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Hamlin, Charles S., Scrap Book — Volume 215, FRBoard Members 205.001 - Hamlin Charles S Scrap Book - Volume 215 FRBoard Members 4 10 BOARD OF GOVERNORS OF THE • FEDERAL RESERVE SYSTEM Office Correspondence To The Files From Mr. Coe Date August 5, 1941 Subject: After correspondence with Mrs. Hamlin (see letters of May 25 and June 4, 1941) the items attached hereto and listed below, because of their possible confidential character, were taken from Volume 215 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 215 Page 20 - Earnings & Expenses of F.R. Banks, May 1931. Page 21 - Confidential Review by C.S. Hamlin - "C. E. Mitchell". Page 41 - Data re National Bank of Commerce. Page 49 - Telegram from economists to Governor Meyer re Federal Reserve Policy. Page 60 - Memo to Mr. Hamlin from Mr. Goldenweiser re increase in the volume of money in circulation. Page 64 - Memo to Mr. Hamlin from Mr. Goldenweiser re Austrian currency and the recent credit to the Austrian National Bank. Page 75 - Memo to Mr. Hamlin from Mr. Noell re employment of Mr. 0.M.W. Sprague. Page 80 - Memo to Mr. Hamlin from Mr. Goldenweiser re decrease in member bank credit between 1920-1922. Page 83 - Memo to Mr. Hamlin from Mr. Goldenweiser re Federal Reserve System's part in stabilization of prices. Page 86 - (X-6914) Applications of State Banks and Trust Companies for Membership. Page 90 - Telegram to Gov. Harrison from Gov. Meyer re "participation by F.R. Bank in a credit to the Reichsbank". Page 92 - Memo to Board from Gov. Harrison re Credit to Reichsbank. Pag 111 - (X-6915) Action on Governors' Conference Topics. Page 121 - Data on Germany's reparations payments. Page 1,38 - Credits Extended by Federal Reserve Banks to European Central Banks to Promote Monetary Stabilization Abroad. Page 144 - Excerpts from minutes of Board's meeting. Page 148 - Memo to Mr. Wyatt from Mr. Hamlin re "Ownership by the Mercantile Commerce Bank & Trust Company of stock of the Mercantile Commerce National Bank". C ONFIDENTIAL Not for publication B-377 EARNIrGS AND EXPENSES OF FEDERAL RESERVE BANKS, LAY 1931 Eay Month Federal Current expenses Earnins from Reserve Bank Discounted bills Purchased bills U. S. securities Other sources Total Exclusive of cost of F.R. Currency Total 1931 Current net earnings Ratio to paid-in Amount capital January - :ay 1931 Current net earnings Available for reserves, Ratio surplus and to Amount franchise paid-in tax* capital , Per cent Per cent 146,543 205,196 $168,975 565,533 132,236 221,390 464,670 -217,16s -1,616 -50,036 87,972 73,434 25_9,544 74,065 115,383 102,641 273,889 110,836 129,125 109,177 301,933 111,956 -41,153 -35,743 -42,389 -37,871 69,153 106,416 87,515 135,326 75,899 133,076 96,667 164,290 80,583 137,508 104,959 185,443 -11,530 -2'3,090 1,649,673 2,117,425 2,141,508 2,188,253 2,243,525 2,337,505 2,510,570 11,443,391 12,331,561 $19,323 56,294 51,250 $15,553 45,799 $65,972 235,415 $3,457 10,337 $104,305 348,345 $149,512 510,370 34,391 353 20,049 76,292 103,277 727 13,037 13o,422 171,354 Richmond Atlanta „Llicago St. Louis 45,4'02 27,962 34,146 17,892 504 9,937 21,376 10,000 39,683 30,99,S 154,266 44,564 2,263 4,4s9 49,736 1,629 Minneapolis Kansas City Dallas • S'ranc1SCO TOTAL 1931 May April 1531 1930 May Jan.-1;:ay 1931 11,631 27,872 24,401 31,954 6,461 10,240 5,656 17,579 50,267 47,73o 55,555 80,357 774 22,576 1,90 5,426 332,523 371,345 154,077 215,623 798,539 455,189 1,459,567 Boston New York Philadelphia Cleveland 1930 125,513 1,697,273 2,880,256 1,035,004 5,5s2,56s 0. 3,094 9,537,42o 10,679,565 5,954,757 3,940,973 7,435,039 324,726 13,155,495 11,034,138 2,351,734 FEDEaAL a7zEavE BOARD DIVISION OF BANK OPERATIONS JUNE 9, 1931. 96.6,394 116,374 996,539 110,(DJO -$237,216 -452,735 -57,729 - -115,882 -$538,512 -1,487,609 -442,880 -547,719 -227,102 -147,848 -102,455 -123,870 -375,110 -281,321 -606,089 -15 -21,377 -100,050 -87,799 -228,400 --50,122 -- 121,041 -517,398 -599,052 -S40,233 265,566 1.3 -1,905,471 5,323,934 3.2 -1,905,471 5,G23,934 3.2 *After making allowance for accrued dividends and current debits and credits to profit and loss account but not for profit or loss on sales of U. S. securities e0.0.3 held in special' investment account. 41 1 / mix10215 -5X0,353 1,735,871 X-6873 DaYFIDEYTIAL. April 27, 1931. C. E. MITCHELL. Review, (By C. S. Hamlin). I Ban77.ing Conditions at Time of Statement, March 26, 1929. There was a near anproach to a Panic on the New York Stock .72x&.ane on Tuesday, March 26, 1929. exchange history. The break was one of the sharpest in stock Call loan rates 'reached 20%, the higiest figure since 1920. I • IL The so-called direct Pressure to reduce total borrowings of the banks had been in force since February 7, 1929, the date of the Board's warning. There was a feeling abroad that the banks had finally determined to adopt the most drastic methods, and would refuse even to extend credit facilities which, under ordinary circumstances, they would have granted as a matter of course, such as to meet temr-Jorary withdrawal of funds by corporations for quarterly interest and dividend Payments, or withdrawals from New York to interior larts of the country. Brokers loans both for the New York banks' own account, and "for others" had been declining during the week ending March 27, 1929. The call loan renewal rates were as follows: March 25 26 27 28 9% 15% Undoubtedly one cause of the crisis 71Thich arose on that day, March 26th. 'I_ • X-6873 - 2was the acute credit stringency in Chicago, arising from the heavy liquidation on the Chicago Stock Exchange beginning on March 21st, which resulted in large withdrawals of funds from Yew York. Frightened traders all over the country were selling stocks blindly on that day. By 1:30 D.M. the volume of trading on the New York Stock Exchange had reached over 51. million shares, and the ticker tape was 58 minutes behind the market. Under these circumstances, Mr. I:itchell, on Tuesday, March 26th, came to the relief of the money market, advancing six millions of dollars on call loans. Mr. Mitchell's Statement. In the afternoon of TuesdaY, March 26th, Mr. Mitchell gave out the following interview, as taken from the New York Herald-Tribune of Wednesday, March 27th: "So far as this institution is concerned, we feel that we have an obligation which is -oaramount to any Federal reserve warning, or anything YIEU else, to so far as lies within our Power, any dangerous crisis in the money market. "While we are for the purpose of we certainly would where money became averse to resorting to rediscounting making a Profit in the call market, not stand by and see a situation arise im-possible to secure at any -.price." Mr. Mitchell is quoted by the New York Times of March 29, 1929, Friday, as saying that his Bank was prepared to make available 5 lions for the call loan market at 16iri;, and a like amount for each gain of 1% UD tO 20%. X-5873 - 3He also made it clear that his action was based not so much on concern over the movement of the rates, but to 1.111 the idea that money could not be had no matter what was offered for it. From the time the offer was made, the call money rates did not ,c;o above the minimum rate, but did go down, closing at 8%. (190-1) The New York 7orld of March 30, 1929, quotes Mr. Mitchell as follows: "S'aould another crisis develon, will you stand by again?" was the next auestion. Mr. Eitchell ansv.ered, "It can be sal-ely assumed that we will endeavor at all times to prevent a critical situation i-s oing out of bounds. we won't be alone. Other ban-,:s will subscribe as strongly as we to that doctrine." Senator Glass on Mr. Mitchell. The New York Times edition of Friday, March 29, Publishes an attack on Mr. li.itchell by Senator Cdass, who was quoted as follows: "The Federal Reserve -qoard has ado7ted the administrative policy of havim-: vederal reserve banks remonstrate with member banks against Permitting the facilities of the Federal Reserve System to be used for stock s-)eculative Purposes. "This should have been done long ago, before the situation got out of hand. Yow that it has been done, a Class A director of a Federal 7.eserve Bank, himself President of a great banking institution, visorously slaps the Board squarely in the face and treats its policy with contempt and contumely. He avows his superior obli,7ation to a frantic stock market over against the obligation of his oath as a director of the II New York Federal Reserve Bank, under the sunervisory authority of the Federal Reserve Eoard. "Mr. Mitchell's . - Proclamation is a challenge to the authority and the announced nolicy of the 7ederal Reserve S X-6873 - 4"Board. The challenge ought t0 be promptly met and courageously dealt with. "The Board should ask for the immediate resignation of Mr. Mitchell as a Class A Director of the Yew York Federal Reserve Bank. "If the National City Bank in Yew York, or any other member bank of the System anywhere, imagines it is greater than the Federal Reserve System and may defy and reject the considered policy of the Federal Reserve Board, it should at least be given to understand that the President of such a bank will not be permitted to have an official Dart in the management of the Federal Reserve System. "I do not know what the Federal Reserve Board will do about it, but I have a very decided conviction as to what it should do, and that swiftly. "The whole country has been aghast for months and months at the menacing spectacle of excessive stock gambling, and when the Federal Reserve Board mildly seeks to abate the danger by an administrative policy, fully sanctioned by law, rather than by a prohibitive advance in rediscount rates, which might nenalize the legitimate business of the entire country, an officer of the System issues a defiance and engages in an attempt to vitiate the policy of the Federal Reserve Board. "Whatever his abilities as a banker may be, or however high his character, the soirit manifested by Mr. Mitchell totally unfits him for the position of director of a great Federal Reserve Bank. This is not an age for the manifestations of a rricholas Piddle." Senator Glass, in the New York Times of April 2, 1929, in reply to the attack of Ex-Senator Owen who had defended Mr. Mitchell, declared that the Reserve Board had the nower to remove Mr. Mitchell and to compel reserve banks to refuse the rediscount privilege to those engaged in speculation. Senator Glass further stated: "Whether or not the Federal TZeserve Board should have removed Charles E. Mitchell for his open defiance of the Board's authority and his avowed attempt to frustrate its administrative policy, is, of course, a matter of opinion. It was my conviction, and still is, X-3873 - 5"that the 7,oard should have taken exactly that action. "This should :my-a been done promptly, not so much, ?erha-)s, for the offer by Mr. Bank of 25 lions to a dan::_7erously extended speculative stock market which the Board was conservatively trying to curb, as for his dramatic assertion of a superior obligation to the stock s2eculators over a-,:ainst his obligation to the Federal -Reserve System, of which mr. :Atchell is a iii.j director. "He Tas well aware of the nolicy being pursued by the Federal Reserve 7-pard; nevertheless he set out with apparent deliberation to thwart it and to bring the authority of the Board into contemt. In this he succceded. "The autnority of the Board to suspend or remove Mr. :itchell or any other officer or director of the New York Federal Reserve Dank is not a matter of opinion. It is so plain that denial of it betrays ignorance of the law. "There is no implied limitation on the nrocedure thus sanctioned. If there were any, it is inconceivable that it would relate to an offense involving a vitiation of the Board's vital administrative Policies. "In scores of wP.ys the Act lodEes with the central Board at r'ashington supremacy of control. If t'fie President of the National City Bank, who is also a Class A Director of the Yew York Federal eserve Bank, can be 9ersuaded to believe that the Federal Reserve Act authorizes reserve banks to rediscount paner for stock speculative pur7mses he is too simnle to hold either -)osition. Of course, Mr. ntchell knows better; otherwise there was no point in his nublic defiance of the 7ederal Reserve Board. He rould Ilave thrown his Bank's $25,000,000 in the sneculative swirl as a customary transaction. "This stock s-oeculating with funds of Federal reserve banks is by law nrecluded, as it was distinctly intended to be. To say Federal reserve banks are not subject to the authority of the Federal Reserve Board in making loans is to betray i,,Inorance of the law." The New York Times of October 25, 192°, also contains the following interview by Senator Glass: X-6873 -6"The Iresent trouble is due largely to Charles E. Mitchell's activities. That man more than 40 others is more responsible for the ')resent situation. Had the Federal rcserve acted and dismissed him, the trouble S ight be less. The crash has shown that stock gambling has reached its limit." (196-151) -IVComment, - Editorial and Otherwise. Representative Hamilton Fish in tho New Yor 1929, attacked Senator Glass and defended he had averted a Danic. Times of April 2, Mitchell, stating that He also endorsed the recommendation of Mr. Mitchell's Bank for an increase in rcdiscount rates to 6%, expressing the belief that such a step would be sufficient to end excesses in the stock market. He further stated that Mr. Eitchell's quick think,- ing and acting should have been commended instead of condemned by Senator Glass. The Yew York Journal of Commerce, March 28, 1929, speaks of Mr. Mitchell's announcement: "Reserve officials claim that every attem.Dt has been made by the Federal 'Reserve Bank of Yew York, with the hearty suport of its directors, to cut down the Practice of resorting to reserve banks for rediscounts." It points out that: "At the end of 1928 local bankers rediscounted heavier I-.rder to ease the strain in the money market, and now they propose to do so aEain. On the basis of such facts as these, the market and the -Public at large has gradually come to the conclusion that the ap-Deals of reserve banks and their directors are not intended to be taken very literally, and that they are really in the nature of exhortations rather than in the nature of financial precept or advice. There has been a 6reat deal in the whole conduct of the Reserve System to sustain this point of view, • X-3873 -7"including i of course, the well-mown statement of Governor Young to a ongressional Committee to the effect that all was well, followed by speeches of bankers to the same Purport, and then finally by his urgent request of last February not to loan for speculation and not to encourae-e speculative activities." It also sipeaks of the lack of confidence which has been gradually engendered throu4h the belief that leaders of financial opinion do not mean exactly what they say. States that it would help immensel7 if we could get to some definite acce-pted basis of understanding on the whole question which would be just as sound and forceful when one man's stocks are , -xing down as when those of another have been su-:jected to pressure. Mr. David Lawrence in the 'ashington Star of Friday, March 29, 1929, states that the Board has been disturbed not so much by the action taken by Mr. Mitchell as by his statement, which Mr. Lawrence quotes. Mr. Lawrence adds that: "Naturally Mr. ntchell had to borrow the 25 million dollars at the Federal -Reserve Bank of rew York, and by arreeing to loan this money the New York institution, by inference, acquiesced in his action, for the Federal eserve Board was only interested in breaking down speculation and not in forcing a situation in which money could not be had by anybody at any price. To the extent that the New York Board of directors are . - presumed to have been acting in harmony with the Federal Reserve Board, the statement of Mr. ::itchell is recorded as unfortunate, in that it may be construed by the banking world as a criticism on his nart of the famous Federal Reserve Board warning of February 14th." "It was not what Mr. Mitchell did, but what he said, that caused discussion in official auarters here, and for that reason the Board itself is not likely to raise an issue at this time; in fact, Mir. Mitchell's point of view was outlined at Thursday's meeting of the directors of the Federal Reserve Bank of New York which was attended by representativesof the Federal -Reserve Board at "ashington." "The Federal Reserve Board is determined to ::_;o to the limit of its ,poTers." X-6873 -8 He finally added that: "The raising of the rediscount rate is the normal weapon used, Uut in a situation like the lresent, which is abnorm al, something more drastic than a more raising of the redisc ount rate is talked about. It is, in a nutshell, the orderi ng of the Federal reserve banks and branches to refuse to redisc ount at all the paoer of member banks when Presented to get funds to aid speculation. It is difficult to draw the line betwee n a speculative and a commercial credit, but the burden of proof would be on the banking institution, and the mere announcement of the order or regulation, it is felt here, would be sufficient to tell the neculative element that the Federal Reserve Board is in earnest, and will not be defied." The New York Times, in an editorial in the edition of March 30, 1929, stated in part as follows: "Yet it anoears that the great emphasis and positiveness with which he (Senator Glass) has denounced the action of the National City Bank, and some other banks in New York, in striving to avert a money panic this past week were somewhat misplaced. "Senator Glass seems to have confused a temporary emergency with a oermanent policy. oThe banks did not come forward with funds to Promote speculation but to prevent what threatened to be a seriou s crisis in the money market ..... "The endeavor was to surmount a threatening crisis. It was obviously successful, and the presumption was that these particular bank funds were thereupon withdrawn from the money market. "There has been some idle talk that there was an agreement to Hoeg" the call money rate at 15%. The mere statement of this shows how ridiculous it is to suppose that the movement was one to bolster wild gpeculation. Paying 15% for money to goeculate with ceases to be goeculation and becomes insanity. "Senator. Glass does well to hold un the hands of the Frderal Reserve Board in the efforts which it has made to keep the whole credit system of the nation from being upset. =I\ •• • X-6873 - 9"In this ,-)osition. it is -probable that the great majority If cautious and resi)onsible brmicers agree with him." • (19o-2) Further Comment. Argroval of Mr. Kitchell's course. Annalist D. 7. Ellsworth. Mar. 29, 1929. 190 - 17. IJ Brooklyn Daily Eagle. 190 - 58. Baltimore Sun Agoarently ap-)roves what he did but criticises what he said. 190 - 58. Financial Yews. April 2, 1929. 190 - 145 (2) Fish, Handlton, Cong. Anril 3, 1929, 190 - 33. Fisher, Prof. Irving. April 1, 1929. 190 - 24. Hartford Gyurant. 190 - 58. Now York Evening Post. 190 Yew Yorlr. Heralot-Tribune. March 29, 1929. 190 - 3. New York Times. March 30, 1929. 190 - 2 NeT Mar. 28, 1929. 189 - 142. Mar. 30, 1929. 190 - 16. Owen, Ex-Senator Mar. 31, 1929. 190 - 14. Sookane S:okesman-Review. Apparently ap?rovzs what ho did but criticises what he said. 190 - 58. X-6873 -10Springfield RelUblican. Ap-proves what he did. Criticises what he said. 190 - 58. Approval of Senator Glass's criticism of Yr. Mitchell. San Francisco Chronical. 190 - 58. Lawrence, David. 190 - 5. Raleigh News and Observer. 190 - 58. Neutral Chicago Daily Yews. 190 - 58. Kansas City Journal-Post. 190 - 58. Ambiguous Yew York Journal of Commerce. 189 - 138. Resume The above quotations seem to show that as a rule the press of the country annroved, or at least did not object to, what Mr. Mitchell did to relieve the money market and to avert a threatened nanic. Many of the paners, however, while avproving what he did, criticised him severely for what he said. --VIProceedings in the Federal Reserve Board. March 28, 1929: Dr. Miller telephoned from New York that the bank.ers are very angry because of Mr. Eitchell's interview; that they did not object to his relieving the market to avoid panicky conditions, but that his intervi ew overthrew banking control of the situation and started tro slpecul ative activity anew. • • X-6873 -4 11 Governor Young was as' , :ed by the Board to call up Mr. Mitchell and ask him to inform the Board in writing just what he said in his interview. March 29, 1929: Dr. Y.iller stated that he met Mr. Mitchell at a meeting of the New York directors; that Mr. Mitchell was very irritable and netulant; that he (Mitchell) told him he was in a belligerent mood, and that the Federal Reserve Act must be changed to take away the power of the Board. Dr. stated that the sentiment in 'Jew York was against Mr. Mitchell as having given his interview for the selfish prestiEe of his Bank at the expense of his banking competitors; that other Yew York banks had done as much as, or more than, Mr. Mitchell to relieve financial stress. Dr. Miller said all was well until Mr. Mitchell gave out his interview; that we could not yet say whether that interview had blocked direct -oressure or not (nreviously he had told C. S. H. he feared it had.) The Board finally agreed on a letter to 1!r. Mitchell, and ordered it sent. Governor Young at first objected, saying that Mr. ntchell might put the Board in a hole. Later, however, he dictated a letter couched more moderately, and all agreed to it. mr. James said that the Board should remove Mr. Mitchell, as demanded by Senator Glass in yesterday's papers. Most of the Board felt that we should send the letter and later decide what further to do. There was little, if any, criticism mrlde in the Board as to what Mr. :Utchell did, but severe criticism as to what hc said. 110 - 12 ro X-6873 — action was taken •L't the Board and the matter still remains on the docket as "unfinished business". -VII— Correspondence Between 7ederal 3.serve Board and Mr. nitchell. On March 29, 1929, Governor Young sent the following letter: "The New York Herald-Tribune of wednesday, March 27, Published the following statement attributed to you: ISo far as this institution is concerned, we feel that we have an obligation which is paramount to any Federal reserve warning, or anything else, to avert, so far as lies within our power, any dangerous crisis in the money market. 'While we arc averse to resorting to rediscounting for the Yurpose of making a profit in the call market, we certainly would not stand by and see a situation arise where money became impossible to secure at any -2rice.f "At the request of the Federal Reserve Board anf for its information, I would appreciate it very much if you would let me know whether you were correctly quoted." On A7?ril 1, 1929, Mr. id.tchell replied as follows: "I acknowledge receipt of 7our letter of March 29th asking on the -lart of the Federal Reserve Board, if, in a statement accredited to me in the New York Herald Tribune of wednesday, March 27th, I was correctly quoted. You will realize that I did not write or give out any statement, but as the result of talking with a reporter for perhaps two or three minutes I was quoted in the article in question. Generally speaking, I think the reporter correctly exoressed my view. "That a credit crisis was not only threatened but did exist on Tuesday, March 26th, is a fact that has general acknowledgment. "If there can be ol:jection on the part of your Board to the statement, I assume it must have reference to the followinE words, Iso far as this tastitution is concerned we feel that we have an oblifEation which is Paramount to any Federal reserve warning, or anything else.' X-6873 - 13 "One of the actuating reasons for the formation of the Federal eservo S7stem was to avoid credit and currency crises and though in the formation of the System that became a Fedoral reserve responsibility, novertheless I do not believe, and I do not conceive the public as believing, that such banks as ours were thereby relieved of a like responsibility, and I conclude that the obligation for the fulfillment of that institutional responsibility at any critical moment is --)aramount to the maintenance of a Federal Reserve Board general policy. It was our assumed obligation in that critical moment that is referred to in the article in question. "Our Position regarding the necessity of curbing speculation and of restraining the unhealthy growth of the credit structure has so often been publicly stated and so well )..nown everywhere that I assume there is no need for elaboration thereon to your Board." That Mr. ntchell Did, as distinTuished from what he Said. The following table shows borrowings from the Federal reserve banks and call loans made (1) By the National City Bank, (2) By 22 banks in New York City, from Friday, March 22nd, through Saturday, March 30th: Date (In millions of dollars) : NATIONAL CITY BANK 22 banks in 1Tew York City : Borrowings : :30rrowings from :from Federal: Call loans: Federal : Call lo :reserve bank: reserve banks Fri. lar.22 Sat. " 23 Mon. 1, 25 Tues. " 26 7ed. n 27 Thurs." 28 Frid. " 29 Sat. " 30 14 0 25 24 35 - 137 138 144 150 141 135 135 135 114 157 191 177 190 154 137 154 812 833 842 809 802 785 826 848 (208 - 116.) X-6873 - 14 It is interesting also to note that the National City Bank in the following 12 weeks, borrowed only on 11 days. It seems to me that the above figures could hardly serve as a conclusive demonstration of borrowing from the Federal reserve bank in order to increase call loans. Between Friday, March 22nd, and Saturday, March 23rd, borrowings decreased to nothing, while call loans increased slightly. From Monday, March 25th, to Tuesday, March 26th, borrowings decreased 1 million, while call loans increased 6 millions. From TuesdaY, March 26th , to Wednesday, March 27th, borrowings increased 11 millions, while call loans decreased 9 millions. From Wednesday, March 27th, through the rest of the week, the borrowings were all paid off, while the call loans were reduced on Thursday to 135 millions and l'emained at that figure through Thursday, Friday, and Saturday. Such a record would of itbelf hardly have justified the Board in removing Mr. Mitchell on t'ae cround of having borrowed s-2ecifically in order to obtain Federal reserve credit for sPeculative uses, even though such uses, in unreasonable amounts, would undoubtedly have been in violation of the Federal Reserve Act and of the Policies of the Board as announced, by Regulations or otherwise, thereunder. -IXDiscussion as to what Mr. Mitchell actually said in his Interviews. The question left for consideration would seem to be whether the Board would have been justified in removing Mr. Mitchell from office =MOM X-6873 - 15 as a Class A Director, because of what he said in the above quoted interviews. The purport of what he said was that he considered that his Bank had an obligation, paramount to any Federal reserve warning or anything else, to avert, as far as it lay in his power, any dangerous crises in the money market, with an intimation, very clearly expressed, that he would not hesitate to rediscount at the Federal reserve bank for this purpose. This was clearly, and was intended to be, a deliberate defiance of the authority of the Federal Reserve Board, and an attack on its :Policies as he apparently conceived them. This defiance and attack was made by a Class A Director of the Federal Reserve 3ank of New York who had taken oath that he would not knowingly violate, or willinc,ly permit to be violated, any of the Provisions of the Federal Reserve Act. This interview, moreover, constituted a direct incentive to speculators to -Proceed in their orgy under the belief that the speculative market would be suinorted by the banks by the use of Federal reserve credit. In my opinion, this statement of Mr. Mitchell would have justified the Board in removing him, even on the assumption, as to which I express no opinion, that his action in relieving the money market may have been justifiable, and even though, in fact, he did not secure any additional rediscounts to provide the funds he placed, or proposed to call loan market. lace, on the X-6873 - 16 - -X- Final Conclusion. Assuming all of the above to be true, however, it was necessary for the Board to consider Possible consequences which might arise from the exercise of its power of removal in this case. It should be remembered that the banking situation at that time was in a state of high tension, and that the break was one of the shamest in Stock Exchange history. It should be further remembered, that even at the lowest Prices of Tuesday, March 26, 1929, the industrial averages were left higher than at the peak of the boom in November, 1928, so that there was ample room for a further disastrous break should the tension contin ue, or should some new source of apprehension arise. Looking backward, I fear that the removal of Mr. Mitchell at that time might have brought about the very collap se which finally came in October - six months later. If such had been the result of the Board's action, I am sure it would have felt that the price paid was too high for expelling Mr. Mitchell. The Federal Reserve Board, as it stated in its warning of February 7, 1929, neither planned nor desired a crash in the New York stock market. On the contrary, I believe it saved the country from such a crash by its refusal to adopt the affirmative rate increase policy of the Federal Reserve Bank of New York. The Board, by its policy of direct pressure under the 5% rate, X-6873 -17 simply sought to Protect agriculture and commerce by gradually withdrawing Federal reserve cr,,dit from the soeculative channels into which it had seeped, and I felt at the time there was at least some hope that this could be done without bringing on a crisis in the stock market. The final crash of October, 1929, in my opinion, came not from • the withdrawal of Federal reserve credit from Toeculative channels, but from the increase of soeculative credit in those channels brought about by the avalanche of "bootlegging" credit consisting of loans "for °tilers" over which the Federal Reserve System had no control, which avalanche made the Toeculative credit structure so top-heavy that it finally broke of its own weight. It would certainly have been most unfortunate if the Board, having saved the country from a collapse in the stock market by blocking the Policy of the Fede2a1 Reserve Bank of Yew York in entering upon incisive, repeated increases in discount rates, had found that by the expulsion of 1,1r. Mitchell, under the tense banking conditions at the time, it had brought on the very crisis it hoped it could avoid through the operation of direct Pressure upon banks to reduce their • borrowins, and I am of the opinion that the Board showed good judgment in failing to visit this )enalty upon him, however richly it may have been deserved. In this connection, attention should be called to Mr. Kitchellts grotesque misinterpretation of credit conditions between the ti.ne of the above interviews and the final crash in October. For examnle, on • X-6873 - 18September 23, 1929, he stated in an interview that there was no occasion for worrying about brokers loans or credit conditions; on October 22;;:', 1929, returning from Europe, he stated that conditions were sound, and that many securities were selling at -prices below their real value; 44 on the same day, he announced, with almost sardonic humor, that the public was suffering from brokers loanitis! As above stated, this matter is now on the docket of the Board as unfinished business e and can be brought up at any time for final determination by any members In my opinion, however, it would be better for the Board to leave Mr. Mitchell in the mdrass in which he has placed himself, and not incur the risk of making a martyr of him by Any further proceedings. •••• 1 .0 11, L,..a. The "Mona Bank of Oftworos consolidated A.th the Mercantile 'host Ommpmmy. biking the name of the Hercantile Comervt, Bank Dad Trust Company. The Board ap:)roved the consolidation, on conuition that no purchase of stock of any other bank sh4)ul4 be made except vith the permission of the Board. The charter of the attonal Bank of Commerce was retained for the purpose of winding up its trust business and turning it over to the consolidated bank. The consoliiated bank as civen the riAht by the Board to hold the stock of the National Bank of Oolumerce until its trust business was turned over to the consolidated institution. Later it was determined to continue the business of the National. Bank of Oonmerce as a connercial bank, its title being Changed to the Mercantile Comnerce National Bank. The consolidated bank apparently on all the :lock of the National Bank of Omnmerce and its succfrsor„ the Mercantile Comerce National Bank. The Board gave the consolidated institution p mission to hold this st ck until its trust busines as7ound up. The .:,uestion now arises Whether the Board has power, ;ind if it has po.ver whether it should direct the consolidated institltion to dispossess itself of the stock of the National Bank of Coritaerce in its =le of the Mercantile Commerce National Bank. Under the laws of Kissouri the consolidated institution has a legal J 701i215 2. •Ndk , ririlt to min part, or all, of the stook of the National Bank of Ccrnerce under its nor nano of the Mercantile Cosmeroe National Bank. There is no alleL,Ition or claim that the holding of said stock by the consolidated institution vould in any way affect it adversely. al,0000 •••••••••••80 TnY,GRAY. New York April 28 Mr. Eugene neyer, Governor, Federal Reserve Board, Washington. The undersigned desire to submit to the meeting of Governors the following memorandum on Federal Reserve policy: (.(uote (Pages 1$ 2, and 3) unquote Professor J. F. Sbersole, of Harvard University, While not signing the memorandum, apnroves the expansion of open market purdhases by Federal Reserve 77anks now as we have enough liquidation in commodities and probably otherwise. The following approve unconditionally: Z. E. Agger, Rutgers University Harry Gunnison Brown, University of Missouri John. H. Cover, University o f Chicago John R. Commons, University of -lisconsin Lionel D. Sdie, W. I. King, New York University H. L. Reed, Cornell University; J. Harvey Rogers, Yale University Walter S. Spahr, New York University Charles L. Stewart, University of Illinois G. F. Warren, Cornell University John Parke Young, Occidental College. from time to time questions have been raised as to What contributions can be made by economists to the fundamental problem of recovery from The undersigned economists find a meeting of the present depression. fundamental phases of credit policy and hope that their minds on certain for the attention of Federal submitted a statement of their views may be Reserve Officials in a spirit, not of attempting to force their ideas on anyone, but rather of attempting to bring to the attention of the constituted authorities the convictions of a group of economists. We believe that there are two problems of credit policy of fundamental importance: First, the emergency problem of utilizing credit policy as a means of furthering recovery from the current depression. • Second, the definition of an on-going credit policy over an extended period of time. With regard to the first type of problem, we believe that a stage has been reached in the depression When a broad plan of credit expansion is To the extent that gold inflow or other factors urgently desirable. tending toward an increase of member bank reserve balances do not supply such expansion, we believe it should be supplied by open market purchases of Government securities. Undoubtedly many of the member banks would feel VOLUME 215 PAGE 49 -2that such an expansion was flooding them with excess funds at a time When they already feel over-burdened with idle money. However, we do not believe that the spontaneous attitude of the private bankers is justified From this standpoint, we believe from the broader economic standpoint. e policies Should be adopted deliberat that is tion the fundamental considera on Which has already liquidati and on contracti of to arrest the momenta% terminated by other being of signs show become acute and which does not precedent and to al to historic We have given due attention factors. Impossible to anticipate is It economic theory in arriving at this opinion. but we have a policy, all of the objections that ,will be raised to such should not they carefully considered the usual objections and believe that stand in the way of the proposed policy at the present time. Accordingly, we respectfully submit our opinion that a definite expansionary credit policy is desirable as a means of carrying throuAh the W6 believe that this movement should next impulse to business recovery. an abundance of gold exists, where States United the In logically start a profound and, at times, exert markets capital and money and *here the l financia e movements. dominating influence upaa world-wid 10,th regard to the second phase of the problem, namely the MOTO permanent definition of credit policy, we urge as a criterion that the annual growth of credit volume Should, in general, parallel the average lone-term to growth of Production and trade. We believe that if this principle were be adopted it would tend to avert over-expansions of credit, which accentuate trade booms, and to mitigate over-contractions of credit, which Tie are are accentuate and prolong periods of depression and deflation. all before attitude tal experimen frankly of the need in some degree of a t sufficien that believe we but out, of the problems involved can be ironed more a thwrouh warrant knowledge and experience are already available to testing of the principle proposed. If a credit policy of the trle described is to be effective in into enabling the normal seasonal autumn pick-up in trade to carry through be instia sustained recovery, we believe it is necessary that the policy future months. during ely cumulativ applied and future tuted in the very near this welcome will ies authorit Reserve Federal - We hote and trust that the may be statement of views In the spirit In which it is intended and that it al fundament the on country this in helpful in the progress of thought economic problem of the present trying period. ,(igned) Lionel P. 1idie. Form No. 131 Office Correspongnce Hamlin TO Mr• From Mr. Goldanweiser FE.DERAL RESERVE BOARD 1.44, toti • Date June 17, 1931 Subject: 470 The increase in the volume of money in circulation, both of hoarding by individuals and increase in cash held by banks, was about $375,000,000 since last November. In the last week, the estimate is an increase of about $65,000,000 in Chicago. That is, the figure for Friday, June 12, showed a circulation $65,000,000 above Fiiday of the preceding week. Since last April the increase in currency has been approximately $150,000,000 to $175,000,000, largely in Chicago. VOLUME 215 PAGE 60 ' 2-8495 S.A.& Form . go.T - Office Correspoillence To tir• 1Iam1in From Mr. aaclenw, FEDERAL RESERVE BOARD Dee June 17, 1931 Subject: •r n I transmit herewith a memorandum from Mr. Gardner covering the first part of your inquiry of June 16. of the inquiry shortly. VOLUME 215 PAGE 64 I will answer the second Dart 441 Form N.131 "Qffice Correitoontnce To Kr. Goldenweiser FEDERAL RESERVE BOARD Subject: • Date June 17, 1931 Austrian curren_a_ala the recert credit to the Austrian National Bank 2-8495 GPO Austria was one of the first countries outside the United States to return to the gold standard after the war. On January 3, 1923 the National Bank of Austria opened under legal obligation to prevent depreciation of its notes 1/ in terms of gold. In order to meet this obligation, the bank had to convert Austrian currency into foreign currencies at a practically fixed rate of exchange. This was successfully done. In other words, Austria has been on the gold exchange standard since the beginning of 1923. Stabilization was accomplished with the aid of an international loan (publicly floated) and supervision of Austria's finances by the League of Nations; but no credit by central banks was extended. The recent credit granted by the Bank for International Settlements and a group of central bank, including the Federal Reserve System, was rendered necessary by the grave shock to confidence resulting from the threatened collapse of the Credit Anstalt, Austria's largest banking institution. The credit was designed to enable the National Bank of Austria to participate in the rehabilitation of the Credit Anstalt and to maintain the stability of Austrian currency on the exchanges in the face of possible large withdrawals of foreign funds. From the point of view of its purpose, this recent Austrian credit was more like the Hungarian credit extended in 1929, four years after Hungarian currency had been stabilized, than it was like the Belgian and other credits designed to assist in reestablishing gold standards. lj The National Bank is the sole bank of issue in Austria. • 111 • ffice: Correspondence To Mr. Hamlin From Mr. Sae.. FEDERAL RESERVE BOARD Date_ Tune 17, 1931. Subject: Noe11 16 0 In accordance with your request at the meeting this morning there is given below information with regard to the employment in 1925 by the Board of Mr. 0. Li. W. Sprague. At the Meeting of the Federal Reserve Board on April 7, 1925, upon your motion, it was voted: "That the Board approve of the recommendation of the Governors Conference that a committee be appointed for the purpose of studying the question of needed banking legislation and that the committee be composed of Governors Harding, Strong, Young and Seay and Federal Reserve Agents Talley and Wills, and that the study be undertaken by the committee under the direction of Dr. Stewart, Director of the Board's Division of Research and Statistics, and that the Governor, acting through Dr. Stewart, ascertain whether Professor Sprague of Harvard University will accept temporary employment as a Research Assistant in the Board's Division of Research and Statistics, for a period of six months, for the purpose of assisting in the conduct of the study." The employment of Mr. Sprague was authorized by the Board on April 9, 1925, when it was voted "that the compensation of Dr. Sprague as Special Research Assistant oe fixed at the rate of .12,000 per annum for such time or proportion of his time as is actually given to the work of the Board, together with the necessary travelling expenses,effective April 8, 1925." On Tune 16th the Director of the Division of Research and Statistics advised that Professor Sprague was giving the Board his entire time and that effective Tune 1st his salary should be at the rate of -J2,000 per annum. At the meeting of the Board on July 28, 1925, the Committee on Salaries, Expenditures and Efficiency recommended that Professor Sprague's salary be increased,effective August 1st,from .A2,000 to 1.3,200 Per annum, for such Period during the remainder of the present year as he devotes his entire time to the work of the Board,but that the then present rate for half-time service, namely, m 500 per month be not chanced. This recommendation was approved by the Board. On September 29, 1925, the Board was advised that Professor Sprague had returned to his duties at Harvard Universitypand effective October 1st, his salary at the half-time rate of .6,000 per annum was approved. On April 27, 1927, upon being advised that Professor Sprague was going abroad with Governor Strong, the Board voted to grant him a leave of absence without pay, effective April 24th. Mr. Sprague was carried on the Board's rolls as being on indefinite leave of absence without pay until December 31, 1929, and the only service rendered during that time was in March, 1928, when he was called to Washington to consult with members of the Board with regard to brokers loans. The records indicate that he spent March 7th and 8th in Washington for which he was paid at the rate of `i12,000 per annum. VOLUME 215 PAGE 75 Mr. Hamlin: -2- For your further information there is given below the various -amounts paid ]Jr. Sprague during his employment by the Board: 1925 January February Larch April May Tune July August September October November December TOTAL 366.67 316.67 1,000.00 1,000.00 1,100.00 1,100.00 500.00 500.00 500.00 ,383.34 1926 •500.00 500.00 500.00 383.33 „i,1,883.33 1928 .66.67 „66.67 • Form. No. in Office Correspolence To Mr. Hamlin From Mr. Goldenweiser FEDE.RAI. RESERVE BOARD Date__ _lime 19. 1931 Subject: OPO 4041 4 1 0 2-8496 In accordance with yaur request about the amaant of decrease in member bank credit between 1920-1922, as compared with the decrease between 1929 and 1931, the figures are as follows: Between November 1920 and March 1922, member bank credit decreased, in round figures, by $2,500,000,000. Between December 31, 1929 and March 25, 1931, the decrease was $1,205,000,000. from October 4, 1929 If we take the period to March 1931, the decrease in member bank credit is practically the same as for the other period, namely, $1,200,000,000. During that period, however, loans to brokers in New York for account of others decreased by $3,600,000,000, so that the total decrease in bank credit plus loans for account of others during the period from October 1929 to March 1931 was $4,800,000,000. In addition to this amount, loans for account of others obtained by stock exchange members otherwise than through re-porting member banks decreased by $2,600,000,000. If you wish to add-this figure, it brines the total liquidation up to $7,400,000,000. /7z 0444101.4.40W401 04,44 V-oveoft. g4+ VOLUME 215 PAGE 80 AA.. A40444 ikrom..0144464d4 10.4.40a444.4iC4-44-4 y• 3 Form No. 131 Office Corresponlence FEDERAL RESERVE BOARD • Date _June 194_1931 Subject: To Mr. Hamlin From _ Mr. Goldenwei 4. 1- 2-8495 I • In reply to your inquiry about what the Federal reserve system has done to stabilize prices, I am sending you a chart that shows the curve of industrial production and wholesale prices from 1922 to date, and indicates Federal reserve policy during different periods. I think this chart shows that Federal reserve policy has been much more clearly related to industrial production than to wholesale prices. Nearly every time when industrial production was low the Federal reserve has adopted an easing policy, and when it was high it adopted measures of restraint. In relation to prices, this was true in 1923 and 1924, and possibly in the spring of 1925, but from 1925 to 1927 prices declined while Federal reserve policy was in the direction of firmness, and from 1927 to 1929 prices were stable, but Federal reserve policy was one of tight money. Prom the autumn of 1929 to date Federal reserve policy has been one of continuous easing and prices have continuously declined. I think that, putting it in mathematical terms, there is no correlation between the Course of prices and the course of Federal reserve policy. VOLUME 215 PAGE 83 1 I. • • F000ru. • we WIla. I,rk Reports Department is , 1J.11. 2023.2.. INDEX 140 — SOLD SECURITIES RAISED RATES 1 ECURITIES SOLD S RAISED RATE I SOLD SECURITIES RAISED RATES SOLD SECURITIES L — RAISED RATES 120 — SOLD SECURITIES RAISED RATES 100 PRICES BOUGHT SECURITIES BOUGHT SECURITIES LOWERED RATES I BOUGHT SECURITIES —LOWERED RATES— 80 ,!I I I t BOUGHT SECURITI LOWERED RATES\ BOUGHT SECURITIES LOWERED RATES INDUSTRIAL PRODUCTION (F. R.BOARD INDEX—I923-25=100 PER CENT) 60 1 1922- 1923 1924 PRic-L.5 - a s.gureew o/idAor 56//slics (Cornier/eV ) 6,9se — /923-25 /00 1925 1926 1927 1928 1929 1930 1931 1932 • FEDERAL RESERVE BOARD WASHI NGTON ADDRESS OFFICIAL CORRESPONDENCE TO X-6914 THE FEDERAL RESERVE BOARD June 19, 1931. SUBjECT: Ap:plications of State Banks and Trust Companies for Membership. Dear Sir: A number of applications for membership in the FederalReserve System, bearing the favorable recommendation of the Federal reserve bank committee, have been received by the Federal Reserve Board recently, where the condition of the applicant banks was not, in the opinion of the Board, up to the standard which should be maintained by banks seeking membership, the reT)orts showing substantial depreciation in investment account, established losses on loans, etc. During the consideration of these applications it Tas sugjested that the Board adopt the policy of requiring that at the time of admission of a state bank or trust comnany to membershin in the Federal Reserve Systcm, it shall bc free from all known losses and du?reciation, so that on the date its membershb becomes effective, its statement will reflect as nearly as )ossible the value of its assets. After some consideration of the pronoscd Policy the 3oard referred the matter to the recent Conference of Governors for an expression of opinion, and was advised that it was the sense of the Conference that the 9olicy is sound in -orinciplc. The Board has now given further thouOlt to the matter and has voted to ado?t, the proposed policy. You are, therefore, requested to bring this action of thc Board to the attention of your committee of directors which passes on membership a-Iplications, in order that it may be governed accordingly in making its recommendations to the Federal Reserve Board on applications received in the future. By order of the Federal Reserve Board. Noell, Assistant Secretary. TO ALL FEDERAL RESERVE AGENTS. VOLUME ear 2/S-1 PAGE 86 •TELEGRAM 110 Ls , . 04 FEDERAL RESERVE BOARD WASHINGTON June g, 1931 HARRISON NEW YORK Your telegram this date STOP Fedbral Reserve Board has voted to approve action of Board of Directors of Federal Reserve Bank of New York in authorizing the offic re of the Bank, if and when it seems to them advisable QUOTE to arrange for the participation by this Bank in a credit to the Reichsbank by agreeing to purchase between June 24 and July 16, 1931, not to exceed the equivalent of $50,000,000 of prime commercial bills endorsed or guaranteed by the Reichsbank, it being understood that the Bank of England would agree to participate for an equivalent amount and that the Bank of France and the Bank for International Settlements would also be invited to participate and that if they or any other banks do participate, the participatians of the Bank of England and the Federal Reserve Bank of New York will be reduced pro ratA UNQUOTE STOP In approving this authorization the Federal Reserve Board does so with the understanding that the Bank of France will participate to a substantial amount in the proposed credit and that the participation of the Federal Reserve Bank of New York will be reduced. ratably with that of the Bank of England by the amount of the partirApation of the Bank of France and any other banks which may participate in the credit STOP It is understood further that proper safeguards will be taken for the custody of any bills purchased for account of the .'sclora1 1 Reserve Bank of new York and for the release of gold from the Reichsbank for shipment for account of the Federal Reserve Bank of New York on the termination of the credit should that be necessary METER VOLUME 215, PAGE 90 OFFICIAL BUSINESS GOVERNMENT RATES CHARGE FEDERAL RESERVE BOARD ,MVERNNIENT PRINTING it,Is 3104460 COPT. TELEGRAM lrederal Reserve System 173 bra New York 531 p June 23 Board Washington Referring to our telephone conversation of today the Bank of England has advised us by telephone and cable that they have been invited by the Reichabank to arrange a credit to the Beichsbank effective as of tomorrow up to a maximum of say $100,000,000 against security of prime commercial bills amounts utilized and outstanding to be repaid by the Reichsbank on July 16 if necessary by gold shipments or earlier if and when note circu- lation shall be reduced or devisen shall be received. It is understood that this credit is necessary in order to tide tbe Reichsbank over the end of the half year period when payments by the Reichsbank are customarily heavy. The Bank of England has today deposited one million pounds with the P.eichsbank in order to enable the Reichshank to retintain its required legal reserve percentage in its 7:ub1ished statement as of toniat. At a special meeting the directors of this bank this afternoon authorized the officers if and when it seems to them advisable, and subject to the approval of the Federal Eeserve Board, to arrange for the participation by this bank in a credit to the Reichsbank by agreeing to purchase between June 24 and July 16, 1931 not to exceed the equivalent of $50,000,000 of prime commercial bills endorsed or guaranteed by the Reichsbank, it being understood that the Bank of England would agree to participate for an equivalent amount and the+. the Brink of France and the Bank for International Settlements would also be invited to participate and that if they or any other banks do participate, the participations of the Bank of England and the !edema i VOLUME 215 PAGE http://fraser.stlouisfed.org/ 92 Federal Reserve Bank of St. Louis effi/ Page 2. Reser,* Bank of New 'fork will be reduced 1,ro rata. In view of the urgency of the situation we wuld appreciate the Board's approval of the action of our Directors as soon as it may be convenient. Harrison 445 pm -4/ 4 FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-6915 June 19, 1931. SUBJECT: Action on Governors' Conference Topics. Dear Sir: There is attached hereto for your information, coy of a letter to the Secretary of the Governors' Conference, advising of the action taken by the Board on certain of the topics discussed at the Conference hold in Washington on April 27-29, 1931. Very truly yours, J. C. Noell, Assistant Secretary. Enclosure. TO GOVFRUORS OF ALL F7DERAL RESERVE BANKS EXCEPT SAN FRANCISCO. VOLUME 215 PAGE 111 C 0P Y X-6915-a June 19, 1931. Dear Mr. Strater: This will acknowledge receipt of your letter of May 26th, enclosing copies of the Secretary's minutes of the Governors' Conference held in Washington on April 27th, 28th and 29th. The Federal Reserve Board has given consideration to the various topics discussed by the Conference and action has been taken as follows: Topic II-D - Change in weekly Federal reserve bank statement. The Board has approved the suggestion that the special oneday certificates of indebtedness issued by the Treasury Department to Federal reserve banks to cover Treasury overdrafts on tax payment dates, be shown senarately in the body of the weekly Federal reserve bank statement against the caption, "Special Treasury Certificates." Topic II-Er-1 - Payment of a sum equal to one or more months' salary to the widow, dependents, or estate of deceased officers or employees. In connection with the first recommendation of the conference on this topic, the Federal Reserve Board has ruled that in the event of the death of an officer or employee of a Federal reserve bank, the salary of such officer or employee should be paid only up to the next succeeding pay day. The Board has not yet acted, however, on the matters of an increase in group insurance for officers and employees at Federal reserve banks, and the establishment of annuity or tension plans by the individual banks. Tonic - Payment of salary in full or in part to officers or employces incapacitated on account of sickness or otherwise. The Board has noted with approval the action of the Conference in voting that where the absence of officers or employees on account of sickness or other incapacitation exceeds the regular vacation period by thirty days, payment of salary during further leave of absence should be subject to approval by the Board of Directors and reported monthly to the Federal Reserve Board in accordance with the Board's letter of June 14th, 1928, (X-6069). Supplementary Topic B. - Suggested policy in acting on applications of state tanks and trust comPanis for membership. The Board laL,s adopted the pro-3csu6 -policy, in connection with its consideration of applications of state banks and trust companies for membership in the Federal Reserve System, that at the time of admission • AMR X-691.5va - 2to membership the applicant bank shall be free from all known losses and depreciation so that on the date its membership becomes effective its statement will reflect as nearly as nossible the value of its assets. In this connection, a letter is going forward today to all Federal Reserve Agents, requesting that they bring this action of the Board to the attention o? their committees of directors which , ?ass on a-Dplications, in order that they may be governed accordingly in making their recommendations to the Federal Reserve Board. Topic I-D - Desirability of flexibility of interest rates *;.)aid on deposits and of bank dividends. The Board has noted with approval the action and expressions of opinion of the Conference in regard to this topic. Topic I-F - Possible desirability of amending the Federal Reserve Act so as to permit a Federal reserve bank in emergencies to make advances to member banks on the security of assets other than presently eligible paper. Action on the resolution adopted by the Conference on this topic has been deferred by the Board for the time being. Topic II-F - Advertising Federal reserve membership. The Board has noted with approval the opinion of the Governors that Federal reserve banks could not with propriety give approval or support to any agency or organization soliciting subscriptions from banks and others for the purpose of explaining or advertising the benefits derived from membership in the Federal Reserve System. No action is required by the Board on the other topics discussed at the Conference or on the various renorts submitted by its committees. A copy of this letter is being forwarded to the Governor of each Federal reserve bank for his information. Very truly yours, J. C. Yoell, Assistant Secretary. Mr. H. F. Strater, Secretary, Governors' Conference, Federal Reserve Bank, Cleveland, Ohio. • Germany's reparations payments for the year beginning July 1, ( 6 1931 are approximately $425,000,000, of which about $167,000,000 is non-postponable, and $258,000,000 is postponable. The provisions of the Young plan relating to this can be found in the Bulletin for April 1930, page 181 and page 185. The amounts as given here are slightly different, because they are adjusted to our fiscal year, whereas, the original Young plan refers to annuity years beginning on April first. The amount of nonpostponable annuity as given above includes the service -of the Dawes loan of 1924 and the Young loan of 1930, neither of which would be affected by the President's proposal, beGerman cause they hate become obli-P,ations of the Germam Government to the public, rather than to another government. The exact amount of these two services is hard to obtain, but they approximate $31,000,000. This anount, therefore, Germany mould have to continue paying, and the total amount by which be is relieved:is $394,000,000, $135,000,000 non-postponable and $259,800,000 postponable. June 24, 1931 VOLUME 215 PAGE 121 -• Form No. 131 Office Correspontence To Mr. Hamlin From Mr. Goldenweise FEDERAL RESERVE BOARD • Date June 20, 1931 Subject: 01.0 2-8495 I transmit herewith a memorandum from Mr. Thorne, which gives a considerable amount of detail on reparations and war debt payments. The net result of his computations is given at the end of page three, which shows that if a five-year moratorium of fifty per cent of all items were adopted, Germany would gain during the five years $1,122,000,000, while the United States would lose $750,500,000, France $207,000,000, Belgium $45,500,000, and Italy $22,500,000. England would be the only country which would in no way be affected, because her annual payment to us of $180,000,000 is approximately the same as her annual receipts from Germany, and from Prance and the other allies. • Form No. 131 Office Corresponfence To Mr. Goldenweiser From Mr. Thorne FEDERAL RESERVE BOARD Subject: • Date Reparations and War Debt Payments Foreign Debts Due the United States: I. Present Value and Amount Outstanding (In millions of dollars) Amount outstanding Present value on a 41% basis 1/31/31 1. Countries 111 Armenia Austria Belgium Czechoslovakia Estonia Finland France Great Britain Greece Hungary Italy Latvia Lithuania Poland Rumania Russia Yugoslavia 20.0 18.4 23.7 404.7 168.5 16.4 8.6 3,865.0 4,398.0 31.7 1.9 2,017.0 6.8 6.2 206.0 64.5 308.6 61.8 6,862.2 11,608.7 225.0 91.9 11.3 7.4 1,996.5 3,788.4 1.5 528.1 4.7 4.9 146.8 35.1 Total Payments of Principal Countries to the United States Over Next Flye Years (Amounts in millions of dollars Rate of inter-1 End of Principa1,aver- Interest,ever- Total,averCountries est--per cent Ipayments a6e(1932-1936) age L1932-1936 age(1932-1936) 2. Belgium Great Britain France Germany Italy Poland 71 1 1987 1984 1987 1.4 31.0 12.8 5.2 149.0 58.2 1/8 3 1987 1984 12.7 1.2 2.5 5.7 60.5 225.0 -5 3-2 ..y) Total (L- xc%•Cet...,•‘, -1-O40 Ceir.v.t.n9) 6.6 180.0 71.0 141.7 15.2 6.9 285.5 3oo.2' • • 2. II. War Debt Payments to Great Britain: 1. Amounts Due Great Britain on War Loans (Principal and Interest) By whom owed In millions of dollars British Colonies France Italy Belgium Russia Poland Czechoslovakia Portugal Yugoslavia Rumania Austria Greece Estonia Armenia Belgian Congo Total 2. 640 2,845 2,713 44 3,358 23 2 107 153 137 53 102 1 5 17 10,200 Payments of Principal Countries to Great Britain Over Next Five Years Average 5 year (In millions of dollars) Country 61 22 97 180 France Italy Germany Total III. Reparations Payments and Their Distribution: 1. The Distribution of German Payments (Yearly average, 1929-1965 amounting to $473,700,000) (In millions of dollars) Country France Great Britain Italy Belgium Yugoslavia Germany Rumania Portugal Japan Greece Poland Amount received from Germany $294.3 97.4 50.9 27.5 20.0 4.8 3.1 3.1 1.7 0.12 Amount turned over to United States $108.4 177.3 26.5 11.7 1.1 1467 1.9 0.3 6.9 • 2. 3. Amounts Received from Germany and Amounts Paid to United States Over Next Five Years (In millions of dollars) 5 year average Amounts paid to Amounts received United States from Germany Principal countries 24.8 98.8 214.4 Belgium Great Britain France Germany Italy 46.2 6.6 180.0 71.0 14.7 15.2 would average $448,800,000 German reparations payments over the next 5 years yearly. IV. The Results of a 50 Per Cent Five Year Moratorium: (In millions of dollars) Amounts Amounts yaid received J 6 Year Average 1. Principal countries 24.8 (12.4)* 180.0 (90.0)* 214.4 (107.2)* Belgium Great Britain France Germany Italy United States 46.2 300.2 (23.1)* (150.1)* 6.6 (3.3)* 180.0 (90.0)* 132.0 (66.0)* 448.8 (224.4)* 37.2 (18.6)* Balance + 18.2 (9.1)* + 82.4 (41.4)* - 448.8 (-224.4)* + 9.0 (+4.5)* + 300.2 (150.1)* *On basis of 50 per cent moratorium. 2. Total Amount Lost or Gained Over the Five Year Period on the Basis of a 50 Per Cent Moratorium (In millions of dollars) Amount gained Belgium Great Britain France Germany Italy United States Amount lost 45.5 207.0 1,122.0 22.5 750.5 S 6,44 'CONFIDENTIAL (COPY FOR MR. HAMLIN) January 22, 1930 CREDITS EXTENDED BY FEDERAL RESERVE BANKS TO EuEOPEAN CENTRAL BANKS,TO PROMOTE MONETARY STABILIZATION ABROAD National Bank of Bank of England , Belgium National Bank of Beleium Date of agreement 4/20/25 / 10/25/26 Date effective 5/14/25 1-1 10/25/26 Total amount of credit $$00,000,000 $10,000,000 $41,000,000 (approximate) Our share of credit $200,000,000 $ 5,000,000 $10,000,000 Kind of credit In gold Purchase of bills Purchase of bills Expiration date 5/14/27 3/31/26 10/25/27 Renewals None None None Amount availed of 0 3. Our share lj 0 In November 1925 we agreed to purchase $5,000,000 bills from Banque Nationale de Belgique upon fulfilment of certain conditions which were never fulfilled. /11L VOLUME 215 PAGE 138 /tiAZALae....41 /a /e4 -11-4.*,A-0 DZ 444Ay • QAMITS EXTENDED BY FM4U.A.L RE,6.2VE BANKS TO EUROPEAN CMITRAL BANKS TO PROMOTE MONETARY STAB ILIZATION ABROAD . • • H Ranic polsk :National Bank : National Bank : Bank of Italv:of Roumania :of HunparY Date of agreement 12/20/27 11/16/28 6/29/29 Date effective 12/22/27 2/ 7/29 7/ 1/29 Total amount of credit $20,000,000 $75,000,000 * $25,000,000 $10,000,000 Our share of cr. $ 5,250,000 , $15,000,000 $ 4,500,000 $ 2,000,000 Kind of credit Purchase of bills Pur.of bills Pur.of bills Pur of b ills Expiration date 10/13/28 12/22/28 Renewals leitttalo/13/29 None Amount availed of: Total Our share *APProximate 0 0 2/7/3o lo9 2-1-?.taa To 2/7/31 el4!9.2/31/29 ips!‘ 0 0 0 $ 5,000,000 $ 1,000,000 CONFIDENTIAL (COPY FOR MR. OLIN) FEDERAL RESERVE BANKS CREDITS EXTENDED BY TO EUROPEAN CENTRAL BANKS : Bank of Austria : Date of agreement: 1st credit 2nd 0 May 30 Date a 1st credit 2nd " 1V4 May 2R _____ Hungarian National Bank : German Reichsbank : June 18 June 26 .101.41/1••••• 7.4 June lr immortte June p Amount of credit: 1st credit 2nd " $14,000,000naggammj $14,000,00el.eglosa..4 410,000,000 0100,000,000 — Our share of credit: 1st credit 2nd credit $ 1,083,000 1,400,000 $ 2,000,000 3,000,000 $ 25,000,000 Kind of credit: 1st credit 2nd " Expiration date: 1st credit 2nd " Renewals: 1st credit " 2nd Purchase of bills ••••••••••• Purchase of bills Purchase of bills ft August 30 90 days 90 days 01•04110 OOP NED 0.04111116 RM.= MID 11•10.1•6 Amount availed of: 1st credit 2nd credit $14,000,000 (approx.) $10,000,000 Our share: 1st credit 2nd credit $ 1,083,000 July 16 To August 6* q••••••11, 41M. 4100,000,000 11•0.11. $ 2,000,000 $ 3,000,000 $ 25,000,000 On July 24th the Board noted the action taken by the directors of the Federal Reserve Bank of New York in voting to authorize the officers to purchase, as and if it appeared necessary and desirable, up to 425,000,000 of sterling with the under— standing that the funds would be used in the purchase of bills. ValgalalliallmormatiosNarsaaw. • CONFIDENTIAL (COPY FOR MR. SUN) CREDITS EXTENDED BY FEDERAL RESERVE BANKS TO EUROPEAN CENTRAL BANKS TO PROMOTE MONETARY STABILIZATION ABROAD Bank Polski Bank of Italy National Bank of Roumania National Bank of Hungary 6/29/29 Date of agreement 10/18/27 12/20/27 11/16/28 Date effective 10/18/27 12/22/27 2/ 7/29 Total amount of credit $20,000,000 $75,000,000 lj $25,000,000 $10,000,000 Our share of cr. $ 5,250,000 $15,000,000 $ 4,500,000 $ 2,000,000 Kind of credit Purchase of bills Purchase of bills Pur. of bills Pur. of bills Expiration date 10/13/28 12/22/28 2/7/30 10/1/29 Renewals 10/13/28 10/13/29 expired None 2/7/30 2/7/31 expires 10/1/29 12/31/29 exp. Amount availed of: Total Our share 0 0 0 0 0 0 lj Approximate 1/4 7/ 1/29 $5.000,000 $1,000,000 • COPY Passed July 9, 1931. The Governor brought up the telegram received from the Gavernor of the Federal Reserve Bank of New York, under date of July 2nd, on which the Board has not yet acted. It was decided to suspend action pending further developments. After a full canvass of the situation, in which there was unanimity of o2inion on the principle of participation, it was, upon motion, voted that in order to insure pramnt action should it become necessary in the absence of a quorum of the Board at the time the present or an amended proposal might come un for action, the Governor and such members of the Board as might be present in Washington be authorized to act for and on behalf of the Board, it being understood that any further participation with European central banks in the organization and extension of credits to central banks should conform to the character, safeguards and precedents developed in connection with previous participations in central bank credits by the Federal Reserve System. C14 2-4«.40/. VOLUME 215 PAGE 144 /14,•-s42 LeitV COPY Form. No. M Office Corresponlence To Mr. Wyatt From Mr. Hamlin FEDERAL RESERVE BOARD • Ehae July 9, 1931. Subject: Dear Mr. Wyatt: I have your memorandum dated July 8th on the subject of the ownership by the Mercantile Commerce Bank 4 Trust Company of stodk of the Mercantile Commerce National Bank. You. will find on page 6 of my memorandum the statement that the Board had no authority under the Act, as amended, to im9ose such a condition. as to stodk ownerdaip, and could not enforce it "unless the ipurchase of said stodk may have im eriled the financial condition of the state bank." In this case, it would seem conclusive that the holding of this stock by the state bank has not imperiled its assets,- as a matter of fact, no eudh conte:tion having ever been naised. I would have no objection to this condition being imposed if the Board explained that it was merely for the purpose of ascertaining Whether, as a fc,..ct, the -proposed stodk holding would injure the state bank, but sudh a condition, in my opinion, would be unnecessary, as the generaL condition as to dhange of assets would fully cover this. Your observations under page 3 of your memorandum seem to me simply an arraignment of chain and group banking, over Which ConE,ress has given us no control. While I admit that there might be a case in Which the purdhase of stodk would injure the state bank as a matter of VOLUME 215 PAGE 148
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