Full text of Charles S. Hamlin Papers : 205.001 - Hamlin Charles S, Scrap Book - Volume 201 FRBoard Members, Box 363, Folder 3

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The Papers of Charles Hamlin (mss24661)
363_03_001-




Hamlin, Charles S., Scrap Book — Volume 201, FRBoard Members




205.001 - Hamlin Ch9r1es S
Scrap Book - Volume 201
FRBoard Members

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!

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence

To

The Files

From

Date

August 1, 1941

Subject:

Mr. Coe

Toe
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 201 of Mr. Hamlin's scrap book and placed in the Board's
files:
VOLUME 201
Page 3
Could we have "Calculated Prosperity"? - Confidential Memo.
Page 31
Letter to all Governors of F.R. Banks re Excess Reserves and
"Free Gold".
Page 33
Memo to Board from Mr. Smead re Revision of Weekly Federal Reserve Bank statement.
Pagp 37
Memo to Mr. Hamlin from Mr. Smead re Loans on securities of
member banks in New York City.
Page 67
Substitute for Pages 2 and 3 of Mr. Goldenweiser's draft of
"Direct Pressure".
Page 81
Memo to Mr. HamLlin from Mr. James re article written by country
banker.
Page 85
Letter to Secretary Mellon from Governor Young re inquiry relative to letter of Chairman McFadden, enclosing copy of
H.R. 171.
Page 87
Reasons for voting "No" on Dr. Miller's proposed amendment to the
Annual Report.
Page 97
Letter to J. H. Case from Governor Talley re financial and business
conditions.
Page 105
Memo to Mr. Hamlin from Mr. Goldenweiser re Decentralization of
credit under the Federal Reserve System.
Page 124
Revised draft of a proposed open market procedure.
Pages 130 & 131 & 136
Memo to Board from Governor Young re System's Open Market procedure.
Page 144
Memo to Mr. Pole from Mr. Smead re Banking resources in New York
and other cities.




1

•

4.

AmConfidential
INFFebruary 11, 1930.

444

(With Chart)

COULD 1U3 HAVE 'CALCULATED PROSPERITY'?
e a
Evidence That Credit Expansion Must Usually Preced
Revival of Trade and Employment.
which seems to
These pages have often enough set forth the principle
employment.
dominate the course of business activity, trade and

This is that

and epiployment have grown pretty
throughout the last half century at least, trade
volume of bank credit.
steadily at a fairly definite rate; and likewise the

And

and credit grow at materially
the evidence appears to be that whenever trade
differing rates there is trouble:

inflation and exaggerated speculation, or

deflation and unemployment and distress.
of the successive periods
This seems clearly to have been true in each
of the World War.
of business activity and depression since the close

Each time

the calculated rate of
that the rate of credit expansion rose markedly above
ss;
business expansion there was a disturbance of busine

and each time that bank

required rate to maintain
credit has failed to expand at what appears to be the
unemployment, and in the
business activity there has been trade depression and
case of 1921 a great national disaster.
And this seems clearly the trouble now.

The total of bank credit ex-

l Reserve System is now 168
tended by the Weekly Reporting Banks in the Federa
millions below
below

to 600 millions
what it was at this same period last year, and near

what it was a little before the panic in October.

This latter is not a

periods, the seasonal moveseasonal movement, for, save at the year-end and tax
ments in total loans and investments are extremely small.
half of the total
These Weekly Reporting Banks represent less than
be exact, about 45 per
crelit extended by all commercial banks of the country--to
cent.
VOLUME 201
PAGE 3




moans that for
They are, however, an excellent sample of the whole, which

•
•

2

erable, and has been for over
the whole country the deficit of credit is now consid
a year;

deficit, and not the
and it seems clearly the preceding excess, and then

the prevailing depression.
stock market panic, which was the predominant cause of
to business men and
It is to the average man, and I believe especially
linkage between volume of trade
bankers, very difficult to believe that so close a
therefore they find it diffi-

and employment and volume of credit could subsist;

increase of credit should
cult to believe that the maintenance of this continuous
be the first concern of the Federal Reserve System.

This evidence is as yet new

ities.
and is understood even by few economists and banking author
to extend far back
But the evidence in support of this conclusion seems
of the War.

in which the
On the last of these pages will be found a new graph

credit are contrasted.
variations in the growth of business and the increase of
country, that is,
As nearly as can be computed the total trade of the
years been growing pretty
the total of goods and services exchanged, has in later
steadily at about 4 per cent per year.

Back of the War for a period it was

the Seventies and Eighties,
nearer 5 per cent per annum, and farther back still, in
it was nearer 6 per cent per annum.

In those earlier periods the total of trade

largely because of the
was growing somewhat faster than the total of production,
wider and wider geographical exchange of goods.

In later :Tears the growth of

trade and the growth of manufacture practically coincide.
are simply
What we call the Business Cycle--booms and depressions,
variations from this normal or usual rate of r,rowth;

and what is shown in the

of growth, the excesses
graph is simply these variations from this normal rate
and the deficiencies.

e
There is no other way to measure business cycles becaus

of this persistent and almost never-ending growth.

It is almost meaningless to

some particular previous
compare production and trade of any given period with
year.

is abnormal, or misleading '
For example, the rate of growth shown since 1922

a previous high point
simply because 1921 represented the greatest decrease from
extreme depression for the
of any year in the last half century, that is, the most

1111/..•




•

•

3

tine being in all the period for which we have careful measures.
The increase of bank credit since

Exactly the same with bank credit.

1922 up to the end of 1928 was abnormal and excessive, mainly because the decrease
in the volume of bank credit in 1921 was the heaviest that had been known since
the crisis of 1893-'96.

It was this excessive expansion of bank credit which was

mainly responsible for the outburst of speculative mania in the last two years,
and for the delusion that we had entered upon "a new
Exactly the same conditions, and relationships, appear to obtain as far
back as trustworthy records extend.

Our banking figures and likewise our measures

of production and trade back of 1890 are scarcely as trustworthy as in later
years,

therefore the graph does not go back of this period.
Now, in the Eighties there was a great business and constructional boom,

one ar the very greatest that this country ever saw--far greater than anything
known in the present generation--when they were building ten and twelve thousand
miles of railroad in a single year, and a vast tide of population swept into the
was a "new era

new and fertile Middle West (they thought that

and with

SOME)

justice, though it was not).
This boom extended up to the end of

92, when clouds began to appear.

The greatest of these clouds was a sharp check to credit expansion.
seen on the graph, the rate of increase of bank credit in
far above any probable increase in business.

As will be

90 and again in

92 was

Then suddenly our gold b(Tan to go

out, there was a serious disturbance to the currency and banking structure, and the
I.nic of

93 was the result, inaugurating one of the most drastic trade depressions

which this country ever saw.
It seems clear that one of the main causes of this prolonged depression
was the continued dheck to credit supply.

There was a sharp increase in 1894,

followed by a considerable revival in trade in

95, and then another check to credit

expansion, and then a renewal of the depression lasting pretty well through 1896.




•
•

4

Then came the great Flood of Gold from South Africa (and elsewhere)
which was felt very soon in our credit structure with the resulting expansion
which extended, with two sharp interruptions, through the next fifteen or sixteen
years.
There was a severe banking panic in 1907, likewise clearly the result of
excessive expansion through previous years, and then a sudden check to this expansion.

But the gold flow continued, credit expansion was quickly renewed, and the

next four or five years were years of general prosperity, despite the widespread
outcry at the High Cost of Living.
Now, attentive study of the graph discloses that almost invariably credit
expansion preceded business expansion, and almost invariably the check to credit
expansion preceded the crises and panics which led to depression.
it seems pretty

In other words,

clear that in the twenty or thirty years preceding the World War

almost exactly the same conditions prevailed as since the close of the War.

The

narrow and seemingly fixed relationship between the growth of trade and the
expansion of credit subsisted then just as clearly as it does now.

In this regard

the advent of the Federal Reserve System has apparently changed nothing.
The moral seems clnar:
No Credit Expansion, No Business Revival.
A sustained trade revival in the absence of a corresponding expansion
in credit seems never to have occurred;

and in general it appears that a revival

of trade has almost always preceded a revival in business.

The application to

the present situation is obvious.
Save for the short-lived expansion following the stock market panic
(necessitated by the banks taking over large amounts of brokers' loans "for others"),
we have had since November credit contraction.

This contraction still continues.

This last week it was heavier outside of New York City banks than in New York City,
an indication that the business recession is spreading over the whole country.
This is likewise the testimony of merchandise carloadings and of weekly debits




•

•

5
outside of New York City, and especially outside of the ten largest financial
centres.
Merchandise and miscellaneous carloadings (the best current index of
the tendencies of business that we have) have now been for the last three months
steadily below the similar periods of the last three years.

Similarly bank debits

outside the ten largest financial centres have been since last November conspicuously and continuously below the same period of the preceding year, for the first
time in the last three years.
There is no clear evidence of a trade revival which does not include
these two excellent barometers of business.

In the mind of the writer there will

be no trade revival until the present pressure for the contraction of credit is
relieved and adequate measures are taken to bring about the necessary credit
expansion.




THE FLUCTUATIONS OF TRADE AND BANK CREDIT

February 11, 1930.
.,3Be1ow is shown our Clearin s Index of Arade as percentages of variation from its normal line pf
growth, adjusted for changes in.the uenoral Price Level; and, second, the rate of increase (or decrease)
of bunk credit, compared with six months preceding (total loans and investments of National Banks, interpolated between call).
Both in three-months moving averages.
+15
1120
At
4' AI
t
1
1%

1

0t 1l I
I
Rate of Increase
1 I

1

(3 mo. movin

f Bank Credit
ay.)
1
1
1

ip

11
\

+10

110

+5

100

V

•

Clcarin 's Index of Trath;
(3 m9, moving ay.)
90

0

/1

-5

I

•
1690




I

I
I
I
I
I I
• --1-1
I 1
I I
I 1
I

60

I
1695

1910

1915

•

,

FEDERAL RESERVE BOARD

LI

WASH!NGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD

LI

January 10, 1930
St. 6452
SU3JECT:

Excess Reserves and "Free Gold."

Dear Sir:
For some time past the Board's Division of Bank Operations
has been compiling figures of excess reserves and of "free
gold"
for each Federal reserve bank and for the System as a Whole.
Excess
reserves, as you know, are determined by deducting from total
cash
,r,.serves the 35 per cent reserve required against deposi
ts plus the
40 per cent reserve required against Federal reserv
e notes in circulation. "Free gold," as distinguished from excess reserves,
is
obtained by deducting from excess reserves the amount (if any)
by
which gold required as collateral against outstanding
notes and for
the gold redemption fund exceeds the required 4o per cent
note
reserve.
Inasmuch =:.s practically all of the Federal reserve banks
now find it necessary to deposit more gold as collat
eral against Federal reserve notes issued to them than is required
as reserve against
notes in circulation, it is apparent that any change
in the amount
of Federal reserve notes which the banks carry in
their cash will
•
ordinarily result in a similar chane in the amount
of gold collateral
required and will affect the free gold figure corres
pondingly. As an
example of such chanzes, on October 30 the Federal reserv
e banks and
branches held $449,000,000 of Federal reserve notes,
whereas on
December 18 they held $575,000,000, an increase
for the period of
S126,000,000 which resulted in a corresponding
reduction in the
amount of free gold. The fluctuation in the amount
of Federal reserve notes held by the Federal reserve banks
is at times quite
material even from week to week, thc amount held
on December 24
being $58,000,000 less than the week before.
For statistical purposes, therefore, the Board
would like
to have you estimate the average minimum
aunt
mo
•of Federal reserve
notes which would have to be carried in the
cash holdings of your
head office and each branch to insure the
efficient operation of
The cash department. In furnishing such
fig.ures please state
separately: (1) the amount of notes needed to meet
currency ship—
ments and over the counter payments, and (2)
the average amount of
VOLUME 201
PAGE 31




•

.1b

a

^

•

2

st. 6452
notes you are coonelled to carry temorarily while they are
being counted and sorted. Do not include in these estimates
either unfit notes in transit to the Treasury from your bank or
notes of your "oanl: in transit from other Federal reserve banks
to the Treasury or to your bank.
In furnishing the Board with the above fiures, will you
also be good enough to state Tnether in your opinion it would
be practicable, if for any reason the System's gold holdings
should decline materially, for the Federal reserve banks and
branches to oerate without carrying any Federal reserve notes
in their own cash, apart from notes being sorted or in transit.
This would mean, of course, that a Federal reserve bank would
have to obtain currency from the agent whenever it made payments
of Federal reserve notes. This would be a radical departure
from present 7ractice, but the Board is interested in knowing
whether such a plan would seriously interfere with the smooth
operation of the cash department.
Very trul:, yours,

Roy A. Young,
Governor.

TO GOVERNOR OF EACH FEDERAL RESSRVE BANK*




Li

•

.IV

January 1C), 1930
To:
From:

Federal Reserve Board
Mr. Smead

SUBJECT:

Revision of Weekly Federal

Reserve Bank statement.

For some time past it has
been increasingly evident tha
t there is not
sufficient information in
weekly condition statement of the
Federal reserve banks or in the analysis
accompanying it to give the pub
lic an adequate
idea of the factors accountin
g for the changes in reserve
bank credit autstanding. Daring the past few mon
ths we have given considera
ble thought to the advisability of revising the
statement somerhat and to cha
nging materially the
analysis so as to make it bring
aut clearly not only the amo
unt of reserve
bank. credit outstanding but
the changes in the factors acc
oun
table therefor.
With this in mind we desire to
recommend that certain change
s
be made in the
condition statement and in
the analysis beginning wit
h the sta•
tement for January 22.
The proposed changes in the
analysis represent a marked dep
arture from
the present form of analysis and
will be discussed first.
As
ind
ica
ted above,
pro-)esed to show in the analys
is total reserve bank credit
, instead of
I total. bills and securities as
heretofore. The difference bet
ween total bills
and securities and total reserv
e bank credit is made up of
bal
ances due from
foreign banks and of the net
float carried by the reserve
ban
ks.
The factors
affecting reserve bank credit
are monetary gold stock and
Tre
asu
the one hand and money in
ry currency on
circulation, member bank reserv
e balances and unexppndod capitil funds, nonmem
-eer deposits, etc., on the
other, The sum of total
reserve bank credit plus
-monetary gold stock and Tre
asu
ry
currency-adjusted is
always equal to the amount
of money in circulation plu
s
mem
ber bank reserve
balances and unexpendedca-pi
tal funds, nonmember deposi
ts, etc. An increase in
the monetary gold stock or
in Treasury currency res
ults in a decrease in reserve bank credit, whereas
an increase in inney in cir
culation, member bank reserve balances, or net
capital funds, results in
an increase in reserve bank
credit. The items which
?kcurentl
ndergo material fluctuations
are monetary
/ gold stock, money in circul
ation acid member bank resurv
e balances, and it is
these items which ordinaril
y will be referred to in
the analysis as being responsible for changes in res
erve bank credit.
In both the consolidated and
the detailed statement of con
would recommend that the
dition we
gold reserves of the Federa
l reserve banks be shown as
I one item instead of six as
at present. The total gold
reserve is the only item
any material significance as
the others merely relate to
the location of the
of•
gol
d and their publication in
the Bulletin would seem to be
sufficient. Furthermore, it is probably wel
l to get the public to thi
nking in terms of monetary
gold stock, which it is pro
posed to show in the ana
lysis sheet, rather than in
terms of the gold reserves
of the Federal reserve ban.1
7,.- s and especially the location of such reserves.
It is also proposed to show
Federal reserve notes of oth
rately instead of combin
er banks sepaing them with uncollected
items as heretofore. This
separation will enable one
interested to obtain a net
figure for Federal reserve notes in actual cir
culation, and also to obtain
the actual net float carried by Federal reserve
banks due GO transit and coll
ection items.
VOLUME 201
PAGE 33




-2

The Federal reserve note statement as now printed on the detailed
liability page shows the amount of notes received by the Federal reserve
agents from the Comptroller of the Currency and the amount held by the
agents. Changes from week to week in neither of these items have any
significarLe to the public as they merely relate to the unissued stock
of Federal reserve currency that happens to be held by the Federal
reserve agents. It is proposed, therefore,to omit these items and instead to show (1) Federal reserve notes issued to Federal reserve bank
( by Federal reserve aL;ent (2) Federal reserve notes held by Federal reserve bank and (3) Federal reserve notes in actual circulation. The
deduction of Federal reserve notes held by the Federal reserve banks
from notes issued to them by the agents brings out clearly how the amount
of notes in actual circulation is arrived at. This is not brought out
in the statement as now published. Under the heading of collateral held
) by Federal reserve aents as security for notes issued to the banks it
is proposed to Show one item for gold instead of two ac at present.
If the suggested change as regards gold reserves is adopted it
will also be possible to show the maturity distribution of bills and
short term securities at the bottom of the resource statement where it
properly belongs, instead of at the bottom of the liability statement as
at present.
There is attached hereto a condition statement for January 8, 1930,
in the revised form recommended herein. There is also attached a proposed memorandum to accompany the analysis for the first week explaining
in detail the changes, both in the analysis and in the condition statement.




(st. 6)461)

•
Released for public -tion,
Friday morning, Jan. 9i

STATEMMIT FOR TH:]] PRESS

=DI= OF FEDERAL

st. 6461
Federal Reserve Board,
January 10, 1930.
RESERVE BAMCS

Beginning with this week the comments accompanying the condition statement of the Federal reserve banks will be presented
in somewhat different form
than previously. The revised statement will show compari
sons between chlnges
in the total volune of reserve bank credit and in the
fr,,ctors accounting for
increases or decreases in the demand for such credit. An'expl
anation of these
factors 'Ind of certain changes in the condition statement iC. present
ed in the
attached statement.
The daily average velum of Federal reserve bank credit outstanding during
the week endinc; January
as reported by the Federal reserve banks was
$1,575,000,000, a decrease of $106,000,000 compared with the precedi
•
ng week,
and of $176,000,000 compared with the corres?onding week of 1929.
On January
total reserve bank credit outstanding was $1,420,000,, a decrease of
$162,000,000 for the week. This resulted from a decrease of $175,00
0,000 in
the amount of money required for circulation purDoses, and .111 increas
e of
$6,000,000 in Treasury currency, offset by.nn increase of $12,000,000 in member
bank reserve balances and a withdrawal of $6,000,
000 from the monetary gold
stock.
Holdings of discounted bills declined c>65,000,000 during the week
at
all Federal reserve banks, $41,000,000 at rew York,
$16,000,000 at Chicago,
$9,000,000 at Philldelphia, and $6,000,000 at Richmond, and increas
ed
$6,000,000 :It Atlanta. The System's holdintss of bills bouLht in open market
declined $73,000,000 and of U. S. securities $26,000,000.
Changes in the amount of reserve bank credit outstanding and in the
factors accounting for such changes during the week and the year
ending January
8, 1930, are as follows:

Increase or
decrease since
DQC. 31, Jan. 9

1921.

1929

millions of dollars)
Bills discounted
Bills bought
United States securities
Other reserve bank credit

_ 64

- 3o9
158

+

+

TOTAL RESERVE BANT CREDIT
Monetary gold stock
III
Treasury currency - adjusted

- 162
- 6
+ 6

Money in circulation
4,690
Member bank reserve balances
2,367
Unexpended capital funds,nonmember deposits,etc. 423

- 175
+ 12




1

(st. 6461)

4
217
157
72

3g
4o

Federal Reserve Board
January 23, 1930
NEW ITEMS IN TEXT ACCUPANYING WE1TLY FEDER.P.I
RESERVE BANK STATELIENT
Reserve Bank Credit. Reserve bank crDdit
outstanding comprises, in
addition to the total bill and security
holdings of the Federal reserve
banks, credit given member banks for tran
sit items in advance of their
actual collection and funds deposited
in foreign banks.
Monetary gold stock. Monetary iTold stoc
k includes all gold coin in circulation and gold held by the Uhited Stat
es Treasury and the Federal reserve
banks, except gold earmarked for foreign
account. Changes in monetary gold
stock, Which arise through imports and
exports, throuLh earmarking or releases from earmark, and through domestic
production (in excess of industrial consumption), have a correspo
nding effect on reserve bank credit.
Increases in the gold stock diminish the
demand for reserve bank credit,
and decreases in the gold stock increase
the demand for such credit.
Treasury currency - adjusted. Treasury
currency-adjusted includes all the
currency in the United States, except gold
coin and Federal reserve notes,
less gold and other cash held by the
Treasury and deposits of the Treasury
with the Federal reserve banks. This
item represents the net amount of
currency outstanding that is based primaril
y on Treasury credit, and
changes in this item have the same effe
ct on the demand for reserve bank
credit as changes in the stock of mone
tary gold.
Money in circulation. Money in
circulation includes all kinds of
United
States money outside of the Treasury
and the Federal reserve 'eanks, and
changes in this item, rather than
in Fedevral reserve notes alone, refl
ect
changes in the demand for currency
b7 the public. ChLnges in the dema
nd
for currency for circulation purp
oses are the -principal cause of seasonal
changes in the volume of reserve bank
credit outstanding.
Member bank reserve balances. Memb
er bank reserve balances comprise
the
entire legal reserves of member
banks, and average changes in thes
e balances, which are subject to substant
ial day-to-day fluctuations, refl
ect
changes in member bank deposits
against Which they are held. Memb
er bank
reseVve balances is the item in
the Federal reserve bank statemen
t that
is directly influenced by chan
ges in the volume of member bank
credit.
Unexpended capital funds, nonmembe
r daposits, etc. This heading
combines
a number of items which do
not change greatly from week to
week. Changes
i•n nonmember deposits with the
reserve banks have the same effe
ct on the
demand for reserve bank credit
as changes in member bank bala
nces. Changes
intinex9encied capital funds also
have the same effect. This item
measures
the extent to Which the paying
in of capital to the reserve
theiV
bank
s
and
VVIL1
earnings have taken funds out of
the
mark
et,
and
comprises
capital, surplus, and undistri
buted earnings less amounts
retu
rned
to the
market principally through the
purchase of bank premises. Some
of the
above factors are the principal
components of "all other reso
urces" and
"all other liabilities" in the
weekly statement and accordingly
the amount
of unexpended capital funds,
etc., is arrived at by subtract
ing from
"capital," "surplus," and "all othe
r liabilities" the items "bank
premises"
and "all other resources."




•
2

For a somewhat more detailed explanation of the factor
s
affecting the amount of reserve bank credit reference may
be had to
an article on page 432 of the Federal Reserve Bulletin for July
1929.

CHANGES IN CONDITION STATLA:NT
Gold reserves. Detailed data giving the distribution of the
gold reserves, week to week changes in which are rarely significant,
have
been eliminated from the statement. Publication of these
figures in
the Federal Reserve Bulletin, however, will be continued.
Federal reserve notes. The amount of Federal reserve
notes held at
Federal reserve banks other than the issuing bank is Shown
separately;
heretofore such notes have been included in "Uncollected
items." The
object of this change is to make it possible to determ
ine from the
weekly statement the amount of Federal reserve notes outsid
e of the
Federal reserve banks, and also the net float carried by
the reserve
banks which arises principally from giving credit for
checks and other
cash items, in accordance with published time schedu
les, in advance of
actual collection.
The amount of Federal reserve notes received from
the Comptroller of the Currency and of notes held by the
Federal reserve agents
have been omitted from the Federal reserve
note statement and the remaining items have been rearranged with a vie-,e to
bringing out more
clearly the difference between Federal reserv
e notes issued to the
reserve banks, against which 100 per cent collat
ernl of gold or
eligible aper must be pledged with the Federal
reserve agents, and
notes in circulation against which a reserve of 4o
per cent in gold is
required. Gold hold as collateral for Federal reserv
e notes is also
counted as a part of the required reserve agains
t notes in circulation.




D

•

•
elen.sed for publication
'day morning, Jan. 10;
I.t earlier.

ST2ITE:ENT FOR THE PRESS

st. 644g
Federal Reserve Board
January 9, 1930.

CO:DITIO: 07 F2DEHAL RESERVE BANKS
Th. consolidated statement of condition of the Federal reserv
e banks on
January
made public by the Federal Reserve Board, shows decreases for the
week of $ ,800,000 in holdings of discounted
bills, of $73,000,000 in bills
bought in o en market and of $25,700,000 in U.
S. securities. Member bank
reserve depo 'ts increased $12,000,000 and cash
reserves $94,200,000, while
Federal reser - note circulation declined
$72,900,000 and Govennment deposits
$5,000,300. To al bills and securities were $1'63,2
00,000 below the amountreported a week .:o.
Holdings of di counted bills declined $4o,600,oco at the Federa Reserv
l
e
Bank of New York,$1 700,000 at Chicago, $9,100
,000 at Philadelphia and
$6,400,000 at Richmon , and increased $6,300,000 at Atlanta. The System's
hSldings of bills bouc_ t in open market
declined $73,000,000, of U. S. bonds
$4,500,00C and of Treas y notes 35,000,000, while
holdings of certificates
and bills increased $13, 0,000.
Federal reserve note c culation was $72,900,000 less than
a week ago,
all of the Federal reserve b-sks except Minneapolis
re-porting decreases for
the week, the largest declines being: Boston $13,50
0,000, New York
$10,900,000, Philadelphia and
icra.,Eo 9,200,000 each, Richmond $8,800,000
and San Francisco $7,000,000.
aummary of the principal as ts and liabilities of the reserve
banks,
together with changes during the wee and the year ending Januar
y 8, 1930,
follows:

Increase or decrease since
an.

1

0 Dec. 31,1929 Jan. 9,1929

-n thousands of dollars)
Total reserves
Gold reserves

3,105,1
2,929,34

Total bills and securities

1,384,324

Bills discounted, total
Secured by U. S. Govt. obli ations
Other bills discounted

53'7,615
319,217
24s,39g

Bills bought in open market

319,167

U.S. Government securities, total
Bonds
Treasury notes
Certificates and bills

• •

+ 94,202
+ 72,296

+ 322,023
4- 297,675

163,193

- 218,390

64,so6
_

4,342

464
4

4g4,s42
72,3°4
18°,624
231,914

Federal reserve.notes in circulation. •

1,836,854

-

72,g69

Total deposits
Members' reserve deposits . • • •
Government deposits

2,422,299
2,367,250
23,871

+

g,624

+. 11,987
4,981




•




/.

Liaa

17p

.
4 $47

4

Released for publication 411day morning, January 10,1930;

410

ear11.:r.

S. 3-441a

RESOURCES IjD LIABILITFS
OF THE TWELVE FEDERAL RESERVE BANKS COMBINED
(In thousands of dollars)
Jan. 8,1930 Dec. 31,1929 Jam. 9,1929
RESOURCES
1 ,Gz5)479

1,G=4,918
73,g7

,71),2CC
5311 ,305
C)5,7*
2,929,347

3-,754 ,305

175,783

153,077

2,631,672
151,435

3,105,130

3,010,928

2,783,107

85,674

81,909

99,091

319,217
248,398

333,559
278,862

558,186
318,361

567,615

532,421
392,209

876,547

319,167
72,304
180,624
231,914

76,817
215,604
218,166

52,666
113,425
73,151

484,842
12,700

510,587
12,300

239,242
9,825

1,384,324
•
724
6433,60167)1,103
.40,892 58,149
11,788

1,547,517
721
748,736
57,359
11,275

1,602,714

5,320,282

5,458,445

5,242,914

F. R. notes in actual circulation
Deposits:
Member bank - reserve account
Government
. .• •
Foreign bank
Other deposits

1,836,854

1,909,723

1,745,262

2,367,250
23,871
6,048
25,130

2,355,263
28,852
5,710
23,850

2,404,67s
14,108
5,853
27,600

Total deposits
Deferred availability items
Ca?ital paid in
Surfaus
All other liabilities

2,422,299

2,452,239

598,980
170,367
276,936
14,846

2,413,675
672,922
170,973
276,936
14,216

5,320,282

5,458,445

5,242,914

Gold with Fcde-pal rcrv
114

3

ant. .
Troaeialry .
•

•

•

Ce14.Igxe.A.4
•

6

•

-D

Total gold reserves .
Reserves other than gold
Total reserves
Non-reserve cash
Bills discounted:
Sec. by U. S. Government obligations
Other bills discounted
Total bills discounted
Bills bought in open market
U. S. Government securities:
Bonds
Treasury not:s . . .. .
Certificates an't1 bills
• •

•

..

•

Total U.S. Government securities
Other securities
Total bills and securities .
Due from foreign banks
.
Uncoklectedi teas
oLner VaAs

Banic premises . . . .. . ... .. .

All other resources
TOTAL RESOURCES

•

19,1
1,,
73,1100
1,cx_,5(1
Gq4,091
55,01)

2,857,051

477,100

729
591,004
58,591
7,678

LIABILITIES

TOTAL LIABILITIES . . .
Ratio of total reserves to deposit and
F. R. note liabilitics combined . . .
Contingent liability on bills purchased
for foreign correspondents . . . . . .
C.




72.950

527,816

rc)

547,962

529,574
146,826
254,398
14,615

66.3%

333,971

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Form N.131.

Office Correspondence
To

Mr, Hamlin

Smaad

FEDERAL RESERVE
BOARD

•
Date_ Marc:LA, 1930

Subject: Loans on securities of member
banks in New York City
2-- -S496
0 re

In response to your memorandum of March 1, we have prepared and
and are handing you herewith certain figures relating to security loans
of reporting member banks in New York City.
In your memorandum you asked for figures of security loans to
customers. By this I assume you mean security loans to others than
brokers and dealers. We did not begin to collect separate figures of
security loans to brokers and dealers until the beginning of 1926.
Prior to that date, however, we did have certain daily confidential
figures of "street loans" which were made by the principal banks in
New York City, although not necessarily the same banks that submitted
weekly figures. However, at the time that the weekly reports of brokers'
loans were inaugurated in January 1926, the weekly figures exceeded the
daily figures by only a relatively small amount. I am giving you,
therefore, total security loans beginning with February 1922 to June
1929, "street loans" from February 1922 to June 1925, and loans to
brokers and dealers from February 1926 to June 1929.
. At the end of 1928 the weekly reporting banks in New York Cfty
began furnishing the Federal reserve bank with a segregation of their
brokers' loans showing (a) loans to customers and (b) loans to noncustomers. Brokers' loans made to customers constituted about 35 per
cent of brokers' loans made by New York banks for their own account in
February 1929 and increased to about 45 per cert in June. On the last
report date, February 26, 1930, such customer ' brokers' loans constituted about 41.6 per cent of total brokers' loans.

VOLUME 201
PAGE 37




TOTAL LOANS ON SCURITIES OF WEEKLY REPORTI7G =BEI/ apms IN YIN YORK
CITY ArD "STRIT LOANS" OF DAILY MPORTING BANKS, F'JaRUARY-JUNE
1922-1325
(In millions of (lollars)
r Total loans
vixcess of
Street
on
Column 1
loans*
'.securitiea
over Column 2
1922
February 1
1,355
551
804
8
1,331
517
813
15
1,340
520
820
21
484
1,309
825
1
March
522
1,336
816
8
468
1,310
622
15
543
1,346
605
22
1,360
802
558
29
1,354
576
778
5
April
612
1,389
777
12
1,336
584
752
19
1,423
660
763
26
1,433
681
752
May
1,452
693
3
759
lo
1,470
716
752
17
774
1,554
760
24
1,558
775
783
31
1,586
789
797
7
June
1,567
810
777
14
1,6ol
824
777
21
,1,634
867
767
192
February 7
14
21
28
7
?far&
ih
21
28
4
Anril
11
18
25
May
2
9,
16
23
29
June
6
13
20




1,538
1,570
1,611
1,642
1,940
1,520
1,569
1,561
1,621
1,543
1,5h7
1,553
1,a2
1,572
1,549
1,551
1,548
1,546
1,541
1,497

77h
808
818
665
813
800
838
613
863
776
763
606
865
810
787
785
779
755
750
746

764
762
793
777
727
720
731
7116
758
767
779
753
777
762
762
76u
769
791
791
751

•
Total 1:)ans
on
securities
1924
February 6
13
20
27
March
5
12
19
26
Anril
2
9
16
23
30
mpy
7
14
21
28
June
4
11
is

1,532
1,502
1,514
1,469
1,h63
1,484
1,549
1,505
1,540
1,474
1,431
1,495
1,569
1,525
1,504
1,525
1,500
1,545
1,637
1,694

Street
loans *

lxcess of
column 1
over column 2

659
65o
655
I.
666
674
736
7o6
7.05
651
645
671
729
676
646
670
670
694
792
831

797
810
813
799
835
323
836
824
s4o
849
s5s
855
330
851
845
863

2,o32
1,079
I.
I.
2,009
1,033
?,o41
1,o49
I.
1,042
2,005
976
2,035
1,020
2,01g
983
2,014
1,032
1,946
948
1,954
960
2,0P4
994
2,089
1,054
2,065
1,026
2,0°3
994
1,995
995
2,017
1,o24
2,038
1,050
2,0181,014
2,058
1,027

953
987
976
992
1,ois
1,029
1,015
1,035
982
55.
S.
I.
1,035
1,039
1,019
1,0o0
9c7
988
1,oo4
1,031

873
852
859
V.

1q29
February

March

April

May

JunP

4
11
18
25
4
11
18
25
1
8
15
22
29
6
13
20
27
3
io
17

*ThesP are not the same as the reekly rPoorting banks, but at the
time the Board's weekly rPnorts of brokers' loans were inaugurated
in January 1926, thP weekly figures
exceeded the daily figures by
a relatively small amount
only.
DIVISION OF BAIT-K OP17RATIONS
MAaCH 4, 1930



LOA1II6 SECURITIES OF MELLY REPQRTAVENBER
BANKS IN NEW YORK CITY, v.,B.-JUNE, 1926-1928
(In millions of dollars)

1926
February

March

April

May

June

1927
February

March

April

May

June
1928
February

Total

To brokers
and dealers

To others

3
10
17
24
3
10
17
24
31
7
14
a
28
5
12
19
26
9
9
16

2,270
2,233
2,157
2,142
2,114
2,012
2,067
2,091
2,151
2,106
1,988
1,981
2,039
2,065
1,999
2,031
2,039
2,144
2,043
2,059

1,222
1,199
1,159
1,149
1,125
1,021
1,033
1,027
1,048
958
877
gs6
898
975
SSS
894
893
960
899
926

1,048
1,034
998
993
989
991
1,034
1,064
1,103
1,148
1,111
1,095
1,141
1,090
1,111
1,137
1,146
1,184
1,144
1,133

2
9
16
23
2
9
16
23
30
6
13
ap
27
4
11
lg
25
1
g
15

2,113
2,015
2,026
2,036
2,096
2,061
2,095
2,087
2,146
2,189
2,114
2,147
2,176
2,244
2,176
2,203
2,178
2,356
2,274
2,305

835
SOS
815
856
922
870
SgS
881
942
969
899
912
936
979
910
924
932
1,076
1,035
1,071

1,228
1,207
1,211
1,180
1,174
1,191
1,207
1,206
1,204
1,220
1,215
1,235
1,240
1,265
1,266
1,279
1,246
1,280
1,239
1,234

1
g
15
22
29

2,691
2,537
2,1498
2,428
2,481
2,402
2,475
2,395
2,524
2,733
2,607
2,643
,716
2,851
2,782
2 812
2,726
2,763
2,707
2,638

1,267

1,424

1,171
1,152
1,0914
1,114.9
1,019
1,090
1,027
1,121
1,25
1,144
1,164
1,200
1,329
1,252
1,3?-2
1,247
1,219
1,167
1,079

1,366
1,346
1,334
1,332
1,383
1,385
1,368
1,403
1,40
1,463
1,479
1:2

March
April
May

June

14
21
28
4
11
18
2
2
;
12
23
29
6
13




1,530

1,500
,
1,479
1,544
1,540
1,559

A

57
6
)
LOANS ON SECURITIES BY TrEaLY REPORTING ME11BMI BA._:KS It1 NEVI YORK CITY,
I1D3RUARY - JUNE, 1929-1930

Date

Total

To brokers
and.
dealers

To others

1.2...a._
Feb.

6
13
20
27
6
13
20
27
3
10
17
24
1
8
15
22
29
5
12
19

2,857
2,817
2,743
2,863
2,859
2,749
2,833
2,852
2,819
2,708
2,682
2,707
2,777
2,614-7
2,614].
2,614
2,585
2,678
2,683
2,749

1,116
1,097
1,023
1,090
1,117
1,004
1,091
1,071
1,021
915
877
924
979
864
860
827
773
837
821
883

1,714a
1,719
1,723
1,772
1,742
1,7'45
1,742
1,782
1,798
1,793
1,805
1,783
1,798
1,783
1,781.
1,787
1,812
1,841
1,842
1,866
,

1930
Feb. 5
12
19
26

2,921
2,912
. 2,913
2,890

928,
924
962
953

1,993
1.987
1,951
1,937

Mar.

Aor.

May

June




.
.....
.
a
., ,„f„....,...
41/

•SU1STITTJTE F02 PAGES 2

AND a

4^44014 0,

- 2-

4.4

t..

"A1444:44
/4.4411.d. /.44.0‘/70 21
411
'
1•44
:44441
.
414 '
114

4; .4=4.10
4400,

A,

to reduce their borrowings, and by the ena of the year disceunts were in th3
smallest amount for nearly two years; this low leve?. of indebtedness of member
banks was an important factor in the easier condition of the money market.
First quarter
The year 1929 opened with total reserve ban11: credit outstanding in larger
volume than in any year since the post-war crisis.
banks and brokers' loans had attained new peaLs.

Security loans of member

Collateral indications derived

principally from the intense activity of the seclrities markets and the unprecedented. rise of security prices gave unmistakable evidence of an absorption of the
countryis credit in speculative security operations to an alarming extent.

There

was nothing in the position of commercial credit or of business to occasion concern.

The dangerous element in the credit situation was the continued and rapid

growth of the volume of speculative security credit.
The measures taken by the Federal reserve banke in the year 1928 to firm
money conditions by sales of open market investments and by successive increases
of discount rates from 3 1/2 per cent at the opening of the year to 5 per cent
by mid-year had not proved adequate.

The second half of the year 1928 witnessed

an aggravation of the conditions that ead called forth the firm money policy of
the Federal reserve banks in the first half of the year.
The credit situation confronting the Federal reserve system at the opening
of the year 1925, therefore, still stood in need of correction:

The problem was

to find suitable means by which the growing volume of security credit could be
brought under orderly restraint without occasioning avoidable pressure on commercial credit and business.

With the systemts portfolio of Government securi-

ties depleted by the sales made in the first half of the year 1928, the main or
exclusive reliance in a further firminz of moner conditions must have been a
further marking up of Federal reserve discount rates, unless some other expedient
could be brought to bear in the situation.



VOLUME 201
PAGE 67
-da

•

-3-

The Board was not disposed to regard. favorably further increases of discount rates as the appropriate method of dealing with the situation thus presented to it, and particalarl-, as t

Federal reserve system was related to it.

It set forth its views of how the Federal reserve banks should proceed in the
circumstances in a letter to them under date of February 2, which was later
supplemented by a statement further elaborating its position, issued to the
public February

7

and reading as follows:

"The United States has during the Last six years experienced a most remarizable run of economic activity and productivity. The production, distribution and consumption of goods have been in unprecedented volume. The economic
system of the countr7 has functioned efficiently and smoothly. Among the factors which have contributed to this result, an important place must be assigned
to the operation of our credit system and notably to the steadying influence and
moderating policies of the Federal reserve systeql.
"During the last year or more, however, the functioninL, of the Federal reserve system has encountered interference lo-r reason of the excessive amount of
the country's credit absorbed in speculative security loans. The credit situation
since the opening of the new year indicates that some of the factors which
occasioned untoward developments during the year 1923 are still at work. The
volume of speculative credit is still growing.
"Coming at a time when the country has lost some 500,Million dollars of'gold,
the effect of the great and growing volume of speculative credit has already
produced some strain, which has reflected itself in advances of from 1 to 1 1/2
per cent in the cost of credit for commercial uses. The matter is one that concerns every section of the country and every business interest, as an aggravation
of these conditions maY be expected to have detrimental effects on business and
may impair its future.
"The Federal Reserve Board neither assumes the right nor has it any disposition to set itself up as an arbiter of security speculation or values. It is,
however, its business to see to it that the Federal reserve banks function as
effectively as conditions will permit. When it finds that conditions are arising
which obstruct Federal reserve banks in the effective discharge of their function
of so managing the credit facilities of the Federal reserve system as to accommodate commerce and business, it is its duty to inquire into them and to take such
measures as may be deemed suitable and effective in the circumstances to correct
them; which, in the immediate situation, means to restrain the use, either
directly or indirectly, of Federal reserve credit facilities in aid of the growth
of speculative credit. In this connection, the Federal Reserve Board, under
date of February 2nd, addressed a letter to the Federal reserve banks, which contains a fuller statement of its position:
'The firming tendencies of the money marKet which have been in evidence
since the beginning of the year - contrary to the usual trend at this season make it incumbent upon the Federal reserve banks to give constant and close attention to the situation in order that no influence adverse to the trade and
industry of the country shall be exercised by the trend of money conditions, be


- 3a yond what may develop as inevitable.
'The extraordinary absorption of funds in speculative security loans
which has characterized the credit movement durinz
, the past year or more, in
the judgment of the Federal Reserve Board, deserves particular attention lest
it become a decisive factor working toward a still further firming of money
rates to the prejudice of the country's commercial interests.
'The resources of the Federal reserve system are ample for meeting the
growth of the country's commercial needs for credit, provided they are competently administered and protected against seepage into uses not contemplated
by the Federal Reserve Act.
'The Federal Reserve Act does not, in the opinion of the Federal Reserve
Board, contemplate the use of the resources of the Federal reserve banks for
the creation or extension of speculative credit. A member bank it not within
its reasonable claims for rediscount facilities at its Federal reserve bank
when it borrows either for the purpose of snaking speculative loans or for the
purpose of maintaining speculative lcans.
'The Board has no disposition to assume authority to interfere with the
loan practices of member banks so long as they do not involve the Federal reserve banks. It has, however, a grave responsibility whenever there is evidence
that member banks are maintaining speculative security loans with the aid of
Federal reserve credit. When such is the case the Federal reserve bank becomes
either a .gontributing or a sustaining factor in the current volume of speculade curuir
tive/ creait. This is not in harmony with the intent of the Federal Reserve Act
nor is it conducive to the wholesome operation of the banking and credit system
of the country."
It is not for the Federal Reserve Board to estimate the general expediency
or the larger public consequences of its intervention by "direct pressure" in
the complex situation existing at the time the above statement was called forth.
It may be remarked, however, that the course adopted by the Board resulted in a
substantial conservation of the credit resources of the banking system of the
country, and particularly of the Federal reserve banks, for essential needs which
arose later in the year.

It may be remarked further that this outstanding ex-

perience with the application of "direct pressure" demonstrated its(practicability,
)
effectiveness and reasonableness as a method of reserve banking control under
conditions appropriate to its use.(Its potentialities and its availability in
dealing with certain types of credit disorder can no longer be doubted.)
Although the Federal reserve s7stem did not resort to advances in discount
rates, it continued throughout the first quarter, in addition to pursuing the



— 30 —

ebri

policy of direct pressure, to exert its influence to;:ards firmer money conditions.

The reserve banks' buying rates for bills were advanced in the early

nyvItlas of the year.fi-om
ems,
than the 5 pe
.

4 1/2 to 5

3/8 pei cent on short maturities, a rate

cent rate on discounts, with the consequence that funds

4

arising from a considerable inflow of gold from abroad in the early months of
the year were utilized for the liquidation of the system's acceptance holdings,
rather than of discounts for member ban.

After the first three weeks in

January, at the end of the seasonal return flow of




-*No
4%1

•
'•

••

111111Fk

.

f

Form No. 131.

Office Correspo ence
To

Mr.

FIVID

Mr. James

Hamlin

FEDERAL RESERVE
BOARD

Date
Subject:

I:arch 18, 1930

Copy of newspaper article

2--84mb

Attached hereto is an article which was written by a
Country banker - 77r. -.7. _ . Deas, President of the first lrational Bank
of Arcadia, La.
I am sending it to you because I think 7-r. Deas has
more effectually and correctly presented the present financial situation in the cotton growing "tates than anything I have seen up to now.
I believe that you will find it worth reading and that
you will agree with me as to the soundness of lir. Deas'

VOLUME 201
PAGE 81






•
X-6538

"DANGERS

OF

INFLATED

CREDIT"

..00000000000..

An article published in "The Bienville Democrat",
Arcadia, La.
March 12, 1930.
by
W. M. DEAS
President of the First National Bank
of Arcadia, La.

•
COPY

X-6538

DANGERS OF INFLATED CREDIT

I am going to write something that may not be pleasant for the
vast majority of us to read but something that our reason and common
sense convinces us is true, yet, even though we know it to be true,
still we refuse to admit its truth because it suggests a course contrary
to our own distorted ideas and our daily action and practice.
Let us face the facts:

Notwithstanding the many glaring head-

lines in the daily papers proclaiming an unprecedented condition of
pros-perity, we - you and I - know that it does not exist with us nor with
our neighbors, and conditions over the country lead. us to believe it does
not, in reality, exist anywhere in our Southern country.
A country is prosperous when its people are free of debt and
are earning or producing an income sufficient to take care of their current
expenses and laying aside a small savings for adverse conditions that will
surely come some day.

When we are not doing this we are not prosperous

but, on the contrary, we are headed for the Shoals and the breakers over
which we will be dashed to financial destruction if we do not change our
course before it is too late.
It does not take a prophet to tell what the end of a man will
be if he sees him traveling unremittingly toward an impassable abyss or
chasm

for sooner or later his mangled body will be found upon the rocks

at the bottom of the chasm over which he has deliberately walked.

Yet he

who predicts this end does it up on the assumption that the man continues
his course.

And, in the same manner, the truth of what I am going to say

is contingent upon the apparent attitude of the people remaining as it is




X-6538

-2-

today . . . an attitude of total disregard for a sane and reasonable
handlin'Ll: of credit - that element whose wise use makes a poor man rich
and whose unwise use will pauperize not only a rich man but even a
rich nation.
17e seem to think that by inflating our daily expenses through
an ever expansion of credit that finally our income will also expand and
a balance will be maintained.

Consequently, day after day, month after

month, year after year we find ourselves

allowing our daily, monthly

and yearly expenses to go farther and farther ahead of our reasonable
or even possible incol_le.

We seem to forget that a day of settlement will

surely come and every debt will have to be either satisfied or repudiated.
For more than ten years we have lived in what you might call an
age of inflation - everything carrying an extraordinary apparent value,
soaring, sometimes to an impossible height from which, one by one, they
finally fall carrying more or less of disaster with them.

Still we do

not take the cue, but believe that the things that we are backing must
always go higher and higher and cannot possibly come down regardless of
what the conditions may be over the world.

Following this erroneous

lead we proceed to elevate our plane of living to such a level that
nothing but the very highest price for our commodity can ever repay our
expanded debts.

We reason ourselves into believing that we can buy at a

high price every other commodity that the one we are attempting to raise
and -Jay for it with our one lone unstable croo.Time has proved that this is a dangerous course to pursue and
we must change that course if we would -prosper.

We must curtail the

buying of things that we can produce ourselves and accumulate a capital
upon which we can operate.




Vie cannot expect our banks to finance one

-3-

X-6538

hundred per cent of our business and allow us to tun it.
too great.

The risk is

This applies to every form of business from the day laborer

to the greatest merchant or other operator.
The farmer can no longer expect to go to a bank or merchant
and ask him to finance the running of the farm when that farmer hasn't
one thing to base such a demand upon.

He has no feed, he has to buy

his stock to plow with, he hasn't even paid his last year's taxes, he
owes an installment on his land financed through the Federal Land Bank,
he owes the license on his car and he has
his farm operations on.

a single dollar to begin

Can that farmer expect to make money when he

follows that course each year and can the bank expect to continue the
practice of making such loans?
7e must begin to raise everything at home that we can raise
and quit sending every dollar we make off somewhere to buy the things
that we could and should raise on our own farm; and year by year cut
down our borrowing if we expect to ever become independent.
The same things apply to every other forms of business.

The

merchant or other operator should not ask a bank or some merchant to
finance him 100 per cent, but should employ at least fifty per cent of
his own money in the business and unless he does this and uses strict
econoy in his operations he cannot survive the cataclysm that follows
an inflated credit.

Credit is almost indispensable to the small man

but must be used as something to help splice out our own capital and
not to be the basis, the foundation and entire structure of the business
that we are trying to operate.

We must use and conserve credit just as

we would economically use and conserve capital.

There is a limit to

which a successful man can use credit, and after that line has been




X-6538
passed, then credit becomes one of our most dangerous and menacing elements.

Todoy finds us extravagantly .extending aur credit position

until it has reached an extraordinarily dangerous tension.
everything that we

We buy

nSuy on installments until our installment pay-

ments sometime amount to practically as much as our income - yet we
knIw we must live, but how?
The time has come when we must call a halt if we do not want
tI face financial disaster and ultimate ruin.

We must stop in our maid

race of spending money long enough to try to determine where the money
is coming from to -Day the debts that we are so extravagantly contracting
S n all sides.

Let us sit down and take a pencil and try to balance our

liabilities with our resources and see just where we stand.

In the last

ten years we find that practically sixty to seventy per cent of the homes
both in town and on the farm have been mortgaged to help take up a part
of the debts that we have made above our income and the only way that we
can ever expect to pay these mortgages is by showing a net profit of
production or income over expenditures.
the money that has been spent..

You can't pay a mortgage with

We seem to think that we are paying a

debt when we borrow the money from some one else and pay thatdebt off but
we have only transferred it and possibly made it larger.

We today are

getting down to a pre-war position and we must adjust ourselves to
It seems that unless at least a

•.-r cent reduction is made in cotton

acreage this year that we cannot expect a price much above ten cents a
pound for our cotton.

You. know

what that means, and unless the country

raises its feed of some kind and raises the other things that can be
raised, then how can we expect to go into another year depending upon
borrowing the money to buy all these things with the outlook what it
would 5e.



A blind man can s-- that our present course of action and life

S

X-6538

will lead to financial bankrwtcy.

Then why follow it farther.

When

our past plan and style of business has forced us to mortgage everything we have to keep going then what does the future hold for us when
we have nothing further to mortgage in order to take up our future
losses.

Our only chance is to eliminate those expenditures and the

contracting of debts and use credit o-nl: as a last resort, always
keeping our liabilities well within our income, remembering that we
cannot continue to extend from year to year our obligations but
eventually we must either pay them or lose that property that we have
mortgaged to secure them.

When this happens we are than forced to

start over, defeated, disheartened, discouraged and broken.
There is no use of us longer trying to deceive ourselves by
what we magnanimously call "Boosting" until we establish a condition
and a position that will admit of boosting.

Real boost - is the telling

to the world the actual facts and figures that show forth the good things
and the prosperous condition that exists in the country or the town or
the city that is being proclaimed to the world.
The real thing for us to do is to bring about such a condition
that will admit of advertising; in fact, one never has to tell a man
when he is prospering — he knows it himself. He feels it, he radiates it,
and everywhere he goes he shows it forth naturally.
You cannot make a man believe he is prospering if he has his
home mortgaged to the limit.
due.

His automobile mortgaged for the payments

His furniture in his house all mortgaged to secure its unpaid

installments and when he knows that every month he must pay from his
salary the interest on his mortgage, the installment on his,car, the
installment on his furniture, the installment on his radio, and on his




•

'Ow '

X76538

-6-

(211

friqidaire, besides his actual living expenses, his life insurance, etc.
This kind of a man, and the world is full of them, is completely anneshed
in debt and his end is inevitable bankruptcy unless he calls a halt to
further extending his credit position.
Let us get from under this terrific burden of debt by curtailing
our expenditures and curbing our extravasant ideas and begin to establish
ourselves in the world by building up a substantial saving along some line
which can be done when cut our actual living expenses and extravagant
desires to where we can show a reasonable portion of our income above
our ex-oenditures for, unless this is done, there is no other end for us
to reach than financial dissolution and bankruptcy where in we will ruin
ourselves and hurt those who have extended credit to us in good faith.




W. M. LEAS.

124-v 14..44.j
.44.4.4k. it 444 44.4.44-.
at4.444.41A.

March 14, IWO

Ei-A1 4,411

,dour 1.. ;ocretary:
:4)
In roply to your inquiry relative to the lettor of Hem twit;
stme
T. :eWtori, hairnun of the liMetit,toe on lunking and :urrency of the ;,,
-)oa. 171,
of iiinresentatives, dated welt 10, IMO, onolosing copy of
wijo rtun.unazgrously 3.13parted by the 'ilankine3 and Itri:oricy 1:4;:ttlittoe to the
ause o ,:opreecntativeoven )1h 7, 19;)0, I advice that there is vt,r; lit.
tle information in the pessonnion of the Iceru, but 4, un c;lacit to .f.burnish
such no in available.
'7oung in a :lune .; direetor ol* the .'oderal Eteserve
11z. Owen
Bank of now -.!brit, appointod by the :,,I)doril :evierve Doard rod awl:mated as
Deputy ahairiin by the federal i4140:90 :0(4•4,. ;16. Your& was a verbs, el! the
Dams ;ornission in onnection with =partition st,ttlements. In 199 he wee
spin asked to rortioipato in repc,ration settleraenta and did no, later berozttJAC aPPointed the dreeldink; offiver. .,e such he partieiputiod in the
the
ror
Lou
the;.:61:7cont
inlitUec
which
nen,
Yount;
the
of
so-oalled
Uktion
used
oor...
the
ho
tork
of
acne
vii;;
in
.'bottitinentesi,
:lank for International
of
:Zi'ederfal
the
o3nt
,
',:ouorvo
Pedura
Assistant
riurocaa,
Wiese o:
Reserve :lank of hes York.
7hereftrol iiimmstinoDommi has obtained ooptes of the TOW -Aunt
the draft charter esd attitu.es or the Nat: for Internatlenal Jettlemente,
sad the trunt aareement of the (modally nations, and has rade n :tuft at
theme deowento rly 'or ite txnlinfornntion.
iiden the roturn or .4:4 Taw to this cmintry, it was my privilorja to eft in 4i conference where !, s.. g:ouna dismissed, in a t;t:r4r raw, the
:Anse then
obieeta and :urdosee of the ,kuir. for International ;ottlenents:
to
and
orilanized,
boon
has
3ettlenento
the 3:allz for Intornationnl
'7'iray1er or "Aoctilo,
:
Reynolds of res Iort: and
• *r. Jeekson
statutes.
and
participated in dr,ftini; the olvArtt:r
ty2ornos.: hnvo no f.ILlicittl Ocr;:,00tiou rith
!v. Reynolds and "i r•
or, the
the reder-ll telleiriNt :171141114 *wept that r. Traylor in cal altelviato
0 di-.
17cti..,
r..oriolca
tbs ..;hiougo district.
.dvinory nouusil
jti
thref,
of
rector of the 'e4er:11'.'e8e1'g's /lank of bow Vork :or a terra
ik .)econber `31,
to Lump°.
VOLUME 201
PAGE 85



a. - i(iltor Lichtenstein necanDaniod Pr. ie1101d0 r.,(1 r.
dvZcory
roviouely to cpinc, ho van .leamtury of the -buorLil

soap"

3oariciL but rooitged shortly boforo leevinc for Lurope. ainee hie return to
country, co 11:4.1 boon, retr)pointed Jeeretary of the Aideral Adviser7
the ahartur of tbe-himmit for 'WAAnultiamei Settlements provis.
to
&i rode
rnico it pessiblo ter a bank forming a pert of a aystom In
aton
LtIi; Lilo volume
0041.417 stash Win been entrueted with the duty of
•
is
eltuatod taut oPorettini; 111
of(=row and exedit In that amatory, which
the principal financial narket of that eountry, to bosons a dart of the wmonge-,
rent of the Bank for IntemAional Settlements. However, in view of the pub.'
lie statement of the ,rieereta.ry of „Auto, dated ay 10, 19W„ no :‘'ederal
serve bnk, to our lakowledos, bats ptiAlei;wit•d•
The ederal ?Mown Nerd MP informed by the Fedemi Lesserve
of New York that It would be furnished with ecrpies of any official aotzunioatics* received froal the Berk for Intemisatieull 5ettlamente, and under 4ate of
rebtmeary 20, 19O, a °able was received by the cioverner of the ledexcl Itoscrve
ilank of :fTew 7oztt fres the Orminiaatten Comittee of the i4,ink Is.or Int(rnstional
;.:4ttletents requesting a etetenont fron hila to Cm) effect thnt he will oithor
nominate two Arlerican diroetare or that he is =able or unwil,ling to do no, to
tviich the Governor of She Fedora :essiipe flank of nem 7ork reqlied by cablo,
that it would net be possib3e.1!or his te mentrote• A c4b3.e !me then receirod
ihc.uiring if the ':"oderal iiteeiste Ref* inf ”ew 7o* objects to the Ort)unization
Cornittee inviting IV. Gates P. Iletanab. caul. Tr. Lem Ill•triser to join the noard
Dc7iuty laver:10r of
er the Rant: far Intonational ::ettlenents. Ur. 7. T.
the 1Pe4entl, Reserve lAertk, replied thf.,t the ii4ledoral *n.eaerys Nink of Toe 'Fork
.11td no objections to offer to the eleetion 0:;tears. AKIarrail and 'Valor Ea,
intornational settler-Ante. All of thin
thu i'leerioan directors of the 11..nk
20 of the statutoc o2 thc 5anic for
Article
with
proessitaro man in acoordanao
hitlerivitional ;.iettlenente.
Volum& bee been CUM) 0 director of the Mama
Ltra Gate"
earn Haw; of licit TWit for seventl years* amointed by the AWorel ilmeerve
Vigiarruh re.
Boarils and. denial*** as Mlle= of the Board of Directors. 1r.
in the ark
a
directorship
signed on letxruary ;47, mo, eska has *thee excepted
ror Internutional ofitturimrtm.
I do mot knew of any other peroon asseelated with the i4der.,1
serve :,,ystors who bee had enythind to do with the Mak for International
aunts, other than these specified above, nor do I know at asy one associated
with the oystes oh* esnzeiplates eamociatis3n with the Beak far Intonational
..Aittletionts.
tur in I lam, *ewe are no eesteacte or amesnente tzflzi
iiimearCO ..;yetet to pirtielptite la ear swasar vihntsoever In the aotam)
apaisatiart, establishment or operation of the ne0k far Intornational Dt,ttlo.
ammie, either directly or Indirectly throuab 3. P. Mos end Ocipmer. Aartheammee, it in ineoneelvablo to ne that :4ny Marta reasive bank would. enter
Into any such contruot or ameenent vithout 11.411y tioquilinting the .5 "ot%rd with
the reels. ilmiveraph le) of Liectiozt l of the *Amoral ;leeerve t,ot would mkt°
',edoral
it mandatory upon n :'ederEil reserve hunk to eeoure the comma or the




.
4 613
.
6

aseerve award beftro arAy amount (mould be
SernotIonol,AMMUnte.,
both as

opined

with or for the

far Iam*

have farnimbed you woh informution ae I have in w ivesevaion,
and OA un o1o.iX or tho :federta Reacrve
'
,Oardm

UZI inelVIIAMI

!burn rooDeotrully,

t
'
Hip A. ?bun
Govornor.

H000rtible
Seeretury of the Treasury,
VeaklAigtout D. a.,




ilank

4.4.4. 44,

teed

444.

I have voted "No" on Dr. Miller's proposed amendment to the Annual
Report for the following reasons:
ONE:-

I question the accuracy of the following statements:

(A)

(Page 1) "With the System's portfolio of Government
securities depleted by the sales made in the first half
of the year 1928, the main or exclusive reliance in a
further firming of money conditions******"
I direct your attention to the holdings of Government securi-

ties by the System on January 2; $76,000,000 were held in the Open
Market Investment Account; $47,000,000 under resale agreement, and
$122,000,000 held by the banks outside of the Open Market Investment
Committee, or a total of $24410007,000.

At the time the Board's

statement was issued these holdings had been reduced to $200,000,0001
and by June to $145,000,000, the reduction in the System's Special
Account amounting to $55,000,000.
(B) (Page 2) "The Board was not disposed to regard favorably
further increases of discount rates as the appropriate
method of dealing with the situation time presented to it."
Rates on discounts to member banks were, to be =Teo left unchanged, except in the four Westem banks, Where they were brought
up to the 5 per cent level, bef beginning with January buying rates
on bills were increased at frequent intervals with the approval of
the Board, with the consequence that the System's bill holdings declined from $484,000,000 to $11310001000 in the first part of June,
and to $691000,000 in July.

Liquidation of Governments and of

bills reeulted in a growth of discounts from $852000,000 oh May
29, and there is no way of telling to *hat extent it was direct
action, and to What extent growth in discounts that caused the
interruption in the growth of speculative credit.
VOLUME 201
PAGE 87




(Page 3) "It may be remarked, however, that the course
adopted by the Board resulted in a substantial conservation
of the credit resources of the banking system of the country,
and particularly of the Federal reserve banks, for e3sential
needs which arose later in the year."
I direct your attention to the fact that between June and
the date of the stock market crash there was an advance in
speculative security credit as rapid as, if not more rapid, than
in any similar period in the history of the System, with the
exception of the week between October 23 and November 1, and it
had all the earmarks of non-essential rather than essential credit.

1110:—




The amendment to the report carries the thought to the
American public that direct action is a new discovery, and that
it was rot practiced previously to the Boardis action in :February.
know from my own ex-oerience tn operating a reserve bank, and my
observations of other reserve banks, that this in not correct.
Direct action has always been practiced by the reserve hattrs and
has been from time to time discussed by the Board., as, for instance,
in its 1926 annual report.
I am convinced that by claiming credit for the success of
itn policy in the early part of the year and not mentioning the
suspension of this policy in June, the Board lays itself o2en to
the accusation of lack of candor.
*hy, if it

hAa

It also makes it lard to explain

an efficient means of controlling the growth of

speculative credit, it failed to use this method later ia the year,
rihen all the indications pointed toward a more urgent need than
ever for the exercise of restraint.

h-

•
And, finally, I believe that the Board, by stating that it
has devised a means of controlling speculation withoutAubjecting
business to higher rates for money, establishes a precedent thatwill be the cause of serious embarrassment.

Whenever in the future

the sstem will find it necessary to raise discount rates, it will
be accused of disregard of tl-e interest of business, anA demands will
be made upon it to use methods of handling the situation without re—
sorting to advances of discount rates.

I feel the more strongly on

this point, becatlse I am certain, that no method of restra'int can be
put into operation through rates, throuti sales in the ooen market,
or throutb direct presstre without increasing the cost of credit to
)61
business, and that dir,?ct-•or ss1xxe affects interest rates more,
rather than less, than do the other policies.




•

COPY

14‘..44.4.7

Cl

March 15, 1930.

Mr. J. H. Case, Chairman
Federal Reserve Bank of New York,
New York City.
Dear Mr. Gases
It was good of you to write me so freely on March 7, to cover
so completely the general money market, business and credit situations
and to express the tentative conclusions reached from an analysis based
upon the recognition of the effect of all contributing factors.
There has been plenty of evidence to us that what appeared to be
an upturn in January has not held. There has been an increasing pressure
exerted by caamodity surpluses and the over-abundance of goods generally
in other lines. It has also been quite clear that there really has been
no business demand for funds, although there was at the close of March 5
an upturn of 98 million dollars in the loans of reporting banks.
Your letter does not particularly emphasize the fact but I easily
gather from it that Jour officers have been anxious to promptly follow
the situation with lowered rediscount and bill rates. There does appear I
from what you say and in your expressed tentative conclusion an oven.
anxiety to make these new and loer rates effective through the purchase
of an additional amount of governments. There seems to me to have been
quite a sufficient rapid decline in discounts and therefore an additional
amount of governments, I think, would accelerate that trend, although I
would like to say that we have no concern here over the probabllity or
actual phenomenon of the banks being entirely out o debt or in respect
to how low, in the circumstances, total earning assets might go.
We have had in mind that it muld probably be much better to purchase
some sterling and franc exchange so as to nullify the possibility of
gold imports either from England or the Continent, so that there would be
no interference with any tendency toward an improved purchasing power and
that the effect upon prices here might follow a natural course as the
result of a gradual improvement in demand. Over-exertion toward open
market purchases could have an inflationary effect on the commodity prices
and goods that would tend to thwart the improvement in purchasing power
abroad and this could result in a stimulation of stock market buying of
the same character. The purchase of foreign bills and our release of
exchange against such purchases from time to time would of course have the
same effect, but you. advise that Governor Harrison has infonaed you that
it is impracticable to follow that course in view of the scarcity of the
supply of bills that might be purchased.
VOLUME 201
PAGE 97




2.

I also observe that on yesterday quotations for bills in the
London market were very low, some maturities offered at substantially
below 3%. If this situation portends a further early reduction in foreign
bank rates, the exchanges would naturally weaken further and we would then
have again the question before us of foreign exchange purchases. On the
other hand if the excution of this policy would not revent gold imports,
then we have nothing but a situation of competition between ourselves and
the foreign situations inbritg4abput and reaching the greatest money
ease.
In that case the only thing that we could do would be to make substant
ial
o-oen market purchases in order to win in the competition.
With the Whole world apparently sittin,c on the same side of the table
financially as to easy money policies, it is extremely difficult for me
to see how we are going to have any success in forcing gold away from us,
and the only tling that can ensue is an inflation that would be mistaken
for business recovery. With the tendency to bring out new security
issues
and the proceeds of these issues more or less idle during the process of
being used, we are likely to create the same situation that began in the
latter days of 1927 by reason of the concentrated proceeds of these issues
being available for sto4 exchange money to be used in speculation.
This,
in my judgment, would follow, unless the rather large proportion of
security proceeds are to be used for export capital.
This brings us to the question of the Reparations bonds and their
sale would of course absorb that part of the available funds, but
it out
not to be overlooked that these bonds themselves represent inflation in
themselves because they 1u-re1y represent the hiatus between the destruct
ion
of capital during the war and the time when that capital ean be re-saved.
Frankly, we were very much disappointed over your reduction in rate
to 30 last Thursday. We feel a litle bit better about it today, because
the stock market has regarded the action as an unfavorable symptom and seems
to recognize it as a panacea for business depression. The increase in
brokers, loans of aporoximately a quarter of a billion dollars in the
last
two weeks indicates some public distribution following an accumulation by
the wise ones - "the strong hands" - during the period of extreme
stock
market depression, and I think that this is very, very, bad, as in my
own
opinion there is no justification for the p resent general level of
stock
Prices. I just want everybody to reneMber that one can now borrow money
at 3 to 3% and buy and carry stocks Which apparently return yields
of
from 5 to O. The gdblic becandes extremely impatient in regard to
low
yields and we have only the one camoensating factor that there are many
first
lien securities that can yet be attractively bought. The dear public,
however, instead of having bought this class of securities to any
extent
during the lact two years of low prices for them, is ming to
do exactly
like it always does and buy them on rising markets and diminishing
yields.
The s, curity issues that are being brought out now I notice are largely




3.

debentures and therefore not much different from the or
of stock issues
in the latter part of 1928 and throughout the year 1929. In other words,
aren't we becoming over-capitalized? And yet I understand that the issue
houses mist live or liquidate.
Everyone seems to want to keep business jazzed up all the time and
have it run along at boom figures. It seems to me that the sowarier course
to pursue, after having done this for some time, is to catch up and let
the public pay some of its debts or at least acquire larger equities in
its automobiles, radios and real estate, though in following such a course
there would be a lot of heartbreaks because in order for all of them to
settle un we would have to go on playing the oboe and similar instruments
and go on with the matathon dance so that everyone could get their fill of
enjoyment.
It seems to me that a good deal has already been done in respect to
which the Open Market Committee would expect to deliberate at the meeting
which has now been definitely called for March 24. With the call rates and
investment yield rates rapidly apiroaching a point well below the savings and.
Arne deposit rates over the country, we are going to see and it is already
agoarent to me, an increase in so-called time deposits and a renewal of the
battle on the part of the member banks to reduce their reserve requirements
in consequence.
Sunming up, therefore, aren't we just starting to wind up the clock
asain after the mainspring has slipped the ratchet and won't we just keep
on doing that until about the latter part of August when we will hear
New York advocating that we oujit to begin selling some securities and
tightening up, just at the time that we would naturally expect a normal
revival in business activity and confronted with the problem of absorbing
new commodity production, provided, of course,that some inroads have in the
meantime been made on existing surnluses.
It is apparent from the published statements that the New York bank
has already purchased additional Favernment securities to the extent of
approximately $25,000,000. I want to reiterate my position that the failure
of several Federal reerve banks to participate in open market purchases is
not an expression of effective opposition to policy. It is difficult for
we to understand why the Governors of some of tne Federal reserve banks will
vote in the affirmative for the open market policy and then will refuse to
participate in the -.)urchases, notwithstanding their reserve and collateral
positions admit of their doing so. The open market purchases have the same
effect upon the System and the country whether made by one bank or participated
in by a group. The proceeds of open market purchases work their way into
every district in the course of time, regardless of whether the Federal
reserve bank of that district participates in the purchases or not.




4.

S

/
r2
J 41

Since we have been participating and taking our pro rata part of
the allotments that woulci. have gone to non-participating banks and this
course has raised our participation from its normal amount of 3.3% to 7
and 0 at times, and in consequence of our dragging along with the lowest
reserve percentage in the System, we have concluded that in the future,
dependent upon our reserve and collateral position,we will accept our
participation only to our normal proportion.
I do not seem to have been dole to make any impression of my position
that all Federal reserve banks should support through active participation
whatever open market policy is adopted even though voting in the negative.
Therefore, we propose to take our participation dependent upon our reserve
and collateral position, up to our normal amount and if our statements in
this regard are not effective, in so far as we are concerned we will let
the effect of non-participation on the part of some bank show for itself.
Since at the present time (when we take back the five million dollars we
sold under repurchase agreement, which we expect to do shortly), our
participation in open market purchases is 5.64, we do not expect to take
any more participation above our normal amount, we desire to withhold
any participation in present purchases, thinking that at the meeting on
March
there maybe a reapportionment of the securities now in the account.

n4,

We also think that it would be better for the participation to be
prorated on the basis of reserve percentages instead of on the need for
earning assets. We do not believe that System policy should either lean to
or from an amount of earning assets. Where the participation is pro-rated
on the basis of reserve percentages, it would naturally follow that the bank
which had a greater proportion of' earning assets at the time would receive
a correspondingly smaller participation and vice versa.
Since you hove been in touch with the Federal Reserve Board in reference
to the points oovered in yourletter and inasmuch tis the Onen Market Conference
has been called by the Board, I am taking the liberty of sending a copy of
this letter to the Board.
I read the co-oy of Mr. McGarrah's letter of February 21, which you
/
sent w. The only cannent that rcan make is that it is in vivid contrast
to the one that we wrote the Board on the same subject.
In closing, let me offer my congratulatiaas to you u9on your appointment
to the chairmanship of the New York bank. We hope that the assumotion of
your new duties is not going to lessen our direct contact with you and we
don't believe it will because you will carry to the new position the
influences
of your long experience and high ability as an operating officer in the
System.
Looking forward to seeing you in Washington or later in New York,
Should
Governor Harrison return
time to attend the meeting, I am




nurs very truly,
GOVERNOR.

Voim.No. 4,0 a

. A

41,

Office Correspontence
To

Mr. Hamlin

From_

Mr. Goldenweis

FEDERAL RESERVE
BOARD

Date

March 22, 1930

Subject:_Decentralization of credit
under the Federal raPerve system
•TO

2-8495

Referring to your recent inquiry, the matter of concentration of
credit is influenced by so many factors, that it is impossible to isolate
and measure the influence of the establishment of the Federal reserve
system.

On the one hand, the organization of regional reserve banks and

the pooling of regional resources has freed local banks from the necessity
of applying to New York for credit whenever they were in difficulties.
This has had the effect of decreasinp the dependence of banks in the interior
on New York.

It has also made credit much more fluid throughout the country

and has permitted its flow from section to section in accordance with local
needs. As New York is the central money market of the country, this flow has
naturally been through New York, and, therefore, has probably increased the
importance of New York as a central money market and particularly has increased the volume of dealings which pass through New York.

There have been

many other factors which have tended to increase theimportance of the New
York money market since the Federal reserve system was established', such as
the change of tnis country from a debtor to a creditor nation, and its rise
to a dominant position in the international money markets, for international
transactions flow through the New York market.

The lone period of easy money

since 1922, with its encouragement to financing through the issue of securities instead of loans from local banks, has also contributed to the growth of
the New York market, since security transactions must be conducted through
centralized exchanges.

VOLUME 201
PAGE 105



•

a

Mr. Hanlin,

—

#2

•

(-7

\...) I

March 22, 1930

As you can see, the forces are so conflicting and so varied that it
is absolutely impossible to assign the degree to which the Federal reserve
system has been a factor in the situation in either direction.




4011"6040m4,011.

C4,
11014.

o(4
The Committee ap-,ointed at the meeting of the Federal
Reserve
Board with the representatives of the twelve Federal reserve banks
yesterday, met at the Carlton Hotel last evening and adapted the
attached
revised draft of a proposed open market procedure.
It was also voted to be the sense of the representatives of
the Feder'l reserve banks present at the ueeting that the representative of the Federal Reserve Bank of New York be elected Chairman of
the
Conference for one year; that the 21xeeutive Committee provided for in
the proposed procedure should consist of the Chairman and the representatives of the Federal Reserve Barilrs of Boston, Cleveland, Philadelphia
and Chicago for one year; also, that the Conference adapt the principle
of reasonable rotation in the memberShip of the Executive Committee after
the first year.

VOLUMR 201
PAGE 124




4

To all Lombers of the Board,

4(

.644.14

,
/S4004

March 25, 1930.

From Governor Young.

The Oomiaittee that WO suggested yesterday afternoon to draft an open
market procedure for the System net last evening at the Carlton Hotel and after
much discussion and many compromises, the attached draft was finally approved
unanimously by the committee. I believe that it meets many of the criticisms
that were made by the various boards of directors, but not all. ::evertheless,
I do helieve that after the directors of the various reserve banks learn that
their representatives have agreed to it unanimously that they will no doubt adopt
It.
The eighth section was included on my suggestion for certain specific
which
are as follows:
reasons,
(1) No Board of Directors 'would care to treat its responsibilities and
duties under the law in such a light manner an to assign those duties and responsibilities under all occasions an4,conditions, and I believe it advisable under
the arrangement to specifically mintion the ribts that they have under the law.
(2) From a practical standpoint, however, I do not believe that any
Vederal reserve bank would withdraw from representation in the Open lAarket Policy
Conference except with great reluctance, even though their Board of Directors
may frequently dissent from the policy.
(3) If one or several of the smaller banks should elect to withdraw,
that the Committee would be in a position to function. If, howbelieve
still
I
ever, one or several of the larger Federal reserve banks should elect to withdraw,
the probabilities are that the committee plan would have to be abandoned, and open
market operations would have to be handled by regulation. Regardless of what has
happened in the past, however, I believe this to be a very remote possibility.
I realize that this procedure will not meet the approval of my colleagues
same attitude
in every detail, but I do believe that if this is aparoached in the
in conferevening
last
it
approached
of mind that the various committee members
ence, any objections will be trivial.

VOLUME 201
PAGE 130




ka+4 144‘4S

(1)

444,064,..

ito

he Open Ilarket Iwostment Committee, as at present constituted, to

be disc ontinuel and a new committee,: to be known 40 tillb OMNI liarkitt Pelioy Cong..
;
ference, to be set up in its place*

644441144;
(
14" 6441
4411*
'
"
444.'

(2) The Open Market Policy Conference to consist of a representative
from each Federal Reserve Bank, desimated by the Board of Directors of the bank*
(3) The Conference to meet with the Federal Reserve Board upon the call
of the Governor of the Federal Reserve Board or the Chairman of the ]:,xecutive
Committee, after consultation with the Governor of the Federal Reserve Board.
(4) The function of the Open Market Policy Conference to be to consider, develop and recommend policies and plans with regard to open market operations*
(5) The time, character and volume of purchases and sales to be Lvoverned with the view of socemodating oommerce and business and with regard to
their bearing upon the credit situation.
(6) The Conclusions and/or reconniendations of the Opera Market iolicy
Conference, when approved by the Federal Aesarve 3rd, to be submitted to each
Federal reserve bank for determination as to whether it will participate in any
purchases or sales if recommended; any Federal reserve bnific dissentinp: from the
propose& policy to be expected to acquaint the Federal Reserve Board and the
Chairman of the Executive Committee with the reasons for its dissent*
4? 4446404-4
(7) *Committee of five to be selected from and by the members of the
A
Conforance for a term of one year, with fall poaer to act in the execution of the
policies adopted by the Open Market Policy Conference End approved by the Federal
Reserve Board, and to hold meetings with the Board as frequently as may be desirable,
(8) Lach Federal reserve bank to have the right, at its option, to retire as a member ofthe Open Market Policy Conference; nomomber of the Conference
to be es:maiden( Ss waiving any of its rights under the Federal Reserve Apt with
#400frow$444
VOIDIUME 201
PAGE 131




tfr, 44444441,/

s) zpo oticc$ Iry we; !My To. •'xi:
40101w906 $* pe ee* a ri us bTsee
,

pa vooworone-i. cu7 wn
LY1_114taiwz

;..xt;it

r

cicala lac Gt

;

°VET/woo- ro .).14 )masis ve *Pe 114
41at It$zire; 41T*1
:
'
-4-11111MilLipizrrI:0444 su 44 b4.6i,:ahilg .;Aialvi;or.W

to

A4-40- AmiAlfirlit4/444r

with respect to the4mObase az:L. SOMIMMUrittes, Vat each member of the Conferenoe will respot its Conference ObligatiOass




r

44-t- 12.4A
(Draft of propo**4. q
rket proceed* as revised at wte meeting of
the redignme. a•serv• Board, with the representatives of
the Federal reserve balks on Merck 118, 1930.)
•-r.<-f.,
-1,44-g.d •
/liptuot
(1) The Ctpen Market Inve,stment ectnakttee, as at present constituted, is
hereby discontinued and a nor/ co.Anittee, voluetary in charaetor, to be knoure ar
the 0,2ell Maret Folicy oference, is set up in its plain.
(2) The C-en Parket

pater

Conference shall consist of a representativo froir

Oa* Zsderal isserve Bank, designated by the Board of Directors of the bc.nk.

(3) The Conierence Shall neet with the rederel eserve "bard upon the c-,11
of the Governor of the Fedora Reserve Board or the Chairman, of the 4xeoutive
Committee, after consultation with the Governor of the Yedorel Estuary° 'Gard.
(4) The fanction of the Open Market Policy Conference shall to to consider,
&Iraq° and recommend policies and. plans with rectrd to open, market oration.
(5) The time, character and volume of purchases *Mules shall be i:tovorned
with the view of accommodating otAaAerce aiü basins-se andwith regard to their
bearing tv.),)n tile credit situation.
(6) Ike conclusions and/or ressomessisiions of the Opac Market '01.1cy ;,r)laferewe. *Mk approved by the redensi Reserve Board, Shall be *Omitted to etch
Pederg reserve boulk for determination as to whether it will participate in
purchases or sal
reeemsendcd; sim Pedera1 reserve bank dissenting fro_ the proposed policy ehalitesxPsetsd to acquaint the ;Yederri Reserve Board and the Chairman
of the iascutive Comittes with the resume for its dissent.
(7) An ,:aussative Committee of five Shell be scleeted from and by the members
of the Confrxmce for a term of one year, with fun rower to act in the lassutiOn
6ord'erenee and apt:roved VI the
of the policios adopted b the Opel iiszket
pederni evc Rxard,
to hold mentinge with the Board as frequently as Mg be
desirable.
TS* patrticipotinG in the Opeitillsdost Policy ConferenSe
(8)lisub‘ch Federal
shall be conuiderei as waiving none of its right* under the Federal Reserve Act; each
Yoder:al 40011re *wk faxen hime the right at its option to retire as a amber of the
Open Market i?olicy Conference, but each .1msnik while a member of tho Conference 'dual
respect its eonforence oblirAtions.

'VOLUME 201
PAGE 136




Lit. aft
March 25, 1930

,
444140k
AA-444

Banking resources in New York and

Mr. Pole

other cities, 1914-1929

Mr. Smead

In order to measure the relative increase in banking resources between 1914 and
1929 in each of the twelve Federal reserve bank cities and in four other selected
cities, also in the United States as a whole as well as in the United States exclusive
of New York City, the following table has been prepared comparing total loans and investments of all banks in each of such cities in the two years. The results, while
believed to be substantially correct, cannot be said to be exact, for official figures
for State banks are often not available separately for individual cities (only State
totals often being published). The figures given were taken from the Rand-McNally
bankers directories for July 1914 and July 1929, except in the case of New York City.
For that city official figures as published by the Comptroller of the Currency and by
the State banking department were used, due to the fact that it was not practicable
to eliminate from the bankers directory figures the assets of the foreign branches
of New York City banks:
City
UNIT3D SPATS*

i
t

Total lo us an
July 1914

Investments (tit)
July 1929

Per cent increase July
1S14 to July 19?9

,20,876,000,000

$58,533,000,000

180

UNIT= VMS, excluding
New York City
16,898,000.000

45,928,000,000

172

New York
Chicago
Boston
Philadelphia

3,978,000,000
873.000,000
744,000,000
775,010,000

12,605.000,000
2.708,000,000
1,850.000.000
2,030,000.000

217
210
149

Cleveland
Richmond.
Atlanta
St. Louis

297.000,010
59,000,000
41,000,000
301,000,000

966,000,000
135,000.000
137.000,000
594,000,000

Minneapolis
Kansas City
Dallas
San Francisco

109.000,000
106,000,000
30,000,000
394,000,000

310,000,000
242,000,000
161,000.000
1,895,000,000

Baltimore
Pittsburgh
Detroit
New Orleans

242,000.000
489,000,000
178,000,000
85.000.000

591.000.000
1,083,000.000
1.008.000,000
242.000.000

162
225
129
234

.97
184
128
437
Ce

1144
121

1466
185

**Available figures for 1914 and 1929 are not comparable, due to the fact that
the published figures for the city include a large number of out-of-town branches.
*From Annual reports of the Comptroller of the Currency,exclusive of Alaska and
insular possessions.
(a)Exclusive of joint stock land banks. led. Intermediate Credit banks and Morris
Plan banks; figures for New York City also exclude private banks.

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