee of any number of national banks, provided no two of them are located in the same city of over 200,000 inhabitants and no one of them has resources aggregating over $5,000,000. (8) Do not prohibit a person who is not a director, officer or employee of any national bank from serving at the same time as officer, director, or employee of any number of State banks or trust companies, regardless of their locations and resources. X-6006-a (7) Do not prohibit a -person who is an officer or em'ployee but not a director of a State bank from serving as director, officer, or employee of a national bank, even thouEs;h either or both of such banks have resources ag(;regatin over S5,000,000, provided both banks are not located in the same city of over 200,000 inhabitants. (3) Do not prohibit a person who is an officer or employee but not a director of a national bank from servinG at the same time as director, officer, or employee of a State bank, even though either or both of such banks have resources acgregating over $5,000,000, provided both banks are not located in the same city of over 200,000 inhabitants. (9) Do not prohibit a :private banker or an officer, director or employee of any bank or a Class A director of a Federal reserve bank from being at the same time an officer, director or euployee of not more than two other banks within the prohibitions of the Clayton Act, if there is in force a permit therefor issued by the Federal Reserve Board. a-xeptions cumulative.--The above exceptions are cumulative. Section IV.Permission of the Federal Reserve Board. (a) In General.- Section 8 of the Clayton Antitrust Act, as amended by the Acts of May 15, 1916, May 26, 1920, and March 9, 1928, authorizes the Federal Reserve Board to permit any private banker or any officer, director, or employee of any bank, banking association, or trust company, or any class A director of a Federal reserve bank to serve as director, officer, or employee of not more than two other banks, banking associations, or trust companies coming within the prohibitions of the Clayton Act, if in the judGment of the Federal Reserve Board it is not incompatible with the public interest. (b) When obtained.--Inasmuch as this exception to the prohibitions of the Clayton Act applies only when "there is in force a permit thereit is a violation of the law for issued by the Federal Reserve Board to serve two or more banks in the prohibited classes before such a permit has been obtainpd. A permit should be obtainPd, therefore, before beco:Ilinc„ an officer, director, or employee of more than one baak in the IIhibited classes. It may be procured before the Person op:plying therefor has been elected as director or appointed an officer or employee of any bank in the prohibited classes. person wishinc, to obtain a per(c) Applicatiomfor permission.-mit from the Federal Reserve Board to serve banks coming within the prohibitions of the Clayton Act should-- •A (1) Eake formal application on F. R. B. Form 94, or, if a private banker, on F. R. B. Form 94d. Each cf these forms is made a part of this regulation. (2) Obtain from each of the banks involved a statement on F. R. B. Form 94a, which is made a part of this regulation, showing the character of its business, together with a copy of its last -)ublished statement of condition, and, if a private banker, make a statement on F. R. B, Form 94e showing the X-6006-a -4character of his or his firm's business. (3) Forward all these papers to the Federal reserve agent of his district, who will attach his recommendation on F. R. B. Form 94b, which is made a part of this regulation, and forward them in due course to the Federal Reserve Board. (d) Compatibility with the Public Interest. - In determining whether the issuance of such a permit would be compatible with the public interest, the Federal Reserve Board will consider: (1) Whether the banks involved are natural competitors; (2) Whether their having the same directors, officers or employees would tend to lessen competition or to restrict credit; and (3) Any other facts having a bearing upon the interest of the public in such banks as affected by their having the same directors, officers or employees. (e) Approval or disapproval.--As soon as an application is acted upon by the board, the applicant will be advised of the action taken. If the board approves the application, a formal -oermit to serve on the banks involved will be issued to the applicant. (0 Hearing. - If it appears to the Board that it would be incompatible with the public interest to grant such permit the Board will so notify the ap-21icant and will afford him every opportunity to present any additional facts or arguments bearing on the subject before making any final decision in the case. (g) 2ffect of permits. -A permit once granted continues in force until revoked, and need not be renewed. (h) Revocation.--All permits, however, are subject to revocation whenever the Federal Reserve Board, after giving reasonable notice to the Persons to whom they were issued and affording them an opportunity to be heard, finds that the public interest requires their revocation. Section V. Permits Under Section 25 Of The Federal Reserve Act. V:ith the approval of the Federal Reserve Board, any director, officer, or emmloyee of a member bank which has invested in the stock of any crnyration principally engaged in international or foreign banking or financial operations or banking in a dependency or insular possession of the United States, under the provisions of section 25 of the Federal reserve act, may serve as director, cfficer, or employee of any such foreign bank or financial corporation. A- Dplications for approval.--The approval of the Federal Reserve Board for such interlocking directorates may be obtained through an informal ap4ication in the form of a letter addressed to the Federal Reserve Board either by the officer, director, or em-eloyee involved, or in his behalf by one of the banks which he is serving. Such application should be sent directly to the Federal Reserve Board. • X-6006-a -5- Section VI. Permits To Serve Edge Cornorations With the a-rproval of the Federal Reserve Board-(1) Any officer, director, or employee of any member bank may serve at the same time as director, officer, or employee of any Edge cornoration in whose capital stock the member bank shall have invested. (2) Any officer, director, or employee of any Edge corporation may serve at the same time as officer, director, or emloyee of any other corporation in whose capital stock such Edge corporation shall have invested under the provisions of the Edge Act. Ap-Dlications for approval.-- Such approval may be obtained through an informal a,y)lication in the form of a letter addressed to the Federal Reserve Board either by the director, officer, or employee involved, or in his behalf by one of the banks or corDorations involved. Such aoplications should be sent directly to the Federal Reserve Board. • L44. tut June 27, 1927. St. 5420, TO: Federal Reserve Boexd FROM: SUBJECT: Re-ort on member bank reserve requirements. Mr. Smead Under date of 12, 1925, a committee of Federal reserve agents corn:posed of Frederic H. Curtiss, Chairman, Pierre Jay, Wm, IricC. Martin, and D. C. Wills, submitted a re-oort to the Federal Reserve Board recommending certain changes in the legal reserve requirements for meelber banks. This committee, after an extensive study of the subject, came to the conclusion thet the credit system of the country had become adjuste. to the present level of reserves, that any material change therein would involve readjustments, the effect of which would be difficult to forecast, and that it was desirable to avoid changes in reserve requirements which would. bring about violent changes in the reserves of individual banks. While the committee preferre-, therefore, not to make any radical change in existing requirements, it recognized that in certain particulars changes were desirable and recommended: (1) That the requirements of the Federal Reserve Act relative to member bank reserves be changed so as to permit the deduction of changes for clearing house, checks on other banks in the same place, and of checks in nrocess of collection (Whether with Federal reserve banks or corres-eondent banks), from demand deposits Instead of from bank denosits as at present; (2) That all member banks outside of New York and Chicago be required to carry a reserve of 10 per cent on net balances due to other banks; and (3) That all banks be required to carry a reserve against Government de.7)osits at the same rate as against demand de-.)osits. It is generally agreed thet the present total volume of reserves is reasonably satisfactory from a credit standpoint, and consequently it would be both unnecessary and inadvisable to undertake any revision of reserve requirements which would involve a m-,terial raising or lowering of the aggregate reserves carried ”Tith the Federal reserve banks. There are, however, three questions of considerable importance which it is believe' should receive consideration, namely: Are the ?resent differentials in reserve requirements for the various classes of banks reasonably satisfactory, or do they result in some banks carrying a larger or smaller Proportion of the aggreate than the character of their denosits justifies; Should the definition of time deposits be revised so as to check the conversion of demand into time deposits; and Should not the method of computing the deposit liability on which reserves are required be materially simplified. It should be borne in mind that one of the fundamental -,rinciples which was incorporated in the original national bank act, and which has been followed without question ever since, is that banks which make it a practice to solicit denoSits from other banks and act as their corresT)ondents and, in many cases, as their reserve agents, are in a sense bankers' banks end are likely to have to meet unusual withdrawals of deposits whenever there is a tightening in the credit situation. In recognition of this fact, Congress nrevided that banks located in the larger financial centers Should be required to carry a higher reserve against their deposit liabilities than lertnks locate elsewhere, which presumbly would carry no material amount of bank deposits. VOLUME 180, PAGE 17 S • St. 5420. - 2 The reasons prompting Congress to recluire member banks in reserve cities to carry higher reserves are believed to be universally recognized as sound, and, as a matter of fact, the agents' committee above referred to recognized this by recommending that all banks outside Now York City and Chicago, wherever located, be require to carry a 10 per cent reserve against net bank deposits. If it is conceded that banks locate:. in reserve cities should c-rry higher reserves than so-called country banks, because the former generally carry subst:ntial deposits of, and act as correspondents or reserve agents for, other banks, it would seem to follow that a more equitable arrangement would be to require a uniformly high reserve to be carried on bank deposits by all banks, wherever located. It is even more imnortant for banks in rural communities, which choose to sat themselves UD as depositaries of other banks, to carry a high reserve on bank deposits, than it is for banks in the large financial centers, since the former usually receive bank deposits from banks in the surrounding territory only, and credit disturbances, vich are frequently of a local character, affoct thoi . more seriously thLn they do banks in the larger cities Which receive deposits from banks located in various sections of the country. To require a. higher reserve to be carried against bank deposits than on other demand. denosits would, of course, necessitate an amendment to the Federal Reserve Act. The desirability of making such s change, however, together with the advisability of simplifying as much as possible the present involved method of computing reserves end of checking the marked tendency on the part of the banks to convert demand dePosits into time deposits would seem to warrant the Board in asking Congress to amend the irovisions of section 19 of the Act. Proceeding on the assumption that the -)resent aggregate volume of reserves is satisfactory from both the member bank and the Federal reserve bank standpoint, it is believed that the purposes outlined in the preceding paragraph can be achieved by requiring member banks to maintain reserves with the Federal reserve banks as follows: 1. On total bank del)osits - 13 per cent by all member banks 2. On total time deposits - 3 per cent by all member banks 3. On net demand deposits - 13 per cent 1)7 member banks in New York City and Chicago, (except banks in outlyin territory) 9 per cent by member banks in all other F. R. bank and branch cities 7 per cent by member banks located outside F. R. bank and branch cities. 4, U. S.Government deposits - Require all member banks to carry reserves on U. S. Government deposits, the percentage of reserves. required to be the same as that required on net demand daoosits. St. 5420, - 3 It is also recommended that the Act be amended so as to ,provide th- t a 1."-A eavings account in order to be classified as/time da.posit . must be subject to the following restrictions: (,) It must be the (*posit of an individual or of a religious, charitable or similar corporation and not Lhe clo-)osit of one bank in another or the deposit of a business corporation or firm; (b) a pass book, certificate, or other similar form of receipt issued to aniretained by the depositor must be presented to the bank whenever a withdrrew al is made; (c) the depositor may at any time be required by the bank to give notice of an intended withdrawal not less than 30 days before the withdrawal is mnde; and (d) no withdrawp1 in excess of $500 on any one dry shall be made unless the depositor has given notice of such intended withdr, ,wri not less than 30 deys before the withdrawal is made. 2. Certificates of deposit payable on a specified date and not within 30 days of maturity shall be classified as time deposits, and all other certificates of deposit Payable on a specified date shall be classified as demand deposits. 3. All postal savings del-psits Shall be classified as time deposits. 4. Other deposits may be classified as time deposits when, in accordance with a written contract entered into with the depositor at the time the deposit is made, they cannot be withdrawn except on a given date more thFn 30 days after the date of the deposit or on written notice which must be given by the depositor at least 30 days in advance of withdrawal, provided that such deposits shall be classified as demand deposits during the 30 days precedin g the withdr,awal date. 5. All other de,)osits shall be classified either as demand deposits or as bank deposits. 6. In determining the amount of net demand e.e72osits on which reserves are to be computed all member b:nks, wherever located, shall deduct balances due from:, other banks (except Federal reserve banks and foreign banks), items with Federal reserve benks and other banks in process of collection, exchanges for the clearing house, and checks on other benks in same place, from their gross demand deposits including certified and cashiers' or treasure rs' checks outstanding. The present reserve requirements and the changes suggested are summarized as follows: PRESENT REqUIREYENTS lInnk de-nosits net Central Reserve Cities (New York City and Chico) Other Ressrve Cities Country banks Total demand deposits* 13 10 13 10 7 7 Time _ de-eosits *Fxcept U. S. Government deeeosits on Which no reserve is now required. 3 3 3 • • • St.5#2O. _LL PROPOSED REqUIREKENTS Tot7,1 bnk deposits Net dewnd deposits 13 13 13 13 New York City nnd Chicago Other F.R. bnnk & branch cities Outside P.R. bnnk & branch cities 9 7 Time deposits 3 3 7 Should the proposed changes be adopte, the amount of deposits subject to reserv3 will be comuted in accordance 7ith the following formula: BANK DEPOSITS 1. Bal-ncesdue to banks, bankers, and trust comnanies in the U. S. & foreign countries YET DEMAYD DEPOSITS 2. Demand deposits 3. Cashiers' and certified chocks 4. u. S. Government deposits 5. Cash letters of credit and trnvelorsf 6. TOTAL DEYAYD DEPOSITS (exclusive of chocks bank deposits) DEDUCT: 7. Iilnnces due from other banks (except F. R. and foreign banks) g. Checks in process of collection with Federal reserve or correspondent banks 9. Exchanges for clearing house 10. Checks on other banks in same place 11. TOTAL DEDUCTIONS 12. NET DEMAND DEPOSITS(cxclusive of brInk de2osits) TIY,E DEPOSITS 13. Savings accounts 14. Time certificates of deposit nayable after 30 days 15. Postal savings denosits 16. Other denosits Tlayiable after 30 days 17. TOTAL TI E DEPOSITS • I • • St. 5420. -5-Thc effect of the :),bovo chnngcs colrired with present requiremmts has been calculpted for each call date since Septem'oer 28, 1925, and the changes are sumarized as follows: Present required reserves Change resulting from proposed requirements Change resulting from -proposed requirements omitting reserve on U. S. Government deposits (In thousands of dollars) All banks: March 23, 1927 Dec. 31, 1926 June 30 April 12 Dec. 31, 1925 Sept. 28 2,219,984 2,250,367 2,226,737 2,167,495 2,256,420 2,140,351 + - 69 34,334 31,797 17,439 34,647 11,249 - 863,905 898,692 823,290 897,438 822,939 + + + 9,736 5,055 3,391 141 11,336 2,685 - 5,383 12,781 8,546 8,611 20,910 4,697 Reserve cities in which a F. R. bank or branch is located: March 23, 1927 Dec. 31, 1926 June 30 April 12 Dec. 31, 1925 Sept. 28 653,595 647,984 654,077 647,405 655,133 637,014 + + + + 11,594 2,335 3,363 5,477 401 6,667 - 7,474 13,250 15,841 15,837 14,240 7,002 Reserve cities in Which no F. R. bank or branch is located: March 23, 1927 Dec. 31, 1926 June 30 April 12 Dec. 31, 1925 Sept. 28 107,936 102,116 103,304 103,578 100,576 98,701 - 10,156 9,677 10,529 10,197 7,867 7,423 - 11,202 10,449 11,387 11,393 8,904 8,360 594,548 601,575 593,476 - 11,105 17,267 14,514 - 15,557 20,234 17,110 16,935 19,555 17,109 New York March Dec. June April Dec. Sept. City and Chicago: 23, 1927 31, 1926 30 12 31, 1925 28 Country banks: March 23, 1927 Dec. 31, 1926 June 30 April 12 Dec. 31, 1925 Sept. 28 875,880 593,222 603,273 585,697 12,860 15,845 13,178 - 39,626 56,714 52,884 52,776 63,609 37,168 • • St.5420. - 6 CHANGE IN JA.GGR7GATE RESERVE 1172QUIRE:=TTS. It will be note•f from the tabular statement above that the re'uction in aggregate reserves Which would result from the suggested changes in reserve requirements averages about ”3,000,000 on the June and December call dates and about $15,000,000 on the other call dates. Inasmuch as member banks, on the June and December Lan dates, hold substantial amounts of exchanges for clearing house and other checks in process of collection, for which they have given their de7;ositors credit, a substantial pro-oortion of Which cannot be deducted under present la7a in calculating net deposits on which reserves are computed, it is evident th't the figures for June and December arc not representative. It is thought, in fact, that the average reduction in reserve requirements in case the above changes were adopted would not exceed $15,000,000. GOVERNMENT DEPOSITS. In ease the Board should feel it inadvisable to ask Congress to modify the law so as to require member banks to carry a reserve on Government deposits, as they did prior to June 21, 1917, the reduction in reserve requirements which would result from the suested changes thus modified would probably average in the neighborhood of $4o,000,000. A loss of even this much in reserves required could, it would seem, well be afforded if necessary to obtain a more logical method of calculating reserves and more equitable differentials in reserve requirements, especially if, as it is assumed, the new requirements would be more satisfactory to member bp,n1:s as a whole. CASH LETTERS OF CREDIT AND TRAVELERS' CHECKS OUTSTANDING. The Board's present rules covering required reserves of member banks do not require the banks to cerry a reserve on let:. - ers of cre(A.t and travelers' checks sold for cash and outstanding. These letters of credit and travelers' checks are, however, to all intents and purposes, deposits subject to Withdrawal on demand, and for this reason they have been included among demand deposits as shown above. The Board ap-arently has ample authority under the present law to rule that member banks should carry reserveson these items, and it is my understanding that the banks in Now York City which issue a substantial volume of cash letters of credit and. travelers' checks do carry a reserve against them at the present time. HIGHER RESERVES FOR BAYS IN NEW yoax CITY AND CHICAGO. The rerson for requiring higher reserves to be carried on net demand deposits by member banks in New York City and Chicago than by banks located elsewhere is that these cities are the two largest financial centers in the United States, the banks do practically a world-wide business, they carry 12Tge balances both for correspondent banks and for large corporations throughout the United States and in foreign countries as well, with the result that a tremendous volume of ..lorking and surplus funds finds its way into the banks of these two cities. Moreover, a large volume of funds are loaned on call in these cities, especially in New York City, and any withdrawal of such funds has to be met by the local banks. DIFFERENTIAL IN REQUIRED RESERVES 017 NET DT.I.AND DEPOSITS BETWEEN MEMBER 3ANYS LOCATED IN F. R. _BAIT AND BRANCH CITIES AND THOSE LOCATED OUTSIDE SUCH CITIES. Banks in Federal reserve bank and branch cities have immedirte access to the cash facilities of the Federal reserve banks and branches in their respective cities and consequently can safely operate with a much smaller amount of cash in their vaults tlian can banks located in other cities end toms, • g.51420. The ratio of cash in vault to net demand del?osits is normally less than 2 per cent for member banks in New York City and Chic2go, around 2.4 per cent in other Federal reserve bank and branch cities, and somewhat under 5 per cent for banks located outside such cities. Accordingly, the differential of 2 per cent in reserve requirements on net demand and Government deposits, as between leanks in Federal reserve bank and branch cities and elsewhere, is necessary to put the banks, both in and outside of Federal reserve bank and branch cities, on an approximately equal footing with regard to the total of their legal reserves with the Federal reserve bank and vault cash requirements. and REASON FOR MAKING ALL DEDUCTIONS PROF DEMAND DEPOSITS. Under present laws/the rulings of the Federal Reserve Board, member banks are allowed to deduct items in process of collection ahd balances due from other banks from amounts due to banks in computing their deposits on Which reserves are carried. All country banks have substantial amounts due from correspondent banks and of items in process of collection, but they do not as a general rule have any balances due to other banks. Consequently, the country banks cannot deduct their very substantial balances with other benks from their deposit liabilities in determining deposits on which reserves are carried and are, therefore, at a disadvantage in comparison with banks having substantial balances due to other banks. As it is impracticable for a member bank to segregate items in process of collection, which were deposited by customers for credit in their checkinE accounts, from these received for credit to other banks or to time deposit accounts, some arbitrary rule has to be followed, and as deductions clearly should not be made from tieae deposits and could not from bank deposits in the case of country banks (which have no such deposits) it follows that the deduction, if it is to be availed of by all member banks, can as a practical matter be made only from demand deposits. In so far as balances due from banks are made up of collected funds, the deduction of such balances from demand deposits is perhaps not entirely logical, but as a real country bank has no bank deposits from which a deduction can be made, the deduction, if made, must be from its demand deposits. ALLOWANCE FOR CURRENCY IN TRANSIT IN CMPUTING REQUIRED RESERVES. The differential of 2 per cent in the porcettage of reserve required on net demand deposits for banks located in Federal reserve bank or branch cities and those located elsewhere, in recognition of the fact that banks in Federal reserve bank and branch cities can carry a smaller vault cash reserve, would seem to be sufficient justification for discontinuing the present practice of some of the Federal reserve banks of allowing for currency in transit in computing required reserves. EFFECT OF ABOVE CHANGES UPON - REQUIRED RESERVES OF INDIVIDUAL BANKS. While the above-suggested changes would result in a slight decrease in the aggregate reserves with the Federal reserve banks, the effect would not be uniform on all member banks. Banks in central reserve cities would not be materially affected. They would have to carry a reserve on Government deposits, but in many of such banks this would be offset by the additional deductions allowed in computing deposit liabilities. In the case of reserve city banks, apart from the increase in reserve arising from the requirement of reserves on Government deposits, the effect will be determined by the proportion of bank deposits to total demand (including bank) deposits. If a bank is s.: located in a Federal reserve bank or branch city, its requited reserve will be reduced if the amount of its bank de.00sits is less then 1/3 of its net demand deposits exclusive of bank deposits, and will be increased if the proportion of bank deposits is larger. In the extreme case, which, of course, would not occur, of a benk all of whose demand deposits were bank depeeits, the required reserve would be increased by 30 per cent. Inasmuch, however, as all of the banks carry a substantial amount of demand deposits other thari, bank deposits, it is apParent that the proposed change would not greatly increase the required reserve of any bank in a reserve city. If a bank is located in a city now designated as a reserve city but in which there is no Federal reserve bank or branch, its required reserve on demand (including bank) deposits would be reduced unless its bank deposits were at least equal to the amount of its net demand deposits exclusive of bank deposits. In the foregoing it is assumed that banks in reserve cities at the present time have a net "due to" banks. In any instance where this does not hold true, there would be a further reduction in the reserve requirement by reason of the fact that the bank would. be permitted to deduct all of its "due froms," exchanges, and other items in process of collection from its deposit liability. When it comes to country banks, the situation is somewhat different. The great majority of country banks would benefit materially by the proposed change as it would permit them to deduct all of their "due froms," exchanges, and other items in process of collection from their deposit liabilities without any offsetting increase in their required reserves as most of them carry practically no bank deposits. In the case of those country banks which carry a substantial amount of bank deposits, however, the effect would be to increase their required reserves. A bank which had all of its demand deposits in the form of bank deposits could theoretically have an increase of g5.7 per cent in the required reserve on such deposits. A bank, however, whose ban denosits did not exceed approximately 55 per cent of its deductible items would have a reduction in its required reserve. There crc a number of socalled country bPnks which do carry very substantial amounts of bank deposits and it is from these banks particularly that opposition to the above-suggested changes would come. If the principle upon which the sugestec', chenges are based is correct, however, it would not seem thyt the omosition of a num10041, of banks scattered throughout the country which have substantial amounts of bank deposits, but which are not carrying an adequate reserve thereon, ihould be allowed to prevent a necessary revision of reserve requirements. April 29, 1926. Re.-Dert of the Open 2arket Investment Committee. The Committee has considered the memorandum submitted by the Cheirm:41, tlnd has carefully revieed the Open Us,rket cperaticns bf the !.73retell since the last meeting of the Committee, in the light .of the general credit situation referred to in the memcrandum. In view of the fact that it now appears that the ex::ansion in the tctal volume of bank credit, referred tc in its last repert, has continued at what Gees to be an unduly rapid rate since that time, notwithstanding the sales of securities made by the Com:aittee and the recent increase in the discount rates of some of the Reserve Banks, the Committee now recormends that the general policy adoptec . at its last meeting be continued until its next meeting, which it -sould expect to had Shortly after the middle of June, unless conditicne make an earlier meetinr advisable. The Committee would expect to make such changes in the Open 'arket account as might be necessary to carry out the policy recommended. VOLUME 180 PAGE 25 • • U. • April 27, 1928. Cf.":51 ntrT AI Frelizinary !emorandiam for the Open Iertet invcstent Cen=itteu. Since the last meeting ef the Ccmmittee on 'arch 2t, 19E, there has been a renewed expansion of bank credit, lamely in the ferncf loans en stccks and bends. Changes in the louns and investments of re!lortille member basks are stomarized below: (in =Miens of dollars) ''arch ka-11 18 OILLve, Cc:mercial loans 'leans on stocks and bonds Investrents 1110 Total •11. IMP 411. 010 8,536 6,334 _6.655 6,693 6 618 +134 A-359 - 21,925 22,3C1 +456 This increase cocurrec lcrEely at the end of jarch and in the early part of April, but it is not clear that the tendency toward ex,aLsion has been checked ze yet, notvithstendinc a considerable rise in money rates during the month. Since !arch 26, further sales of ap:Toximately f1.19,,,030 of securities from the System account have Leen made, reducinc the &mount in the open mar:cat pertfclio from i273,000,OCO to t1t4,L. there has been a lcse to the marltet of about Ti ;Adition Uhrcuch gcle experts and earmarking since the last meeting, and reserve retjaireueote member banks have ben Increased approxivately tt0,0,C,Ca_ as the resat of credit expansion. The combine( effect hap been to 'ma'am* membcr bank indebtedness at the Reserve Pcnks by over #10C,CCO,000 durinr the rast five weeks, and money rate2 in gennral have advanced. • 2 Changes in rates since Varch 26 are as follows: March 264 1928 Call money 4 1/2 Tir3e money, 90-day - 4 5/8 Coratrcia paper 4 - 4 1/4 Bille r 90-day -------- 3 1/2 April 27, 1M 3/1.: 4 1/2 7/8 Call Mopey,!:!strket Call rozney advanced to 6 per cent early in At)ril pertly as the result of Caster currency requirements and the usual first of the month flow of funds to the interior, but subsequently declined to 4 1/2 per cent on several days around the middle of the month, due to a heavy flow of funds to New Yor from other districts, which apeers to have been accompanied by renewed borrowing by member banks outside of l'ew York. Following the advance in the ref:Account mte of several Reserve Banks from 4 to 4 1/2 per cent in the latter part of Aixils there wmo some withdrawal of tunas from New York, indebtedness Of New York City bunks was increased, and cull money advanced to S per cent. Cammercial_tcyrowinir„andIhe Cpnditign .9f Pusinsga The increase in cereserci.4 loans of reporting bens from the end of Janutiry to the middle of April was unusually large this year, and it new apkears that rocuimnente ore tendine to eiminieh. Productive nctivity appeEirs to be fairly stable followinga rapid recovery in a number of irLnortanL industries earlier in the year, and trade has been In moderate volurNt. • • Ccn;ausione 1. An excessively rapid increase cf bank credit has occurred durinf the past Llonth, end it is nct clear that the tendency teward ex2snsion has Leen halted. "oney rates have advanced further as the result of security sales, gold losres, and increased reserve requirements. The advance in discount rates of five Reserve Banks appears to htive resulted in acme withdrawal or funds from New Ycrk, and thus tc have assisted in preventing noftness in the rew Yerk money martet. 4. The highest point of seasonal business credit requirements has probably psssed and thcal) is no indication that the tighteninE cf the money mcrket has interfereC with the extension of all necessary credit to business. Ieter the ray first interest and dividend reolirements have been met, the normal tendency would Ls toward easier rates. REPORT OF THE SECRETARY OF THE OPEN MARKET INVESTMENT COMIIIT'IE.E. TO THE GOVERNORS' CONF=NCE. APRIL 30. 1928 The holdings of Government securities in the Special Investment Account at the time of thelast Governors' Conference, held in . Washington in November 1927, amounted to approximately - 3375,000,000 Since that time there have been several changes in the amount of total holdings in the account as follows: 1 927 C.; Dec. i.ccount increased by purchase of 345,000,000 Government securities to offset in part the loss of funds to the market due to earmarking and shipping of gold for foreign correspondents, which from the latter part of October 1927 to the first of January 1928 amounted to 3194,000,000. (Further earmarking and shipping of gold since the first of the year has amounted to 3121,000,000 net, making the total amount of this gold movement since last October about 3315,000,000.) These purchases of Government securities, amounting to 348,000,000 were made under authority given the Committee at the meeting held in Washington on November 1, 1927, and increased the total holdings in the account to about 3423,000,000 1928 Account decreased by Sale of 3150,000,000 Government securities under authority given to the Committee at the meeting held in Washington on January 12, 1928, at which time the Committee was charged with the policy of working towards somewhat firmer money conditions, and as far as necessary to check unduly rapid further increases in the volume of credit. These sales of Government securities amountin,T, to 3150,000,000 decreased the total holdings in the account from 3423,000,000 to - - - $273,000,000 :rch & Account further decreased by sale of about 3103,000,000 Government securities under authority given to the Committee at the meeting held in Washington on March 26, 1928, at which time the Committee was charged with the program of making more effective, prevailing rediscount rates of the Federal reserve banks. These additional sales amounting to about 3103,000,000 decreased the total holdings in the account, as of close of business April 25, 1928, to ''2170, 000,000 • • 2 Other principal transactions effected in the account since last November (which either did not change the total holdings or changed them only temporarily) consisted of November 1927 - Exchange in the New York and Chicago markets of $54,098,800 U. S. 3 1/2% Treasury Notes due 1930-32 and 25,000,000 " " 4 1/4% Fourth Liberty Loan bonds for $79,098,800 a like amount of short-term Governments; . the greater portion of which consisted of 3 1/8/. certificates maturing June 15, 1928. December 1927 - Sale of 092,575,000 4 1/2% Treasury notes maturing December 15, 1927 to the fiscal agent of the British Government to be used by them in making payment to the United States Government account About '058,000,000 British Government Debt. of these certificates were acquired from foreign correspondents on December 15 for resale to the Agent of the British Government' and we purchased from the latter, in exchange, a like amount of 3 1/27. Treasury notes due March 15, 1932, December 1927 - Sale of 037,560,C00 short-term Governments to foreign correspondents to partly replace their holdings of 4 1/2% notes which matured December 15, 1927 against which sales offsetting purchasus of other issues of short-term Governments had been made. December 1927 - Exchange in the market of about 060,000,000 of the 3 1/2c/40 Treasury notes due March 15, 1932 acquired from the fiscal agent of the British Government for a like amount of the shorter-term Governments. January 1928 - Sale on Jan. 4 of $22,000,000 3 1/4% certificates of indebtedness due March 15, 1928 to the fiscal agent of the British Government. This sale was re placed by purchase of other issues of shortterm Governments in the market. January 1928 - Exchange in the market of . 1 Third Liberty Loan bonds for a like $45,000,000 4 1/4; amount of short-term Government paper. These Third Liberty Loan bonds were sold to satisfy the demand in tho market for this issue of bonds to be used in connection with the exchange for new 3 1/2% Treasury notes due December 15, 1930-32 under the Treasury's exchange offering. • 3 January 1928 - Exchange of 0100,000,000 4 1/4% Third Liberty Loan bonds for a like amount of the 3 1/2/. Treasury noteS due December 15, 1932 under the Treasury's offering. This exchange was in accordance with the action taken at the Committee meeting held in Washington on January 12. Fe'pruary 1923 - Exchange in the market 6 of e 41,000,000 3% certificates maturing March 15, 1926 for a like amount of the 3 1/8% certifj.cotes maturing June 15, 1928 and 3 1/4% certificates maturing December 15, 1928) in order to meet the requirements of uur foreign correspondents. March 1923 - Exchange with fiscal agent of British Government of $30,000,000 3 1/4% certificates of indebtedness dug December 15, 1928 for a like amount of 37. certificates maturing March 15, 1928. The latter issue of certificates together with 34,125,000 of the 3 1/4% certificates maturing March 15 were sold to the Treas. ury for redemption during the period March 8 to March 14 inclusive, and wore replaced in the account by purchase of other issues of short-term Governments. March 15, 1928 - Sales to Treasury of 3 23,768,500 Juno 3 1/4 certificates for account of Alien Property Custodian and Mixed Claims in exchange for a like amount of the new 3 1/45 certificates due December 15, 1928 which they had acquired by subscription in exchange for their holdings of March 15 maturities. This exchange was effected in order to accommodate the Treasury with the shortest term Government paper for these Treasury accounts. March 15, 1928 - Sales to foreign correspondents of 0105,000,000 short-term Governments, principally 3 1/85 certificates maturing June 15, 1928 in partial replacement of their holdings of March 15 maturities. These transactions constitute a total turnover of more than 0600,000,000. On November 25 the Federal Reserve Bank of Minneapolis, due to its reserve position, sold 05,000,000 of Government securities from its participation in the System Account. These securities were apportioned to the other participating banks and a like amount of bills was sold them by the New York bank from its portfolio. On December 2 the Federal Reserve Dank of Dallas, due to its reserve position, sold $5,000,000 of Government securities from their participation in the System Account. These securities wore apportioned to the other participatinc banks, and the Federal Reserve Dank of New York sold to Dallas from its portfolio 35,000,000 bankers acceptances. On January 5, 1928 the Federal Reserve Dank of Atlanta, due to an anticipated loss in their gold settlement fund, requested that they be temporarily relieved of $3,000,000 Government securities from their participation in the System Account. Due to the fact that this request was received too late in the day to :aake apportionment, these securities were purchased by the Federal Reserve Dank Of Now York on January 5 and apportioned to the other participating banks on January 6. The Reserve Dank of Atlanta repurchased these securities on Saturday, January 7. Attached are statements showing: Exhibit A - Participation of Federal reserve banks in System Special Investment Account Government securities and classification of issues held in the account by maturities as of close of business April 25, 1923. Exhibit B - Statement showin; earning asset holdings of all Federal reserve banks April 25, 1928, as compared with previous weck and April 27, 1927; also weekly average of earning assets from December 28, 1927 to April 25, 1928, as compared with corresponding period 1927 and entire year 1927. Exhibit C - Statement showing actual earnings of all Federal reserve banks for the first three months in 1928. I • • Exhibit "A" STATELIENT SHOWING PARTICIPATION r Y FEDERAL RESERVE TANKS IN SYSTEM SPECIAL INVESTMENT ACCOUNT AND CLASSIFICATION OF ISSUES HELD APRIL 25, 1928 IN 'IHE ACCOUNT DY MATUILITIES Boston '3 13,130,500 Dec. 15, 1928 - 3 1/0. C/I (old) 361, 239,000 New York 45,155,800 Dee. 15, 1928 - 3 1/45 " (new) 32,818,500 Philadelphia 12, 251, 500 June 13,140,000 Cleveland 14,177,500 March 15, 1929 - 3 3/8% 15, 1928 4- 3 1/8% " it 1.9, 450,000 Richmond 4,541,000 March 15, 1932 • 3 1/2%, TiN 13,990,000 Atlanta 3,991,500 Sept. 15, 1932 - 3 1/4 n 5,000,000 Chicago 26, 212, 500 Dec. 15, 1932 - 3 1/2% " 24,440,800 St. Louis a, 660,000 Minneapolis 6, 570,000 Kansas City 11,540,000 Dallas San Francisco Totals 9,227,000 14, 621,000 3170,070,300 470,078,300 • 0 Exhibit .B. STATEMOT SHOWING EARNING ASSET HOLDINGS OF ALL FEDERAL RESERVE BANKS APRIL 25, 1928 COMPARED WITH PREVIOUS WEEK AND APRIL 27, 1927; ALSO WEEKLY AVERAGE OF YARNING ASSETS FROM DECEMBER 281_1927 TO APRIL 25, 1928 AS COMPARED WITH CORRSPONDING PERIOD 1927 AND ENTIRE YEAR 1927 (000 Omitted) Bills Discounted • • - April 18 • 25 Net Change Bills Purchased ss April 18 " 25 Net Change Government Securities - April 18 m 25 Net Change Total Yarning Assets - April 18 N " 25 Net Change Comparison of Weekly Average of Earning Assets Dec. 28, 1927 to Apr. 25, 1928 Same period 1927 Zntire year 1927 Net Change from same period 1927 a a " entire year 1927 Comparison of Earning Assets April 25, 1928 April 27, 1927 Net Change Boston New York $56,396 41,317 $153,029 242,617 15,079- 89,588+ 67,384 50,926 82,328 95,264 16,458- 12,936+ 16,146 13,838 67,526 54,635 33,845- 109,243 73,438 79,546 35,805+ 29,697+ 106,081 49,529 56,552+ $48,191 44,211 3,980- 30,110 32,385 2,775+ 29,592 27,439 2,153- 2,308- 139,926 106,081 Phila. 302,883 392,516 89,633+ 321,348 248,643 282,822 72,705+ 38,526+ 392,516 226,869 165,647+ 107,893 104,535 3,358- 114,888 78,728 88,085 36,160+ 26,803+ 104,535 80,884 23,651+ Cleveland Richmond Atlanta Chicago St.Louis Minn. $57,251 56,249 $33,359 36,408 $42,717 47,730 $74,298 97,544 $41,437 34,656 $14,090 13,867 1,002- 29,678 33,115 3,437+ 42,978 40,486 2,492- 129,907 129,850 57- 132,798 110,071 111,895 22,727+ 20,903+ 129,850 106,796 23,054+ 3,049+ li,337 15,836 5,013+ 15,592 18,880 2,499+ 3,288+ 6,493 5,694 7,849 7,107 799- 742- 53,189 66,158 57,938 73,717 4,749+ 58,838 39,760 55,679 19,078+ 3,159+ 7,559+ 50,260 46,784 49115 3,476+ 1,145+ 57,938 38,921 73,717 50,294 19,017+ 23,423+ 23,246+ 6,781- 39,937 41,345 4,497 3,667 830- 1,408+ 26,807 25,285 52,746 47,170 72,741 63,608 19,078+ 177,720 159,101 155,812 9,133- 64,799 52,996 59,695 18,619+ 21,908+ 186,059 144,173 11,803+ 5,104+ 63,608 63,857 41,886+ SUMMARY FOR SYSTEM Bills Di3counted for week Bills Purchased for week Government Securities for week Total Earning ASSetS for meek Comparison of Weekly Average of Earning Assets Dec. 28, 1927 to April 25, 1928 with same period 1927 Comparison of Weekly' Average of Earning Assets Dec. 28, 1927 to . April 25, 1928 with entire year 1927 Comparison of Earning Assets April 25, 1928 with April 27, 1927 15,191 18,490 3,299+ 15,309 14,155 1,154- 5,576- 166,981 186,059 223- $89,456+ 15,085+ 35,93168,610+ 241,246+ 162,682+ 375,082+ 249- 45,580 47,502 1,922+ 31 1 :2 40 9 35,537 6,799+ 2,752+ 47,502 35,255 12,247+ Kan. City Dallas San Fran. TOTALS $23,369 19,448 $ 8,705 9,471 $66,775 $ 619,617 65,555 709,073 3,921- 13,375 14,797 1,422+ 26,601 24,273 766+ 14,578 14,427 151- 21,768 20,372 4,827- 57,310 52,323 55,562 4,987+ 1,748+ 58,518 54,557 3,961+ 24,749 26,209 1,460+ 26,871 24,301 2,570- 2,328- 63,345 58,518 1,220- 45,051 44,270 781- 46,310 39,976 46,416 6t1:: 44,270 40,134 4,136+ 118,395 116,065 2,330- 111,458 108,705 100,415 2,753+ 11,043+ 116,065 114,308 1,757+ 89,456+ 350,756 365,841 15,085+ 340,686 304,755 35,931. 1,312,049 1,380,659 68,610+ 1,283,261 1,042,015 1,120,579 241,246+ 162,682+ 1,380,659 1,005,577 375,082+ • ( 0604 0) ee • Exh lb it "C" STATEMENT SHO'IING Acifrupi EARNINGS OF ALL FEDERAL RESERVE BANKS OR THE FIRST THREE MONTHS IN 1928 Federal Reserve Bank Boston Gross Earn in g s current Expenses Net deduct ion from current net earn ings ,iv.-1ilD1e f r depreciat icn allowan ces, reserves, surplus and franchise tax 333,000 941,712 460,053 148,6 59 lew York 2, 86 7,040 1,612, 716 523, 415 530,909 ?1^_ ilad e,1ph ia 1,037,989 519,625 220,595 297,769 Cleveland 1, 235, 741 670, 469 223, 874 341, 398 R icIlmon 0 547,427 351,302 105,208 90,917 Atlanta 438,46.0 307, 898 74, 323 55, 739 Chicago 1,5 70, 46 7 975, 767 295, 387 399, 313 St. Lou is 577, 304 339,174 76,000 152,130 Minneapolis 330,070 259,316 55,878 14, 85 7 Kansas City 547,587 422,862 57,775 66,950 Drillas 415,168 307, 493 74, 820 32, 855 San Fran c isec 992 044 607 828 1 51,005 233,21l fil1,601,009 '6,834, 503 IV:107,439 .e2,659,067 Total Total for same period 1927 • ,;‘,, 31,570,259 •• • 6-) 1/ EARNINGS AND EXPENSES OF FEDERAL RESERVE BOKS APRIL 192S. Total earnings of tho Fedora' re$53III serve bam:s in Arril were - 7.0,000 loss than in March but 0,000 m.y$_ . April 1927. An incre-%se during tho month of ,; , 4149,000 in earnings from discounted bills and of $54000 in purchased bills wn.s more than offset byyawlcrease of $.2 (Dg,000 in earnings from U. S. securities and of $366,000 in miscellaneous earnings. The reduction in miscellaneous earnings was due principally to losses on Troasury I.tes and certificates sold. aurrent expenses (exclusive of cost of Federal reserve curroncy) ar;gregated S2,136,000, as compared with $2,16S,000 in the month preceding and $2,159,000 in April of last year. FIRST FOUR MONTHS OF 1098. During the first four months of the year eanlings totaled $15,526,000 n.s compared with $13,S43,000 for the corresponding period last year, and $15,334,000 for the first four months of 1926. Current expenses (exclusive of cost of Fedel-al ruserve currency) amuunted to $8,615,000 durin, ; - the four-month TADriod, an increase of about $43,01',0 over the corresponding period last year. After proviaing for all current expenses and dividend requiroments, tho Federal rserve banks on Aa!il 30 had a balance of $3,751,000 available for dolJreciation allowances, surplus nnd frnnchise taxes as comrarad with a balanee of t1,901,000 at the end of April 1927. VOLUMF 180 PAGE 71 (St. 5784) Month of Other 1 sources • Mr. Hanlin April Current expenses - /34 St. 5784 522,245 14.7 14.9 752,227 684,225 1,776,568 i;657,717 124,953 283,755 270,226 839,898 $190,431 115,262 119,867 468,472 413,999 936,670 $467,286 accrued Year 1928 Balance fcr reserves, Dividends surplus, franchise, tax, etc. Current net • earnings 538,590 165,861. 15.9 244,820 103,443 I Exclusive 1 of cost of Total FR cuxrencY I_ 508,62 151,664 186,954 9.5 218,705 576,676 Total EARNINGS AND EXPLNSES OF FEDERAL RESERVE BANKS, APRIL 1928. U. S. I seaurities Earnings from FurI chased bills 187,726 t95,595 1,060,835 148,165 209,918 48,694 20.7 368,358 198,830 : . Discounted bills CONFI DENTIAL Not for public-tion Federal Reserve Bank 1928 i ()torrent net eftrnings !Ratio to .mount paid-in capital Per cent 22.0 317,525 202,224 116.640 86,143 945,034 106,704 44,6E:6 i6'057 85,623 *27,293 396,872 114,306 105,400 16.8 305,534 6o,474 76,644 Philadelphia 4 4148,435 $150,465, 125,235 *22,026 165,334 98,801 250,333 15.4 105,160 84,915 Ilk J26,522 *7,340 193,543 306,486 67,404 13.8 161,559 $48,086 *$27,732 18,136 *932 294,315 111,591 34,406 10.6 24;469 $156,235 91,863 22,576 556,819 107,018 83,235i 36,834 85,821 $149,983 201,800 4c,159 164,123 *18,516 178,995 80,490 141,4521 14,0,290 Boston Cleveland 113,777 48,092 76,710 *19,028 117,641 138,270 3.1 308,245 4 iiichmond 123,8C7 118,923 *7,721 178,286 11,148 291,166 Atlanta 292,289 12,096 47,567 *4,584 100,661 677,538 Chicago 109,217 45,636 82,675 100,386 411/New York St. Louis 32,159 38,893 111,809 83,931 Minneapolis 61,297 65,047 *20,032 175,204 ansas City 41,178 . 193,109 3,731,106 501,354 2,712,087 1,901,358 13.6 6,463,13 2,536,021 117,137 15.1 4,437,379 203,595 14.9 9.2 194,602 1,76,"21G 1,722,578 e,995 320,732 2,135,874 2,219,697 2,167,555 2,274,050 3.59X7 2,320,965 *29,094 *Debi 'A+ 1,003,127 *279,943 3,94,913 1,211,562 66,394 3,996,628 977,361 93,602 3,293,960 79,621 25,616 Dallas San Francisco 67,712 202,493 TOIAL Apr. 1928 2,165,240 1,036,469 1928 1,715,862 962,610 Apr. 1927 748,735 1,474,262 FEDERAL =RV:3 BOARD DIVISION OF BANK OPERATIONS MAY 14, 1928. r,. 1 .,C4t/4.it • Pq7 May 24, 1928. Confidential Preliminary Eemorandum for the Open Earket Investment Committee. Operations conducted since the meeting at the and of April have .been successful in increasing materially the indebtedness ofmomber banks, especially New York City members, and in tightening further the New York money market. Changes in member bank borrowings are summarized below: (In millions of dollars) New York City All Other Member Banks Yember Banks April 28 1,:ay 21 172 272 572 608 Total 744 880 The increase in the indebtedness of all member banks at the reserve banks incrcased about 140 million during the three weeks, due chief-, ly to the following factors: Reduction in the System Account from :154,000,000 on April 27 to ,,100,000,000 on 1.:ay 23. Gold loss through additional earmarkings of 68 1/2 million and net exports of 16 million. Reduced buying of bills and consequent reduction of about 25 million in Reserve Bank bill holdings. As the tabulation above indicates, most of the increase in member bank borrowing has been by New York City banks. Advances in discount . rates of five Resei.ve Banks from 4 to 4 1/2 per cent in the latter part of April appear to have greatly assisted in keeping funds from flowing to New York, and consequently helped to make effective the further sales of securities in the New York market. The result is apparent in the course of money rates previous to the advance in the discount rate of the New York Reserve Bank on Yay 18. VOLUME 180 PAGE 97 The advance at New York after New York • 2 City members had been placed heavily in debt at the Reserve Bank has been Present money rates effective in tightening the money market further. and changes since the latter part of April and since the latter part of last October are indicated in the following table: .v anze Since Ch Call money Time money, 90-day Commercial paper Bills, 90-day Octoper 28 1927 April 27 1928 May 23 1928 6 5 1/2 40 - 4 3/4 - 4 lib 4 + + + + 1 1/2 1/8 1/8 - 1/4 + + + + 2 1/2 1 1/4 1/2 - 3/4 3/4 - 7/8 These rates are the highest for the time of year since 1923. It is evident that rates on security loans have been advanced much more than rates on commercial borrowing, which is in keeping with the nature of creCit expansion in recent months. Loans on Stocks and Bonds Notwithstanding the substantial increase in interest charges on security loans, such loans have continued to increase rapidly. A further increase of over 350 million during the past three weeks has carried the total of loans to brokers placed by New York City banks to 40 billion dollars, an amount 800 million higher than in the first week of March, and nearly 1,600 million or 55 per cent larger than a year ago. Changes in these loans during the past three weeks are summarized below: (In millions of dollars) April 25 Eay 16 Change Loans placed: For own accountFor out-of-town banks For others 1,200 1,614 1,331 1,312 1,655 1 535 + 112 + 41 + 204 Total 4,145 4,502 + 357 Most of the increase during this period has been in loans of 3 than banks. New York banks for their own account, and in loans for others recent advance The heavy indebtedness of New York banks, together with the banks an inin the discount rate of the New York bank, should give these centive to restrict their lendings. move in It is too early to determine the effect of this latest checking credit expansion. The movement of stock prices, which rather than has been the volume of trading has caused the expansion of security loans, liquidation highly irregular during the past week, - evidence of fairly heavy on several days has been followed by a recovery. Interdistrict Eovement of Funds also an The flow of funds to and from the New York money market is purposes. important factor in the extension of credit for stock trading It this year has been apparent in more than one instance since the beginning of of open that an inflow of funds to New York hae largely offset the effect market operations; parts of it has been apparent also that banks in other January, the country as a whole have had no surplus funds since the end of by member but that these transfers were accompanied by increased borrowing banks outside of New York. funds The accompanying chart shows the atcumlative movement of the to and from New York City banks since April 18, the date that marked just preceded culmination of a heavy inflow of funds to New York, and that the beginning of Reserve Bank advances in discount rates. Call loan renewal rates also are shown. ng of the The decline in call money renewals to 4 3/4 at the beginni several disperiod, together with Reserve Bank discount rate advances in York until tricts, appear to have caused some withdrawal of funds from New the end of April. folThe usual month-end inflow and subsequent outflow accompanied 5 1/2 lowed, and recently some movement of funds to New York has Sp 1659 C6ii Loan kentaI PER CENT 7 - NZ8 M+5IL0 IONS9/DOL AR3 +25 I It L 191924921 23 24 2526 272830 1 2 3 4 5 7 April _.;-! A!nt ,f ?..mds to and fr3n sinc^ _t I 1.4\n-1 I 1_1_ 9 10 11 12 1* 15 16 17. 18 19 .21 22 23 May 7 I 18th • to 6 per cent call money. This lat,:st inflow thus far has been moderate, but the further rise of money rates since the discount rate of the N ew York Reserve Bank was advanced may tend to draw funds more heavily toward New York. Conclusions • 1 - Further Reserve Bank security saies, restriction of bill purchases, and gold loss have substantially increased member bank inT4ebtedness, and have caused a further advance in money rates. 2 - Advances in discount rates of several Reserve Banks other than N6W York, most of which occurred in the latter part of April, appear to have been effective in preventing a further flow of funds to the New York money market, and in confining the increase in member bank indebtedness largely to New York. 3 - The increase in indebtedness of New York members and the rise in money rates previous to the advance in the discountrate of the New York Reserve Bank did not check the expansion of credit used for security trading purposes. advance in thediscount rate of the New York bank, after New York member banks had been placed heavily in debt, has resulted in a further tightenins of the New York money market. 5 - This further advance in money rates may tend to attract funds from other sections of the country, which would neutralize the effect of further security operations. Cre(10 4 Form No. 131. • Office Correspondence To __Mr. Hamlin From_mr, Van Fossen 04)A .5-tA• FEDERAL RESERVE BOARD Date May 29, 1928, Subject_ Fiscal Agency Qperations of the Federal Reserve Banks. We were advised by Mr. Goldenweiser that you desired a statement showing the volume of work in the fiscal agency department of the New York bank and of all Federal reserve banks, together with some comparison of the fiscal agency and other operations of the Federal reserve banks with a view to showing the relative importance of the fiscal agency operations. • Accordingly, we have prepared the attached statement showing the volume of purely fiscal agency work performed at the New York bank and at all Federal reserve banks combined and the volume as well of other work performed for the United States Government for which figures are available. In addition, the Federal reserve banks transfer funds by telegraph for Government account, withdraw Government deposits from member banks, collect checks and non-cash items for Government account, and effect the issuance and exchange of United States currency which was formerly performed by the sub-Treasuries. It will be noted that about 611- per cent of the total number of employees at all Federal reserve banks combined were assigned to the fiscal agency department and to the Government checks, Government coupon and coin units; also that about 7 per cent of the total expenses of the Federal reserve banks were due to the operation of these departments. Of the total expenses of $246,255 at the Federal Reserve Bank of New York and $897,930 at all Federal reserve banks in strictly fiscal agency operations, $111,777 at the Federal reserve bank of New York and $355,800 at all Federal reserve banks were reimbursable by the United States Treasury. VOLUME 130 PAGE 113 t _ / 4 -6 FISCZ AGErCY ArD OTHEPPERATIONS PERFORYED BY THE FED1PL RESERVE BANKS FOR6:31 THE UNITED STATES GOVERNMENT =INC:7'1927 FOR 7HICH A IfEASUREM-INT OF THE VOLUME OF WORK IS AVAILABLE Number of items 1 All F. R.I F.R.Bank banks of New York! ISSUES, REDELTTIONS AND EXCHANGES OF SECURITIES (FISCAL AGENCY OPERATIONS) 1. Yew issues 597,000 nieces delivered 2. Redemptions -nieces received 3,217,000 a. U. S. securities 99,000 b. Farm loan bonds c. Trepsury savins:_s certif.'s 407,000 4s stamns ,1 war savin, Amount of items All F. R. 1 F. R. Bank of banks New York qr 141,000 $3,716,128,000 $1,64o,897,000 74,000 44,000 4,438,3 .25,000 175,833,000 2,428,571,000 95,515,000 79,000 14,g43,000 3,296,000 3,723,000 871,000 4,679,401,000 2,727,383,000 2,508,000 V73,000 1,028,000 156,000 2,881,000 1,184,000 7,201,000 2,1 6,000 10,803,043,000 5,219,627,000 1. Government checks naid 30,775,000 5,058,000 4,776,486,000 1,2E5,084,000 2. Government counons paid 37,045,000 9,932,000 553,703,000 2-,0,622,000 Coin received and counted . (largely due to discontinu, ance of the U.S.subtreasur2,,:91,184,000 1,189,801,000 les) 791,049,000 558,323,000 Total redemntions 3. Exchanges 7pieces received a. Counon form b. Registered form Total exchanes TOTAL, ISSUES, REDETTIONS EXCHAITGES 1,748,320,000 631,074,000 6;9 1_94,000 420,273,000 2,407,514,000 1,051,347,000 Re OTHM OPMATIONS 3. MEER OF E1LPLOYEIS ZID EXPENSES IN FISCAL AGENCY FUNCTI2X AND IN GOVERN1,1'7NT CHECKS, GOVERNENT COUPON, AND COIN UNITS COMPARED WITH TOTAL NUMBER OF EMPLOYEES ArD TOTAL EXP7USES wirm EXCEPTION OF GENERAL OVERHEAD era.-loyee,:; Avera,e Exnense All F. R. F. R. Bank of A21 F. R. F. R. Bank of York New banks banks New' York Fiscal agency function 335 $S97,930 130,056 Government checks unit 92 68 Government counons unit 106,307 305,470 143 Coin unit 1,439,759 638 Total 21,00q,F47 i . , 1]) Overi 9,971 Gen. All functions(excl. aptio (54-6) • S.4 g.1 BY CLASSES,XWBERS REMY DEPOSITS, MONETARY 1111 TOTAL BILLS AND SECU1ITIS, GOLD STOCK, AND AMOUNT OF MONEY IN CIRCULATION, OCTOBER 31, 1922 *0 APRIL 30, 1928. (In millions of dollars) Oct. 3110ct. 3110ot. 3110ct. 3110ct.31 1924 k 1925 1 1926 1922 1 1923 Bills discounted Bills bought in open market U. S. Government Securities Total bills and securities Member bank-reserve account Monetary gold stock Money, in circulation Oct.1 31Apr11 30 1927 1928 412 342 834 357 522 296 264 616 690 92 200 584 347 327 323 301 1,197 1,181 1,052 1,296 1,316 1,276 1,488 1,813 3,888 4,646 1,895 2,138 4.509 4,942 2,223 4,473 5,021 2,324 4.167 4,925 2,214 4,407 4,541 4,946 2,442 4,266 4,750 +74 -24 -26 -278 + 19 +221 +422 + 15 -226 +20 - )40 +212 576 258 363 ss4 205 4.969 INCREASE OR DECREASE Bills discounted Bills bought in open market U. S. Government securities Total bills and securities 4.308 - 53 -271 -62o - 5 4.492 - 16 -129 +352 +147 -257 • +244 41110. .1•111111, AR, Member bank-reserve account Monetary gold stock Money in circulation +82 +279 +279 +243 +342 +17 +6 -102 +27 +9 4.66 +52 +101 4. 6s - 75 +11s -275 -196 BROKERS' LOANS, INTEREST RATES, AND SECURITY AND COMMODITY PRICES. Brokers' loans New York F.R.bank discount rate Monthly average call loan 4.73 renewal rate, New York Rate on customers' prime commercial loans, New York member banks 107.0 Index of security prices Wholesale commodity prices (Bureau of Labor Statistics, *101.6 1926 = 100) 1,164 4i 1,654 3 4.75 2.32 2.629 *$2.640 4 3i 4.87 51. 4.75 4i-4i 92.7 105.4 137.2 '99.6 98.6 103.6 3,372 3i 3.90 -4 4,282 4 5.08 41-4i 147.9 186.2 215.3 99.4 97.0 97.4 *Approximated. **Not entirely comparable with figures reported prior to 1926. On the former basis, brokers' loans at the end of October 1926.were $2,294,000,000. NOTE; Brokers' loans figures are as of the Wednesdays nearest the dates shown; F. R. bank discount rate3 are for dates shown; and interest rates and prices are averages or those prevailing during the month. VOLUME 180 PAGE 114
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