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The Papers of Charles Hamlin (mss24661) 361_08_001- Hamlin, Charles S., Scrap Book — Volume 184, FRBoard Members 205.001 - Hamlin Charles S Scrap Book - Volume 184 FRBoard Members itthOi CON1-10 3 (ER.) *BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence To The Files From Mr. Coe Elate 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 184 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 18A Page 10 (X-6154) Eligibility of paper rediscounted for Federal Intermediate Credit Banks as collateral security for F.R. notes. Page 13 Earnings and Expenses of F.R. Banks. Page 19 By-Laws of the Federal Reserve Board. Page 25 Letter to Gov. Young from Gov. Case enclosing a table showing Increase in Federal Reserve Bank Credit. Pages 154_ & 155 Memo on Credit Conditions Presented by Gov. Harding to the Federal Reserve Board on August 13, 1928. Page 156 Preliminary Memo for the Open Market Inv. Committee, November 14, 1928. Page 157 Report of the Open Market Investment Committee. 14.4-,14t 4 1, .fr FEDERAL RESERVE BOARD X-6154 -7111 WASHINGTON October 9, 1928. ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD SUBJECT: Eligibility of paper rediscounted for Federal Intermediate Credit Banks as collateral security for Federal reserve notes. Dear Sir: The Federal Reserve Board has recently been asked for a ruling on the question whether agricultural paper rediscounted by a Federal reserve bank for a Federal Intermediate Credit Bank under the provisions of Section 13(a) of the Federal Reserve Act may be used as collateral security for Federal reserve notes. After considering this question the Board has reached the conclusion that notes, drafts and bills of exchange rediscounted by a Federal reserve bank for a Federal Intermediate Credit Bank under the provisions of Section 13(a) may lawfully be used as collateral security for Federal reserve notes. Section 13(a) provides that upon the endorsement of a member bank a Federal reserve bank may discount notes, drafts and bills of exchange issued or drawn for an agricultural purpose or based upon live stock and having a maturity not exceeding nine months and makes such notes, drafts and bills eligible as collateral security for Federal reserve notes. It is then provided that Federal reserve banks may "rediscount such notes, drafts and bills for any Federal Intermediate Credit Bank" (with a stated exception). In the Board's opinion it is the intention of the statute that all notes, drafts and bills lawfully discounted by a Federal reserve bank under the provisions of Section 13(a), whether rediscounted for a member bank or for a Federal Intermediate Credit Bank, may be used as collateral security for the issuance of Federal reserve notes. Where the maturity of such paper exceeds six months, it must, in order to be used as security for Federal reserve notes, be secured by warehouse receipts or other such documents as required by the statute In this connection it may be noted that the Federal Reserve Board is authorized to prescribe regulations and limitations governing the rediscount of notes, drafts and bills for Federal Intermediate Credit Banks. This authority clearly is broad enough to permit the Board to regulate, limit or prohibit the use of such paper rediscounted for Federal Intermediate Credit Banks as collateral security for Federal reserve notes, if at any time it sees fit to do SO. By order of the Federal Reserve Board. Very truly yor— VOLUME 184 PAGE 10 TO ALL GOVO9 AND J. C. Noell, Assistant Secretary. FEDERAL RESERVE AGENTS. L EARNINGS AND EX7ENaES OF FEDERAL RESERVE BAZZS ) ' ; L? =.2.3`3M. 1923. Tctal earnings of the Federal reserve bans in Sentember were $17L;,000 more than in August, though earnings were accrued for one day less in September. Earnin,zs from purchased bills increased k71,000, from U. S. securities $98,000 and from miscellaneous sources $13,000, but thase increases were partly offset by a decrease of $109,000 in earnings from discounted bills. Current exiDenses (exclusive of cost of Federal re$erve currency) aegated $2,153,000, as compared with $2,199,000 in the month precedinE and $2,096,000 in September of last year. aa. During the nine months NINE MONTHS ENDING SEPTE:3ER $43,933,000 as comtotaled earnings 29 September ending 0° for the $34,398,0 and year last pared with $31,029,000 1926. in corresnonding period Current exilenses (exclusive of cost of Federal reserve currency) amounted to $19,508,000, an increase of $228,000 over the corresponding period of last year. After providing for all current expense and dividend requirements, the Federal reserve banks on September 29 had a balance of $15,901,000 available for losses, depreciation allowances, sur-,Dlus and franchise tax, as compared with a balance of $12,355,000 at the end of August and of $4,195,000 at the end of September 1927. VOLUME 184 PAGE 13 st. 593ga 1-c.‘ Mr. Hamlin CONYI- DENTIAL, Not for publication EARNINGS AND Federal Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis ninneapolis Kansas City Dallas San Francisco AlIWAL WSept. 1928 Aug. 1928 Sept. 1927 September Month Reserve Bank EXPENSES OF FEDERAL RESERVE BANKS, SEPTEMBER 1928 Discounted bills Earnings from PurU. S. Other securichased sources ties bills $200,380 $79,737 1,436,769 232,877 441,063 45,548 318,899 77,525 Total $2D,303 202,450 67,031 111,671 $3,837 $313,257 16,113 1,888,209 1,077 554,719 10,574 518,669 32,625 45,644 60,011 36 8,288 17,887 113,890 12,649 3,760 10,568 33,547 1,358 64,840 34,781 89,888 47,147 109,856 48,328 321,532 119,952 35,650 54,545 47,021 55,264 5,290 22,870 8,931 5,014 23)4,229 333,679 472,201 262,582 4,265,918 4,394,560 1,258,839 755,649 824,211 652,890 657,491 583,221 1,386,222 Current expenses Exclusive of cost of Total F.R.currency $149,750 509,594 173,713 $152,768 519,982 5938 Janunr:i September 1928 1928 Available for Current net Current earnings .reserves, Dividends surplus net Ratio to and Amount paid-in earnings accrued franchiso tax* capital Per cent $160,469 19.5 $437,239 $1,249,739 1,998,767 2,340,167 625,625 2,266,478 640,983 1,618,113 1,528,265 $1,799,459 7,743,466 208,611 1,368,227 34.0 172,520 382,199 32.4 211,758 306,911 26.2 278,902 407,778 679,649 276,625 114,558 97,535 288,742 107,816 114,614 98,623 292,458 108,587 164,288 309,155 387,191 168,038 32.9 72.0 25.9 33.0 942,607 1,394,660 3,332,595 1,023,906 279,090 233,748 823,179 240,781 594,193 1,118 ,640 2,313,459 386,366 140,561 214,450 214,136 501,762 79,660 131,925 104,249 191,972 80,147 132,623 106,221 191,910 60,414 81,827 107,915 309,852 24.5 23.8 30.6 34.8 437,979 536,115 483,177 1,447,388 135,048 190,125 193,756 462,605 265,220 287,803 229,887 898,350 23,747,997 6,280,946 10,368,564 5,780,359 15,900,500 4,195,328 122,939 5,988,717 2,158,125 105,322 5,810,263 2,199,492 448,288 3,676,620 2,095,667 5,410,465 2,182,231 3,806,486 32.0 2,222,059 3,588,20)4 29.14 2,244,392 1,432,228 13.3 Jan.-Septa928 26,355,172 7,975,918 8,335,996 1,265,707 43,932,793 19,508,129 20,184,796 23,747,997 22.8 1927 12,970,849 6,540,965 9,509,709 2,007,103 31,028,626 19,279,940 20,660,062 10,368,564 10.8 FEDERAL RESERVE BOARD DIVISION OF BAN-4; OPERATIONS OCTOBER 10, 1928 St. *After adjustment for current profit and loss entries, purchases of furniture and equipment, etc. X-4578 (Superseding X-4545) BY-LA7S OF THE FEDERAL RESERVE BOARD EFFECTIVE SEPTEM3ER 23, 1926. Article 1. The Chairman. The Secretary of the Treasury, as Chairman of the Board, shall preside at all meetings when nresent. In the absence of the Chairman, the Governor shall act as presiding officer. In the absence of both the Chairman and the Governor, the Vice-Governor shall preside, and in the absence of all three such officers, the remaining member of the Executive Committee shall preside. Article 11. The Goverl-Jor. Sec. 1. The Governor of the Federal Reserve Board shall be the active executive officer thereof; subject, however, to the supervision of the Board and to such rules and regulations as may be incorporated herein or may from time to time, by resolution, be established. Sec. 2. The Governor shall have general charge of the executive and routine business of the Board not specifically assigned under the bylaws or by resolution of the Board to any individual member or committee thereof, and shall have supervision of the Board's staff. Sec. 3. The Governer shall be an ex-officio member of all Standing Committees of the Beard. Article 111. The Vice-Governor. Sec. 1. In the absence or disability of the Governor, his powers shall be exercised and his duties discharged by the Vice-Governor, and in the absence or disability of both of these officers, such powers shall be exercised and such duties discharged by the remaining member of the Executive Committee; in the absence or disability of all members of the Executive Committee the powers and duties of the Governor shall be exercised by the senior member of the Bard present. Sec. 2. It shall be the duty of the Vice-Governor to cooperate with the Governor in the administration of the executive business of the Board. VOLUME 184 PAGE 19 VENNI 4 -2- X-4678 (Superseding X-4545) Article IV. Socrr-tary ond Azsistant Secretaries. Sec. 1. The Board shall appoint a Secretary and one or more assistant secretaries. Sec. 2. The Secretary shall keep an accurate record of the proceedinzs of the Board and shall conduct such correspondence and perform such other duties as may be assigned to him by the Governor or by teIiard In the absence or disability of the Secretary, the duties of that office may, by direction of the Board, be performed by an assistant secretary. Sec. 3. The Secretary shall have custody of the seal and, acting under the authority of the Board, Shall have power to affix same to all instruments requiring it. Such iastrumcalts shall be attested by the Secretary. Sec. 4. The assistaat secretaries snail each perform such duties as ,Ilay be assigned to them from time to time by the Board or by the Secretory. Article V. Assistant to the Governor. Sec. 1. The Board may authorize appointment of an Assistant to .the Governor. Sec. 2. The Assistant to the Governor shall perform such duties as shall be assigned to him by the Governor. Article VI. The Executive Committee. Sec. 1. There shall be aa Executive Committee of the Board consisting of three members, which shall include the Governor, Vice-Governor and one of tea•pontiv memicers of the Bo2rd. The almointive member of the Committee shall be nominated and elected at a regular meeting of the Board. Members of the Board shall scrv.: as far as practicable in rotation and for approximately equal terms. The presence of three members shall be requisite for tne transaction of business by the Executive Committee, and action shall be taken only on unanimous vote of the Committee. 131c. 2. In the absence of the Governor and Vice-Governor the anDointive member of the Executive Committee shall act as Chairman and shall, with two other appove members of the Board present in Washington to be chosen by him ia the order of their seniority, exercise the powers and charge the duties of the Executive Committee. In the absence of all three (superseding X-4545) regular members of the Executive Committee the three remaining appointive members of the Board, provided there be three in Washington, shall act as an interim co=ittee and exercise the powers and discharge the duties of the ExecutiveCommittee, the senior member acting as Chairman. Sec.3. It shall be the duty of the Executive Committee to review and submit drafts of important correspondence involving the expression of opinions or decisions of the Board, and to prepare and make recommendations governing the conduct of the Board's business. Sec.4. The Executive Committee shall also have charge of all matters appertag to the internal organization of the Board, and Shall make recomrAendations from time to time on this matter. It shall also Prepare annually a budget of proposed expenditures. Sec.5. In the absence of a quorum of the Federal Reserve Board and for the transaction of business requiring action during the absence of such quorum, the Executive Committee is authorized to transact business which can be transacted in accordance with established principles and policies of the Board and to perform such additional duties as may be specifically delegated to it from time to time by instn)etion of the Federal Reserve Board. The Secretary- of the Board shall serve as Secretary of the Executive Committee. Article VII. Standing Committees. In addition to the Executive Gammittee there shall be the following Standing Committees, appointments to which shall be made by the Governor, subject to the approval of the Board. Sec.l. Law. To the Law Committee shall be referred for study and report all questions of a legal nature. To this Committee shall also be assiemed the preparation or revision of the Board's regulations, contemplated amendments to the Federal Reserve Act, applications under the Kern amend'Tent tothe Clayton Act, and anplications for the E,Izercise by national banks of trust powers. The General Counsel shall serve as Secretary of the Committee. Sec.2. Examination. To this Committee shall be rofe2red all questions relating to the examination of Federal Reserve or member banks including admission of state banks and permission to establish and operate branches. The Chief Examiner shall serve as Secretary of this Committee. S X-4678 (Superseding X-4545) Sec. 3. :Loser:Lc:1 and Statistics. This Committee shall have charge of all investigations of an economic and statistical character authorized by the Board and shall supervise the erork of the Division of Research and Statistics and the preparation and publication of the Federal Reserve Bulletin. This Committee shall also have sunervision of the statistical and publication work of the Federal Reserve Banks. The Director of the Division of Researcil and Statistics shall serve as Secretary of this Committee, or in his absence ti g Assistant Director shall so serve. Sec. 4. Salaries re,ependitures of Federal Reserve Banks. To. this Committee shall be assigned all recommendations from Federal Reserve Banks for changes of salaries and other exnenditures. This Committee shall make reports with respect to charge-offs and franchise tax of Federal Reserve Banks. The Secretary of the Board shall serve as Secretary of this Committee. Sec. 5. District Committees. To each Federal Reserve Bank and District shall be assigned a Committee of not less than two members of the Federal Reserve Board. It Shall be the duty of each Committee to keep itself inforeled by corresPondence and visit of the affairs of the Bank and the condition of the District, and make investigation and renort on all auestioas appertaining to the operation of any Federal Reserve Bank or the condition of any Federal Reserve District that may be referred to it by the Board. These Committees shall also aid the Committee on Salaries and Expenditures with information regarding nersonnel of the respective Federal Reserve Bankz of which they have charge. These Committees shall also make recommendations to the Board for the appointment of Directors at Federal Reserve Banks and Branches. Article V111. The Fiscal Agent and Deputy Fiscal Arent. Sec. 1. The Board shall appoint a Fiscal Agent and a Deputy Fiscal Agent. The duty of the Fiscal Agent shall be to collect and deposit all moneys receivable by the Board with the Treasurer of the United States, to be placed in a special fund established on the books of the Treasurer for the Federal Reserve Board. The Denuty Fiscal Agent shall perform the duties of the Fiscal Agent duriag, his abscrice or disability. Sec. 2. The Fiscal Agent and Deputy Fiscal Agent shall each exeaute a eewerate bond with surety satisfactory to the Board. Sec. 3. Payments of expenses and other disbursements of the Board shall be made by the Fiscal Agent upon proper vouchers out of moneys X-4678 (Superseding X-4545) _ advanced to him by requisition and warrant out of the snecia.1 fund e,nd plr,.cad to his official credit eTitli the Treasurer of the Uedted States as nrovided by Section 5 of this Article. In thc aosence of that Fiscal 1.gont payment of eypenses and other dis'oursements shall be made by the De2uty Fiscal Agent upon 7roner voucners out of moneys -tdvanced to tne Fiscal 4.'gent by requisition and warrant out of the special S•fun and placed to his S credit with the Treasurer of the United States as roved by Sections 5 and 6 of this article. Sec. 4. The Fiscal Agent shall prepare a qual'terly accauat in such form as shall be approved by the Comptroller General of the United States and, after agoroval by the Governor, such quarterly account shall be submitted to the General Accounting Office. Such accaant shall cover ?ayments of expenses and Other disbursements made by both the Fiscal Agent and the Denuty Fiscal Agent. Soc. 5. The Governor shall, when necessary, make requisition on the Treasurer of the United States for the advance of such sums to the Fiscal Aent as may be necessary from the Federal Reserve Board fund. Sec. 6. The Deputy Fiscal .Agent in making disbursements of the Board u-oen oroper vouchers aat of the moneys advanced to the Fiscal Agent shall sign against funds to tao official credit of the Fiscal .:\gent with the Treasurer of the United States tn the name of the Fiscal Agent by self as Deruty Fiscal Agent. Article IX. Gold Settlement Fund. and Federal Reserve ents' Fund. All funds deposited by or for accaunt of the respective Federal Reserve 4ents in the Federal Reserve Agents' fund of the Federal Reserve Board and all funds deposited by or for account of the respective Federal Reserve Banks in the Gold Settlement Fund of the Federal Reserve Board shall be held on deposit witt the Treasurer of the United States and shall be subject to withdrawal only by check of the Federal Reserve Board signed by tae Secretary or an Assistant Secretary and countorsigned by the Governor S r acting executive officer of the Board. Article X. Reweisition for Lelivery. of Federal Reservc Notes Requisitions upon the Comptroller of the Currency for the delivery S b. -6- X-4678 (Superseding X-4545) of Fedurna Reserve notes to thu respective Federal Reserve Agents shall be made by the Secretary or Assistant Secretary in responso only to requests made by the Federal Reserve Agents to the :o--rd for such notes. The Secretor:: or Assistant Secretary shall submit daily for approval to the Governor or acting executive officer of the Board a schedule shoring the amount of each denomination of Federal Reserve Jotes requisitioned by him for the account of each Federal Reserve =Lgent. Article Xl. The Seal. The following is an impression of the seal adopted by the :onrd. SEAL. Article X11. Counsel. Sec. 1. The Board shall appoint a General Counsel whose duty it shall be to advise with the Board, or any member thereof, as to such legal qaestions as may arise in the conduct of its business; to prepare, at the Board's request opinions, regulations, rulings, forms and other legal rapers and to perform generally such legal services as he may be called upon by the Board to perform. Sec. 2. Subject to the direction of the Governor, the General Counsel shall have authority to correspond directly with the Counsel of the various Federal Reserve Banks and to request their opinions as to the interpretation of the local laws of the States included in their respective Federal Reserve Districts. Copies of all such correspondence shall be furnished to the Board for its information. Sec. 3. Whenever it may be deemed advisable, the Board may appoint one or more Associate or Assistant Counsel, or one cr more Assistants to Counsel. The duty of such Associate or Assistant Counsel shall be to assist the General Counsel in the performance of his duties and to perform the duty of the General Counsel in his absence. The duty of such Assistant to Counsel or Assistants to Counsel shall be to assist the General Counsel in the performance of his duties. Sec. 4. The Board may appoint 1:rom time to time Consulting Counsel, who may be attorneys at law engaged in oatsj4e practice. - 7 - X-4678 (Superseding X-4545 Article X111. Meetings. Sec. 1. Five members of the Board shall constitute a quorum for the transaction of business. Sec. 2. Stated meetings of the Board shall be held on such days of the week and at such hours as the Board by a majority vote may fix from time to time. One meeting day each week shall be set apart for considera tion of the following matters, advance notice of not less than two days being sent to members of important questions to be taken up at the meeting: Discount and open market matters; Approval of expenditures and salaries; Establishment of Federal Reserve Branches, Agencies, Currency Stations; Permission for establishment of member bank branches; Amendment of Board's rules and regulations; New policies or changes of policy; Such other major matters as may be reserved for consideration at the weekly meeting. Sec. 3. Special meetings of the Board may be called by the Chairman or Governor or upon the written request of throe members of the Board. Sec. 4. At all meetings of the Board the following shall be the order of business: (1) Reading or inspection of the Minutes of the last regular meeting and Minutes of meetings of the Executive Committee. (2) Report of the Governor. (3) Report of the Secretary. (4) Reports of the committees or members on assigned business. (5) Unfinished business. (6) New business. Sec. 5. No vote Shall be taken or motion made by the Board at a meeting or conference when others than the members of the Board and its Secretarial staff are present. Article X1V. Absences. Sec. 1. Absences of appointive members of the Board shall as far as practicable be arranEed so as not to interfere with the expeditious conduct of the Board's business in Washington. • t . - X-4678 (Superseding X-4545) Article XV. Information and Publication. Sec. 1. All persons employed by the Board shall keep inviolate its business, affairs, and concerns, and shall not disclose or divulge the same to any unauthorized oerson whomsoever, and any emnloyee who shall give information contrary to this by-law shall be liable to immediate dismissal. Except u:oon vote of the Board, no one other than a Member of the Board, or the Secretary Assistant Secretaries, Assistant to the Governor, and General Counsel, shall be permitted to inspect any of the Board's minutes. Sec. 2. To statements shall be made to the press expressive of the Board's 7,olicy or descriptive of its action except as authorized and approved by the Bocrd. Such statements shall be issued only in written form and when authorized and approved they shall be issued through the office of the Governor or such other officer or member of the Boaru as may be specifically designated. While each member of the Board must determine for himself the propriety or necessity of expressing publicly his individual opinion on any gaostion, members shall not quote publicly the opinion of other members on matters which have not formally been passed upon by the Board. Sec. 3. There shall be published monthly, a bulletin to be known as "The Federal Reserve Bulletin", which shall be the official periodical organ or publication of the Federal Reserve Board. Sec. 4. No resolutions of a personal character, except upon the death of a member of the Federal Reserve Board while serving as such, shall appear in any publication of the Federal Reserve Boaru. Article XV:— Amendments. These by-laws may be amended at any regular meeting of the Board by a majority vote of the entire Board, provided that a copy of such amendments shall have been delivered to each member at least seven days prior to such meeting. VOLUME 184 PAGE 19 .s.i.L/14 COPY FEDERAL RESIIRVE BANK OF NEW YORK October 10, 1928. Dear Governor Young: We have been keepinp: current records of the denand for Reserve Bank credit this autumn, and of the manner in which tnat demand has been met. These records seem to indicate that the policy of supplying autumn credit requirements tArough bill purchases has so far been entirely successful. You will recall a tabulation which we sent you some time ago showing tne increase over August in the daily average amount of Reserve Bank credit in use, before and after adjustment for changes in the gold stock, and also the amount supplied by bill -purchases and the amount supolied through discounts and securities, in each of the last four months of the past six years. A revised co,y of this tabulation is enclosed, on which have been entered o2?posite the six year average, the figuresfor September 1928 and for the first week of October. You will note that the average amount of Reserve Bank credit needed in September practically identical with the average for the past six years, but that,even without a reduction in our buying rates, the amount of.bills we acquired was 50 per cent larger. Of the remaining increase in Reserve Bank credit, a considerable part took the form of increased holdings of U.i. securities, largely explained by the Treasury overdrafts around the lbth; so that the average amount of member bank borrowing at the Reserve Banks for - the month of September was practically the same as in August. This probably was an important factor in preventing a further rise in co:.1mercial borrowing rates during September, and the heavy btyina of bills undoubtedly was mainly responsiUe for keeping bill rates 3.ow comparei with other money rtes, and made nossible a much larger volume of financing throuRh the bill market than would live been the case otaerwise. During the first week of October the increase over 1:iugust in Reserve Bank credit outstanding has been somewhat below the six—year average, and the increase in bill holdings has re,ched such large proportions as to su)ply almost the 1O.)j%amount. The security hollings of the System are samewhat above the AuFast average,and discounts aresaightly mnaller. It appears probable that we shall continue to have a large volume of bills offered to us durin - October and November and that our bill holdings may increase faster than the demand for Reserve Bank credit. If that is the case,discounts for member banks will tend to decline below the volume of August, and money ntes are likely to be easier than in recent weeks. It would not be surprising if the principal effect of this situation were to appear in the call money market. Very truly yours, VOLUME 184 PAGE 25 Hon. Roy Young, Governor, Federal Reserve Board, Washington, D. J. H. Case, Deouty Governor. • COPY I'M* IN Iti.]b RVE BANK CREDIT • UIREM 10 FINANCE AUtrulET Revised on basis of average daily gold stock figures recently issued by Federal Reserve Board (Monthly averages of daily figures; increases over August, in millions of dollars) Amount Change in • Amount Actual Increase Change F.?.. Credit P.R. Credit F.H. Credit in F.R. Credit if tflere had in Supolied thru Supplied Thru over August Gold been noBills Discounts & Average Stock Securities Change in Gold. Purchased 1922 September October November December + tt i 60 132 157 251 4-22 -I- 38 1-55 .t.75 1- 82 t 170 -,- 212 7 326 -t- 51, t 93 t 101 i 102 -1- 31 -t. 77 4-111 4-224 1923 September October November December t t t 4- 45 73 70 122 i- 26 + 58 t 85 f 129 -t 71 -. 131 4- 155 + 251 — 3 1 7 -i- 85 i 145 -- 74 t 124 f 70 f 106 1924 September October November December 4- 94 + 169 4- 248 t 384 1 -- 10 r 1 _ 9 -s- 93 ÷ 159 t 249 t 375 1925 September October November December 4. 72 t 164 t 197 ,637 1926 Se-otember October November December + 67 4- 111 + 112 4- 223 1927 September t 117 October + 191 November t 309 4- 491 December Average 1922-1927. Sept.4-76 Oct.+140 Nov,--l82 Dec.-I-301 1928 Se otember 4- 85 October 1-8 #135 1- 62 f 150 i 236 f. 329 f f t + 31 9 11 46 12 17 55 23 + 84 +181 4-230 4- 360 t 90 i- 146 1- 162 t 66 r 91 A-- 84 -,- 198 I- 4 .4- 5 t 10 4- 14 i- 71 ;- 116 4- 122 + 257 t 19 t 49 t 102 f 140 -i- 52 , 67 r 20 t. 97 -- 1 — 19 — 93 — 169 -It + 4. -t- 43 f 109 t 163 + 205 + 73 4 63 * 51 f 117 t 32 -i- 86 1-155 -E-• 83 ÷ -r197+ 1 89 312 13 +1 -t- 54 t 72 t 58 -I- 131 t 48 + 136 +44 — 1 .1t 44- -f- 10 -p15 -1-15 411 - 4-? 0 116 172 214 322 1-92 +135 f 18 • 4 . Memorandum on Credit Conditions Presented by Governor Harding to the Federal Reserve Board August 13, 1928. (Taken by C.S.H. from Board's records) States, among other things, that market for government securities has weakened further and the July issue is nearly two points incier par; that stock prices have moved irregularly; average prices (New York Tribune, 100 stocks) are about 8 points or 5% under the year's high point; trading is reduced in volume; bank stocks continue weak; banks are showing concern about the credit situation and applying pressure to reduce borrowing at the reserve banks; New York City banks have sold 118 millions of Government securities since July 11th. European exchanges have weakened further and those of England, France, Italy, and Holland are only slightly above he points at which gold will move in this country, unless prevented. by higher rates abroad or sale of their balances here to support the exchanges. There is no evidence of restriction of business, though profits are reported small in some lines. Building and automobile production are particularly large. There appears to be an ample supply of credit for business at noderate rates. There has been a sharp decline in prices of certain agricultural products, accompanying estimates of larger crops. As a result it seems probable that the farm income will be reduced from earlier estimates and possibly less than last year. These various developments raise the question as to Whether and when a change of policy is desirable. i on The three periods for comparison are 1923 am11925, When the System sold securities heavily in the spring simultaneous with rate increases ,and 1926 when readjustment followed rate increases in November, 1925 and. January 1926. The ;925 readjustment was so temporary as hardly to show in the figures, but in 1923 and 1926 bills discounted amounting to between 500 and 700 million, and discount rates at 4i% and 4% respectively, appeared to be VOLUME 184 PAGE 154 2 . sufficient to dhedk the expansion of credit, though in neither case was there any sdbstantial liquidation of the total volume of credit. what WoW„s1 be a___Normal _Status? The methods to be employed toward same relaxation in credit, when that becomes possible, depend upon the ends to be sought - especially what might be considered in the future to be a proper average of member bank borrowings and a normal level of ratr!s. The comparative in3ffectiveness of rate increases this spring at a time when member banks owed the reserve banks about 500 millions, rdises the question as to the relation between open market rates and Federal reserve discaant rates, and this raises the further auestion whether it is possible to bring about a different relation between Federal reserve rates and the , Iarket. Experience appears to ihaw that large indebtedness forces market rates high relative to the discaunt rate, and that the most feasible method of securing a somewhat more effective adjustment of market and discount rates would be to reduce the amount of meMber bank indebtedness vihile leaving rates uncharL•ed. Apart from any attempt to bring about a somewhat different relation between discaunt rates and market rates, there are same reasons for believing that the present amount of member bank borrowing is too large to be continued over an extended period without some unfortunate results: 1. Almost regardless of the discount rate, it keeps severe pressure on the credit situation. 2. By keening open market rates high relative to the discount rate, it tends to make the cost of financing through acceptances higher than direct borrowing at banks and tends to dry un the bill market. 3. By keening open market rates high relative to the discount rate, it makes borrowing profitable and creates difficulty in dealing with borrowing banks. "Goodu banks work out of debt taking losses; less coaperative banksuse the Reserve System for profit. Proceed.inga before the Board, Auxust 13, 198. Acting Chairman of the Committee, Harrison, presented the above memorandum. After discussing the proposition of preferential rates on seasonal crap marketing paper and bankers acceptances and trade bills, respectively, he stated that the Committee, with the exception of Governor Harding, felt that preferential rates on special classes of Paper would probably not accomplish what is desired and that the Committee feels that the question whether the season's crops can be moved expeditiously and reasonably involves the bigger auestion of the whole credit structure and will have to be dealt with through open market operations rather than throliel preferential rates on commodity paper. He expressed the opinion of the Committee that to reduce the bill rates would undoubtedly result iathe dumping of a vast volume of acceptances on the Federal reserve barars, which though it might have the effect of easing the credit situation, would undo the work of many years in developing a bill market. He then presented the report of the CommMtee as follows; "The policy recommended by the committee in most of its meetings since January, has been to check or prevent unduly rapid or unnecessary increase in the volume of bank credit. While the total volume of loans and investments of reporting member banks is now considerably above What it was at the low point in February, nevertheless, it is approximately 300 millions below the high point of May, and there is evidence that meMber banks are making continued efforts to reduce their borrowings at Federal reserve bmiks. "The Committee does not believe that conditions necessitate an immediate purchase of securities by the System. It is of the oninion, however, that as pointed out at its last meeting, an extended period of high money rates and heavy pressure resulting from large borrowings by member banks would not be Wholesome and that there are same indications that with the approaching fall demands for credit it may soon be possible or necessary to take steps looking toward the reduction, or at least the avoidance of the necessity of any substantial increase in the volume of m.ember bank discounts. • "With these facts in view and realizing that if and When the time arrives undue delay may be hurtful to the situation, the Committee recommends that it should be the policy of the System to purchase securities whenever that Should become necessary to avoid undue credit stringency. "The Committee would expect to take such steps as may be needed to carry out this policy, if approved, believing, however, that it might be advisable to have another meeting of the Committee to review the effect taken in oursuance of this of any steps that may policy." A discussion of the report ensued, during which Mr. Harrison stressed the fact that the Committee's recommendation for the nurchase of securities is intended to cover only an emergency situation and that securities would be nurchased only as a last resort if a dangerously tight money situation should arise despite efforts to prevent such a , cceptances, exchange operations and situation through purchases of ? otherwise. Upon inquiry by the Governor, the other members of the Committee confirmed Mr. Harrison's statement that their recommendation contemplated purchases of Government securities only as a last resort in an emergency situation. __ • Mr. McClelland writes C.S.H. under date of August 16, 1928: "There is enclosed herewith copy of a letter which the Board addressed to Mr. Harrison following the meeting this morning. "Five meMbers were present and three voted in the affirmative; Mr. Miller and Mr. James being unalterably opposed to any authorization for the purchase of Government securities. Word to the same effect had been received_from Mr. Cunningham and. was submitted to the Board along with the telegram which you sent to Mr. Platt yesterday." Letter of Governor Young to Mr. Harrison, August 16, 1928: "Dear Mr. Harrison: The Board has reviewed carefully the report of the Open Market Investment Comaittee and its recommendations of August 13, and has also considered the verbal discussion which took place during the meeting, and it is in agreement with the Committee that the seasonal requirements of credit will probably develop a strain upon the future credit situation which may react unfavorably upon commerce and industry, and that if such a situation should develop, the System should take some action to relieve the strain. The Board would not care to agree to the purchase of Government securities, except as a last resort. We understand from the discussion had with your committee that you favor easing through the bill market, if possible, and through the Government security market only if unavoidable. With this understanding, the Board approves the purchase of Government securities by the comlittee but limits the amount to 100 million dollars. If a situation should develop which 12.111 require reconsideration, the Board will be glad to meet the comdttee at any time for that purpose. (Signed) R. A. Young, Governor. VOLUME 184 PAGE 155 George L. Harrison, Acting Chairman, Open Market Investment Committee, Federal Reserve Bank, Y. New York, - so • July 29, 1935. IA, at, Preliminary Memorandum for the Open Market Investment Committee, Nov. 14, 1928: Gives review since the fall of 1927. The purchase of securities was discontinued in November, 1927, although the gold. movanent continued. In January, 1928, the reserve banks began selling securities. The sales of securities were followed in February by a general advance in discount rates. Reporting member bank loans and investments decreased moderately in January and February. A new outburst of speculation on a large scale than ever before occurred in March and April, Which led to a renewed and more rapid increase in bank credit. Within ten weeks the loans and investments of reporting member banks increased a billion dollars. The sale of securities was resumed in the latter part of March and continued more ranidly in April, although the market for Governments was so weak that it was difficult to sell such securities. As securities were sold open market money rates advanced. As a conseauence, funds were attracted from other districts, and there was increased discounting at the reserve banks in those districts. This flow of funds to New York largely offset the effect of security sales in New York so that the indebtedness of the New York City banks showed for some time no material increase. The exnansion of credit was not halted until the second advance in reserve the bank discount rates in the latter part of April. Except for a temmorary rapid increase early in July which was followed by a further rise in discount rates in all but four western districts, the 1oan,5 and invstments of New York City banks tended to decline from May to August, and in other districts the exnansion wa.s checked. VOLUME 184 PAGE 156 s. . • 2. Speaks of increase in brokers loans for account of others. They represented a potential expansion of bank credit because the banks would be obliged to take over loans called suddenly by these other leaders. A-u.tumn The steady rise in money rates Which followed the gold outflow and reserve bank sales of securities and rate advances, constituted a danger to the business of the country if it proceeded much further. Gives comparison of rates between August 1927 and August 1928. Although the largest advances had occurred in rates on "street loane the advances in coAmercial rates had been substantial and the tendency was toward still higher rates. To prevent money conditions from becoming more stringent during the season of aut=in trade and crop moving, the purchase of Government securities was considered but it was felt that such action would be followed immediately by a new outburst of speculative demand for additional credit which might absorb the credit extended for bUsiness uses. It was finally decided that the policy of maintaining bill rates at their current levels and purchasing freely bills offered by banks and dealers would probably nut into the market sufficient Federal reserve funds to meet autirin credit needs, thus Preventing a further rise in commercial money rates. Lffects of 1928 Bill Purchas_es_. Due to an extraordinarily large volume of bills in the market and the nresence of a few other buyers of bills because of the low level of acceptance rates relative to other open market money rates, the volume of acceptances offered to the reserve banks for purchase has been much larger than in any nreviaus year, and has exceeded the seasonal increase in the demand for Redera,1 reserve credit. thus_ tendinz to cause A redaction_ of about_Ig0 million_s in member bank indebtedness and some easing in money rates at a time when the demand for credit for speculative use is as strong as ever before. The rest is not material to this craesti-m. VOLUME 184 PAGE 156 " November 15, 1928. Confidential. REPORT OF THE OPEN MARKET INVESTMENT COMMITTRR The Committee has reviewed the preliminary memorandum submitted by the Chairman in relation to credit and money market conditions of the past year. It has given special consideration to the development of conditions since the last report of the Cdmmittee on August 13th and to the effect of Federal reserve policies on the volume of credit and the rates for money during the period of credit movement Whose peak has probably now passed. The Committee feels that the policy of the System has been substantially effective in providing credit for seasonal agricultural and commercial purposes at relatively low rates and without any abnormal increase in the total volume of member bark loans and inve_tments for this period of the year. The Committee is of the opinion, however, that it should still be the Policy of the System, if possible, to prevent any unduly rapid or unnecessary further increases in the total volume of bank credit, although in fact the total loans and investments of all reporting member banks are now slightly below the high point of May in spite of the usual Fall increase in the demand for credit for crop movement purposes. But we are approacing the usual seasonal demand for currency for holiday purposes. This will result in increased borrowings from the Federal reserve banks except to the extent that further gold imports offset the demand for Federal reserve accommodation. It is not possible to estimate the extent of the present gold movement or its ultimate effect upon credit conditions and money rates. VOLUME 184 PAGE 157 Already there • • is same eVidence of easier money rates contributed to partly by the inflow of gold and. partly by the larEe increase in the bill portfolio of the Federal reserve banks, eadh of vthich has caused a reduction of member bank discaants in the New York district. Some of this increase in the bill portfolio is due to the sale of bills by foreign banks to support their exdhanr.res, which have felt the pressure of high rates in this country. But While these conditions appear to have an easier tendency at the moment, nevertheless the uncertainty of the gold movement, the approaching demand for currency, and the usual demand for Federal reserve credit during Decedber suggest to the Committee that the System should still be prepared in the event of an emergency to prevent nny undue stringency of credit during this period. With all these facts in mind, the Committee renews the recanmendation contained in its report of August 13th that it should be the policy of the System to purchase Government securities if and When it might become necessary to avoid an acute stringency. The Commiltee would expect to take uudh steps as may be needed to carry aat this policy, if approved, rith the understanding however that it would be advisable to have another meeting of the Committee in the event that any sUbstantial change in conditions makes that necessary. VOLUME 184 PAGE 157
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