The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Hamlin, Charles S., Scrap Book — Volume 228, FRBoard Members
205.001 - Hamlin Charles S
Scrap Book - Volume P28
FRBoard Members
0
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
The Files
From
Mr. Coe
•
Date
August 6, 1941
Subject:
1Y1/0'gAfter 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 228 of Mr. Hamlin's scrap book and placed in the Board's
files:
VOLUME 228
Page 31
Letter to Gov. Meyer from Senator Glass re S. 4115.
Page 34
Memo to Mr. Hamlin from Mr. Goldenweiser re subscriptions to
war loan issues.
Page 36
Letter to Gov. Harrison from Senator Glass re S. 4115.
Page 51
Confidential letter to Gov. Meyer from Gov. Harrison enclosing
a cablegram from Gov. Norman of Bank of England.
Page 57
Comments on Glass Bill, as reported out by Senate Committee on
Banking and Currency.
Page 81
Memo to Mr. Hamlin from Mr. Smead re Dr. Anderson's criticism of
the reserve proposal submitted by Committee on Bank Reserves.
Page 82
Letter from Mr. Lichtenstein re tightening money market.
Page 99
Memo to Mr. Hamlin from Mr. Smead re recent purchases of U.S. Gov.
securities by F.R. Banks.
Page 101
Preliminary Memo for the Open Market Policy Conference May 17, 1932.
Page 103
Memo to Mr. Hamlin from Mr. Goldenweiser re equalization fee and export debenture plans.
Page 109
Letter to Mr. Hamlin from Mr. Young re Open Market Inv. Committee.
Page 120
Memo to Mr. Hamlin from Mr. Smead re "free gold".
Page 135
Letter to Mr. Lichtenstein re remarks about Board. (Personal
letter from Mr. Hamlin with resume of Board action)
Page 139
Earnings & Expenses of Federal Reserve Banks, April 1932.
LeAtI4k
00 P
-11/1D STATMS Meg
Oommittee on Ap-)ropriations
March 21st, 1932.
Dear Governor Ileyr-rt
I have yours of .,;reh 19th adknowledging receipt of copies of
S. 4115. The co?ies thus hurriedly sent omntiined sone inconsequential
typOgraphioal errors: hence they were sup-dlemented by corrected oo
In ord r that the record may be accurate, I take Uwe to state that
those members of the staff of the Federal asserve Biala sail of the Federal
Reserve Bunk of New York vtho conferred, from time to time, uith the sub.
comaittee of the Senate nanking and Carreto, Oesmittee wet-e not 'called into
consatatiosP by the Cccmittee, nal* is it true that these gentlenen, before
laking their 7,ritten report to the sslowoommittee, 'made it clear that they
were acting solely in their peesonalowscities." On the contrary, these
two gentlemen, by name, •,,ere deleg.,ted by the kresident, as representatives
of the Trassury and the Board, to review the work of the 844mcomz4ttee and
to make suggestions with respect to desirable modification*. Naturally the
Zomittee assemsd they had been authoritatively assigaed by the Treasury
_nd the Board as tested experts.
We assumed that these experts were acting for the Tremolo' and the
Board, not uerely because they were designated by the President, but because
we had knowledge of the fact that they were, over the period of this -ork, in
consultation tith the Governor of the Board, Ath the Under.LIcretary of
the Treasury and tth the Governor of the Nevi fork Federal Reserve Bank. To
the very last meeting of the sub-committee the Secretary of the Treasury
expressed a dregire to have our 'york reviewed, by Hr. Goldeseeiser, who
mahlippily ;Ike ill.
The sub-committee did not learn until these gentlemen presented their
written re„ort that they were assuning to speak only for themselves. The
CotaLlittee„ if I uay venture to say so, did not need unauthorised advice.
It 44 ende6voring to expedite legislation by getting authoritative suggestions
in order to avoid delay incidfmt to further public h.larings on the banking
problem. The coaaittee was utterly astonished to be told that it had spent
weeks without accomplisiiin - this purpose.
As to the suggestion no made for hsykring the Board, of course any
written resummendtions uade by the Beard will be tLven to the full 'NozzLittee
and the eammittee will have further p iblic heLrins. In thiseannection I
take leave to reatmlyou that, by request of the sub.conkattee, I perconally
called the Governor of the Board on the telephone and offered to give the
Boari a pUblic helisinr nd likewise personally called the Go-ernor of the
VOLUME 228
PAGE 31
Na, York ?edema. Reserve Bank on the )hone and made the same proffer.
The invitation in each instance nas definitely declined.
AI!
The bill introduced last lednesday, I may add, is not fundamentally
different from that reviewed by the experts assigned to the sub-cceraittee,
beyond the fact that three important provisions were lifted. into the socalled Glass-Steagall bill and several provisions affecting private bankers
have been eliminated.
Very respectfully yours,
(Signed) Carter Glass.
Ron. lgugenejieyer,
Governor of the Federal Reserve Board,
Washington, D. G.
r
6-21
ANN.
131
Office Corresponlence
To_
From
Mr. Hamlin
FEDERAL RESERVE
BOARD
So, Atk
•
Date
May 16+ 1932
Subject:
Mr. Goldenweiser
d400
GPO
In accordance with your request by telephone, I am listing
below the estimated number of subscriptions to the war loan
issues:
First Liberty Loan
Second Liberty Loan
Third Liberty Loan
Fourth Liberty Loan
Victory Loan
4,000,000
9,400,000
18,302,325
22,777,680
11,803,895
This information v:as obtained from Mr. Broughton, Commissioner
of Public Debt, who informs me that there is no estimate of the number
of persons actually subscribing.
VOLUME 426
PAGE 34
2-8495
....
..rwumempowwswe
4.444.47 664.44t
I.
S
•
COPY
April 9, 1932.
Dear Governor Harrison:
Permit me to acknowledge your courtesy in sending me a colv. of
,our extended letter to Senator Norbeck, Chairman of the Banking and
Currency Committee of the United States Senate, in criticism of 5.4115.
I have read and re-read with scrupulous care the letter in question
and have noted with considerable interest that it has the unanimous
approval of the board of directors of the Federal Reserve Bank of New
York.
You may be sure that I am in nowise astonished at the :*ture of
the letter nor at the approval of the New York bank board. I am,
however, distinctly gratified, as I feel confident our committee will
be, that you and your board have thus stated in unequivocal terms the
misconception of the Federal Reserve banking act which so long has been
reflected in the extraordinary policies pursued by the New York bank
with respect to both domestic and foreign transactions. It is trt4
a notable document. In my considered view it constitutes a Challenge
to statutory authority and an unyielding antagonism to any restraining
influences whatsoever.
For my part the challenge will be squarely met and the issue
distinctly joined in the United States Senate.
Sincerely yours,
(Signed)
Hon. G. L. Harrison,
Govenior of the Federal Reserve Bank,
New York City, New York.
VOLUME 228
PAGE 36
Carter Glass.
•
•
4.
C 0P Y
nit
FERAL RESMVE BANK
OF NEW YORK
April 19, 1932.
C ONFIMTTIAL.
Dear Governor Meyer:
I am enclosing a copy of a personal and confidential
cable which I received from Governor Norman an April 14, about
which I -Liked with you over the telephone on Saturday.
I am also
enclosing a copy of my reply which I read to you on that day.
I
have heard nothing further from Governor Norman, but shall keep you
informed of any developments.
Faithfully yours,
(Signed) George L. Harrison.
Hon. Eugune Meyer,
Governor, Federal Reserve Board,
Washington, D. C.
Encs. (2)
VOLUME 228
PAGE 51
T1'
•
•
COPY
INCOMING CABLEGRAM
London, April 14, 1932.
Federal Reserve Bank of New York
New York
No. 129/32 CONFIDENTIAL FOR HARRISON.
ONE
After setting aside amount required to provide for repayment of balance of Govermment credit in Paris we now
hold surplus devisen to approximate value of over
$250,000,000.
Sterling continues strong and we find ourselves compelled
to add daily to our holdings of derisen
TEREE
I am most anxious not to build up heavy holdings in any
foreign market nor I imagine would you wish us to do so
as far as your market is concerned
FOUR
We have taerefore to consider what we are to do if the
present foreign demands for sterling persist
FIVE
I am anxious to avoid any action which (A) could be
misunderstood to indicate ladk of confidence here in
any foreign currency or (B) promote internal nervousness
in any foreign centre regarding its aomestic currency
SLX
For this reason we have refrained hitherto from earmarking gold abroad but in view of the continued tendency
to acquire anaitions to our stodk of devisen we must
now I think cDnsider desirability of sudh action
SEVEN
How would you regard a decision by us to earmark gold
over a period in New York and Paris and probably else-
(
•
-2-
where in respect of some portion of our devisen the
extent of such earmarking to be open to reconsideration
by us from time to time in the light of future developments.
EIGHT
We expect meantime to maintain an easy credit position
here and probably make further reduction in our bank
rate.
NINE
I am anxious now as always to avoid as far as possible
the adoption of any plan which might react disadvantageously on you or on any of our other foreign
central banking friends.
I hope therefore that you
will let me have your frank comments on these ideas
concerning which I have not yet spoken to anyone else.
NORMAN.
COPY
•
•
460
April 16, 1932.
Bank of England
London
No. 141/32 PERSONAL AND CONFIDENTIAL FOR NORMAN
ONE
I have been considering various aspects of problems raised
in your number 129/32 which only emphasize in my mind how
helpful it would be if we could see each other.
So many
questions arise the answers to which depend on other
factors or other policics.
TWO
But with this handicap and without knowing much about youx
present position or your broader long range course, which
you raay not yet see clearly yourself, my general reaction is
(A)
that if demand for sterling continues in recent volume
you. must of course choose between a possible rapid
rise of indeterminate extent or else endeavor to
dheck such a rise by purchases of nev, gold in your own
market or foreign currencies which you. must in turn
leave invested or conv rt into gold
(B)
Assuming you would prefer to avoi, consequences of first
possibility because of effect on youx own domestic economy,
the method of handling your puxchases of devisen
after acquiring your market gold is your first problem
apart fro,d the reduction in your rate to which you refer
in your No. 132/32.
-2-
(C)
As to dollars you may luve to buy it is not unlikely
that our more energetic open market program will result
unavoidably in lower rates on Governments, bills, and
probably deposits, which necessarily implies a narrower
market and greater difficulty in employing your funds
as time goes on so that earmarks of gold seen logical
enough if you are forced to increase your dollars.
We
naturally have no objection to earmarks or to exports,
especially to points Where useful, and shall therefore
gladly accommodate you in this fashion when occasion
arises.
(D) But there are some disadvantages in this aspect of the
problem.
One is the possible misinterpretation that
such earmarks or exports result from fears incident to
our open market program or to our general position,
rather than from favorable factors inherent in your own
situation.
You evidence your own desire to avoid such
a misunderstanding in your No. 129/32 paragraph 5.
(E)
7iith that in mind I should hope that such earmarks
would be timed so as to have the least possible reaction
against our program which I believe most important to
all of us.
Forecasted reduction in your rate will
tend to offset this reaction and to imply your sympathetic agreement and cooperation with it.
This I think
valualle for the more generally our program is understood
and supported the more effective it will be.
Fuxthermore,
should you initiate earmarks abroad the more you scatter
those earmarks the less risk there is of misinterpretation
of your action in any one market.
(F)
Indeed the more you and others understand, agree with, or
evidence approval of oux policy, the more likely it is to
succeed in its broader aspects.
In this connection I
have been wondering what is your orn open market policy.
In view of oux past and prospective purchases of Governments our rate is nor ineffective and would continue to be
so at 2i or probably even 2%.
That being so there is
same advantage in leaving it where it is esoecially if it
will serve as an inducement to the banks to use the reserves we are giving them.
Our present program has been more favorably received than
I had dared expect.
With this background you can better understand hor your
own policies may fit into our picture and work for improvement everywhere.
(J)
I conclude as I began, therefore, that I see the poFsible
need for your taking part of your dollars in gold, especially if, as you indicL.te in your number 129/32 paragraph 3, and as I fully agree, there are fundamental
objections to your accumulating too large amounts of
devisen in this or other markets.
This leads me to prefer
your taking gold rather than accumulating too big a dollar balance, but it may be that through your rate, your
open market operations, and your purchases of market gold
in London you may minimize the need for a too rapid acquisition of devisen or foreign gold.
THREE Your cable is most helpful but I wish we could keep more consistently and closely in touch.
With this in mind I would
like to go over in :lay if I can wisely leave here.
Harrison.
NY
WU 333
•
410
COPY
April 22, 1932.
George L.Harrison, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.
Dear Governor Harrison:
Please accept my thanks for your letter of April 19,
1932, and for your courtesy in sending me copies of your recent
confid€ntial cable corresponclence with Governor Norman, which was
brought to my attention upon my return to the office this morning.
Sincerely yours,
(Signed) Iugene Meyer
Governor.
44.- 641
L1
9
047
April
20. 1932.
CrACv.KT-'5 Id GLASS JUL. AS RIWORT/D 1VT. BY 3F4V:11 cifyarrorel
111 IMAXINO AND antlny
(References are to 3.4412, April 18, 1932)
Sections 5(b) and 23k peke 6. line 12: _Dalteak,_,t3•_224E0
147,
These references qre all to placse in the bill (Dimling with reports
nt exqmingtilns of affiliates.
The 1-Ing1age of the bill is mandatory,
stating thAt these reports Ind examinations Sh441 be made.
In vie-, of
the very bro9,1 definition of affiliates, which wouli include lindstriel
and other clrporetions having nothing to ao with banking, discretion
shaull be left to determine whether the renorts 9nd examinations of
effililtes should be obtlined in all vises.
Languags thet would ac-
complish this purpose is incorporated in the Boord's report on the Glass
bill, an pages 10, 11, and 67.
3ectil4
ro,t
,31 lineq
I
This section, which imposes upon stmte member banks the same
/
tations and . conditions with respect to the purchasing, selling, underwriting and bolding of inveatment securities and stock as are applicable
in the osse of national banks. Should be eliminated for the same reasons
ne in the case of similnr restrictions in section 14 ',phial applies to
notional banks.
tiou
The language of this provision, when read in
elMAC-
with lines 1 to 4 on page 36, which prohibit national banks from
holding stook, has even rise to the question 'Whether state member banks
would not be required to dispose immediately of stoat in s subsiii4r7
VOLUME 228
PAGE 57
(2)
corporation.
In view of this questions if this dpgrotrx,tph is not
omitted, its effective date should be postponed for a period corresponding to that apoliceble to the separation of security affiliates.
....al-:
leption 7. 21kmallakm2
The establishment by law of the existing Federal open mnrket com,
mittee is undesirable on the grounds stated in the comments of the l'ederal Reserve lloard.
It is pnrticulerly important to limit the cos.
mitt** to its present jurisdiction over open mnrket operations for system account.
As propose/ in the bill, a majority of n committee con-
sisting of representatives of the twelve banks would have the power,
which they do not possess under present procedure, to prevent an individual reserve bank from purchasing an acceptance, a municipal warrant,
or any other inveptment muthorised by law, and thus to obstruct the
operation of the reserve banks.
Secion 7. pegs 16. lilies 9-19:
Requirement that member banks shall contribute about $65.000.000
(one-Ulf is full within 90 days) to the capital of the Liquidating
Corpor"tion is contrary to the Vederal Reserve Board's recommendation,
and would be undesirable, particularly at this time.
Section 7 L Dag! P‘1je0.1:251_,A0_21. lines l-11:
LGRA9 made by the Liquidating Cor)or.,tion on assets of closed
banks must be based on velyPtiona determined by committees on ',hid' it
is not represented.
It is undesirable to prescribe by law the proce-
dure which Should be followed in this reppect.
(3)
3ectioll81 prve 28 lines 8-24:
Omission of these provisions deeling with advances to member banks
on 15-day notes wns recommended by the Federal Reserve Board.
unnecessnry, becluse their objects are aticompliehed in
They are
more satisfae-
The language in section 8 implies that all
factory wly by section 3.
loans on securities qt.* of questionable propriety, and the section is
belied on the theory, not
pported by the system's experience, that ad-
vances on member bank 15-4ny cotes have a differAnt effect on the credit
situation than rediscount..
The Board's reoommendntion that the =mi-
ta, maturity of wiv-inees to member banks be eTtended to 90 &lye when
secured by eligible paper. Should be incorporated in the bill.
pect;on 114, page 31
lines 15-21:
Authorises national banks to *wee in all forms of banking business permitted to state banks unless specificqlly prohibited by law.
his provision would lower the lit4nderds of national banking and make
the problem of supervision over theoa *inks more difficult.
Tbe
troller of the Currency under this section would have to be familiar
with the legislation of all the states conferring powers on the state
banks. And would have to apply this legislation in his dealings with
the netional beaks of each state.
Furthermore, it is doubtful whether
some powers which may be possessed by state banks should be conferred
en national banks.
The Federal Reserve Bosird recommended *mission of
this entire section (section 14) which restricts the operations of national brinks in the investment field. on the general ground that at
this time when the country's banking system is going through a period
(14)
of severe readjustment such restrictions on national banks may prove
disturbing And may r,ItIrd recovery.
It is Also a question Whether
such rentrictions nre wise so long as nntionel teak' are in competition
with ette brinks which are not stbject to such restrictions.
lection le, pno 113,„ line 1:
It would be better to ralow five years, rather than thren, for the
'separation of security affiliates from member banks.
SeCtiou 22. vage
46.
line 25k and me 47
lina.3 l-3:
It should be made elenr th,kt this section. Which provides that
loans to sUbsidiaries should be included with loans to parent companies
in connection with the limitations on loans to one borrolvr, rould be
applicnble only to future loans and it ihould not become effective until after three years.
3ection 214_pnre 41. lines 5_41:
The language on these lines give* the Comptroller of the Currency
the power to publish the report of his exnminntions of ttny nntional
banking -n_ssociRtion or affilinte "which shall not have comnlied within
A certain period with his recommen&tions *r suggetions.
This is
nn extremely drastic power to place in the banis of any one man.
..C44,444
Form. No. 131
INF '1
Office Corresponilence
Mr. Hamlin
FEDERAL RESERVE
BOARD
•
Date May it, 1932
Subject:
Smead
GPO
2-8495
With regard to your memorandum of April 27 we have read Dr. Anderson's
criticism of the reserve proposal submitted by the Committee on Bank Reserves
and the editorial in the Journal of Commerce for April 26 to Which you referred.
Dr. Anderson seems to have assined that the Committee intended its proposed reserve formula as, in a large measure at least, a substitute for the
traditional methods of increasing discount rates and selling securities in
order to put a brake on speculative activity.
tended.
Nothing of the sort was in-
The Committee merely expects its proposal to supplement the System's
credit policy but by no means to supplant it. Dr. Anderson states that the
selling of securities and the raising of discount rates is not only a safer
brake but one that could be applied much earlier than a brake resulting from
reserve requirements based on activity, which sometimes, not always," constitutes a brake in the final stages of a period of speculation. The chart
on page 19 of the Committee's report shows that the reserve requirements
proposed by the Committee would serve as a very effective brake on speculative activity and that the effect of the brake, Which becomes noticeable in
the early stages of a Period of speculation, would be increasingly felt as
speculative activity increased. Under the Committee's proposals required
reserves of member banks would have increased over 50 per cent between
January 1924 and October 1929 whereas under present requirements they increased less than 20 per cent.
VOLUME 228
PAGE 81
The chart also shows that the easing
•
J
Mr. Hardin - #2
•
•
effect as speculative activity declined would be much more marked und.er the
Commit tee's proposals than under present reserve requi rement .
Dr. Anderson also states that the chart on page 19 of the Conraittee's
report shows that its requirements would have been highest in the midst of
the panic of 1929, %hen every effort was being made by the Federal Reserve
System to relieve the tension. This is true in t'he sense that the requirements sould have continued to rise through November.
The ellart also shows
I
, that -present requirements showed the same rise in November. There is,
therefore, no difference between the two systems on that score. As a matter
of fact, the chart on page 19 of the report also shows that while there was
an extremely sharp drop in required reserves shortly after the October 1929
break in the market the decline in required reserves vvould have been much
more pronounced under the Committee's proposal.
Contrary to what Dr.
Anderson states, there is no evidence in the data compiled by the Committee
to show that reserve requirements are suddenly and sharply raised in a period
of panic s.nd liq-uidation ir. a mariner that would add to the difficulties of
1
such a si tuation.
In his article, Dr. Anderson states that "activity of accounts is not
a sound criterion of bank reserves."
cant."
"Irregularity is much more signifi-
He goes on to state that the country bank with a large time de-
posit from a corporation in ar.other city may be s-ubject to a constant
menace even thouthi the deposit remains inactive for months or years and implies at least that such a bank should have a hi,4ier reserve than a city
bank with high daily activity and well understood accounts of customers
rho regularly balance their books at the end of the day.
These statements
are based on his argument that "the true theory of reserves relates them
to (a) liquidity of other assets, and (b) irregularity of net demand liabilities, and (c) to a variability in customers borrowing demands."
The
Mr. Hamlin - #3
Committee's theory of legally required reserves is entirely different from
i
that thus stated by Dr. Anderson. On page 1 of the Committee's report, it
is stated that "the two main functions of legal requirements for meMber
bank reserves under our present banking structure are first, to operate in
the direction of sound credit conditions by exerting an influence on
changes in the volume of bank credit and secondly, to provide the Federal
reserve banks with sufficient resources to enable them to pursue an
effective banking and credit policy."
The Committee takes the view that
a commercial bank does not guarantee its liauidity by maintaining its
legal reserves, that to the extent that meMber banks since 1914 have remained liquid through periods of unprecedented banking strain they have been
able to do so, not because of the legal reserves that they have carried
but largely because they have been able to borrow at the reserve banks to
convert their eligible assets into cash.
It would be extremely uneconomical and unnecessary for a country bank
to maintain a high legal reserve against a deposit of a corporation in
another city which is left on deposit with it over a long period of time
even though it is subject to withdrawal on demand.
The bank should main-
tain adequate liquid assets to take care of such withdrawals but should
not be required to carry non-interest bearing legal reserves against them.
Withdrawals of deposits, Whether they be by depositors Who regularly
balance their books at the end of the day or by depositors whose withdrawals are irregular and frequently not expected, can be taken care of
•
Mr. Hamlin - 404
in part at least through a member bank's legal reserves but, as emphasized
by the Committee, legal reserves should not be ex-oected to be a substitute
for the liquidity which a member bank should maintain in order to take
care of wide fluctuations, seasonal or otherwise, in their deposit accounts.
Irregularity of net demand liabilities and variability in customers borrowing demands should find their counterpart in the barks' liquid assets other
than legal reserves.
Dr. Anderson has considerable to say about the workings of the Committee's proposal during the Florida real estate boom.
The Committee be-
fore submitting its report had its scheme tested out on the available figures for Florida banks during this period and was satisfied that it would
have had. a restraining effect.
We have not,yet checked Dr. Anderson's fig-
ures on velocity of turnover of deposits of Florida banks during this period,
but the rapid growth in amount of the deposits would have much more than
offset the decline in velocity indicated by his figures.
CuPY - Mr. Hamlin.
- ashington, D. C.,
May 23, 1932.
Dear Governor Meyer: It appears that a remark in my recent address
at Minneapolis has offended Mrs jurqjn. I am
writing to you to assure through you the members
of the Federaleserve Board that I had not the
sliEhtest intention of imputing wrong motives to
them. Nothing was further from my thoughts.
The sentence in question, which is a mere
side remark, must oe read in connection with the
;1hole address. I do not see vhy the fact that a
presidential electipn was impe,pding_ip 1928 shag(' not
have influenced the Board. Years in which presidential elections occur are usually regarded as years of
peculiar difficulty to business, and the Board might
well have felt that it would ue b poor time to tighten
ihC money market0 It seems to me that b fair reading
of the address Till make it clear that I aid not intend to convey any other meaning. As a matter of
fact, in all ttwlgtters I have received in connection
with the talk, no one except Mr. Hamlin has commented
on the remark to Which he objects.
that as it mays permit me to assure you and
the other members of the Federal heserve Board that
no offense was intended and ;trust none will be
taken.
_
am mailing a copy of this letter also to
Mr. Hamlin and Dr. Miller.
Sincerely youra,
(Signed) Walter Lichtenstein,
Hon. Eugene Meyer,
Governor, Federal Reserve Board,
Treasury Building,
Washington, D. C.
VOLUME 228
PAGE 82
A
/2,#1
Forah No. 131
Office Correspontence
From
FEDERAL RESERVE:
130ARD
Ehite May 13, 1932
Ur. Hamlin
Subject: R"ent purchases of U. S. Govern-
LI% Smead
ment securities by Federal reserve banks
Alpo
2-8495
In response to your telephone rerluest of yesterday, we have prepared the
attadhed statement Showing chanc,es in reserve bank credit and in related items
during the 5-week period ending May 11, 1932.
You will note from this statement that gurdhases of securities amounting
to $500,000,00C during the 5-week period were offset to the extent of
$179,000,000 by liquidation of member bank borrowings an0 of bills bought in
open market, with the result that total reserve bank credit increased during
the period a$320,000,000. Of this increase $202,000,000 is reflected in an
increase in member bank reserve balcnces with the Federal reserve banks.
Available information shows thet daring this same period excess reserves
of weekly reporting member banks in New Ycrk City increased by $81,000,000 and
excess reserves of reportirg member banks in Chicago lqy $63,000,000, an increase
of $144,000,000 in excess reserves of reporting member banks in these two cities.
Reserves of weekly reporting member banks outside these two cities increased
$22,000,000 during the four weeks ending 1:ey
4,
and inaamucli as net demand plus
tiene deposits of uuch banks declined sosrwhat during this pericd, it is estimated
that their excess reserves increased during the four weeks ending May
thing like $25,0,0,000.
excess reserves
4 by some-
Cn the basis of these figures it is estimated that
all weelfly reporting member banks increased about $170,000,000
during the 5-week period. Meuber banks in Chicago reLorted total reseIves on
May 11 of $196,000,000, which is over 50 per cent in excess of requirements.
The attadhed talle, prepared in connection with your inquiry, brings out
the trend in deposits and in loans and investments of weekly reporting mewber
VOLUME 228
PAGE 99
•
•
•
Mr. Hamlin
MP/
benks since the first of the year.
Ynu will note from the table that the
decline in deposits and in loans and investments which took place in New
Yolt City oil a rather extensive scale during the early part of the year h.sNs
not only been stopped but that a substantial increase in deposits and investments has taken place during recent weeks although loans have continued
to decline. In Chicago both net demand and time deposits of reekly reporting member banks declined for the first three months of the year but shored
small increases for the period April
6
to May 11.
At reporting member banks
outside these cities, however, both deposits and loans and investments
(based on May
4 figures)
have continued to decline.
CHANGES IN RESERVE BANK CREDIT An) IN RELATED ITEMS DURFTG 'THE
FIVE-WEEK PERIOD ENDIYG MAY 11, 1932.
(In millions of dollars)
6,
1932
May 11,
1932
Chanre
635
471
- 164
58
43
- 15
885
21
1,385
19
+ 500
2
+ 320
- 82
April
Bills
Bills
U. S.
Other
discounted
bought
Government securities
reserve bank credit
TOTAL RESERVE BANK CREDIT
Monetary gold stock
Treasury currency, adjusted
1,599
1,919
4,396
1,806
4,314
1,771
Money in circulation
Member bank reserve balances
Unexpended capital funds, nonmember deposits, etc.
5,458
1,942
400
5,431
2,144
428
- 35
- 27
+ 202
+ 28
CEANGES IN DHPOSITS, RESERVES, LoArs AND INVESTMENTS OF WEEKLY REPORTING MEMBER BANK'S,
JANUARY 6, TO MAY 11, 1932
(In millions of dollars)
Net
Time
demand
derosits
derosits
Reserv
Total
with F.
Reouired
bank
Excess
Total
Loans and investments
Investments
Loans
Other
U. S.
securities securities
REPORTING MEMBER BANKS IN NEW YORK CITY
Amount
From
From
From
From
of change:
Jan. 6 to Feb. 3
Feb. 3 to Mar. 2
Mar. 2 to Apr. 6
Apr. 6 to May 11
Amount
Froth
From
From
From
of change:
Jan. 6 to Feb. 3
Feb. 3 to Mar. 2
Mar. 2 to Apr. 6
Apr. 6 to May 11
-339
- 82
-
17
- 14
+ 63
+ 16
+ 61
+ 9
+304
+ 16
+121
+ 40
+
52
+ 81
-113
- 90
-277
-129
-148
+151
-3
-16
+La
-102
4mor
+90
REPORTING MEMBER BAA(S IN CHICAGO
- 44
-
15
- 27
-
6
- 85
-
+ 17
111Auount of chanFe:
From
From
From
From
Jan. 6 to Feb. 3
Feb. 3 to mar. 2
Mar. 2 to Apr. 6
Apr. 6 to May 4*
11
+ 2
+ 65
2
+ 63
REFORTING MEY1ER BANKS OUTSIDE NEW YORK AlT CHICAGO
-232
- 54
- 71
- 31
-106
- g5
- 49
+ 36
-
-107
-158
-10g
-113
+ 22
- 30
-21
-15
+ 22
-135
-155
+ 30
_10
available)
6
- 11
*May 11 figures not yet availa:ble.
DIVISiON OF BANK OPERATIONS
MAY 13,1932
+
LAA- 614
•
May 13, 1932.
PRT3LIMINARY MEMORANDUM FOR THE OPEN MARKET POLICY CONFERENCE
MAY 17, 1932.
During the five weeks ended May 11 purchases of government securities
for the System Account totaled 0503 000,000, which added to the 0145,000,000 of
securities previously acquired left 0101,000,000 to be purchased to complete
the total authorizations of the meetings of February 24 and April 12, and close
to this amount will probably be purchased during the current week.
The principal results of the program to date, supplemented by a return
of hoarded currency, may be gammarized as follows:
1.
Indebtedness of member banks at the Reserve Banks has been
reduced from 0835,000,000 to aOut 0470,000,000,
.
2Jt
Member banks now have surplus reserves of approximately
0265,000,000.
3.
Open market money rates and deposit rates in principal
centers have been greatly reduced.
4.
The decline in bank credit appears to have been checked.
5.
Government security prices have improved markedly and
prices of other very prime securities somewhat, though
there has been some set back in the past few days.
Although funds paid out by the Reserve banks have occasionally shown a
tendency to pile up in New York banks, the redistribution of funds, on the whole,
has occurred fairly promptly.
New York banks now show surplus reserves of about
0130,000,000.
Most of the reduction in member bank indebtedness has occurred outside
of New York, and substantial excess reserves are now held by member banks in a
number of centers outside of New York.
Onc of the principal agencies through
which funds have bEen distributed has been Treasury withdrawals of funds fram New
York banks, including funds required for the Reconstruction Finance Corporation.
Purchases of securities from other districts by dealers and banks also have resulted in a substantial outflow of funds to other districts.
VOLUME 228
PAGE 101
To some extent the
!
\
1
2
outward movement of funds through these channels has been counter-balanced by an
increase in the balances maintained with New York correspondent banks by banks
in other localities.
A reduction in interest rates paid by New York City banks
which bcicame effective May 12, has nut yet had time to make its influence felt.
The following table shows in detail the disposition of funds received
by member banks through System purchases of government securities, and the return
flow of currency from February 24, when purchases were begun, to May 11.
(In Millions of Dollars)
Feb. 24 to
May 11
Funds received by member banks through:
F. R. purchases of U. S. securities
Return of currency from circulation (net) Total
...
0.•
...
Disposition of funds:
Repayment of discounts at F. R. banks - - - - •
Reduction in F. R. bill holdings and other
F. R. credit
Transfer of funds to foreign bank deposits in
F. R. banks
Net reduction in gold stock
Miscellaneous
Increase in member bank reserve balances
Total
44
161
805
364
96
28
36
15
266
805
Member Bark Deposits and Loatleand Investments
The changes in member bank deposits and loans and invrstments since the
program was adopted are indicated in the following table:
Loans and
Investments
Dec. 30 to Ian. 27
Ian. 27 to Mar. 2
Mar. 2 to Apr. 13
Apr. 13 to May 11
- 540
- 469
- 465
+ 82
Net Demand &
Time Deposits
- 551
- 521
- 98
+ 250
The expansion in loans and investments thus far has been confined to
New York City, where the principal banks have been largely out of debt since
early in the year and for several weeks have had a substantial amount of excess
A
•
reserves.
3
•
aline reporting banks in other centers have shown no expansion, they
have shown greater stability in their deposits and in their earning assets during the past few weeks than for some time previous.
There have been indications of a greater freedom on the part of member
banks in extending credit and a number of banks in New York City have begun to
buy high grade bonds.
Security_and Commodity Prices and Business Activity
No great change in the levels of bond prices or of commodity prices
has
occurred in recent weeks, and stock prices have remained at about their
lowest levels.
After taking into account the usual seasonal changes, the level of
business activity has shown no material change during recent weeks, although the
delayed activity in the automobile industry is tending to prevent some of the
curtailment which frequently starts at about this time of year.
Size of Excess Reserves
The following diagram shows the effect of purchases which have been
made upon member bank reserves.
The increase of these reserves by
260,000,000
4 2,144,000,000.or to about the same level as in
has brought them to a total of ,i;
the middle of 1925, but lower than at any time since then except for the past
year.
The extent of excess reserves browtt about by recent open market
operations may well be compared with thE, excess reserves in previous periods
when such excesses were followed by revivals in business.
These figures are
not available for the banks as a whole, but the clearing house records do show
the excess reserves of New York City banks, and in the following table these
are shown for several periods as percentages of the required reserves.
The
table indicates that the excess in recent weeks has only become substantial
for the past three weeks, and even so, is considerably less in terms of percentages of requirements than in most of the periods of depression shown in the
table.
S
4
New York City Clearing House Banks
Excess or Deficit in Reserves in per cent of Requirements
January
February
March
April
May
June
July
August
September
October
November
December
1884
1893
1896
1904
1908
1915
+18.3
+22.0
+10.2
+ 3.1
- .4
+11.0
+34.4
+41.4
+37.6
+40.4
+47.6
+49.3
+14.9
+12.1
+ 6.6
+10.5
+18.7
+ 7.4
- 3.9
-11.0
+14.5
+36.9
+55.3
+62.5
+27.9
+26.5
+16.7
+15.9
+17.1
+16.3
+16.2
+ 8.9
+10.4
+13.3
+17.2
+25.4
+ 9.4
+ 9.9
+10.9
+10.7
+ 7.9
+13.2
+15.7
+18.4
+ 9.4
+ 5.3
+ 3.1
+ 4.8
+ 6.9
+10.7
+11.7
+16.6
+18.2
+17.6
+16.2
+17.8
+14.5
+ 9.5
+ 8.4
+ 5.0
+36.8
+37.3
+35.7
+40.3
+42.6
+44.7
+38.1
+40.3
+43.6
+36.7
+34.1
+29.4
1885
January
February
March
April
May
June
July
August
September
October
November
December
+59.3
+58.0
+53.7
+58.0
+64.4
+66.6
+67.3
+63.1
+51.5
+38.7
+28.2
+28.5
18941897
+74.4
+58.6
+58.3
+57.9
+55.2
+53.3
+49.7
+46.1
+41.6
+41.8
+41.2
+24.3
1916
+28.1
+37.9
+38.4
+27.2
+35.3+22.1
+23.5+17.6
+13.7
+31.7
+15.6
+31.4
+16.1
+29.3
+20.9
+25.2
+14.2+15.4
+ 9.8+14.9
+14.0
+13.9
+14.0
+10.0
1930
+
+
+
+
+
+
+
+
+
+
+
+
0.9
1.1
1.9
0.3
0.5
0.9
3.2
0.5
1.7
1.9
1.0
2.6
1931
+
+
+
+
i
6.0
1.3
2.2
0,6
1..!
.
+
+
+
+
+
4.2
6.4
6.6
0.9
2.0
1932
January
February
March
April
May
+ 0.1
+ 0.8
+ 2.6
+13.0
+20.2(To May 13)
BILLIONS OF DOLLARS
2.5
1-
2.0
1.5
1.0
.5
I
1922 '23 '24 '25
--r
28 '29 '30 '31
member Bank Reserve Balances at All Federal Reserve Banks
(Monthly averages of daily figures;latest figure is as of may 13)
'32
r,'oral
PER tENT
)11+20
+10
L
r
!it
o2 llow
hoports Dopa-tment
,193 .
14-
PER CENT
+20
IV
7
I-----1
BUSINESS ACTIVITY
+10
BUSINESS ACTIVITY
ANORMAL)
0
(NORMAL)
0
-10
4
-20
PRI
160
-20
PR!:E
160
140
140
120
120
BOND ,PRICES
_ RAILS)
100
BOND PRICES
(RAILS)
100
80
,
PE , CENT
+60
+40
+40
+20
+20
V
1884
PER CENT
+20
-•
1 BUSINESS ACTIVITY -1
+10
NORMALi
1885
1886
BOND PRICES
RAILS
120
ik
1894
1895
1896
PER CENT
+20-----
PER CENT
+20
+10
+10
rtNORMALA
BUSINESS
ACTIVITY —
-10
-20
PRICE
160
140
140
BUSINESS
ACTIVITY
120
BOND PRICES
VRAI L
100
1897
0
-20
PRICE
160,
‘
120 °In
100
i
r
1893
-10
-20
PRICE
160
w
20
0
-10
al
RESERVE POSITION
N.Y. BANKS
-40
1883
0
v
0
V.
R. ERVE POSIT ION
N.Y. BANKS
1
-40
1
..
80 .._
PE ; CENT
+60
A
140
Ali
80
PER CENT
+60
80
PER CENT
+60
100 BOND PRICES
(RAILS)
80
PER CENT
1-60
+40
+40
+40
+20
+20
+20
RESERVE POSITION
N Y. BANKS
0
,
0
-20
-20
-40
RESERVE POSITION
N. Y. BANKS
-40
1907
1908
1909
RESERVE POS TION
N Y BANKS
-20
-40
1914
1915
1916
1930
1931
1932
. Excess Reserves of New York City Banks Computed as Percentages
of Required Reserves,
Compared with Changes in Bond Prices and Business Activity
in
Periods of Depression
.-;
131
64.<
Office Corresport.ence
To
Mr. Hamlin
From
Mr. Goldenweiser-
411
FEDERAL RESERVE
BOARD
Date
Subject:
May 130 1932
Equalization fee and
expert debenture plans
0P
0
The avowed object of both the equalization plan iind the export
•
debenture plan is to give to farmers, whose products are on an export basis, protection similar to that enjoyed by domestic manufacturers.
Under both systems the plan would be to increase domestic
prices by about the amount of the tariff and to sell the exportable
surpluses in world markets at the lower world prices.
While the object to be obtained is in general the same under
both plans, the price-raising mechanism is somewhat different.
The
essential idea of the equalization plan is that losses incurred by
the government agency purchasing here at high prices and selling
abroad at low prices would be paid by the farmers benefitting from
this system "through a differential loan assessment on each pound
or bushel when and as sold by the farmer."
The farmer would be paid
•
partly in cash and partly in scrip; the scrip would be redeemed later
at face value minus the equalization fee, which would depend on the
extent of the losses.
The plan also provided that in years of over-
production the surplus crops should be bought, stored, and held until
there was a reasonable demand for,it.
A government revolving fund
was proposed for financing such purchase.
In case a loss was incurred
in handling the crop in this way, the equalization fee assessed against
each bushel or bale would be used to take care of such loss.
VOLUME 228
PAGE 103
2-8495
A
•
•"")
•
The export debenture plan seeks to achieve its end by a somewhat roundabout process--essentially by offering a premium or bounty
.mmaris111.•••••••.•••••••..6•Me,
on exports of the commodities in question, in the confident expectation that farmers will be enabled to sell the whole of their marketed
crop at prices higher than would otherihise be obtained, practically to
the extent of the tariff.
Exporters of debenturable products would be
entitled to receive from the Treasury, on due proof that the export
commodity had been Produced in the United States and had not been previously exported therefrom, bearer certificates called export debentures.
Each of these would represent a sum determined by the debenture rate and
the quantity exported.
The debentures would be receivable at their face
value, within a year from the date of issue, in payment of customs duties,
and would be purchased by importers for payment of import duties.
The
cost of these operations to the Treasury would not be charged back to the
farmers.
. ,
f
111
•
.511%.
0.
.
1 1.11111.111111
FEDERAL RESERVE BAN K
OF BOSTON
ROY A.YOUNG
GOVERNOR
il_ay 28, 1932
Hon. Charles S. Hamlin,
Federal Reserve Board,
Mashington, D. C.
Dear Governor Hamlin:
This will acknowledge receipt of your letter of
letter of I:ay 27, both of w'-lich arrived today.
26 and also your
I have attempted to refresh my memory in reference to 1928 and while
I think I have done so accurately, nevertheless I have very little memoranda in
T.y possession as a guide.
On August 13, 1928, the Open Market Investment Committee met in 'Washington
and inasmuch as past experience had shown that nearly 300 million of Federal reserve
credit would be needed between that time and December 26, the Coinmittee felt that
some
_iiprovisionhould be made to relieve any undue strain and asked for authority
to be preparedto buy United States government•bonds to relieve the strain and
made such a
to the Board.
The Board, I believe, was almost
unanimous in feling that the strain could be relieved by the accumulation of
acceptances
under date of August 16, I wrote Georise Harrison giving a sort of
qualified
to the purchase of 100 million of government bonds providing
the situation ould not behandled through accepbances.
The following is a paragraph from your letter:
"As I remember it, the Board called Governor Case's
attention to this increase in accePtance purchases
and he replied by letter that the excess was being
used to take down member banks discounts.
I also
remember, and this is what I want you to refresh
your memory on, that you wrote and telephoned,
criticising Governor Case severely for these purchases."
This I do not remember, but I am sure that if it did happen it must have
November ar-id probaoly in December because to go back you will recall
in
been late
that the members of the Board felt th-t the sibuation would be handled tliough bills
ana they were very rtluctant to
fly additional government bonds.
The
officers of the New Yon( bank had solAewhat different views and argued that we would
be unable to get the bills.
There was such a difference of opon that the Board
sent Yr. Cunningham and myself to :ew York to discuss the situation with the
directors of the New York bank.
I believe that meeting was held on September 13,1928,
because I have a photograph on my wall dated September 12, 1'928 and I recall that
it was autographed to me personally by Benjamin Strong on the day that I was there.
When he autographed it the 12th instead of the 13th, I accused him of being
superstitious and he frankly admitted that he was.
At this meeting with the New%
VOLUME 228
PAGE 109
4
A
-2-
York directors Mr. Cun, ingham made a very impressive talk and I went away with
the feeling that the directors of the New Yor--: bank and the Board were in agreement;
in fact I recall that Governor Strong stated he would even go so far as to reduce
Therefore, if my memory serves me
the bill rate in order to get the bills.
correctly, the '3oard was encouraging the acQuisition of bills rather than governments.
If I also remember correctly they were not greatly concerned if discounts increased
to a linited degree.
In any event, the Board guessed right with the result that we acquired
more acceptances than we desired and, of course, the only way we could have stopped
getting more was to put the bill rate ecual to or above the discount rate, something
we did not do because I think it was generally felt throughout the System that such
action should not be taken until after the seasonal reuirements were out of the way.
In reply to your letter of May 27 quoting a telegramwhich Governor Seay
This is what
sent to I.:atteson in New York, I am afraid I can be of little help.
I t ink happend and you can probably check this statement through George Harrison.
Frequently the Treasury was in the market for its own obligations and the probabilities
are that on August 18, 1928 the Treasury wanted to purchase a particular maturity
that we had in the System special account and Harrison asked for authority from the
The amount probably was insignificant
reserve banks to deliver their proportion.
or the other but it gave Governor
way
one
difference
groat
and it did not make any
did
he
in the telegram.
as
views
his
express
Seay an opportunity to
I am sorry that I can not be of more help to you but if you can refresh
more and also
my memory with certain records of the Board I might be able t
might be in the embarrassing position. ofchanging some of the st tements I have made
above.
With warm personal regards, I am
Yours
P.S.
ipectfui1
I want to congratulate you on your letter to Lichtenstein. It seems to me
that you have rapped. him on the knuckles in a courteous way that ought to
make him feel very uncomfortable, which he certainly deserves.
EA-t
For-m. No. 1IJ
31
Office Corresponance
To_
FEDERAL RESERVE
BOARD
mr. Hamlin
•
Date
MaY 31, 1932
Subject:
From Mr. Smead
repo
2-8495
In accordanCe with your request we are showing below the calculated ancount
of the System's "free gold" as of January o and May 18, 1932.
You will note
that the calculation as of may 18 differs from the one inclosed with your memorandum only as regards the required reserves against deposits. In the case of
January b, there
WaS
a correction of $250,000* in the amount of eligible paper
pledged as ihown in the 3oard's weekly statement.
for free gold as of January
6
Our figure of $455,804,000
was based on total estimated eligible paper,
t1,059,843,000, rather than on tEe amount of eligible paper actually pledged.
January
t3,122,155,000
2,950,938,000
"1,024,768,000
1,926,170,000
2,762,673,000
465,844,000
#2,296,829,000
(5% of 3)
51,238,000
759,297,000
23,292,000
801,337,000
and 6)
422,482,000
697,000
;. ?ederal reserve notes outstanding
Elicible paper pledged with agent
4. Gold reauired as oollateral
7.
Free gold (1
minus 4, 5
May 18
$3,159,187,000
1. 2otal reserves
5. Minimum redemption fund
6. 35% reserve on deposits
6
*The New Orleans Bran& pledged $250,000 Municipal warrants as
collateral .for Federal reserve notes.
**Amount actually pledged (published figure revised). If all
eligble paper held, $1,059,843,000, is substituted in the
calculation "free gold" works out at $455,804,000. Since
Mardh substantially all eligible paper has been pledged with
the agents.
United
States securities are not pledged with agent.
+If
VOLUME 228
PAGE 120
•
X-7161
a4-0? t" 114.4-44.7444,
May 19, 1932.
Mr. Walter Lichtenstein,
Executive Secretary,
First National Bank of Chicago,
Chicago, Illinois.
Dear Mr. Lichtenstein:
I have read carefully the address delivered before the
Minneapolis Chapter of the American Institute of Banking on May 13,
1932, which you were good enough to send me.
very much impressed with its ability.
Taken as a whole, I was
I feel, however, I ought to
say to you frankly that I take decided exception to certain of your
remarks concerning the Federal Reserve Board.
After stating on pages 7 and 8 of the pamphlet, that there
is an inherent weakness in having the Federal Reserve Board rule the
Federal Reserve System because of delay in reaching its decisions,
and after pointing out that the Board in 1927 created an easy money
market, which for a short time checked the flow of gold into this
country, you express the opinion that the Board did not reverse the
movement quickly enough and that their action came too late.
You then
make the following statement:"Again their action came too late. They allowed
money conditions to grow ever easier, possibly
with an eye to the fact that a presidential
election was impending in 1928."
VOLUME 228
PAGE 135
X-7161
-2-
If such a statement had come from one not connected directly
or indirectly with the Federal Reserve System, I should probably- not
have dignified it with a denial, but coming from you, I will restrain
myself sufficiently to reply merely that your conjecture contains not
the slightest element of truth,- that in fact, it is almost grotesquely
untrue.
It is true, as you state, that in 1927 the Federal Reserve
System entered upon an easy money policy which, however, was reversed
in the latter part of that year.
Between January 1 and July 13, 1928,
the System sold 400 millions of Government securities, lost some 360 267
millions in gold exports, and increased discount rates three different
times, namely:- On February 3 to 4%, on May 18 to 41%, and on July 13
to 5%.
The rate established on July 13 - 5% - remained in force until
August of the following year, 1929, when it was raised to 6%.
After July 13, 1928, the Board gave consideration from time
to time as to the advisability of increasing this 5% rate.
There were
two meetings of the Federal Advisory Council after this date, namely:September 29, 1928, and November 22, 1928.
At the September 28 meeting
the Council expressed itself as satisfied with the existing 5% rate
although Mr. Alexander, a member, thought it was depressing business
and should be lowered to 4%.
At the November 22 meeting the Council
specifically opposed any increase in discount rates over the 5% level
then in force on the ground that it would be detrimental to business.
It would be as just to claim that the Council was influenced
at its meeting of September 28 by the fact that a presidential election
Luas14.44,
$4,1444
Ai0.046404,
.04.444101
4
"
r0 410
4#42‘4,, 4.0144 2 4,01~.-140.
4,44 do/i1.1..44vd
4Y4614. 401660.I,
14.•, 06,..444.,
•
4"-*/-t44-0144.14
7
,te
X-7161
was coming on, as to charge that the Federal Reserve I3oard was influenced by any such thought.
It is furthermore a fact that the Federal Reserve Bank of
York, u.on which is imposed the duty ef initiating discount rates
'4
P
under the Federal Reserve Act, made no application to the Federal
New
Reserve Board for approval of an increase in discount rates between
July 13, 1928, when the rate was fixed at 5%, and February 14, 1929,
when the first application for approval of an increase to 6% was made.
It would be as unjust to claim that the directors of the
Federal Reserve Bank of New York were influenced by the fact of an
impending presidential election as to assume that the Federal Resaive
Board entertained any such thought.
Looking back, there is probably some groun
for difference of
opinion as to whether the discount rate should have been increased between
July 13, 1928, and January 1, 1929, but the fact that the Federal Reserve
Bank of New York asked for no increase during this period and that the
Council specifically opposed any increase would certainly seem to relieve
the Federal Reserve Board for what you call its inaction and delay.
You will remember how severely the Federal Advisory Council
criticised the Federal Reserve Board for having initiated a discount
rate at Chicago early in 1927.
Is it your present opinion that the
Board should have initiated a 6% rate after July 13, 1928, when no such
increase was asked for at the meeting of the Council on September 28,
1928, and was specifically advised against at its meeting of November
22, 1928?
I believe the above facts should satisfy any reasonable man
S.4.41,4 •
X-7161
-4that the Federal Reserve Board can not be charged with delay in the
matter of discount rate action during the year 1928.
You also criticise the Board for its delay in not approving
the increase to 6% asked for by the Federal Reserve Bank of New York
on February 14, 1929, and you state, on page 9 of your pamphlet, that
the Federal Advisory Council rather late in the day advised the Board
that such increase should be made.
I think in fairness to the Federal Reserve Board, you should
have stated all of the pertinent facts in connection with this action
of the Cuuncil.
As a fact, the Council on February 15, 1920, specifically
approved the Federal Reserve Board's warning cf February 7, 1929.
In
fact, the Council assumed that the Board had in mind only "direct pressure" against brokers loans and the Council pointed cut that this should
include all security loans, - to customers as well as to brokers.
The Council at that meeting also advised the Board that no
increase in discount rates should be approved until "direct pressure"
had been tried out.
1E4
It is also a fact that at a special meeting on April 18, -
the Council, after having conferred through its Executive Committee with
the Federal Reserve Bank of New York, reversed itself and favored an
increase to 6%, and that at its regular meeting on May 21, 1929, it
again favored such increase.
I assume that it was these two meetings of the Council to which
you refer as being rather late in the day, but you carefully refrained
from mentioning what took place earlier in the day
at the Council meeting
•
X-7161
-5-
of February 15, 1929.
It is an interesting fact, however, that on May 31, 1929,
just ten days after the Council's latest recommendation for an increase,
Chairman McGarrah, of the Federal Reserve Bank of New York, advised the
Board that there would soon be a need for further Federal reserve credit;
that the member banks were afraid to borrow and that they should be
encouraged to borrow by an easier loan policy,- this all under the existing 5% rate!
I am satisfied that if this last recommendation of the Council
had been delayed for ten days, it would never have been made!
During the period from February 7 to about June 1, which was
the period of "direct pressure", the total bills and securities of the
Federal Reserve Bank of New York were steadily declining while the
reserve ratio steadily increased.
From January 2 to June 5, 1929, the
total bills and securities had fallen from 709 millions to 253 millions,
while the reserve ratio had increased from 70.4% to 79.1%1,- all this
under the existing 5% rate.
falling.
Furthermore, commodity prices were slowly
The above would seem to call for lower rather than for higher
discount rates,- at least so far as agricultural and commercial interests,the prime object of the Federal Reserve Act - were concerned.
It is sufficient to say as to "direct pressure" that while it
lasted Federal reserve credit was reduced 193 millions for the System,
security loans were reduced 361 millions, and member bank reserves were
reduced. 41 millions.
There were also, during this period, gold imports
of 173 millions which, through the influence of "direct pressure", were
used in taking down acceptances.
Had it not been for this "direct
X-7161
-6pressure" this gold, it is believed, would have gone directly into
member bank reserves, thus sustaining a further extension of speculative credits.
The fact that the great increase of loans "for others" was
perhaps a major cause of the collapse of October 1929, was a fact for
which the Federal Reserve System can not justly be held responsible.
It is clear that from February 7, 1029, until the time of the final
crash in October, Federal reserve credit had been kept well under control
and ceased to be a foundation for the excessive growth of speculative
loans.
I do not care, however, to enter into a discussion of the comparative merits of "direct pressure" as against the merits of increased
discount rates.
tion.
I am fully aware that opinions may differ on this cues-
I do feel, however, that your aspersions upon the Federal Reserve
Board are unjust and unfounded, and that is my principal reason for
sending you this letter.
Very truly yours,
C. S. Hamlin.
P.S.
Please consider this letter personal only and nct representing
necessarily the views of the Board.
14g-44
CONFIDENTIAL
Not for publication
B-773
EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, APRIL 1932
Month
Federal
Discounted
bills
Purchased
bills
U. S.
securities
$11,744 $121,942
60,701 928,590
16,140 154,329
Other
sources
250,429
15,292
177,062
Richmond
Atlanta
Chicago
St. Louis
84,982
116,019
132,632
9,341
10,576
28,213
42,096
5,143
25,145
3,919
264,552
36,105
48,052
7,303
59,430
7,804
Minneapolis
Kansas City
llas
n Francisco
27,973
92,421
37,037
311,266
4,211
62,202
1,578
6,949
6,733
25,723
48,585
60,304
105,834
23,413
2,917
11,400
202,931 2,050,571
1,700,390
2,088,326
354,107 1,709,432
998,639
371,346
216,628
8,634,984 1,695,075 6,445,658
162,311
1,969,206
870,927 4,596,193
'FEDERAL RESERVE BOARD
DIVISION OF BANK OPERATIONS
MAY 10, 1932,
Total
211,942
111,125
111,665
103,966
265,791
104,245
29,397 6.9
41,693 10.4
195,711 13.7
18,344 5.0
Exclusive
of cost of
F.R.currencyl
1
$7,065 $237,9301
27,131 1,315,549,
12,228
396,470,
23,608
.466,391
$97,179
299,127
213,273
TOTAL
April 1932
March 1932
April 1931
Jan.-Apr. 1932
1931
$151,443
524,973
157,129
Current expenses
Boston
New York
Philadelphia
Cleveland
410:
$143,797
500,527
146,767
202,228
1932
Jan. - April, 1932
Current net earnings
Current net
1Less accrued
earnings
Rati,
dividends and
!Ratio to
Total
to
net charges
Total ;paid-in
!capital
paid-in (current) to
capital profit and loss
1
Per cent
Per cent
9.1
$445,565
$86,487
11.6
$209,250
790,576 16.3
1,835,642
2,973,111
15.0
239,341 18.0
1,209,797
22.4
934,682
254,449 21.8
24.9
1,192,913
882,945
April
Earnings from
Reserve
Bank
of
141,562
145,659
461,502
122,539
97,666
264,476
103,721
95,964 t
72,957
171,3681 125,389
106,996, 97,741
454,223 179,413
4,116,203 2,045,307
200,930 4,352,795 2,043,506
110,660
1,697,273 2,141,908
954,195 17,730,1121,285,918
451,221
7,867,54718,562,236
Total
73,092
128,815
22,872
42,553
212,238
293,099
1,033,814
73,617
12.0
17.8
17.7
110,511
192,727
676,346
4,9
-23,057
9-5
132,356
13,6
72,513
12.7
195,316
81,291
1,221,232
14.3
6.1
111,240
-5,608
33.0
985,846
17,14
5,983,037
-4,122,651
98,7581
8,238
2.5
180,222!
274,001
30.0
2,112,04112,004,162
2,113,325 2,239,470
2,337,5061 -640,233
15.7
16.9
--
3,665,76319,064,349 17,14
9,194,965!-1,307,418
1
19,064,349
1-1,307,418
1/2.6p1f3:528
@FedFRASER