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□ ARD OF G O VE R N O R S
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date
To
The Files__________________
Subject:
From
Mr. Coe________________________
_________
July 25, 19/0.
^yvf F •
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 189
of Mr. Hamlin’s scrap book and placed in the Board's files:
VOLUME 189
Page 47 - Letter to Governor Young from Governor Harding re Section
13 of the Federal Reserve Act.
Page 95 - Deficiencies in Reserves of Member Banks During the Quarter
Ending December 31 1928.
Page 97 - Earnings & Expenses of F.R. Banks - February 1929.
Page 105 - Memo to Mr. Hamlin from E. H. Cunningham re Analysis of member
banks in Chicago and Detroit.
Page 113 - Member Banks Borrowing Continuously in Excess of Capital and
Surplus During January 1929.
Page 119 - Memo to Mr. Hamlin from Mr. Smead re What the effect would
have been in 1924 and in 1928 had the Federal Reserve Banks been
required to pay an additional non-cumulative dividend of 2 per
cent on their paid-in capital stock out of net earnings for the
year, as provided in Senator Glass’ bill - S. 5571.
Page 121 - Memo to Mr. Hamlin from Mr. Smead attaching table showing
.te "Basic Line" of All Member Banks and Borrowings from
Reserve Banks on February 6, 1929.
Page 122 — Memo to Mr. Hamlin from Mr. Smead re Member Banks Borrowing
For Capital Purposes.
Page, 123 - Memo to Mr. Hamlin from Mr. Smead attaching statement show
ing Loans on Securities of Weekly Reporting Member Banks, 1927-1929.
Page 127 - Memo to Mr. Hamlin from Mr. Goldenweiser re Speculative Sit
uations, 1922 - 1929.
Page 129 - Memo to Mr. Hamlin from Mr. Goldenweiser re Willis’ article
on emergency character of the financial situation (February 23,
1929).
Page 131 - Letter to Governor Young from Governor Harding re financial
situation in Boston District.
Page 133 - Memo to Governor Young from Mr. Smead attaching statement
showing what the effect would be on the F.R. Banks if member bank
collateral notes were ruled to be ineligible as collateral security
for F.R. notes.
Page 134 - Excerpts and analysis of Mr. Wyatt's opinion re Board's
Power to prescribe restrictions, etc., governing rediscounts of
notes, etc.
.
.
Page 135 - Memo to Mr. Hamlin from Mr. Goldenweiser answering Dr.
Anderson's criticisms.
,
3-ggrega
.
COPY
FEDERAL
RESERVE
BANK
OP
BO STO N
February 25, 1929.
Dear Governor Young:
In the first paragraph on page 2 of the other letter which
accompanies this, you will note that I say - "A Federal Reserve Bank
can use its rediscounted paper as security for Federal Reserve notes
while it is question able whether it should use member banks* collateral
notes in this way.M I know that it is the custom for Federal Reserve
banks to use member banks* collateral notes secured by government
obligations as security for Federal Reserve notes, but I have serious
doubts whether it was the intent of Congress that such notes should be
used in this way. In the first place, none of the government obligations
issued during the war or since, have the circulation privilege and where
a Federal Reserve bank uses a member bank's note secured by such obligations
as collateral for Federal Reserve notes, it is using a government obliga
tion indirectly in a way where it is clear that it could not make such use
of it directly.
Section 13 of the Federal Reserve Act as originally enacted, contained
no provision for advances to member banks on their fifteen day collateral
notes, and Section 16 of the original Act which relates to Federal Reserve
note issues, contains this language:
"The collateral security thus offered shall be notes
and bills, accepted for rediscount under the provisions
of Section thirteen of this Act, and the Federal Reserve
Agent shall each day notify the Federal Reserve Board
of all issues and withdrawals of Federal Reserve notes
to and by the Federal Reserve bank to which he is accredited,"
In the amendment to the Federal Reserve Act approved September 7, 1916,
the following paragraph was inserted in Section 13:
VOLUME 189
PAGE 47
"Any Federal Reserve bank may make advances to its member
banks on their oromissoiy notes for a period not exceeding
fifteen days at rates to be established by such Federal
Reserve bank, subject to the review and determination of
the Federal Reserve Board, provided such promissory notes
are secured by such notes, drafts, bills of exchange, or
bankers' acceptances as are eligible for rediscount or for
purchase by Federal Reserve banks under the provisions of
this Act, or by the deposit or pledge of bonds or notes of
the United States."
-2 -
In the same Act of September 7, 1916, Section 16, paragraph 2,
relating to note issues was amended as follows:
nAny Federal Reserve bank may make application to the
local Federal Reserve Agent for such amount of Federal
Reserve notes hereinbefore provided for as it may require
.... The Collateral security thus offered shall be
notes, drafts, bills of exchange, or acceptances redis
counted under the provisions of Section thirteen of this
Act, or bills of exchange indorsed by a member bank of any
Federal Reserve district and purchased under the provisions
of Section fourteen.... "
It is clear that under the original Act, fifteen day collateral
notes could not be used as security for Federal Reserve notes for there
was no provision permitting Federal Reserve banks to acquire such
collateral notes. It seems to me that it is equally clear that under
the Act of September 7, 1916, which permitted Federal Reserve banks to
take fifteen day collateral notes from their member banks that the
amendment to Section 16 above referred to specifically precludes the
use of such notes as security for Federal Reserve notes for they were
not "rediscounted.H However, in the amendment to the Federal Reserve Act
approved June 21, 1917, Section 16, paragraph 2, was amended by striking
out the word "rediscounted" and substituting the word "acquired" so that
this section now reads "The collateral security thus offered shall be notes,
drafts, bills of exchange, or acceptances acquired under
the provisions of Section thirteen of this Act, or bills
of exchange indorsed by a member bank of any Federal
Reserve district and purchased under the provisions of
Section fourteen of this Act ......
The said Federal Reserve Board may at any time call upon
a Federal Reserve Bank for additional security to protect
the Federal Reserve notes issued to it."
The substitution of the word "acquired" for the word "rediscounted"
has been taken as authorizing the use of member banks1 fifteen day
collateral notes as security for Federal Reserve notes, but in view of the
fact that the original act provided that the collateral security thus
offered shall be "Notes and bills accepted for rediscount under the
provisions of Section thirteen of this Act."
and that the amendment of September 7, 1916^ provided that the collateral
security thus offered shall be
"jlotes, drafts, bills of exchange or acceptances rediscounted
under the provisions of Section thirteen of this Act."
-3 -
it is my 1)61161 that the intent of Congress was merely to provide that
any bills of exchange or acceptances which were "acquired" or bought in
the open market and not necessarily rediscounted could be used as collateral
security for Federal Reserve notes.
▼
n0te
tiiere is no direct reference in the amendment of
June 21, 1917 to Section 16, which is the present law, to member banks*
collateral notes, and the only possible authority for the use of such notes
as collateral for Federal Reserve notes is to have them incluled in the
word notes** which precedes the words "drafts, bills of exchange or
acceptances." As the amendment is so specific in describing the collateral
it seems to me that had Congress intended to include member banks« fifteen
day collateral notes it would have done so in plain language.
In the original Act reference is made only to notes and bills accepted
for rediscount. In the amendment of September 7, 1916, the reference is to
—
~ rafts»
of exchange, or acceptances rediscounted under the
U *°ns °* Section thirteen of this Act" and in the amendment of June 21.
iS
t0 "astes, drafts and bills of exchange, o
acquired, under the provisions of Section thirteen of this Act."
bank
Under Section 13 of the Act as originally passed, any Federal Reserve
"may discount notes, drafts and bills of exchange
arising out of actual commercial transactions, etc."
There was then no provision for member banks* fifteen day collateral notes.
In ection 13 as it now stands, the language is identical, and two pages
a tner on may be found the provision that any Federal Reserve bank
"may make advances to its member banks on their
promissory notes for a period not exceeding fifteen
days, etc."
'
*1°
amendment
f3
of June 21, 1917 goes into detail as to the kind o
security which may he used and does not mention member hanks' fifteen day
“ 8eemV ° me that 11 is some stretch of the imagination to include
the -vervi lie
2°teS . whioh word has always occurred inraedlately before
the word "drafts" from the very beginning.
nf f. 14 aPP®ars that close reading of the Act seems to preclude the inclusion
t
term member banks* fifteen day collateral notes" in the
exchfm!*™ f e ^ eS WhlCu
used JU3t before the words "drafts and hills of
exchange," for paragraph (d) of Section 14 provides that every Federal Reserve
"shall have power to establish from time to time, subject
to review and determination of the Federal Reserve 3oard
rates of discount to be charged by the Federal Reserve
bank for each class of paper, which shall he fixed with a
view of accommodating commerce and business."
-4 -
while in Section 13 appears the provision that any Federal Reserve bank
"may make advances to its member banks on their promissory
notes for a period not exceeding fifteen days at rates to
be established by such Federal Reserve banks, subject to
the review and determination of the Federal Reserve Board, etc.”
If it was not intended to make a distinction between these member
bank collateral notes and ordinary commercial notes, why should there be
a separate provision for rates on these notes as distinguished from .the
ordinary notes which are covered in paragraph (d) of Section 14?
!0iis, of course, is only a layman's opinion; but if the Board
should decide to submit this question to counsel, and should counsel give
an opinion which would justify a ruling that member banks* collateral
notes may not be used as security for Federal Reserve notes, I think
considerable headway would be made in solving the problems which now confront
the Federal Reserve System.
Very truly yours,
W,p.G. Harding,
Governor.
Hon, Roy A* Young, Governor,
Federal Reserve Board,
Washington, D. C.
CONFIDENTIAL
St. bl2o
DEFICIENCIES IN RESERVES OF MEMBER BANKS DURING THE QUARTER ENDING DECEMBER 31, 1928
For use of Federal
Reserve Board only
*
Federal
Total
member
banks
Dec. 31
Reserve
Dis trict
•
4os
Boston
New York
Philadelphia
Cleveland
938
77s
8l6
5^7
Richmond
Atlanta
Chicago
St. Louis
P3
Minneapolis
Kansas City
Dallas
£^1 Francisco
™ a l
Oct.
July
Apr.
Jan.
Number of banks penalized
In
In
Federal
other
reserve
To tal
and
reserve
branch
cities
cities
76
307
123
180
222
212
1 ,2 5 2
587
326
719
932
780
627
103
223
225
193
201
Country
banks
2
62
250
21
8
108
151
21
,5
**24
l4
55
15
18
38
49
2
15
13
36
-
20
—
—
#16
6
2
196
190
268
l-jk
101
I9 U
17 U
163
Number
Average daily deficiencies on which penalties
Number of
of
were assessed
banks
Federal
subject to
banks
Other
.
subject
to
reserve
progressive
Country
and
reserve
maximum
Total
penalties
banks
***
branch
cities
penalty
cities
(In thousands of dollars)
1+
2^5
68
177
—
364
928
559
5
1
8
121
5
113
11
1
46
308
413
59
52
47
♦ 36
*11
* 2
. 20
♦ 26
5
15
26
*1
♦6
♦1
1
*14.
2
585
529
748
237
128
227
280
267
56
119
19
**y
149
no
55
16
29
51
ll4
510
-
403
489
182
#81
l4
2
117
215
151
112
64
219
2,031
^,708
284
297
2,391
63
1; 283
3.1^1
2,287
282
8,901
1,148
462
1.9
5
2
M
0
3
255
63
2.993
,53
23U
2,108
46
8,929
203
1,779
2,898
^5
173
1,0 5 2
M 5 3
j 8 ,9 7 1
268
56
2
U
0
60
]
i 1,859
2,10 6
3,332
1,029
1.535
1
197
♦Represents the number of banks which would have been subject to such progressive penalties if they had been applied, as F. R. bank
applies only the basic rate.
♦♦Represents banks in Savannah, Georgia, whose required reserves are computed semi-weekly as in the case of banks in Federal reserve
bank and branch cities.
*♦♦Represents country banks, except one reserve city bank in the Fourth Federal Reserve District.
# Includes one bank in Kansas City, Kans., whose required reserves are computed semi-weekly as in the case of banks in Federal reserve
bank and branch cities.
FEDERAL RESERVE BOARD
DIVISION OF BANK OPERATIONS
VOLUME 189
w
PAGE 95
MARCH l4 , 1929
-
Dec. 192S
Sept.1928
June 1928
Mar. 192S
;
8,837
EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS
FEBRUARY 1929
Total earnings of the Federal reserve hanks
in February were $5,^71,000 - $953,000 less than
in January but $ 1 ,8 6 1 ,0 0 0 more than in February,
1928. All classes of earnings declined during
the month, earnings from purchased bills by
$^37,000, from discounted bills by $238,000, and
from U. S. securities by $227,000. Earnings were,
of course, accrued for 3 days less than in January,
Current expenses (exclusive of cost of Fed
eral reserve currency) aggregated $ 2 ,1 8 ^ ,0 00 as
compared with $2 ,2 3 6 ,0 0 0 in the month preceding
and $ 2 ,137,000 in February 1928.
Current net earnings (total earnings less
current expenses) were $3 ,1 0 5 ,0 0 0 for the month
which is at the rate of 2 7 . 0 per cent per annum
on average paid-in capital as compared with 12.6
per cent a year ago.
After providing for all current expense and
dividend requirements, the Federal reserve banks
on February 28 had a balance of $ 5 ,623,000 availabl
for losses, depreciation allowances, surplus and
franchise tax, as compared with a balance of
$1,653,000 at the end of February 1928.
VOLUME 189
PAGE 97
(st. 6130)
MR. HAMLIN
lu fH
C O N F I D E N T I A L
Not for publication
EARNINGS AND EXPENSES OF FEDERAL RESERVE RANKS, FEBRUARY 1929
Month
Federal
Reserve
Eank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
^^n Francisco
wlal~
Feb. 1929
Jan. 1929
Feh. 1928
Jan.-Feh.1929
192S
February
sEarnings from Pur
chased
bills
$2 3 3 ,9 3 5
822.933
3 3 3 .1 31+
3 2 9 ,9 6 7
$1 9 ^ ,0 6 5
31+1 ,8 3 9
92,598
1 2 9 , 1+32
$ 2 0 ,9 1 0
6 9 ,9 9 2
5 6 ,3 0 4
8 7 , 1+60
$5,364
13,400
1,908
10,240
$459,274
1,248,164
483,944
557,099
$1 5 4 ,6 9 4
5 2 0 ,2 1 9
1 5 4 ,7 1 2
202,965
157,215
2 1 4 ,3kk
627,705
1^ 5 ,0 0 6
6 0 ,2 1 0
75,246
148,886
3 4 ,8 3 8
7 ,5 1 4
1 2 ,5 6 9
97,708
62,643
4 ,7 6 3
8 ,2 0 1
3 7 ,1 6 1
2 ,1 1 7
2 2 9 ,7 0 2
3 1 0 ,9 6 0
911,460
2 4 4 ,6o4
1 1 8 ,7 4 9
108,736
303,691
1+3 .8 9 6
1 1 2 ,9 0 0
66,407
2 6 1 ,6 7 7
5 2 ,3 6 1
3 6 ,5 4 5
7 1 ,9 3 6
1 7 8 ,9 1 3
3 1 .2 2 3
29,437
29,935
46,511
5 ,0 7 0
2 8 ,0 2 9
22,758
8,413
1 3 2 ,5 5 0
2 0 6 ,9 1 1
191,036'
495,514;
3 . 3 5 ^ .7 1 9
3,642.279
1 , 1+1 2 , 1+60
1 , 4 1 6 ,8 6 9
1 , 8 5 4 , 29^
942,402
5 5 2 ,2 0 6
779,199
1 ,1 1 0 ,3 0 2
1U7 ,424
i 4 s ,864
1 4 5 ,0 1 9
6,996.997
2,8ii+,979
3 .2 7 1 ,1 6 4
1 , 9 6 0 ,2 0 0
1 , 3 3 1 , 401+
2 ,5 7 0 ,9 3 3
2 9 6 ,2 3 7 1 1 , 8 9 5 , 8 5 2 '
2 5 8 ,2 6 8 7,6oi+,3SOi
U. S.
securi
ties
Other
sources
Total
5,^71,218
6 , 4 2 4 ,6 3 6
3 , 6 1 0 ,6 3 3
1929
Current expenses
Exclusive
of cost of
Total
F.R. currency
Dis
counted
bills
FEDERAL RESERVE BOARD
! DIVISION OF B iiN K OPERATIONS
MARCH 1 5 , 1929
W.
of
January - February 1929
Available for
Current net
Current
reserves
earnings
net
Dividends surplus and
Ratio to
Amount pai d-in
earnings ,
*
■accrued franchise
ta,x*
capital
Per cent
$1 8 9 ,5 3 1 $2 6 9 ,7 4 3
6 9 6 ,6 1 7
5 5 1 ,5 4 7
3 1 3 ,6 5 0
1 7 0 , 291+
3
2 9 ,1 5 4
2 2 7 ,9 4 5
1 3 4 , 61+9
St. 6130
3^.3
17.2
27.9
2 9 .4
$6 6 0 ,5 4 4
1 , 9 5 4 ,4 5 9
6 0 1 ,2 4 7
759,873
$1 0 2 ,0 1 9
5 1 7 ,6 9 1
145,882
145,551
$ 5 3 9 ,5 2 2
1 , 4 1 3 ,9 6 9
4 3 9 ,2 3 0
6 0 3 ,1 5 1
6 1 ,6 0 6
52,596
185,642
5 4 ,3 4 7
1 7 5 ,2 7 6
4 0 0 ,4 9 2
1 , 0 1 1 ,5 0 1
226,372
3 0 ,3 3 0
4 2 ,5 2 9
4 3 ,3 5 3
1 0 7 ,3 0 6
104,859
1 0 6 ,8 5 4
1 6 2 ,0 2 0
439, 93s
1 ,6 5 3 ,3 5 2
107,819
1 2 6 ,1 9 7
3 1 4 ,5 4 5
1 1 8 ,3 3 0
9 5 ,0 5 3
184,763
596,915
126,274
^5.7
4 1 .8
3 0 .2
245,054
456,530
1,2 2 4 ,69 1
290,526
75,919
135,223
104,707
196,79^
82,1+22
135,4 o4
1 0 4 ,7 6 5
2 1 0 ,4 2 6
50,128
71,507
86,273*
285,088
2 1 .5
2 1 ,8
2 5 .9
34 .9
13S,7S5
148,810
206,218
559,951
2 ,1 8 4 ,22 8
2 ,2 35,25^
2,1 3 7 ,37 9
4,1+20,083
4 , 3 1 1 ,1 7 0
20.1
\
|
|
2 , 3 6 6 , 0 5 5 ! 3 , 1 0 5 ,1 6 3
2 ,2 8 3 ,1 0 9 1 4 ,11+1 ,5 2 7
2 ,2 5 5 .9 6 7 ii,3 5 4 ,7 i6
2 7 .0
3 3 .0
1 2 .6
j
4,649,161+1 7 ,2 4 6 ,6 8 8
4 , 5 6 0 , 4 5 1 : 3 ,0 4 3 ,9 2 9
3 0 .1
13. s
! 7 ,2 4 6 ,6 8 8 1 ,4 3 8 ,8 5 4
! 3 , 0 4 3 ,9 2 9 1 , 3 4 4 ,1 7 1
5 ,6 2 3 ,1 8 4
*After adjustment for current
profit and loss entries, pur
chases of furniture and
equipment, etc.
F o r m No* 131.
O ffice Correspondence
T o ____ Mr. Hamlin____
From.
_________
1. H. Cunnixighsm.
I
hand you herewith an analysis of six member .hanks in Chicago,
and 8ix member banks in Detroit, showing the average borrowings of
those banks from the Federal Reserve Bank of Chicago, for the laet
six months of the year, 19285 and also the weekly holdings in brokers*
loans for own account, for the same period.
VOLUME 189
PA£E 105
'
DAILY
Kgg53V8 BAB* OF CKICAQO. from July 1. 193. to December gl. 1938,
C/M" ^ T?AWIC- \L B 4;TT, Chicago, Illinois.............. CApmh-*300.000;
TTo. of Borrowing Dayg
36
31
30
31
?otrl Tonthly Porrowjnpss
V
J u ly
Aug
ftept
ret
tfov
Dec
9,400,000
18.900.000
34.400.000
37.900.000
21
13.500.000
7.800.000
27
lG6
1 0 6 , 9 0 0 ,0 0 0 7
US-1200.000
Pnlly <-rerr,--o for t'onth
$ 761,538,46
609,677.41
813.S53.33
900j<XX).
595,338.09
388,388.88
•
"Vrrtrf "ot.'il for entire six months period............. $100,900,000.
Total no. of ’borrtwin,'- days in six months period..... 166 days
" "
.......................................r
............. ............................... ................. to0 f r . a n . 3 s
........... '~v ~r~fTXI^frS W 8K>r— S wn’r. vOTi C ~ * t - T »!;7 6 !*0S. 1938 - ^ 7 4 6 .9 6 2 .9 7
- - v r B v n t .
c m c
~ ,- o .
-1 onthly Borro^ln.^s;
July
$ 16,600,000
Aug
18,600,000
18,000,000
ret
16.050.000
TTov
16.900.000
Dec
15.750.000
i 101,900,000
Illinois... .
. . . . . . . .
"To, of lorrowla/r Keys
>>iy h h j ,.T t" !; 1
•
P rlly
ftrerage fo r io n th
5^5,483.87
600.000
600,000
517,741.93
563.333.32
583.333.33
31
30
31
30
27
100
Oread ?otnl for entire six months period... .......$ 101,900,000
*otftl lo. of ’
borrowin' days in six Months period... 180 dnyg
;r - .
j h h ,ur> -a -vo, ooq
r.
r
...............................
r
*
*
?
6 *0 * . 3 9 0 8
•
0 6 .U U U
ifo a e j-----
C5TITRAL TRUST COWpm or ILLIfrCIS. C hicago, Illinois
T otal Monthly Borrcrdn-g?
J u l y ..........
$ 1 9 7 ,8 0 0 ,0 0 0
Aug . . . . .
1 8 3 ,9 5 0 ,0 0 0
S e p t ..........
9 4 ,0 0 0 ,0 0 0
Oct ..........
3 7 ,6 0 0 ,0 0 0
..........
3 1 ,7 0 0 ,0 0 0
3 « c ..................
2 3 8 .3 0 0 .0 0 0
$ 8 3 3 ,2 8 0 ,0 0 0
CAPITAL-$8.00Q.000s SURPLUS- 6 .0 0 0 .0 0 0
No. o f Borrowing: Beys
36
31
27
21
25
51
P a lly Average f o r Donth
_
$ 7 ,6 0 7 ,6 9 2 .3 0
5 ,9 3 3 ,8 7 0 .9 6
3 ,8 5 1 ,8 5 1 .3 5
1 ,7 9 0 ,4 7 6 .1 9
3 ,2 6 8 ,0 0 0 .
7 ,3 6 1 ,2 9 0 .3 2
’
Grand T otal f o r e n tir e s i x months p eriod ............................. $ 8 2 3 ,2 5 0 ,0 0 0
T o ta l no. o f b o n w ln -r days in s ix months oorlod .......... 161 days
DAILY A
t c i SIX MOTHS r ^ I O P .................................................................. $ 5 .1 1 3 .3 5 4 .0 3
ACGCUST-last 6
ATOAGS T m i HCITIHOS IH BR0Y«RS LOAHS FOR
--------------------------------------------------------- — ----------- —
CtjjTfa.'arr'A]’
.wonwt.m n
m
AH!) THUSf CCVPAWT,
Total Monthly Rorrowln^fi
July ... ..
AO* ••• ..
Dept ... ..
Cet
.....
¥oy
.....
Pec
.....
IK
Kf-lly Average for ? onth
$ 1 8 ,0 5 3 ,2 2 5 .8 0
31
36,804,838.71
16,157,143.96
28
31
30
3 6 ,0 9 0 ,3 2 3 .2 8
24, 276.,Of®.
41,629,903.32
31
18?
Grand Total for entire six months period........
Total number of borrowing days in six months period
DAILY AV»RAgS 1VP SIX MONTHS PHSIOD............
AYTRAOS YOTTTLY HMEHIOS
BBCYIBRS LO AH S
—
1 3 .7 5 0 .5 1 3 .5 3
Chlcpro. 111...Cfcl'fAli-iSS.OOO.OOOr glrTPLT430-OOP. m n
No. of Borrowing Pays
0 559.f-50.000
1,140,950,000
45-?,400,000
1,118,800,000
1.028,380,000
1.390.527.000
$ 5 ,5 9 0 ,6 0 7 ,0 0 0 .
‘
nos.
rras57
K H QTH
•
.$5,590,607,000
• 183 days
$30|717,620.87
ACC0U17?-last 6
(19<28)
ao e.
8 7 ,5 7 1 .7 7 7 .7 8
-3 ■r«rT"AT,.......... n . 0 0 0 . 0 0 0 ;
•T*-.^rrTT-T. TA!T?« ChlCA^Q. Illinois..
-ot.i'l Monthly
j o l y ..........
Aug ...
rent .....
Pet ...
•t o t
32,512,250.84
20,262,TO3.50
19,314.666.10
26,910,145.53
27.334.033.21
n73,027,154.92
............
ec ...
ATOl___________
'o r r o r l n r s :
!i 4 6 .8 0 V S 5 .T O
1 ,5 0 9 ,7 8 2 .7 6
1 ,0 4 8 ,7 8 2 .2 9
6 7 5 ,4 2 6 .2 8
6 1 9 ,8 2 7 .9 4
8 9 7 ,0 0 4 .8 2
1 ,0 5 0 ,9 2 4 .5 5
31
30
31
30
-2L
vrT
Qrnnd T o te l f o r ’ e n t ir e ’ o lx aonths p e r i o d . . . . ^ - .......... '’‘^
T o ta l n o . o f ■borrotrlne d sy c l a * 1 * month* p orlod .......... sy*
OATliT ATryjfiH *on six kcwthb t^ icp ....
^JKPTJTS........... $ 5 0 0,000.
, t , « « « . « n « OTTO
AVERAGE TBEgLY HOLDINGS Iff BROKERS LOAJTS FOR (OT ACCT-last
6
• ^ 154*92
i..«a a a.
mos. 1928. .$ 2 . 9 6 0 .7 0 3 .7 1
Doc
.
.....
.
Aw
<*pt
Pet
Hot
.
TIBST HA’
6 ,3 6 1 ,2 9 0 .3 3
3 ,6 5 6 ,5 6 6 .6 7
1 0 ,9 4 0 ,3 2 2 .2 3
1 1 ,6 2 5 ,8 3 3 .3 4
1 0 ,2 2 8 ,1 4 8 .1 5
1 9 7 ,2 0 0 ,0 0 0 .0 0
7 9 ,7 0 0 ,0 0 0 .0 0
3 3 9 ,1 5 0 ,0 0 0 .0 0
3 4 8 ,7 7 5 ,0 0 0 .0 0
..... 276.160.OOP.00
■'1,669,135,600.00
Prairf "otrvl f o r e n t ir e s i x months p e rio d ..................................S V 6 G 9 ,1 3 5 ,0 0 0
r o t a l mjaber of horroidne days l a s i x man the j m r l o d . . . . 180 days
pflT.T aTTBICT TCB SIX MOTHS .............................. *
AVERAGE 1BBKLT HOIfINGS TO BBOKERS 10AHS FOR OTH ACCT-last
6
mos. 1928.■ £ 5 1 ,0 2 9 .6 2 9 .6 3
CAPITAL*#,000.000: SUT3>UJS*»750.0Q0
AMKPICAB STATB BAN*. Petrolt, Michigan
T o ta l Monthly Borrowings;
■»
III !■■■—
$ 4 4 ,3 5 0 ,0 0 0
July . . . . .
7 3 .6 5 0 .0 0 0
to g
...........
Sept
..........
5 7 .7 5 0 .0 0 0
Oct
..........
6 8 .5 0 0 .0 0 0
110 , 000,000
Nov
..........
■6C
.....
1 1 8 .3 0 0 .0 0 0
& 4 7 2 ,5 5 0 ,0 0 0
■ ■ M W W B W M W a W W W IW W IM jU m W 'W
n o . Borrowing days
51
31
30
31
30
31
184“
P a lly Average f o r iloath
$ 1 ,4 3 0 ,6 4 5 .1 7
8 ,3 7 5 ,8 0 6 .4 6
1 ,9 8 5 ,0 0 0 .
2 ,8 0 9 ,6 7 7 .4 8
3 ,6 6 6 ,6 6 6 .6 7
3 .8 1 6 .1 2 9 .0 4
Grand T o ta l f o r e n tir e s i x months p e r i o d . . . . ........................ $ 4 7 2 ,5 5 0 ,0 0 0 .
T o ta l number o f "borrowing days in s i x months p e r i o d . . . .
1B4 days
PAILT AV5BA03 yon Six MONTHS F15RI0D................................................................................. t 2 .5 6 8 .2 0 6 .5 3
B I! 0? SAVINGS BAN*, P o t r o it , Michigan...................... .................. . . .C A P I?A L -$1,500,000; SURPLUS-$ 3 ,C
T o tal
July
Aug
Setft
ret
Mot
Pec
Monthly Borrowings:
......
iS 1 1 3 ,7 0 0 ,0 0 0
.............
1 5 0 ,7 7 5 ,0 0 0
.............
.............
6 9 ,6 0 0 ,0 0 0
8 0 .4 5 0 .0 0 0
i 6 0 0 ,0 0 0 ,0 0 0
No Borrowing Pays
3i
31
30
31
30
31
184
l)n lly Atorr.ze f o r J'onth
f 8 ,6 3 5 ,4 8 3 .8 8
4 ,8 6 3 ,7 0 9 .6 8
4 ,4 5 7 ,5 0 0 .
2 ,3 4 5 ,1 6 1 .3 0
1 ,7 5 8 ,3 3 3 .3 4
3 ,5 9 6 ,1 6 4 ,5 3
Grand T o ta l f o r e n tir e s i x months p e r i o d .................... ..
.
$ 6 0 0 ,0 0 0 ,0 0 0 .
T o ta l nunber o f borrowing days in s ix months p e r i o d ... .
184 days
PAILY ATOUOS VCR SIX MONTHS P88TC53................................................................................... 1 3 .8 6 0 .8 6 9 .5 7
-5 CAFTT.
Ho. Borrowing B a y . _
Totnl Monthly Borrowings
$
4
5
1
,2
0
0
,0
0
0
July . . . .
31
3 2 5 ,4 0 0 ,0 0 0
Aug . . . .
30
3
3
7
,0
5
0
,0
0
0
2e £ . . . .
31
4 8 0 ,0 0 0 ,0 0 0
tc t
....
30
4 3 6 ,0 5 5 ,0 0 0
Hov . . . .
31
3 7 1 .0 7 5 .0 0 0
Dec . . . .
184
* 3 .3 0 0 .7 8 0 ,0 0 0
G rrnd T o ta l f o r e n tir e s i x months p e rio d .............................
.5 0 0 .0 0 0 ;
StTKPMS-> 9 ,5 0 0 ,0 0 0 ,
T a l l y ATcrrre for Honth
$ 1 4 ,5 5 4 .3 3 8 .7 1
1 0 .4 9 6 .7 7 4 .3 0
7 ,9 0 1 ,6 6 6 .6 7
1 5 ,4 8 3 ,8 7 0 .9 7
1 4 ,5 3 5 ,1 6 6 .6 7
1 1 .9 7 0 .1 6 1 .3 0
184 days
TiATLT SH S 1M
CRIS*?0H>
IM
Aug
Sept
Oct
!Tov .
Dec
Grand
T o ta l
DAILY
»».a -$
HTA"r- 3 r Tirt D e t r o it , r i c h l y ......................CAPITAL - $5,000,000;
14
ffmPLtJS-$3,500,000
flo Borrowing Days
M f r A r a s f i L .1
1 ,3 7 4 ,3 3 3 .
30
1 ,8 1 2 ,9 0 3 ,2 3
31
5 6 *5 0 0 ,0 0 0
2 ,1 9 6 ,1 6 6 .6 7
30
6 5 .8 8 5 .0 0 0
2
,1 1 1 ,2 9 0 .3 3
31
6 5 .4 5 0 .0 0 0
1
.1 3 5 .0 0 0 .
30
3 4 .0 5 0 .0 0 0
1
.5 4 4 .0 0 0 .
31
4 7 .8 6 4 .0 0 0
184
§ 3 0 8 ,6 7 9 ,0 0 0
'"o t a l f o r e n tir e s i x months p e r l o d ,
.................§ 3 0 8 ,6 7 9 ,000
number o f borro^rinr days in f i x months p e r io d ,............... 184 days
AV&Jm FOR SIX HTTnBES PERIOD............................................................» .................. § 1 . 6 7 7 .6 0 3 .2 1 -
T otal Monthly B
.Toly
Six HC’r ’gS C T C D ................
-6 -
0 .
\ o &
m t&T g y m c r f BASE. D e t r o it , Michigan....................................... . . CAPTTAL-$5,0 0 0 ,0 0 0 ; STPTMT3-$3,0 0 0 , 000
Total Monthly •Borrowing#
July
Sept
Oct
Hov
I 6C
. . . ..
$
...
• ..
... •*
...
•• • • •
So borrowing Days
5 3 ,3 5 0 ,0 0 0
6 7 ,5 8 0 ,0 0 0
5 8 ,3 0 0 ,0 0 0
6 9 ,0 7 5 ,0 0 0
3 0 ,4 0 0 ,0 0 0
1 0 6 .7 0 0 .0 0 0
3 8 5 ,3 8 5 ,0 0 0
30
31
30
31
27
31
180
Pally
A yeroee f o r
Month
f"1 ,7715,233,34
r
2 ,1 7 9 ,3 5 4 .8 4
1 ,9 4 3 ,3 3 3 .3 4
2 ,2 2 8 ,2 2 5 .8 1
1 ,1 2 5 ,9 2 5 .9 3
3 .4 4 1 ,9 3 5 .4 9
Grand Total
f o r e n tir e s ix months p e r io d ........................................... f 3 8 5 ,3 8 5 ,0 0 0
Total n’UBiber o f horrowing d ays..............................................................
180 days
JULY krzntm TfT? f i x VOfFKS F^KICSD..................................................................................... 6 ^ 1 4 1 , 0 2 7 . 7 8
T-TttX S
tattt
CCWTT BALTIC, Det r o i t , Michigan.......... .......... . C i m i M l l , 0 0 0 , 0 0 0 s
T otal Monthly -o rro ^ ln g s
July
..........
$
To. B orro^lnr Days
3 1 1 ,7 5 0 ,0 0 0
Aug
Sept
Oct
Sox
Pec
..........
..........
..........
..........
2 4 1 ,0 0 0 .0 0 0
1 7 2 ,5 0 0 ,0 0 0
1 3 9 ,5 0 0 .0 0 0
2 3 9 .0 0 0 .0 0 0
$1,405 ,750,000
31
31
30
28
25
31
176
1 0 ,0 5 8 ,4 5 1 .6 2
9 ,7 4 1 ,9 3 5 .4 9
8 ,0 3 3 ,3 3 3 .3 4
6 ,1 6 0 ,7 1 4 .2 9
5 ,5 8 0 ,0 0 0 .
7 ,7 0 9 ,6 7 7 .4 2
$ 1 ,4 0 5 ,7 5 0 ,0 0 0
176 days
|
7 * 9 3 7 ,2 1 5 .9 1
Total nurnber of borrowing days..........
DAILY ATTRACT TOU SIX'
V TOD..........
T a l l y Aver-yrs f o r lo a th
$
Grand Total for entire six months period
SEH!>LUS-$23,000 .0 0 0 .
I
f
X O J i l D E N I I I
0
ff//s
•
L
DIVISION OP BANK OPERATIONS
MABCH 20, 19 2 0
VOLUME 189
PAGE 113
I ^ /Ui
O ffice Correspon snce
To___ Mr. Hamlin
From
FEDERAL RESERVE
BOARD
*
i t * . fU\
Pafrp! F e b r u a r y 7. 1 9 2 9
Subject:.
Mr. Snead
2— 8405
In accordance with your telephone request we have prepared the two
statements, attached hereto, showing what the e ffe c t would have been in
192U and in 1928 had the Federal reserve banks been required to pay an
additional non-cumulative dividend of 2 per cent on their paid-in cap ital
stock out of net earnings for the year, as provided in Senator G lass' b i l l
S -5 5 7 1 .
You w ill note that in 1 9 2 ^, when the net earnings of the System
were only $ J ,718,180, two of the banks had a d e fic it in net earnings before
payment of dividends, and that only four o f the banks had any net earnings
remaining a fte r dividend payments. Of these four banks only one, Minneapolis,
had su ffic ie n t net earnings remaining to pay an additional dividend of 2 per
cent on i t s paid-in cap ital stock.
In 1928, when the net earnings of the
System aggregated $3 2 ,1 2 2 ,0 2 1 , a l l o f the Federal reserve banks had net
earnings more than su ffic ie n t to pay the additional 2 per cent dividend pro
vided in the Glass b i l l .
I f gold should begin to move to this country again and thus result
in a substantial drop in b i l l and security holdings of the Federal reserve
banks, net earnings might again reach a point *ftiere some of the banks would
have to pay their 6 per cent cumulative dividend out of surplus, as they did
in 192^.
I f th is should happen and member banks in the in du strial d is t r ic t s ,
for instance,should get an 8 per cent dividend and member Tanks in some of
the agricultural d is t r ic t s only 6 per cent, there would no doubt be con
siderable pressure brought upon the.Federal reserve banks in the la t t e r d is
t r ic t s to increase th e ir earnings to a point where they would be able to pay
the f u ll 8 per cent dividend.
Member banks, in other words, would have a
d irect in te re st in the earnings and perhaps in the expenses of the Federal
reserve banks, with the re su lt that i t might be d i f f i c u l t to operate the
banks s t r ic t ly in accordance with sound cred it princip les without reference
to resu ltin g earnings.
I f the 8 per cent dividend requirement were to become a. law i t
would, in my opinion, be much b etter for the additional 2 per cent to be
made cumulative, as is the present 6 per cent dividend, in which case it
would presumably be paid out of surplus in any year in which net earnings
were in su ffic ie n t to meet the f u l l dividend requirement.
The advantage of
having the dividend cumulative i s that member banks would be lik e ly to be
much le ss interested in the fin a n cia l re su lt of operations of the Federal
reserve banks than they would be i f the payment of the f u l l dividend
denended on current earnings fo r a given year.
VOLUME 189
PAGE 119
#
NET EARNINGS AND DIVIDEND PAYMENTS OF EACH FEDERAL RESERVE BANK
IN 192U AND AMOUNT REQUIRED TO PAY AN ADDITIONAL DIVIDEND
OF 2 PER CENT
Federal
Reserve
Bank:
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t. Louis
Minneapolis
Kansas City
D allas
San Francisco
TOTAL
Net
earnings
Dividends
paid ( 6$)
$ 4 7 0 ,U22
6 l 6 f S52
$*+77,798
1,7 9 6 ,53 0
74 7,0 9 2
-'+73,153
Balance
Amount required
available for to pay 2 per cent
surplus and
additional
franchise tax
dividends
6 1 5 ,1 3 5
75 6 .15 2
- $ 7 ,3 7 6
-I .1 7 9 .b 7 8
131,957
-1 ,2 2 9 ,3 0 5
$ 159,266
593,843
205,0^5
252,051
379,791
351,251
28,5^0
272,656
909,123
272.656
-
909,123
30'+, 976
-
117,024
90,885
3 0 3 , 04 i
101,659
203,937
32 9 ,10 2
- 2 5 3,18 2
265 , 02 U
250,516
3 ,7 1 8 ,ISO
202,828
-1 0 1 ,0 3 9
126 , 27 U
249,789
420,561
-5 1 8 .8 7 9
15,235
- 230,045
67,609
28,566
83,263
16 0 ,1 8 7
6 , 622,496
- 2 , 964,316
2 ,2 2 7 ,4 9 9
265.697
NET EARNINGS AND DIVIDEND PAYMENTS OP EACH FEDERAL RESERVE BANK
IN 1928 AND AMOUNT REQUIRED TO PAY AN ADDITIONAL DIVIDEND
OF 2 PER CENT
Federal
Reserve
Bank
Boston
New York
Philadelphia
Cleveland
Balance
Amount required
available for to pay 2 per cent
surplus and
additional
franchise tax
dividends
Net
earnings
Dividends
paid ( 6 <£)
$ 2 ,31 6 ,5 22
1 1 , 0 1 8 , 1+33
3,282,61+1
3,1 8 0 ,71 5
$ 5 9 0 ,8 3 0
2 , 71+3 .7 2 5
81+3.755
8 5 6 , 81+3
$ 1 , 7 2 5 ,6 9 2
8 , 271+. 708
2 , 1+3 8 ,8 8 6
2 ,3 2 3 .8 7 2
$ 1 9 6 , 91+3
911+.575
1 , 1 1 8 ,9 6 0
3 7 0 ,6 3 3
3 1 2 ,2 5 9
1 . 0 9 9 .7 6 1
3 2 1 .8 5 5
71+8,277
1 2 3 ,5 6 1
1 , 3 8 1 ,7 2 6
3 , 6 6 3 .6 6 8
1+6 3 , 301+
101+.086
6 0 ,U01
Richmond
Atlanta
Chicago
S t. Louis
1 .6 9 3 .9 8 5
>+.763. ^29
785.159
Minneapolis
Kansas City
Dallas
San Francisco
,6ii+,70i+
659.760
713.^55
1 , 9 7 ^ .2 5 8
1 8 1 ,2 0 3
2 5 3 , 251+
2 5 8 , 51+1+
6 2 5 .7 5 1
1+33.501
1+0 6 ,5 0 6
Usi+ ,9 11
1,31+8.507
3 2 , 1 2 2 ,0 2 1
8 , 1+5 8 . 1+63
23.663,558
TOTAL
2 8 1 ,2 5 2
2 8 5 , 611+
3 6 6 ,5 8 7
107.285
gl+,Ulg
86,181
2 0 8 , 58 *+
2,819.1+87
O ffice Correspondence
T o ___ Mr . Ham1 in
From__ M r,
FEDERAL RESERVE
BOARD
Date
bruary 8 . 1 9 29
S u b je c ts
Smead
In accordance with your telephone request we have prepared the
attached statement showing the aggregate basic discount line o f a l l
member banks in each Federal reserve d is t r i c t , borrowings from the
Federal -reserve banks, and the ratio o f such borrowings to the basic
lin e s .
You
to basic
that the
New York
t r ic t .
w ill note from th is statement that the ratio o f borrowings
line for a l l member banks was 20 per cent on February 6, and
ratio ranged between a minimum o f 11.7 per cent for the
d is t r ic t and a maximum o f kg.J per cent for the Atlanta d is
We have examined the reports received for the 620 member banks
which submit weekly reports of condition, and find that of the to ta l
number 38 were borrowing in excess o f th e ir basic lin e s on January 23,
the la s t date for which figures by individual banks are a va ilab le.
These
3S banks had an aggregate basic line o f $55,800,000 and th eir borrowings
from the Federal reserve banks aggregated $8 0 ,7 0 0 ,0 0 0 , or $2^,900,000
in excess o f th eir basic lin e s.
The to ta l borrowings o f a l l weekly
reporting member banks amounted to $55^.000.000, or about 71 per cent
o f the to ta l borrowings from the Federal reserve banks on January 2 3 .
It may be interesting to point out that the 32 banks which were borrow
ing in excess o f the basic line were loaning le ss than $8,000,000 to
brokers and dealers in New York City.
The geographical d istrib u tion of the banks borrowing in excess o f
their basic line was rather general, although the largest relativ e number
of sucn banks was in the Philadelphia, Richmond and Atlanta d is t r ic t s .
None of sucn banks in the Philadelphia or Atlanta d is t r ic t s and only one
in the Richmond d is t r ic t were loaning any money to brokers and dealers
in New York City.
VOLUME 189
PAGE 121
AGGREGATE "BASIC LINE" OF ALL MEMBER BANKS AND BORROWINGS FROM RESERVE BANK ON FEBRUARY 6, 1929
(Basi c Line - 65 per cent of reserve "balances plus F. Ii. bank stock - multiplied by 2 \)
(In thousands of dollars)
Paid-in
65 Per cent
Ratio of total
capital
of
Basic Line
borrowings of mem
Borrowings
Federal
Total
of
member bank
ber bks. to their
(2^ times
f rom
Reserve
R. bank
reserves
column 3)
F. R. Bank
_
District
aggregate basic line
(Per cent)
F.
■^fcBoston
^ ^ N e w York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTAL
i
1 0 .2 5 8
9 6 ,1 0 3
6 1 6 ,5 3 5
8 8 .5 2 2
5 2 .3 ?5
19.593
1 0 6 ,3 6 1
6 6 8 ,9 2 0
1 0 3 ,0 6 5
122.385
1 ^ ,5 6 0
1 3 6 .9 9 5
6 ,1 6 2
5 ,2 6 1
5 1 .3 7 6
U5 . 21 U
>+3 , 6 iU
18.712
5 .9 l 9
58,875
297,879
60,359
3.028
1+.289
6 *4, 31+8
114,381
10,693
1 2 5 , 02 *+
1 , 5 5 1 .0 2 5
1 9 9 .5 6 5
2 2 9 ,1 6 7
59.990
34,891 •
60.059
95,279
9.310
37,919
99.589
1 , 7 0 0 ,6 5 0
2 6 5 .9 0 2
1 , 6 7 2 ,3 0 0
2 5 7 .6 6 2
3 9 2 ,3 6 2
128, *+*40
122,188
2 3 .9
11 .7
27.3
2 3 .6
3 9 . 93s
3 0 .7
9 8 .7
29 .3
25 .9
6 1 9 ,6 9 8
1 5 0 ,8 8 5
59,965
150,712
39,052
9 9 ,7 9 8
1 6 0 ,8 7 0
1 2 3 .9 6 0
3 1 2 ,5 6 0
12.976
36,795
22,975
81,801
9 , 2 5 1 ,6 2 5
851,621
/
62.275
195,127
70,332
80,723
a
13.7
2 2 .8
1 8 .5
2 6 .2
2 0 .0
fo r m
lu (U\
N o . 13X.
Office Correspondence
FEDERAL RESERVE
BOARD
Date. February 13^ 1929
To
Mr. Hamlin
SubjectMember banls borrowing
From
Mr. Site ad
. capital purposes.
for
You stated the other day that you believed a number of member banks
obtain funds from the Federal reserve banks fo r cap ital purposes, rather
than solely to take care of temporary requirements, and asked me for a
general statement as to whether or not available information would sub
stantiate th is assumption.
Available reports indicate that a number of member banks are borrow
ing from Federal reserve banks p r a c tic a lly continuously, and it seems
safe to say that some of these banks are obtaining funds from the Federal
reserve banks which, under good banking p ra ctice, ought to be obtained
through the issuance o f stock.
The Federal reserve banks submitted re
ports to the Board covering the calendar year 1927, which lis t e d a l l member
banks that borrowed continuously throughout the year.
This statement
showed that 3^3 "banks were borro7/ing continuously throughout that year.
While the greater number of these banks were borrowing because o f finan
c ia l d i f f i c u l t i e s , many of them could no doubt have liquidated their
borrowings had they so desired. As a matter o f fa c t, one Federal reserve
agent stated that out o f U7 continuous borrowing banks, only 7 were in an
extended or unsafe condition, that the borrowings of 28 were en tirely
secured by Government ob liga tion s, and that the borrowings o f a l l of them'
could be liquidated during the follow ing year i f necessary.
We have drafted a le t t e r asking the Federal reserve banks to furnish
the Board with a statement covering a l l member banks borrowing continuous
ly during 1928, as well as banks which were su b stan tially continuous
borrowers.
This le t t e r i s now being considered by Governor Young. Informa
tion recently received fo r one Federal reserve d is t r ic t fo r the la st h a lf
of 1928 shows that some of the member banks in that d is t r ic t were borrowing
p ra c tic a lly continuously and rather heavily from the Federal reserve bank
during the entire six-month period.
We also fin d , from the weekly condition
statements of reporting member banks, that quite a number o f the weekly
reporting member banks in New York and Chicago, for example, are shown as
borrowing on most o f the 52 Wednesday report dates in the year 1928.
This
is illu s tr a te d by the follow ing tabulation:
Number o f member banks borrowing from F.R.bank
On H 9-52
» 1*0-48
h 3 0 -3 9
" 2 0 -2 9
" 1 0 -1 9
11 ! _9
»
No
Wednesday report dates- - - - - - - ti
"
«
11
it
H
•»
"
11
«
"
M
"
ii
11
11
11
11
Total
VOLUME 189
Page 122
New York City
Chicago
4
1
12
6
10
7
6
4
6
4
^3
9
3
9
^3
In accordance with your telephone request I am handing you herewith
a statement showing loans on secu rities of weekly reporting member banks,
by quarters, from January 1927 to present time. While the security loans
of a l l reporting banks increased l , 6 l 0 m illion s during the period, the a l l
o th e r ", largely commercial loans increased from 8 ,6 2 3 m illions to 8,J08
m illions or by 8 5 m illio n s. For New York City the " a l l other" loans in
creased by 103 m illions as compared with an increase of 6^9 m illions in
security loans. For weekly reporting member banks in Chicago the increase
in " a l l other" loans was 52 m illion s as compared with an increase of 152
m illions in security loans.
VOLUME 189
PAGE 123
t
-
• i-
'2
LOANS ON SECURITIES OF WEEKLY REPORTING MEMBER BANKS, 1927 - I 929
(in mi l lions of
JX V
dJo
LV
lla
lXOi.rs)
0^
A ll reuorting hanks
Nfew York Ci tv
Increase
Increase
Amount
since
Amount
since
Jan. 1927
Jan.1927
City of Chicago
Increase
Amount
since
Jan.1927
Monthly average;
1927 /
Jan.
Apr.
July
Oct.
j
1928 -
1929 -
2 ,1 6 8
5,915
5,930
6 .1 9 1
\ -
6,403
15
276
U88
2.156
2,281
2,370
*12
113
202
7**7
7^1
832
889
896
2,710
2.675
5U2
836
507
U58
391
832
85 U
85 U
89
85
107
107
*6
85
1 U2
Jan.
Apr.
July
Oct.
6,811
6 .9 2 1*
6.955
6.87>4
Jan.
7.^96
1.581 / * < ? , ) 2.90U
736 (if/tj
887
1U0
7,555
7,526
1,0*0
689
6^9
889
899
1U2
152
1,009
i,oUo
959
2 ,6 2 6
2.559
i
By weeks:
1929 - Feb. 6
13
1 .6 1 0
2.857
2,817
♦Decrease.
■Mr
v fa*.
r-?y
iriri
M
)
u-*7
'
■? /
i
lt>l ( X t f / , )
■ n
((•'% }
3
O ffice Correspondence
T o ______________ Mr. Hamlin
F rom _
Date_____ February 21, 1329
Subject:.
Mr. Goldenweiser
VOLUME 189
PAGE
127
FEDERAL RESERVE
BOARD
Q
/& 7
2— 8486
I
am sending you a brief memorandum on the Federal reserve
action with reference to speculative activity during the past seven
years and a smooth curve of Federal reserve credit from the beginning
of the system.
The curve represents total r eserve bank credit on the
basis of averages of daily figures.
The line is twelve-month moving
averages centered on the seventh month.
This accounts for the fact
that the chart does not begin until about the middle of 1 9 1 5 s-nd
stops soon after the middle of 1928.
i-'oru i N o. 13 k
Office Correspondence
To.
FEDERAL RESERVE
BOARD
Date__ F e b ru a ry 21 . 1929
S u b je c t Speculative Situations, 1922 - 1929
Mr. Hamlin
From
im
a—8405
Since the beginning of 1922 there have been about seven occasions on
which the system appears to have felt some concern with regard to the growth
of speculation in stocks.
These occasions are enumerated below together with
a brief statement of the action, if any, taken by the system with a view to
the exercise of a moderating influence.
Early months of 1925
At this time the level of stock prices rose to about as high a level as
in 1919, and broker^ loans were at a higher level.
It does not appeer, how
ever, that the system was much concerned at this time about the stock market.
Discount rates were raised on February.23 at Boston and Hew York, and on March
6 at San Francisco, and more than $300,000,000 of U. S. securities were sold
in the first half of the year— but the reasons for these acts of policy, as
far as they were appreciated at the time, grew out of the state of the com
modities markets, the building situation, and the activity of industry.
It
may be noted, however, that stock prices receded through the larger part of
1923 and did not again reach the level of the earlier months of that year
until November, 1924.
November, 1924 - February, 1925
This was the outburst of speculation which followed the election of Mr.
Coolidge.
Stock prices rose to
e
considerably higher level than those of
1919 or 1923, brokers* loans advanced rapidly (after the middle of 1924)
at
and were at the end of 1924 higher than any previous time.
A
There had been
substential purchases of securities in 1924 for system account and a sub
stantial reduction in discount rates.
In the winter of 1924 - 1925 the system
was concerned about the stock market and this was an important reason for
the sale of about $250,000,000 of U. S. securities from the investment ac
count between November and March, and the advance of the New York discount
rate from 3 to 3^ per cent on February 27, 1925,
After a temporary reces
sion, stock prices soon resumed their advance and were again at new high
levels before the middle of the year.
Autumn of 1925
From the middle of 1925 until the end of the year, stock prices were
*
not only $n new high ground but were rising rapidly. The system took notice
of the situation by advancing bill rates in August and September, 1925, and
on January 8, 1926; by raising discount rates in November at Boston, Philadelphis, Cleveland, and San Francisco— and at the Federal Reserve Bank of
New York on January 8, 1926,
In February, 1926, the system began the regu
lar publication of figures on brokers* loans.
During this period there was
no change in the special investment account except a temporary increase at
the end of 1925,
Summer and autumn of 1926,
Stock prices and brokers* loans, after receding sharply about the middle
of the first half of 1926, began to advance again.
in new high ground by August or September,
Stock prices were again
The system took notice of the
situation by advancing the New York discount rate on August 13 and advancing
the buying rates on bills shortly thereafter; there were also at this time
✓
some further sales of securities from the system*s investment account.
Autumn of 1927
After the middle of 1927, stock prices advanced with great rapidity and
brokers* loans again rose to a new high level.
This was about the time that
the system was adopting, for reasons that are a matter of record, an easy
money policy— lowering discount rates and buying rates on bills, and buying U. S.
securities for the investment account.
Some growth of speculation under these
circumstances was expected, but it appears that by November, 1927, advance in
stock prices and growth in brokers1 loans had proceeded rather farther than
had been expected.
It was at this time that purchases of securities (to off
set losses of gold) were gradually discontinued.
1928.
A.
Early in 1928 there was a halt in the advance of stock prices, fol
lowed by a recession and by some reduction in brokers’ loans; it was during
this period that the discount rate of the Federal Reserve Bank of New York
was advanced from
zb
to 4 per cent, while substantial sales of securities
were made from the investment account.
B.
Both stock prices and brokers’ loans resumed their advance about
the end of February.
For about a month, however, the system took no action
of moderating character.
At the end of March, buying rates on bills were
advanced again; in April and May discount rates were raised at almost all
of the Federal reserve banks, securities were sold from the investment ac
count, and bill rates were again advanced.
C.
Stock prices receded in May and June^ttad. showed little change there
after until the middle of August, and then advanced with almost unprecedented
rapidity to the accompaniment of a very sharp increase in brokers’ loans.
Discount rates at New York and at a number of the other reserve banks were
raised during July^but thereafter the system took no action designed to re
strain speculation until after the turn-of the year.
There was, notwith
standing, a sharp reaction in stock prices in
— followed by an
equally sharp advance.
$
/Z'l
4.
Early in 1929
t b &urvu) U f « r
«i
Stock prices advanced in^December and January almost without interruption.
The ri'oard issued its recent statement with regard to speculation on February 7.
4
»
i<o w n N o . 1 3 1 ..
Office Corresponaeence
FEDERAL RESERVE
B
0A
R
D
Date__ February 23,
19^9..
Subject:
Mr. Hamlin
Willis1 article in tlie Sunday World
.
.,o
•
3— 8495
/? <T
G
February 17 greatly exaggerates the emergency character of the existing
situation. Banking conditions in this country appear to be fundamentally
sound, as measured by the fact that credit is available for all legitimate
needs at fairly reasonable rates, and also as indicated by the decline in
number of bank failures.
It is true that the diversion of an increasing
amount of credit extended by banks and by others to the financing of stock
market transactions is an undesirable development, and that the banking
authorities are concerned about it.
It is not true, however, that the sit
uation is serious enough to warrant war emergency measures, like reviving
the Capital Issues Committee, or reestablishing the money pool.
In regard to the Federal reserve system, Dr. Willis’ fundamental mis
take as I see it is in his belief that there is a necessary connection be
tween the kind of paper on which Federal reserve accommodation is obtained
and the use to which the proceeds are put.
He thinks that money borrowed on
Government securities as collateral for some reason gravitates to the securi
ties market and money borrowed on commercial paper flows into the channels of
trade and industry.
This is definitely a fallacy arising fro-* his inability
beri 9
to see that the Federal reserve banks are not primary banks, b\ '_ secondary
banks.
They do not deal with the public and even where they do to a limited
extent the credit obtained from the reserve banks builds up reserves rather
than flowing directly into the channels of trade, industry, or speculation.
It has been conclusively demonstrated that it does not make any difference
whether the borrowing from the reserve bank is on Government collateral; on
VOLUME 189
PAGE 129
FEDERAL RESERVE
BOARD
Office Correspondence
To________________ _ _ _________• .
DateJPabr-gary-23»
13^9
Subject:
— _
From ____________________________________— ---------
-
2
-
eligible paper through discounting; or on hills of exchange*
No matter how
obtained, reserve funds are added to the reserves of member banks and under
lie all of the transactions of these banks.
In line with this fallacy is Mr. Willis* belief that the situation could
be greatly improved by discontinuing the practice of lending to the banks on
their own notes secured by Government obligations.
The only consequence of
such a course of action would be to make bookkeeping more complicated and
cause annoyance to the member banks and the reserve banks.
The direction of
credit would not be modified in the least by this procedure.
In my opinion Mr. Willis is all off in his discussion of acceptances
also, because he thinks that credit obtained through acceptances in some
peculiar way feeds the money market.
I am not convinced that Federal reserve
policy in regard to acceptances has justified itself and I sometimes wonder
whether lower rates applicable to acceptances do not render the discount rate
partially ineffective.
any great inherent evil.
I cannot, however, discern in the acceptance practice
On this point Mr. Willis is beautifully inconsistent,
because on the one hand he thinks that the Federal reserve banks ought not to
buy acceptances as freely as they do, and on the other hand, he wants them to
deal more actively in unindorsed two-name paper.
This reaches back to his fre
quently repeated notion that somehow a reserve bank can buy certain kinds of
paper that have his blessing without influencing the credit situation.
Dear Governor Young*
X appreciate very much your kind letter of February 23, with
reference to the circular letters which we sent out recently, and wish to
say that they seem to have been well received by our member banks* The
bankers in this district impress me as being reasonable men and «hen a
situation is explained to them, they are willing to respond to the best of
their ability.. There is, however, very keen competition between banks
throughout Hew England and many of our banks which have collateral loans
tell us that it has been necessary to make such loans in order to prevent
shifting of gaod accounts*
Our reserve is now about 68 per cent, but unless we should reduce
our bill holdings to a point below 40 million dollars which, in view of the
large volume of bills made in this district, seems to be about our normal
line, I do not see any immediate prospect of farther increase in our reserve
percentage unless some action such as is proposed below is token*
As you know, there is usually a large amount of money available
in this section for investment and the banks, as well as their customers,
are very considerable holders of government, municipal and corporate obliga
tions* As a rule, our advances to member banks on their 15-day notes secured
hy government obligations amount to more than our straight rediscounts lor
them of eligible paper* For only about two months in the year, usually Novem
ber and December, do our rediscounts exceed the advances made on 15-day col
lateral notes, ami for the past week our accommodations to member banks have
been represented one-third or less by rediscounts, and t o-thirds or more by
advances on 15-day collateral notes*
I
know that for several years past it has been the policy oi the
Federal deserve Board in its review and determination of rates, to have only
one rate althougx provision is made in paragraph (d) Section 14, for "rates
of discount to be charged by the Federal reserve bank for each class of paper,
which shall be fixed with a view of accommodating commerce and business".
Our records show that the city banks as a rule use government collateral with
us only for temporary advances running for a day or two, while the countrybanks frequently renew their collateral notes from time to time for a period
of six months or more. It does not appear_thatjkhese_ooontry banks end us.
their collateral notes secured by government obligations for the purpose of
enKbIIng“them to accommodate commerce and business, but rather to make ^ .
rasno£«oy In reserve* created by their
‘
sucbT^dv^ces^iTa~r^1Thaving nothing to do w i t h ^ ^ ^ e and bus^iB* It
VOLUME 189
PAGE 131
seems to me, therefore, that the Board might well take into consideration the
establishment of a differential in some districts at least in favor of re
discounts of eligible paper as against advances on member banks* 15-day col
lateral notes* There is good reason, I think, why this may be done, for a
Federal reserve bank can use its rediscounted paper as security for Federal
reserve notes while it is questionable whether it should use member banks9
collateral notes in this way a Then again, the Federal reserve bank has the
responsibility for the custody of the collateral and incurs the cost of trans
portation of the collateral beck to the member bank upon payment of the obli
gation*
It is my intention to disouss this matter with our directors at
their meeting on Wednesday, the 27th instant, and it is possible that they
may submit to the Federal Reserve Bo^rd for its review and determination, a
proposition to make the interest rate on member banks* collateral notes six
per cent, letting the rediscount rate on eligible paper remain at five per
cent* This would not in my opinion make any difference in the rates charged
by member banks to those engaged in industry, commerce or agriculture, for
the reason that the notes of such people would be eligible for rediscount
at the five per cent rate, but I think that it would tend to raise the rate
on collateral notes made for investment or speculative purposes, to
per
cent, which would I think discourage such advances, and in fact, bring about
the liquidation of many of such notes now held by the banks* In any event,
if the Board is inclined to consider the establishment of a differential,
it seems to me that the experiment should first be tried out in this district*
If such a differential should be once established here, I think it might be
our policy to maintain it in any reductions which m*y be made in the future*
For example, should our rediscount rate be reduced to 4 per cent, the interest
rate on member banks’ collateral notes might be 5 per cent.
I
have not yet discussed this matter with ary of our directors and
I do not know what their reaction will be, but in case you should be advised
next Wednesday that they desire to maintain a 5 per cent rediscount rate but
advance the interest rate on member banks* collateral notes to 6 per cent, you
will understand that the reason therefor has been explained in this letter*
Yours very truly,
Hon* Roy a Young, Governor,
Federal Reserve Board,
Washington, D. C*
IS) W. P. G* Harding,
Governor*
G o tp
too
r
Young
February 26, 1929
Ur, Snead
In accordance with your request o f this morning I am
handing you herewith a statement showing what the effect
would be on the Pederal reserve banks i f member bank
c o lla te ra l notes were ruled to be in e lig ib le as collateral
security for Federal reserve notes.
As I stated this morning, the only material effect such
ruling would have on Federal reserve banks at this time would
he to reduce the amount of gold and lawful money available as
reserves against deposits at a number o f the Federal reserve
banks below the 35 oer cent minimum required by law. ?roui
the attached table you w ill see that the deposit reserves o f
five o f the banks would be less than 35 per cento Such re selves
could , however, be raised above the 35 per cent level at al
banks except Atlanta by the sale to other Federal reserve b» >#
of 17. S. securities held in the special investment account c
in their regular investment p o rtfolio. In the case o f the
Atlanta bank the reserve ratio would be only 17.2 per cent a f* r
the sale o f a l l o f its U. S. securities. Atlanta W i l d , in
fact, have to rediscount §12,000,000 o f member bank collateral
notes with other Federal reserve banks in order to bring its
deposit reserve up to the 35 per cent minimum.
I f member bank c o lla te ra l notes were ruled to be in e lig ible
as c o lla te ral for Federal reserve notes, no doubt a substantial
proportion o f the borrowings at certain o f the Federal reserve
banks which are now in the form o f member bank c o llateral notes
would be converted into rediscounts and, o f course, i f this
were done on a large scale i t would leave the banks in substan
t ia lly the same position as they now are. As a matter of fact,
the Federal Reserve Bank at Boston s t i l l follows the practice
adopted during the war of rediscounting e lig ib le paper for mem
ber banks under a fifteen day repurchase agreement instead of
making advances to member banks on their fifteen day collatera
notes secured by el igible paper.
VOLUME 189
PAGE 133
(
EFFECT OK DEPOSIT RESERVES 0? RESERVE BA'TKS IP MEMBER BA1TX COLLATERAL ROTES
WERE HOT USED AS SECURITY FOR FEDERAL RESERVE ROTES
Federal
Reserve
Bank
Federal
re 8e rve
notes
out standing
(Figures as o f
Holdings of
e lig ib le paper
exclusive o f
men ber bank col
la te ra l notes
Jan, 31. 1929. in thousands o f d o lla rs)
Gold c o lla te ral
Total gold
Reserves held
required
required against
Available
outstanding Fed against out Total
as reserrp
eral reserve
standing F.R
against
denosits
______notes________ notes (1)
Deposit
reserve
Total
ratio
per
deposits
cent
Boston
158,554
103,634
54,920
50,102
149,647
89,545
118,085
60.5
Kpw York
443,955
135,306
308,649
315,414
997,269
681,855
941,025
72.5
Philadelphia
181,754
32,701
149,053
150,688
181,676
30,988
137,179
22.6
Cleveland
232,138
51,888
180,250
182,844
265,181
82,337
188,550
43.7
97,291
33,930
63,361
65,057
89,589
24,532
73,550
33.4
Atlanta
159,469
55,576
103,893
106,672
113,372
6,700
67,269
10.0
Chicago
307,600
84,255
223,345
227,558
456,499
2281,941
359,303
63.7
St. Louis
72,467
14,835
57,632
58,374
84,007
25,633
84,681
30.3
Minneaooli s
68,082
21,020
47,062
48,113
80,937
32,824
53,836
61.0
Kansas City
75,501
25,064
50,437
51,690
112,651
60,961
96,077
63.5
Dallas
50,821
22,713
28,108
29,244
61,803
32,559
71,258
45.7
San Frano i soo
226,671
63,680
162,991
166,175
228,273
62,098
186,728
33.2
Total
2,074,303
644,602
1,429,701
1,461,931
2, 820,904 1, 358,973
2,407,541
56.4
Richmond
.
.
(1) Including required gold redemption fund {5 per cent o f Federal reserve notes secured
by e lig ib le paper)
W
s
HU
t
Iffi. WYATT'S OPIHIOH.
1.
The Board has ample power to prescribe restrictions,
limitations, and regulations governing rediscounts of notes, etc.
member bank collateral notes, and purchase of bills, etc. as may
be necessary to prevent member banks using the credit resources of
the Federal Reserve System for the purpose of making or maintaining
speculative security loans.
2.
The Board can lawfully prescribe a regulation forbidding any
Federal Reserve bank to rediscount any paper, or make any advance to,
or purchase bills of exchange etc. from, any member bank which at the
time,has loans outstanding to brokers or dealers in stocks, bonds, or
other investment securities.
3.
The Board has power to enforce such a regulation by suspending
or removing from office the officers or directors of any Federal Reserve
bank which violates it.
4.
The Board has no independent power under Section 4 to issue
orders restricting or qualifying the right of member banks to demand
such discounts, etc. as may be safely and reasonably made, etc.
5.
The above ri^it, however, is expressly made subject to the
exercise of power the Board has under other provisions of the Act,
including the power under Section 13 to prescribe restrictions,
limitations, and regulations governing the discount and rediscount, etc.
of any bills receivable, domestic or foreign bills of exchange, and
acceptances. The Board could order a Federal Reserve bank to cease
violations of any such restrictions, limitations, or regulations which
it may have prescribed.
6.
The Board can, if it desires, prescribe a special rate, higher
than the rediscount rate on commercial paper, for advances to member
banks on their promissory notes secured by bonds or notes of the Govern
ment of the United States.
VOLUME 189
PAGE 134
O ffice Correspondence
To_
From
FEDERAL RESERVE
BOARD
i.-r* Hamlin
Date__ March 1 8 / 1929.
Subject
Goldenweis
I refer to your memorandum of llarch 19, and will take the points
up in order,
1«
Dr, Anderson’s statement that member hank reserves were derived
from the various sources specified is correct.
The figures are cor
rect and the idea is that the amounts mentioned are at the present
time hack of these reserves.
The statement should not refer to how
the reserves were actually obtained, hut what is hack of them at the
present time.
2.
If stated that way, I helieve he is right.
The statement that the discount rates were above market rates
in the early days of the system, hut below them since the war is cor
rect, though the reference to the early part of 1919 appears not to
he.
The reason that that was possible was that the Federal reserve
rate at that time was of no great consequence because the hanks were
not borrowing and it was a period of great ease in the money market.
You will recall that discounts for member hanks did not reach
$100,000,000 until June, 1917.
o.
I think your statement about the rate to customers is correct.
Whenever the discount rate is raised, the rate to customers also
goes up.
V/e haven’t, of course, any detailed data about rates to
the particular class of customers to which he refers, but we have
data on the average rates charged to customers, and I am attaching
a rough chart comparing that rate with the discount rate.
VOLUME 189
PAGE 135
I be-
Office Correspon :nce
FEDERAL RESERVE
BOARD
Date.
Subject:
T o _ ___________ ________________________________ __
F ro m __________________ :__________________________
2— 8495
-
2
lieve that this supplies the information requested in your second
memorandum.
It seems to me to he
a»
entirely untenable to maintain
that changes in discount rates do not affect rates charged to cus
tomers, and particularly customers of the type described.
that rates charged to
It is true
farmers , which are always very much above the
discount rate, may not change with that rate, but rates charged to
competitive customers invariably respond to discount rate advances.
4*
That an advance in the discount rate would have no more effect
on the business situation than a rise in the price of coal or cotton
is nonsense.
The cost of credit enters into the price of all commodi
ties and is, therefore, much more far-reaching than the cost of any one
commodity.
I*Iore important than that, however, is that a high discount
rate may affect the availability of credit as well as its cost^because
member banks may be unwilling to lend v/hen such lending involves borrow
ing at the reserve bank at a high rate.
I think that it is nothing short
of ridiculous to maintain that a discount rate could in no circumstance
influence business.
I am of the opinion that sometimes the effect of dis
count rates on business is over-estimated, but Anderson’s statement appears
to go beyond all reason to the other extreme.
5.
I believe the statement that the Board’s warning, if successful, would
have the same effect on commercial borrowers that a rise in the discount
/
rate would is an incomplete assertion.
It is true that if the Board’s state-
raent should result in reluctance on the part of member banks to lend, this
would cause a tightness in the money market and might spread to all
classes of borrowers.
On the other hand, the Board directed its warn
ing to a particular kind and it appears not impossible that a discrim
ination against this class of loans might result in easier conditions
for other loans.
As a matter of fact, for about a year member banks
have shown a certain amount of discrimination in favor of commercial
loans, both because they are eligible for discount, and because they
have felt that it was sounder and safer to restrict their stock ex
change portfolio.
C O D EX B O O K C O .. IN C ., N E W Y O R K , fN. Y.
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