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The Papers of Charles Hamlin (mss24661) 366_07_001- Hamlin, Charles S., Scrap Book — Volume 233, FRBoard Members BOARD OF GOVERNORS S OF THE • FEDERAL RESERVE SYSTEM Office Correspondence To The Files From Mr. Coe Date August 6, 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 233, of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 233 Page 21 - Open-market Policy Since 1929. Page 23 - Earnings & Expenses of F.R. Banks, September 1932. Page 25 - Discounted Bills Held by Each F.R. Bank and Total Bills and Securities Held by the System. Page 41 - Memo to the Federal Reserve Board re examination of the trust departments of the Continental Illinois Bank and Trust Company and the Continental National Bank and Trust Company as at the close of business October 6, 1932. Page 66 - Open Market Conference. Page 67 - Memo to Counsel's Office from Mr. Seitz re Granting of Trust Powers to National Banks. Page 69 - Memo to Mr. Hamlin from Mr. Goldenweiser re revenue bill. Page 71 - Data re Prices from Mr. Goldenweiser to Mr. Hamlin. Page 72 - Memo to Mr. Hamlin from Mr. Goldenweiser re Forecast of Harvard Economic Society Since June 1919. Page 76 - Memo to Mr. Hamlin from Mr. Riefler re Gold Movements compared with reserve requirements 1922-1929. Page 77 - Rulings on bankers acceptances. (Memo of Mr. Vest to Mr. Miller) Page 81 - Memo to Mr. Hamlin from Mr. Smead re Earnings, Expenses and Volume of Operations of F.R. Banks. Page 83 - Memo to Mr. Goldenweiser from Mr. Riefler re reductions in reserve requirements in recent years. Page 87 - (X-7197) Questions regarding application of provisions of National Economy Act to Federal Reserve Board. Page 88 - Proposed amendment to Section 13, F.R. Act. Page 89 - Discounts for Individuals and Corporations. (Tentative draft for discussion only) Page 91 - (X-7201) Proposed Circular re Discounts for Individuals, Partnerships, and Corporations. Page 95 - Memo from Mr. Hamlin to Mr. Morrill re changes in minutes of F.R. Board meeting. Page 99 - (X-7212) Federal Reserve Board Memo re Discounts for Individuals, Partnerships, and Corporations. Page 101 - Memo to Mr. Hamlin from Mr. Parry re new provision for individual loans. Page 109 - Data re Federal Reserve Direct Loans, by Districts. - -2Page 115 - Classification of paper discounted for individuals, partnerships, and corporations. Page 119 - Memo of Mr. Burgess re sharing the work. Page 121 - Memo to Mr. Morrill from Mr. Van Fossen re Direct Loans to Individuals, etc. Page 135 Memo to Mr. Miller from Mr. Goldenweiser re Open Market Policy Since 1929. Page 1 - Report on statements made about report of Committee on Bank Reserves. Page 155 Administration of Clayton Act. (Wyatt to Board - Confidential) p(.4-44-4 fre 4,4t t_v ,14 eg-a44/ 44. 447 fitivigtp-T ) 1 0IeICY SINCE 1929 Recent bankia,develoemente During rece,-,t we reservebun'e holding: of United 3ikAt6e. Governwent secTAritiee varch - sed in the open market have remaieed unchanged at the level reached early in Augeat. Between June 15 and the er.d of L4ptember, however, reserve funds of member bcoks teve been continuouely incre Led from additions to the country's stock of moaetary geld, amounting to t275,000,)00, through releases from earmarks and through im?ortee This hae carried the total gold. stotk of the country to f:4,2D0,000000 and the excess reeerves f the Federal reserve barA-e to t1,200,000,000. 'Since July 20 there ha$ also been a return floe of currency from hoarding estimated at f250,000,000. This estimate is batted on fct that the amount of money in circulation declined by ) 1'130,- 003,000 at a time when it usuaIly increases by more than t103,000,000. Re— serve funds have been incresed also by the issue of i100,300,300 of new national bank notee under the provisions of the recent law extending the circulation privilege to certain additiowd United States Governeent bonds. The inflow of funds to the member banks from all these sources has. enabled them to reduce their indebtedness to the reserve beeke by 4200,000,000 to the lowest level since October of last year &d at the se;le time to increaee their reserves in excess of legal requirements to approximetely 400,000,300. Thia growth in member bank reserve balances from the middle of July to tht end of September has been accompanied by an upturn in total lions and investmente of member hanks in leading cities amounting to t575,000,000, or 3 per cent. The inerese has been in holdings of United States Government securities by banks throvhout the country, offset in part by a continued decline in loans by benks outside Nee York City. Increese VOLUME 233 PAGE 21 Page 2 in the total of melber bank credit sa been reflected in a considerable growth of their deemed and tiar Wirt Itot ic_arp Credit developments mince the break in the etnak market in 1929 may be divided into five periods of unegml length and Characterised by different conditions, particuliirly from th., :loint of view of the reserve system's openmarket policy and its effect on tho credit situation* During the first two years, up to the middle of September, 1931, the reserve banks purchiged t590,000,000 of securities and in addition there was a growth in monetary stock of gold of 640,0000. Additions to the relwrive SOmds of member bankv free these two sources were absorbed to the extent of 4680,000,000 in a redaction of member bknk ifWebtednetia, and to the extent of 340000,00.0 in increlsed Money in circulation. This incree.se in circulation was due in riert to hoarding, hut AAA, to the increased demand for currency- in localities where there vms no bankin serviceu owing to suapenoions t,nd to an increesed use of cash rather than checks due to the ic?osition by banks of service charges an small accounts. ilember beak reserve blances consequently showed only tl relatively slight inercne of ;50,000,000 during this period notwithstanding the large purchesee of securities and hav,vy gold imports* Loans and investments of meMber banks in 1sidinr citiet,1 declined by 050,000000 between the autumn of 1929 and the autnmn of 1931. Thv second period extends from the middle of C;eptember, 1931, when rnglsnd suspended the gold staadard, to the end of February of the present year. During this period there was a lose of $6601000,000 of gold, and an increase of $500,000,000 in currency for hoardinz. This wLsa ?eriod of rapid decrease in Page 3 business activity, numerous bank failures and liquidation of bank credit. During the entire . eriod loRns and investlelts of reorting member banks decreased by $2,500,000,J00 and their de.dosits by !3,330,000,004. In the six weeks followin the British suspension of golet :-Ayment3 there was an outflow of gold from this camtry and a domestic currency drain, whicr caused the Federal reserve banks to advance the rates ,all discountr and on acceptnnces• The Reserve bcoksi portfolio of United States Government securities remained . unchanzed during this period. The outward movement of r V ceed In loveiTlber but was resumed in and there wr.s a 16.rge volume of foreign balances January,( in this market subject to withdrawal in gold on demand;\ During this period the Federal reserve systeA made no change in its holdings of United States Government securities. Indebtedaess of member banks increased between the mionle of September sad the end of February by balances declined by Z5409000,300* 570,000,000 and their reerve Page 4 Between the end of February- and the middle of June, which constitutes the third period, there was a further loss of gold of 1440,000,000. The effect of this loss on the reserve position of member blks *C.6 kully offset throu,sh purchases by the reserve banks of United States Government secarities, whieh were :Bade eligible as collateral for Federel reserve notes for one year by the Glass-Steagall Act peased on February 27. Such purchases during this period totaled 050,000,000 ald en5-,,bled the member banks, not only to meet the. demand for golc, but also to reduce their indebtedness to the reserve benks by 030,000,000 snd to increse their reserves by ft,a0,000,000. This decline in member bank indebtedness and incresee in their reservs at a time of liquidation of bank credit were factors in easing the banking situation which was ale° strengthened by the operations of the Reconstruction Finnic. Corporation. Liquidation of member bank credit, however, continued during this perioo, though at a much lams read rate. Loans and, investments of meeber banks in leading cities showed a decline of 500,000,000 between the end of February and the middle of June, a large part of this degresse occurring during the month of 7.arch. After the middle of June, *hen foreign balances in this country had been reduced to a low level through cold withdrawals and ordinary exchange transactions, there was a reversal in the direction of gold movements. Between June 15 and July 20, the fourth period, the country's stock of loaetary gold increased by $40,000,100. There we, however, an iaaresse of hoarding owing largely to belikiag disturbances in Chicago, with the consequence that member bank reserves were reduced by (10,300,000 and their indebtedness increased by U0,000,000. Luring this period, the reserve banks bought an a6ditiona1 :1140,000,000 of Government securities. PlIP 5 This brief review brings out the fct, that from the autumn of 1929 to the middle of the preee,,..t year funds 7ut out into the money market by the reserve beaks in the course of open market operutions were in uart absorbed by liquidation of member bank inoebtedness at the reserve btInks and in part by increases in the dossed for gold from abroee and for cur— rency for hoardine porpoises at hems. Notwithstanding the large volume: of United States Government securities purchased by th, reserve bik.r,! ti,tring the period, therefore, member bank rf,..serve btilances were considerably lower in July, 1932 than in September, 1929. During the past ten weeks, however, Shish may be considered the fifth period, in which the open market portfolio of the reserve Winks hali been maintained constant at the reserves of member banks high. evel, :it.ve incre:Ised raA.dly„ reflectine e large in— flow of gold and a return of currency from hoards, as well as additional formes of witionia bank notes. This growth in meMber bank reserves hes been accompanied by an incrense in the totn1 volume of member bank credit, A table summarisia developments for the five periods discussed in the precedini.! paragraphs ie presented belows Page 5 BANKIliG DEVELOPIENTS, 1929-1932 (In millions of dollars) Changes in— i Sept. 25,10opt. 16 Fob. 24,1June 15, July 20, 19Z9 to 1931 to 1932 to 1932 to 1932 to Sept. 16, Feb. 24, 'June 16, July 20, Sept. 28, 1931 i 1932 i 1932 1932 1932 Reserve bank holdings of United Stateu Go-Term-lent seourities..... +590 -2 +952 +144 +18 Discounts for member banks. -681 +572 -339 +41 -198 Gold stock +641 -665 -441 443 4232 Money in circulation +3414 41506 -126 +269 -131 453 -540 4223 .66 1233 Loans and investments of reporting member banks -550 -2,526 -519 -754 +574 Net demand and time deposits of these banks i128 -3,343 +34 -448 +597 Reserve balances B Inornase in cold stock The increase of 275,000,000 in the nonetary gold stook of the United States between Jane 15 and the end of September restored to this country about one-fourth of the gold lost during the preceding nine months. This return of gold to tie United States following upon large withdrawals has been in accordance with previous experience as is brought out by the chart which shows the monetary gold stook of the United States from 1919 to 1932. (Insert ohart) There was a loss of gold from the end of 1919 to the spring of 1920, when Oriental end South American oountries withdrew funds aommulated in this country durirg the war-time gold embargo. There was a loss again in 1925 following upon the withirelet by the Reichsbank of a part of the proceeds of the Dawes loan which was floated for the purpose of strengthening the *antral bank's reserves. There was a large loss of gold from the autumn of 1927 to the middle of 1928 following upon extremely easy welt conditions in this country and the flotation of a large volume of ooreign securities, ard onoe more there was s big lost of gold bet.Neen the autumn of 1931 and the sumwer of 1952, representing chiefly the withdrawal of balances by foreign sentral tanks. In each of the earlier oases the withdrawal of gold, which was attributable to a speoial cause and represented chiefly the fotions of **atria banks, was followed by a oontinmeme-iMerease in the country's gold whiek earned it to a new high level. This constant tendency for gold to flow to this country reflects the favorable balance of its payments with foreign countries, when both visible and invisible itens are considered, and the fact that foreign nationals are inclined to view this country both as a safe plaoe to keep their surplus funds and as a favorable place for making investments either in the form of balances or of long-term securities. Page 6 Dtqx!eum la, hvirdiag Another impmrtaA factor in the sitwition has been the covree or the demand for currency. The chart chows for the period from 1926 to date the amount of 4- oney in circulation, as Officially defined, that it), money outside the United States Trery and the reserve banks, with an adjust for the estimated usual seasonal dammiles• From 1926 to 1929 demand for currency tended downward, 'chiefly because of incren.sed use of check', eesseMY in the we of cash by banks, and a return of American oarreney fr,:tra abroad. The increse in the middle of 1929 was due to a temporari growth in the de. nand for cnrrency t the tine the change wns l&d from large-size to small- size bills, In 1130 the *cline in currency reflected the reduction in payrolls and retail trade that characterized the depression 112 to that point. From the autumn of 1930 to the middle of this year, during a period When the demtnd for currenc:i for payroll parosea and for retail trade continued to decline, there was a grotV in loaey in circulation. This growth represented an incre6ae chiefly in hoardiaL;, thoujh it wts also affeettKI to an indeterminable extent by an incrcalse in the deNand for etsh in communitieb that were deprived of banking service (ming to bank failures, and also by an incrc ye in the use of cash in place of checks due to the imposition oi service charge on small checkin2 accounts at soma benke 3,nd also in recent months to the new tax on checkc. The increase in hoardin tlks not been continuous. There was an provement in the early part sof 1931 and again in the late sutuma of that year after tht) 7ational Credit Corporation was organised and bank failures beeame less numerous. A large return flow, amounting to about250,000,000, begaa Dist February *am the RecInstraction Finance Corporation Fat under way, Dot Page 7 lcst summer the heavy loso of aold and the banking disturbance* in Chicago and elsewhere once lore led to iaoreued hoardink, Which reached a maxims' in the third weak 1.11 .71.12y. since July 20 there he been a destaame in sow tavirodlation, i+en .-alowlce is made for the saga seassmal sevemosti amount. ing to approgimatelly '4250,000,000 for the tan "Mk period, This decline in hoarding, mmiting as it does a reduction 14 the number of brknk is.ilures and a trend tword the restoration of confidence in beaks, is the moot important single indicator of the recent im2roirment La btinkink coaditioaso ilk B-811 CONFIDENTIAL Not for publication BER 1932 EATTINGS ArD EXPENSES OF FEDERAL RESERVE BANKS, SEPTEM Federal qeptember of Mo7ith Current expenses Earnings from Reserve 1 10` Bank BoPton 7ew Yorl: Philadelphia Cleveland Richmond Atlanta Chicago St. Louis U. S. securities counted bills Other sources Total Exclusive of cost of F.R.currency Total 1932 Current net earnings Total Ratio to paid-in capital Per cent $46,842 176,097 164,iso 87,295 ,t9,07s 39,555 12,461 12,o56. $155,386 1,108,751 207,803 '264,635 $1,056 22,742 14,306 16,033 82'2,362 1,347,245 39s,747 3go,o19 $143,857 523,909 151,999 203,362 1.52,912 529,95s 165,o26 216,615 $59,450 6.7 817,287 16.9 233,721 17.7 163,404 14.0 69,73s go,396 61,305 30,546 6,187 4,607 16,104 4,264 69,SG2 6,429 317,418 98,806 4,939 22,658 8,344 152,156 159,m 417,485 141,960 112,688 97,I4S 271,750 106,012 116,846 100,125 276,5C0 112,120 35,310 8.3 59,693 15.° 14c,5o5 lo.1 2,593 3,462 3,347 9,187 91,858 84,819 58,915 182,702 2,535 23,45s 2,743 10,923 77,716 130,985 94,239 192,217 81,54S 134,777 94,433 203,900 51,306 21.7 31!239 9.4 9,822 3.1 213,923 24.8 29,840 8.2 Sept. 1932 Jan. Current net earnings Less accrued dividends and Ratio Total net dharges to a (current) to capital profit and loss 437,665 672,752 1,925,350 223,717 2,184,840 1,846,405 14.7 2,340,309 2,026,416 15.6 .2 22,985 2,181,830 13,496,694 16.8 19,607,837 16.6 ,837 19,676,428 19,607 -9,227,005 --3,006,797 19,090,461 20,254,244 -3,006,797 -4,183,588 2,441,234 9,203,843 1,418,782 17,247,447 ------DIVISION OF BANK OPERATIO7S FEDERAL RESERVE BOARD . OCTOBER 11, 1932. 1,o61,2go 123,00l 2,71o,798 136,166 1,2s4,o44 '29,864 2,753,662 199,155 878,656 154,253 581,335 590,571 15,283,878 2,42o,545 19,571,174 2,00g,668 4,o31,245 2,105,882 4,366,725 2,133,807 2,2o4,815 2,080,247 39,284,265 18,808,255 VOLUME 233 PAGE 23 41 C ONFIDENTIAL For use of Federal Reserve Board only Form B-139 A (Formerly St. 3)4.33) DISCOUITTED BILLS REID BY EACH FEDERAL RESERVE BATIK 46J3D TWAT.. BILLS AND SECURITIES HELD BY THE SYSTEM (In millions of dolAiis) System I Total U. S. St. and bills securiPurchasDiscountBoston TT.Y. Phila, Cleve, Rich, Atla. Chicago Louis Einn, K.C. DallasIS.Fran. ties bills Id bills Isecurities# ed Daily average holdings 1931 1,109 647 206 253 4 5 - *20 17 29 22 *23 27 *26 *12 56 *12 uary 921 603 102 216 6 16 14 4 23 18 24 22 21 48 11 February 9 904 604 123 176 15 11 4 8 13 15 15 16 41 21 10 7 !!arch 928 Goo 173 1558 S 11 13 14 13 16 42 8 9 9 April 3 906 *7 144 163 *13 *14 *8 *10 4 599 11 *16 *18 *14 *37 *11 May 926 610 121 188 10 25 12 4 13 1E: 8 19 18 19 33 11 June 930 574 169 11 25 lo 4 79 14 12 17 16 16 26 9 July 9 , 1,076 712 135 222 13 25 13 11 1G 20 25 15 48 9 19 August 1,288 735 259 280 14 4 13 24 25 12 36 23 51 32 8 September 35 2,062 692 733 613 *82 *21 *24 6 *50 *18 *35 38 *89 *78 *17 *153 October 2,014 727 56o 23 25 99 40 *51 70 120 108 25 - November 90 695 7 34 1,922 777 340 774 71 18 30 117 111 47 27 8 E7 168 December 52 39 Illt 1932 January Fieruary April May June July August Septber 47 40 35 34 30 30 25 188 *179 140 120 102 *1c4 103 119 121 97 74 63 66 72 124 122 109 87 57 52 52 *43 36 34 29 24 25 29 50 49 38 37 32 34 4o 85 80 58 46 34 *33 41 24 22 19 17 14 13 14 12 14 lo lo 12 11 13 33 39 35 32 27 24 23 *15 15 13 13 12 14 16 88 131 124 los 80 89 95 19 16 93 81 65 57 36 30 25 24 34 27 33 29 12 11 14 12 21 19 17 13 79 68 *Discount rate charged. #Includes "other securities". 828 848 714 605 486 495 523 1452. 357 221 151 105 52 41 50 6o 759 743 809 1,014 1,413 1,697 1,818 1,842 1,768 1,635 1,676 1,945 2,248 2,407 37 34 1.850 1,84e 2,34 2,274 FED7RAL RESERVE BOARD,DIVISIOU OF BANK OPERATIONS VOLUME 233 PAGE 25 . „..t. .„1,01,4•4404. c MEMORANDUM TO THE FLDERA.L RESERVE BOARD REGARDING TIE EXAMINATION OF Ta TRUST DEPARTiCIWNTS OF TI-IF CONTINENTAL ILLINC IS BANK AND TRUST COMPANY AND THE CONTINENTAL NATIONAL BANK AND TRUST COMPANY AS AT TEE CLOSE OF BUSINESS OCTOBER 61 1932 ( Z,33 ) P ,17e, 4ei AW. COPY Chicago, Illinois, October 12, 1932. Federal Reserve Board, Washington, D. C. Gentlemen: In accordance with instructions your examiner participated in the examination of the Trust Department of the Continental Illinois Bank & Trust Company of Chicago, conducted by the National bank examiners as at the close of business October 6, 1932. The examination included an examination of the Trust Department of the Continental National Bank & Trust Company as well, as the two trust departments are, to all practi— cal purposes, operated as one department, due precaution, however, being taken in the case of trusts held by the latter institution to see that the legal requirements affecting trusts held by National banks are mainptained. The examination was conducted by Mr. H. F. Quinn, National Bank Examiner, with the assistance of two other representatives from the Chief National Bank Examiner's office, and a number of men from the examining force and operating department of the Chicago Clearing House, the number varying from six to fifteen. In addition, a number of men from the Audit. ing Department of the Continental Illinois Bank & Trust Company partici— pated in tht test check of securities held in trust accounts, their work being conducted. under the supervision of a representative of the Clearing House and their participation resulted in a count of securities which would otherwise not have been counted. At no time did the number of such auditors exceed the number from the National bank examining force and the staff from the Clearing House engaged in this work. As stated, the examination was conducted by Mr. Quinn as repre— sentative of the Comptroller's office and your examiner did not partici— pate in any proof of accounts, his work being confined to questions of policy and operations in general. Full cooperation was received from the cmminer in charge, the scope of the examination which, due to the shortness of time allowed for the examination of an institution of this size was necessarily limited, was a subject of mutual discussion, and such suggestions as were offered were incorporated in the procedure. As matters developed during the course of the examination they were freely discussed with Mr. quinn. At the conclusion of the examination Mr. Quinn stated that, other than matters of investment policy which are discussed later, the exam!— nation had developed no matters of material criticism in the accounts other than those set forth in the report and which were corrected during the examination. During the course of the examination Mr. Paulger, Chief of the Division of Examinations, and Ur. Drinnen, Federal Reserve F,xaminer, were advised as to the scope of the examination and as to developments. SIZE OF TBE TRUST DEPARTIMIT The Trust Department is reported to be the largest trust department In the City of Chicago. Statement of the number of accounts for both the state bank and the national bank is attached as Exhibit 'WI. Lists of the ten principal personal trusts and the ten principal corporate trusts are attached as Exhibit 11VEST1EITT PROCEDURE Investment policies are determined by a Directors' Committee on Trust Investments which consists of six directors of the bank who meet weekly with three senior officers and a junior officer of the Trust Department. At the present time Mr. Stanley Field is Chairman of this Committee.' Pwavo INVESTMENT PROCEDURE (continued) Investments purchased for the various trusts are selected from a list of approved securities, Which list is supervised by the senior officers and approved by the Directors' Committee. The list of approved securities, as constituted at present, is attached as Exhibit 'IC". A list of securities formerly on the approved list but since removed is attached as Ex". bibit Su. These issues receive constant scrutiny and review, as many of the securities are still held in various trusts although, purchases have been discontinued. EXhibit IfE" consists of some selected issues of lower grade which are considered among the best in their price range and suitable for exchange for other issues selling at about the same price and whose future prospects are considered more dubious. The policy, however, does not permit the purchase of these bonds except from the proceeds of sale of low grade issues, the exchange being made in an effort to improve the account. The Senior Officers' Committee which supervises the investment list includes officers of the banking department and the security affiliate, the Continental Illinois Company, and is composed of the followi ng: John E. Blunt, Vice President, Trust Department H Arthur H. Evans, Wm. P. Kopf, Frank F. Taylor, R. S. Drew, Second Vice President, Trust Department N. B. Freer, W. R. Bennett, Head of Security Analysis Division, Continental Illinois Bank & Trust Company and Second Vice President, Continental Illinois Company, E. D. Brooks, Second Vice President of the banking department in charge of bank investments under Mr. Abbott, Vice President, Continental Illinois Bank & Trust Company who also frequently attends committee meetings R. L. Junod, Vice President, Continental Illinois Company. The system adopted by the department about two years ago has been improved during the past year by providing for the review of each trust account mod its holdings every six months, and more often in the case of probate accounts. The review is made by a sub-committee consisting INVESTMENT PROCEDURE (continued) an investment of an administrative officer of the Trust Department and al Committee adviser whose recommendation is then passed on to the Centr r Vice which consists of the sub-committee and, in addition, two senio . Presidents and two Second Vice Presidents of the Trust Department Action of the Central Committee it final. either to the In cases of special problems the matter is referred Directors: Senior Officers: Committee, above referred to, or to the through the proCommittee. A further review of trust accounts comes considers various cedure of the Senior Officers: Committee, which the holdings of the issues or investment problems by industries, and ion. various trusts in the issues under considerat ttee on Trust A reading of the minutes of the Directors: Commi various issues, the Investments disclosed that the Committee discusses y, as well as status of various trusts, general questions of polic and reviewing approving a record of purchases and sales for the week ling. typical trust accounts and the method of liard indicates that A review of the minutes of the various committees Department did not have full in many instances in oases where the Trust assets of the trusts, reports responsibility for the investment of the issues held were forwarded to of the Investment Department regarding the and, in some cases, to the the donors, co-executors or co-trustees principal beneficiaries. procedure as prepared by an A detailed statement of the investment is attached as Elltbit investment officer of the Trust Department OR PUBLICLY TRUST ni-VESTLIMITS IN SECURITIES SPOITSOM SECURITY AFFILIATE OR T Cthiluila BY TEE BANK'S BOND DEPAR=EN the National Bank Examiner The report of examination as submitted by this category. The issues were includes a schedule of issues coming under dIscasse an ton of the tP41 rith an off15-,er of the Tmveetiment Divie Blunt, Vice President in charge Trust Department and in general with Ur. question both officers gave of investments. In response to the direct in the work*out of an open assurance that no issue bad had. its origin .5.. line in the commercial banking department; that in no instance was the issue floated to nail outfl the bank. I17 COMPANIES IN77HI0E oo on MORE OF THE DIRECTORS OR OFFICERS OF TEE BA:K IS LARGELY INTERESTED nrirESTIMILS The report of examination as submitted by the National Bank Examiner includes a schedule of holdings of this class of securities. Based on an investigation of the principal issues in this group, the officers or direc— tors concerned do not appear to have abused their trust. PURCHASES OF TRUST INVESTMENTS FROM TBE aka OR SECURITY AFFILIATE Real estate mortgages have been purchase& from the bank for the in. vestment of trust funds. Aththe present time the total of such mortgages is reported as approximately $50,500,000. It was definitely stated by responsible officers of the Trust Department and the Auditor that in ED instance were securities for the investment of fiduciary funds purchased from the bank or the security affiliate. The limited test of invoices covering security purchases revealed no case where the purchase had been made from those sources. INS= ISSUES A schedule of trust investments in these various issues is made a part of the report of examination as submitted by the National Bank Exami— ner. The securities of this class purchased, by the Trust Department for the various accounts are mortgage bonds on the operating properties and the amounts purchased do not appear to be excessive. At the present time all of the securities in this group have a satisfactory rating and it is believed that the Trust Department is not deserving of criticism for these holdings. Your examiner, however, concurs with Examiner Quinn in his criticism of the retention of a large nuMber of stocks and junior securities of the Insull enterprises, especially of the holding companies, in trust accounts where the securities had been acquired by the Trust Department with the trust and for which the Department had no responsibility as to acquisition but have the and discretion to dispose of the securities and invest •••••••••••••••••••.. INS= ISSUZZ (Continued) the proceeds in a type of investment more fitting for trust accounts. It Is recognized that it is easier to criticize these investments following the crash of the Insull interests than to foresee the developments while Insull was a potent force in the Nation as well as in this territory, but it is submitted that conservative trust investment policy would have called for a greater effort to dispose of this type of securities in accounts wherein the Trust Department had the right than was evidenced. In conference with the senior officers of the Trust DepartAent it was admitted that the attitude toward disposal of these issues was affected to some degree by consideration of the effect that their disposal would have on the market. This holding of Insull securities is the major criticism developed during the coarse of the examination. AILITIITG =ROL The auditing of the Trust Department accounts is under the control of the Central Auditing Department which audits the various departments of the Continental Illinois Bank and Trust Company Continental Illinois Company Continental Illinois Bank Building Continental Illinois Safe Deposit Corn any Continental National Bank and Trust Coupany Illinois Trust and Savings Bank llerchants Loan and Trust Company Reports are made to the Comptroller of the Continental Illinois Bank and Trust Company who in turn reports to the Board of Directors upon the results of the audit. The Comptroller, Mr. F. L. King, former National Bank Examiner, is, in addition to his other duties, the chief operating officer of the bank. The Audit Department consists of an Auditor, two Assistant Auditors, 63 audit clerks and 11 clerical as Of these, 9 audit clerks are engaged continuously in the audit work of the Trust members of Department. During enecial audits they are assisted by other the Auditing Division. 1-7 AUDITMIG GaETROL (continued) The present Auditor, flr. W. 11. 1,dens, formerly connected with the National bank examining force and the examining force of the Clearing House Association of Micas°, was appointed to his position Tanury 1, 1932, which was subseouent to the 'Jolf episode when losses of several million dollars were sustained in security transactions of the banking department. At the tine of his appointment the Auditing Division con- sisted of approximately 40 clerks. Since that time there has been a general reorganization and expansion of the Department and its activi-ards the work of the Trust Department have been increased. ties as re,, At the present time a continuous audit is maintained on certain phases of the Trust Department activities, and special examinations of various depar-ments made at other times. A staff of auditors is continually engaged in the count of securities held in the vault of the Trust Department. The program provides that during the course of a year the securities held in each group of accounts will have been counted and checked to the controls. The Auditing Department is engaged in a comprehensive survey of trust department auditing procedure and has certain recommendations pending. A statement submitted by the Auditor of his activities is attached as Exhibit "G". :r. D. A. Lewis, Vice President and nominal head of the Trust Department is a man approaching 80 years of age and is in send-retirement, not active in the operations of the Department, and is expected to re. tire next year. P. Kopf, Vice President, is a flan of 6',5 years of age, has relinquished many of his duties and serves, in the main, in a general advisory capacity. -8 MAIIAGEMENT (continued) tal Both Mr. Lewis and NI.. Kopf were associated with the Continen the Illinois National Bank and Trust Company Frior to the merger with Merchants Trust Company. Vice The active head of the Department is Mr. Frank F. Taylor, of the Illinois YierPresident, formerly head of the Trust Department chants Trust Company. stment Division Mr. J. E. Blunt, Vice President, is head of the Inve the Merchants Loan and of the Trust Department. Formerly connected with s Trust Company; he Truct Company and later with the Illinois Merchant the Continental Illinois was Vice ?resident of the banking department of vdien he moved over to the Bank and Trust Company until September, 1930, nt Division. Trust Department to take charge of the Investme a senior officer of Mr. Arthur H. Evans, Vice President, formerly onal Bank and Trust Company, the Trust Department of the Continental Nati handles certain special situserves in a general executive capacity and ations. t and Secretary, is in charge Mr. R. M. Kimball, second Vice Presiden r Mr. Taylor and represents Mr. of the operations of the Department unde King, the Com,itroller of the bank. CONCLUSION icism developed during the course As stated -)reviously, the major crit dispose of the weaker insull issues of the examination was the failure to t t Department in the various trus which had been acquired by the Trus purnt as not responsible for the accounts, although the Trust Departme chase. the investment r'olicy as regards the Insofar as could be determined tive in ecccunts was reasonably conserva 2urchase of securities for trust the light of the times. been a the past year or so there has It was evident that during the Department, one evidence of vihich is general tightening up in the the investment in the system of reviewing introduction of and improvement CONCLUSION (continued) holdings permitting a more frequent review of the holdings of the various accounts. In October, 1931, the Directors9 Committee on Trust Investments was established in its present form and assumed the duties previously outlined. While unable to quote any individual officer directly to that effect, your examiner is of the opinion that this tightening up of the Department and the adoption of a more conservative policy is due, to quite an extent, to the waning of the influence of the Continental group in the management of the Trust Department, leaving the policies and the management more completely in the hands of the men formerly associated with the Illinois Merchants Bank and Trust Company. At the presentation of the report on the morning of October 12, 1932, in the office of Ur. Leyburn, Chief National Bank Examiner, there were present the chief officers of the Trust Department Mr. Leyburn, 2r. Paulger, Mr. Drinnen, Ur. Quinn, and the undersigned. Respectfully, (Signed) R. F. Leonard Federal Reserve Examiner. STATMENT OF ACCOUNTS AS OF SEPTELTER 50, 1932 State 44 150 9 213 89 37 44 148 9 206 89 37 0 2 0 7 0 0 542 533 9 542 761 366 180 2,478 270 542 761 366 180 2,478 270 00 0 0 0 0 0 4,597 4,597 0 925 824 627 810 716 626 115 108 1 2,376 2,152 224 409 926 409 448 0 478 1,335 857 478 320 1,784 675 467 450 320 1,784 675 467 450 0 0 0 0 0 3,696 3,696 0 Estate Administration Administrator Conservator Depositary Executor Guardian Under Court Order Agency and Custody Agency Custody Depositary Escrow Safekeeping C-Custodian National Total Personal Trust Under Agreement Under Will Insurance Trust Corporate Corporate Depositary Corporate Trusteeship Coupon Coupon Paying Agent Municipal Coupon Paying Agent Trustee Coupon Paying Agen* Non—Withholding Agent Withholding Agent Stock Transfer Registrar Megues Transfer Agent Issues Dividend Disbursing Agent 222 (384) 152 (238) 11 222 (384) 152 (238) 11 0 0 0 0 0 385 227 385 227 0 0 13,158 12,447 711 General TOTALS EXHIBIT "A" PRIVATE TRUSTS ESTATE OF MARSHALL FIELD -.TRUST UNDER WILL Trustee U/Art. 4 Trustee U/Art. 7 Trustee U/Art. 10 AMOUNT OF TRUST Account No. 218 2382 236 $ 958,040.08 4,333,487.41 1,017,336.16 The Bank is sole Trustee on the above accounts. Trustee for Accum. Income Fund Account No. 6708 Trustee for Non-Cumulative Fund Account No. 6710 Trustee for Residuary Account No. 6709 29,912,900.00 7,221,600.00 22,573,000.00 There are three Trustees on the above accounts: The Bank Georc;e Richardson Marshall Field ESTATE OF RICHARD T. CRANE, JR. - EKECUTOR NO. 24581 25,239,475.77 Co-Executors The Bank Cornelius Crane John K. Prentice Walter Evensen ESTATE OF STANLEY R. McCORMICK - CONSERVATOR 10482 35,390,711.83 Co-Conservators The Bank Harold F. McCormick Katharine D. McCormick HELEN SD REED - TRUST UNDER AMEEMEUT NO. 2277 19,191,259.11 Co-Trustees Under Agreement The Bank Helen Shedd Reed Laura A. Shedd Schweppe LAURA A. SEE= SCEM3PPE TRUST UNDER. AGREELEENT NO. 2284 19,191,263.96 Co-Trustees Under Agreement The Bank Laura A. Shedd Schweppe Helen Shedd Reed ESTATE OF DELLORA, R. GATES mi. TRUST UNDER WILL NO. 4093 11,653,570.54 Co-Trustees Under Will The Bank A. L. Humes JOHN W. AND GUSTAVA ANDERSON - TRUSTEE UNDER Ammlam Accounts Nos. 23898 23899 2112 2113 The Bank is sole Trustee on the four above accounts. EXHIBIT "B" 13,528,929.73 • S 0 4 PRIVATE TRUSTS Page .Two. AMOUNT OF TRUST PHILIP M. CHANCELLOR - TRUST UNDER AGREEnTIT NO. 6730 . $ 8,217,448.75 Co-Trustees Under I,zreement The Bank Philip S. Chancellor Philip M. Chancellor FRANK G. LOGAN - TRUST UNDER A • al IDI TT NO, 38 9,665,492.93 Co-Trustees Under Agreement The Bank Stuart Logan Josie H. Logan ENARD Y. JOHNSONi SR. TRUST UNDER AGREE/Ai -1T NQ,j836 Co-Trustees Under LFreement Edward M. Johnson, Sr. Larbert D. Johnson The Bank All trusts held by the Continental Illinois Bank & Trust Co. so EXHIBIT "Br 5)4211 ,351.61 CORPRATE TRUSTEE ACCOUNTS ISSUE ACCOUNT NO. AMOUNT 9496 48,038,400. Armour& Co. of Delawar S Central Illinois Public SL S Chicago & Alt, S Chicago Uni_ 'Coo 2247 SerZ :;p8,297,0000 F 29,000,0000 G 14,500,000. H 32200,000. I 1,500,0000 :.road C:om;Any tion Company S Chicago & West, m :n(dana R0140 Coo S Commonwealth Edia- Company Kansas City Power & Light Coo it of 1961 N Oklahoma Gas & Electric Co. N Public Service Co. of Northern Illinois S Texas Corporation 2138 .7 45,350,0000 Ser0A 30,8500000 B 13,150,000 C 16,000,000 60,000,000. 50..000,000 21_P Ser0A B C D E F G 15,000,000 15,000,000 15,000,000 15,000,000 12,000,000 85,000,000 18,000,000 175,0000000 Ser.B 6,0000000 35,250,000 41,2502000 2L,„0 9686 Ser0A Ser,C D E F G ri 34,500,000 8,250,000 11,284,000 15,000,000 40,0002000 91000 1 131,000 19727 Trusts held by the Continental Illinois Bank & Trust Coo marked "Si% Trusts held by the Continental National Bank & Trust C.Do mark)d "N". 56,497,000, 94,5340000 1000000,000 apzr 1.14.RIMT C0NF4tENCE. . 1931, December 2: Voted to purchase up to 200 millions, the same to be sold after the end of the year. Unanimous. 1932 January 11 and 12: Voted, to purchase not exceeding 200 millions. Cormittee to approve purchases. The Executive Three adverse votes: — Gov. Seay, Gov. LicDougal, and Deputy Governor Day of San Francisco. Gov. Young was not present. . p 1932, February 24: Voted to purchase up to 250 millions at the rate of 25 millions per week. Unanimous. 1932.,Anril 12: Voted to purchase up to 500 millions in addition to the 100 millions alread.y authorized but not yet invested. Gov. Yonne alone voted No. Gov. MADougal voted Aye. 1932v May 17; Voted to purchase ulo to a further amount of 500 millions, the extent and amount to be determined by the Executive Committee. Gov. Young and Gov. McDougal voted No. ••••••• N-OLUMF 233 PAGE 66 5,eicA144 December 13, 1928. Granting of Trust Power3 to Files of Counsel's Office. National Banks. ACTION 1LKEN BY GOVLAORS' CONFMENCE. In connection with this question Governor Young submitted a memorandum to the flovember 1928 Conference of Federal Reserve Bank Governors, which was addressed by him to the Federal Reserve Board under date of November 3, 1928 (X.,-6172), relative to the procedure 'rld principles applicable to the consideration and approval of applications of national banks for permission to exercise trust powers. He said he would appreciate having the reaction of the Conference with respect to this memorandum before its final preparation. (Paragraph 7, Secretary's Minutes of Governors' Conference) the meeting of the Conference held on November 14, 1928, after reading and discu,sins this memorandum it was, upon motion of Governor Seay, VOTED to be the sense of the conference that Governor Young should be informed that the reaction of the conference to the proposed memorandum was a favorable one. (Parnigraph 19, Secretary's Minutes of Governors' Conference) ACTION T-I.ZN BY AGENTS'CONFERENOL. the November 1928 Conference of Federal Reserve -L.gents Governor Young's memorandum and attached statement of the Board's Counsel were fully discussed. On motion,duly made and seconded, it was VOTED to concur in the statements therein contained. As the granting of fiduciary powers by the Board at the time of issuance of the charter by the Comptroller places added responsibility on the Board, emphasis was laid on the importance of the following recommendation of this Conference last year: "The Committee recommends to the Federal .eserve Board that when the time ,eserve Act should be amended to irovide is opportune the Federal : that before any new national bank charters are granted, the applications should be submitted to the Federal -.eserve Board for review and determination. ihis recommendaticn is made in view of the fact 'that all national banks, when chartered, automatically become members of the Federal -eserve System." In considering the memorandum, the examination of trust departments was also discussed. It .;as the consensus of opinion that the same care should be given to the examination of trust departments as is given to other departments of a bank. (Paragraph 12, Secretary's 11inutes of Agents' Conference) ACTION TAM BY BOA:a. Jnder date of December 6, 1928, Governor Young addressed a letter (X-6191a) 'o Mr. Harrison, Secretary of the Governors' Conference, VOLUME 233 PAGE 67 -2 ) in which he stated that the Board noted that the Conference was favorab1L- inclined to the taq,Lestions contained i he memoranaum above mentioned but is not prepared, however, immediatel:/ to take definite action with respect thereto. Governor Young also stated that the Board would advise all Federal reserve banks in due course on whatever action is taken. X-6172 COPY November 3, 1928 To F ederal R eserve Board From Governor Young In view o f the r e c e n t developments in r e fe r e n c e to the gra n tin g o f f id u c ia r y pow ers, wherein the Board may be in the em barrassing p o s it io n o f having granted fid u c ia r y powers to one in s t it u t io n in one d i s t r i c t and almost sim ultaneous l y c o n s id e r in g the r e fu s a l o f the a p p lic a t io n o f another n a tio n a l bank in another d i s t r i c t surrounded b y the same circum stances and c o n d it io n s , I b e lie v e i t i s time f o r the Board to review the whole m atter and la y down c e r ta in d e f in it e p r in c ip le s reg a rd in g the gran tin g o f fid u c ia r y powers. B r i e f l y , the law s ta te s that n a tio n a l banks may e x e r c is e tr u s t pow ers i f n ot in con tra v en tion o f S tate law, when so au th orized and empowered by the F ederal R eserve Board. The law is s p e c i f i c about many le g a l requ irem en ts, and w ith th ese the Board and the banks have had no d i f f i c u l t y because we', have been ab le to be s p e c i f i c . The law a ls o s t a t e s , however, that the Board, in g ra n tin g p erm ission to e x e r c is e tr u s t pow ers, may take in to c o n s id e r a tio n the amount o f c a p it a l and sur p lu s o f the ap p lyin g bank, the needs o f the community to be serv ed , and any oth er f a c t s and circum stances that seem to i t p r o p e r . This is the d is c r e t io n a r y p a rt o f the law. Just what is meant by i t may be debated. The h is t o r y o f the l e g i s l a t i o n , however, lead s me to b e lie v e that Congress intended to g iv e to n a tio n a l banks, r ig h t s equal to th ose en joyed by S tate banks. When the law s p e c i f i c a l l y m entioned c a p it a l i t o b v io u s ly p la c e d d is c r e t io n w ith the Board as to whether or n ot a na t io n a l bank w ith a c a p it a l o f $100,000, lo c a t e d in a community o f two hundred thou sand or more in h a b ita n ts, should be granted f id u c ia r y powers. A ls o , i t o b v io u s ly l e f t d is c r e t io n w ith th e F ederal R eserve Board as to whether or n ot a n a tio n a l bank w ith a c a p it a l o f $25.^000 in any community i s e n t it le d to f id u c ia r y powers. P ast m a jo r ity perform ance o f the F ederal R eserve .Hoard has demon s tr a te d c o n c lu s iv e ly to me that c a p it a l has been given l i t t l e JLf_any co n s id e ra tio n by the Board and I b e lie v e i t a cted w is e ly , because i f assume th at c a p it a l r e quirem ents o f n a tio n a l banks are s u f f i c i e n t under e x is t in g law to meet the heeds o f the b u sin ess o f the bank and o f the community, and A c o g n iz e the f a c t dem onstrat ed by in form a tion in our p o s s e s s io n that in the g rea t r ^ .jo r it y o f ca ses n a tio n a l banks v o lu n t a r ily in cre a se th e ir c a p it a l as t h e ir bu sin ess expands, we must a r r iv e at the c o n c lu s io n that the c a p it a l requirem ents as e s ta b lis h e d by the N ation al Bank Act are s u f f i c i e n t f o r the e x e r c is e o f fid u c ia r y pow ers, and i f they become i n s u f f i c i e n t the n a tio n a l banks v o lu n t a r ily w i l l in crea se t h e ir c a p it a l w ith the growth o f th e ir b u s in e s s. . The law i s a lso s p e c i f i c in s ta tin g that the Board s h a ll take in to c o n s id e r a tio n the needs o f the community to be serv ed . O utside o f a few is o la t e d and cro ss ro a d communities in the U nited S ta te s , the need, in my o p in io n , e x is t s in every community; in f a c t , the r ig h t to e x e r c is e fid u c ia r y p o w e r s -is one o f the most v a lu a b le a s s e ts that can be a cq u ired by any banking in s t it u t io n i f i t 'exp ects to con tin u e in b u s in e s s . The n a tio n a l banks o f America have not been thoroughly awakened to the p o s s i b i l i t i e s o f fu tu r e p r o f i t s from t h is b u s in e s s . Sooner or la t e r they w i l l d is c o v e r i t , and I am g oin g to ven tu re the p r e d ic t io n that w ith in the next ten years f id u c ia r y fu n c tio n s w i l l be a h o u s e -to -h o u s e canvass w ith the stro n g e st • -2- X-6172 competition between all banks that are permitted to exercise trust functions. In other words, not at the moment but in the years to coLe, trust business is going to be a source of profit for banks which, in periods of depression will contribute very materially toward their successful existence as well as being a safeguard to depositors and a possible factor for the continuatio-1 of our independent unit banking system which is rapidly slipping. The law also states that the Board can take into consideration any other facts and circumstances that seem to it proper. When I was in Minneapolis my interpretation of this part of the law was that if a bank was properly conducted or if it got into difficulties and because of the resourcefulness of its management was able to put itself in good condition, it was entitled to everything Congress intended to give it. That was about all the consideration I did give to the application because I assumed that Congress intended that national banks should be granted fiduciary powers under such conditions. I have since learned that some people associated with the Federal Reserve System feel that the exercise of trust powers is of far more importance than the exercise of the ordinary banking powers. In one way there is strength in their argument, but from a practical standpoint, experience has taught me that when a bank is performing both banking and trust functions, the combined institution will fail quicker because of its banking mistakes than it will because of mistakes in its trust functions. This is because there are no limits as to how a bank can lend its money except the amount it may lend upon real eotate security or the amount it may lend to any one person, firm or corporation, while the investment of trust funds, in the great majority of cases, is safeguarded by wills, deeds of trust, State laws, court orders, etc. If fraud, embezzlement, or other criminal acts are to be taken into consideration, it seems to me that with the surveillance exercised over national banks, the opportunities for culpable acts are greater in the banking department than they are in the trust department. In the case of new banks applying for fiduciary powers so that they can open their doors under the title of, " Bank and Trust Company", I believe any bank that is entitled to banking powers is also entitled to trust powers. Others feel that in the majority of cases the organizers of new banks should demonstrate their ability to successfully conduct a bankiLeo- business before fiduciary powers are granted. I take the position that if an organizing bank requests fiduciary powers at the start, if there is anything in the picture that would prompt the Board to refuse such powers, the reasons for the refusal should apply just as strongly to the application for banking powers. I have therefore arrived at the conclusion that it should be the policy of the Board to grant fiduciary powers in every case where its ao-oointed agent has recommended the granting of banking powers and where the Board is satisfied that the applying institution is entitled to banking Powers. With existing banks I believe powers should be granted in all cases upon application where the report of examination discloses a well-managed institution and the information received from other sources leads the Board to believe that there is no question of the applicant's honesty and integrity. 2EDER,L, REbERVE DgY r3OARD 111 X-5172-a November 5, 1928. • To Govornor Young From Mr. Wyatt- General Counsel SUBJECT: Granting of trust poYcrs to new national banks. You have asked me to givo you a memor%ndum of my views with regard to the Board's Ffenerel policy Of waiting a yoar aftar 4V the organization of a nev- n'ltional bank before granting trust powers '11,00-*• to its In my opinion, this policy is contrary to the policy of Congress in granting trust powers to national banks. The purpose of Congress in granting trust powers to national banks was to preserve the existence of the National Banking System by enabling national banks to meet the competition of State banks and trust cbmpanies which had the advantage of being able to combine the exercisL of trust powerswith the exercise of ordinary commercial banking powers. Whether this was sound in theory or not is immaterial. Congress was confronted with a situation and adopted this mecns of meeting it. National banks were converting into State banks in order to angage in the trust business and persons organizing new banks were taking State charters instead of national charters in order to be able to combine the exercise of trust powers witI the commercial banin b business. In order to meet this situation, Congress authorized the Federal Reserve Board to grant trust powers to national banks under certain condons. The conditions prescribed were intended principally to enable national banks to exercise trust powers on a basis of substantial equality with competing corporations exercising such powers. This purpose is defeated to a certain extent by the Board's policy of requiring newly organized national banks to wait a year after their organization before obtaining trust powers. UnJer the Board's present policy, persons desiring to organize a new institution to exercise both banking and trust functions can obtain a State charter and immediately embark upon the exercise of both functions; but if they take a national charter they must wait a year before they can exercise their trust functions. The natural result of thit policy is to cause such persons to select a State charter instead of a national charter; anI this defeats the purpose which Congress had in mind when it granted trust powers to national banks. It encourages the organization of State banks and trust companies in lieu of national banks. This memorandum was prepared very hastily, because you asked me this morning to let you have it in time for today's Board meeting; but it contains a concise expression of my views on this matter. Respectfully, Walter Wyatt, General Counsel. ,-, /j/) 0/1 mArrit . 131 Office Corresportence Hamlin To From FEDERAL RESERVE BOARD Date May 271932 Subject: Mr. Goldenweiser GPO I am sending you a memorandum from Mr. Riefler which compares the revenue bill presented by the Senate Finance Committee with one that would come closer to meeting your suggestions. A revenue bill, such as is presented on page two, including a sales tax aggregating $340,000,000 (manufacturers sales tax, plus tax on telephones and telegraphs and on transportation) will yield a revenue of $1,0480000,000, and leave a deficit of $193,000,000, which could, according to your suggestion, be covered by an increase in the public debt. If you wanted to provide for a larger increase in the public debt you could presumably accomplish that by lowering income taxes. VOLUME 233 PAGE 69 2-8495 FQTAF. IWO. 1 31 Mir Office Correspottence To Mr. _Goldenweiser From Mr. Riefler_ FEDERAL RESERVE BOARD • Date May 27, 1932 Subject: 2- The revenue bill introduced by the Senate Finance Committee proposes to raise additional sums as follows: Income taxes Individual Corporate Administrative changes 4 155,000,000 52,000,000 80,000,000 5,000,000 Gift tax Manufacturers' excise taxes 277,500,000 Miscellaneous taxes Telephone and telegraph Other miscellaneous taxes 24,000,000 256,000,000 Increased postage 160,000,000 41,009,500,000 It should be noted that the total to be raised by special manufacturers' excise taxes amounts to 4277,500,000. According to Mr. Stark a general manu- facturers' sales tax at only one per cent, calculated to eliminate pyramiding but without special exemptions would yield 4290,000,000 or somewhat more than this amount. if this same rate were extended to apply to the telephone and telegraph industries the yield would be 4305,000,000 as compared with a total yield of .;301,500,000 in the present Senate bill from special excise taxes and taxes on telephone and telegraph massages combined. A one per cent general sales tax, therefore, would yield somewhat more than the special sales taxes contained in the Senate bill. If the one per cent rate were extended to transportation, the yield would be increased by 435,000,000 more. • • The following table indicates the total increased revenue which would be produced by these substitutions: Income taxes Individual Corporate 1/ Administrative changes -- 155,000,000 52,000,000 80,000,000 5,000,000 Gift tax 1 per cent manufacturers' sales tax excluding pyramng but with no exemptions 290,000,000 1 per cent sales tax on telephone and telegraph 15,000,000 - 1 per cent sales tax on transportation 35,000,000 Miscellaneous taxes as now proposed excluding tax on telephone and telegraph messages Increased postage 256,000,000 160,000,000 El 1,048,000,000 e the budget acThe amount of increased revenue required to balanc 000,000, which the Comcording to the Senate Committee's report is 4,241, to the extent of 41,009,500,mittee proposed to meet by additional revenues 000 and economies of 4231,500,000. Under the alternative plan outlined 00 leaving 4193,000,000 above, increased revenue would amount to 41,048,000,0 se in the public debt. to be covered by econamies or by a moderate increa ed "administrative changes" 1/ The increased revenue produced by the propos towhich capital losses in the incame tax is produced by limiting the extent e income. During the taxabl ing comput can be deducted from current income in tax purposes h income for last three years, wash sales to register losses tax. materially reduced the yield of the income • - , • June 8, 1932 PRICES 1. Reason for decline Not caused by dearth of credit or money. Real cause over-production of many raw materials and some finished products, falling off in demand, and lack of confidence. 2. If confidence should be resumed and business start up again, would prices necessarily rise? The general reduction in wages which has taken place over the country will so reduce costs as Trobably to keep prices down, though not at their present low level. 3. Would not this same burden be imposed on all debtors, not only farmers, but business men, railroads, etc.? Yes. 4. The system has been criticized for buying foreign acceptances, and for encouraging gold exorts in 1927 by lowered discount rates. Did not this rate policy and these purchases help the purchaming power of Europe, and enable a greater volume of our products to be sold? Yes. 5. Is it not probable that if we had the power at once to increase general prices to the 1926 level, that the gain of the farmer would be relatively much slower than that, eig., of manufacturers' products, so that the farmer would be worse off than hes now? Ye, because raw materials are world commodities and subject to world influences to a larger degree than manufactured goods. 6. If the normal level of average prices turns out to be the 1913 level, will not that, in the long run, necessitate a reorganization of railroads, business, etc.? It will require a readjustment all along the line, many bankruptcies and changes in ownership. VOLUME 233 PAGE 71 s(1.44' Page 2 7. Are recent gold exports a cause for anxiety? No, because we have enough gold to withstand anything, except gold hoarding by Americans, or a flight of American capital. 8. How much due to distrust of our currency and how much to other causes? For the most part due to conditions abroad and the necessity of bolstering up the reserve position of foreign central banks. 9. Changes in the price level are harmful largely because of the lags between the movements of wholesale prices, retail prices, wages, services, and debts. If changes were simultaneous and universal they would be simply a matter of bookkeeping. 10. Because of the lags price changes result in a redistribution of wealth and income, and often in the dissipation of savings and capital. 11. Great movements of prices are always the result of war -- which is invariably accompanied by inflation and by maladjustment of productive plant. 12. Availability of credit in amounts adequate to finance trade and industry is essential to the maintenance of a price level, but the existence of credit alone cannot assure such maintenance. There are too many factors involved that are not responsive to changes in the volume of credit. Fprui •No..131 Office Corresponitence FEDERAL RESERVE BOARD Date_June 6 1932 Subject: To From 2-8495 ucic 1. Reason for decline. Not caused by dearth of credit or money. Real cause falling off in demand, and lack of confidence. 2. If confidence should be resumed and. business start up again, would prices necessarily rise? The general reduction in wages which has taken place over the country will so reduce costs as probably to keep prices down approximately to the present level. 3. With reduced wages, it seems probable that the 1913 level will be the normal level. Assuming that the burden of the fanner to pay, e.g. a debt contracted years ago, has been heavily increased by the fall of prices, is it not true that the mortgage creditor gets no extra purchasing power by the payment of this pre-existing debt? -Or; iLca_ measured in commodities, it would take a larger number to buy the same amount of other commodities. A. Would not this same burden be imposed on all debtors, not only farmers, but business men, railroads, etc.? 5. The System has been criticised for buying foreign acceptances* and for encouraging gold exports in 1927 by lowered disco= rates. Did not this rate policy and these purchases help the purchasing power of Europe, and enable a greater volume of our products to be sold? 6. Is it notprobable that if we had the power at once to increase general prices to the 1926 level, that the gain of the fannr would be relatively much slower than that, e.g. of manufacturers' products, so that the fanner would be worse off than he is now? 7. If the normal level of average prices turns out to be the 1913 level, will not that, in the long run, necessitate a reorganization of railroads, business, etc.? OD gem •••••• ) 4 -• kV1-#4 Gt^/t 4 7. c1 4-4/-sott. „- ? z-6 Form No. 131' • Office Correspondence To__ Mr. Hamlin From FEDERAL RESERVE BOARD • A.„ 1932 Subject: Mr. Goldenweise tiro 2-8405 I agree with you that if you consider the period between 1922 and 1928 as a whole it was the inflow of gold rather than expansion of re\ serve bank credit that furnished the basis for the expansion of member bank reserve balances and the growth of member bank credit based on these balances. It might have been possible for the reserve banks to decrease their credit during this period and thereby to offset in part the effect of gold imports, but the rapidity with which gold moved to this country during the periods when the reserve banks pursued such a policy, and the limited amount of securities available for sale, raise serious doubts as to the possibilities of success. It is true, however, that member bank credit expanded most rapidly during and immediately following those periods between 1922 and 1928 when the reserve banks through lower discount rates and purchases of United States securities in the open market were pursuing a policy of easing the money market and expanding the volume of reserve bank credit in use. My own feeling is that, while reserve bank policy was probably an important factor in timing the axpansion of member bank credit and that a different policy might have been reflected in a more rapid growth of member bank credit in 1923 and in 1926 instead of in 1922, 1924, 1925, and 1927, but that the total eon for the period as a whole would probably have been the same regardless of the system's credit policy. The report of the Committee on Bank Reserves called attention to the progressive decrease in the effective reserve requirements of member banks 1 as one mf important factor in this situation, when it stated on page nine: • -2"While war financing and the huge inflow of gold which followed the war constituted the immediate driving force back of much of this expansion (of member bank deposits) it was facilitated by a progressive reduction in effective member bank requirements for reserves. --- It is clear, consequently, that the large expansion in member bank credit since 1914 has been facilitated by a progressive diminution in reserve requirements (since 1914) as well as by large gold imports. Without this diminution member banks would have needed in order to expand their credit to its present volume additional reserve bank credit to the extent of Irn_ 15000000,000. By applying to the reserve banks for this additional credit, the member banks would have correspondingly increased the .effectiveness of reserve bank credit policy." This statement applies to the whole period between 1914 and 1931, but is as true of conditions between 1922 and 1928 as it is of those during the war. Between 1922 and 1928, the demand for additional reserve bank credit was diminished, because of a progressive diminution in the proportion of vault cash which member banks held in relation to their deposit liabilities, and also because of the rapid relative increase in their time deposits during this period. If the reserve proposals formulated by the Committee on Bank Reserves had been in effect during this period, gold imports would not have been sufficient to provide the reserves for the expansion in member bank credit which actually occurred, and member banks would not have been able to expand their credit at the rate they did without coming to the reserve banks for a materially increased volume of discounts. This important factor in the situation is entirely overlooked in the report of the Banking and Currency Committee of the Chamber of Commerce. Fora/4(Z • Office Correspod nence To BOARD 44. ." • .4%.4 . '• Ehtte June 9, 1932 Subjevat_Foreca.st of Harvard Economic Mk. Hamlin GoAtia Fumn DE u aavE rERAL mbSNMility Sinoe_ame, 1919 Nrft According to a studytiftt 2—S49.1 o vA*--st rfield V. Cox of the University of Chicago called "An Apprais 1 or AffericaAAness Forecasts," the HarArd system of forecastingis based primarily u on a fairly dependable toj:J. rap. sequence in,t,phe major.fluctuations of credit, stock prices, and general business activity. terpretation Two major difficulties were encountered in the in- 78'f-t0 Anted period 1903-1914. three curve sequence chart for the pre-war The first WRS that the speculative curve frequently made false starts of from two to four months, which were in some cases reinforced during at least a part of their course by an opposite movement of the money curve. There was no graphic method of distinguishing these from the significant movements until months after they were over, so that the chart actually proved a much less satisfactory forecaster than a superficial glance in retrospect at the broader contours. The other difficulty was that, although the chart never failed to predict a major turn in 1?usiness, the interval between the warning and the event varied all the way from one month for the revival of 1905 to nine months for the revival of 1911 and the decline of 1907. The post-war chart presented exactly the same difficulties—false indications later reversed and wide irregularity of intervals between valid predictions and the subsequent event. These problems rendered it not only wlse but necessary for the Harvard people to use supplemental material as a basis of interpretation. This supplemental material is designed to assist in distinguishing temporary and inconsequential fluctuations in the speculative and money VOLUME 233 PAGE 75 2. curves from movements of forecast significance, to help to approximate more closely the time and extent of an indicated change in business, and to anticipate minor industrial cycles such as are not foreshadowed by the index chart. Much attention has been devoted to the open-market ac- tivities and discount policy of the Federal Reserve Board, to the international flow of gold, and to European fiscal and banking policies. The relation between the rate of production of basic commodities and that for consumers' goods, and the strength and weakness of prices of basic materials are factors closely studied. Comparative forecasts On the basis of the Cox study the Harvard forecasts certainly cannot be considered as particularly reliable. The Cox study of six forecasting services shows that on the basis of adequacy, which takes into consideration the direction of the movement forecast, its amplitude and the expected time of occurrence, the Harvard forecasts for the period from June, 1919 to October, 1929 rank third as shown from the following table: Service Standard Statistics Company Babson Statistical Organizittion Harvard Economic Service Brookmire Economic Service National City Bank Moody's Investors Service Monthly average score for adequacy of forecast November, 1918-October, 1929 (1.00 = perfect score) *0.52 0.46 *0.31 0.31 0.24 0.23 * Standard Statistics began forecasting in January, 1921 and Harvard in June, 1919. However, on the basis of forecasting a turn in business, the Harvard Service shows the lowest score of any of the six services as shown from the following table: • • 3. Monthly Average Score of Each Service for Each Period (1.00 = perfect score Brook- I Stan- - BabMoods National Harvard dard mire son's City Bank 1919 upturn 1920 downturn 1921 upturn 1923 downturn 1924 upturn 1927 downturn 1927-1928 upturn 1929 downturn Monthly average score for eight major turns since 1918 * 0.04 0.46 0.37 -0.26 0.05 0.18 0.37 0.30 0.19 0.31 0.00 0.12 0.27 0.32 0.09 0.17 0.44 0.22 0.09 0.06 0.12 0.13 0.05 -0.21 0.16 0.34 0.32 0.55 0.13 j -0.04 0.06 0.17 0.08 0.12 -0.09 0.11 0.03 0.26 0.08 0.10 0.25 0.35 -0.35 0.11 -0.02 0.15 -0.02 *0.18 0.16 0.16 0.09 0.07 Based on six major turns since January, 1921. In the eight major turns in business since 1918 the Harvard Service called the turn only twice , were slightly helpful three times, neutral twice, and were actually misleading in their forecast for the 1923 downturn in business. The following table which is based upon the two tables given above, shows the success or failure of the six different services in predicting major turning points in business activity: •••• • 4. Brook-Standard* mire Bab- 1Moody s 1National Harvard son's City 1919 upturn Neutral Slightly Slightly Slightly Slightly helpful helpful helpful misleading 1920 downturn Helpful Helpful 1921 upturn Helpful Helpful Slightly Helpful helpful Slightlyj Helpful helpful I 1923 downturn Misleading Neutral Slightly Helpful helpful MisSlightly misleading leading 1924 upturn Slightly Slightly Slightly Helpful helpful helpful helpful 1927 downturn Slightly Helpful helpful 1927-1928 upturn Helpful Helpful 1929 downturn Helpful Slightly Neutral helpful Slightly Slightly Helpful helpful helpful Slightly Slightly helpful Ihelpful Slightly Slightly Neutral helpful helpful Slightly Neutral helpful Helpful Neutral Slightly helpful Slightly Slightly Neutral helpful helpful Summa y--8 Turning Points Helpful Slightly helpful Neutral Slightly misleading Misleading j * 4 2 1 3 2 1 1 6 1 1 Based or six major turns since January, 1921. 3 3 1 1 1 5 1 1 2 3 2 1 Form No. 131 Office Correspontence FEDERAL RESERVE BOARD • 5,<,4141 Ehae June 24,1_952 Subject: Gold movements compared with To lyir, Hamlin From MrRiefler reserve requirements 1922-1929 •P• 2 - S4U5 7/4 In January 1922, the required reserves of the member banks plus their vault cash equaled „;,2,200,000,000, and in January 1929, 2,900,000,000--an increase of 700,000,000. About 4450,000,000 of this increase was supplied by gold imports during the interval, the remainder coming largely from an increase in reserve bank credit. If the recommendations of the Committee on Bank Reserves had been adopted at some time during the interval, the required reserves of member banks in January 1929 would have been about ,3,400,000,000, or 400,000,000 more than they actually were under existing requirements. This additional $500,000,000 could only have been obtained by greatly increased gold imports, or by additional borrowing at the reserve banks. If these gold imports had not been forthcoming, or the reserve banks had made it difficult for member banks to obtain additional reserve bank credit, member banks could not have expanded their own credit during these seven years at anywhere near the same scale that actually occurred. (\a VOLUME 233 PAGE 76 In .14 4 .4144 - M-N18e June 11, 1932 Dr. Miller Board's rulings regarding Mr. Vest - Assistant Counsel. Bankers' Acceptances In accordance with your request, I have prepared the following memorandum showing the more important changes which the Board has made from time to time in the principles incorporated in its regulations and rulings with respect to bankers' acceptances. The memorandum is not intended to cover the lesser important rulings or regulations of the Board on this subject but its purpose is to give the facts with reference to those rulings of primary importance which represent changes in policy with regard to bankers' acceptances, and particularly as to those cases where such changes have involved a liberalization of the requirements. oRiGraLL FEDERAL RESERVE ACT AND EARLY REGULATIONS AND RULINGS. Under the provisions of the original Federal Reserve Act, Federal reserve banks were authorized by section 13 to discount acceptances based on the importation or exportation of goods with maturities of not more than three months, when indorsed by a member bank; and member banks were authorized to accept drafts or bills of exchange arising out of import and export transactions having not more than six months' sight to run. Federal reserve banks were also authorized by section 14 to purchase bankers' acceptances, with or without the indorsement of a member bank. z _2 1,;6e 77 • • X-7180 -2- The Federal Reserve Board in 1915 issued several diffe rent reulations regarding bankers' acceptances, gradu ally expanding and enlarging the provisions with respect to their eligibility for rediscount. As a requisite of eligibility, it was requi red by the Board's rulings that there be a definite bona fide contract for the shipment of the goods involved in the import or export transaction witIlin a specified and reasonable time after the making of the accentance, and also that the transactio n on account of which the acceptance is drawn must itself involve the importation or exportation of the goods in question. One of the provisions contained in the Board's early regulations was that an acceptance must have been made "by a member bant:, nonmember bank, trust company or by some private banking firm, person, company or corporation engag ed in the business of accepting or discounting". This provision recognized as eligible for disco unt acceptances made, not only by banks and bank ers, but also by others engaged in the acceptance business. A similar provision, thuugh in different language, is contained in the present regulations regarding acceptances. One of the most important of the early rulin gs on acceptances was one published in the 1915 Bulletin at page 91, in the form of an opinion of the Board's counsel, which held that Federal reserve banl.:s were authorized to discount acceptan ces, as arising out of the • • X-7180 -3- importation and exportation of goods, which were based on the shipment of goods between any two or more foreign countries and between the United States and certain of its dependencies and possessions, as well as between the United States and foreign countries. The Board's records do not indicate thu circumstances under which this ruling was made. The substance of this ruling was subsequently incorporated in the Board's regulations and has bean contained in the regulations since that time. AUTHORITY FOR THE PURCaSE OR DISCOUN7 OF ACCEPTANCES ARISING OUT OF DOMESTIC TRANSACTIONS. In a regulation promulgated in November 1915, the Board authorized Federal reserve banks to purchase bankers' acceptances, when properly secured, covering the domestic shipment of goods or covering the warehouse storage of readily marketable staples. In transmitting this regulation, the Board stated that it had not felt justified, upon admitting State banks and trust companies to the Federal Reserve System, in reauiring that they discontinue making acceptances arising out of domestic transactions if kept within reasonable limitations; and that the Board considered such acceptances as of a character to ma:ke desirable investments for Federal reserve banks. As uniformly construed by the Board, the authority of Federal reserve banks to purchase bankers' acceptances umder section 14 of the Federal Reserve Act is not suIject to the limitations applicable in the case of rediscounts of acceptances, and accordingly it was legally possible X-7180 -4- to authorize Federal reserve banks by regulation to purchase domestic acceptances although no specific mention of domestic acceptances was made in the law. The Board's records do not disclose at whose instance or suggestion this authorizntio n for the purchase of domestic acceptances was given. Subsequently in the Act of September 7, 1916, the law was amended so as to authorize member banks to accept drafts or bills growing out of transactions involving the domest ic shipment of goods provided shipping doaaments conveying or securing title are attached at the time of acceptance, or which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples; and Federal reserve banks were authorized to discou nt such acceptances. This amendment was recommended by the Federal Reserve Beard in its annual report covering the year 1915, in which it was said, "There can be but little question of the safety of such acceptances, and their use will tend to equalize interest rates the country over and help to broaden the discou nt market". X-7180 -5- Among the principal requirements which the Board has made in its regulations and rulings with respect to acceptances drawn against the storage of readily marketable staples is that the warehT3e receipt covering such staples be issued by a party inde endent of the customer and _ that such acceptances should not have a maturity in excess of the time ordinarily necessary to effect a reasonably prompt sale, shipment or distribution into the process of manufacture or consumption. In con- nection with acceptances drawn to finance the domestic shipment of goais, the Board has held that there should be some actual connection between the acceptance of the draft and the transaction involving the shipment of the goods; that is, the draft should be drawn to finance the shipment. The Board has also said that a Federal reserve bank may properly decline to discount any acceptance the maturity of which is in excess of tlae usual or customary period of credit required to finance the underlying transaction or which is in excess of that period reasonably necessary to finance such transaction. ACCEPTANCES TO FURNISH DOLLAR EXCHANGE. The amendment of September 7, 1916, also authorized member banks to make, and Federal reserve banks to acquire, acceptances having not more than three months sight to run, drawn by banks or bankers in foreign countries or dependencies or insular possessions of the United States for the purpose of furnishing dollar exchange as required by the usages of trade. • X-7180 -6The Federal Reserve Board adopted regulations requiring member banks which desire to accept drafts drawn by banks or bankers in certain countries for the purpose of furnishing dollar exchange to obtain the permission of the Board. Such permission is granted when the usages of trade in such countries appear to require such acceptance facilities. There have been no important changes in the regula- tiosas or in the law with respect to this subject since 1916. ACCEPTANCES DRAWN UNDER CREDITS EXTENDING OVER A PERIOD OF ONE OR TWO YEARS. Under date of February 7, 1918, the Board addressed a letter to the Governor of the Federal Reserve Bank of New York (published in the 1918 Bulletin at page 257), stating its policy in dealing with acceptances drawn under credits extending over a period of one or two years. The expression of the Board's policy on this subject was con- tained in a memorandum accompanying the letter. This letter and memo- randum were prepared after correspondence with the Federal Reserve Bank of New York and after conferences between Governor Strong and a number of New York bankers. The principles outlined in the memorandum were summarized in the letter as follows: (1) Acceptance credits opened for periods in excess of ninety days should only, in exceptional cases, extend over a period of more than one year, and in no case for a time exceeding two years. (2) Banks which are members of groups opening these credits, should not buy their own acceptances, and where an agreement is made with the drawer for purchase of acceptances for future delivery, the rate should not be a fixed one, but X-7180 -7should be based upon the rate ruling at the time of the sale. (3) Transactions covered by these credits should be of a legitimate commercial nature, and acceptances must be eligible according to the rules and regulations of the Board. (4) Whenever syndicates are formed for the purpose of granting acceptance credits for more than moderate amounts, Federal reserve banks should be consulted with regard to the transaction. The question of eligibility, both from the standpoint of the character of the bill and of the amount involved, will be passed upon by the Federal reserve bank subject to the approval in each case of the Federal Reserve Board. The introductory paragraph of the memorandum setting forth the principles above suoTmarized is as follows: "In dealing with the question of acceptances, it is desirable that the Board should not be obliged to adopt inflexible regulations unless absolutely necessary. It should be borne in mind that we are competing in the acceptance field with other countries which have no legal restrictions in which sound business judgment, guided from time to time by the central banks of these countries, constitutes the unwritten, but none the less rigid law. The banks of the United States would greatly assist the Board in its work of developing a modern and efficient system of America n bankers' acceptances - and they would best serve their own purposes - if they would study and assimilate the underlying principles which must guide the Board, and observe these principles voluntarily without requiring inflexible rules. Unless the bankers cooperate with the Board in this manner, many transactions - unobjectionable as long as they are engaged in for legitimate purposes and within reasonable limits - will have to be barred because strict regulations do not admit of discrimination." 1 After a full discussion of the principles which are summarized above, the Board's memorandum concluded as follows: "These are the principles Which the FederalReserve System must apply. It would be inexpedient to attempt more than to establish the principles. It would be detrimental to formulate definite regulations dealing in minute detail with the various phases of the problem. It would be far better to give some latitude to the banks in dealing with these matters . But this will depend entirely upon the wisdom and discretion of the member banks. The banks will best serve their own interests if, following the example of European institutions, they will adopt these principles as self-imposed, well tried rules of business X-7130 -8prudence rather than by abusing their freedom of action to force the Board to tie their hands by rigid regulations." ACCEPTANCES AGAINST READILY MARKETABLE STAPLES STORED 17 A WAREHOUSE IN A FOREIGN COUNTRY. In 1919, the response to an inquiry from the Federal Reserve Agent at the Federal Reserve Bank of Boston the Board held that a member bank mis.ht properly accept a draft drawn in Canada, payable in the United States in dollars and secured by rice stored in a public warehouse in Canada, and that such an acceptance might properly be rediscounted by a Federal reserve bank. The Board's ruling on this question was pub- lished in the 1919 Bulletin at page 740. PURCHASE OF EXPORT ACCEPTANCES WITH SIX MONTHS MATURITIES. Under date of May 6, 1921, the Federal Reserve Board amended its Re;;ulation B so as to authorize the purchase by Federal reserve banks of bankers' acceptances growing out of transactions involving the importation or exportation of goods with maturities up to six months. This increase in the maturities of such acceptances eligible for purchase was suggested in a letter to the Board from Deputy Governor Harrison of the Federal Reserve Bank of New York. The suggestion was also made in letters from Mr. Paul M. Warburg, in connection with the financing of so-called "finishing credits", a term used to designate a credit to finance both (1) the shipment from the United States of raw materials to be manufactured into finished products and (2) the subsequent process of manufacture in the foreign country and the exportation therefrom of the finished product. This amendment to Regulation B was recommended by 1 X-7180 -9the Federal Advisory Council and also by the Governors of the Federal Reserve Banks. In its letter transmitting the amended regulation, the Board said: Two considerations have led the Board to take this action: (1) The desire to widen the acceptance market by meeting the wants of savings banks and similar purchasers of bankers! acceptances who are now deterred from investing in acceptances of longer than three months' maturity, because of the lack of authority of Federal Reserve Banks to purchase longer maturities up to six months; (2) to provide more ample facilities for financing import and export trade with countries where either normal conditions or present abnormal conditions indicate the desirability of rendering assistance by making acceptances of maturities not exceeding six months eligible for purchase by Federal Reserve Banks. The Board also stated that it looked to the good banking judgment and discretion of the accepting banks and of the Federal Reserve Banks to avoid any untoward results; and that the effect of this widening of the investment powers of the Federal reserve banks would be followed closely with a view to such modification of the regulations as might be necessary. Under the Board's present regulation, Federal reserve banks may purchase bankers' acceptances growing out of transactions involving the importation or exportation of goods with maturities not in excess of six months. PURCHASE OF ACCEPTANCES DRAWN BY COOPERATIVE MARKETING ASSOCIATIONS WITH SIX MONTHS' MATURITIES. Under date of December 19, 1922, the Federal Reserve Board promulgated an amendment to its Regulation 3 authorizing Federal reserve banks to purchase bankers' acceptances, with maturities not in excess of 1 X-7180 -10sixmonths, which are drawn by growers or by cooperative market ing associations composed exclusively of growers of nonperishable, readily marketable, staple agricultural products, to finance the orderly marketing of such products grown by such growers and secure d at the time of acceptance by arehouse, terminal or other similar receipts issued by parties independent of the borrowers and conveying security title to such products. The Board's records do not indicate upon whose suggestion or recommendation this change in its regulation was made; but the Board stated in its letter of transmittal: "The Board was moved to take this action by a desire to provide more ample facilities for financing the orderly marketing of staple agricultural products, especially by cooperative marketing associations. This is in accordance with the principle heretofore recognized by the Board that the carrying of agricultural products for such periods as are reasonably necessary in order to assist the orderly marketing thereof is a proper step in the proces s of distribution." By the Act of March 4, 1923, Federal Reserve Banks were authorized to discount acceptances with maturities up to six months when drawn for an agricultural purpose and secured at the time of acceptance by documents of title covering readily market able staples. ELIMINATION OF DOCUMENTARY REQUIREMENTS AS TO ACC:PT2,NCES GROWING OUT OF IMPORT AND EXPORT TRArSACTIONS. Under date of March 29, 1922, the Board promulgated an amendment to its Regulation A, eliminating the requirements for the attachment or furnishing of documents in connection with acceptances arising out of import and export transactions , and leaving X-7180 -11eligibility to be determined by the Federal reserve banks as a Question of fact. i Simplification of the Board's regulations regarding bal-i:erst acceptances had been recommended in May, 1921 by the Federal Advisory Council in a statement as follows: * * * * "Moreover, it is impossible for the American banlcers' accentance to establish itself in competition with the British sterling acceptance in world markets if the foreign drawer is bewildered by a mass of regulations which he has to understand fully if he is to be certain that he is issuing an eligible bill which will find a ready market in the United States. The simpler the regulations the better the opportunity for the American bankers' acceptance to become a credit instrument ia world markets. If there are competent men rhose discretion may be relied upon in charge of the supervision of American acceptors, there is no need for attempting to control by detailed regulations the practice of American accepting banks and bankers. " It was presumably on the basis of this recommendation that the matter was given consideration by the Board in March, 1922, but the record does not show whether this is a fact. Shortly before the adoption of the amended regulation by the Board, tho proposed change eliminating the documentary requirements wP.s aiscussed at an informal conference in New York by Governor Harding and Mr. Logan with Messrs. Warburg, Kent, Broderick, Kenzel and Harrison. There was apparently another discussion of the matter a few days later by Mr. Kenzel and certain New York banhers with the Federal Reserve Board. Before the change in the regulation was adopted a number of the Federal reserve banks, as well as the President of the Advisory Council, 1 X-7180 -12were asked for their views with respect to the matter. The Board's letter of transmittal of this amendment to Regulation A stated that there had been a rapid growth of the acceptance business during the war and it had been necessary accordingly for the Board to make frequent rulings and to amend its rer;ulations regarding baraers' ar.ceptances periodically; the Reulation of 1920 on this subject was the last step in the development of such regulations and it contained the substance of the more important rulings previously issued by the Board re,--;arding acceptances arising aut of import and export transactions. In view of the experience which the American -banks had obtained, the Board considered that detailed regulations on this subject 'were no longer necessary and also that the general advancement of foreign trade could be furthered most effectually by the substitution of a sic.pler regulation. Accordingly, the Board eliminated the following sentences from its with respect to acceptances arising out of import and export transactions: * * * "While it is not necessflry that shipping documents covering goods in the process of shipment be attached to drafts drawn for the purpose of financing th2. exportation or importation of goods, and 77hile it is not essential, therefore, that cach such draft cover specific. goods actually_ip_existence at the time of acceptance,'n-civortheless it is essential as axerequisite to eligibility either (a) that shippini7 doauments or a documentary export draft be attached at the time the draft is presented for X-7180 -13- acceptance, or (b) if the goods covered by the credit have not been actually shipped, that there be in existence a specific and bona fide contract providing for the exportation or importation of such goods at or within a specified and reasonable time and that the customer agree that the accepting bank will be furnished in due course with shipping documents covering such goods or with exchange arising out of the transaction being financed by the credit. A contract between principal and agent will not be considered a bona fide contract of the kind required above, nor is it enough that there be a contract providing merely that the proceeds of the acceptance will be used only to finance the purchase or shipment of goods to be exported or imported. In maldng this amendment, the Board stated that it was not reversing or modifying its former rulings, which were regarded as essential to the proper conduct of the acceptance business, but that its action was intended merely to allow greater latitude to Federal reserve banks for the exercise of their discretion and judgment, observing always the limitations of the law. The Board also stated that the responsibility for passing upon the eligibility of bankers' acceptances rests upon the Federal reserve banks themselves and each bank should satisfy itself that the acceptances conform to the requirements. • 410 1,-7180 ACCEPTANCES BY NATIONAL BANKS AGAINST IMPORT AND EXPORT BILLS. In rulings published in the 1917 Bulletin at page 28 and in the 1920 Bulletin at page 610, the Board took the positio n that no bank which has purchased a foreign documentary draft may refinan ce itself by drawing a draft on a member bank secured by the documen tary draft. The theory underlying these rulings was that such a draft is not drawn for the purpose of financing the importation or exportation of goods but for the purpose of financing the business of the bank Which purchas ed the foreign documentary draft. During the year 1923, the Board had correspondence with Mr. J. H. Fulton, President of the National Park Bank of New York with reference to the right of a national bank to accept drafts against the security of import or export bills, and also had correspondence with the Feder— al Reserve Bank of New York on this question. The Federal Reserve Bank considered that acceptances of this kind under proper conditions would be lawful, but it was the Board's position at that time that such acceptances were not proper under the rulings above referred to. In 1924, letters were addressed to the Board by the Governors of the Fed— eral Reserve Banks of New York and San Francisco requesting a final ruling of the Board with respect to this question. The Board gave further consideration to the subject, but for some reason no action was taken at that time. In 1926, however, acceptances of this kind were questioned by a national bank examiner in an examination of the First National Bank of Boston and the Comptroller of the Currency asked -15the Federal Reserve Board for a ruling in the matter. X-7180 The Board again gave consideration to the question and reached the conclusion that its former rulings on the sUbject contained an unnecessarily strict interpretation of the law. Accordingly, the Board ruled that national banks may legally accept drafts drawn upon them by other banks against the security of import or export bills of exchange previously discounted by such other banks; provided that such drafts are drawn before the underlying import or export transactions are completed and comply as to maturity and in all other respects with the provisions of the law and the Board's regulations. (1926 Bulletin 854). ACCEPTANCES AFTER WORT OR EXPORT TRANSACTION COMPLETED. At a meeting of the SUbcommittee of the General Acceptance Committee held in New York in October, 1927, it was decided to recommend to the Federal R3serve Board that the Board revoke its previous rulings to the effect that a bill cannot be eligible for acceptance by a member bank, or for rediscount or purchase by a Federal reserve bank, as a bill growing out of the importation or exportation of goods, if it is accepted after the goods have reached their destination; and to rule in lieu thereof that bankers' acceptances may properly be considered as growing out of transactions involving the importation or exportation of goods when given for the purpose of financing the sale or distribution on usual credit terms of imported or exported goods into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed. -16- X-7180 Shortly before the meeting referred to, Mr. Kenzel , Chairman of the Sub-committee, had appeared before the Federal Reserve Board, in response to an invitation from the Board, to discuss possible amendments to the Board's regulations and ruling s regarding bankers' acceptances, and had pointed out the desirability of making a ruling of this kind in order that American acceptances might compete with those of other countries in financing foreign trade. Subsequent to his appearance before the Board in this connection, Mr. Kenzel conferred with a number of prominent New York bankers engaged in the acceptance business; and the following is an excerpt from his statement on this subject submitted in connection with the recommendation of the b-committee: "They (the bankers consulted) felt that they would Kig. wish to extend credits in Europe for purely domestic purposes, explaining that by that they meant the purchase of goods of domestic origin, the fabrication of such goods and its sale for domestic consumption within any European country, but that they ad feel that they should be permitted to finance through acceptance credits the sale within European countries of goods of origin foreign to those countries, and the fabrication and sale of goods for export. Many of them cited the familiar problem of American cotton which is now sent so largely to European countries on consignment by American shippers and is sold to European spinners out of warehouses in Europe. Spinners require credit of ninety days or more. Under the present rules, American banks can give such credits where the cotton crosses a frontier in Europe, that is, where it is exported from one European country to another, but they cannot give such credits if the cotton is sold to spinners located in the sane European country in which it is stored pending sale. —17— X-7180 VI similar negative -oosition arises with respect to cotton which is sold and shipped from America on terms that have become qaite usual, i.e., that at the buyer's option he may pay cash on arrival or give ninety days bankers credit. It frequently happens that the cotton has arrived and so the physical export completed before the buyer elects how he shall pay. If he elects to zive ninety days bankers credit the banker may not accept the bill if the cotton has arrived at the foreign destination named in the shipping documents." "The American bankers consulted felt that the time has certainly arrived in the development of American accept— ance business when American accepting bankers should be permitted the free exercise of their discretion within the law and regulations and that, within those limits, full latitude shauld be granted them in the accommoda— tion of business as it is done in foreign countries. They stressed particularly the point that they regarded it as preferable to give a three mcnths credit with a renewal for a further period, if it were found that a renewal were required at the expiration of the original period, than to grant the credit originally for a period of six months, and that if the rule against accepting a bill after the goods had arrived were rescinded, the end sought would be practically accomplished rithout a specific ruling in favor of renewal bills. It was pointed out that from the bankers' point of view it was preferable to be able to review credits at more fre— quent intervals than is the aase when credits up to six months are being insiitdd upon by the borrower as a precaution against being unable to redraw at the end of a shorter period in case of need even for a mall Dart of the credit% The recommendation made by the subcommittee was considered by the Federal Advisory Council and, with one suggested change, was -18- approved. X-7180 After consideration of the matter, the Board reached the conclusion that its previous rulings on this subject contained an unnecessarily strict interpretation of the law; and, in order to facilitate the financing of foreign trade and the sale of American goods abroad, the Board ruled, on November 28, 1927, (1927 Bulletin, p. 860) that bankers' acceptances may properly be considered as growing out of transactions involving the importation If or exportation of goods when drawn for the purpose of financing the sale and distribution on usual credit terms of imported or exported i goods into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed . The Board pointed out that due care should be observed to prevent' a duplication of financing and that there should not be outstanding at any time more than one acceptance against the same goods. of the Board reversed all previoui This ruling conflicting rulings. ACCEPTANCES DRAWN BY WAREHOUSE OR ELEVATOR COMPANY AGAINST WAREHOUSE RECEIPTS ISSUED BY ITSELF. In 1924, Governor Young of the Federal Reserve Bank of Minneapolis suggested to the Federal Reserve Board that it give approval to acceptances drawn by a terminal elevator company against the security of warehouse receipts issued by the company which draws the acceptances. He point- ed out that in Minnesota such a company is under the strict supervision and control of a State commission, a representative of which checks all grain that is stored in the elevator and all grain that is removed therefrom; and that it is practically impossible to remove grain from such terminal elevators without the knowledge and permission of the represent a -19- X-7180 tive of the State commission. The matter was considered by the Federal Reserve Board from time to time over a period of several years and was twice referred to the Governors' Conference, which recommended that the Board approve acceptances of this character. After consideration of the matter, the Board in April, 1927, voted to disapprove the recommendati on of the Governors' Conference and not to amend its regulations so as to make such acceptances eligible for rediscount or purchase by the Federal reserve banks. The Board considered that the principle laid down in its regulations, that warehouse receipts used as security for accept ances must be issued by a party independent of the customer, was essent ial to the maintenance of the high standard of bankers' acceptances and that any action setting aside this principle might establish a preced ent for future action which would result in the lowering of the standard. The matter was again considered by the Federal Reserv e Board in October 1928, however, at which time Governor Young was Governor of the Federal Reserve Board, and the Board decide d to adopt an amendment to its regulations mal-ing eligible for redisc ount or purchase accePtances against warehouse receipts conveying security title to readily marketable staples when such receipts are "issue d by a grain elevator or warehouse company duly bonded and licens ed and regularly inspected by State or Federal authorities with whom all receipts for such staples and all transfers thereof are registered and without whose consent no staples may be withdrawn." -20- X-7180 LIBERALIZATION OF RULINGS REGARDING DOMESTIC BANKERS' ACCEPTANCES. The General Cammittee on Bankers' Acceptances at its meeting in March, 1926, adopted a report containing a statement of broad general principles regaraing correct practices in the granting of domestic bankers 1 acceptance credits and recomm ending specifically that the use of domestic acceptances be broade ned, particularly in two respects: (1) To permit the purchaser of goods under bankers' accept- ance credits to draw bills having a maturity consistent with the usual and customary credit time that obtains in the relative trade, instead of requiring the shi per to draw the bill if it has a maturity in excess of the actual transit time of the goods, (the Board's rulings had been understood as making a distinction betwee n the period for which acceptances may be drawn by the seller and the period for which they may be drawn by the purchaser); (2) To permit the use of bankersi acceptances secured by receipts covering readily marketable staples to finance the carrying of certain staples during the time they are being conver ted into other forms of readily marketable staples throug h a converter independent of the drawer, provided that the identity of the goods is not lost and the accepting bank remains secured by the independent converter's receipt. -21- X-7180 This report of the General Committee on Bankers! Acceptances was considered by the Governors! Conference in March, 1926, which approved the report and requested the Federal Reserve Board to adopt the rulings contained therein. The Federal Reserve Board acted upon the matter in June, 1928, at which time it approved the report in so far as it contained a statement of the broad general principles regarding correct practices- in the granting of domestic bankers1 acceptance credits, but with the understanding that such approval should not be construed as revoking or qualifying any of the Board's existing rulings. The Board stated that if the broad- ened use of domestic bankers! acceptances was found to be hampered by the existing rulings of the Board, it would consider the question of revoking or modifying such rulings provided a statement of specific facts arising in actual cases was submitted to the Board. The Governors! Conference in November 1928, upon consideration of a report of the subcommittee of the General . Committee on Bankers! Acceptances, requested the subcommittee to submit to the Board specific examples of transactions exemplifying the need for a modification of the Board's rulings in the respects above mentioned. This was done and the following is an example of the facts submitted with regard to the Cannitteels first recom- —22— X-7180 mendatioll: HA. firm in New York City purchases certain staples from a seller in a western city who ships the same and draws a sight draft on the purchaser in New York with bill of lading attached. This draft and bill of lading attached are sent in the customary way to a bank in New York, Bank A, designated by the purchaser. The latter then draws a 90 day bill on Bank A, which is accepted by the bank, having at the time in its possession the bill of lading covering the staples in process of shipment. The acceptance is then discounted by the purchaser and the proceeds used to pay the sight draft and to obtain the release of the bill of lading. It does not require 90 days for the completion of the shipment of goods, only a relatively short time being necessary for this purpose." After consideration, the Board ruled in November 1929 that a draft drawn by the purchaser of goods in accordance with the facts above stated is eligible for acceptance by a member bank when it has a maturity consistent with the usual and customary credit time prevailing in the particular busi— ness, provided that all other relevant requirements of the law and of the Boardls regulations are complied with. (1929 Bulletin, page 811). • • • -23- X-7180 This ruling was in some respects inconsistent with certain previous rulings of the Federal Reserve Board to the effect that an acceptance should not be drawn for the purpose of furnishing working capital to the borrower or to the purchaser during the process of the manufacture of goods; and the Board stated that such previous rulings with regard to working capital might be regarded as superseded by this ruling to the extent of any such inconsist encies. The gubcommittee also submitted an example of a specific case designed to show the desirability of permitting the use of bankers' acceptances, secured by receipts covering readily marketable staples, to finance the carrying of these staples during the time they are being converted into other forms through a converter or processer who is independent of the drawer of the acceptance, provided that the identity of the goods is not lost and the accepting bank remains secured by the independent converterts receipt. After consideration, however, the Board voted in March 1930, to disapprove the recommendation made on this point and stated its opinion that bills drawn under Tuch circumstances are not to be considered as eligible for acceptance by member banks. BOARD'S POLICY OF RULING ON ACCEPTINCE quEsTINS ONLY AFTER CONSIDERATION OF FEDERAL RESERVE BAITKS. It has been the policy of the Federal Reserve Board for a number of years not to consider and pass upon questions with regard to -24- X-7180 bankers' acceptances until such questions have been first submitted to and considered by the Federal reserve bank of the district in which the question arises. It is not clear when this policy was first adopted but it was definitely in force as early as 1922 and probably, at least in Some cases, for some time before that. Many acceptance questions, of course, have arisen in the New York District and accordingly the Federal Reserve Bank of New York has been frequently called upon to. consider such questions; and much of the Board's correspondence regarding acceptance matters has been with this Federal reserve bank. In a number of cases where ac- ceptance questions have arisen in other districts, the Federal Reserve Board in considering such questions has taken them up either formally or informally with Mr. Kenzel, the Chairman of the Committee on Bankers' Acceptances. =LARY For convenient reference there is given below a brief summary of the changes in the law, regulations and rulings regarding acceptances, which have been discussed above. Provisions of the Federal Reserve Act. Under the original Federal Reserve Act, member banks were authorized to accept drafts arising out of import and export transactions having not more than six months' sight to run and Federal reserve banks were authorized to discount such acceptances, indorsed by a member bank, with maturities of not more than three months. Federal reserve banks were also authorized to purchase bankers' acceptances with or without the indorsement of a member bank. By the Act of September 7, 1916, member banks were authorized to make, and Federal reserve banks to discount, acceptances arising out of the domestic shipment of goods or out of the storage of • 4g:144' A. readily marketable staples; and by this Act, also, member banks were authorized to make, and Federal reserve banks to acquire, accepta nces drawn for the purpose of furnishing dollar exchange. By the Act of March 4, 1923, Federal reserve banks were authorized to discount acceptances with maturities up to six months when drawn for an agricultural purpose end secured at the time of acceptance by documents of title covering readily marketable staples. Rulings and Regulations of the Federal Reserve Board. In its regulation of February 8, 1915, the Board recognized as eligible for rediscount acceptances made, not only by banks and bankers, but also by others engaged in the acceptance .business. In a ruling published in the 1915 Bulletin at page 91, the Board gave approval to acceptances based on the shipment of goods between two or more fcreign countries and between the United States and certain of its dependencies and possessions, as well as between the United States and foreign countries. By regulation dated November 29, 1915, the Board authorized Federal reserve banks to purchase bankers: acceptances, when properly secured, covering the domestic shipment of goods or covering the warehouse storage of readily marketable staples. (This was prior to the amendment to the law permitting the discount of domestic acceptances.) After the amenCumPnt to the law of September 7, 1916, the Board included in its regulations provisions regarding the acceptance by member banks of drafts drawn to furnish dollar exchange. Under date of February 7, 1918, the Board addressed a letter to the Governor of the Federal Reserve Bank of New York stating its policy in dealing with acceptances drawn under credits extending over a period of one or two years. In a ruling published in the 1919 Bulletin at page 740, the Board approved acceptances drawn in a foreign country payable in the United States in dollars and secured by staples stored in a foreign warehouse. Under date of May 6, 1921, the Board amended its regulations so as to authorize the purchase by Federal reserve banks of bankers ' acceptances growing out of transactions involving the importation or exportation of goods with maturities up to six months. • -26.• X-718G Under date of December 19, 1922, the Board amended its regulations so as to authorize Federal Reserve Banks to purchase bankers' acceptances with maturities not in excess of six months which are drawn by agricultural growers or by cooperative marketing associations and are properly secured. On March 29, 1922, the Board amended its regulations so as to eliminate the requirements for the attachment or furnishing of documents in connection with acceptances arising out of import and export transactions. By ruling published in the 1926 Bulletin at page 854, the Board held that national banks may legally accept drafts drawn upon them by other banks against the security of import or export bills of exchange previously discounted by such other banks provided that such drafts are drawn before the underlying import or export transactions are completed. The Board ruled on November 28, 1927, that bankers' acceptances may properly be considered as growing out of import or export transactions when drawn for the purpose of financing the sale and distribution on usual credit terms of imported or exported goods into the channels of trade, whether or not the bills are accepted after the physical importation or exportation has been completed. On October 9, 1928, the Board amended its regulations so as to make eligible for rediscount or purchase acceptances against warehouse receipts issued by grain elevator or warehouse companies duly bonded and licensed and regularly inspected by State or Federal authorities with whom all receipts for such staples and all transfers thereof are registered and without whose consent no staples may be withdrawn. By a ruling published in the 1929 Bulletin at page 811, the Board ruled that a draft drawn by the purchaser of staples to finance the shipment of such staples is eligible for acceptance when it has a maturity consistent with the usual and customary credit time prevailing in the particular business. On March 19, 1930, the Board stated its opinion that bills drawn for the purpose of financing the carrying of staples during the time they are being processed or converted are not eligible for acceptance. It has been the policy of the Board for a number of years to consider and pass upon acceptance questions only after they have first been considered by a Federal reserve bank. Respectfully, George B. Vest, Assistant Counsel. so, - No. j31 FEDERAL RESERVE BOARD fice Correspongnce Fr Date June 13, 1932 Subject:rni ngs, Expenses and volume_ of MrLffamlin To Se" , 1 1 144 1Mr, Smead operations of Federal Reserve Banks ti • U 2-8495 I In response to your telephone remest, I am handing you herewith a copy of our statement B-811, covering earnings and expenses of the Federal reserve banks for the month of May 1932, which statement also shows current net earnings of each Federal reserve bank for the five-month period ending May 1032. You will note from the statement that, for the five-month period, the ratio of current net earnings to paid-in capital of the Federal Reserve Bank of Richmond, on an annual basis, was 11.1 per cent, and for the System as a whole 17.2 per cent. The Federal reserve banks of St. Louis and Dallas are the only ones which did not have sufficient current net earnings during the fivemonth period to cover the accrued 6 per cent dividend. Most of our volume of work figures are shown in the functional expense reports, which are submitted semi-annually by the Federal reserve banks. These reports for the first six months of 1932 will be available around the end of July. Such data as are now available indicate that the fires for the first half of the year will show some falling off in the volume of work handled in the Transit Department. It is also auite Probable that the work of the Currency and Coin Departments has decreased somewhat. Data now being compiled indicate that the amount of work handled per employee in the principal depaltments of the banks last year was about 5 per cent more than in 1930 and about 37 per cent more than in 1925. The average number of emrloyees in the principal departments of the Federal reserve bL-nks (head offices) declined from 3,184 in 1930 to 2,943 in 1931, or by about 8 per cent, and in all departments from 7,299 to 7,019, or by 3.84 per cent. VOLUME 233 PAGE 81 C OYFIDENTIAL Yot for publication "R-611 EAT:11'GS AND EXPE7SES OF FEDERAL RESERVE BA7KS, MAY 1932 larnins Iron Reserve 411 Ban!: Discounted bills Boston rrew York Philadelphia Cleveland $91,374 259,641 187,510 169,830 Richmond Atlanta Chicago St. Louis 72,411 95,515 101,066 41,231 Minneapolis Kansas City 35,693 81,775 35,420 245,515 Francisco Purchased bills U. S. securities uurren Other sources Total expenses Exclusive of cost of F.R.currency [ i i Total Total 1 Ratio to -oaid-in capital Per cent 8.3 t60,722 1,004,223 20.0 233,695 17.4 203,737 16.9 t6,427 47,007 13,053 17,133 $231,041 1,537,156 395,607 411,177 $142,248 506,628 145,762 197,422 $150,319 532,933 157,112 207,440 8,010 6,643 20,961 5,542 56,111 37,77h 3 0,739 01,729 9,599 5,74g 38,927 13,195 146,131 1145,580 461,693 121,597 112,310 96,270 260,752 102,037 112,622 103,413 252,032 102,6o6 33,309 42,267 219,661 19,031 7.5 10.2 15.0 3,245 5,035 4,679 13,984 67,441 55,793 62,548 106,600 1,626 20,340 3,606 13,421 103,205 162,993 106,453 384,520 72,350 130,769 92,066 176,611 72,630 135,707 93,005 179,429 35,575 27,286 13,36s 205,091 14.3 FEDERAL RESERVE BOARD DIVISION OF BAFE: OPERATIO7S JUYE 6, 1932 1 _ 1932 Current net earnings 1-;10,927 M.22,313 55,077 1,175,231 180,034 15,210 205,733 14,481 TOTAL 169,0Wi 1,417,161 ray 1932 202,931 Apr.1932 1,700,390 I! May 1931 164,077 362,525 Jan.-May 1932 10,052,155 1,664,119 1931 2,351,734 1,035,004 a. May of Month Federal 2,109,565 2,122,965 2,456,046 190,282 4,232,553 2,040,235 2,112,041 2,004,162 2,050,571 162,311 4,116,203 2,045,807 -599,052 2,246,925 986,394 116,674 1,649,673 2,117,429 11„137,314 10,775,351 6,901,904 1,144,477 21,962,665 10,326,152 5,562,566 566,094 9,537,420 14079,065 11,443,691 -14106,471 _ ----------------------------- 5.0 7.9 4,o 22.4 Jan. - May 1932 Current net earnings Less accrued Ratio dividends and to net charges paid-in Total (current) to capital profit and loss Per cent 10.9 t526,287 16.0 3,977,335 21.3 1,448,491 23.3 1,396,650 $232,082 2,549,294 1,069,254 1,012,202 245,547 335,367 1,253,475 92,649 11.1 16.3 17.1 4.9 116,468 210,294 6'06,511 -26,46$ 167,930 222,601 94,659 1,426,323 13.7 13.0 5.7 30.9 93,094 116,042 -12,079 1,126,079 11,137,314 -1,906,471 17.2 -- 7,314,773 -5,160,363 16.2 13.7 17.2 -- Form No. 131 Office Correspon en To From DERAL RESERVE BOARD • Date June 201932 Subject: Reductions in reserve require- r. Goldenweiser ments in recent years Mr. Riefler opo 2-8405 On June 30, 1931, member banks were required to hold 42,309,000,000 in reserve balances at the reserve banks. In addition, they held on that date for till money purposes :519,000,000 in cash in their vaults. Their total requirements for primary reserves plus vault cash, consequently, amounted to 42,828,000,000. Cash reserve requirements on 1914 basis In 1914, prior to the inauguration of the Federal reserve system, national banks were required to hold a certain amount of primary reserves in the form of vault cash and an additional amount of secondary reserves in the form of balances with commercial banks which had been approved as reserve agents. Disregarding these balances, national banks were required to hold primary reserves in the form of vault cash in relation to their net demand plus time deposits equivalent to 25 per cent if they were central reserve city banks, 12- per cent if they were reserve city banks, and 6 per cent if they were country banks. Had these same ratios applied to member banks, on June 30, 1931, they would have been required to hold vault cash equivalent to ,;4,370,000,000, an amount .4,542,000,000 in excess of their actual required reserves plus vault cash at that time. All of the changes in reserve requirements since 1914 together, consequently, had the effect of reducing primary reserve requirements by about 41,500,000,000. Primary reserve requirements on 1917 basis The original Federal Reserve Act excluded balances with correspondents as reserve (after a certain transition period), established a 5 per cent reserve on time deposits, and a reserve on net demand deposits of 18 per cent VOLUME 233 PAGE 83 -2- banks, and 12 per at central reserve city banks, 15 per cent at reserve city cent at country banks. This reserve was required to be held in part as vault cash and in part on deposit with the reserve banks. wholly of primary reserves. It consisted, therefore, If member banks had been operating under these to hold reserves provisions on June 30, 1931, they would have been required equal to 4:3,497,000,000. This would have been 4873,000,000 less than their requirements on the 1914 basis. By 1931, consequently, the changes intro- ts and the difduced in 1914 including both the lower reserve on time deposi se in required ferent reserves on demand deposits would have caused a decrea primary reserves of 4873,000,000. If time deposits had been in the same pro- r, the total required portion to total deposits in 1931 as in June 1917, howeve 00, a decrease of reserve on this basis in 1931 would have been 44,248,000,0 only 4122,000,000 from the 1914 basis. Of the total decline of 4 1,542,000,000 ed to the changes introsince 1914, consequently, 4122,000,000 can be ascrib n 1914 and 1917, while duced in 1914 and the growth of time deposits betwee proportionately more 41'?751,000,000 represents the loss due to the further rapid increase in time deposits between 1917 and 1931. The remaining 4669,- g out of the 1917 amend000,000 represents the shrinkage in vault cash arisin ments. 00,000 in vault On June 30, 1931, member banks actually held 4519,0 would have held if they cash, an amount smaller by 4669,000,000 than they of their demand deposits had been required to carry cash equal to 5 per cent date. and 2 per cent of their time deposits as of that This figure, of course, had been in the sane proportion would be materially increased if time deposits to demand deposits in 1931 as in 1917. following table: These figures are summarized in the . A• • -3- Requirements of member banks on June 30, 1931, for vault cash under 1914 provisions . 4,370,000,000 Actual required reserves plus vault cash on June 30, 1931 2,828,000,000 Total decrease due to changes in requirements 1,542,000,000 Decrease attributable to developments between 1914 and 1917 122,000,000 Decrease attributable to rapid growth of time deposits between 1917 and 1931 751,000,000 Decrease attributable to reduction in vault cash since 1917 669,000,000 1.4, 110 CONFIDENTIAL X-7197 July 5, 1932. Federal Reserve Board Mr. Vest, Assistant Counsel. questions regarding application of provisions of National Economy Act to Federal Reserve Board. Part II of the Legislative Appropriations Act, which became law on June 30, 1932, and which while pending in Congress was referred to generally as the Motional Economy Bill", contains a number of provisions which affect the Federal Reserve Board. A copy of the Act is attached hereto. In any discussion of the provisions of this Act a brief consideration of the history of the bill through Congress is helpful. The bill originated in the House and when it passed that body the first time it contained provisions for a pay cut for Government employees. As passed in the Senate the first time, it carried provisions for a furlough of employees without pay. In the consideration of the bill in conference all of its provisions were agreed upon by the conferees except those of Titlo 1, which had to do with the furlough and pay cuts of employees. When the bill was reported back to the House by the conferees, the House agreed to the conference report, and then Mr. McDuffie, one of the House conferees, proposed as Title 1 of the bill certain provisions incorporating another pay cut plan. This was rejected by the House, and there- upon Mr. McDuffie proposed another Title 1 of the bill, incorporating the furlough plan together with reductions in compensation for some but not all of those classes of employees exempted from the furlough. The House agreed to this latter proposal and the bill was then sent to the Senate, where it was approved in the form agreed to by the House. It is important to note that, while the proposals made by Mr. McDuffie on .&q,e X-7197 the floor of the House had not been agreed to in conference, they obviously had been considered by the conferees, and the details of these provisions and the intention thereof must have been well known and understood by all of the conferees. The whole purpose and intention of Part II of this Act, that is, the part 7hich contains the economy provisions, is to provide ways and means of reducing the amount of Government expenditures for which it is necessary for Congress to make appropriations, and thus to bring about a corresponding reduction in the amount of the Government's budget. The funds of the Federal Reserve Board, of course, are not derived from Congressional appropriations, but from assessments upon Federal reserve banks; and, accordingly, the Board's expenditures do not affect the amount of the Government's budget. In undertaking to interpret the provisions of this Act from the standpoint of its application to the Federal Reserve Board, it is important to bear these facts in mind. The provisions of the Act which appear to be applicable or of interest to the Federal Reserve Board, its members or employees are cussed below: FURLOUGHS AND REDUCTIONS IN COMPENSATION. The provisions regarding furloughs without pay and reductions in compensation of employees are contained in Title I of Part II of this Act, but for the reasons hereinafter stated, members and employe es of the Federal Reserve Board are exempted from these provisions and from all other provisions of Title I which deal with officers and employees of the Government. X-7197 3 Section 101 of Title I provides generally that, during the fiscal year ending June 30, 1933, each officer or employee receiving compensation at a rate of more than $1000 per annum, shall be furloughed without compensation for one calendar month, with certain exceptions and provisos which it is not necessary to detail. Section 104, however, provides: "Sec. 104. When used in this title - n(a) The terms 'officer' and 'employee' mean any person rendering services in or under any branch or service of the United States Government or the government of the District of Columbia, but do not include (1) officers whose compensation may not, under the Constitution, be diminished during their continuance in office; (2) Senators, Representatives in Congress, Delegates, and Resident Commissioners; (3) officers and employees on the rolls of the Senate and House of Representatives; (4) carriers in the rural mail delivery service; (5) officers and members of the police department of the District of Columbia, of the fire department of the District of Columbia, of the United States park police in the District of Columbia, and of the White House Police; (6) teachers in the public schools of the District of Columbia; (7) public officials and employees whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury; (8) the enlisted personnel of the Army, Navy, Coast Guard, and Marine Corps; (9) postmasters and postal employees of post offices of the first, second, and third classes whose salary or allowances are based on gross postal receipts, and postmasters of the fourth class; (10) any person in respect of any office, position or em ployment the amount of compensation of which is expressly fixed by international agreement; and (11) any person in respect of any office, position, or employment the compensation of which is paid under the terms of any contract in effect on the date of the enactment of this act, if such compensation may not lawfully be reduced." X-7197 4- The salaries of the members and employees of the Federal Reserve Board are derived from assessments on the Federal reserve banks pursuant to the provisions of section 10 of the Federal Reserve Act, and are not paid from the Federal Treasury. Members and employees of the Federal Reserve Board thus fall directly within the classification "public officials and employees whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury." AS shown in the above quotation from section 104, such public officials and em ployees are exempted entirely from the provisions of Title I of the Act relating to officers and employees; and it is clear, therefore, that the requirements of this Act as to furloughs without pay are not applicable to Federal Reserve Board members or employees. There are a number of other classes of officers and employees who are expressly exempted from the furlough provisions of the Act, and Section 105 of Title I of the Act provides that the compensation of some, but not all, of these exempted classes of employees shall be reduced during the fiscal year ending June 30, 1933. This section provides, among other things, that there shall be a reduction in compensation, upon a graduated scale, for a number of specifically named classes of employees who are exempted from the furlough provisions and also for X-7197 5- "(7) Officers and employees (as defined in Section 104(a)), not otherwise provided for in this section, to whom the provisions of sub-sections (a) and (b) of Section 101 do not apply." It will be observed that this provision refers to and in corporates as a part of itself, the definition of the terms "officers" and "employees" in Section 104. Since "public officials and employees whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury" are expressly excluded from the definition of these terms, it is obvious that the provision as to reduction in compensation does not affect members of the Federal Reserve Board or its employees. The question was raised on the floor of the Senate whether Section 105 was intended to provide for a reduction in the compensation of public officials whose compensation is derived from assessments upon banks and the definite answer was given by Senator Bratton, one of the conferees, that no such reduction in compensation was intended. Senator Bratton stated that it was the intention of the conferees to exempt from the reduction in compensation, "either by furlough or per cent or otherwise", the enlisted personnel of the Army, Navy, Marine Corps and Coast Guard. In answer to another specific inquiry, X-7197 6 he replied that public officers who are not paid out of the Federal Treasury, as referred to subdivision 7 of section 104, fall in the same class in this respect with the enlisted personnel referred to and are not subject to any reduction in compensation. For the Board's information in this connection, I quote from the debates on the floor of the Senate on June 24, 1932. (Congressional Record, pages 14288 and 14289) "Mr. Byrnes. Directing the Senator's attention to the provisionsof the furlough system, am I correct in the impression I have received that notwithstanding the provisions of section 105, the compensation reduction system, the compensation reduction does not apply to the enlisted personnel of the Army and Navy or to public officials whose compensation is derived from assessments upon banks? "Mr. Bratton. Mr. President, I welcome the inquiry from the Senator from South Carolina. It is timely and pertinent. It was the intention of the original bipartisan committee of six Senators who wore assigned to the task of considering this bill that the enlisted personnel of the Army, the Navy, the Marine Corps, and the Coast Guard should be exempted from any reduction in compensation. That was also the intention of the conferees between the two branches of the Congress, and although there may be some doubt respecting the phraseology as adopted by the House, and found at page 13914 of the Congressional Record, there can be no doubt concerning the intent of the conferees. They intended throughout for sound reasons to exempt from the reduction in compensation either by furlough or per cent or otherwise the enlisted personnel of the Army, the Navy, the Marine Corps, and the Coast Guard. "Mr. Byrnes. Then the Senator will agree that that vould be true also of subdivision 7, in section 104, applying to all the public officers 7-ho are not paid out of the Treasury? "Mr. Bratton. Yes; they fall in the same class." In this connection also it is pertinent to consider the legislative history of this question as it affects the Federal Reserve Board. X-7197 - 7The bill as originally passed by the House did not contain an exemption in favor of the Federal Reserve Board members or employees, but on the contrary, contained a provision specifically reducing the salaries of the members of the Federal Reserve Board to $10,000, beginning July 1, 1933. When it was reported out by the Senate Committee, the provision reducing the salaries of the members of the Federal Reserve Board was stricken out and there was inserted a provision exempting "insolvent bank receivers and bank examiners whose compensation is not paid from the Federal Treasury." On the floor of the Senate this exemption was changed by an amendment offered by Senator Glass so as to read "public officials and employees whose compensation is not paid from the Federal Treasury." The first proposal made to the House by Mr. McDuffie after the House accepted the coherence report would have provided pay cuts for employees and would not have included the furlough provisions, but it contained an exemption from such pay cuts in favor of "persons whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury." Mr. McDuffie's second proposal contained the exempting clause in the form in which it was enacted into law, viz., "public officials and employees whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury.“ The provision in section 105 making certain officers and employees subject to a reduction in compensation is not applicable to the Federal Reserve Board members and employees; because (a) the provision by its own terms incorporates the exemption in favor of those whose compensation is derived from assessments on banks, • • X-7197 - 8_ (b) the legislative history of the bill shows clearly the intention that such exemdtion shall apply to reductions in compensation as well as to furloughs, and (c), if there were any doubt about the matter otherwise, it is conclusively settled by the express statement by one of the Senate conferees on the floor of the Senate. The reasons for these exemptions are obvious. this legislation was tc balance the Federal budget. The purpose of The compensation of the members and employees of the Federal Reserve Board, which is derived from assessments on banks and not from the Federal Treasury, does not affect the Federal budget; and accordingly no reduction in the budget would be effected by reducing their salaries or by requiring them to take furloughs without pay. ANNUAL LEAVE OF EMPLOYEES. Section 103 of Title I of the Act provides that "all rights now conferred or authorized. to be conferred by law upon any officer or employee to receive annual leave of absence with pay are hereby suspended during the fiscal year ending June 30, 1933; "but this provision clearly is not applicable to officers and employees of the Federal Reserve Board; because as explained above, the terms "officer" and "employee" as used in Title I of the Act do not include public officials and employees whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury. Section 215 of Title II of the Act provides that, "Hereafter no civilian officer or employee of the Government who receives annual leave with pay shall be granted annual leave of absence with pay in excess of fifteen days in any one year, excluding Suadays and legal holidays." It is also provided that leave unused in one year may be cumulative for any X-7197 succeeding year; that sick leave of absence allowed lather existing law is not affected by this provision; and that such sick leave of absence shall be administered under reulatiens prescribed by the Presid ent so as to obtain, so far as practicable, uniformity in the various departments and establishments in the Government. As this provision is not in Title I of the Act and in view of its broad language, it is my opinion that it is ap-olicable to the members and employees of the Federal Reserve Board and that in ordor to com ,ly with this law, annual laave for such 1=b,:rs and aaoloyees must hereafter be restricted to fifteen days in any one year, excluding Sundays and legal holidays. The allowance for sick leave is not affect- ed and there is no statutory provision limiting the ar..aunt of sick lcavo which the Board may grant to its members or employees. It is not entirely clear from a reading of this provision whether the words "in any one yearn shauld be interpreted as meani.ag (a) in any one calendar year; or (b) in any one fiscal year; but annual leave has heretofore been allowed by law upon the basis of tho calendar year and, as there is nothing in the new provision to indicate a change of intention in this respect, it is believed that annual leave s'llauld continue to be computed on the basis of the calendar yea.r. It will be observed that the statute provides that hereafter no officer or employee in any one year. be granted leave in excess of fifteen days The words nhereaftern and ngrantedn taken together show clearly that it is not the intention of this provis ion that leave which nay previously :Jaye been granted to any enploy ee durin6 the present • X-7197 - 10- calendar year shauld enter into the determination of the amount of leave which may be granted to him during the remainder of the year 1932. The provision is directed solely at leave granted after the passage of the Act. Under the law, therefore, no member or employee of the Federal Reserve Board may be granted annual leave with pay in excess of fifteen days during the remainder of the current calendar year; but the amount of annual leave which such member or employee may have previously received during 1932 dces not affect the question; except that the entire amount of leave received during the calendar year 1932 shauld, of course, not exceed the thirty days prescribed by the Boardts existing regulations on this aubject. It is believed probable, however, that an administrativo ruling will be issue'd with regard to the manner in which Government departments generally should apply these new provisions of law regarding annual leave of employees and the Federal Reserve Board probably will desire to follow the same course which is adopted by other Government establishments in this connection. PROMOTION OF EMPLOYEES. Section 201 of Title II of the Act prohibits automatic increases in compensation by reason of length of service or promotion during the fiscal year ending June 30, 1933; and Section 202 X-7197 -11- prohibits, during the same period, "administrative promotions in the civil branch of the United States Government or the government of the District of Columbia." The filling of a vacancy, when authorized by the President, by the appointment of an employee of a lower grade is not construed as an administrative promot ion. Federal Reserve Board employees are, of course, not subject to automatic increases in compensation and so Sectio n 201 is clearly inapplicable to them. While the provisions of Section 202 are broad enough to include the Federal Reserve Board, it seems apparent from certain references in the section to grades of employ ees and the rate of pay applicable to such (L.rades that the section is directed only at administrative promotions in the classified civil service and so would not include the Federal Reserve Board. Fur- thermore, as pointed out above, the purpose of this Act is to provide economies in the expenditure of Government funds derive d from Congressional appropriations; and since Federal Reserve Board employees are paid not from Congressional appropriations, but from assessments upon the Federal reserve banks, the Board would not seem to fall within the scope of the basic purpose of this sectio n. Although the question is a doubtful one, I am inclined to the view that the Board is not prohibited by this provision from granting promotions to its employees during the next fiscal year, if it should see fit to do so. In any event the language of the section does not seem broad enough to prohibit the Board, if it should so desire, X-7197 - 12 fro-fa making an increase in the compensation of an employee during the next fiscal year in a case where such increase does not involve a change in the position occupied by auch employee which could be characterized as a promotion. FILLING OF VACANCIES. Section 203 of Title II of the Act provides that "no appropriation available to any executive department or independent establishment" during the fiscal year ending June 30, 1933, shall be used to pay the compensation of an inaumbent apoointed to any civil position under the United States Government which is vacant on July 1, 1932, or to any such position which may become vacant after such date; with an exception in favor of "absolutely essential positions", the filling of which may be authorized or approved in writing by the President of the United States, and of temporary, amergency, seasonal or cooperative positions. Appropri- ations unexpended by operation of this section are to be impounded and returned to the Treasury. In my opinion this provision is not applicable to the filling of vacancies in the staff or personnel of the Federal Reserve Board because the prohibition of this section is upon the use of "appropriations". As the Board's funds are derived from assess- ments upon the Federal reserve banks, they are not appropriations within the meaning of this provision. Moreover, the Board's funds, althaugh deposited with the Treasury as a special fund, never become X-7197 -13- a part of the general fund of the Treasury and, therefore, the provision requiring a "return" to the Treasury of impounded "appropriations" obviously could not apply to them. While the Comptroller General in a case arising in 1923 took the position that the Board's funds had the status of appropriated moneys, in other cases arising since that time he has taken a more liberal position as to the power cf the Federal Reserve Board over the expeniiture of its funds within the limitations of the law. It is believed that the position taken by the Comptroller General in 1923 cannot properly be sustained and that, the Board's funds not being appropriations, this section is not properly applicable to the Board. COMPULSORY RETIREMENT OF EMPLOYEES FOR AGE. Section 204 of Title II of the Act provides that on and after July 1, 1932, no person rendering civilian service in any branch or service of the United States Government who shall have reached the retirement age prescribed for automatic separation from the service, applicable to such person, shall be continued in such service; provided that the President may exempt any person from the provisions of this section when the public interest so requires. Generally speaking, the employees of the Federal Reserve Board are not subject to the provisions of the Civil Service Retirement Act and are therefore not affected by this provision, because there X-7197 - 14 is no retirement age for automatic separation from the service applicable to them. There are, however, seven employees on the rolls of the Federal Reserve Board (transferred from positions in the classified service) who contribute from their salaries to the retirement fund and are entitled to the benefits of the Retirement Act. Inasmuch as these emplcyees are subject to the provisions of the Retirement Act, it would appear that Section 204 prohibits their employment by the Federal Reserve Board after they reach the age prescribed for automatic separation from the service applicable to them,which is understood to be seventy years. It appears, however, that it will be several years before any of these seven employees reach the retirement ago and so there will be ample time for the determ ination of this question. TRAVEL ALLOWANCES. Section 207 of Title II of the Act has to do with travel allowances for civilian officers and employees of the government departments and establishments, and changes the present law by substituting a per diem allowance of five dollars a day for travel in the continental United States in lieu both of the seven dollar allowance for actual expenses and the alternative six dollar per diem allowance heretofore contained in the law. This section also changes the present law by substituting a per diem allowance of six dollars a day for travel uutside of the contin ental United States in lieu both of the eight dollar allowance for actual expenses and the alternative seven dollar per diem allowa nce heretofore contained in the law. X-7197 - 15 These provisions are applicable to members and employees of the Federal Reserve Board. It is understood that changes in the travel regulations to conform to the new law have been approved by the President. Section 209 of Title II of the Act provides that no law or regulation authorizing or permitting the transportation at Government expense of the effects of officers, employees, or other persons shall authorize the transportation of an automobile. This section would appear to prevent the transportation of automobiles of officers and employees of the Federal Reserve Board at Government expense, although no case is known in which this has ever occurred . COMPENSATION FOR OVERTIME AND NIGHT WORK. Section 211 of Title II of the Act provides that, during the fiscal year ending June 30, 1933, no officer or employee of the Government shall be paid a higher rate of compensation for overtime work. (either day or night) or for work on Sundays and holidays; and wherever by or under authority of law compensation for night work (other than overtime) is at a higher rate than for day work, such differen tial shall be reduced by one half. It is also provided that, in so far as practicable, overtime work shall be performed by otLers than those who have performed a day's work, and work on Sundays and holidays shall be performed by others than these Who have performed a week's work. The Board does not pay compensation for overtime work. It does have certain night employees in the office of the Gold Settlement Fund, but the compensation allowed them is not fixed by law. More- over since the Federal Reserve Board has no corresponding class of day X-7197 -16- employees, it would be impossible to say whether their compensation is at a higher rate than for day rork. The provisions of this section, therefore, do not seem to be apylicable to the Federal Reserve Board. STATUS OF MARRIED PERSONS IN PERSONNEL REDUCTIONS. Section 213 of Title II of the Act provides that in any reduction of personnel in any branch or service of the United States Government, married persons (living with husband or wife) employed in the class to be reduced, shall be dismissed before any other persons employed in such class, if such husband or wife is also in the service of the United States or the District of Columbia. This provision would apply to the Federal Reserve Board in case of a reduction in number of any particular class of its employees. It does not apply, of course, to prevent the Board from dismissing any employee for cause and filling the vacancy thus created. This section also contains a similar preference in favor of others thaa married persons in the appointment of employees; but, by its tenms, this provision applies only to appointments to the classified civil service and, therefore, is not applicable to the Federal Reserve Board. FURLaUGH aF EMPLOYEES FOR INDEFINITE PERIODS. Section 216 of Title II of the Act provides that nin order to keep within the appropriations made for the fiscal year 1933, the heads of the various executive departments and independent establishmentsu are authorized and directed to furlough without pay employees for such time as is necessary in their judgment to carry aut this -212rpose, the higher salaried to be furloughed first whenever possible X-7197 - 17without injury to the service. It seems clear that the Federal Reserve Board is not affected by this provision because it refers definitely to nappropriations” made for the ensuing fiscal year. The Board, of course, has no such appropriation but derives its funds from semi-annual assess,.lents upon the Federal reserve banks. LIMITATIONS OF EXPENDITURES FOR PRINTING AND BINDING ALD STATIONERY. Section 302 of Title III of the Act provides a limitation of eight million dollars upon the amount 7hic1i may be obligated for printing and binding for the use of the United States and District of Columbia done at the Government Printing Office during the fiscal year ending June 30, 1933; and also places a limitation of four hundred thousand dollars upon the amount which shall be expended for paper furnished by the Government Printing Office for the use of the Government establishments during the same period. Nothing in the section, however, is to be construed to authorize the disconti nuance of any report or publication specifically required by law. These provisions, of course, are not limitations upon the Federal Reserve Board and in view of the peculiar status of the Board's funds, it is not believed that printing done for the Federal Reserve Board is intended to be included within the limitati ons. How- ever, it is possible that because of these provisions the Board will find difficulty during the ensuing year in having a sufficient amount of printing and binding done at the Government Printing Office. This will depend in a large measure on the attitude of the Governme nt Printing Office on this question. • • X-7197 - 18- ANNUAL REPORT TO CONGRESS. Section 313 of Title III of the Act provides that in the annual report to Congress of each executive department or independent establishment, there shall be included a statement of receipts during the period covered by such report from fees or charges paid to Tuch department or establishment under any act of Congress. It is doubtful whether any of the fees or charges paid to the Federal Reserve Board from time to time are of such character as to be affected by this requirement; but, in any event, it is the practice of the Board to include in its annual report a statement of all receipts and disbursements and this would seem sufficient to meet the requirements of this section. EXPENDITURES FOR RENT. Section 322 of Title III of the Act provides that hereafter no wopropriation shall be obligated or expended for the rent of any building or part of a building to be occupied for Government purposes at a rental in excess of a per annum rate of fifteen per centum of the fair market value of the premises at the date of the lease, nor for alterations, improvements and repairs of rented premises in excess of twenty-five per centum of the amount of the rent for the first year of the rental term; with a proviso that this section shall not apply to leases heretofore made. This section is a restriction on the expenditure of appropriations and in my opinion is not applicable to the Federal Reserve Board. Since the funds of the Board are derived from assessments on the Federal Reserve Banks, they cannot properly be considered appropriations within the meaning of this provision. AS 5.ndicated above, X-7197 - 19 horever, the Comptroller General in one case took the position that the Board's funds constitute appropriated moneys, and it is possible that he might question the Board's right to make expenditures for rent, under leases hereafter entered into, in excess of the limitations prescribed by this provision. As shown above, the law does not affect leases heretofore made. REORGANIZATION CF EXECUTIVE DEPARTMENTS. Title IV of the Act declares it to be the policy of Congress to !s.roup, coordinate and consolidate executive and administrative agencies of the Government; to reduce the number thereof by consolidation; to eliminate overlapping and duplication of effort; and to segregate regulatory agencies and functions from those of an administrative and executive character. For the purpose of carrying out this policy the President is authorized, by executive order, to transfer the whole or any part of any commission, board, bureau, division, service, or office in the executive branch of the Government, and/or functions thereof, to the jurisdiction and control of another such Governmental agency or of any executive department; except that the President's power in this respect does not include authority to abolish any such Governmental agency or ekocutive department which is created by statute. The President is also authorized, by executive order s to consolidate or redistribute the functions vested in any executive department or in the executive agencies included in any executive department, and to designate and fix the name and functions of any consolidated activity or executive agency and the title, powers and duties of its executive head. No executive order issued by the President under this title, however, shall (with certain specified exceptions) become effective until it has been transmitted to Congress and X-7197 - 20 days has had an opportunity for sixty Congress has either approved it or e has to disapprove it and neither Hous (not interrupted by adjournment) nt ludes that any executive departme done so. Whenever the President conc its by statute, should be abolished and or agency, which has been created rtment or agency or eliminated enfunctions transferred to another depa conclusions to Congress with such tirely, he is required to report his recommendations as he may deem proper. The President is also required of each regular session any action to report to Congress at the beginning title, with the reasons therefor. taken pursuant to the provisions of this of the Act, it appears to be Under the provisions of this title e ld see fit, to transfer by executiv possible for the President, if he shou , functions and personnel of order, subject to disapproval by Congress cy or department of the Governthe Federal Reserve Board to another agen agencies or departments to the ment, or to transfer functions of other Federal Reserve Board. INTERDEPARTMENTAL WORK. authorizes any executive departSection 601 of Title VI of the Act Government, or any bureau or ofment or independent establishment of the efor and if it is deemed by the fice thereof, if funds are available ther or office to be in the interest head of such executive department, bureau rs with any other such department, of the Government to do so, to place orde materials, supplies, equipment, work establishment, bureau or office for ioned Federal agency may be in or services of any kind that such requisit the render; and provision is made as to a position to supply or equipped to for such supplies or services. It is manner in which payment shall be made or or services can be as conveniently provided, however, that if such work , such work shall be let by more cheaply performed by private agencies cies. competitive bids to such private agen 1 X7,7197 Under this section, the Federa Rese l rve Board is authorized to purchase supplies or services from other Government departments or establishments; and possibly the Board might be called upon to render cert ain services for other departments or establishments. JURISDICTION OF UNITED STATES COURTS OF SUITS ARISING UNDER TITLE I OF 1.1 CT. It is provided in Section 111 of Titl e I of the Act that "No court of the United States shal l have jurisdiction of any suit agains t the United States or (unless brou ght by the United States) against any officer, agency or instrumentality of the United States, arising aut of the application of any provision of this tit le, unless such suit involves the Constitution of the United Stat es". The effect of this provision is to preserve the right to the United States to bring sui ts, at the instance of the Comptroller General, to enforce any provision of Title I of the Act but to deny the right to any Government deiDartment or establishment to bring suit agai nst the United States, the Comptroller General, or any other officer or age ncy of the United States, arising out of the application of Title I. Respectfully, George B. Vest, Assistant Counsel. I have given careful consideratio n to this subject and agree with the conclusions stat ed by Mr. Vest. Walter Wyatt, General Counsel. • • • [PUBLIC—No. 212-72D CONGRESS] [H. R. 11267J AN ACT Making appropriations for the Legislative Branch of thd Government for the fiscal year ending June 30, 1933, and for other pupuses. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, PART I SECTION 1. The following sums are appropriated, out of any money in the Treasury not otherwise appropriated, for the Legislative Branch of the Government for the fiscal, year ending,June 30, 1933,-namely: SENATE SALARIES AND MILEAGE OF SENAI46RS' For compensation of Senators, $960,000. For mileage of Senators, $51,000. For compensation of officers, clerks, Meserigers; and others: OFFICE OF THE VICE PRESIDENT Salaries: Secretary to the Vice President, $4,620; clerk; $2,400; assistant clerks—one $2,280, one $2,160; in all, $11,460. CHAPLAIN Chaplain of the Senate, $1,680. OFFICE OF THE SECRETARY Salaries: Secretary of the Senate, including compensation as disbursing officer of salaries of Senators and ofl,ontingent fund of the Senate, $8-,000; Assistant Secretary; Henry M. Rose, $4,500; chief clerk, who shall perform the duties of re,ading clerk, $5,500 and $1,000 additional so long as the position is held by the present incumbent; financial clerk, $5,000 and $1,000 additional so long as the position is held by the present incumbent; assistant financial clerk, $4,200 and $600 additional so long as the position is held by the present incumbent; minute and Journal clerk, $4,500 and $1,000 additional so long as the position is held by the present incumbent; principal clerk, $3,840; legislative clerk, enrolling clerk, and printing clerk at $3,540 each; chief bookkeeper, $3,000; librarian, $3,360; executive clerk, file clerk, and assistant Journal clerk at $3,180 each; first assistant librarian, and keeper of stationery at $3,120 each; assistant librarian, $2,460; skilled laborer, $1,740; clerks—two at $3,180 each,one $2,880, one $2,760,two at $2,400 each,two at $2,040 • [PUB. 212.1 each; two assistant keepers of stationery at $2,040 each; assistant in stationery room, $1,740; messenger in library, $1,560; special officer, $2,460; assistant in library, $2,040; laborers-two at $1,620 each, three at $1,380 each, one in stationery room, $1,680; in all, $118,520. DOCUMENT ROOM Salaries: Superintendent, $3,960; first assistant, $3,360; second assistant, $2,700; assistant, $2,040; two clerks, at $2,040 each; skilled laborer, $1,740; in all, $17,880. COMMITTEE EMPLOYEES Clerks and messengers to the following committees: Agriculture and Forestry-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,580; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Appropriations-clerk, $7,000 and $1,000 additional so long as the position is held by the present. incumbent; assistant clerk, $4,200; assistant clerk, $3,900; three assistant clerks at $3,000 each; two assistant clerks at $2,220 each; messenger, $1,800. To Audit and Control the Contingent Expenses of the Senate-clerk, $3,900; assistant clerk, $2,580; assistant clerk,#$2,400; assistant clerk, $2,220; additional clerk, $1,800. Banking and Currency-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,400; assistant clerk, $2,220. Civil Service-clerk,$3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Claims-clerk, $3,900; assistant clerk,$2,880; assistant clerk, $2,580; two assistant clerks at $2,220 each. Commerce-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,580; assistant clerk, $2,40Q; assistant clerk, $2,220. Conference Majority of the Senate-clerk, $3,900; assistant clerk, $2,880; two assistant clerks at $2,580 each; assistant clerk,$2,220. Conference Minority of the Senate clerk, $3,900; assistant clerk, $2,880; two assistant clerks at $2,580 each; assistant clerk, $2,220. District of Columbia-clerk,$3,900; two assistant clerks at $2,880 each; assistant clerk $2,220; additional clerk, $1,800. Education and Labor-clerk, $3,900; assistant clerk,$2,580; assistant clerk,$2,220; additional clerk, $1,800. Enrolled Bills-clerk, $3,900; assistant clerk,$2,400; assistant clerk, $2,220; additional clerk,$1,800. Expenditures in the Executive Departments-clerk, $3,900; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk,$1,800. Finance--clerk,$4,200; special assistant to the committee, $3,600; assistant clerk, $2,880; assistant clerk, $2,700; assistant clerk, $2,400; two assistant clerks at $2,220 each; two experts (one for majority and onefor the minority) at $3,600 each; messenger, $1,800. Foreign Relations clerk, $3,900; assistant clerk,$2,880; assistant clerk,$2,580; assistant clerk,$2,220; additional clerk, $1,800; messenger, $1,800. Immigration-clerk, $3,900; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk $1,800. Indian Affairs-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Interoceanic Canals-clerk, $3,900; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk, $1,800. Interstate Commerce-clerk, $3,900; assistant clerk, $2,880; two assistant clerks at $2,580 each; assistant clerk, $2,220. Irrigation and Reclamation-clerk, $3,900; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk, $1,800. Judiciary [PUB.212.3 3 clerk, $3,900; assistant clerk, $2,880; two assistant clerks at $2,580 each; assistant clerk, $2,220. Library-clerk, $3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk? $1,800. Manufactures-clerk, $3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Military Affairs-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,580; assistant clerk, $2,400; two assistant clerks at $2,220 each. Mines and Mining-clerk $3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional cleric, $1,800. Naval Affairs-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,400; two assistant clerks at $2,220 each. Patents-clerk, $3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Pensions-clerk, $3,900; assistant clerk, $2,580; four assistant clerks at $2,220 each. Post Offices and Post Roads clerk $3 900; asslatant elerk,$9 RS0> three assis an c er cs a , I eac ; ace'tonal c-Irk, $1,800. Printing-clerk, $3,900; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk, $1,800. Privileges and Electionsclerk,$3,900; assistant clerk,$2,400; assistant clerk, $2,220; additional clerk, $1,800. Public Buildings and Grounds-clerk, $3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Public Lands and Surveys-clerk, $3,900; assistant clerk, $2,880; assistant clerk, $2,580; two assistant clerks at $2,220 each. Revision of the Laws-clerk, $3,900; assistant clerk, $2,400; assistant clerk, $2,220; additional clerk, $1,800. Rules-clerk, $3,900, and $200 toward the preparation biennially of the Senate Manual under the direction of the Committee on Rules; assistant clerk, $2,880; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk, $1,800. Territories and Insular Possessions-clerk, $3,900; assistant clerk, $2,580; assistant clerk, $2,220; additional clerk, $1,800; in all, $481,300. CLERICAL ASSISTANCE TO SENATORS Clerical assistance to Senators who are not chairmen of the committees specifically provided for herein, as follows ( -Seventy clerks at $3,900 each; seventy assistant clerks at $2,400 each, and seventy agsistant clerks at $2,220 each, $596,400. Such clerks and assistant clerks shall be ex officio clerks and assistant clerks of any committee of which their Senator is chairman. Seventy additional clerks at $1,800 each, one for each Senator having no more than one clerk and two assistant clerks for himself or for the committee of which he is chairman; messenger, $1,800; $127,800; in all, $724,200. OFFICE OF SERGEANT AT ARMS AND DOORKEEPER Salaries: Sergeant at Arms and Doorkeeper, $8,000; two secretaries (one for the majority and one for the minority) at $5,400 each; two assistant secretaries (one for the majority and one for the minority) at $4,320 each; messengers-five (acting as assistant doorkeepers, including one for minority) at $2,400 each, thirty-eight (including two for minority) at $2,040 each, one at $1,560, one at card door, $2,880; clerk on journal work for Congressional Record, to be selected by the official reporters, $3,360; Deputy Sergeant at Arms and storekeeper, $4,440; clerk, $2,460; stenographer in charge of furniture accounts and records, $1,740; upholsterer and locksmith, Rya.2121 $2,400; cabinetmaker, $2,040; three carpenters at $2,040 each; janitor, $2,040; skilled laborers-seven at $1,680 each, one at $1,5603 laborer in charge of private passage, $1,680; three female attendants in charge of ladies' retiring rooms at $1,500.each; three attendants to women's toilet rooms, Senate Office Building, at $1,500 each; telephone operators-chief, $2,460, seven at $1,560 each; night operator,$1,380; telephone page,$1,260; laborer in charge of.Senate toilet rooms in old library space, $1,200; press gallery-superintendent, $3,660, assistant superintendent, $2,520, messenger for service to press correspondents, $1,740; laborers-three at $1,320 each, thirty-four at $1,260 each; twenty-one pages for the Senate Chamber, at the rate of $4 per day each, during the session, $10,164; in all, $252,104. Police force for Senate Office Building under the Sergeant at Arms: Special officer, $1,740; sixteen privates at $1,620 each; in all, $27,660. POST OFFICE Salaries: Postmaster, $3,060; chief clerk, $2,460; wagon master, $2,040; seven mail carriers at $1,740 each; two riding pages at $1,440 each; in all, $22,620. FOLDING ROOM Salaries: Foreman, $2,460; assistant, $2,160; clerk, $1,740; folders-chief, $2,040, seven at $1,560 each, seven at $1,380 each; in all, $28,980. • CONTINGENT EXPENSES OF THE SENATE For stationery for Senators and the President of the Senate, including, $7,500 for stationery for committees and officers of the Senate, $25,000. Postage stamps: For office of Secretary, $250; office of Sergeant at Arms,$100; in all, $350. For maintaining, exchanging, and equipping motor vehicles for carrying the mails and for official use of the offices of the Secretary and Sergeant at Arms, $7,960. For driving, maintenance, and operation of an automobile for the Vice President, $4,000. For materials for folding, $1,500. For folding speeches and pamphlets, at a rate not exceeding $1 per thousand, $10,000. For fuel, oil, cotton waste, and advertising, exclusive of labor, $2,000. For the purchase of furniture, $5,000. For materials for furniture and repairs of same, exclusive of labor, $3,000. For services in cleaning, repairing, and varnishing furniture, $2,000. For packing boxes, $970. For rent of warehouse for storage of public documents, $2,000. For miscellaneous items, exclusive of labor, $100,000. For expenses of inquiries and investigations ordered by the Senate, including compensation to stenographers of committees, at such rate [Pus. 212.1 4) 5 • as may be fixed by the Committee to Audit and Control the Contingent Expenses of the Senate, but not exceeding 25 cents per hundred words, $150,000: Provided, That except in the case of the Joint Committee on Internal Revenue Taxation no part of this appropriation shall be expended for services, personal, professional, or otherwise in excess of the rate of $3,600 per annum: Provided further, That no part of this appropriation shall be expended for per diem and subsistence expenses except in accordance with the provisions of the Subsistence Expense Act of 1926, approved June 3, 1926, as amended. For reporting the debates and proceedings of the Senate, payable in equal monthly installments, $54,306. For repairs, improvements, equipment, and supplies for Senate kitchens and restaurants, Capitol Building and Semite Office Building, including personal and other services, to be expended from the contingent fund of the Senate, under the supervision of the Committee on Rules, United States Senate, $30,000. HOUSE OF REPRESENTATIVES SALARIES AND MILEAGE OF MEMBERS For compensation of Members of the House of Representatives, Delegates from Territories, the Resident Commissioner from Porto Rico, and the Resident Commissioners from the Philippine Islands, $4,405,000. For mileage of Representatives and Delegates and expenses of Resident Commissioners, $175,000. For compensation of officers, clerks, messengers, and others: OFFICE OF THE SPEAKER Salaries: Secretary to the Speaker, $4,620; parlimentarian, $4,500, and for preparing Digest of the Rules, $1,000 per annum; assistant parliamentarian, $2,760; clerk to Speaker, $2,400; clerk to Speaker, $1,440; messenffer to Speaker's table, $1,740; messenger to Speaker, $1,680; in all, 20,140. CHAPLAIN Chaplain of the House of Representatives, $1,680. OFFICE OF THE CLERK Salaries: Clerk of the House of Representatives, including compensation as disbursing officer of the contingent fund, $8,000; Journal clerk, two reading clerks, and tally clerk, at $5,000 each; enrolling clerk, $4,000; disbursing clerk, $3,960; file clerk, $3,780; chief bill clerk, $3,540; assistant enrolling clerk, $3,180; assistant to disbursing clerk, $3,120; stationery clerk, $2,880; librarian, $2,760; assistant librarian, and assistant file clerk, at $2,520 each; assistant Journal clerk, and assistant librarian, at $2,460 each; clerks-one $2,460, three at $2,340 each; bookkeeper, and assistant in disbursing office, at $2,160 each; four assistants to chief bill clerk at $2,100 each; stenographer to the Clerk, $1,980; assistant in stationery 'room, [Pus.212.1 $1,740; three messengers at $1,680 each; stenographer to Journal clerk, $1,560; laborers-three at $1,440 each, nine at $1,260 each; telephone operators-assistant chief, $1,620, eighteen at $1,560 each; three at the rate of $1,560 each per annum from December 1, 1932, to June 30, 1933, inclusive; substitute telephone operator when required, at $4 per day, $1,460; property custodian and superintendent of furniture and repair shop, who shall be a skilled cabinetmaker or upholsterer and experienced in the construction and purchase of furniture, $3,960; two assistant custodians at $3,360 each; locksmith and typewriter repairer, $1,860; messenger and clock repairer, $1,740; operation, maintenance, and repair of motor vehicles, $1,200; in all, $162,730. COMMITTEE EMPLOYEES Clerks, messengers, and janitors to the following committees: Accounts-clerk, $3,300; assistant clerk, $2,460; janitor, $1,560. Agriculture clerk, $3,300; assistant clerk, $2,460; janitor, $1,560. Appropriations-clerk, $7,000 and $1,000 additional so long as the position is held by the present incumbent; assistant clerk, $5,000 !Ind $1,000 additional so long as the position is held by the present incumbent; three assistant clerks at $3,900 each; assistant clerk, $3,600; two assistant clerks at $3,300 each; messenger, $1,680. Banking and Currency-clerk,$2,760; assistant clerk, $1,740; janitor, $1,260. Census-clerk,$2,760; janitor, $1,260. Civil Service--clerk, $2,760; janitor, $1,260. Claims--clerk, $3,300; assistant clerk, $1,740; janitor, $1,260. Coinage, Weights, and Measures--clerk, $2,760; janitor, $1,260. Disposition of Useless Executive Papersclerk, $2,760. District of Columbia--clerk, $3,300; assistant clerk, $2,460; janitor, $1,260. Education-clerk,$2,760. Election of President, Vice President, and Representatives in Congress-clerk, $2,760. Elections Numbered 1-clerk,$2,760; janitor, $1,260. Elections Numbered 2--clerk, $2,760; janitor, $1,260. Elections Numbered 3--clerk,$2,760;janitor,$1,260. Enrolled Bills-clerk,$2,760; janitor, $1,260. Expenditures in Executive Departments-clerk, $3,300; janitor,$1,260. Flood Control-clerk,$2,760; janitor,$1,260. Foreign Affairs-clerk,$3,300; assistant clerk,$2,460; janitor,$1,260. Immigration and Naturalization--clerk, $3,300; janitor, $1,260. Indian Affairs-clerk, $3,300; assistant clerk, $2,460; janitor, $1,260. Insular Affairs-clerk, $2,760; janitor, $1,260. Interstate and Foreign Coinmerce-clerk, $3,900; additional clerk, $2,640; assistant clerk, $2,100; janitor, $1,560. Irrigation and Reclamation-clerk, $2,760; janitor, $1,260. Invalid Pensions-clerk, $3,300; assistant clerk, $2,880; expert examiner, $2,700; stenographer, $2,640; janitor, Judiciary-clerk, $3,900; assistant clerk, $2,160; assistant clerk, $1,980; janitor, $1,500. Labor-clerk, $2,760; janitor, $1,260. Library-clerk, $2,760; janitor, $1,260. Merchant Marine, Radio, .60. Military Affairsand Fisheries--clerk, $2,760; janitor, 1,2 janitor, $1,560. Mines and $2,100; clerk, $3,300; assistant clerk, Naval Affairs $1,260. --clerk,$3,300; janitor, Alining-clerk,$2,760; .'atents-clerk, $2,760; assistant clerk, $2,100; janitor, $1,560. F tor, $1,260. Pensions-clerk, $3,300; assistant clerk, $2,160; janitor, $1,260. Post Office and Post Roads--clerk, $3,300; assistant clerk, $2,100; janitor, $1,560. Printing-clerk, $2,760; janitor, $1,560. [Pus. 212.1 Public BuildingsGrounds--clerk,$3,300; assistant clerk, $1,740; ianitor $1,260. Public Lands-clerk, $2,760; assistant clerk, $1,740; janitor, $1,260. Revision of the Laws--clerk, $3,300; janitor, $1,260. Rivers and Harbors-clerk, $3,300; assistant clerk, $2,460; janitor, $1,560. Roads--clerk, $2,760; assistant clerk, $1,740; janitor, $1,260. Rules-clerk, $3,300; assistant clerk, $2,100; janitor, $1,260. Territories-clerk, $2,760; janitor $1,260. War Claims-clerk, $3,300; assistant clerk, $1,740; janit'or, $1,260. Ways and Means-clerk, $4,620; assistant clerk and stenographer, $2,640; assistant clerk, $2,580; clerk for minority, $3,180; janitors-one, $1,560, one, $1,260. World War Veterans' Legislation--clerk, $3,300; assistant clerk, $2,460; in all, $296,000. Appropriations in the foregoing parauraph shall not be available for the payment of any clerk or assistar; clerk to a committee who does not, after the termination of the Congress during which he was appointed, perform his duties under the direction of the Clerk of the House: Provided, That the foregoing shall not apply to the Committee on Accounts. Janitors under the foregoing shall be appointed by the chairmen, respectively, of said committees, and shall perform under the direction of the Doorkeeper all of the duties heretofore required of messengers detailed to said I Iitt by the Doorkeeper, and shall be subject to removal by the Doorkeeper at any time after the termination of the Congress during which they were appointed. OFFICE OF SERGEANT AT ARMS Salaries: Sergeant at Arms, $8,000; Deputy Sergeant at Arms, $3,180; cashier, $4,920; two bookkeepers at $3,360 each; Deputy Sergeant at Arms in charge of pairs, pair clerk and messenger, and assistant cashier, at $2,820 each; stenographer and typewriter, $600; skilled laborer, $1,380; hire of automobile,$600; in all, $33,860. Police Force, House Office Building, under the Sergeant at Arms: Lieutenant, $1,740; nineteen privates at $1,620 each ; one sergeant at the rate of $1,680 per annum, and twelve privates at the rate of $1,620 per annum each, from December 1, 1932, to June 30, 1933, inclusive; in all, $44,840. OFFICE OF DOORKEEPER Salaries: Doorkeeper, $6,000; special employee, $2,820; superintendent of House press gallery, $3,660; assistant to the superintendent of the House press gallery, $2,520; chief janitor, $2,700; messengers-seventeen at $1,740 each, fourteen on soldiers' roll at $1,740 each; laborers-seventeen at $1,260 each, two (cloakroom) at $1,380 each, one (cloakroom) $1,260, and seven (cloakroom) at $1,140 each; three female attendants in ladies' retiring rooms at $1,680 each ; attendant for the ladies' reception room, $1,440; superintendent of folding room, $3,180; foreman of folding room, $2,640; chief clerk to superintendent of folding room, $2,460; three clerks at $2,160 each; janitor, $1,260; laborer, $1,260; thirty-one folders at $1,440 each; shipping clerk, $1,740; two drivers at $1,380 each ; two chief pages at $1,980 each ; two telephone pap.. ?es at $1,680 each; two floor managers of telephones (one for the minority) at $3,180 each; two • 8 [PUB.212.1 assistant floor managers in charge of telephones (one for the minority) at $2,100 each; forty-one pages, during the session, including ten pages for duty at the entrances to the Hall of the House, at $1 per day each, $19,844; press-gallery page, $1,920; superintendent of document room (Elmer A. Lewis), $3,960; assistant superintendent of document room, $2,760 and $420 additional so long as the position is held by the present incumbent; clerk, $2,320; assistant clerk, $2,160; eight assistants at $1,860 each; janitor, $1,440; messenger to pressroom, $1,560; maintenance and repair of folding room motor truck, $500; in all, $247,604. SPECIAL AND MINORITY EMPLOYEES For the minority employees authorized and named in the House Resolutions Numbered 51 and 53 of December 11, 1931: Two at $5,000 each, four at $2,820 each; in all, $21,280. .A.ssistant foreman of the folding room, authorized in the resolution of September 30, 1913, $1,980. Laborer, authorized and named in the resolution of April 28, 1914, $1,380. Laborer, authorized and named in the resolution of December 19, 1901, $1,380. Clerk, under the direction of the Clerk of the House, named in the resolution of February 13, 1923, $3,060. Successors to any of the employees provided for in the five preceding paragraphs may be named by the House of Representatives at any time. Office of majority floor leader: Legislative clerk, $3,960; clerk, $3,180; assistant clerk, $2,100; for official expenses of the majority leader, as authorized by House Resolution Numbered 101, Seventyfirst Congress, adopted December 18, 1929, $2,000; in all, $11,240. Conference minority: Clerk, $3,180; legislative clerk, $3,060; assistant clerk, $2,100; janitor, $1,560; in all, $9,900. The foregoing employees to be appointed by the minority leader. Two messengers, one in the majority caucus room and one in the minority caucus room,to be appointed by the majority and minority whips, respectively, at $1,740 each, $3,480. POST OFFICE Salaries: Postmaster, $5,000; assistant postmaster, $2,880; registry and money-order clerk, $2,100; thirty-four messengers (including one to superintend transportation of mails) at $1,740 each; substitute messengers and extra services of regular employees, when required, at the rate of not to exceed $145 per month each, $1,240; laborer, $1,260; in all, $71,640. For the purchase, exchange, maintenance, and repair of motor vehicles for carrying the mails, $3,400. OFFICIAL REPORTERS OF DEBATES Salaries: Seven official reporters of the proceedings and:debates of the House at $7,500 each; clerk, $3,360; six expert transcribers at 1,740 each; janitor, $1,440; in all, $67,740. [PUB. 212.I COMMITTEE STENOGRAPHERS Salaries: Four stenographers to committees, at $7,000 each; janitor, $1,440; in all, $29,440. Whenever the words "during the session" occur in the foregoing paragraphs they shall be construed to mean the one hundred and twenty-one days from December 1, 1932, to March 31, 1933, both inclusive. CLERK HIRE, MEMBERS AND DELEGATES For clerk hire necessarily employed by each Member, Delegate, and Resident Commissioner, in the discharge of his official and representative duties, in accordance with the Act entitled "An Act to fix the compensation of officers and employees of the Legislative Branch of the Government," approved June 20, 1929,$2,200,000. CONTINGENT EXPENSES OF THE HOUSE For furniture and materials for repairs of the same, including not to exceed $22,500 for labor, tools, and machinery for furniture repair shops, $42,500. For packing boxes, $4,000. For miscellaneous items, exclusive of salaries and labor unless specifically ordered by the House of Representatives, including reimbursement to the official stenographers to committees for the amounts actually and necessarily paid out by them for transcribing hearings, and including materials for folding, $65,000. For stenographic reports of hearings of committees other than special and select committees, $25,000. For expenses of special and select committees authorized by the House $50,000. For' telegraph and telephone service, exclusive of personal services, $90,000. For stationery for Representatives, Delegates, and Resident Commissioners, including $5,000 for stationery for the use of the committees and officers of the House,$60,000. For medical supplies, equipment, and contingent expenses for the emergency room and for the attending physician and his assistants, including an allowance of not to exceed $30 per month each to three assistants as provided by the House Resolutions adopted July 1, 1930, and January 20, 1932, $2,500. For postage stamps: Postmaster, $250; clerk, $450; sergeant at arms, $300; doorkeeper, $150; in all, $1,150. For folding speeches and pamphlets, at a rate not exceeding $1 per thousand, $20,000. For preparation and editing of the laws as authorized by the Act approved May 29, 1928 (U. S. C., Supp. V, title 1, sec. N) $6,000, to be expended under the direction of the Committee on Revision of the Laws. CAPITOL POLICE Salaries: Captain $2,460; three lieutenants at $1,740 each; two special officers at $1,7 4 0 each; three sergeants at $1,680 each; fortyfour privates at $1,620 each; one-half of said privates to be selected Pub. No: 212-2 • • 10 (PUB.212.1 by the Sergeant at Arms of the Senate and one-half by the Sergeant at Arms of the House; in all, $87,480. For contingent expenses, $200. For purchasing and supplying uniforms and motor cycles to Capitol police, $7,750. One-half of the foregoing amounts under "Capitol police" shall be disbursed by the Secretary of the Senate and one-half by the Clerk of the House. JOINT COMMITTEE ON PRINTING Salaries: Clerk, $4,000 and $800 additional so long as the position is held by the present incumbent; inspector under section 20 of the Act approved January 12, 1895 (U. S. C., title 44, section 49),$2,820; assistant clerk and stenographer, $2,400; for expenses of compiling, preparing, and indexing the Congressional Directory, $1,600; in all, $11,620, one half to be disbursed by the Secretary of the Senate and the other half to be disbursed by the Clerk of the House. OFFICE OF LEGISLATIVE COUNSEL For salaries and expenses of maintenance of the office of Legislative Counsel, as authorized by law, $75,000, of which $37,500 shall be disbursed by the Secretary of the Senate and $37,500 by the Clerk of the House of Representatives. STATEMENT OF APPROPRIATIONS For preparation, under the direction of the Committees on Appropriations of the Senate and House of Representatives of the statements for the first session of the Seventy-second Congress, showing appropriations made, indefinite appropriations, and contracts authorized, too-ether with a chronological history of the regular appropriation bills, as required by law, $4,000, to be paid to the persons designated by the chairman of said committees to do the work. ARCHITECT OF THE CAPITOL OFFICE OF THE ARCHITECT OF THE CAPITOL Salaries: For the Architect of the Capitol, Assistant Architect of the Capitol, and other personal services at rates of pay provided by law; and the Assistant Architect of the Capitol shall act as Architect of the Capitol during the absence or disability of that official or whenever there is no Architect, $48,580. CAPITOL BUILDINGS AND GROUNDS Capitol Buildings: For necessary expenditures for the Capitol Building and electrical substations of the Senate and House Office Buildings, under the jurisdiction of the Architect of the Capitol, including minor improvements, maintenance, repair, equipment, supplies, material, fuel, oil, waste, and appurtenances; furnishings [Pus. 212.) 11 and office equipment; personal and other services; cleaning and repairing works of art; maintenance, and driving of motor-propelled passenger-carrying office vehicle; pay of superintendent of meters, and $300 additional for the maintenance of an automobile for his use, who shall inspect all gas and electric meters of the Government in the District of Columbia without additional compensation; and not exceeding $300 for the purchase of technical and necessary reference books, periodicals, and city directory; $240,000. Appropriations under the control of the Architect of the Capitol shall be available for expenses of travel on official business not to exceed in the aggregate under all funds the sum of $3,500. Capitol Grounds: For care and improvement of grounds surrounding the Capitol, Senate and House Office Buildings; Capitol Power Plant; personal and other services; care of trees; plantings • fertilizers; repairs to pavements, walks, and roadways; purchase of waterproof wearing apparel; maintenance of signal lights; and for snow removal by hire of men and equipment or under contract without compliance with sections 3709 (U. S. C., title 41, sec. 5) and 3744 (U. S. C. title 40, sec. 16) of the Revised Statutes; $100,000. Capitol 'garages: For maintenance, repairs, alterations, personal and other services, and all necessary incidental expenses, $7,540: Provided, That the employees engaged in the care and maintenance of the Senate garage shall be transferred to the jurisdiction of the Architect of the Capitol on July 1, 1932, without any reduction compensation as the result of such transfer: Provided further, That hereafter the underground space in the north extension of the Capitol Grounds shall be under the jurisdiction and control of the Architect of the Capitol, subject to such regulations respecting the use thereof as may be promulgated by the joint action of the Vice President of the United States and the Speaker of the House of Representatives. Liubway transportation, Capitol and Senate Office Buildings: For repairs, rebuilding, and maintenance of the subway cars connecting the Senate Office Building with the Senate wing of the United States Capitol and for personal and other services, including maintenance of the track and electrical equipment connected therewith, $2,000. Senate Office Building: For maintenance, miscellaneous items and supplies, including furniture, furnishings, and equipment and for labor and material incident thereto and repairs thereof; and for personal and other services for the care and operation of the Senate Office Building, under the direction and supervision of the Senate Committee on Rules, acting through the Architect of the Capitol, who shall be its executive agent, $175,000. House Office Buildings: For maintenance, including miscellaneous items, and for all necessary services, $250,000. To continue carrying out the provisions of the Act entitled "An Act to provide for the acquisition of a site and the construction thereon of a fireproof office building or buildings for the House of Representatives,' approved January 10, 1929 (45 Stat., p. 1071), including printing and binding, travelling expenses heretofore incurred in connection with such construction by authority of the commission in charge and other miscellaneous expenses, $406,000, to remain available until expended. • • 12 [Pus. 2124 Capitol power plant: For lighting, heating, and power for the Capitol, Senate and House Office Buildings, Supreme Court Building, Congressional Library Buildings, and the grounds about the same, Botanic Garden, Capitol garages, folding and storage rooms of the Senate, Government Printing Office, and Washington City post office; personal and other services, engineering instruments, fuel, oil, materials, labor, advertising, and purchase of waterproof wearing apparel in connection with the maintenance and operation of the heating, lighting, and power plant, $325,000. For the installation of duplicate steam lines th new buildings; clean-water intake screens and auxiliaries and high-tension switching equipment, including all necessary work in connection with such installation, and for all labor, materials, travel expenses and subsistence therefor; and without regard to section 35 of the Publio Buildings Act, approved June 25, 1910, as amended, or the Classification Aet of 1923, as amended, for employment of all necessary personnel, including architectural, engineering, and professional services and other assistants, and for all other expenses incident thereto, $125,000, to be immediately available. The appropriations under the control of the Architect of the Capitol may be expended without reference to section 4 of the Act approved June 17, 1910 (U. S. C., title 41, sec. 7), concerning purchases for executive departments. The Goverrunent Printing Office and the Washington City post office shall reimburse the Capitol power plant for heat, light, and power furnished during the fiscal year 1933 and the amounts so reimbursed shall be covered into the Treasury. LIBRARY BITILDING AND GROUNDS Salaries: For chief engineer and all personal services at rates of paI provided by law, $46,960: Provided, That the Architect of the under his jurisdiction of o Capitol may continue the emplyment Damon W. Harding, but not beyond June 30, 1934, notwithstanding any provision of the Act entitled "An Act for the retirement of employees in the classified civil service and for other purposes," dment thereof, prohibiting ' approved May 22, 1920, and any amen extensiIS s of service for rnore than four years after the age of retirement. tree,s, shrubs, plants, fertilizers, and skilled labor for the 'I of Library of Cong,ress, $1,000. grounds For necessary expenditures for the Library Building under the minor improvejurisdiction of the Architect of the Capitol,including • material, and supplies, equipment, ments, maintenance, repair, appurtenances, and personal and other services in connection with tI. mechanical and structural maintenance of such building, $13,500. For furniture, including partition..s screens sheMng, and electrical work pertaining thereto and repairs'thereof;$10,000. To continue carrying out the provons of the Act entitled "An of an annex to the Act to provide for the construction and equipment ,S (46 Stat., June Library of Congress," approved $150,000, to be immediately available and to remain available until expended. [PUB;2124 • • 13 Manic Garden,building and grounds:The appropriation for construction of new conservatories and other necessary buildings for United States Botanic Gardens is hereby made available for the removal of &opical and hardy plant material in the old Botanic Garden to the new conservatory and grounds, including the hire of labor and equipment. I' BOTANIC GARDEN Salaries: For the directhr and aher personal services, $100,000; all under the direction of teInt Committee on the Library: Provided, That the quarters, heat, light, fuel, and telephone service heretofore furnished for the director's use in the Botanic Garden shall na be regarded as a part of his salary or compensation, and such allowances may continue to be so furnished Without deduction from his salary or compensation notwithstanding the provisions of section 3 of the Act of March 5, 1928 (U. S. C., title 5, sec. 678), or any_ other law. Maintenance, operation, repairs, and improvementh: For all necessary expenses incident th maintaining, operating, repairing, and improving the Botanic Garden, and the nurseries, buildings grounds, and equipment pertaining thereto, including procuring fertilizers, soil, tools, trees, shrubs, plants and seeds; materials and miscellaneous supplie,s, including rubber boots and aprons when required for use by employees in connection with their work; na th exceed $25 for emergency medical supplies; disposition of waste; traveling expenses and per diem in lieu of subsistence of the director and his assistants not th exceed $975; street-car fares not exceeding office epipment and contingent expenses; the prevention and eradication of insect and other pests and plant diseases by purchase of materials and procurement of personal services by contract without reaard th teIIvsons of any other Act; repair, maintenance, and e, III tion of motor trucks and passenaer motor vehicle; na th exceed $2,500 for purchase and exchange a a motor truck; purchase of IItanical books, periodicals, and books of reference, not th exceed $100; repairs and improvements to director's residence; and all other necessary expenses; all under the direction of the Joint Committee on the Library, $40,000. The sum of $100 may be expended at any one time by the Botanic Garden for the purchase of plants, trees, shrubs, and other nursery stock, without reference to section 3709 of the Revised Statutes No paA of the appropriations contained herein for the Botanic Garden shall be used for the distribution, by congressional allotment, of trees, plants, shrubs, or other nursery stock. LIBRARY OF CONGRESS SAL..kRIES For the Librarian, Chief Assistant Librarian, and other personal services, $842,045. For the Register of Copyrights, assistant register, and other personal services, $249,380. • • (Pus.212.[ [Pus. 212.] 15 LEGISLATIVE REFERENCE SERVICE SUNDAY OPENING To enable the,Librarian of Congress to employ competent persons to gather, classify, and make available, in translations, indexes, digests, compilations, and bulletins, and otherwise, data for or bearing upon legislation, and to render such data serviceable to Congress and committees and Members thereof, including not to exceed $5,700 for employees engaged on piecework and work by the day or hour at rates to be fixed by the Librarian, $67,500. To enable the Library of Congress to be kept open for reference use on Sundays and on holidays within the discretion of the Librarian, including the extra services of employees and the services of additional employees under the Librarian, at rates to be fixed by the Librarian, $18,000. DISTRIBUTION OF CARD INDEXES For the distribution of card indexes and other publications of the Library, including personal services, freight charges (not exceeding $500), expressage, postage, traveling expenses connected, with such distribution, expenses of attendance at meetings when incurred on the written authority and direction of the Librarian, and including not to exceed $58,500 for employees engaged in piecework and work by the day or hour and for extra special services of regular employees at rates to be fixed by the Librarian; in all, $170,000. TEMPORARY SERVICES For special and temporary service, including extra special services of regular employees, at rates to be fixed by the Librarian, $3,000. INDEX TO STATE LEGISLATION To enable the Librarian of Congress to prepare an index to the legislation of the several States, together with a supplemental digest of the more important legislation, as authorized and directed by the Act entitled "An Act providing for the preparation of a biennial index to State legislation," approved February 10, 1927 (U. S. C., Supp. V,title 2, secs. 164, 165),including personal and other services within and without the District of Columbia including not to exceed $2,500 for special and temporary service at rates to be fixed by the Librarian, travel, necessary material and apparatus, and for printing and binding the indexes and digests of State legislation for official distribution only, and other printing and binding incident to the work of compilation, stationery, and incidentals, $25,000, and in addition the unexpended balance of the appropriation for this purpose for the fiscal year 1932 is reappropriated for the fiscal year 1933. INDEX TO FEDERAL STATUTES To enable the Librarian of Congress to revise and extend the index to the Federal Statutes, published in 1908 and known as the to Scott and Beaman Index, to include the Acts of Congress downthe. have to and Congress Seventieth the and including the Acts of Office, as authorrevised index printed at the Government Printing' as amended 1927, 3, March approved ized and directed by the Act ion for this appropriat the of balance the unexpended 1930, June 14, year 1932 fiscal the for Act ion purpose in the Legislative Appropriat 1933. year fiscal is continued available for the UNION CATALOGUES To continue the development and maintenance of the Union Catalogues, including personal services within and without the District of Columbia (and not to exceed $1,400 for special and temporary service, including extra special services of regular employees, at rates to be fixed by the Librarian), travel, necessary material and apparatus, stationery, photostat supplies, and incidentals, $20,000. INCREASE OF THE LIBRARY For purchase of books, miscellaneous periodicals and newspapers, and all other material,for the increase of the Library,including payment in advance for subscription books and society publications, and for freight, commissions, and traveling expenses including expenses of attendance at meetings when incurred on the written authority and direction of the Librarian in the interest of collections, and all other expenses incidental to the acquisition of books, miscellaneous periodicals and newspapers, and all other material for the increase of the Library, by purchase, gift, bequest, or exchange, to continue available during the fiscal year 1934, $100,000. For purchase of books and for periodicals for the law library, under the direction of the Chief Justice, $25,000. For purchase of new books of reference for the Supreme Court, to be a part of the Library of Congress, and purchased by the Marshal of the Supreme Court, under the direction of the Chief Justice, $2,500. To enable the Librarian of Congress to carry out the provisions of the Act entitled "An Act to provide books for the adult blind," approved March 3, 1931 (U. S. C., Supp. V, title 2, sec. 135a), $90,000. PRINTING AND BINDING For miscellaneous printing and binding for the Library of Congress, including the Copyright Office, and the binding, rebinding, and repairing of library books, and for the Library Building, $190,000. For the publication (1) of the remaining unpublished volumes of the Journals of the Continental Congress (volumes 30, 31, 32, and 33); and (2) the fourth, and final, volume of the Records of the Virginia Company; and (3) in connection with the Bicentenary of the Birth of George Washington, the rebinding, in full morocco, of the Papers of George Washington, three hundred and two volumes; the unexpended balance in the appropriation for this purpose in the Legislative Appropriation Act for the fiscal year 1932 is continued available for the fiscal year 1933. • • 16 1Pu3. 212.1 For the publication of the Catalogue of Title Entries of the Copyright Office, $50,000. For the printing of catalogue cards, $120,000. CONTINGENT EXPENSES OF THE LIBRARY For miscellaneous and contingent expenses, stationery, supplies, stock, and materials directly purchased, miscellaneous traveling expenses, postage, transportation, incidental expenses connected with the administration of the Library and Copyright Office, including not exceeding $500 for expenses of attendance at meetings when incurred on the written authority and direction of the Librarian, $9,000. For paper, chemicals, and miscellaneous supplies necessary for the operation of the photoduplicating machines of the Library and the making of photoduplicate prints, $5,000. LIBRARY BUILDING Salaries: For the superintendent, disbursing officer, and other personal services, in accordance with the Classification Act of 1923, as amended, $161,822. For extra services of employees and additional employees under the Librarian to provide for the opening of the Library Building on Sundays and on legal holidays, at rates to be fixed by the Librarian, $4,500. For special and temporary services in connection with the custody, caret and maintenance of the Library Building, including extra special services of regular employees at the discretion of the Librarian, at rates to be fixed by the Librarian,$500. For mail, delivery, and telephone services, uniforms for guards, stationery, miscellaneous supplies, and all other incidental expenses in connection with the custody and maintenance of the Library Building, $8,900. GOVERNMENT PRINTING OFFICE PUBLIC PRINTING AND BINDING: TO provide the Public Printer with a working capital for the following purposes for the execution of printing, binding, lithographing, mapping, engraving, and other authorized work of the Government Printing Office for the various branches of the Government: For salaries of Public Printer, $10,000, and Deputy Public Printer, $7,500; for salaries, compensation, or wages of all necessary officers and employees additional to those herein appropriated for, including employees necessary to handle waste paper and condemned material for sale; to enable the Public Printer to comply with the provisions of law granting holidays and half holidays and Executive orders granting holidays and half holidays with pay to employees; to enable the Public Printer to comply with the provisions of law granting thirty days' annual leave to employees with pay; rents, fuel, gas, heat, electric current, gas.and electric fixtures; bicycles, motor-propelled vehicles for the carriage of printing and printing supplies, and the maintenance, repair and operation of the same, to be used only for official purposes, including • • 17 [PUB. 212.] operation, repair, and maintenance of motor-propelled passengercarrying vehicles for official use of the officers of the Government Printing Office when in writing ordered by the Public Printer; freight, expressage, telegraph, and telephone service; furniture, typewriters, and carpets; traveling expenses; stationery, postage, an advertising; directories, technical books, newspapers and magazines, and books of reference (not exceeding $500) adding and numbering machines, time stamps, and other machines of similar character; machinery (not exceeding $300,000); equipment, and for repairs to machinery, implements, and buildings, and for minor alterations to buildings; necessary equipment, maintenance, and supplies for the emergency room for the use of all employees in the Government Printing Office who may be taken suddenly ill or receive injury while on duty; other necessary contingent and miscellaneous items authorized by the Public Printer: Provided, That inks, glues, and other supplies manufactured by the Government Printing Office in connection with its work may be furnished to departments and other establishments of the Government upon requisition, and payment made from appropriations available therefor; for expenses authorized in writing by the Joint Committee on Printing for the inspection of printing and binding equipment, material, and supplies and Government printing plants in the District of Columbia or elsewhere (not exceeding $1,000); for salaries and expenses of preparing the semimonthly and session indexes of the Congressional Record under the direction of the Joint Committee on Printing (chief indexer at $3,480, one cataloguer at $3,180, two cataloguers at $2,460 each, and one cataloguer at $2,100); and for all the necessary labor, paper, materials, and equipment needed in the prosecution and delivery and mailing of the work; in all, $2,250,000, to which shall be charged the printing and binding authorized to be done for Congress, the printing and binding for use of the Government Printing Office, and printing and binding (not exceeding $2,000) for official use of the Architect of the Capitol when authorized by the Secretary of the Senate; in all to an amount not exceeding this sum. Printing and binding for Congress chargeable to the foregoing appropriation, when recommended to be done by the Committee on. Printing of either House, shall be so recommended in a report containing an approximate estimate of the cost thereof, together with a statement from the Public Printer of estimated approximate cost of work previously ordered by Congress within the fiscal year for which this appropriation is made. During the fiscal year 1933 any executive department or independent establishment of the Government ordering printing and binding from the Government Printing Office shall pay promptly by check to the Public Printer upon his written request, either in advance or upon completion of the work, all or part of the estimated or actual cost thereof, as the case may lzoc, and bills rendered by the Public Printer in accordance herewith shall not be subject to audit or certification in advance of payment: Provided, That proper adjustments on the basis of the actual cost of delivered work paid for in advance shall be made monthly or quarterly and as may be agreed upon by the Public Printer and the department or establishment concerned. All sums paid to the Public Printer for work that Pub. No. 212 3 18 [Pus. 212.] he is authorized by law to do shall be deposited to the credit, on the books of the Treasury Department, of the appropriation made for the working capital of the Government Printing Office, for the year in which the work is done, and be subject to requisition by the Public Printer. All amounts in the Budget for the fiscal year 1934 for printing and binding for any department or establishment, so far as the Bureau of the Budget may deem practicable, shall be incorporated in a single item for printing and binding for such department or establishment and be eliminated as a part of any estimate for any other purpose. And if any amounts for printing and binding are included as a part of any estimates for any other purposes, such amounts shall be set forth in detail in a note immediately following the general estimate for printing and binding: Provided, That the foregoing requirements shall not apply to work to be executed at the Bureau of Engraving and Printing. No part of any money appropriated in this Act shall be paid to any person employed in the Government Printing Office while detailed for or performing service in any other executive branch of the public service of the United States unless such detail be authorized by law. The Public Printer may continue the employment under his jurisdiction of Samuel Robinson, Congressional Record messenger, notwithstanding the provisions of any Act prohibiting his employment because of age. OFFICE OF SUPERINTENDENT OF DOCUMENTS For the Superintendent of Documents, assistant superintendent, and other personal services in accordance with the Classification Act of 1923, as amended, and compensation of employees paid by the hour who shall be subject to the provisions of the Act entitled "An Act to regulate and fix rates of pay for employees and officers of the Government Printing Office," approved June 7, 1924 (U. S. C., title 44, sec. 40),$550,000: Provided, That for the purpose of conforming to section 3 of this Act this appropriation shall be considered a separate appropriation unit. For furniture and fixtures, typewriters carpets, labor-saving machines and accessories, time stamps, adding and numbering machines, awnings, curtains, books of reference; directories, books, miscellaneous office and desk supplies, paper, twine, glue, envelopes, postage, car fares, soap, towels, disinfectants, and ice; drayage, express, freight, telephone and telegraph service; traveling expenses (not to exceed $200); repairs to buildings, elevators, and machinery; preserving sanitary condition of building; light, heat, and power; stationery and office printing, including blanks, price lists, and bibliographies $100,000; for catalogues and indexes, not exceeding $34,800; for supplying books to depository libraries, $76,000; in all, $210,800: Provided, That no part of this sum shall be used to supply to depository libraries any documents, books, or other printed matter not requested by such libraries, and the requests therefor shall be subject to approval by the Superintendent of Documents. In order to keep the expenditures for printing and binding for the fiscal year 1933 within or under the appropriations for such fiscal (PUB. 212.] 19 year, the heads of the various executive departments and independent establishments are authorized to discontinue the printing of annual or special reports under their respective jurisdictions: Provided, That where the printing of such reports is discontinued the original copy thereof shall be kept on file in the offices of the heads of the respective departments or independent establishments for public inspection. Purchases may be made from the foregoing appropriation under the "Government Printing Office," as provided for in the Printing Act approved January 12, 1895, and without reference to section 4 of the Act approved June 17, 1910 (U. S. C., title 41, sec. 7), concerning purchases for executive departments. Sic. 2. No part of the funds herein appropriated shall be used for the maintenance or care of private vehicles. SEC. 3. In expending appropriations or portions of appropriations,contained in this Act,for the payment for personal services in the of Columbia in accordance with the Classification Act of 1923, as amended, the average of the salaries of the total number of persons under any grade in the Botanic Garden, the Library of Congress, or the Government Printing Office, shall not at any time exceed the average of the compensation rates specified for the grade by such Act, as amended: Provided, That this restriction shall not apply (1) to grades 1, 2, 3, and 4 of the clerical-mechanical service, (2) to require the reduction in salary of any person whose compensation was fixed as of July 1, 1924, in accordance with the rules of section 6 of such Act, (3) to require the reduction in salary of any person who is transferred from one position to another position in the same or different grade in the same or a different bureau, office, or other appropriation unit,(4) to prevent the payment of a salary under any grade at a rate higher than the maximum rate of the grade when such higher rate is permitted by the Classification Act of 1923, as amended, and is specifically authorized by other law, or (5) to reduce the compensation of any person in a grade in which only one position is allocated. SEC. 4. The detail of the present incumbent as attending physician at the Capitol shall be continued until otherwise provided by law. PART II TITLE I—FURLOUGH OF FEDERAL EMPLOYEES FURLOUGH PROVISIONS SECTION 101. During the fiscal year ending June 30, 1933— (a) The days of work of a per diem officer or employee receiving compensation at a rate which is equivalent to more than $1,000 per annum shall not exceed five in any one week, and the compensation for five days shall be ten-elevenths of that payable for a week's work of five and one-half days: Provided, That nothing herein contained shall be construed as modifying the method of fixing the daily rate of compensation of per diem officers or employees as now authorized by law: Provided further, That where the nature of the duties of a per diem officer or employee render it advisable, the provisions of subsection (b) may be applied in lieu of the provisions of this subsection. • • 20 [PUB. 212.] (b) Each officer or employee receiving compensation on an annual basis at the rate of more than $1,000 per annum shall be furloughed without compensation for one calendar month, or for such periods as shall in the aggregate be equivalent to one calendar month, for which latter purpose twenty-four working days (counting Saturday as one-half day) shall be considered as the equivalent of one calenI.r month: PTOVided, That where the nature of the duties of any such officer or employee render it advisabk, the provisions of subsection (a) inay be applied in lieu of the provisions of this subsection: Provided further, That no officer or employee shall, without his consent, be furloughed under this subsection for more than five days in any one calendar month:Provided further, That the rate of compensation of any employee furloughed under the provisions of this Act shall not be reduced by reason of the action of any wage board during the fiscal year 1933. (c) If the application of the provisions of subsections (a) and (b) to any officer or employee would reduce his rate of compensation to less than $1,000 per annum, such provisions shall be applied to him only to the extent necessary to reduce his rate of compensation th $1,000 per annum. SEC. 102. No officer or employee shall be exempted from the provisions of subsections (a) and (b) of section 101, except in those cases where the public service requires that the position be continuously filled and a suitable substitute can not be provided, and then only when authorized or approved in writing by the President of the United States. The Director of the Bureau of the Budget shall report to Congress on the first Monday in December in 1932 and 1933 ded according to salary, the exemptions made under this section grade, and class. SEC. 103. All rights now conferred or authorized to be conferred by law upon any officer or employee to receive annual leave of absence with pay are hereby suspended during the fiscal year ending June 30, 1933. DEFINITIONS SEC. 104. When used in this title— "employee"mean any person render(a) The terms"officer" branch or service of the United States ing services in or under any andil Government or the government of the District of Columbia, but do not include (1) officers whose compensation may not,under the Constitution, be diminished during thei.r continuance in office; (2) Senators, Representatives in Congress, Delegates, and Resident Commissioners; (3) officers and employees on the rolls of the Senate and carriers in the Rural Mail Delivery House of Repi•esentatives Service • (5) officers and members of the Police Department of the District 'of Columbia, of the Fire Department of the District of Columbia, of the United States Park Police in the District of Columbia and of the White House Police; (6) teachers in the public schools of'the District of Columbia; (7) public officials and employees whose compensation is derived from assessments on banks and/or is not paid from the Federal Treasury; (8) the enlisted personnel of the Army, Navy, Coast Guard, and Marine Corps; (9) postmasters and postal employees of post offices of the first, [PvB. 212.] 11 second, and third classes whose salary or allowances are based on gross postal receipts, and postmasters of the fourth class; (10) any person in respect of any office, poson,or employment the amount of compensation of which is expressly fixed by international agreement; and (11) any person in respect of any office, position, or employment the compensation of which is paid under the terms of any contract in effect on the date of te.ae of this Act, if such compensation may not lawfully be reduced. (b) The term "compensation" means any salary, is wage, allI wance (except allowances for subsistence, quarters, heat,light, and travel), or other emolument paid for services rendered in any civan S r noncivan office, position, or employment; and includes the retired pay of judges, and the retired pay of all commissioned and other personnel of the Coast and Geodetic Survey, the Lighthouse Service, and the Public Health Service, and the retired pay of all commissioned and other personnel (except enlisted) of the Army, Navy, Marine Corps, and Coast Guard ; but does not include the active or retired pay of the enlisted personnel of the Army, Navy, Marine Corps, or Coast Guard ; and does not include payments out cf any retirement, disabty, or relief fund made up wholly or in part of contributions of employees. (c) In the case of any office, position, or employment, the compensation for which is calculated on a piecework, hourly, or per diem basis, the rath of compensation per annum shall be held to be the total amount which would be payable for the regular working hours S nd on the basis of three hundred and seven working days, or the number of working days on the basis of which such compensation is calculated, whichever is the greater. COMPENSATION REDUCTIONS SEC. 105. During the fiscal year ending June 30, 1933-(a) The salaries of the Vice President and the Speaker of the House of Representatives are reduced by 15 per centum; and the salaries of Senators, Representatives in Congress, Delegates, and Resident Commissioners are reduced by 10 per centum. (b) The allowance for clerk hire of Representatives in Congress, ii Delegates, and Resident Commissioners is reduced by 81/3 per centum, such reduced allowance to be apportioned by the Representative, Delegate, or Resident Commissioner among his clerks as he may determine, subject to the limitations of existing law, but the compensation of such clerks shall not be subject to reduction under subsection (c) of this section. (c) The rate of compensation of any person on the rolls of the S. . or of the House of Representatives (other than persons Senate within subsectioncompensation is at a rate of more than $1,000 per annum, is redticed by 8143 per centum, except that if the rate of compensation is $10,000 or more such rate shall be reduced by 10 per centum. (d) In the case of the following pffsons the rate of compensation is reduced as follows: If more than $1,000 per annum but less than $10,000 per annum,per centum$10,000 per annum or more, but less than $12p00 per annum,10 per centum; if $12,000 per annum or more, but less than $15,000 per annurn, 12 per centum; if $15,000 • 22 IPuB. 212.] per annum or more, but less than $20,000 per annum, 15 per centum; if $20,000 per annum or more, 20 per centum: (1) Persons exempted, under section 102, from the provisions of subsections (a) and (b) of section 101; (2) Carriers in the Rural Mail Delivery Service, but in the case of such carriers the term "compensation" does not. include the allowance for equipment maintenance; (3) Officers and members of the Police Department of the District of Columbia, of the Fire Department of the District of Columbia, of the United States Park Police in the District of Columbia, and of the White House Police; (4) Teachers in th public schools of the District of Columbia; (5) Postmasters and postal employees of post offices of the first, second, and third classes whose salaries or allowances are based on gross postal receipts, and postmasters of the fourth class; (6) Officers and employees (as defined in section 104 (a))occupying positions the nature of the duties and periods of work of which male it impracticable to apply the provisions of subsections (a) and (b) of section 101; (7) Officers and employees (as defined in section 104 (a)), not otherwise provided for in this section, to whom the provisions of subsections (a) and (b) of section 101 do not apply. (e) Subsections (c) and (d) of this section shall not operate (1) so as to reduce any rate of compensation to less than $1,000 per annum,or (2) so as to reduce the rate of compensation of any of the postmasters or postal employees provided for in paragraph (5) of subsection (d) of this section, to a rate which is less than 91% per centum of his average rate of compensation during the calendar year 1931. RETIRED PAY SEC. 106. During the fiscal year ending June 30, 1933, the retired pay of all judges (except judges whose compensation may not, under the Constitution, be diminished during their continuance in office) and the retired pay of all commissioned and other personnel (except enlisted) of the Army, Navy, Marine Corps, Coast Guard, Coast and Geodetic Survey, Lighthouse Service, and the Public Health Service shall be reduced as follows: If more than $1,000 per annum but less than $10,000 per annum. 81/3 per centum; if $10,000 per annum or more, but less than $12,000, 10 per centum; if $12,000 per annum or more, but less than $15,000 per annum, 12 per centum; if $15,000 per annum or more, but less than $20,000, 15 per centum; if $20,000 per annum or more,20 per centum. This section shall not operate so as to reduce any rate of retired pay to less than $1,000 per annum. SPECIAL SALARY REDUCTIONS SEC. 107. (a) During the fiscal year endinp. June 80, 1933— (1) the salary of each of the members of the International Joint Commission, United States section, shall be at the rate of $5,000 per annum; (2) the salaries of the following officers shall be at the rate of $10,000 per annum: Commissioners of the United States Shipping Board, members of the Federal Farm Board (except the Secretary IPun. 212.] 23 of Agriculture), members of the Board of Mediation, commissioners of the Interstate Commerce Commission, commissioners of the United States Tariff Commission the American commissioner of the General Claims Commission, -United States and Mexico, and the umpire and American commissioner of the Mixed Claims Commission,United States and Germany; (3) no officer or employee of any of the boards or commissions enumerated in paragraph (1) or (2) shall (except as provided in paragraph (4)) receive salary at a rate in excess of $10,000 per annum; (4) no officer or employee of the United States Shipping Board, the United States Shipping Board Merchant Fleet Corporation, or the Reconstruction Finance Corporation, shall receive salary at a rate in excess of $10,000 per annum, except that in the case of any position the salary of which at the date of the enactment of this Act is at a rate in excess of $12,500 per annum such salary may be at a rate not in excess of $12,500 per annum • and (5) the salaries and retired pay of all judges (except judges whose compensation may not, under the Constitution, be diminished during their continuance in office), if such salaries or retired pay are at a rate exceeding $10,000 per annum, shall be at the rate of $10,000 per annum. (b) The furlough provisions and the compensation reductions contained in other sections of this title shall not apply to any office, position,or employment the salary or retired pay of which is reduced or fixed under the provisions of subsection (a) of this section. GOVERNMENT CORPORATIONS SEC. 108. In the case of a corporation the majority of the stock of which is owned by the United States, the holders of the stock on behalf of the United States, or such persons as represent the interest of the United States in such corporation, shall take such action as may be necessary to apply the provisions of sections 101, 102, 103, 105, and 107 to offices, positions, and employments under such corporation and to officers and employees thereof, with proper allowance for any reduction in compensation since December 31, 1931. REMITTANCES FROM CONSTITUTIONAL OFFICERS SEC. 109. In any case in which the application of the provisions of this title to any person would result in a diminution of compensation prohibited by the Constitution, the Secretary of the Treasury is authorized to accept from such person, and cover into the Treasury as miscellaneous receipts, remittance of such part of the compensation of such person as would not be paid to him if such diminution of compensation were not prohibited. APPROPRIATIONS IMPOUNDED SEc. 110. The appropriations or portions of appropriations unexpended by reason of the operation of this title shall not be used for any purpose, but shall be impounded and returned to the Treasury. • 0 • 24 [PUB. 212.] LIMITATION ON JURISDICTION OF COURTS SEC. 111. No court of the United States shall have jurisdiction of any suit against the United States or (unless brought by the United States) against any officer, agency, or instrumentality of the United States arising out of the application of any provision of this title, unless such suit involves the Constitution of the United States. RURAL CARRIERS EQUIPMENT ALLOWANCE SEC. 112. During the fiscal year ending June 30, 1933, payments for equipment maintenance to carriers in the Rural Mail Delivery Service shall be seven-eighths of the amount now provided by law. TITLE II-PROVISIONS AFFECTING PERSONNEL SUSPENSION OF PROMOTIONS AND FILLING OF VACANCIES SEC. 201. All provisions of law which confer upon civilian or noncivilian officers or employees of the United States Government or the municipal government of the District of Columbia automatic increases in compensation by reason of length of service or promotion are suspended during the fiscal year ending June 30, 1933 but this section shall not be construed to deprive any person of any incre'ment of compensation received through an automatic increase in compensation prior to July 1, 1932. SEC. 202. No administrative promotions in the civil branch of the United States Government or the government of the District of Columbia shall be made during the fiscal year ending June 30, 1933: Provided, That the filling of a vacancy, when authorized by the President, by the appointment of an employee of a lower grade, shall not be construed as an administrative promotion, but no such appointment shall increase the compensation of such employee to a rate in excess of the minimum rate of the grade to which such employee is appointed, unless such minimum rate would require an actual reduction in compensation. The President shall submit to Congress a report of the vacancies filled under this section up to November 1, 1932, on the first day of the next regular session. The provisions of this section shall not apply to commissioned, commissioned warrant, warrant, and enlisted personnel, and cadets, of the Coast Guard. SEC. 203. No appropriation available to any executive department or independent establishment or to the municipal government of the District of Columbia during the fiscal year ending June 30, 1933, shall be used to pay the compensation of an incumbent appointed to any civil position under the United States Government or the municipal government of the District of Columbia which is vacant on July 1, 1932, or to any such position which may become vacant after such date: Provided, That this inhibition shall not apply (a) to absolutely essential positions the Uhl& of which may be 6 of the United authorized or approved in writing by the President States, (b) to temporary, emergency, seasonal, or cooperative positions, or (c) to commissioned, commissioned warrant, warrant, and enlisted personnel, and cadets, of the Coast Guard. The appropria- [PUB. 212.] 25 tions or portions of appropriations unexpended by the operation of this section shall not be used for any other purposes but shall be impounded and returned to the Treasury, and a report of all such vacancies, the number thereof filled, and the amounts unexpended, for the period between July 1, 1932, and October 31, 1932, shall be submitted to Congress on the first day of the next regular session: Provided, That such impounding of funds may be waived in writing by the President of the United States in connection with any appropriation or portion of appropriation, when, in his judgment, such action is necessary and in the public interest. COMPULSORY RETIREMENT FOR AGE SEC. 204. On and after July 1, 1932, no person rendering civilian service in any branch or service of the United States Government or the municipal government of the District of Columbia who shall have reached the retirement age prescribed for automatic separation from the applicable to such person, shall be continued in service, notwithstanding any provision of law or regulation such,service, to the contrary: Provided, That the President may, by executive Order, exempt from the provisions of this section any person when, in his judgment, the public interest so requires: Provided further, That no such person heretofore or hereafter separated from the service of the United States or the District of Columbia under any provision of law or regulation providing for such retirement on account of age shall be eligible again to appointment to any appointive office, position,or employment under the United States or the District of Columbia: Provided further, That this section shall not apply to any person named in any Act of Congress providing for the continuance of such person in the service. RATE OF COMPENSATION UPON WHICH RETIRED PAY SHALL BE BASED SEC. 205. The provisions of this Part of this Act providing for temporary reductions in compensation and suspension in automatic increases in compensation shall not operate to reduce the rate of compensation upon which the retired pay or retirement benefits of any officer or employee would be based but for the application of such provisions, but the amount of retired pay shall be reduced as provided in Title I: Provided, That retirement deductions authorized by law to be made from the salary, pay, or compensation of officers or employees and transferred or deposited to the credit of a retirement fund, shall be based on the regular rate of salary, pay, or compensation instead of on the rate as temporarily reduced under the provisions of this Act. TEMPORARY REDUCTION OF TRAVEL ALLOWANCES SEC. 206. During the fiscal year ending June 30, 1933— (a) all provisions of law which authorize the payment of mileage to officers of the services mentioned in the Pay Adjustment Act of 1922 [IL S. C., title 37] are hereby suspended and in lieu thereof such officers shall be entitled to allowances for travel only as provided for civilian employees of the Government, and the Subsistence Expense Act of 1926, as modified by this Act,.and by the Act of I 26 [Pus. 212.1 73a), shall February 14, 1931 (Supp. V, U. S. Code, Title 5, sec.ns available appropriatio all That Provided, apply to such travel: 1933 shall be for the payment of such mileage during the fiscal year allowances the of payment the for construed as being available herein provided; ves in Con(b) the mileage allowance of Senators, Representaticentum; the per 25 reduced is Hawaii from Delegate the gress, and 1 of the allowance to the Delegate from Alaska provided by section rs Commissione Resident the to allowance the 1906, Act of May 7, of Act the of 8 section by from the Philippine Islands provided from r Commissione Resident the to allowance July 1, 1902, and the 1917, Porto Rico provided by section 36 of the Act of March 2, and ; are reduced by 25 per centum (c) the traveling allowances provided for in the Act entitled of "An Act reclassifying the salaries of postmasters and employees on n compensatio and salaries their readjusting Service, the Postal such readan equitable basis, increasing postal rates to provide for 28, 1925 February approved purposes," other justment, and for [U. S. C., title 39, § 633], shall not exceed $2 per day. PERMANENT REDUCTION OF TRAVEL ALLOWANCES SEC. 207. Section 3 of the Subsistence Expense Act ofto1926, approved June 3, 1926 (44 Stat. 688, 689), is hereby amended read as follows: and "SEC. 3. Civilian officers and employees of the departmentsfrom away and business establishments while traveling on official their designated posts of duty,shall be allowed,in lieu of their actual expenses for subsistence and all fees or tips to porters and stewards, a per diem allowance to be prescribed by the head of the department or establishment concerned, not to exceed the rate of $5 within the limits of continental United States, and not to exceed an average of $6 beyond the limits of continental United States." Act SEC. 208. Sections 4, 5, and 6 of the said Subsistence Expense amended hereby is thereof 7 section and repealed, of 1926 are hereby by striking out the reference therein to actual expenses so that the section, as amended, will read as follows: "SEC. 7. The fixing and payment, under section 3, of per diem allowance, or portions thereof, shall be in accordance with regulations which shall be promulgated by the heads of departments and establishments and which shall be standardized as far as practicable and shall not be effective until approved by the President of the United States." SEC. 209. Hereafter, no law or regulation authorizing or permitting the transportation at Government expense of the effects of officers, employees, or other persons, shall be construed or applied as including or authorizing the transportation of an automobile: Provided, That not more than $5,000 in any fiscal year may be expended for such purposes by the War Department, and not more than $5,000 in any fiscal year by the Navy Department. SEC. 210. The provisions of all Acts heretofore enacted inconsistent with sections 207, 208, and 209 are, to the extent of such inconsistency, hereby repealed, and such sections shall take effect on July 1, 1932. [Pun. 212.] 27 OVERTI3IE COMPENSATION SEC. 211. (a) During the fiscal•year ending June 30, 1933— (1) no officer or employee of the Government shall be allowed or paid a higher rate of compensation for overtime work (either day or night) or for work on Sundays and holidays; (2) wherever by or under authority of law compensation for night work (other than overtime) is .at a higher rate than for day work, such differential shall be reduced by one-half; (3) in so far as practicable, overtime work shall be performed by substitutes or unemployed regulars in lieu of persons who have performed a day's work during the day during which the overtime work is to be performed, and work on Sundays and holidays shall be performed by substitutes or unemployed regulars in lieu of persons who have performed a week's work during the same week. (b) This section shall not apply to compensation for overtime services performed by Federal employees under existing law at the expense of private interests. LIMITATIONS ON AMOUNT OF RETIRED PAY SEC. 212. (a) After the date of the enactment of this Act, no person holding a civilitIn office or position, appointive or elective, under the United States Government or the municipal government of the District of Columbia or under any corporation, the majority of the stock of which is owned by the United States, shall be entitled, during the period of such incumbency,to retired pay from the United States for or on account of services as a commissioned officer in any of the services mentioned in the Pay Adjustment Act of 1922 [U. S. C., title 37],.at a rate in excess of an amount which when combined with the annual rate of compensation from such civilian office or position, makes the total rate from both sources more than $3,000; and when the retired pay amounts to or exceeds the rate of $3,000 per annum such person shall be entitled to the pay of the civilian office or position or the retired pay, whichever he may elect. As used in this section, the term "retired pay" shall be construed to include credits for all service that lawfully may enter into the computation thereof. (b) This section shall not apply to any person whose retired pay plus civilian pay amounts to less than $3,000: Provided, That this section shall not apply to regular or emergency commissioned officers retired for disability incurred in combat with an enemy of the United States. PERSONNEL REDUCTIONS—MARRIED PERSONS SEC. 213. In any reduction of personnel in any branch or service of the United States Government or the District of Columbia, married persons (living with husband or wife) employed in the class to be reduced, shall be dismissed before any other persons employed in such class are dismissed, if such husband or wife is also in the service of the United States or the District of Columbia. In the appointment of persons to the classified civil service, preference shall be given to persons other than married persons living with husband or wife, such husband or wife being in the service of the United States or the District of Columbia. • • [Pus.212.1 29 [PUB. 212.] 28 LIMITATIONS ON EXPENDITURES FOR PRINTING AND BINDING, PAPER, AND TEMPORARY ASSIGNMENTS IN POSTAL SERVICE STATIONERY 1933, the PostSEC. 214. During the fiscal year ending June 30, requires, service master General may, when the interest of the or any carrier temporarily assign any clerk to the duties of carrier any Post assign may emergency an in to the duties of clerk, and any railor clerk, postal Office employee to the duties of a railway without employee Office Post a of way postal clerk to the duties status. roll change of pay ANNUAL LEAVE WITH PAY REDUCED TO FIFTEEN DAYS of the GovernSEC. 215. Hereafter no civilian officer or employee annual granted be shall pay with leave annual receives ment who any one year, leave of absence with pay in excess of fifteen days inThat the part Provided, holidays: legal excluding Sundays and year: unused in any year may be cumulative for any succeeding officivilian to apply shall herein Provided further, That nothing and Isthmus the on located Canal Panama the of cers and employees Foreign who are American citizens or to officers and employees of the the outside station official holding States United Services of the herein nothing That further, continental United States: Provided pay may be shall be construed as affecting the period during which of absence: allowed under existing laws for so-called sick leave within Provided further, That the so-called sick leave of absence, such under administered be shall law, by 'authorized now the limits far so obtain, to as so prescribe may regulations as the President and departments executive various the in uniformity as practicable, independent establishments of the Government. FURLOUGH OF GOVERNMENT EMPLOYEES DURING FISCAL YEAR 1033 made for SEC. 216. In order to keep within the appropriations departments executive various the of heads the 1933, year fiscal the and independent establishments of the United States Government hereby and the municipal government of the District of Columbia are employees such pay, without authorized and directed to furlough, is carried on their respective rolls, such time as in their judgment such discharging necessary to carry out said purpose without posemployees, the higher salaried to be furloughed first wheneverreguand rules That Provided, service: the to injury without sible to securing lations shall be promulgated by the President with a viewdepartments executive various the of heads the by action uniform of and independent Government establishments in the application section. this of the provisions TITLE ITT—MISCELLANEOUS PROVISIONS PHILIPPINE SCOUTS SEC. 301. The President is authorized at any time to disband the Philippine Scouts or to reduce the personnel thereof. SEC. 302. During the fiscal year ending June 30, 1933, not more than $8,000,000 shall be obligated for printing and binding for the use of the United States and the District of Columbia done at the Government Printing Office, including printing and binding done elsewhere under contract by the Public Printer, or obtained in the field under authority of the Joint Committee on Printing for the exclusive use of a field service; of the foregoing amount $2,500,000 shall be for printing and binding for the use of the legislative branch of the Government. The amount available hereunder for the executive departments and independent establishments, the judiciary, and the government of the District of Columbia shall be distributed by the Director of the Bureau of the Budget among the several departments and establishments, the judiciary, and the government of the District of Columbia as, in his judgment, the needs of the service may require. Nothing in this section shall be construed to authorize the discontinuance of any report or publication specifically required by law. This section shall not apply to printing and binding for the use of the Patent Office or to the manufacture of postal cards and money orders for the Post Office Department. SEC. 303. During the fiscal year ending June 30, 1933, not more than $400,000 shall be expended for paper furnished by the Government Printing Office for the use of the several executive departments and independent establishments and the government of the District of Columbia. The amount available hereunder for the executive departments and independent establishments and the government of the District of Columbia shall be distributed by the Director of the Bureau of the Budget among the several executive departments and independent establishments, and the government of the District of Columbia, as, in his judgment, the needs of the service may require. This section shall not apply to expenditures for paper used in the course of manufacture by the Bureau of Engraving and Printing. SEC. 304. During the fiscal year ending June 30, 1933,(1) not more than $16,000 shall be available for expenditure for stationery for Senators and the President of the Senate, and for committees and officers of the Senate, (2) not more than $44,000 shall be available for expenditure for stationery for Representatives, Delegates, and Resident Commissioners, and for the committees and officers of thZi House of Representatives, and (3) each Senator, Representative, Delegate, and Resident Commissioner shall be allowed $90 for stationery allowance or commutation therefor, to be paid out of the sums provided in (1) or (2), as the case may be. WEST POTOMAC PARK HEATING PLANT SEC. 305. Until otherwise provided by law no further obligations shall be incurred under the appropriation of $750,000 for the construction of a heating plant in West Potomac Park, contained in the Second Deficiency Act, fiscal year 1931. • 30 [Pus. 212.] REORGANIZATION OF SHIPPING BOARD Board shall be comSEc. Is (a) The United States Shipping by the Presiappointhd hereafter be to rs commissione three of posed One of such Senate. the of consent and dent, by and with the advice the commissioners shall be appointed from the States touching a or Ocean, Atlantic the touching Pacific Ocean, one from the States States navigable river directly tributary thereto, and one from the be shall one than more not touching the Gulf of Mexico, but comthe of two than more Not State. same the III .5 from missioners shall be III 'S from the same political party. under (b) Terms of office of the first commissioners appointed at the time this section, shall expire, as designathd by the President of two the end at one year, one of end of nomination, one at the enactthe of dath the after years three of end the at one and years, comsuch any to successor a of ment of this Act. The term of office of expiration the 1.5f the from years three expire missioner shall a that except appointed, was the term for which his predecessor the th prior occurring vacancy a fill 'I II to commissioner expiration of the term for which his predecessor was appointed, The commisshall be appointed for the remainder of such term.their successors sioners appointed hereunder shall hold office until are appomthd and qualify. Unithd (c) Not withstanding the provisions of subsection (a) the enactthe of date the upon constituted Sthtes Shipping Board as reorof date the until function th continue shall Act ment of this such of provisions the to ganization of the commission pursuant such upon reorganized be to deemed be shall board suI.ction. The date as the three commissioners appthnted as provided in such subsection have taken office, and no such commissioner shall be paid salary, as such commissioner, for any period prior to such date. (d) This section shall be held th reorganize the United States Shipping Board, and, except as herein modified, all laws relating to such board shall remain in full force and effect, and no regulations, action, investigations, or other proceedings under any such laws existing or pending on 'Sitf the enactment of this Act shall abath or otherwise be affected by reason of teIivsons of this section. (e) Whenever under existing law the concurrence of four or more of the commissioners is required, such requirement of law shall, after the reorganization of the board provided by this section, be held th be complied with by the concurrence of two commissioners. (f) $200,000 of the unexpended balance of the allotment of $500,000 made available to the United States Shipping Board Merchant Fleet Corporation for experimental and research work, by the Independent Offices Appropriation Act, fiscal year 1930, and continued by subsequent appropriation Acts, shall na be expended, but shall be covered into the Treasury as miscellaneous receipts. (g) The sums available for expenditure, during the fiscal year ending June 300933, for personal services of employees of the United States Shipping Board Merchant Fleet Corporation assigned th and serving with the United States Shipping Board are reduced I'.167,000 from the pay roll of March 31, 1932, and the amounts of reduction applicable to the, various bureaus shall be 3s follows: EPua. 212.] (1) Bureau of Research, $30,000, (2) Bureau of Law, $103,000, (3) Bureau of Traffic, $9,000, (4) Bureau of Construction, $5,0007 and (5) Bureau of Operations, $20,000. (h) The United States Shipping Board Merchant Fleet Corporation shall, during the fiscal year ending June 30, 1933, transfer from. the operating funds and cover into the Treasury as miscellaneous receipts the sum of $1,938,240. INCREASES IN CERTAIN CHARGES AND FEES SEC. 307. After the dath of the enactment of this cI;t price at which additional copies of Government publications are offered 'a shall be for sale to the public by the Superintendent of I, based on the cost thereof as determined by the Public Printer plus 50 per centum Provided, That a discount of not th exceed 25 per centum may be allowed to authorized book dealers and quantity purchasers, but such printing shall not interfere with the prompt executiSn of work for the Government. The surplus receipts from such sales shall be deposithd in the Treasury of the United States to the credit of miscellaneous receipts. The Superinthndent of Documents shall prescribe the terms and conditions under which he may S ..of . .• Governmnt publications by book dealers, and authriz he may designate any Government officer his agent for the sale of Government publications under such regulations as shall be agreed upon by the Superinthndent of Documents and the head of the, resI•ctive department or establishment of teS The selling price of publications as provided for herein shall be in lieu of that prescribed in the public resolution approved May 11, 1922 (U. S. C., title 44, secs. 72 and 220), and section 42 of the Act of title 44, sec. January 12, 1895 SEC. 308. After the expiration of thirty days after the enactment Sf this Act (but in no event prior to July 1, 1932) the base ees $25 provided by section 4934 of the Revised Stataes, as amended Sup. V, title 35, sec. 78], to be paid upon the filing of each original application and upon each renewal application for patent, except in design cases, and on issuing each original patent, except in design cases, is hereby increased th $30. SEC. 19. Section 4934 of the Revised Statutes, as amended amended by adding at the end Sup. V, title 35, sec. thereof the following: "On filing each peon for the revival of an abandoned ap cation for IIItent, $10." SEo. 310. The Secretary of Commerce shall make such charges as he deeins reasonable for special statistical services; special commodity, technical, and regional news bulletins and periodical services; lists of foreign buyers, and World Trade Directory Reports, and the amounts collecthd therefrom shall be deposithd in the Treasury as miscellaneous receipts. SEC. 311. Section 5 of the Act entitled "An Act th establish in tI e Department of the Interior a Bureau of Minesapproved May S. as amended and supplemented [U. S. C., title 30, 16, amended to read as follOWS: 5. For tests or investigations authorized by the Secretary of Commerce under the provisions of this Act, as amended 355 • 32 [PUB. 212.1 nt of the supplemented, except those performed for the Governme a fee States, United the within nts governme United States or State for the Mines of Bureau the te compensa to case each in sufiicient to a entire cost of the services rendered shall be charged, according and Mines of Bureau the of Director the by prepared schedule rules prescribe shall who , Commerce approved by the Secretary of ions may be and regulations under which such tests and investigatbe paid into shall sources made. All moneys received from such receipts." eous miscellan of credit the Treasury to the establish the SEC. 312. Section 8 of the Act entitled "An Act to as amended 1901, 3, March approved ", National Bureau of Standards to read as amended is 276], sec. 15, title C., S. [U. nted and suppleme follows: investigations, "SEC. 8. For all comparisons, calibrations, tests, or the provisions under s Standard performed by the National Bureau of performed those except nted, suppleme and of this Act, as amended within nts governme State or States United the of nt Governme the for te the to compensa case each in sufficient the United States, a fee services the of cost entire the for s Standard of Bureau National the rendered shall be charged, according to a schedule prepared by the by approved and s Standard of Bureau National the Director of Secretary of Commerce. All moneys received from such sources shall be paid into the Treasury to the credit of miscellaneous receipts." executive SEC. 313. In the annual report to Congress of each department or independent establishment there shall be included a statement of receipts during the period covered by such report, from. fees or charges paid to such department or establishment under this Act and all other Acts of Congress. SEC. 314. Sections 310, 311, and 312 shall take effect July 1, 1932. RESTRICTIONS ON TRANSFER OF ARMY AND NAVY PERSONNEL endSEC. 315. The President is authorized, during the fiscal year and enlisted officers of transfer ing June 30, 1933 to restrict the men of the military and naval forces from one post or station to another post or station to the greatest extent consistent with the public interest. STATISTICS CONCERNING HIDES, SKINS, AND LEATHER of the SEC. 316. The Act authorizing and directing the Director Census to collect and publish statistics concerning hides, skins, and leather, approved June 5, 1920 (U. S. C., title 13, secs. 91, 92, and 93), is hereby repealed. TRANSFER OF APPROPRIATIONS an SEC. 317. Not to exceed 12 per centum of any appropriation for executive departmentS or independent establishment, including the municipal government of the District of Columbia, for the fiscal year ending June 30, 1933, may be transferred, with the approval of the Director of the Bureau of the Budget (or, in the case of the War Department and Navy Department, with the approval of the President) to any other appropriation or appropriations under the same Digitized I. for FRASER Mrs.212.1 33 department or establishment, but no appropriation shall be increased more than 15 per centum by such transfers: Provided, That a statement of all transfers of appropriations made hereunder shall be included in the annual Budget for the fiscal year 1935, and a statement of all transfers of appropriations made hereunder up to the time of the submission of the annual Budget for the fiscal year 1934, and all contemplated transfers during the remainder of the fiscal year 1933, shall be included in the annual Budget for the fiscal year 1934. VOCATIONAL EDUCATION SEo. 318. (a) Notwithstanding the provisions of section 1 of the Act entitled "An Act to provide for the further development of vocational education in the several States and Territories," approved February 5, 1929 (U. S. C., Supp. V, title 20, sec. 15a), not more than $1,500,000 is authorized to be appropriated for the purposes of such section for the fiscal year ending June 30, 1933. (b) For the fiscal year ending June 30, 1933, (1) the annual appropriations (for the purpose of cooperating with the States) provided for by sections 2, 3, and 4 of the Act entitled "An Act to provide for the promotion of vocational education; to provide for cooperation with the States in the promotion of such education in agriculture and the trades and industries; to provide for cooperation with the States in the preparation of teachers of vocational subjects; and to appropriate money and regulate its expenditure," approved February 23, 1917 (U. S. C., title 20, secs. 12-14, inclusive), shall be $2,700,000 (in the case of section 2),$2,700,000 (in the case of section 3), and $900,000 (in the case of section 4); (2) the minimum allotment of funds to any State, under each of such sections, for the said fiscal year, shall be $9,000; and (3) the additional appropriations (for the purpose of providing the minimum allotment to the States) provided for by such sections for the fiscal year 1933 shall be $24,300 (in the case of section 2), $45,000 (in the case of section 3), and $81,000 (in the case of section 4). (c) For the fiscal year ending June 30, 1933, the amount authorized to be appropriated under section 4 of the Act entitled "An Act to extend the provisions of certain laws to the Territory of Hawaii," approved March 10, 1924 (U. S. C., title 20, sec. 29), shall be $27,000; and the amount authorized to be appropriated under section 1 of the Act entitled "An Act to extend the provisions of certain laws relating to vocational education and civilian rehabilitation to Porto Rico," approved March 3, 1931 (U. S. C., Supp. V, title 20, sec. 30), shall be $94,500, and the amounts expended for each of the purposes set forth in such section shall be proportionately reduced. RATE OF INTEREST ON JUDGMENTS AND OVERPAYMENTS SEC. 319. Hereafter the rate of interest to be allowed or paid shall be 4 per centum per annum whenever interest is allowed by law upon any judgment of whatsoever character against the United States and/or upon any overpayment in respect of any internalrevenue tax. All laws or parts of laws in so far as inconsistent herewith are hereby repealed. • 34 [Pus.212.( RESTRICTION ON CONSTRUCTION AND RENTAL OF BUILDINGS SEC. 320. Authorizations heretofore granted by law for the con- struction of public buildings and public improvements, whether an appropriation therefor has or has not been made, are hereby amended to provide for a reduction of 10 per centum of the limit of cost as fixed in such authorization, as to projects where no contract for the construction has been made. As to such projects where a contract has been made at a cost less than that upon which the authorization was based, such cost shall not, unless authorized by the President, be increased by any changes or additions not essential for the completion of the project as originally planned. SEC. 321. Hereafter, except as otherwise specifically provided by law, the leasing of buildings and properties of the Unithd States shall be for a money consideration only, and there shall not be included in the lease any provision for the alteration, repair, or imII.ment of such buildings or properties as a part of the consideration for the rental to be paid for the use and occupation of the same. The moneys derived from such rentals shall be deposited and covered into the Treasury as miscellaneous receipts. SEC. 322. Hereafter no appropriation shall be obligated or expended for the rent of any building or part of a building to be occupied for Government purposes at a rental in excess of the per annum rath of 15 per centum of the fair market value of the renthd premises at dath of the lease under which the premises are to be occupied by the Government nor for alterations, improvements, and repairs of the rented premises in excess of 25 per centum of the amount of the rent for the first year of the rental term, or for the rental term if less than one year: Provided, That the provisions of this section shall not apply to leases heretofore made, except when renewals thereof are made hereafter, nor to leases of premises in fI . _ n countries for the foreign services of the Unithd States. TEMPORARY REDUCTION OF FEES OF JURORS AND WITNESSES SEC. 323. During the fiscal year 1933— (a) the per diem fee authorized to be paid to jurors under section 2 of the Act of April 26, 1926 (44 Stat. 323), shall be $3 instead (Pus.2I2J 35 (c) To eliminate overlapping and duplication of effort; and (d) To segregate regulatory agencies and functions from those of an administrative and executive character. DEFINITIONS SEC. 402. When used in this title— (1) The term "executive agency" means any commission, board, bureau, division, service, or office in the executive branch of the Government, but does not include the executive departments mentioned in title 5, section 1, United States Code. (2) The term "independent executive agency" means any executive agency not under the Jurisdiction or control of any executive department. POWER OF PRESIDENT SEC. 403. For the purpose of carrying out the policy of Congress as declared in section 401 of this title, the President is authorized by Executive order— (1) To transfer the whole or any part of any independent executive agency, and/or the functions thereof, to the jurisdiction and control of an executive department or another independent executive agency; (2) To transfer the whole or any part of any executive agency, and/or the functions thereof, from the jurisdiction and control of one executive department to the jurisdiction and control of another executive department; or (3) To consolidate or redistribute the functions vested in any executive department or in the executive agencies included in any executive department; and (4) To designate and fix the name and functions of any consolidated activity or executive agency and the title, powers and duties of its executive head. SEc. 04. The President's order directing any transfer or consolidation under the proons of this title shall also designate the records, property (including; office equipment), personnel, and unexpended balanees of appropriations to be transferred. SAVING PROVISIONS (b) the per diem fee authorized to be paid to witnesses under section 3 of the Act of April 26, 1926 (44 Stat. 323), shall be $1.50 instead of $2, and the proviso of said section 3, relative to per diem for expenses of subsistence, shall be suspended. TITLE IV—REORGANIZATION OF EXECUTIVE DEPAR11MENTS DECLARATION OF POLICY SEc. 401. In order to further reduce expenditures and increase efficiency in government it is declared to be the policy of Congress— (a) To group, coordinate, and consolidate executive and administrative agencies of the Government, as nearly as may be, according to major purpose; (b) To reduce the number of such agencies by consolidating those having similar functions under a single head; • SEC. 405. (a) All orders, rules, regulations, permits, or other privileges made, issued, or granted by or in respect of any executive agency or function transferred or consolidated with any other executive agency or function under the provisions of this title, and in effect at the time of the transfer or consolidation, shall continue in effect to the same extent as if such transfer or consolidation had not occurred, until modified, superseded, or repealed. (b) No suit, action, or other proceeding lawfully commenced by or against the head of any department or executive agency or other officer of the United States, in his official capacity or in relation to the discharoT of his official duties, shall abate by reason of any transfer of authority, powers, and duties from one officer or executive agency of the Government to another under the provisions of this title, but the court, on motion or supplemental petition filed at any • • 36 • [Pus. 212.1 time within twelve months after such transfer takes effect, showing a necessity for a survival of such suit, action, or other proceeding to obtain a settlement of the questions involved, may,allow the same to be maintained by or against the head of the department or executive agency or other officer of the United States to whom the authority, powers, and duties are transferred. (c) All laws relating to any executive agency or function transferred or consolidated with any other executive agency or function under the provisions of this title, shall, in so far as such laws are not inapplicable, remain in full force and effect, and shall be administered by the head of the executive agency to which the transfer is made or with which the consolidation is effected. STATUTORY AGENCIES SEC. 406. Whenever,in carrying out the provisions of this title, the President concludes that any executive department or agency created by statute should be abolished and the functions thereof transferred to another executive department or agency or eliminated entirely the authority granted in this title shall not apply, and he shall report his conclusions to Congress, with such recommendations as he may deem proper. DISAPPROVAL OF EXECUTIVE ORDER SEC. 407. Whenever the President makes an Executive order under the provisions of this title, such Executive order shall be transmitted to the Congress while in session and shall not become effective until after the expiration of sixty calendar days after such transmission, unless Congress shall sooner approve of such Executive order or orders by concurrent resolution, in which case said order or orders shall become effective as of the date of the adoption of the resolution: Provided, That if. Congress shall adjourn before the expiration of sixty calendar days from the date of such transmission such Executive order shall not become effective until after the expiration of sixty calendar days from the opening day of the next succeeding regular or special session: Provided further, That if either branch of Congress within such sixty calendar days shall pass a resolution disapproving of such Executive order, or any part thereof, such Executive order shall become null and void to the extent of such. disapproval: Provided further, That in order to expedite the merging of certain activities, the President is authorized and requested to proceed, without the application of this section, with setting up consolidations of the following governmental activities: Public Health (except that the provisions hereof shall not apply to hospitals now under the jurisdiction of the Veterans' Administration), Personnel Administration, Education (except the Board of Vocational Education shall not be abolished), and Mexican Water and Boundary Commission, and to merge such activities, except those of a purely military nature, of the War and Navy Departments as, in his judgment, may be common to both and where the consolidation thereof in either one of the departments will effect economies in Federal expenditures, except that this section shall not apply to the United States Employees' Compensation Commission. 1111 [Pus. 212.1 410 1110 37 REPORT TO CONGRESS SEC. 408. The President shall report specially to Congress at the beginning of each regular session any action taken under the pros visions of this title, with the reasons therefor. TITLE V—PARTICULAR CONSOLIDATIONS EFFECTED BUREAU OF NAVIGATION AND STEAMBOAT INSPECTION SEC. 501. The Secretary of Commerce is authorized and directed to consolidate and coordinate the Steamboat Inspection Service and the Bureau of Navigation of the Department of Commerce in a bureau in such department to be known as the Bureau of Navigation and Steamboat Inspection, to be under the direction of a chief of bureau who shall be appointed by the Secretary of Commerce. SEc. 502. (a) The Secretary of Commerce is authorized and directed to transfer to the Bureau of Navigation and Steamboat Inspection the records and property, including office equipment, of the Bureau of Navigation and the Steamboat Inspection Service. (b) The Secretary of Commerce is authorized and directed to transfer to such bureau such officers and employees of the Bureau of Navigation and the Steamboat Inspection Service as in his judgmentare indispensable to the efficient operation of such bureau. Such transfer of officers and employees shall be without changes in classification or compensation, but the Secretary may make such changes in the titles, designations, and duties of the officers and employees transferred as he may deem necessary to carry out the purposes of sections 501 to 504, inclusive of this title. The Secretary is authorized to dismiss such officers and employees of the Steamboat Inspection Service and the Bureau of Navigation as are not, in his judgment, indispensable to the efficient operation of the Bureau of Navigation and Steamboat Inspection. (c) The consolidation and coordination herein provided for shall be effected not later than October 1, 1932, and when the Secretary of Commerce declares such consolidation and coordination has been effected, the duties, powers, and functions vested in the Steamboat Inspection Service and the Bureau of Navigation shall be exercised. by the Bureau of Navigation and Steamboat Inspection, and the Steamboat Inspection Service and the Bureau of Navigation shall cease to exist. SEC. 503. All proceedings, hearings, or investigations commenced or pending before the bureau and the service abolished shall be continued by the Bureau of Navigation and Steamboat Inspection. All orders, rules, regulations, permits, licenses, enrollments, registrations, and privileges which have been issued or granted by the bureau and the service abolished and which are in effect shall continue in effect until modified, superseded, revoked, or repealed. All rights, interests, or remedies accruing or to accrue out of any provision of law or regulation relating to, or out of action taken by, the bureau and the service abolished t'shall be valid in all respects and may be exercised and enforced. SEC. 504. Appropriations and unexpended balances of appropriations available for expenditure by the bureau and the service abolished shall be available for expenditure by the Bureau of Naviga- [Pus. 212.1 tion and Steamboat Inspection in the same manner as if such bureau had been named in the laws providing for such appropriations, except that such parts of such appropriations and such unexpended balances as may not be absolutely necessary for the purposes of such bureau shall not be expended but shall be impounded and returned to the Treasury. TRANSFER OF PERSONNEL CLASSIFICATION BOARD TO CIVIL SERVICE COMMISSION SEC. 505. The duties, powers, and functions of the Personnel Classification Board are hereby transferred to the Civil Service Commission; and (a) the Personnel Classification Board, and the position of director of classification, are hereby abolished; (b) all records and property, including office furniture and equipment, of the Board, are hereby transferred to the Civil Service Commission; and (c) such of the officers and employees of the Board, as in the judgment of the Civil Service Commission, are indispensable to the efficient operation of the commission, are hereby transferred to such commission, and all other officers and employees of such Board shall be dismissed. SEC. 506. Any transfer of officers or employees under section 505 shall be without changes in classification or compensation, but the Civil Service Commission is authorized to make such changes in the titles, designations, and duties of such officers and employees as may be deemed necessary to carry out the provisions of sections 505 to 508, inclusive, of this title. SEC. 507. (a) All orders, determinations, rules, or regulations made or issued by the Personnel Classification Board, and in effect at the time of such transfer, shall continue in effect to the same extent as if such transfer had not been made, until modified, superseded, or repealed by the Civil Service Commission. (b) All provisions of law relating to the Personnel Classification Board and the director of classification shall continue in force with respect to the Civil Service Commission, in so far as such provisions of law are not inconsistent with the provisions of section 505 or 506. SEC. 508. Such parts of appropriations and unexpended balances of appropriations available for expenditure by the Personnel Classification Board as the Civil Service Commission deems necessary shall be available for expenditure by the Civil Service Commission in the same manner as if such commission had been named in the laws providing for such appropriations, and the remainder of such appropriations and such unexpended balances shall not be expended but shall be impounded and returned to the Treasury. SEC. 509. The provisions of sections 505, 506, 507, and 508 shall become effective October 1, 1932. INTERNATIONAL WATER COMMISSION ABOLISHED SEC. 510. The International Water Commission, United States and 111exico, American Sectiop, is hereby abolished. The powers, duties, and functions of such section of such commission shall be exercised by the International Boundary Commission, United States and Mexico, American Section. This section shall take effect July 1, 1932. [Pus. 212.1 39 TRANSFER OF RADIO DIVISION OF THE DEPARTMENT OF COMMERCE TO TIEM FEDERAL RADIO COMMISSION SEC. 511. The President is authorized, by Executive order, to transfer the duties, powers, and functions of the Radio Division of the Department of Commerce to the Federal Radio Commission, and upon the issuance of such order— (a) the Radio Division shall be abolished; (b) all records and property, including office furniture and equipment, of the division, shall be transferred to the Federal Radio Commission; and (c) such of the officers and employees of the division, as, in the judgment of the President, are indispensable to the efficient operation of the Federal Radio Commission, shall be transferred to such commission and all officers and employees of the division and commission not indispensable to the service shall be dismissed. SEC. 512. Any transfer of officers or employees under section 511 shall be without changes in classification or compensation, but the President is authorized to make such changes in the titles, designations, and duties of such officers and employees as he may deem necessary to carry out the provisions of sections 511 to 514, inclusive, of this title. SEC. 513. (a) All orders, determinations, rules, or regulations made or issued by the Department of Commerce in respect of the Radio Division, or by the Radio Division, and in effect at the time of such transfer, shall continue in effect to the same extent as if such transfer had not been made, until modified, superseded, or repealed by the Federal Radio Commission. (b) All provisions of law relating to the Radio Division shall continue in force with respect to the Federal Radio Commission, in so far as such provisions of law are not inconsistent with the provisions of section 511 or 512. SEC. 514. Such parts of appropriations and unexpended balances of appropriations available for expenditure by the Radio Division as the President deems necessary shall be available for expenditure by the Federal Radio Commission in the same manner as if such commission had been named in the laws providing for such appropriations, and the remainder of such appropriations and such unexpended balances shall not be expended but shall be impounded and returned to the Treasury. TITLE VT—INTERDEPARTMENTAL WORK SEC. 601. Section 7 of the Act entitled "An Act making appropriations for fortifications and other works of defense, for the armament thereof, and for the procurement of heavy ordnance for trial and service, for the fiscal year ending June 30, 1921, and for other purposes ", approved May 21, 1920 [U. S. C., title 31, sec. 686], is amended to read as follows: "SEC.,7. (a) Any executive department or independent establishment of the Government, or any bureau or office thereof, if funds are available therefor and if it is determined by the head of such executive department, establishment, bureau, or office to be in the 40 (Pui3. 2121 interest of the Government so to do, may place orders with any other such department, establishment, bureau, or office for materials, supplies, equipment, work, or services, of any kind that such requisitioned Federal agency may be in a position to supply or equipped to render, and shall pay promptly by check to such Federal agency as may be requisitioned, upon its written request, either in advance or upon the furnishing or performance thereof, all or part of the estimated or actual cost thereof as determined by such department, establishment, bureau, or office as may be requisitioned; but proper adjustments on the basis of the actual cost of the materials, supplies, or equipment furnished, or work or services performed, paid for in advance, shall be made as may be agreed upon by the departments, establishments, bureaus, or offices concerned: Provided, however, That if such work or services can be as conveniently or more cheaply performed by private agencies such work shall be let by competitive bids to such private agencies. Bills rendered, or requests for advance payments made, pursuant to any such order, shall not be subject to audit or certification in advance of payment. "(b) Amounts paid as provided in subsection (a) shall be credited, (1) in the case of advance payments, to special working funds, or (2) in the case of payments other than advance payments, to the appropriations or funds against which charges have been made pursuant to any such order, except as hereinafter provided. The Secretary of the Treasury shall establish such special working funds as may be necessary to carry out the provisions of this subsection. Such amounts paid shall be available for expenditure in furnishing the materials, supplies, or equipment, or in performing the work or services, or for the objects specified in such appropriations or funds. Where materials, supplies, or equipment are furnished from stocks on hand, the amounts received in payment therefor shall be credited to appropriations or funds, as may be authorized by other law, or, if not so authorized, so as to be available to replace the materials, supplies, or equipment, except that where the head of any such department, establishment, bureau, or office determines that such replacement is not necessary the amounts paid shall be covered into the Treasury as miscellaneous receipts. "(c) Orders placed as provided in subsection (a) shall be considered as obligations upon appropriations in the same manner as orders or contracts placed with private contractors. Advance payments credited to a special working fund 'shall remain available until expended." SEC. 602. (a) Notwithstanding the provisions of this title, such section 7, as in force prior to the date of the enactment of this Act, shall remain in force with respect to the disposition of funds transferred thereunder prior to such date. (b) Nothing in this title shall be construed to authorize any Government department or independent establishment, or any bureau or office thereof, to place any orders for material, supplies, equipment, work, or services to be furnished or performed by convict labor, except as otherwise provided by existing law. (c) The provisions of this title are in addition to and not in substitution for the provisions of any other law relating to working funds. • 41 1PrO. 212.1 • TITLE VII—PROVISIONS APPLICABLE TO VETERANS SEC. 701. There is hereby created a joint congressional committee which shall be composed of five Members of the Senate, to be appointed by the President of the Senate, and five Members of the House of Representatives, to be appointed by the Speaker of the House of Representatives. Such committee shall conduct a thorough investigation of the operation of the laws and regulations relating to the relief of veterans of all wars and persons receiving benefits on account of service of such veterans and report a national policy with respect to such veterans and their dependents, and shall also report and recommend such economies as will lessen the cost to the United States Government of the Veterans' Administration. The committee' shall report to the Senate and the House of Representatives not later than the 1st of January, 1933, the results of its investigation, together with such recommendations for legislation as it deems advisable. The committee is authorized to sit and act, whether or not the Senate or ,House of Representatives is in session, at such times and places as it may deem advisable, and to call upon various departments of the Government for such information and for such clerical assistance as may be necessary, using the services of employees on the Goverment 1 pay roll, and also to call upon and use the clerks of the Committee on World War Veterans' Legislation, the Committee on Pensions, and the Committee on Invalid Pensions, of the Rause of Representatives; and the clerk of the Committee on Pensions of the Senate. TITLE VIII—SPECIAL PROVISIONS SEPARABILITY CLAUSE SEC. 801. If any provision of this Act, or the application thereof to any person or circumstances, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby. SUSPENSIONS AND REPEALS SEC. 802. All Acts and parts of Acts inconsistent or in conflict with those provisions of this Act which are of temporary duration are hereby suspended during the period in which such provisions of this Act are in effect. All Acts or parts of Acts inconsistent or in conflict with those provisions of this Act which are of permanent nature are hereby repealed to the extent of such inconsistency or conflict. PROVISIONS OF PART 2 APPLICABLE TO APPROPRIATION ACTS FOR FISCAL YEAR 1933 SEC. 803. The provisions of Part 2 herein are hereby made applicable to the appropriations available for the fiscal year 1933, whether contained in this Act or in Acts prior or subsequent to the date of the approval of this Act. Approved, June 30, 1932, 11.30 A. M. I Bp In original • 4I0July 9, 1932. 14.4410k Proposed amendment to Section 13. Federal Reserve Act: The second paragraph of Section 13 of the Federal Reserve Act is hereby amended by adding the following: tt a, S-rfri-4-4.64.141 The Federal Reserve Board, by an affirmative ,406.440 4ai vote of five members, in times of emergency, is hereby given the power to permit Federal reserve banks, for such periods as it may determine, to discount paper eligible under the Act directly for individuals or corporationsAvithout requiring an endorsement of any bank, said paper to be subject to the maturity and other limitations now prescribed by said Act. The Federal reserve bank, before discounting any such paper, shall satisfy itself that the borrower can furnish satisfactory collateral and that it is unable to procure a loan from a member benlr, and, on passing of the energency, dhAll revoke its consent as to any future loans under this provision. VOLUME 233 PAGE 88 X-7199 (TENTATIVE DRAFT - Intehded only as basis for discussion and not recommended for approval.) July 14, 1932 SUBJECT: DISCOUNTS FOR INDIVIDUALS AND CORPORATIONS. TO ALL FEDERAL RESERVE BANKS: The third paragraph of Section 13 of the Federal Reserve Act, as amended by the Act of July , 1932, provides as follows: "For a period of two years in unusual and exigent circumstances, the Federal Reserve Board, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this to discount for any individual or corporation, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount fcr member banks under other provisions of this Act when such notes, drafts, and bills of exchange are indorsed and otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or corporation the Federal reserve bank shall obtain evidence that such individual or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals or corporations shall be subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe. No note, draft, or bill of exchange discounted under the provisions of this paragraph shall be eligible as collateral security for Federal reserve notes." In view of the exceptional and unusual nature of the power conferred upon the Federal reserve banks by this provision, and in view of the limited period during which it is effective, the Federal Reserve Board has not prescribed any formal regulations governing the exercise of this power; but the requirements of the law and the procedure which the Federal Reserve Board will expect to be followed are outlined below for the information of the Federal reserve banks and any individuals or corporations who may apply to them for discounts. VOLTDrE 233 PAGE 89 —2— I. X-7199 LEGAL LIMITATIONS. It will be observed that, by the express terms of the above provision of law: 1. Federal reserve banks may discount eligible paper for individuals and corporations only: (a) In unusual and exigent circumstances, (b) Within two years from July (c) When authorized by the affirmative vote of , 1932, not less than five members of the Federal Reserve Board, and (d) During such periods as the Federal Reserve Board may prescribe; 2. They may discount for individuals and corporations only notes, drafts and bills of exchange of the kinds and maturities made eligible for discount for member banks, under other provisions (Sections 13 and 13a) of the Federal Reserve Act. 3. Such paper must be indorsed and otherwise secured to the satisfaction of the Federal reserve bank; 4. Before discounting paper for any individual or corporation, the Federal reserve bank must obtain evidence that such individual or corporation is unable to obtain adequate credit accommodations from other banking institutions; 5. Such discounts may be made only at rates established by the Federal reserve banks, subject to review and determination by the Federal Reserve Board; - 36. X-7199 Paper discounted for individuals and cor-)orations is not eligible as collateral security for Federal reserve notes; and 7. All discounts for iniividuals or corporations are su,7ject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe. II. 1. PERMISSIOY OF THE FEDERAL RESERVE BOARD. Permission to discont eligible notes, drafts, and bills of ex- change for individuals and cornorations will be granted by the Federal Reserve Board only 11:00n written an-ilication of a Federal Reserve Bank contain- ing a full statement of the excePtional and exigent circumstances which, in the judgment of the Board of Directors of the Federal reserve bank, justify such action. 2. Federal Such permission will be ,:ranted for neriods gnecified by the eserve Board, not exceeding six months; but a,-nlications for re- newals of extensions of the Board's permission will be accepte d and considered at any time during the two weeks preceding the expiration of an existing authorization. 3. Requests for renewals or extensions of such permi_sion must be made in the same manner as an orirl-inal anPlication. III. 1. ELIGIBILITY. IT'en authorized by the Federal Reserve Board, the Federal reserve banks may discount for individuals or corporations, eligible commerc ial, industrial and agricultural paper actually owned by such individuals or corporations and bearing their indorsement. 2. In order to be eligible for such discount, notes, drafts and bills of exchange must comnly as to maturity and in all other resnect s S X-7199 with the provisions of Section 13 or Section 13(a) of the Federal Reserve Act and with the applicable requirements of the Board's Regulation A. IV. APPLICATIONS FOR DISC/Mr/TT. Each application of an individual or corporation for the discount of eligible paper by the Federal reserve bank must be made in writing on a form furnished for that purpose by the Federal reserve bank and must contain, or be accompanied by, the following: 1. A statement of the circumstances giving rise to the application and of the purposes for which the proceeds of the discount are to be used; 2. A statement of the efforts made by the applicant to obtain adequate credit accommodations from other banking institutions, including the names and addresses of all other banking institutions to which application for such credit accommodations has been made, the dates upon which such applications were made, whether such applications have been definitely refused and the reasons, if any, given for such refusal; 3. Financial statements of the applicant and the principal obligors on the paper offered for discount; 4. A list of all banks with which the applicant has had banking relations, either as a depositor or as a borrower, during the preceding year, with the approximate dates upon which such banking relations commenced and terminated; 5. Evidence sufficient to satisfy the Federal reserve bank as to, 4 X-7190 -5(a) the legal eligibility of the paper offered for discount and (b) its acceptability from a credit standpoint; 6. A list and description of the collateral or other security offered by the applicant; and 7. An agreement by the applicant, in form satisfactory to the Federal reserve bank, (a) to furnish to the Federal reserve bank when requested, additional financial statements, copies of recent auditors' reports, and other credit information, and (b) to submit to audits, credit investigations and examinations by representatives of the Federal reserve bank, whenever the Federal reserve bank shall so desire. V. GRANTING OR REFUSAL OF APPLICATION. Before discounting notes, drafts, or bills of exchange for any individual or corporation, the Federal reserve bank shall ascertai n to its satisfaction by such means as it may deem appropriate: 1. Whether any member bank located in the territory served by such applicant is willing to grant the credit accommodations for which application has been made to the Federal reserve bank; 2. Whether the applicant is unable to obtain adequate credit accommodations from other banking institutions; 3. The financial condition and credit standing of the applicant and the need for the credit accommodations applied for; 4. Whether the paper offered for discount is acceptable from a credit standpoint and eligible from a legal standpoint; 5. Whether the security offered is adequate to protect the Federal reserve bank against loss; and r aller - 66. X-7199 That the proceeds of such discount will be used for a purpose which would give rise to paper which would be eligible for discount under other provisions of the Federal Reserve Act, if offered by member banks. In discounting paper for individuals or corporations, a Federal reserve bank should not make any commitment to renew or extend sUch paper or to grant further or additional disco-wits. VI. LIMITATIONS. No Federal reserve bank shall discount for any one individual or corporation paper amounting in the aggregate to more than one Per cent of the paid in capital stock of such Federal reserve bank. VII. ADDITIONAL REQUIREMENTS. Any Federal reserve bank which obtains permissi-)n from the Federal Reserve 30ard to discount eligible Paper for individuals and cor2orations may issue a circular prescribing Tudh additional requirements and procedure respecting such transactions as it may deem necessary or advisable, ?rovided that it is not inconsistent with the provigions of the law and the Boardls regulations and with the terms of this letter. By order of the Federal Reserve 3oard. Chester Morrill, Secretary. FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-7201 July 16, 1932.. SUBJECT: Proposed Circular re Discounts for Individuals, Partnerships and Corporations. Dear Sir: There is inclosed for your information a tentative draft of a circular on the above subject outlining a suggesa ted procedure in connection with the discount of eligible paper for individuals, partnerships and corporations under the provisions of the Emergency Relief and Construction Bill, the conference report on which was approved by the House of Representatives yesterday and is under consideration in the Senate at the time this letter is written. This circular has not been approved even tentatively by the Federal Reserve Board; but an earlier draft of it was discussed at the joint meeting of the Governors of all the Federal reserve banks with the Federal Reserve Board on Friday, July 15, 1932, and the inclosed is a revised draft prepared in the light of that discussion. It will be appre- ciated if you will telegraph your comments and suggestions regarding this circular to us as soon as possible, in order _33 9/ • S X-7201 -2- that, when the Bill becomes a law, the circular may be revised and considered by the Board at the earliest possible date. Tentative drafts of forms for use in this connection are also being prepared here and will be submitted to all the Federal reserve banks at the earliest possible date and their comments and suggestions will be invited. It is important that this letter and the inclosed circular be regarded as strictly confidential. Very truly yours, E. M. McClelland, Assistant Secretary. Inclosures. TO GOVERNORS AND CHAIRMEN OF ALL F. R. BA1TKS. • • • X-7201 --a (TgliTATIVE DRAFT) July 16, 1932. SUBJECT: DISCOUNTS FOR INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS. TO JUL FEDERAL RESERVE BANKS: The third paragraph of Section 13 of the Federal Reserve Act, as amended by the Act of July , 1932, provides as follows: "In unusual and exigent circumstances, the Federal Reserve Board, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership or corporation, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount for member banks under other provisions of this Act when such notes, drafts, and bills of exchange are indorsed and otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, or a partnership or corporation the Federal reserve bank shall obtain evidence that such individual, partnership or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships or corporations shall be subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe." In view of the fact that the power conferred upon the Federal reserve banks by this provision can be exercised only in "unusual and exigent circumstances", the Federal Reserve Board has not prescribed any formal regulations governing the exercise of this power; but the requirements of the law and the procedure which the Federal Reserve Board will expect to be followed are outlined below for the information of the Federal reserve banks and any individuals, partnerships or corporations who may colAemplate applying to them for discounts. S e X-7201-a I. LEGAL REQUIREMENTS. It will be observed that, by the express terms of the law: 1. Federal reserve banks may discount eligible paper for individuals, partnerships or corporations only: (a) In unusual and exigent circumstances, (b) When authorized by the affirmative vote of not less than five members of the Federal Reserve Board, and (c) During such periods as the Federal Reserve Board may prescribe; 2. They may discount for individuals, partnerships or corporations only notes, drafts and bills of exchange of the kinds and maturities made eligible for discount for member banks, under other provisions (Sections 13 and 13a) of the Federal Reserve Act. 3. Such paper must be both (a) indorsed and (b) otherwise secured to the satisfaction of the Federal reserve bank; 4. Before discounting paper for any individual, partnership or corporation, the Federal reserve bank must obtain evidence that such individual, partnership or corporation is unable to secure adequate credit accommodations from other banking institutions; 5. Such discounts may be made only at rates established by the Federal reserve banks, subject to review and determination by the Federal Reserve Board; and X77201-a 6. All discounts for individuals, partnerships or corporations are subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe. II. PERMISSION OF THE FEDERAL RESERVE BOARD. 1. Permission to discount eligible notes, drafts, and bills of exchange for individuals, partnerships or corporations will be granted by the Federal Reserve Board only upon written or telegraphic application of a Federal Reserve Bank containing a full statement of the unusual and exigent circumstances which, in the judgment of the Board of Directors of the Federal reserve bank, justify such action. 2. The Federal Reserve Board will not undertake to consider individual cases or grant permission to discount specific paper for specific individuals, partnerships or corporations; but will grant to any Federal reserve bank applying for it general permission to discount eligible paper for all individuals, partnerships and corporations, when there are unusual and exigent circumstances which, in the judgment of the Federal Reserve Board, justify the granting of such permission. 3. Such permission will be granted for periods specified by the Federal Reserve Board, not exceeding six months. 4. Requests for renewals or extensions of such permission must be made in the same manner as an original application. III. 1. ELIGIBILITY. When authorized by the Federal Reserve Board, the Federal reserve banks may discount for individuals, partnerships or corporations, eligible commercial, inclastrial and agricultural paper actually owned •• • -4- X-7201-a by such individuals, partnerships or corporations and bearing their indorsement. 2. In order to be eligible for such discount, notes, drafts and bills of exchange must: (a) Comply as to maturity and in all other respects with the provisions of Section 13 or Section 13(a) of the Federal Reserve Act and with the applicable requirements of the Board's Regulation A4 (b) Be indorsed; and (c) Be otherwise secured to the satisfaction of the Federal Reserve Barace IV. APPLICATIONS FOR DISCOUNT. Each application of an individual, partnership or corporation for the discount of eligible paper by the Federal reserve bank must be made in writing on a form furnished for that purpose by the Federal reserve bank ane. must contain, or be accompanied by, the following: 1. A statement of the circumstances giving rise to the application and of the purposes for which the proceeds of the discount are to be used; 2. A statement of the efforts made by the applicant to obtain adequate credit accommodations from other banking institutions, including the names and addresses of all other banking institutions to which application for such credit accommodations has been made, the dates upon which such applications were made, whether such applications have been -54 X-7201-a definitely refused and the reasons, if any, given for such refusal; 3. Financial statements of the applicant and the principal obligors on the paper offered for discount; 4. A list of all banks with which the applicant has had banking relations, either as a depositor or as a borrower, during the preceding year, with the approxinnte dates upon which such banking relations commenced and terminated; 5. Evidence sufficient to satisfy the Federal reserve bank as to (a) the legal eligibility of the paper offered for discount and (b) its acceptability from a credit standpoint; 6. A list and description of the collateral or other security offered by the applicant; 7. An agreement by the applicant, in form satisfactory to the Federal reserve bank, (a) to furnish to the Federal reserve bank, when requested, additional financial statements, copies of recent auditorsl reports, or other credit information, and (b) to submit to audits, credit investigations or examinations by representatives of the Federal reserve bank, whenever the Federal reserve bank shall so desire; and 8. Any additional information or assurances which the Federal reserve bank, in its discretion, may require. V. GRANT OR REFUSAL OF APPLICATION. Before discounting notes, drafts, or bills of exchange for any partnership individualdor corporation, the Federal reserve bank shall ascertain to its satisfaction by uuch means as it may deem appropriate: 1. Thatthe financial condition and credit standing of the applicant justify the granting of such credit accommodations; X-7201-a 2. That the paper offered for discount is acceptable from a credit standpoint and eligible from a legal standpoint; 3. That the security offered is adequate to protect the Federal reserve bank:against loss; 4. That there is a reasonable need for such credit accommo- dations; and 5. That the applicant is unable to obtain adequate credit accommodations from other banking institutions. A special effort should be made to determine whether any member bank in the territory in which such applicant's principal place of business is located and/or in which its principal banking business is transacted is willing to grant such credit accommodations to the applicant. Federal reserve banks should discount paper for individuals, partnerships and corporations only when given adequate assurances that the proceeds of such discount will be used by the applicant to finance current operations in his own business and not for speculative purposes, for permanent or fixed investments, for any other capital purpose, or for the purpose of paying off existing indebtedness to other banking institutions. Paper bearing the signature or indorsement of non-member banks should not be discounted for individuals, partnerships or corporations; and no paper should be discounted for non-member banks. In discounting paper for individuals, partnerships or corporations, a Federal reserve bank should not make any commitment to renew or extend such paper or to grant further or additional discounts. -7- VI. X-7201_a RATES OF DISCOUNT. When authorized by the Federal Reserve Board to discount eligible paper for individuals, partnerships and corporations, the Federal reserve banks, subject to the review and determination of the Federal Reserve Boar., shall establish special rates for such discounts which rates shall be reasonable in the light of the rates charged on similar paper by commercial banks to which the applicant ordinarily would have access. VII. LIMITATIONS. Except with the permission of the Federal Reserve Board, no Federal reserve bank &nail discount for any one individual, partnership or corporation paper amounting in the aggregate to more than one per cent of the paid-in capital stock and surplus of such Federal reserve bank. VIII. ADDITIONAL REQUIREKENTS. Any Federal reserve bank which obtains permission from the Federal Reserve Board to discount eligible paper for individuals, partnerships and corporations may issue a circular prescribing such additional requirements and procedure respecting such transactions as it may deem necessary or advisable; provided that it is not inconsistent with the provisions of the law and the Board's regulations and with the terms of this letter. By order of the Federal Reserve Board. Chester Morrill, Secretary. 1.44. Form No. 131 p. ffice Correspongnce TID Morrill - FEDERAL RESERVE BOARD 110 Date 22,,19322 Subject: From _mai* gamisit td1,1 2-8495 Dear Hr. I have read over the minutes of the meetinc of Tuesd ,v, July 12th, aid I would. suggest Vie following cho.nr2,-es at the bottem of Page 9, and th of rage 10, so that it will read. az follo ws: 11 discussion ensued, during which Ltr. Hamlin reported that in a telephone convemition with Senator Glass on Saturday morning at about 12:30 - one-half hour before the close of the workIng dAy, ho had ozpressed to Son.a.tor Glass his disa7 y2roval of the power cranted in the relief bill to tho Reconstrac tion Finance Corporation to mice loms to individuals, e.nd that he tir.t if such a po-aer we2e sugfested to be diren to the Federal Reserve System, he personalkv would favor it; that such a power was vested in practically all of the Europ ean central banks, and. actually exercised by max/ of nal. He also stated. that Senator Glass dixi not respond favorably to the idai, but later called. him back- on the telep hono and requested that he draft an anpropriate araendmont to the Federal ResArve Act, which he had. dono hurriedly with the assistance of Counsel's office, on the clear understanding with Senator Glass that this ma done as a Dersonal matter only at his request, without in any way reprosentire Vian of the Fedeira Reserve Board or am,/ of its members, exce -A himse lf. VOLUME 233 PAGE 95 top ' I S Abstract from Minutes of meeting of Board Tuesday, July 12, 1932. "A discussion ensued during which Mr. Hamlin reported that in a telephone conversation with Senator Glass on Saturday morning he had mentioned the fact that most, if not all, foreign central banks have authority to maim direct loans to individuals, even though it may not be exercise& in all cases, and had stated that he , personally, would favor an amendment to the Federal Reserve Act along such lines. He also stated that Senator Glass did not respond favorably to the idea, but, later, called him back an the telephone and requested that he draft an appropriate amendment to the Federal Reserve Act, which he had done hurriedly and with the assistance of Counsel's office. "The Secretary stated that the amendment was considered and approved by the Banking and Currency Co=ittee of the Senate this morning, that he is informed that it is planned to bring the bill up an the floor of the Senate this afternoon, with the probability that it will be passed by the Senate today, and that it is possible, because of the desire in Congress for an early adjournment, that the bill will be acted upon imediately by the House of Representatives. "Some members of the Board indicated the feeling that in other circumstances there might be merit in an amendment to the Federal Reserve Act giving the Federal reserve banks authority to discount paper for individuals, etc., under proper safeguards, but that the present is not an opportune time for such an amendment and all of the members, except Mr. Hamlin, expressed strong disapproval of the procedure by which the Act might be • • amended in an important respect without an adequate opnortunity for the Board, the Federal reserve banks, or the mmber banks of the system to consider it carefully or to be heard regarding it. It was pointed out that, as the amendment had already received the approval of the Senate Committee on. Banking and Currency, it would probably be acted upon by the Senate today, and perhaps also by the House; that the bill related chiefly to other matters with which the President would be concerned as a result of his veto of the Wagner-Garner bill,and that it might be transmitted to the President for qpproval before the Board's position could be effectively presented to either House of Congress. "In view of these exceptional circumstances, Mr. Miller was requested to arrange for a talk with the President of the United States on the telephone and to express to him the Board's disapproval of the inclusion of such an important amendment to the Federal Reserve Act in the pending unemplo ment relief and construction bill, especially in view of the fact that there had not been afforded an opportunity for a hearing on the proposal or careful consideration of its merits.' • • • 0 X-7212 July 25, 1932. To: Federal Reserve Board From: Messrs. Harrison, Morrill, Goldenweiser, Smead, Siems and Wyatt. Subject: Discounts for individuals, partnerships and corporations. We respectfully recommend that the proposed circular on the above subject be approved by the Board in the revised form attached hereto. Especial attention is invited to the revised Sections II and III and to the fact that the proposed section regarding the rate of discount has been omitted. In the earlier drafts of Section II, it was proposed to require Federal reserve banks to apply for the Board's permission to discount eligible paper for individuals, partnerships and corporations and to state the unusual and exigent circumstances which, in the judgment of their directors, justify such action. It is believed, however, that the Board is already in possession of sufficient information to enable it to reach the conclusion that unusual and exigent circumstances exist in all Federal Reserve Districts, and it would simplify the procedure and expedite matters if the Board would authorize all Federal reserve banks generally for a period of six months to discount eligible paper for individuals, partnerships and corporations. Section III has been revised so as to provide that a Federal reserve bank may discount for individuals, partnerships or corporations (a) notes, drafts, or bills of exchange, which are the obligations of other parties actually awned by such individuals, partnerships Or corporations and indorsed by them, or (b) the promissory notes of such La„, Z-7.3 9? X-7212 -2 individuals, partnerships or corporations indorsed by other parties whose indorsements are satisfactory to the Federal reserve bank. This construes the law as permitting direct advances to individuals, partnerships and corporations on their own promissory notes. at all clear. On this point, the law is not Technically, it could be construed as authorizing the Federal reserve banks to discount only eligible paper consisting of obliga— tions of other parties actually owned by such *individuals, partnerships or corporations; but it is believed that, in view of the remedial character of the legislation, it should be given the more liberal interpretation, Which would permit direct advances. Otherwise, the benefits of the amendment would be greatly restricted. The proposed section regarding discount rates has been omitted entirely from this draft of the circular; because it is not believed to be necessary ama because it is believed that this subject can be dealt with better when it arises, in the light of the circumstances existing in each Federal Reserve District, and especially in the light of the rates customarily charged by commercial banks in each district on similar classes of paper. Regpectfully, s Walter Wyatt Chester Morrill L. A. A. Siems E. L. Smead WIT:raw Digitized •for FRASER E. A. Goldenweiser X-72I2 (Revised Draft) July 25, 1932. SUBJECT: DISCOUNTS FOR INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS. TO ALL FEDERAL RESERVE BANKS: The third paragraph of Section 13 of the Federal Reserve Act, as amended by the Act of July 21 , 1932, provides as follows; "In unusual and exigent circumstances, the Federal Reserve Board, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount for member banks under other provisions of this Act 7-hen such notes, drafts, and bills of exchange are indorsed and otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe." In view of the fact that the power conferred by this provision can be exercised only in "unusual and exigent circumstances", the Federal Reserve Board has not prescribed any formal regulations governing the exercise of this power; but the requirements of the law and the procedure which the Federal Reserve Board will expect to be followed are outlined below for the information of the Federal reserve banks and any individuals, partnerships or corporations that may contemplate applying to them for discounts. S X-7207 - 2 - I. LEGAL REQVIREMENTS. It will be observed that, by the express terms of the law: 1. The power conferred upon the Federal Reserve Board to authorize Federal reserve banks to discount eligible paper for individuals, partnerships or corporations may be exercised only: (a) In unusual and exigent circumstances, (b) By the affirmative vote of not less than five members of the Federal Reserve Board, and (c) For such periods as the Federal Reserve Board may determine, 2. When so authorized, a Federal Reserve Bank may discount for individuals, partnerships or corporations only notes, drafts and bills of exchange of the kinds and maturities made eligible for discount for member banks, under other provisions (Sections 13 and 131i) of the Federal Reserve Act. (Such p4Wer2ft'comply with the applicable requirements of Regulation of the Federal Reserve Board). 3. Paper discounted for individuals, partnerships or corporations must be both (a) indorsed and (b) otherwise secured to the satisfaction of the Federal reserve bank. 4. Before discounting paper for any individual, partnership or corporation, a Federal reserve bank must obtain evidence that such individual, partnership or corporation is unable to secure adequate credit accommodations from other banking institutions, 5. Such discounts may be made only at rates established by the Federal reserve banks, subject to review and determination by the Federal Reserve Board; S —3-5. All discounts for individuals, partnerships or corporations are subject to such limitations, restrictions, and regulations as the Federal Reserve Board may prescribe. II. AUTHORIZATION BY TEE FEDERAL RESERVE BOARD The Federal Reserve Board, being satisfied that there are in all Federal reserve districts unusual and exigent circumstances which justify such action, hereby authorizes all Federal reserve banks for a period of six months from the date of this letter to discount eligible potes, drafts and bills of exchange for individuals, partnerships and corpora— tions, subject to the provisions of the law, the Board's regulations, and this circular. III. FOR WHOM PAPER MAY BE DISCOUNTED, A Federal reserve bank may discount for individuals, part— nerships or corporations notes, drafts or bills of exchange, which are the obligations of other parties actually owned by such individuals, partnerships or mrporations and indorsed by them, or the promissory notes of such individuals, partnerships, or corporations indorsed by other parties whose indorsements are satisfactory to the Federal re— serve bank. Within the meaning of this circular, the term "corporations" does not include banks. • • X-7212 - 4 IV. APPLICATIONS FOR DISCOUNT. Each application of an individual, partnership or corporation for the discount of eligible paper by the Federal reserve bank must be addressed to the Federal Reserve Bank of the District in which the principal place of business of the applicant is located, must be made in writing en a form furnished for that purpose by the Federal reserve bank and must contain, or be accompanied by, the following: 1. A statement of the circumstances giving rise to the applica- tion and of the purposes for which the proceeds of the discount are to be used; 2. Evidence sufficient to satisfy the Federal reserve bank as to (a) the legal eligibility of the paper offered for discount under Section 13 or Section 13(a) of the Federal Reserve Act and Regulation A of the Federal Reserve Board and (b) its acceptability from a credit standpoint; 3. A statement of the efforts made by the applicant to obtain adequate credit accommodations from other banking institutions, including the names and addressee of all other banking institutions to which applications for such credit accommodations were made, the dates upon which such applications were made, whether such applications were definitely refused and the reasons, if any, given for such refusal; 4. A list showing each bank with which the applicant has had banking relations, either as a depositor or as a borrower, during the . preceding year, with the approximate date upon which such banking relations commenced and, if such banking relations have been terminated, the approximate date of their termination; • X-7212 5 5. Complete credit data regarding the financial condition of the principal obligors and indorsers on the paper offered for discount; 6. A list and description of the collateral or other security offered by the applicant; 7. A waiver by the applicant to demand, notice and protest as to applicant's obligation on all paper discounted by the Federal reserve bank or held by the Federal reserve bank as security; and 8. An agreement by the applicant, in form satisfactory to the Federal reserve bank, (a) to furnish additional credit information to the Federal reserve bank, when requested, (b) to submit to audits, credit investigations or examinations by representatives of the Federal reserve bank at the expense of the applicant, whenever requested by the Federal reserve bank, and (c) to furnish additional security whenever requested to do so by the Federal Reserve Bank. V. GRANT OR REFUSAL OF APPLICATION. Before discounting notes, drafts, or bills of exchange for any individual, partnership or corporation, the Federal reserve bank shall ascertain to its satisfaction by such means as it may deem appropriate: 1. That the financial condition and credit standing of the applicant justify the granting of such credit accommodations; 2. That the paper offered for discount is acceptable from a credit standpoint and eligible from a legal standpoint; 3. That the security offered is adequate to protect the Federal reserve bank against loss; 4. tions; and That there is a reasonable need for such credit accommoda- • X-72l2 6 5. That the applicant is unable to obtain adequate credit accommodations from other banking institutions. A special effort should be made to determine whether the banking institutions with which the applicant ordinarily transacts his banking business or any other banking institution to which the applicant ordinarily would have access is willing to grant such credit accommodations. A Federal reserve bank should not discount such paper unless it appears that the proceeds of such discounts will be used to finance current business operations and not for speculative purposes, for permapent or fixed investments, or for any other capital purposes. Except with the permission of the Federal Reserve Board, no such paper should be discounted if it appears that the proceeds will be used for the purpose of paying off existing indebtedness to other banking institutions. In discounting paper for individuals, partnerships or corporations, a Federal reserve bank should not make any commitment to renew or extend such paper or to grant further or additional discounts. VI. LIMITATIONS. Except with the permission of the Federal Reserve Board, no Federal reserve bank shall discount for any one individual, partnerthip or corporation paper amounting in the aggregate to more than one per cent of the paid-in capital stock and surplus cf such Federal reserve bank. VII. ADDITIONAL REVIREMEMS. Any Federal reserve bank may prescribe such additional requirements and procedure respecting discounts hereunder as it may deem necessary or advisable; provided that such requirements and procedure are consistent with the provisions of the- law, the Board's regulations and the terms of this circular. X-7212 By order of the Federal Reserve Board. Chester Morrill, Secretary. ice Correspontence To_ mr. Fsmiin Let. FEDERAL RESERVE BOARD Date_Auguat-2:5_,__ 1332 Subject: GPO 2-8495 Concerning the new provision for individual loans, which you mentioned to me the other day--in relation to the forthcoming President's Conference-I understand that certain material sent in by the reserve banks is being digested for the Board by the Division of Bank Operations and that the digest is expected to be mimeographed tomorrow. The only suggestions that have occurred to me concerning material that might be of use to you at this conference relate to certain important differences between the underlying banking situation that confronts this conference and the one that confronted the conference held by the President last year--about October 7. I refer in particular to the fact that bank failures have recently been on the decline and money has been coming out of hoards to some extent, whereas the exact contrary was the case during the period immediately preceding the conference of last year. The facts are presented briefly in the following table, which shows for each of the last six weeks, in comparison with the six weeks ending with October 10, 1931, the number of bank suspensions and the deposits involved, the number of banks reopened and their deposits, and changes in the demand for currency (adjusted for seasonal variations): VOLUME 233 PAGE 101 2. NUMBER OF BANKS SUSPENDED Week ending-- L Number Week ending,— 1 July 16, 1932 23 30 Aug. 6 Sept. 5, 12 19 26 36 31 21 20 17 22 147 13 20 Total Deposits (000,000 omitted) ._ July 16, 1932 23 $24 13 Aug. 6 30 6 13 9 20 Total 99 74 10 475 10 Total BsIas Week ending , Sept. 5, 12 19 26 Oct. 3 10 Total 54 42 63 Oct. 3 DEPOSITS OF SUSPENDED Week ending-- 1931 Number 1931 Deposits (000,000 omitted) $50 15 66 61 76 146 414 NUMBER 03 BANKS REOPENED Week ending-- Number 6 3 July 16, 1932 23 30 Aug. 6 13 20 Total 2 Week ending-Sept. 5, 1931 12 19 7 2 .......1 23 Oct. 26 3 n Total Number ... 1 3 1 1 4 10 DEPOSITS OF REOPENM BLNKS Week ending-i Deposits (000,000 omitted) July 16, 1932 23 30 Aug, 6 13 20 Total * Less than $500,000. $5 15 1 3 2 , Week ending Sept. 5, 1931 12 19 26 Oct. 3 10 27 Total Deposits (000,000 omitted) • 4 3. CRAMS IN DEMAND FOR CURRENCY--ADJUSTED FOR SEASONAL VARIATI=S (Weekly averages of daily figures--in millions of dollars) Waek ending-- Change from preceding week July 16, 1932 +17 23 +19 Aug. Week ending--1 30 -27 .- 6 13 Sept.5, 12 19 +11 —le 0 26 Oct. 3 10 20 1931 Chanze from preceding week +25 +10 +12 +76 +78 +143 These figures relating to currency demand, which show the extent to wl- ich an increase, for example, has exceeded (or fallen short of) the usual seasonal increase, come the nearest of any figures that we have to representing changes in "hoarding." For recent weeks the story that they tell is complicated by the fact that some increase in demand, which we are not yet in position to measure, reflects the increased use of cash since the new tax on checks. The daily data from which the averages are derived indicate that "hoarding" reached its peak on July 20, 1932, and that from that time to August 20 Ae return of currency from hoards amounted to not less than 01,000,000—of which $33,000,000 came back in the two weeks August 8 to August 20. • • 6AA Federal Reserve Direct Loans, Itly Districts. District #1. Boston. UP to August 9, 210 on real estate loans and inquiries by letter. Up one was withdrawn, 3 not loans, and ineligible. applicants, of which 126 requested information non-eligible personal loans. Received also 50 to August 20, six different applications received,satisfactorily secured, 2 apparently personal • None of these requests were placed. with other banks. ••••-••••••••• District #2. S-711) AAa'1,4-4".4401 74.4 4.0-1. /0 i/ru Iti9 etv rik. ---tota-04441 ' Up to August 20, 1 loan for $125,000 granted. 24 applications refused, - 2 because ineligible, 21 as unsatisfactory risks, and one regarded as now being granted adequate bank credit. District 43. Philadelphia. Up to August 13, one application received. Rejected because not satisfactorily secured, and because of lack of confidence in the management. District #44, Cleveland. Up to August 22,2 applications. Both rejected, - one because of unsatisfactory security and unsatisfactory statements of endorsers, and the other because of lack of endorsement and inadequate security. One case was of such merit that it was referred to a local bank, where a satisfactory banking connectim was established, and the necessary accommodation received. District #5. Richmond. UT) to August 20, 25 aDplications, aggregating $390,000. None of VOLUME 233 PAGE 109 these were granted or placed with other banks. 20 of these were ineligible, and in nearly all oases either not satisfactorily secured or not satisfactorily endorsed. In the 5 apparently eligible cases, the applicant was unable to furnish either satisfactory security or satisfactory endorsers. District 46. Atlanta. Up to August 20, 14 applications. 1 was placed with a raember bank, 13 were rejected, - 4 because ineligible, and 9 because not satisfactorily secured, or not supported by satisfactory financial statements. District #7. Chicago. Up to Aueust 16, out of 472 inquiries, 309 were merely requests for information. 145 requests for loans clearly ineligible. Of the other applicants, 4 were found to have other banking facilities available, 10 desired loans having no satisfactory credit basis, and the remaining 4 were asked for additional credit information. District #8. St. Louis. The 90-day maturity limitation prevents the making of same desirable loans to small or medium sized concerns. Suggests possibility of establishing same institution - such as a trust company - to make loans of this kind. UP to August 20, 11 applications all rejected, - 2 because of being ineligible, and 9 because of unsatisfactory security. District #9. Minneapolis. In a number of cases, the Federal reserve bank sent applicants to proper sources of credit where they could be taken care of. 2 farm loans were turned over to the Land Bank Comittee, 2 to a savings bank, and the cattle feeder was directed to a bank in an adjoining town which was glad to make the loan. The Federal reserve bank has been working on a line for a manufacturing concern, and hopes to establish the necessary credit with a commercial bank. 11 applications have been refused, 7 because of unsatisfactory security or not secured, 2 because there was no basis of credit, 1 because ineligible, and another because of being a poor credit risk, and because the maturity was beyond that permitted by law. ON, District #10. Kansas City. Up to August 20, 8 applications received, of which 4 were ineligible, 2 did not show denial of credit by other banks, 1 had a maturity in excess of that permitted by the amendment, and I not properly secured. .11•••••..••••.. District #11. Dallas. Up to August 13, 2 applications, - one rejected because nd:properly secured or endorsed, 1 because it was not properly secured. One of the loans rejected was probably taken care of by the local bank. In another case4, during progress of negotiations, before final application filed,the applicant obtained accommodation at another bank. District #12. San Francisco. UP to August 20, many incUXies, but no applications received, although a number of applications were in process of negotiation. • SUMMARY OF FEDERAL RESERVE BANK AND BANK= AND INDUSTRIAL COMMITTEE ACTIVITIES IN corFEcTioN WITH CREDIT REVIREMENTS // F7TERAL RESERVE DISTRICT TO, 1 - BOSTON A. ACTIVITIES OF BANKING AND INDUSTRIAL COMMITTEE 1. Circular to trade, business and credit associations (August 9) requesting that each association send an accompanying qaestionnaire to its members, the completed questionnaire to be returned direct to the Banking and Industrial Committee. The questionnaire requests that the conditions under which Federal reserve banks may discount paper for individuals, Partnerships or corporations, as given in an accompanying statement, be borne in mind in answering the following two questions: (1) Do you now require credit for use in your business which you are unable to obtain at your bank? If so, please give full partic- ulars. (2) Do you know of others now in need of credit for legitimate business purposes which cannot be obtained from banking institutions? If so, please give particulars. 2. Circular to business and industrial concerns (August 11) requesting that the same questionnaire be filled out by such concerns and returned to the committee. 3, Circular to all commercial banks (Aucust 16) (a) Calls attention to the fact that there is a lare amount of credit now available through the Federal reserve banks and Intermediate \ credit banks for merchants, manufacturers, agriculturists and producers of raw material, who are deserviAg of such credit, and that it is for the best -mblic interest that flis credit be made available for sound busine'3s purndses to stimulate trade and to • - 2 - BOSTON DISTRICT increase emnloyment and purchasing power throughout the country. (b) States that the Federal reserve banks are now authorized to make direct loans to individuals, partnerships and corporations, but that this available credit properly should be advanced through local banking institutions. (c) Suggests that if the community could be made to realize how desirable and proner it is that the seasonal and immediate needs of commerce, industry and agriculture should be taken care of, then rediscounting or borrowing by banks would be considered a logical and constructive service; and that if properly presented in a bank's published statement, for example as rediscounts 'Tor purposes of customers' manufacturing requirements," such borrowings would be accepted by the community as a constructive service of the bank. (d) Asks banks' cooperation in mni-..ing it clear to business interests that there is no need to curtail the volume of their operations because of lack of credit facilities. 4, Circular to building and loan associations and cooperative banks (July 6) Supplements a similar questionnaire previously sent out by the New England Council to chambers of commerce, business organizations, etc., and seeks a further cheek of the real estate situation. ,B. ACTIVITIES OF F7DERAL RES7R1 1 PAM: Federal reserve bank is making a careful survey, in cooperation with the Banking and Industrial Committee, of the needs for credit in the different lines of business and agricultural activities, using for BOSTO7 DISTRICT 3 this purpose the replies to the questionnaire sent out by the committee. C. DATA GATHER= BY COMITTEE FOR FEDERAL RESERVE BAIT 1. Federal reserve bank has analyzed tabulations made by Yew England Council of results of questionnaire sent out by the Council on June 2g to organizations throughout Yew England, principally chambers of comerce, boards of trade, etc., and in some creses to newspapers. This question- naire embraced five inquiries, two of w ich Had a particular bearing on commercial bank credit. These questions and the results of the tabulation are as follows: Inquiry 1. Are there any instances of banks being unable or unwilling to grant sound loans for business purposes? Yo - 125 Yes (or qualified) - 36 Inquiry 2. Are there any projects, commercial, industrial or municipal, that are held up for lach of credit? Would they be executed if credit from some source outside were made available? Yes (or qualified) - 23 Yo 134 2. Analysis of replies of building and loan associations and cooperative banks to the July 6 questionnaire sent out by Banking and Industrial Committee. a. Aro building and loan associations in your section in position to loan money on sound mortgnEes? Yes - 7 No - 21 b. Is there any considerable demand for real estate loans which can not be satisfied with present facilities? Yes - 21 yo _ 7 c. Is there any need for additional housinf; facilities in your section? Yes - 5 vo — 23 -4 BOSTON DISTRICT d. Is there a demand for sound real estate loans for repair purposes on existing homes? Yes - 25 No - 3 d. Would any considerable nuMber of new homes be built if loans could be arranged on a sound basis - say 60% Yes - 9 D. APPLICATION'S TO FEDERAL RESERVE BANK FOR LOANS TO INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS 1. Up to AuEust 9, 210 applicants had been interviewed, of which 126 requested information on real estate loans and non-eligible personal loans; and 50 inquiries by letter had been received. 2. up to August 20, Federal reserve bank had received tions, one of which was later withdrawn. 6 definite applica- Of the remaining 5, one for $5,000 from a shoe company was nr_.'t satisfactorily secured, two accrecating $2,140 were apoarently personal loans and ineligible, one for $600 from a beauty shop was not satisfactorily secured, and one for $500 from an office supply company was not satisfactorily secured. banks. None of these reauests for loans were placed with other 4b m..musTRILL SUILIARY OF FMER.AL RESERVE BAIT. AD BANICITG C01.11..IITTM ACTIVITIES IN CONNECTION WITH CR.7I)IT REQUIP3117.7TS FMITRZ RESERVE DISTRICT NO 2 - N-2,7 YO( A. ACTIVITIES OF BAITING ,121") IIMUSTRIAL COIS.:ITTEE 1. Survey 117 National Industrial Conference Board to ascertain whether there are any needs for credit which are not being supplied. The Conference Board sent questionnaires to 6,000 business men in all parts of the country, replies to which are now being received. The Federal Reserve Bank has requested that the replies be compiled and individual cases segregated by Federal reserve districts, so that the results may be made available to the Banking and Industrial Committee in each of the respective districts. 2. In cooperation with the Federal reserve bank, the Committee is now working on plans for a survey of the agricultural and mercantile f i el ds. B. ACTIVITIES OF FEDERAL RESEFVE BK 1. Is cooperatin with the YationP1 Industrial Conference Board in inking a classification, by Federal reserve districts, of the replies received to the questionnaires sent by the Conference Board to 6,000 busi.less men (chiefly manufacturinc concerns) throughout the country, so that the material may be available for the respective Federal reserve districts, thereby avoiding duplication of effort in surveying the needs for credit. 2. In cooperation with the local Banking and Industrial Committee the Federal reserve bank is now working on plans for a survey of the agricultural and mercantile field. (3-834) • Alb 3. Is 2 PEW YORK DISTRICT eadeavoring to bring about a correct understa:Iding of the amendment mthorizing Federal reserve ban!-s to discount pnper for individuals, partnerships and corporations, throuri:h a widespread distribution of the Federal Reserve 3on.rd's circular and by a brief article in the Federal reserve bar-ls Monthly Review. C. DATA. GATHERED BY COMITTY2 OR FEDERAL RES3RVE RAMC Analysis of replies to National Indllstrial Conference Board. The material submitted to the Federal reserve bank thus far by the National Industrial Conference Board comprises 47 replies from the second Federal reserve district to the Conference Board's questionnaires. Practically all of these replies ,,-ere conplaints of inability to obtain credit or of forced reductions in long siT tanding credit lines, althau,h in a few cases the writers reported that they had been able to obtain credit from other scurces. In only two of those 47 cases .17ere uortgage loans desired; and in the majority of cases the credit desired was to finance current business operations. Some reported inability even to disccunt trade acceptances or other receivables. In a numbor of cases there were complaints thnt a good record for a lon.T period of years and an adecr.ate ratio of assets to liabilities mennt nothincT to the banks now against a poor current record of earnings or a low cash position. In several cases the writers re- ported that the ban7-:s with which they had been doing business for long periods had been taken over for liquidation or had merged --/ith other baal:s, and that Vac continuing bani, :s had declined to extend the usual lines of credit. A considerable (3-834) • 3 • 1177 YORK DISTRICT portion of the cases appeared to be technically eliF,ible for Federal reserve bank loans, and in all sadh cases the would-be borrower will be given an opportunity to submit additional information. Among the reasons ,E;iven for the refusal of ban2:s to extend credit in tlie usual amounts were: (a) desire to maintain the4_r own liquty; (b) unprofitable condons in the borro7erls industry; (c) no Iloney to lend; (d)Inper not rediscauntable at Federal reserve barLs. D. APPLICATIOYS TO FEDMAL RESERVE 3AVK FOR LOAYS TO I7DIVIDUALS, PARTN7RSHIPS ADD CORPORATIONS During the first ten days of Aucast nearly Inquiries. S. inauiries for loans were received, of which 156 were for real estate loans, 36 for personal loans for ineligible purposes, and 65 miscellaneous loans --fhicTI appeared to be clearly not of a character even possibly eligible. The remaining were mostly for business loans, thS ugh a small number were for agricultural purposes. In 140 of these cases it appeared that the loans miht be technically eble and the applicants were given copies of the application blank. It is probable that in a considerable number of these there will be no satisfactory basis of credit, but thus far 4o cases have appeared to justify a credit investigation. Applications (a) None of ti-e applications have been placed with other banks. (B-834) 4Ib • • 4 NET YORK DIS7RICT (b) One loan for $125,000 has been authorize b7 the Federal reserve benk to a large truck gardening enterprise located in another part of the country but with headquarters in Yew York. This loan uupnlements loans made by two commercial banl:s, and together with them is secured by a real estate mortgage. This concern, which had been operating successfully for years, but gastained a severe loss last year, with the regult that though it had been able to borrow very gabstantially in prior years, it was una:nle to borrow this year for the purpose of plantinE crops. (c) To August 20, twenty-four applications had been refused 2 on account of ineligibility, 21 considered as unsatisfactory risks, and one regarded as now being granted adequate bank credit. -834) • SUMi.:ARY Or FMERA.L RESITRVE BA1"1: flT corriTEcTioy LTC+ JILT I1TDUSTFtLAL COLE-II= ACT'VII'I23 CRUD IT REQUIRE1-.I.T.:NTS --= FERAL RES7RVE DISTRICT ITO. 3 - PHILADELPHIA A. ACTIVITIES OF BAL7ING A. :1D INDUSTRLAL CO: :ITTEE (After a conference between the Bar2:ing and Industrial Committee and the Federrl reserve b(,/11:, it was decided best to have the Federa], reserve ban2c make a survey concernin- the availability of credit accommodEctions for legitimate business reouirements.) B. ACTIVITIES OF FEDER.:.IJ R7SFRVT 32-111K 1. Circular to trade associations sent out in the early port of August inclosing c. questionnaire to be filled out by members of the trade association, particularly those engaged in the manufacture and distribution of commodities. This questionnaire is rather complete and rsil.s eleven cruestions as follows: (?,) From your experience, have youfound that there have been unusual difficulties in borrowin, ; sufficient funds for working capital required for the production and marl:eting of goods? A detailed statement will be of the utmost help. (2) Do you know of deserving applicants for loans of this character who, failing to obtain accommodations from a banl: in your locality, tried to mo):e contacts with other banh.s and with what result? The details of specific cases would be most useful. (3) In your judent, were the loans almlied for and denied of such character that under ordinary circumstances there would be no difficulty in obtaining them in accordance with suund business and ban:.:ing practices? As far as you know, were the applicants entitled to these loans? (4) a. Has the general line of credit in your locality been reduced by a larger amount than the decline in the' volume and prices of goods would warrant? If so, why and by what per cent as compared with the usual amount of accommodation? (3-g34) - 2- PHILADELPHIA DISTRICT b. To -hat extent has this reduction in credit for woed.ag capital requirements resulted in curtailment of busin:.ss activity in your locality? (5) Have the bankinc facilities in your section been adequate to tc.!ce care of all reasonable requests for loans? (6) Under what credit terms and conditions -7uuld you proceed with the pli.rchase of additional stods of raw materials in advance of present needs? If such credit were available, what would be the character and approximate dollar value of these purchases? (7) a. In your company what is th.:1 character and approximate cost of machinery and equipment which you consider to be out-of-date and --rhichlrlaer normal conditions you would replace? Rou,thly, how does the cost of such obsolete equipment compare with the total cost of all your equipment? b. 'That improvements and additions would you underVIce under normal conditions and at what approximate expenditure? c. How mudh of such replacements or other improvements or additions has been delayed because of inability to secure capital or credit on suitable terms? Give details. d. Under what credit terms and conditions would you -oroceed with such replacements, improvements, or additions? 2. Circular to selected representative business concerns, requesting that they fill out the same questionnaire and return it direct to the Federal reserve bank. C. DATA. WLTHERED BY COMMITTEE OR FEDERAL RESERVE BANK (No compilation has yet been made of the replies received to the questionnaire sent out by the Federal reserve bank) (3-83)4) • • -3- ;.„1:ri•LICATIONS TO FMERAL RESERVE CORPORi:ITIONS Ap-plications. PHILADMPHIA DISTRICT FOP. LO.LYS TO IMIVIDT.T.;.LS, PARTN7RSHIPS Up to August 13 one application hf.,.d been received, which 1,7as rejected because of not having. been satisfactorily secured nnd because of lack of co4fidence in the management. (B-g311-) . 11111 SULSIARY OF FEDMILL RESER E BAllit AND BA:TUG AIM IMUSTRILL COHEITZ.-27 ACTIVITIES IN CONIT7CTIO:.- TITH CRMIT REOLUIREIETTS FMDE.71.L RESERVF, DISTRICT 70 LI- - OL2,;1 . .7) A. ACTIVITIES OF B.L.T.I1TG ;I.I'D Ii7DUSTRIAL COLEITTEE 1. Circular to all banking institutions(July 18), statin-:.: that: (a) A summary made by the Committee, based on bank. condi.tion statements of June 30, indicates that there is credit available for use of commerce and industry. (b) A simultaneous survey based on questionnaires sent to 3,000 manufacturers indicates with great clearness that there is a vast amount of productive business available, particularly to the smaller manufacturers, if the required barLing accommodation can be extended. Much of this potential business is predicatco. on orders actually in hand. (c) As notes evidencin,-; loans of this nature mpy, gener7lly speaking, be rediscounted with Federal reserve ban2r.s, the creation. of such credit would not affect the liquidity of the lendin,': bo.n..1:, (d) The Committee is convinced thc:t the nlost profitable points of attack upon the deadlock in business is in the business and prospects of the smell manufacturer. (e) The Committee recommends a stutly of use of the trade acceptance as a means of credit advance to the small manufacturer. 2. Circular to business interests (July 21), inclosing a copy of the _ letter ses_at to the banking institAions and calling attention to t..e fact that Committee has encouraged a more liberal attitude (B-834) • Cr..27ELL7D DISTRICT -2 on the part of the bz-,.nl:s in considering loans for current productive enternrises. 3. Bank advertising. As a result of the Committee's activities, at The least one bank has advertised that it has "1.10112Y TO LOAN." advertisement reads as follows: "We have IzrEY TO LOAN To Aid Industry and Incrcase Etroloyment A recent investigation made by the banl:ing and industrial committee of the Fourth Feaerrl Reserve district, indicates that there is a vast amount of productive business available, particularly to the small manufacturers. In order to fully cooperate with this committee, this bank will loan money to any firm, partnership or corporation in this community for their current needs, predicated uipon orders actually placed by responsible parties, evidenced by industrir'1, commercial or agricultural paper eligible for rediscount with the Federal Reserve Bank, supported by financial statements warranting suc7'. credit." B. ACTIVITIES OF FEDER.,1 RESERVE BAIT, Is making a study of the replies received to the Banking and Industrial Committee's auestionnaire with a view to selecting those cases in which relief can perhaps be afforded by direct loans to individuals, partnerships, corporations or otherwise. C. DATI., &.THERED BY COMITTEE OR FEDER:J., RESERVE BA(. 1. As previously indicated, the surveys made by the Banking and Industrial Committee have disclosed that ban17.s are in a position (B-834) 3 "VW • CL7771:::7) DISTRICT to extend credit for the use of commerce and industry, and that there is a vast amount of productive business available, particularly to the small manufacturer, if banking acco.lmodation can be extended. 2. Considerable time has been spent to ascertain the need for credit to cattle feeders and efforts to provide financial help to sugar beet growers. Arrangements have been effected to finance beet growers in the 7 northwestern counties of Ohio through a large Toledo bank and through local banks to the extent of their ability. D. APPLIGZIONS TO FEDERAL RESERVE ILIT FOR LOANS TO IIMIVIDUALS, PARTNERSHIPS AlD CORPORATIONS. Inquiries. During the first week in August conducted about 95 personal interviews and had a great deal of correspondence with respect to probable borrowers. During the next two wed7s about 60 confer- ences were held and a slightly larger number of letter inquiries were answered. Apparently the purpose and intent of such loans are not understood, and there is a great deal of confusion about the facilities of the Reconstruction Finance Corporation and the Federal reserve banks. Applications. Two definite applications have been received up to August 22, both having been rejected, one because of unsatisfactory security and unsatisfactory statements of endorsers, and the other because of lack of endorsement and inadequate security. (B-g34) CLEVMAI'D DISTRICT One case -nrcrIcht to the Federal reserve baril:Is attention was so obvi,Jusly one of merit that it was referre, to a local ba:a, where a satisfactory banking connection was established and the necessary acco=odation obtained. (3-83)4) SUM/aRY OF FEDERAL RESERVE 3A17.. AD BA= AD IDUSTRIAL CO=TTEE ACTIVITI7S IT COlTaCTIO: WITH CRuL -inIT FEDE-:AL RESERVE DISTRICT NO. 5- RICH= A. ACTIVITIES OF BAI-7.I1G A2TD L:aUSTRIAL C017:ITTEE 1. Circular to business and industrial concerns (AuPost )4) to be distributed by the respective state committees. (In the case of Maryland, the circular was also to be sent to county agents.) (a) Incloses a circular describinp. the July 21, 1932, amendment to the 7ederE1 Reserve Act, which provides for direct loans to individuals, partnerships and corporations. (b) Requests that 4 questions be answered in order to enable the Committee to estimate the extent to which applications for such discounts are liLely to be made. B. ACTIVITIES OF THE FEDERAL RESERVE BANK - and Industrial Comittee, In addition to cooperating with the Barildn ; has arran-;ed to obtain from the National Industrial Conference Bobrd replies oriLddating in the Fifth Federal reserve district to the questionnaire sent out by the Conference Board in its nation-wide survey. C. DATA GATHERED BY COMMITTEE OR FEDERAL RESEPVE BAPE Following is an analysis of replies to Committee's questionnaire received up to August 20 from Maryland, Virginia and west Virginia. (7o replies as yet received from North Carolina, South Carolina and District of Columbia) (1) In answer to the Committee's first question "From what you know of the demands for credit in your business line and in your section, do you believe that you or others !mown (B-834) RICHI 01TD D ISTRI CT to you are 112-.ely to make apTlication for such loans (direct loans by :Federal reserve ba:a?.7) within the next few months?" )40 replied "No" 3 replied "Yes" One of the replies stated that althow:h local banks ap-pear to be tal:ing, care of the situation, a certain factory possibly mig'.rit be able to resume operations if fresh operating capital could be secured. In another case the reply stated that while loans were not needed now, they perhaps would be needed in the near future because of the banking situation. in the particular locality. The more important comments received along, with these replies are to the effect that local people cannot qualify under the amendment providing for direct loans by the Federal reserve banl.:. to individuals, -partnerships and corporations, there beinE: too many restrictions, the maturity of the loans beinc too short, etc. It was at7;recd, however, that the passage of the amendment has had a favorable psycho'', logical effect. (2) In answer to the Committee's question "Do yo-a know of specific cases, occurring within the past 60 da,rs of refusal by any of your locca banks to direct loans of the type qualified under the amendment?" 34 repl i ed. "No" 3 replied "Yes", al1 of these cases -;ein7 due to the situation in the locality. (3-04) • RIC=ND DISTRICT 3 (3) General comments indicated that in some localities banks are iTrillinc but unable adequately to cope with the situation; that the country banker is thc only one who can help locally, and the imortant thing is to sec that he is kept in a position to be of assistance; and that the greatest need of the moment is a source of real estate mortga;;e money for new and refinancin7 operations, and for the stabilization and increase of real estate values. D. APPLICATIONS TO F=L RESERVE BANK FOR LOANS TO r'DIvIDUALS, PARTNERSHIPS •AND CORPORATIONS 1, Inauiries. A total of 123 inquiries had been received by the Federal reserve bank by August 12, 7 being from cotton or cloth mills, 2 from oil mills, 32 from other manufacturers, 9 from farmers, 28 from merchants and 45 from other sources. In addition there were quite a number of p:.rsonal calls which have not been classified. 2. Applications. Up to August 20, 25 anplications for loans were re- ceived ag,7egatin,7; approximately $390,000, none of which were granted or placed with other bani:s. In all but 5 of these cases the loans were ineliible for discount by the Federal reserve bank and, in addition, in nearly all cases they were either not satisfactorily secured or not satisfactorily endorsed. In the five cases where the loans anparently were eliible, the applicant was unable to furnish either satisfactory security or satis- (B-83)4) • • 4 factory endorsement. RICHIJOND DISTRICT Two of the applications were from cotton mills, one each from a coal company, a furniture companzr, a publishing house, a textile machinery company, a piano company and a department store, and most of the remainder apparently were for personal loans. (B-$34) • SUIvii,URY OF FFID11 .61 RESERVE BAIT ADD B.LICING AND IMUSTRIAL CO1flITTEE ACTIVITIES liT COITZECTIOF WITH CRMIT REQUIREIT-27S FMCRAL RESERVE DISTRICT ITO. 6- ATLANTA A, ACTIVITIES 07 BAITI=TGAD IIMUSTRI2I COLEIITTE7.1 A meeting of the Committee was to be held. around the first of ..ku-7ast, at which time the subject of the July 21, 1932, amendment to the Federal Reserve Act was to be fully considered and -olr.ns made for a survey more complete, if practicable, than the one that is to be made by the officers of the Federal reserve 'Dank. B. ACTIVITIES OF THE FMERAL RESERVE BAITA survey is being mad.e under the direction of a senior officer of the Federal reserve bank. and the managers of its four branches, in order to determine the extent to which there may be demands for loans which are not being met by other banking institutions and which could be handled by the Federal reserve bank under the July 21, 1932, amendment to the Federal Reserve Act. C. DATA GATHETM BY CO:21ITTEE OR FMMAL RESERVE aL17. As a result of the survey now being conducted, including visits to bankers by the officials of the Federal reserve bank, it has been learned that in the opinion of member ban'7s all eliz:ible and acceptable loans are bein,:; handled by them. Several merchants and Llan.ufacturers have also stated that, so far as they know, eligible and acceptable loans were being handled by banks. (3-g3)4) ATALTYA DISTRICT 2 D. APPLIC-TIUS TO FEDERAL RES=RVE 3= FOR LOLJ":3 TO IDIVIDULLS, PARTr2RSHIPS .,11D CORPaR:_TIO:7S Incluirics. Numerous inopiries have been received and inforl:lation furnished as to Vac conditions under whicIl the Federal reserve bank may make direct loans to indivicluals, fr:as and corporations. :mplications (a) Up to August 20, one application has been received for a loan of ',>1,500 w114 ch the Federal reserve ban3-_ has succeeded in placing a member barft. (b) In addition, 13 applications ri-ere not ,:ranted, 4 of ,,,hich were for loans that were inelirjble and the remainder not satisfactorily seaured or not supported b:,1 satisfactory financial statements. Eleven of the applications that were not granted aggregated $186,700 in aziount, and the two remaining did not state the amount of the loans desired. I2DUSTRIAL C01:::ITTEE SUE:i.A.RY OF FME.RAL RESERVE BAITIz:. Ill C011.7ECTIO.17 WITH CRMIT REQUIR=S FERAL RESE.7-Tc.73, DISTRICT 170. 7 - CHICAGO A, ACTIVITIES OF 2321:7I1TG Z.:1D LTDUSTRIAL CCIS:ITTEE Circular on trade acceptances (issued. around the midd,le of July) to about 70 trade associations and to the state ban.:•inF, associations, accompa.nied br a suc,:-.esteci form of letter to be sent by trade associations to their members. The suggested form of letter stated that (a) althowth the -ourchasc: of Government bonds by reserve ban :s is serving to make available surplus credit in the ban27ip_7, s:Tstem as a whole, under. present conditions such •cred4 t does not alirtvis exist in communities where a wort.y deLiand for it arises; and. (b) that trrsie acceptances if put to more general use should. be effective in meeting this situation. The letter also described briefly the creation and the use of the trade acceptance, and enumerated eight advantaF;es of its use, Circular to all banks in the district (Au-mst 3) (n) Recognizes great importance of making available any n:cessary credit which ma::, operate to stimulate trade and increase employment and Durchasin(,:: power. (b) States that a lr.r,7,e amount of credit is available for the use of worthy borrowers through the Federal reserve banks, Intermediate credit banks, and the major banks in the cities and. otherwise, if the normal channels for obtaining such credit are followed, (B-g3)4) 2 CHICAGO DISTRICT (c) Sa,-;: , sests thnt publicity bc J;iven to the nature an6. p.irno se of borrowin,;s b;,7 local bonLs so thnt Emch borramins might not be misconstrued bat be r,:f7arded by the community as a constructive move to brinT into coniunit-, for temoorary and seasonL1 use, funds fro-.--1 ol:tside sources rh'ch arc established for thz't express parpose; sur;gests thrt the bar2::I s published statements mif:ht show the purpose of s-.1ch borrowin,7s, as for exr..m71c, "Rediscounts for feeder loan purposes." B. ACTIVITIES OF FEDERAL RESERVE aL71: 1. Has arranged to have the major corresnondent br,2-1::s in Chica5:o and Detroit send letters to their ba:127ing correspondents rith respect to trade acceptances, similar to the letter sent to trade associations by the 3a±ing and industrial Comittee. 2. Through its Bahl: Relations department, the Federal reserve bank is conducting a uarvey of the needs for feeder loans in the live stool-. sections of fae district, particularly in Iowa. The Bank Relations men will personally see a largc number of the bah':ers in the district, not only to learn the situation first hand, but al!;- o to indicate the Federal reserve s -rillingaless to cooperate in furnishing those crodits on =pod feeder loans through the baff,cs. C. DATA GATHERED 3Y COMHITTEE CR FEDERAL RESERVE BAIT: 1. Up to August 16 the Bahl: Relations representatives had interviewed about 65 bar2:ers, F-Lnd they report that almost everywhere a con(B-834) CRICGO DISTRICT siderable demand for feeder loans is expected and thvt, in a majority of c:',sos, the ban?.:s expect to taLo care of them and to use the facilities of the Feder.:1 reserve -There .1ccessary. In some cases, farfilernore, the ban': - s are extendinr: their operations to adjacent torr3.tory, where barLing facilities no longer exist. In a few cases, however, eIpecinlly in districts wlicre banl:s have gone on moratoria, the br1n2cs report that they will not be able to meet the demand and will refuse to rediscount because of the attitude of the community on rediscaunts. In these cases attel:Ipts are being made for tHe formation of cattle associations or contract feeding to meet the situation. 2. The list sent out by the anmking and Indcustrial Committee to all ban1:.- s, which particularly stressed the necessity for local bPn1:s actinF as mediums for the initiation of feeder loans, have elicited a good many responses. Some 25 or 30 letters from non- member ban::s stress the need for outside funds for feeder loan purposes, and Banking and Industrial Committee has been re- auested to refer such letters to the Federal Intermediate Credit Ban:: with the suggestion that the Intermediate Credit Balt: nay care to follow up these situations. 3. Federal reserve bma is to receive a memorandum with respect to credit needs in the district based en national questionnaire recently gotten cart by the Kational Industrial Conference Board. This memorandum will be taken up in cooperation with tIle Banking and Industrial CoEnittee. (B-834) • 4 D AP7-LICATIOITS TO FFZERA.L FESERVE BAIT: OR LOAITS TO ETD AZD CORPOPATIOITS Inquiries. CHICA(_-0 DISTRICT IDUALS PART1TaRSE IPS Up to Auzast 15 a total of 472 inqUiries had been received at fie bank and its Detroit branch with res-oect to direct loans by the Federal reserve banh to individuals, "Partnerships and corporations, of which number 309 were merely requests for information and. 145 were reauests for loans which were clearly ineligible under the law, many of them being against real estate. anplicants, 4 Of the other were found to have other bankin:7 facilities avail- able, 10 desired loans having no satisfactory credit basis, and the remaining 4 were as.1.-..ed for additional credit informAtion. There have also been a good many requests relative to the new Federal Homo Loan Bank. Act, and the Federal reserve bank is furnishi-ng requested information in that connection, (B-834) SUIL:A.RY OF FMERAL RESERVE 3Ai AD B4. LTGA170 INDUSTRat COHIIITTEE ACTIVITIES Ii CONI7CTIOY cRmIT RUIRiTS FLTERAL RI.S2RVI: DISTRICT NO. 8 - ST LOUIS A. ACTIVITI:S OF 3A17:117G LTD IrDUSTRIAL COIL:ITTEE 1. Circular to 236 business concerns (Aw.~, -ust 8) as17.inf: the folloring auestions: (1) Have you had any difficulty in obti..tinin,r; commercial credit for operating purposes from your regular bazil:inr- connection? (2) Could you and would you operate your busin ess more actively if more bema.:ing credit were available for your operating purposes? (3) Can you surest any way in which the Commi ttee might serve the business interests of the district? B. ACTIVITIES OF FMERAL RESE7.VEBA The officers of the Federal reserve bank and the managers of its three branches are malrin,-. inquiries in business circles to ascertain if any le•-•itimate business enterprise is beinr : denied proper credit by ba:ihs. C. DATA GATH2RED BY COMITTE: OR FEDERAL EESERVE BAPE 1. Up to August 20, 72 replies had been recei ved to the questionnaire sent out by the Committee on August 8 to 236 busin ess concerns. Apparently there has been very little difficulty in obtaining credit from rer,Taar banking channels, as may be noted from the followinç surrciar7,7 of replies to the first two quest ions ashed by the Bari. :in; and Industrial Committee. , (343)4) ST. LOUIS DISTRICT 2- (1) Have you had any difficulty in obtaining comf.lercial credit for operatin- purposes from your regular banking connection? No - 43 Yes - 3 (Construction, Metal weatherstrip, Coal) Have not asked for credit - 21 Do not borrow in St. Louis - (2) 5 Could you and would you operate your business more actively if more bailLin:; credit were available for your operatinc purposes? No - 56 Yes - 5 (Construction, Metal 7eatherstrip, Coal, Shoe Mfg., Ready-to-7ear) General comments indicate that the large business concerns have found that many of their customers (retail merchants, etc.) are in need of financial assistance, but there is also a general feeling that there is no lack of credit where such credit is justified and that in some cases it would not be sound financing to furnish additional capital to concerns that need money. As to the possibility of more active operation of business, the general feeling appears to be that it is not lack of financial assistance but lack of a market that is responsible for the business difficulties. Ainong suggestions as to ways in which business interests mint be served are: (a) Establishment by the Federal reserve bank and by member banks of a sliP:htly preferential discount rate on trade (B-834) • 3 • ST. LOUIS DISTaICT acceptaaces; strong and forceful encouragement of trpde accepta.aces. (b) Stimulation of buying by railroads, by furnishing railroads with funds to maintain their properties. (c) Forestplling bank suspensions by arranging for mergers. (d) Urge thc banks to be a little more lenitmt 7ith borrowers who are bard pressed but who have a good chance to pull through the dcpression. (e) Provide credit and encouragement to the small manufacturer. 2. The Governor of the Federal reserve bank states that, on basis of experience with applications for direct locns, the 90 dvy maturity limitation pr(.7ents the mdking of some desirable loans to small or medium sizod concerns, since often a year's time is needed by the would-be borroner and the Reserve cannot make nny commitment to renew or extend such paper. Suggests possibility of establishing some institution, snch as a trust compnny, to make loans of this kind, havin7 in mind that they can be re- discounted with the Reconstruction Finance Corporation. A re- gional agricultural credit corporation authorized under Section 201 (e), title II, Emergency Relief and Construction Act of 1932, might be of considerable benefit, especially in =kik ; . loans on cattle. The Reserve ban17 can handle loans secured by chattel mortgac,e on cattle when comin7 through a member ban, which can:keep in touch with the security, but it is practically impossible for tne Reserve bank to make such loans direct. (B-834) ST. LOUIS DISTRICT EIPS D. APPLIC::.TIONS TO FEDERAL RESET= .3A7.: FOR LOAYS TO rprirrams, PARTN=5 ArD CORPOR;'..7IONS Applications. Up to August 20 the Federal reserve ban hnd received cor13 a7plications for lons to individurds, partnerships and were porations, aggregatin7 approximately $166,000, tro of which rejected becmse of being ineli:4ble and_ the remainder because of unsatisfactory security. SUL1MY OF FMERAL RESERVE BAIT. AND BAIII17G AND INDUSTRIAL COMMITTEE ACTIVITIES IN CONNECTIOY WITH CREDIT REQUIREME17S FEDERAL RESERVE DISTRICT NO, 9 - MInTEAPOLIS A. ACTIVITIES OF BAITING AID IIIDUSTRIAL COIMIITTEE (No information has been received as to the activities of the Committee) B. ACTIVITIES OF FMER.AL RESERVE BA2.7. Federal reserve ba-.1h has initiated a survey of the unsatisfied demandfor legitimate barLinc; credit, starting with a questionnaire to a large list of industrial and. mercantile firms in Minneapolis, St. Paul and Duluth. The investigation will probably be expanded to include the smaller cities of the district and. the farmin,-.7 communities. C. DATA GATHERED BY COMMITTEE OR FMERAL RESE- VE BA:7. (No report has as yet been submitted as to the results of the Federal reserve bank's survey) . FOR LOANS TO LTDIVIDUALS, PARTNERSHIPS D. APPLICATIONS TO Fa).-zau RESERVE BAY: AD CORPORATIONS Inouiries. Scores of calls and letters have been received but the great majority of f.- e prospective loans are clearly Some of the arplicants would like to borrow on second mortgages or on their homes or farms, and. some who are plainly insolvent want to borrow to pa-, off bank loans. Applications (a) Two applications have been formally a-r_rProved thus far and one informally, for a total of $110,000. One of the applicants was a manufacturer, another a cannery, and the third a grain . deal er. (B-S3/4) LITTM-1PCLIS DISTRICT (b) In a number of cases the Federal reserve 'pan]-: has been able to selad applicants who ap-olied informally to proper sources of credit where they could be tal:an care of. Two fp.rm loans for example, both desirable, 7ere turned over to the land banl:; a home loan went to a savin-s br-nk; and a cattic feeder was directed to a b,17 in an adjoininc torm —hich was glad to make the loan. The Federal reserve bas, 2: has also been worl7in,3; on a line for a manufacturin- concern and has hopes of establishin tile necessary credit with a comiaercial (c) A total of 0.1even applications aggrec:atinr: $171,000 have been refused, seven because of unsatisfactory security or no • securit7-, two because there was no basis of credit, one because the loan was not elip;ible, and flother because of being a poor cr,(lit risk and because the maturity was beyond that permitted by law. (3-S34) SUMMARY OF FERAL RESERVE BA:TR' AID B.A.21:II\TG KD rimusTaLz COEMITTEE ACTIVITIES ITE CP= REQUIREIEITTS COii'TECTIO FEYE...AL RESERVE DISTRICT :TO. 10 - ICAlTSAS CITY A. ACTIVITIES OF BKING AIT IMUSTRI.AL COla:ITTEE The Committee is rnakin,7 investigations of the extent to which country ban]:s are unable or unwilling to surply adequate credit for grain, farm and livestock operations. in this connection of the county B. ACTIVITIES OF FnERAL Inquiries have been made agricultural agents. R.7,SERVE BAIT. The Federal reserve bank's surveys will be based on the inquiries made by the Bankin„:14 and Industrial Committee, and on Federal reserve bank correspondence and contact with bankers and others. C. DATA G.ATHERZ) BY COlvIIITTEE OR FrDMI.L RESERVE BA:TK Following is a brief summary of the Federal reserve bank's report to the Federal Reserve Board: (a) Generally speaking, the banks are taking care of loans based on adequate security or on good credit position, but borrowers whose business has been with banks that have suspended or are in an overextended, condition are finding difficulty in making satisfactory new banking connections. (b) Banks are very much more critical than in past years. Borrowers both in agricultural and other industries who cannot give adequate security or make a good credit showing cannot obtain credit, and in SOM.?, cases are being forced to discontinue farming or business activity. (B-g314) KANSAS CITY DISTRICT (c) The kinds of loans presenting the most serious problems are existing loans to farmers and livestock men Which cannot be repaid unless crops can be raised and sold at reasonable prices, or unless they are paid from the proceeds of the sale of livestock and equipment. In most cases banks are continuing to carry these loans because forced sales of the security would not liquidate the indebtedness. (d) It does not seem that the Federal reserve bank can make loans of tlis character, even where the security may be deemed adequate, because of the uncertainty of the time of repayment. (e) Federal reserve bank does not believe that recent amendment apens a very wide field for loans 7hich can be made direct by it. D. APPLICATIOYS TO FEDERAL RESERVE BOK FOR LOArS TO I7DIVIDUALS, PARTITERSHIPS AND CORPORATIONS Inauiries. up to August 9 ap-oroximately 200 inauiries had been received, but in all but two or three cases the prospective borrower desired money for purposes which would make his loan ineligible, and in the remaining cases there is doubt of meeting the requirements as to security and endorsement, Applications. which Up to August 20, eight applications had been received, of 4 were ineligible, 2 were not accompanied lpy a showing of a that denial of credit by other banks, 1 had a maturity in excess of permitted by the amendment, and 1 was not procrly secured. SUMMARY OF FEDERAL RESERVE BANK AND BANKING AND INDUSTRIAL COMMITTEE ACTIVITIES IN CO7TECTION WITH CREDIT REQUIREIENTS FEDERAL RESERVE DISTRICT NO. 11 - DALLAS A. ACTIVITIES OF BAMING AND INDUSTRIAL COMHITTEE Circular to trade associations (August 16) (a) Outlines the conditions under which Federal reserve banks may make loans direct to individuals, partnerships or cornorations. (b) Requests that the associations send questionnaires to their members, in accordance with an inclosed sample, rhich questionnaire asks each member of the association to report: (1) Whether it finds any difficulty in obtaining bank accommodation and, if so, on What grounds accommodation has been refused; also whether the member is interested in the "direct loan" facilities of the Federal reserve bank. (2) Similar information as to any other concerns known to the reporting member as having had difficulty in obtainin credit accommodation from banks. (3) What .i7lorovement has been observed recently in the reporting concerns own business or in the general business situation and outlook. B, ACTIVITIES OF THE FEDERAL RESERVE BAIT Federal reserve bank will make use of the data elicited by the Committee's questionnaire as the basis of its activities. C. DATA GATHERED BY COMITTXE OR FEDERAL RESERVE BANK /To data have yet been collected, as the Committee's ouestionnaire only recently sent out (on August 16) - 2- DALLAS DISTRICT D. APPLICATIONS TO FEDERAL RESERVE BANK FOR LOANS TO INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS Numerous inquiries ha7e been received for additional information with respect to direct loans by Federal reserve banks to individuals, Partnershi-Ds or corporations. Most of them pertain to loans for the pur:oose of financing some hind of real estate transactions, or for capital or other ineligible purposes. Applications Up to Aufsust 13 only two actual applications for direct loans to individuals, partnerships or corporations were received by the Federal reserve bank, one of which was rejected because it was not properly secured or endorsed, and the other because it was not satisfactorily secured. One of the loans that was rejected could have been made if the applicant had been disposed to furnish acceptable collateral and satisfactory endorsement. The applicantts bank furnished satisfactory information with respect to the financial responsibility and status 1 of the applicant, but at the same time advised that, after discussing the matter with this bank, the applicant had decided to withdraw his request for direct accommodation from the Federal reserve bank. Itic -probable that in this case the local bank decided to make the loan itself. In another case, during progress of negotiations and before a formal application had been filed, the applicant applied to another bank for the accommodation and obtained it. SUMMARY OF FEDERAL RESERVE BANK AND BANKING AND INDUSTRIAL COMMITTEE ACTIVITIES IN CONITECTION 7ITH CREDIT REQUIREMENTS FEDERAL RESERVE DISTRICT NO. 12 - SAN FRAYCISCO A. ACTIVITIES OF BANKING ArD INDUSTRIAL COMMIT= Members of the Banking and Industrial Committee have made a tentative survey of the district, concentratin,7 their efforts mostly on improvement of the unemployment situation by advocating the staggering of eroloyment. TO survey has been made rertainin to the unsatisfied demand for loans which might be met by the Federal reserve bank under the provisions of the July 21, 1932, amendment permitting direct loans to individuals, partnerships and corporations. B, ACTIVITIES OF FEDERAL RESERVE BATK In addition to the survey made of various parts of the district by individual members of the Banking and Industrial Committee, the Governor of the Federal reserve bank rith the committee member. in Southern California made a tentative survey of the State of California. C. DATA GATIERED BY COMMITT77 OR FEDERAL RESERVE B.ANK Owing to the great extent of the San Francisco Federal reserve district a comprehensive survey would require close examination by qualified men at considerable expense but, based_ ul)on results of the wide publicity given to the amendment to the Federal Reserve Act permitting their direct loans to individuals, partnerships and corporations, and upon the large number of inquiries and applications that have been made verbally and otherwise, the Federal reserve bank is !111111/1"----”m".4 411 - 2- SAY FRANCISCO DISTRICT of the opinion that the only kind of credit which is souEht widely and not satitfied is generally of a character ineligible under the amendment. The Federrd reserve bank's experience is that the banks in the district are generally able and willing to meet lecitimate requirements for current business operations. D. APPLICATIOYS TO FEDERAL RESERVE BANK FOR LOANS TO INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS Inquiries. During the first week of Aucust, 325 direct inquiries were received at the Federal reserve bank and its five branches, of which possibly 121 may have some grounds for filing applications. It is probable, however, that few can qualify. A large pronortion of the applicants have confused the recent amendment to the Federal Reserve Act with the Home Loan Act. No agplications had been presented for action by the Federal reserve bank up to August 20, althnugh a number of applications were "in process of negotiation." Nik POSSIBLE CLASSIFICATION OF PAPER DISCOUNTED FOR INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS FOR PURPOSE OF ESTABLISHING DIFTEREINT RATES. (Note: The following classes of paper may be further subdivided according to the maturity of the paper, e. g., 1 to 15 days, 15 to 30 days, 30 to 60 days, 60 to 90 days, and more than 90 days.) 1. Trade acceptances actually owned and indorsed by the party for whom they are discounted. 2. Business paper actually owned and indorsed by the party for whom it is discounted. 3. Promissory notes bearing accommodation indorsements (a) Secured by Government bonds; (b) Secured by warehouse receipts for commodities; (c) Secured by chattel mortgages on live stock; (d) Secured by liens on growing crops; (e) Otherwise secured. 4. Notes of wholesale merchants. 5. Notes of retail merchants. 6. Notes of manufacturing establishments' 7. Notes of farmers the proceeds of which are used for the purpose of producing crops. 6. Notes of farmers the proceeds of which are used to finance the harvesting or marketing of a crop. 9. Notes of livestock growers. 10. Notes of livestock feeders, the proceeds of which are used to finance the fattening of livestock for market. 11. Notes of cooperative marketing associations the proceeds of whidh are advanced to their members. VOLUME 233 PAGE 115 12. Notes of cooperative marketing associations secured by warehouse receipts. 13. Notes the proceeds of Which are useu to purchase raw materials for manufacture. 14. Notes the proceeds of Which are used to purchase manufactured goods for distribution at wholesale. 15. Notes the proceeds of which are used to pur— chase goods for retail sale. • Form No. 131 ice Corresponitence T T From Mr. Hamlin FEDERAL RESERVE BOARD 1111 Date October 12, 1952. Subject Mr. Morrill GPO There is attached hereto, for your information and files, a copy of the memorandum which Dr. Burgess presented at his meeting yesterday with the Executive Committee. VOLUME 233 PAGE 119 2-8495 Min • COPY To: Governor Harrison Septenter 30, 1932. Fron: J. W. Jones Suggestions for Spreading the Work Mr. Burgess, in duscussing with me my memorandum to you of September 28 on the above subject, requested MB to submit an alternative plan based on a salary adjustment which would)ravide for hiring 100 people without any change in our present total salary liability, but without attempting to maintain the present sal-iry rate per hour. With this in mind the following is suggested.: 1. A normal working week_ to consist of five days, beginnThg Nbvember 1, 1932 and ending April 39, 1933, vihich is 9 per cent less time than they now work. 2. Hineapproximately 100 peonle at salaries ranging from $720 to $2,200 at a total cost of $85,000 for the six months in qlestion, with the understanding that they may be released on April 30, 1933. 3. !lake a 4 per cent deduction from the semi—monthly salary payments of all officers and eanloyees beginning November 1, 1932 and ending Aptil 30, 1933. This would amount to aplroximately $85,0DO. In making this suggestion no change is necessary or is contemplated in our existing salary standardization. October 19, 1932 Mr. iorri1l Direct I.or..ms to Individuals, etc. Mr. Van Fosen COUTDI4 Attached hereto are statements showing the numbvr of applicp..tions of individ=ls, partnerships end. corporations for loans not granted by the Federal res..erve txus to Qctober 1 and to October 8, respectively, including a tabulation of the reasons for not granting the loans applied for. It will be noted that of 14:62 ap licatione refused to October 8, as shown in the second statement, 258 were because of unsatisfactory security; 210 paper not eligible; 8,loans placed with other banks; deetneri adequate; and 3, present credit 3, denial of credit- by other banks not shown. Direct loans to individuals, nPrtnerships and corporations granted by the Federa1 reserve bcrLs to October 11 arEs as follows: . ,Ntnic of ielleral Rest" r f,AT Uric Anawalk ihreerY Co. Dorman Brothers Poster Wit Stewart Co. Tried/ma & Sons, 1Teckwear Co., Inc. Joseph R. Meyer Brothers Miller -Cummings Co,, Inc. Morris Ihite Mfg. Co. Jew Jersey Flou.r Mills Co. Scaramgli & CO., Inc. S. Shari' Sons, Inc. Astoria, N. Y. New Yo*, N.Y. New York, N.Y. New Yort, N. Y. Now York, EY. New Text, N.Y. Clifton, 14. J. Nor Toxic, E.Y. New Yolk, N.T. $15,000 5,000 50,000 25,000 12,500 125,000 19,000 50,000 20,000 10.000 Yeiteral Rifserve &Laic of atiladelthig. J. 7. Apple & Co., Inc. J. B. Renkeln (Renkeln & McCoy) Lancaster, ?a. Philadelphia), Pa. 400 3.427 Federal Eetterre *AIR of At Continental Turpentine & Rosin Cor-... •tichtiond Hosiery Company Mississippi Cotton Seed Products Co. VOLUME 233 PAGE 121 Laurel, use. Roseville, Ga, Jackson. miss. 19,750 50,000 48.m0 tr. Verrill -•.2 jf 4.:441tiasuff Meal hilleffpfr4. $90•947 Arica" Minn. *MN St. Clog* 1d414 7.500 allastespolie. Amt. MINUS Oltasking Oe. X, C. WI* II. *Mats Iva Ca. oilevistd. or October 1 from lho ehr,irsot. kollesiai. is e. enamari of a letter datelt" C'etermo tireps* Retorve Sault the beat of amatory of the Taterel rict* to credit demade In tho Clateayo dist h el anot be se.tisfied thrpt" Little isgitistate tosentl for ereati shic be feed*? 1oni,it this baniritte or other digital*. An ellzoptios oar , taken sore of. The won* -*visions is th-AtAt to be in a tetr ver to hew icalarir Ida condition to De contended rith is the setiealfttritt uket• Part smw st for fent pnohtets rtatt.o7 toreeturiai fans sortosiEes. Lest prie for the fasswrs to wet these obliWaukee* mkt it absolvetaly impossible row*, *hero the fs**, ptsrtioalerly ss gation*. The Pruktess is very seri tied strikes are stroroe4hiar: formers tkinnsch -siass sesetin4s,, resolations, selt. sox* comaties 1-Arottztirg state, of revolt. Resolutions cro being pas isaer'llimellesttre. Protest aoisst *Anne bie1.144 tor fain loads being vett *lit** 4MONs a usesterboi Is also beini, made ateinst ezherbiteat sass eat lrepoieei, ymAt *f tames end mortik.go ohaisoa ha* beei APPLICATIONS OF INDIVIDUALS, PARTV.RSHIPS AND CORPORATIONS FOR LOANS NOT GRANT BY 11111 IPIDKRAL vMSTRV't BANKS - TO OCTOBIS 1. 1932 er ,,k 1 Total to ending I I Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Uinneapolis Kansas City -taco Oct. 1 ! Oct. 1 __ 3 7 96 Reas9ns for not irrantint loans aprlied for !Denial of I Paper not Paper !Present credi t Loans Icredi t not I ctorily satisfa not I deemed placed with I :holm secured eligible I adevate other banks t .10.e 2 ._ 3 3 4 76 — ......, 17 26 1 — 30 12 55 46 -- 47 40 23 15 2 2 42 102 4 s7 2 30 1 .- 6 2 -2 2 13 1 6 8 1 — — — ... -. 7 -_ 23 1161. 6 3 203 246 3 1 41.00 17 9 11 1 6 6 3 8 //Approximate; amounts sometirles not stated. 1.04 Of BANK OPIRATIONS cressa 19. 1932. .... 2 2 010.11. $19,240 -__ 41 7 1 . I -- I1 -_ -1 . I -_ 3 .... Amount of loans declined/ I i I 1 2,890.400 351.b00 26.000 857.295 1,b70,828 1.088.750 259.800 172,000 41,172 68.200 143.250 8.088.535 . APPLICATIONS OF INDIVIDUALS, PARTN1ISPIPS AND OORPOTIATTONS 'OR LOANS MDT GRANT BY ITV FI:DTRAT, RtSTRV1 BANNS.TO OCTOBER 8. 1.932 ..11••••••••••••••••••• Boston Now York Philadelphia Clmveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas $an rr *co MAW; Jtal Numitgr 1 Week 1 Total ! ending 1 to Oct. 8 Oct. 8 ! Reasons for 4ot irpntin, loans Aggaied l for i Loans [Present credit! Paper Parer not tDenial of i ! olaced with? demised not !satisfactorily !credit not lother banksi__ALmalf_ elicible ! secured 1 shown 1 -- 7 107 41 7 __ 4 __ ...... 3 3 45 105 1 4 -- 91 30 1 1 14 17 -. 9 .111.••• ONO, •sn. 1 21. 9 9 482 .... 3 __ 3 2b air O. 1 oNlb 33 VII IMO 56 149 6 41.• 1 41011 4110 oar 4 7 11 1 15 -- 6 -- 12 48 142 23 6 3 41110 el& 01•101P 4111. 3 41M. ••• 1 41•1 3 210 258 l'Aporoximate; amounts sometimes not stated. DIVaOr SANK OPVRATIONS 00SOSS 19, 1932. -- 1783 3 Amount of loans d ecli nedi $19.240 3,002,0!0 851.60r, 26.000 6b9•gel L.077,065 1.289.650 259.800 232.000 41.172 68.200 1b3,250 8.499.911 ok....141 tit 440447,, Form No. 131 Office Corresponuence To -11r. Miller From _ Mr. Goldenweiser FEDERAL RESLAtio-A7L Pcvi BOARD iltr°6* : L4A 0 r 4 1 1" Date October 6, 1932 Subject: GPO I attach a carbon copy of the pro:iosed reviel. of the month for OctobeF. 4 11WP plkewV64 L VOLUME 233 PAGE 135 2-8495 .7-1+ 911171ARKET POLICY ri577V. spg 11:41 RpOent benkinr dpvglooments During r-Aaent weeks reserve bank holdings of United States Govnt escarities gurcseci in the opcn ziarket have remained unchanged at the level reached early in August. Reserve fundt nf member beaks, however, have been oontinuously incre-sed from an inflow oi gold amounting to :275,000,000 from the low point on June 15 to the end of September; from a return af currency ,rublic, amountint! to '130,000,000 since July 20, when hoardin t:,, W66 at by the , its peak, a movement contrary to the usual trend at this season, when demand for currency ordinarily L.:creases by or the issue of than one hundred millions, and from 100,3301)00 of new nation-1 bank notes under the provisions of receit law extendine the circultion drivilege to al United Statee Government bonds bearing an interest rate of 3 3/S per cent or less. This inflow of funds to the member banks hkt8 enabled thee to reduce their indebtedness to the reserve banks by 1200,000,000 to the lowest level since October of hst 7erx and at the same time to increz,se their reof-Tves in excess of legal requirements to approximately t400,000,0!)0. This growth in member bank reserve balances from the middle of July to the end of September has been accompanied by an upturn in total loans and inveetments of member banks in leadiniz cities, which amounted to t575,000,100, or 3 per cent. The increse has been largely at betake in :el! York City; it has consisted of a growth in holdino of United States Government securities by bens throughout the country, offset in part a continued decline in loans by beaks outside New York City. The increpse in the total of member bank credit has been reflected in a considerable growth of their lem._luad ad time do;:osite# Fage 2 aria sat Aritt 211Eit Credit developments since the break in the stock market in 1129 may be divided into five periods of unequal length and characterised by differ ent conditions, ferticaarly from the itit of view of the reserve systimIs open- market policy and its effect on the credit sitwition. During the first two years, up to the middle of September, 1)31, the reserve binks purcha sed N1590,000,000 of seogritiet; 6.nd in addition there was a growth in moneta ry stock of gold of $640,000,000. Additions to the reserve funds of member banks from these two sources were absorbed to the extent of $680.000,000 in a. reductics of nelber bank indebtedness, and to the extent of $3404,000,000 in incree sed money in circulation due largely to hoardings lisabor bank reserve balanc es showed only a relatively slight incrette of $50000,000 during this period notwithstaneing the large parchaaes of securities arld heavy gole Worts . Loqins and invest3ents of member banks in leadini; citims declined by 1550,000,30 be. tween the autumn of 129 and the autumn of 1931. The next period is that between September 16, 1131, just itrior to the departure of England from the gold et‘ndards .414 February 24, 1932, shen the work of the Reconstmction rinnoce Corr.,*rlItion ilk* under way and the Glass-Steag7.11 Lot became effective. DirinE that period the Federal reserve banks made no change in their imrtfolio of Govfirnment securities, largely beam* with the rapid loss of gold and the existinir restriction:4 on eligible collateral the banks were not in a position to incretise their holdings of United States Govern ment ohlivetioms, the latter being ineligible as collateral against Federal reserve notes. As a consecucelce, member banics, being obliged to meet a loco of gold of $665,000,000 and an increase in the denetnd for currency for hoardinE of Page 3 $505,000,000, increased their debt to the reserve baAcs by drew down their reserve balances by l':540,000,000. 570,000,000 and The inability_of the Fed. eral reserve bankr under the law to relieve member banks at a time when they were subjected to heavy drains from domestic anti foreign sources resulted in heavy pressure on the banks, reflected in an increase of their indebtedness and a decrerise of their reserves amounting together to 11,000,000,000. This was a period of raeid decrease in business activity, numerous bank failures, increased hoarding, and liciAdetion of bank credit. Loans and investments of reorting member ban.,cs decreased by !..2,500,000,000 and their deposits by t3,300,000000.during the ileriod. At the end of February, after the pal:sage of the Glass—Steagall bill per— mittine for one year the Ase of United States Government ieclrities as collat— eral for Federal reserve noted, the reserve banks adopted an aggreseAlcy of purchase of Government securitiPs and between February 24 and June 15 pur+ chased 050,000000 of such obligations. )k\I . s During this period the member banks4h had to meet an additienti dimmed for $440,000,000 of gold, which absorbed that much of the funds created by the security purchases, and used ”40,000,000 to reduce their hear: Indebtedness to the reserve baAks. At the aame time there was some improve,aent in the currency ;Atuation reflected in a decrease of $130,000,000 in money in circulation, so that member bank reserve balances in— creased by $220,000000 e3d on June 15 the banks Ind excess reserves of 4270,000,300. Loans and investment8 of reporting member banks, however, showed between the end of February and the middle a further decrease of ;,500,000,000 of June. During the period from June 15 to July 20, although the reserve banks bought an additional $140,300,00 of Government securities and there was a re-. Page 4 versa' in the gold aovement to the extest of $40,303,330, there wz.,,x of hoardin h growth owing largely to bunking disturbances in Chicc,go, wit;i the con- sequence that member bank reserves were reduced by t70,000,000 and their in. debtedness increased by S40,000,000, This brief review brings out ti.d, fact that it hns been only during the past ten weeks -- when the reserve banks kept unchanged the volume of their , ld and a return flow oi currency ;o seaarities and there cis a large inflor of , froa the public, as well as additional is:maes of national bi.ink notf,Li -- that the effects of the open market policy inaugurated by the Yederul reserve vstem three yearn ago have not been offset by other developments. During this most recent ten-week period there hhs been a continuous growth of member bank reserves accompanied by an increase in the total volume of member bank credit, e A table auwarizing developments for the five periods discuesedja,th preceding paragraphs is presented balm 1 414":" i_ phi GI'VitIr " 171 eri-11 /414;34,4evi Page 5 BANXISG DEVELOPMFNTSI 1921-1932 Ixa millions of dolaars) :Sept.250 Sept.160 Feb. 24,:June 150 July 20, :1929 to : 1931 to : 1932 to :1932 to : 1932 to :Sept.160 Feb. 240 June 15,:July 200 Sept. 28, 1931 : 1932 : 1932 i 19,2 : 1942 Open-market purchases by reserve banks Clmnges in disco-Ints for member banks 59010 952 144 18 -681 572 -339 41 -198 Changes in ip16 stock 641 -665 -441 43 232 Changes in money in circulation 344 505 -126 269 -131 Changes in reserve bale ces 53 -540 223 -66 233 Changes in loans and investments of reporting member bks.-550 -2,526 -519 -754 574 Changes in net demand and time deposits of these be.:Iks -3,343 34 -448 597 128 Pais 6 Decrease ho4rding A factor in the situate.on, oecoue in volume only to eole movements, has been the course of the demane for currency. The chart showe for the period from 1926 to date the amount of money in circulation, es officielly defined, that in, money outside the United State Treasury and the reserve banks, with an adjusteent for the eetieeted uouel eeeeonel chenees. From 1926 to 19:29 demaad for currency tended downward, chiefly because of increased use of checks, economy in the use of cash by banks, and a return of American currency from abroad. The increese in the middle of 1929 was due to a temporary growth in the demand for currency at the time the change was eade from large—size to sma1l— SiZ6 bills. In 1930 the decline in currency reflected the reduction in payrolls and retail trade that characterized the depression. From the autumn of 1930 to the :Addle of tele year there wee a grorth in money in cireelatioe represent— lee chiefly a growth in hoarding, though it also reflected ar indetereinable in— crease in the demene for cash in communities that were deprived of banking service owing to bank failuree end also an incresed use of cash due to the impoeition by benks of service charged on smell accounts and to the tax on checke. The increeee in hoerding hae not been coneinuous. There bat) an im, provewent in the early pert of 1931 end again in the late autumn of that year the afterilationeleredit Corporation 11C4F; organized and bank failures became lees numerous. e large return flow, emoueteng to about $250,e00d00, began last February when the Reconstruction Finance Coreoretion got under way. But lest 'rummer the heavy loes of gold and the bankine disturbances in. Chicago and elve— where once more led to a crisie of confidence, eo that hoarding increaued again and reached a MILAMUM in the third week in July. Since July 20 there has been Page 7 a decrease in money in circulation, when allowance is .ala6e for the usual 3ea5onL1 movement, a:;ounting to approximatay t250,000,000 for the ten week deriod. This decline in hoarding, marking as it does a reduction in the number of ba,..,k failures nnd a trend toward the restoration of confidece in banks, is the most importa't sinje indicator of the recelit improvement in banking conditiona. Gold Reserves in Turope Changes in the central gold reserves of the princioal Varopean countries have been relatively small since June. The principal changes during the past month occurred in the central holdings of France and Netherlands which increased by $16,000,000 and $5,000,000 respectively, and those of Belgium which declined by t4,000,000. GOLD REMUS 07 SiTLICTED CUTRAL 3ANKS (In millions of dollars) :lentrtl bank of-- England Trance Germany Italy . Bele.=. Setherlands SmitTerland p .ereliminarv Date, 1932 Sept. Sept. . . Sept. . Sept. Sept. Sept. Sept. Gold reserves 2/678 21 23 2j3,239 2/186 23 2[303 10 361 15 416 12 15 509 Month before + 3 +16 + 3 + 3 -4 + 5 --- OhanKe from.Year before ___ + 28 +913 -141 + 21 +136 +149 +275 BAnk of %gland The Bank of ngland in the four weeks ending Feptember 7-1 added 4692,000 ($3,368,000) of gold to it reserves, which now amount to ,314,000) 4139,420,000 (t678,501,000) as compared with 4133,628,000 (t650 at the time Faigland suspended the eold standard about a year ago. of On Feptember 10 the 3ritish Government annaunced the repayment issued to 2,500,000,000 francs (100,000,000) of British Treasury bills the French 'ublic in September of last year. The transaction was handled ined by the largely through the "exchange equaliltation account" mainta currencies, Government for the purpose of dealing in gold and foreign ent: for but to some extent it was reflected in the Bank of %gland statem of foralthauih the ;mid stock of the bank was not affected, the volume eign exchange held by the bank declined. During the month "other securities," ed, were reduced in which the banks holdings of foreign exchange are report increased by 413,684,000, While Government securities held by the bank by a corresponding amount. usual at this With a return of currency from circulation, which is -ter71 money rates season, bankers' balances increased somewhat and short. on the open market continued easy. BANK OF ENGLAND (In thaus3nds of pounds sterling; figures Dreliminary) September 21, 1932 Gold Discounts and advances Government securities Other securities . Bankers' deposits Public deposits Other denosits Notes in circulation . 139,420 12.005 332,485 28,218 82,586 23,915 32,901 359,265 Change from-August 24, September 23, 1931 193? + 692 — 1,261 +12,419 —13,684 + 2,640 + 1,712 — 1,528 — 4,617 + 5,792 — 1,574 +33,464 —30,036 +17,671 + 897 +18,061 + 6,589 Bank of France The Bank of France in the five weeks ending September 23 acquired 419,000,000 francs (16,425.000) of gold and lost 405,000,0on francs of foreign exchange. "Other deposits," which include balances of the French commercial banks, were increased somewhat daring the period by additional borrowing lt the bank and by the transfer of funds from Government account. The french Government announced on September 18 that the 85,000,000,000 francs of 5, 6, and 7 per cent Government bonds outstanding, with the exception of that portion for which applications for cash redemption would be received during the week ending September 24, would be converted to a 4 1/2 per cent basis this coming November 1. Applications for cash redemp- tion, to be made at par, aoproyimated 4,000,000,000 francs, but net payments by the Government will be required for only about one-half of this amount since new orders were placed for 2,000,000,000 francs of the 4 1/2 per cent bonds. The conversion will reduce the amount of interest to be paid on the public debt in the coming year by about 1,300,000,000 francs. (In millions of francs; fiRures preliminary) Seotelber 193? Gold Foreign exchange Domestic discounts and advances. Government deposits Other deposits . Notes in circulation . 82,621 4,992 6,375 3,667 23,614 60,200 73, Change froop— September 25, August 19, 1932 _ 1931 + 419 — 405 + 588 — 656 41,059 + 73 +23,275 —20,202 — 2,260 — 3,690 + 5,072 + 2,027 9eichsbank Total gold and foreign-exchange reserves of the leichsbank, which began to increasa towards the close of last July, continued to increase durine the month ending 7:eptember 23, the growth amounting to 16,000,000 reiChsmaOrs (%3,811,000). Reichsbank notes return- ing from circulation were utilised by the market in retiring discounts and advances. Usually these loans to the mlrket fluctuate largely in response to changes in the demand for currency.and since the beginning of the year they have steadily declined along with the volume of 3eichsbank notes in circulation. The bank reduced its rate of discount from 5 to 4 per cent on September 22, after the Bank for International Settlements had consented to an amendment of the provision in the Reichsbankos statutes reluiring the bank to maintain a discount rate of not less than 5 per cent when its *:old and foreign-exchange reserves were below 40 per cent of the amount of notes in circulation. or the oast year Reichsbank reserves have been below 40 per cent of the note circulation, and are now at about 26 per cent, RSIonsBANK (In millions of reichsmarks; figures preliminary) September 23, 1932 Gold Foreign-exchange reserveR Discount9 and advances Deposits Notes in circulation . • 782 146 2,792 358 3,505 Chang,e from-August 23, September 23, 1932 1931 + 14 + 2 - 84 + 5 -112 - 592 - 152 - 352 + 18 - 669 in Form No..11 Ofiice.Corresponitnce To FEDERAL RESERVE BOARD Date October 20, 1932 'Subject: Mr. Hamlin_ GPO • Enclosed is a draft of'1.r. Riefler's analysis of Dr. Benjamin Anderson's criticisms of the report This draft made by the Committee on Bank Reserves. is confidential at the present time. • VOLUME 233 PAGE 154 • 2-8495 • Sa. BANK RESERVE 1Q,UIRE,,EITIS An Examination of the Criticisms mad by Dr. Benjamin Anderson on the Report of the Cammitte on Bank Reserves October 1932 tober 1932 O MEMBER BA:a REST.r.", REQUIRMENTS An Examination of the Criticisms made by Dr. Benjamin Anderson on the Report of the Committee on Barilz Reserves In November 1931, the Federal Reserve Board released for publication a series of recommendations looking toward thoroughgoing revision in the legal reserve requirements of member banks. These recommenda- tions were formulated by a committee composed of officials of the Federal reserve banks and the Federal Reserve Board, known as the Committee on Bank Reserves of the Federal Reserve System, and were adopted by that committee after a searching investigation into the functioning of present reserve requirements and the relation of these requirements to the overexpansion of credit in the securities markets which facilitated the stock market boom that culminated in 1929. At the time these recom- mendations were released to the public in the late fall of 1931, the Federal Rescrve Board took no position on the advisability of the reserve requirements proposed. Subsequently, however, the Federal Reserve Board unanimously recommended to the Banking and Currency Comttttee of the Senate that the proposals advanced by the Federal Reserve System Committee on Bank Reserves be enacted into law with certain minor modifications. Summary of Committee recommendations The recommendations of the Committee on Bank Reserves are summarized in its report as follows: "In the opinion of the Committee, our present syFtem of legal requirements for member "bank reserves has never functioned effectively since its inception • in 1914. It has not operated to relate the expansion of member bank credit to the needs of trade and industry, nor has it adequately reflected changes in the volume and activity of member bank credit. Furthermore, the Committee also finds that present require-.meats for reserves are inequitable and unfair as between individual member banks and groups of member banks and do not adequately take into account genuine differences in the character of banking in which a member bank may be engaged. "The Committee takes the position that it is no longer the primary function of legal reserve requirements to assure or preserve the liquidity of the individual member bank. The maintenance of liquidity is necessarily the responsibility of bank management and is achieved by the individual bank when an adequate proportion of its portfolio consists of assets that can be readily converted into cash. Since the establishment of the Federal reserve system, the liquidity of an individual bank is more adequately safeguarded by the presence of the Federal reserve banks, which were organized for the purpose, among others, of increasing the liquidity of member banks by providing 1 for the rediscount of their eligible paper, than by the possession of legal reserves. 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. Since the volume of member bank credit needed to meet the legitimate needs of trade and industry depends on the rate at which credit is being used as well as on its aggregate amount, it is essential for the exercise of a sound control that legal reauirements differentiate in operation between highly active deposits and deposits of a less active character. Requirements for reserves should also be equitable in their incidence, simple in administration, and, so far as possible, not susceptible of abuse. "Similar principles underlie the present reserve law, which in requiring lower reserves against time deposits than against demand deposits, and lower reserves against the demand deposits of country banks than against the demand deposits of reserve and central reserve city banks may have been expected to impose higher reserves on more active deposits than on less active deposits. Notwithstanding the fact, however, that e::isting reguireeients would appear to be so arranged as to ma:e:e reserve requirements vary with the volume and activity of deposits, experience shows that since 1514 and esioecially since 1922 the proportion of primary reserves held by member banks has steadily declined in relation to the volume of member bank. deJosits and to their activity. "This outcome has been the result of defects in the definition of reserves, in the method of determining liabilities against which reserves must be carried, and in the classification of ban:cm and of deposits for reserve purposes. The exclusion of vault cash from required reserves of member ban2:s in 1517 has been followed by a reduction in the vault cash heldings of some city ban:m to a minimum; the rale that amounts due f_r,om ban::s may be deducted only from amounts due to banks has tended to decrease reserves in times of business activity and to increase reserves in times of depression, and the establishment of a low reserve against time deposits in 1914 has facilitated the growth of bank credit without a corresponding growth in reserves. Even if these particular defects in the •) )u of reserves had not existed, however, the rapid increase in the turnover of demand deposits which has occurred in recent years would still have tended to prevent reserve requirements from increasing in proportion to the growth in the effective use of credit by the customers of member banks. "Before deciding to recommend fundamental changes looking toward the establishment of a new basis for calculatin& required reserves, the Committee made every effort to frame provisions designed to correct the existing situation through modifications in the classification of cities for reserve purposes and in the classification of deposits subject to reserve, including a more stringent definition of time deposits. As these .proposals were studied, however, it becaele more and more evident that they would not be effective and that an entirely new approach to the reserve problem was necessary. "The Committee proposes, consequently, to abolish completely the classification of deposits into time and demand deposits, and the classification of member banks according to their location, into central reserve city banks, reserve city banlx, and country banks. Instead, the Committee recommends that all member banks and all deposits be treated alilce for reserve purposes, and that the formula used in calculating reserve requirements 11 1 -4take into account directly, instead of indirectly as in the existing law, the activity as well as the volume of the deposits held by each individual member bank, without regard to the location of the bank or the terms of withdrawal on which the deposits are technically held. To accomplish this, the Committee proposes that each member bank be required to hold a reserve equivalent to (a) 5 per cent of its total net deposits, Aus (b) 50 per cent of the average daily withdrawals actually made from all of its deposit accounts. These withdrawals, which are shown by debit entries on the books of member banks, are the only real test of the activity of a deposit account and furnish the only basis by which that activity can be equitably and effectively reflected in requirements for reserves. Under this proposal, therefore, each deposit carry a total rezerve based on its activity as well as on its amount. totally inactive deposit will carry a total reserve of only 5 per cent, while a deposit balance which is checked out on the average once a week will carry a total reserve equivalent to 12 per cent of its amount. For the average member bank the total reserve under the proposed formula will be equivalent to about S per cent of its deposits. To prevent this formula from imposing too great a burden in extreme cases, the recommendations of the Committee also provide that in no case shall the aggregate reserve required of a bank exceed 15 per cent of its gross deposits. "The Committee proposes to include in legal reserves, in addition to the funds which member banks have on deposit with their Federal reserve ban2:s, their vault cash, with certain limitations, as both classes of funds contribute to the strength of the reserve banks and have a direct effect on the reserve system's control of changes in member bank credit. It proposes also to place country member banks on a parity with city banks with respect to deductions from deposit accounts by permitting banks in calculating net deposits subject to reserve to deduct balances due from member banks and items in process of collection from total deposits instead of from balances due to banl:s alone, as is the practice at present. "The Committee feels that the existing volume of reserves is sufficient at the present time to provide the reserve banks with the funds they require to perform their functions. Its proposals, consequently, do not contemplate a change in the total amount of reserves. They are intended rather to change the nature of fluctuations in the volume of reserves and to iron out inequitable features in their distribution among the member banks." -5Reception of plan Dr. Benjamin Anderson, econorist of the Chase National Bank of New York City, has characterized the plan in the Chase Economic Bulletin for nay 1932 as a thoroughly unsound and dangerous proposal, and has stated that it rests "on an unsound and arbitrary theory, and a very inadequate examination of the facts," and "that it is a dangerous and radical innovation." To aupport these charges Dr. Anderson formulated nine specific indictments of the plan proposed by the Committee on Bank Reserves, and in addition advanced his own plan for curing defects in member bank reserve requirements. The Anderson plan for member bank reserves According to the plan advocated by Dr. Anderson for correcting existin,; abuses in the functioning of member bank reserve reouirements, each individual member bank would be permitted to maintain indefinitely a volume of time deposits equal to its existing time deposits and to hold a 3 per cent reserve against these deposits. Aal future increases in its deposits, however, wuuld carry a demand deposit reserve of 7, 10, or 13 per cent according to the classification of the bank as a country, reservo city, or central reserve city member bank. Should a member bank's time deposits decline in the future, the level to which they decreased would constitute a new maximum of the volume of time deposits on which it could claim a 3 per cent reserve. The chief advantage of this au,zestion is that it would prevent further weakening in the reserve position of member banks arising out of the classification as time deposits, of deposits which are 1 -6essentially demand in character. It would be unsound, however, since it would use deposits as of an arbitrary date to determine the amount of reserves required. It would give some banks a lov, reserve on a large proportion of their deposits and other banks a high reserve on most of their deposits without reference to their actual future composition. At the same time, it would not correct in any way the pres- ent reserve advantages of those banks which have been most actively concerned with the abuses which have developed in connection ,:ith time deposits. In fact, those bariLs which are benefittinL competitively today as a result of a false classification of deposits for reserve purposes would retain these competitive advantages indefinitely under the Anderson proposal. In advancing this proposal, Dr. Anderson accepts the view of the Committee on Bank Reserves which associates the overexpansion of bank credit prior to 1929 with the progressive decline in the ratio of reserves to bard: credit outstanding. His proposal for correcting the situation confines itself, however, solely to that phase of the problem Yhich is related to the overexpansion of time deposits and does not touch in any way the decline in vault cash reserves which followed the 1917 amendment to the Federal Reserve Act, which eliminated member bank vault cash from required reserves. Follo;Ting the enactment of this amendment, member banks have progressively decreased their holdings of vault cash. This decrease, the Committee on Bard: Reserves showed, was fully as important in the overexpansion of banh credit prior to 1929 as the overexpansion which may be attributed to the 3 • • -7per cent reserve against time deposits. It was particularly marked, moreover, at the larger metropolitan banks which can obtain additional currency supplies quickly because they are located close to the Federal reserve banks, and thus tended to establish serious inequalities in the relative proportion of aggregate reserves carried by different individual banks. 1:or does the Anderson plan correct in any way the other ! major defects in the existing system of reserves which were outlined in the report of the Committee on Bank Reserves, namely, the technical problem of defining what deposits are suIject to reserve and what deductions may be permitted in arriving at the volume of net deposits subject to reserve requirements. The Committee showed that the pres- ent definitions of the items had operated not only against sound credit conditions by tending to increase required reserves when business is inactive and to decrease reserves in times of increasing business activity, but also to the advantage of the larGe city correspondent banks which competed actively for the balances of other baril:s. In short, the merit in the Anderson izoposal arises solely out of the fact that it would prevent future overexpansion of bank credit arising out of a false classification of time deposits. In accomplishing this end, however, it would preserve all the competitive advantages which individual member banks have achieved in the past by permitting deposits of a demand character to be classified as time deposits. It would not correct the tendency for effective reserves to be further reduced by further economies in vault cash nor would it eliminate the tendency for reserve requirements insofar as they are affected by the definition of net deposits subject to reserve, to fluctuate in an 4 opposite direction to that required for the maintenance of sound credit conditions. Finally, it would not disturb in any way those conditions which since 1914 have gradually had the effect of creating an inequltable distribution in the volume of reserves carried in favor of the large metropolitan city banks and against the smaller outlying banks a located at a considerable distance from the reserve banks. NINE SPECIFIC RESERVES I CRITICISMS OF FLAN PROPOSED BY THE COMMITTEE ON BANK Effect of Committee's proposal prior to 1928 In commenting on the plan proposed by the Committee on Bank Re- serves under which all member banks would be required to carry reserves in cash or with the Federal reserve banks equivalent to 5 per cent of their net deposits and 50 per cent of their average daily debits to deposit accounts, Dr. Anderson makes the following criticism: "It is clear that the proposal would have imposed little restraint until 1928, by which time the vast expansion of net deposits was practically completed, and the substitution of real estate mortgages and stock market assets for commercial assets in the portfolio of banks was practically completed. Thus the plan would facilitate rather than retard bank expansion, up to the point where a dangerous boom was already under way." In making this criticism, Dr. Anderson was misled by the fact that the chart published in the report of the Committee on Bank Reserves, which compared present requirements with those recommended by the Committee, showed that required reserves under the Committee's plan would have been higher than present requirements since 1928 and lower than present requirements prior to that time. drew two erroneous conclusions: From this fact, Dr. Anderson (1) that the Committee's plan would • -9- not have exercised restraint prior to 192g, and, (2) that it would have facilitated bank credit expansion prior to that time. The fact is that in formulating its recommendations the Committee sought to impose ruirements which at the time they were adopted would neither increase nof decrease greatly the existing aggregate volume of member bank reserves. This is on the same theory of letting bygones be bygones as that adopted by Dr. Anderson when he proposed that each bank be permitted to carry a 3 per cent reserve on its existing time deposits and that the higher re- serve requirement be applied only to future increases in time deposits. Under conditions prevailing in 1931 a smooth transition was achieved in the Committee's plan by recommending a reserve of 5 per cent of total net deposits and 50 per cent of average daily debits to deposit accounts. Under conditions prevailing in 1924, on the other hand, it would have been necessary, in order to carry out this same principle, to recommend higher rates, say, 6 per cent of total net deposits and 60 per cent of average daily debits to deposit accounts, since between 1924 and 1931 the various defects in our present system of reserve requirements have in the aggregate permitted a material reduction in the ratio of member bank reserves to member bank liabilities. In view of this redaction, any comprehensive plan for the reform of reserve requirements which carried out this -.)rinciple and did not, as in Dr. Anderson's plan, permit individual member banks to retain competitive advantages which arose out of loopholes in present reserve requirements, would be bound to show lower requirements on the basis of 1924 figures than actual requirements at that time. In other words, if the proposed requirements were such that they would increase more rapidly between -10- 1924 and 1931 than present requirements and if they were applied with percentages that would bring about no material change in 1931 at the time of transition, the percentages recommended would of necessity s'ow a smaller volume of reserves on the basis of 1924 figures than preseat requirements. For the very same reason, however, had the proposed plan been adopted in 1924 with percentages which would have involved no change in the aggregate volume of required reserves in that year, total reserves under that plan would have increased more rapidly thereafter than reserves under present requirements. The extent of this increase is indicated on the attached chart where the plan of reserve requirements proposed by the Committee on Bank 1/ Reserves is compared with that proposed by Dr. Anderson. It is assumed in this comparison that both plans were placed in operation on a parity in January 1924, and both lines on the chart, consequently, are drawn in relatives with January 1924 equal to 100. Tliis chart shows that required reserves under the Anderson plan would have increased more rapidly than under the plan proposed by the Committee on Bank Reserves during 1924 only, when there was a business recession and restraint was not needed, but that in 1925, 1925, and 1927, the Committee's proposal would have acted just as effectively to check overexpansion of credit as that proposed by Dr. Anderson. In 1928 and 1929, during the worst phases of the boom, the Anderson proposal would have exerted no additional pressure 1 . / In this computation of Dr. Anderson's plan, funds deposited with member banks as time deposits in January 1924 are permitted to retain a 3 per cent reserve but all additional time deposits are required to maintain the same reserve as demand deposits. -11- CHART I GROWTH OF RESERVES FOLLOWING 1924 COMPARISON OF COMMITTEE PLAN FOR MEMBER BANK RESERVES BASED ON ACTIVITY OF DEPOSITS WITH ANDERSON PLAN BASED ON THE ELIMINATION OF ADDITIONAL TIME DEPOSITS AFTER BASE YEAR Per Cent ( Relatives -January,1924 =100 ) 160 Per Cep/ 160 A II Ii I t 1-1* I ll 150 CommifteeA Plan 14 140 e i I il I I IA / i i : / 1 I t / / i /% ll /• V Alb. A. 130 % % t •./ 150 11 I II 1 I I 1 I t.,4 1 , • %, 1 140 H 130 V A Anderson 120 - - _414 w• I • • • v/ Plan •120 S. 110 - — 110 1 100 100 90 -90 80 — BO 1924 1925 1926 1927 1928 1929 1930 1931 -12- while that of the Committee on 3ank-. Reserves would have applied increasing pressure on the credit situation until the boom was checked. II IrregulariLy vs. activity as the true basis of reserves The second criticism of Dr. Anderson attacks a major premise under- lying the Committee's recommendations, namely, that the activity of a deposit account as well as its volume should be taken into consideration in determining the amount of reserve which it should carry, as follows: "Activity of accounts is not a saund criterion for bank reserves; irregularity is much more significant. The country bank with a large time deposit from a corporation in another city may be subject to a constant menace, even though the deposit remains inactive for months or years. A city bank with high daily activity, with well understood accounts of customers who regularly balance their books at the end of the day, and whose income and outgo match within a few hundred dollars on a daily volume which may run into millions, does not need to keep a large reserve against this turnover. Inactive deposits of state, county and other public money have again and again made difficulties for small banks. Furthermore, when activity waxes and wanes, both as to incoming and outgoing funds, keeping close balance between them, it imposes no justification for increased reserves. The true theory of reserves relates them to (a) liquidity of other assets, and (b) irregularity in net demand liabilities, and (c) to variability in customers' borrowing demands. It may be added that activity of deposits is usually a concomitant of liquidity of assets. To the extent that assets other than reserves are liquid, a bank needs less reserves." In this criticism of the Committee's recemmendations, Dr. Anderson has failed to distinguish between primary and secondary reserves. In the paragraph cited, Dr. Anderson states admirably and concisely the principles that should govern a bank in determining the volume of its secondary reserves, i.e. the volume of funds it has invested in assets that may be readily converted into cash to meet withdrawals. This -13- volume must be determined by each bank on the basis of an analysis of its accounts in terms of their irregularity, i.e. their likelihood of withdrawal, and is naturally affected by the liquidity of its other assets. Secondary reserves, however, are not primary reserves and failure to distinguish properly between the two may become a menace to the preservation of sound credit conditions. Secondary reserves are invested funds and place no limit on the potential capacity of bank credit as a whole to expand indefinitely. It is the function of primary reserves, on the other hand, to safeguard the credit structure against such overexpansion of its liabilities. Primary reserves consist of cash or balances with the Federal reserve banks, both of which are closely related to gold in that they are covered to a considerable percentage of their face value by gold. If primary reserves are maintained in proportion to the volume and use of credit instruments that are sli)stitutes for cash, they limit the tendency of banks to overexpand these instruments in periods of boom conditions and tend to ease credit in periods of depression. Confusion between these two types of reserves inevitably leads to banking disorders. A banking system which held no primary reserves but invested all its assets in secondary reserves instead would not thereby assure its ability to meet withdrawals on demand, since this very process would remove all reserve limitations on the potential capacity of credit to expand and would tend to inflate the credit structure to the point where even the soundest secondary reserves would become unliquid when attempts were made to realize upon them. Conversely, primary reserves alone cannot perform the function of S secondary reserves in the maintenance of bank liquidity or in assuring the ability of a bank to meet withdrawals arising out of irregularity in its deposits. In the first place, primary reserves are not sufficiently large to perform this function. They constitute considerably less than ten per cent of the liabilities of our banks, the greater number of which normally experience much larger fluctuations than this in their accounts. No plan for primary reserves which established requirements sufficient to protect a bank against irregularity of withdrawals could be seriously proposed if the amount of primary reserves involved in such a proposal were once computed. Dr. Anderson, himself, in company with other students of the problem, has condemned the reserve provision in the original Glass bill, which added $66cuoo,000 to the primary reserves of member banks in the course of the next five years, on the ground that it would force far too great a liquidation of member bank credit. A primary reserve require- ment, howev9f, which protected individual banks against irregularity in their deposits, and which enabled them to meet the constant shifting of deposits from bank to bank that accompanies the normal processes of trade and industry, would involve an increase in primary reserves by a far greater amount than $660,0'30,000, and would exert an influence toward liquidation of far greater magnitude. In the second elace, the attempt to substitute primary for secondary reserves has always had serious repercussions when it has been tried in this country. Prior to the establishment of the Federal reserve system, national banks outside the central reserve cities were required to hold a certain proportion of their reserves in cash, i.e. as primary reserves, while, for the remainder of their requirements, they were permitted to • -15utilize either cash or secondary reserves in the form of balances with their city correspondent banks. When, in times of strained credit con- ditions, these banks exercised their legal right to hold the whole of their legally required reserves in cash, the ensuing drain of cash from correspondent ban7.,:s to interior banks tended always to create a money panic. Irregularity of deposits constitutes a major factor in the determination of a bank's policy with regard to secondary reserves, but is not, and cannot be made, a determining factor with regard to primary re- [ serves. To adopt the principle that legal requirements for primary re- serves should be based upon irregularity of withdrawals would not only involve drastic credit liquidation because of the huge amount of primary reserves required. It would at the same time unduly favor large banking units and ultimately open the door for a wider and more far-reaching decline in the future ratio of -)rimary reserves to credit in use than that which accompanied and facilitated the disastrous boom which culminated in 1929. This would come about, because irregularity of deposit accounts reflects in part the unit size of business organizations. It is not possible fcr the isolated small industrial organization to achieve the same regularity in its accounts as the huge vertical combine which exercises control over the fabrication process from the extraction of its raw materials to their final sale to the consumer. Similarly, the small independent unit banl: experiences greater irregularity in net withdrawals or outpayments than large unit banks or the huge consolidated branch banking system in which a large Proportion of checks drawn are paid over to other customers of the same institution and involve no net outpayment -16of funds by the bank. Theoretically, if a single bank with its branches conducted the banking business of the entire country, there would be no net bank withdrawals arising out of internal trade. While such a condi- tion is conceivable only in theory, nevertheless, there has taken place in recent years a marked trend toward the integration and consolidation of both industrial and banking units in this country and this trend may continue to characterize the future. Should Dr. And.ersoa's principle of irregularity be adopted as the basis for determining legal requirements for bank reserves, it would favor large institutions as compared with small and a continuation of the present trend toward banking integration would in and of itself act as a generative force toward a tremendous credit inflation since a decrease in irregularity arising out of integration of corporate units would constitute an apparently valid reason for a reduction in primary reserve requirements. To adopt the principle of irregularity, furthermore, would, as Dr. Anderson implies, justify higher required reserves against savings deposits which though inactive may occasionally be withdrawn in substantial amounts, than against highly active accounts which maintain a stable net balance, no matter how large the volume of business transacted through such accounts might be. This would divorce variations in reserve even further from variations in business conditions. It would even lead to • the conclusion that no reserves should be required agaiast brokers' balances, for brokers' accounts typify probably as well as any those deposit 'balances described by Dr. Anderson as accounts of customers "who regularly balance their books at the end of the day, and whose income and outgo match within a few hundred dollars on a daily volume which may run into -17- -aillions." Finally, irregularity cannot be objectively determined. There is no workable formula by which variations in the regularity of deposits can be legislated into corresponding and adequate variations in reserves. Irregularity as a criterion for reserves, therefore, relates to sound ban2in, ; - procedure with respect to secondary reserves but cannot be used as a guiding principle in the formulation of legal requirements for Primary reserves. Dr. Anderson's own plan for reserve requirements, namely, that each member bank should maintain existing reserves on its existing deposits but that future increases in all deposits, both demand and time, should carry a primary reserve equivalent to 13, 10, or 7 per cent accord- ing to its location in member banks classified as central reserve city banks, reserve city banks, or country banks does not contain any specific proposal that applies the principle that "the true theory of reserves relates them to (a) liquidity of other assets, (b) irregularity in net demand liabilities, and (c) variability in customers' borrowing demands." III Reserve reauirements in relation to credit policy In his tl.irj criticism, Dr. Anderson admits there may be some merit in the Committee's proposal, but objects that reserve requirements cannot be relied upon to replace discount and open-market operations in restraining a boom. "It is sometimes, not always, true that reserve requirements based on activity would constitute a brake in the final stages of a period of speculation. But the traditional method of increasing discount rates and selling securities would be a safer brake, and one that could be a)-31ied much earlier. The reserve requirement plan would not be subject to the use of judgment, and might easily be too drastic. It might, on the other hand, be inadequate, through the markets finding ways to reduce turnover." • -IS- This paragraph reads into the report of the Committee on Bank Reserves implications which are not there. The Committee advanced no pro- posals for abolishing or limitin4; the freedom of action of the reserve banks with respect either to discount rate changes or to open-Jaarket operations. The Committee did point out that present reserve require- ments frequently work to neutralize the effectiveness of discount and open-market operations. It also took the position that a correct system of reserve requirements should act in the same direction as an effective open-market and discount rate policy. There is nothing in the Commit- tee's recomendations to imply, however, that the Committee regarded its plan as a substitute for changes in discount rates or for open-market operations. IV Effect of Committee plan during a panic The fourth criticism of Dr. Anderson's relates to the effect of the Committee' e plan on bank reserves during the culminating period of a boom and tie commencement of a business decline: activity of deposits usually reaches its very peak in a panic. When speculation has once collapsed, it becomes definitely dangerous that reserve requirements should be suddenly and sharply raised in a period of panic and liquidation. The chart on page 19 of the Federal reserve memorandum shows that its requirements wou]d have been highest in the midst of the panic of 1929, when every effort was being made by the Federal reserve system to relax the tension." It is true that the activity of deposits increased very sharply to peal: levels during the initial stages of the decline in 1929 and that this activity would have tended to increase reserve requirements under • -19- the Committee's plan at that time. Dr. Anderson neglects to state, how- ever, that the same chart to which he refers shows that bank reserves under present requirements also increased sharply, due to the sudden depositing with banks of a huge volume of funds which had previously been loaned by others than banks in the call loan market. This increase in deposits as well as the increase in activity was an import factor in the increase in reserves under the Committee plan shown on the chart and the same increase would have occurred under the plan of reserve requirements which he, himself, advocates. (See Chart I) The increase under the Com- mittee's plan during this period would have differed in only one important respect from present requirements or from requirements under the Anderson plan. Under present requirements and under the Anderson plan, the in- crease in reserve requirements during the market break at the end of October 192 came suddenly, almost overnight, and the Federal Reserve Bank of New 7ork was forced to buy open-market securities hurriedly in order to prevent tension in the money market. Had the Committee's plan for member bank reserves been in operation, however, the increase in requirements due to increased activity wauld have been averaged over the following eight weeks, and part, at least, of these same open-market operations could have been planned for in advance. One of the merits of the Committee's plan is that it would permit the Federal reserve system to prepare itself to offset the effect of sudden and drastic shifts in credit conditions such as those which occurred during the autumn of 1929. V Effect of Committee's proposal at year-end settlements Dr. Anderson next criticizes the effect of the Committee's plan on year-end settlements: • • -20- "The new plan, furthermore, would increase the tension in the money mar;:et at the year-end settlement periods. The curve on page 19 of the Federal reserve memorandum shows how reserve requirements under the new plan rise more sharply at the year-end than under the e;:istins,'; law, and how the new plan would prolong the tension by carrying it over into the new year." In making this criticism, Dr. Anderson misreads the chart to which he refers and neglects to take into account the importance of seasonal changes in currency demand at the year-end. The following table compares the increase in member bank reserves between November and December of each year under present requirements and underthe Committee's plan, as shown by the figures from which the chart to which he refers was prepared. It indicates that the year-end increase in reserves shown on the chart was usually smaller under the Committee plan than under the present plan. ESTIMATED CHANGES IN MEMBE2 BANK RESERVES (INCLUDING VAULT CASH) BETWEEN NOVEMBER AND DECEMBER 1524-1930 (Iallions of dollars) 1924 Under present requirements + Under the Committee plan + 57 r, 1925 1926 I 1927 1926 +33 +37 0, 75 +13 +3 +66 + s6 Tension in the money mar7..:et, however, durin 1929 1 1930 - + 63 -257 - 26 Decem.oer reflects only in minor part the effect of year-end settlements, the major factor being the high seasonal level of currency demand which accompanies the holiday season. Currency normally goes out from the banks into circulation in huge volume from Thanksgiving to Christmas, and brings heavy pressure on -21- the money mar:=et in the*process. Between Christmas and New Yearts Day some of this currency returns but is offset in its effect upon the money market by a sharp increase in ban': reserves due to year-end settlements, window dressin:; for the year-end call of the Comptroller, etc. During January the whole situation changes; open-market money rates decline and tension is followed by seasonal slack in the money market as currency returns from circulation and the year-end pressure on bank reserves is relieved. The Committee on Ban:: Reserves consciously and definitely took this auccession of factors into consideration in framing the technical phases of its recommendations. By recommendine that the reserve against activity of deposit accaunts be calculated on the basis of average daily debits durino7 the preceding eight weeks, it provided a plaa in which the high activity of deposit accounts during December would not be reflected wholly in December requirements for bank reserves, when currency pressure was also high, but would be passed on in part into January when the return flow of currency from circulation normally creates a short period of "sloppy" money conditions. The fact, therefore, that member bank reserve requifements would be somewhat higher in January than in December under the Committee plan does not mean, as Dr. Anderson states, that the year-end tension would be prolonged into January. Instead, it means that the Committee devised a Ilan by which some of the effect of the year-end presaure from bank- reserves would be removed from December when the banks are also under presaure to provide currency for circulation, and shifted to January when the return of currency is more than aml)le to offset its effects. VI Effect of Committee plan on agricultural hal-as during marketing season In his sixth criticism, Dr. Anderson analyzes the effect of the • -22- Committee's proposal on agricultural banks during the period of agricultural marketing: "More important are the longer settlement periods in agricultural regions. Banks there show little activity through the greater part of the year, with sudden spurts when crops are being sold and farmers are paying their debts. This period aught not to bu complicated by a sharp increase in reserve requirements. The fact that the Federal reserve plan proposes to base reserve requirements on an eight weeks' average of activity might soften the difficulties regarding year-end settlements and very short and sharp periods of panic security liquidation, but not those of slower commercial crises, or of agricultural settlement periods. These periods often run for four months, and sometimes five months." The implication of this paragraph that agricultural banks would find it difficult to meet increased reserve requirements daring the summer and fall marketing season is quite contrary to the facts. Reserve requirements of typically agricultural banks would not fluctuate greatly because of activity under the Committee plan for the reason that the activity of country bark deposits is relatively low. To the extent that turnover in- creases required reserves would also increase, of course, but the total reserves required of these banks would fluctuate more with changes in their deposits than with changes in activity. The period in which most agricultural banks are under greatest pressure is that which precedes the marketing season. It is during the spring that farmers are drawiner down their cash and borrowing most heavily in order to purchase seed, fertilizer, and meet other expenses incidental to the production of crops. These demands put the agricultural banks under pressure at that time and cause them to liquidate secondary reserves and to borrow both at city correspondents and at the Federal reserve banks. -23- During this period deposits decline and activity is low, and reserves under the Committee plan would be reduced. When crops are harvested and the mar- keting season arrives this pressure usually changes to one of increasing ease because farmers use the cash received from marketing their crops to pay off their loans and build up their deposits. The agricultural bank in turn uses these funds to retire its own borrowing and to increase its secondary reserves in the open market. In short, the period of crop mar- keting is customarily the period when an agricultural bank is in a favored position to hold increased reserves. VII Effect of Committee plan on E.eneral credit conditions in 1'319-1920 Dr. Anderson next criticizes the manner in which the Committee plan of bank reserves would have operated in 1919 and 1920, as follows: "Had the figures for 1919-20 been studied, I do not believe that the proposal would have been made. These figures show that velocity of bank deposits for the whole coun-,;ry outside New York City stood virtually as high in the seven-month crisis and liquidation period, June to December 1920, as they stood in the boom period preceding, August 1919 to May 1920, and well above the velocity of the more tranquil period that preceded the boom. The velocity index, obtained by dividing individual debits by deposits of reporting member banks, was as follows: February-April 1519, 191; August 1919-May 1920, 217; June 1920-December 1920, 213. Similar results are obtained by dividing clearings by deposits, the figures shoving: February-April 1919, 170; August 1919-May 1920, 195; June 1920-December 1920, 189. Had the Federal reserve Ivelocity' plan been in operation in the crisis, 1920, the difficulties of the banks outside New York City would have been greater than they actually were." It is true that the activity of deposits at reporting member banks outside New York City decreased only slightly on the average during the months June-December 1920, as compared with the months August 1919-May • 1920. -24- It is equally true, however, that average net demand plus time de- posits of these same banks for the same periods did not decrease at all. In fact, they increased by five per cent. It follows that required re- serves under the Committee plan which takes into account the activity as well as the volume of deposits, would have been reduced somewhat after :.ay 1920 because the activity of deposits decreased, while required reserves under the Anderson plan, which takes into account only the volume of deposits, would have been increased. In the following table, total reserves (including vault cash) of reporting member banks outside New York City are compared during 1919 and 1920 by semiannual periods, in terms of relatives with Januar;.7-June 1919 eoual to 100. RESERVES INCLUDING VAULT GASH OF REPORTING MIEM3ER BANKS OUTSIDE NEW YORK CITY (Relatives for semiannual periods with January-June 1919 - 100) Committee plan Anderson plan 1919 January-June 100 100 July-December 114 110 1920 January-June July-December 120 120 124 123 Of the three plans for reserves compared on this table, the one which is advocated by Dr. Anderson, himself, is the only one which would have failed completely to reduce reserve requirements at banks in leading cities outside New York after the culmination of the boom in 1920. Requirements under the Present plan and under the Committee plan, on the other hand, both showed a slight reduction during this period, reflecting in the case of the present plan a reduction f.n demand deposits which was partly offset -25- by a growth of time deposits, and in the case of the Committee plan, a reduction in the velocity of deposits, whici,. was partly offset by a growth in the volume of deposits. In the accompanyine chart fluctuations in re- serves for this group of banks under the Committee plan are compared with fluctuations under the Anderson plan for the three years 1919, 1920, and 1921. The chart shows clearly how much more effective the Committee plan would have been both in tightening credit conditions durin: the boom in 1919, and also in easing conditions during the depression and liquidation of 1921. VIII Effect of Committee plan on individual cities--191c)-1Q20 ".ahen individual cities and regions are studied, many are to be found where velocity during the crisis period was far hi4aer tIlan velocity during the preceding period of boom. "Comparing National bank deposits with debits to inc.C.vidual accounts, we find this to be true for Fort Worth, Texas, for Indianapolis, for Cedar Ral)ids, Iowa, for Wichita, Kansas, and for San Francisco. In all five of these cities, which are representative of a large number of others, reserve requirements would have been higher in the seven months of crisis and liquidation than in the preceding boom period." These figures are based on estimates of reserves required under the three plans. For these estimates, figures of net demand deposits, time deposits,Government deposits and vault cash are directly available from published figures for reporting member banks uutside New York City. Average daily debits to inddual accaunt are esti_II mated as to 88.73 of total reported debits outside Yew York City during that period, and debits to bank account of this group of banks as equal to 85% of debits to individual account. In the computation of reserves ,•V dere Anderson plan, funds deposited on time with member bani,:s in January 1919 are permitted to retain a 3 per cent reserve but all additional time deposits are given the same reserve as demand deposits. C}LART II REPORTING MEMBER BANKS OUTSIDE NE W YORK 1919-1921 COMPARISON OF COMMITTE E PLAN FOR MEMB BASED ON ACTIVI ER TY OF DEPOSITS WITH AN BANK RESERVES BASED ON THE ELIM DERSON PLAN INATION OF ADDITI ON AL TI ME DE POSITS AFTER BASE Per Cent Relatives- Jdnuarti YEAR 1919=100 140 Per Cent 7140 130 £44 •• Committee ,,,Plan s/ \oil • 120 • Anderson Pion 110 130 04 • 120 • • • 110 • 100 e •4 , 100 90 90 80 1919 1920 80 1921 -27"INDICES 02 VELOCITY 02 BANK DEPOSITS EN CERT,I.IN CITIES San Fort Cedar Wichita Worth FranRaplas cisco Pre-boom, Liarch-7Aay 1919 Boom, Seytember 1519-February 1920 Crisis, June-December 1520 100 107.6 123.5 Indianapolis 100 100 100 126.3 97.g 93.5 151.5 105.6 101.7 While reserves in some localities might have increased under the Committee plan, it is extren,ely doubtful whether the five cities cited by Dr. Anderson would have fallen into this category. Dr. Anderson computed his indices of velocity for these five cities by comparing the deposits of all national banks with debits for all clearing house banks within each city, thus introducinE a strong possibility of error in the event that relative changes in deposits of national banks did not reflect changes in the deposits of all clearing house banks. In the case of Indianapolis, Wichita, and Fort Worth, there were 27 national banLs in these cities in 1919, of which four were not members of the Clearing House, according to Rand McNally. In 1920 there were 32 na- tional banks in these cities, of Thich all but one were members of the Clearing House. At the same time, the number of non-national banl.:s that were members of the clearing house in these cities increased from 11 in 1919 to 18 in 1920. The comparison in these cities is further complicated by the fact that they are all important livestock centers and the total debits which they re-oort upon which Dr. Anderson has based his calculations include debits from stoc4ard banks which, as the Committee indicated in its report, are extremely high in relation to deposits. The high rate of turnover at these banlls, however, 7.ould not necessarily be reflected in a -2S-- corresponding increase in reserves under the Committee plan since the reserve requirement of these banks might be limited by the provision recommended by the Committee fixing 15 per cent of gross deposits as the mum reserve required of any individual bank, or by the provision subsequently recommended by the Federal Reserve Board which would permit member banks to ignore turnover on extremely active accounts provided they maintained a reserve of 50 per cent against the net balance in such accounts. In the case of San Francisco, the comparison is vitiated for the same reason. During 1920, further-Lore, the Mercantile National Bank was merged with the Mercantile Trust Company, which at the same time was joined by the Savings Union Bank and Trust, a merger which had a tendency to decrease national bank deposits and to increase clearing house debits. In the case of Cednr Rapids, Iowa, there may have been a real increase in deposit activity during 1920. In this city there were no shifts in na- tional banks or in banks having clearing house membership to account for a very sharp increase in the volume of debits. The increase, however, is much more puzzling than is indicated by Dr. Anderson. Debits in Cedar Rapids averaged around $20,000,000 a month during the first five months of 1919, then suddenly doubled to around $40,030,000 a month, and continued to fluctuate seasonally and cyclically around this inflated level in the midst of the depression through all of 1921. During the first half of 1922, they returned to their previous level of around $20,000,000 a month and have moved in harmony with that level since that time. It is probable, consequently, that there is some special and particular reason which accounts for the sudden doubling of debits from their expected volume in Cedar Rapids from June 1919 to December 1921, and that this increase was -29- not, as is implied in the quotatioll, a typical aftermath of the boom. It is one of the distinctive advantages of the Committee plan that it is highly responsive to business conditions. It is responsive mol- over in a selective sense, increasing or decreasing only in those localities where the volume or activity of deposits is increasing or decreasing, and within those localities fluctuating at those banks whose customers are involved in the activity. While the ebb and. flow of economic activity be- tween boom and depression exhibits considerable similarity throughout the industrialized world, it is by no means uniform. It is a matter of common observation, for example, that during the present depression France for a long time appeared little affected, while during the depression of 19201921 certain important parts of South America were affected much later than the United States. It is highly probable that this same diversity might be found in some degree within the United States, that some areas might be faund in which business continued to expand for a time after the peak of the boom had passed in the country as a whole, and that in these areas the activity or volume of deposits at that time were such as to require increased reserves under the Committee plan. It is one of the merits of the plan that it would act in this manner, for business and financial commitments in such a community, undertaken at a time when the rest of the world is heading into a depression, are particularly susceptible to disaster. IX Effect of Committee plan in Florida "The Report ofthe Federal Reserve Committee on Bank Reserves (page lg) refers to the Florida real estate boom as occasioninL; increase in velocity of -30deposits, in illustration of their contention that reserves based on velocity would operate as a brake on speculation. They give no figures. The fact is that the Florida figures offer a most powerful argument against their plan. The figures for Florida are as follows: "INDE: OF VELOCITY OF BANK DEPOSITS IN FLORIDA Deposits (000,000) Debits (1920-1q2)4 = Index of 100) 1, velocity 1922 December 29 201.5 106 52.6 1923 Al)ril 3 June 30 September 14 December 31 238.3 230.8 216.0 243.8 no 106 46.2 45.9 89 122 41.2 50.0 1924 March 31 June 30 286.6 273.8 116 111 40.5 40.5 1925 April 18 June 30 September 28 December 31 472.2 530.2 682.4 788.8 176 37.3 197 226 253 37.2 33.1 37.1 1926 April 10 June 30 December 31 704.2 566.8 34.4 1486.8 242 215 210 456.3 425.4 198 159 43.4 37.4 383.3 385.9 141 160 36.8 41.5 1927 Iarch 23 June 30 October 10 December 31 "The Florida boom was active in 1923. It reached dangerous heights in the latter part of 1924, and fantastic heights in 1925. The frenzied buying of real estate suddenly ceased in the late autumn of 1925. The winter of 1925-1926 and the whole of 1926-1927 were a period of prostration and liquidation. "The velocity of bank deposits, however, declined sharply from 1923 on through the whole of the boom. The .point is that, while debits to deposits grew, deposits grew more rapidly than debits. The Florida banks durin, ; - the boom, therefore, would have seen 37•9 43.1 -31- their required reserve percentages come down, and money would have been easier during the boom than it was. Velocity does not rise in the figures above until the period December 1926 to March 1927, something more than a year after the crash had come, at which time the survivinc , banks were under a cruel pressure and ought not to have been subject to any more." To state that the Florida boom "suddenly ceased in the late autumn of 1925" and that "the winter of 1925-26 was a period of prostration and liquidation" over-simplifies a rather complex situation. The Florida boom was not concentrated in a single market such as the New York Stock Exchange where turning points can be located to the day, but extended over various parts of Florida and responded to some extent to varying local conditions. A more accurate statement would be that the pace of the boom began to slacken in the late fall of 1925 and that the episode on the whole was in process of liquidation by the spring of 1926. The full impact of Dr. An- derson's critfcism, however, does not center around this point but around the figures which he presents as indicative of the velocity of deposits at Florida banks during these years. To obtain this index of velocity, Dr. Anderson has divided an index of Florida debits compiled from debits reported by three cities only--Jacksonville, Pensacola, and Tampa--and representative of conditions, therefore, in these three cities alone, by deposits of banks, not in these three cities but in banks throughout the whole of Florida including both member and nonmember banks. The result is a series of figures having no statistical validity whatever since deposits for the State of Florida as a whole increased at a much more rapid rate up to 1926 than deposits in these three cities alone and declined thereafter at a much more rapid rate than deposits • -32- in these cities. It happens that the actual velocity of deposits for these three cities over the period cited can be computed with less probability of error than usual since practically all of the banks in these cities which report debits are member banks for which comparable deposit fitsures are available. In October 1531, in fact, a special study made by the Commit- tee on Bank Reserves showed that member banks accounted for all of the debits reported in Pensacola, for 97.3 per cent of the debits reported in Jacksonville, and for 96.2 per cent of the debits reoorted in Tampa. If it is assumed that these banks accounted for the same proportion of total debits reported in earlier years, the turnover of individual deposits for the three cities can be comguted for several dates during each year. The followin,: table compares the actual turnover of individual bank deposits in these cities with the index computed by Dr. Anderson. • • • -33- a/ INDEX OF VELOCITY FOR JACKSOITVILLE, TAMPA, AND PEMI.COLA COMBINED (Relative average of dates 1923 = 100) As computed by Dr. Anderson (converted to average 1923 basis) Date 1923 April 3 June 30 September 14 December 31 1924 March 31 June 30 1925 4 101 100 90 109 As computed on basis of actual figures Percentap:e of error in Dr. Anderson's figures after base period -±o6 100 52 103 • • io6 97 6 June 30 September 28 December 31 1926 April 2 June 30 December 31 io6 99 - 29 - 16 103 This comparison shows (1) that the velocity of deposits in these three Florida cities did increase greatly with the boom, (2) that velocity reached its peak with the peak of the boom at the end of 1925, and (3) that velocity declined throughout 1926 as the boom subsided. It shows also that the error in Dr. Anderson's computation Erew to 40 per cent at the critical period in the comparison. It is true that the Committee formula would not have caught all of this increase in velocity up to the autumn of 1925 nor all of the decrease thereafter, since debits first crew and subsequently declined so rapidly that average daily debits over an eight-week 3j In these computations individual denosits as of call dates are divided into average daily individual debits for the four weeks preceding and the four weeks followirv; the call date. _34_ period did not adequately reflect the daily volume of debits at the end of the period. The Committee formula would have reflected a considerable part of this change, however. These velocity figures continue to illustrate the advantages of the Committee plan when they are studied individually, by cities. The varyinc degree to which these cities were affected by the Florida boom is indicated roughly by the accompanying chart which compares changes in the velocity of deposits in each of these cities with changes in the dollar volume of building permits issued. The lower part of the chart indicates that of the three cities, Pensacola had only a small volume of building activity throughout the period, that Tampa was the center of the largest increase in building activity, and that the peak in building activity in Tampa fell in the latter part of 1925, whereas in Jacksonville building continued very high well into 1926. The upper part of the chart shows that these same developments were reflected in the activity of deposits, that the velocity of deposits was very much higher in Tampa where the boom was most pro-. flounced than in Jacksonville or Pensacola, that velocity increased in Tampa throu6h 1925 while building activity was increasing, and declined subsequently with the passing of the peal: in building, that velocity fell less in 1926 in Jacksonville where buildinj: activity remained high than in Tampa where building activity declined, and that Pensacola, the city least affected by the boom, was the only city in which velocity decreased throughout the period. The different rates of turnover in the three cities also indicate the desirability of taking velocity into account. Under the Anderson plan all new deposits in Tampa, where velocity was highest, would carry a 7 per cent reserve, whereas such deposits in Jacksonville where ( III CHaR T -35- 110 THREE FLORIDA CITIES TURNOVER TURNOVER TIMES PER YEAR TIMES PER YEAR DEPOSIT VELOCITY - 40 40 Tampa 30 30 x x •„/ Jacksonville 20 x.......x,_ ... 1 __J.x —.. x -_..4.-....,,,.............. x . x,.1 ):( x I . Pensacol 10 20 x—x .....*,......x„,........ ...4...6,.-— x 10 0 1D0 LIAR VOLUME 0 DOLLAR VOLUME PER PER QUARTER QUARTER 10 000 10000 BUILDING PERMITS Tampa 8000 8000 Jacksonville 6000 6000 4000 4000 4•11, ,--J "91 2000 -- 2000 • L J Pensacola .1111 amJ 1 1923 1924 1925 1926 -r - velocity was materially lower would carry a 10 per cent reserve. Under the Committee plan average deposits in each city would carry a reserve corresponding to the average velocity in that city, and individual deposits of different customers in each bank would carry a reserve that corresponded with the velocity of the deposits. Although Dr. Anderson's conclusion that the activity of deposits decreased sharply in Florida during the boom and increased thereafter was based upon erroneous calculations, there is no theoretical reason why this development might not have occurred. On the basis of past records, changes in the velocity of deposits have regularly corresponded with changes in business conditions, but it is not inconceivable from a theoretical point of view that a situation might arise in which credit expansion was extremely excessive and had as one result an increase in deposits that was more rapid than the increase in debits. During a depression fo1lowinj such a boom, deposits might decrease more rapidly than debits and there might therefore be an increase in the velocity of deposits. In the event that this should happen in the future at a time when the Committee plan of bank reserves were in operation, it would not, as Dr. Anderson suggests, place banl:s under cruel pressure" at a "period of prostration and liquidation." The figures which he cites for Florida, unrepresentative as they are of the actual facts, may be used as representative of this hypothetical situation. In this table of figures both debits and deposits increased rapidly up to December 1925 and decreased rapidly thereafter. Reserves based upon deposits and debits under the Committee plan, consequently, as well as under the Anderson plan, or the present plan, would have increased up to December 1925 and have decreased thereafter during the slump which followed the boom. •-_ An increase • 1 -37in velocity at that time, had it ocaurred, would not have put the banks under "cruel pressure" but merely have prevented required reserves from decreasing as rapidly as reserves based on deposits alone. Conclusion Discussions of the Committee plan since its publication have revealed some confusion over the extent to w2.ich credit condons should reflect an automatic influence such as reserve requirements as compared with policyexpressing influences reflected in discount and open-market operations of the reserve banks. The fact is that credit conditions unaer modern bank- ing organizations do reflect, and must reflect, both types of influence. Without reserve requirements, osed either by law or custom, policy-ex- pressing influences such as changes in open-market operations and in count rates would have little or no effect upon credit conditions, for in the final analysis the efficacy of these operations depends on the extent to which they affect either the volume of reserves which member banks hold, i or the cost which member banks must incur when they borrow such reserves from the reserve banks. If, under these ciraumstances, there were no re- serve requirements, austomary or leeal, and member banks were indiffe rent to the volume of reserves which they held, the influence of open-ma rket operations and discount rates would be correspondingly impaire d. Reserve requirements, consequently, constitute a necessary part of the machinery that makes open-market and discount operations effective. They are, furthermore, necessarily objective and automatic in their operation. They form part of the fixed legal background or framework of our credit institutions in which the volume of reserves required fluctuates in accordance with changes in t:Ie items upon which they are based. Under v -3s-a formula which bases required reserves solely on the volume of deposits, for example, without regard to whether they are active demand deposits or inactive time deposits, total required reserves would automatically have remained high in the Middle West following May 1920, largely because such reductions as occurred in demand deposits at that time were offset to a considerable extent by increases in time deposits. This fact, that reserve requirements in their very nature must be automatic in their effect, constitutes the main reason why the items upon which they are based should reflect insofar as possible basic elements in the credit and business situation, for otherwise reserve requirements will fail to supDort credit policies, as they should, and might even work in direct opposition to policy, as has been the case on many occasions under existing reserve requirements. The Committee plan meets this test by recom- mending that reserve requirements be based on (1) the volume of deposits, which measure the total volume of funds involved, and (2) the total volume of debits, which measure the actual dollar use made of these funds. By de- fining its requirements definitely in terms of these two basic elements, the Committee plan automatically takes into consideration the distinction between time deposits and demand deposits, and also between demand deposits in different classes of cities, which form the basis of differences in reserve requirements under the existing system of reserves. L-3 — 59 — powers, it follows that Congress has the power to establish such a system and to tal:e such steps as in its judgment are necessary to protect it in the proper performance of its functions. • .5-4-(4141 • • Xr7278-a C 0 1TFIDEYTIAL October 21, 1932. TO Federal Reserve Board FROM Mr. Wyatt, General Counsel. SUBJECT: Questions of law and policy arising in the administration of Section 8 of the Clayton Act. It is contemplated that, during their meeting in Washington commencing on November 14, 1932, the Board will discuss with the Federal Reserve Agents the policy and procedure which govern in granting permits under the provisions of the Clayton Act relating to inter locking bank directorates; and it is the purpose of this memorandum and the attached memorandum by Mr. Chase to review this subject in the light of questions which have arisen during the past year or two, in order to furnish a convenient and helpful basis for discussion. HISTORY OF TEE LEGISLATION. It is believed that it would be conducive to a more thorough understanding of the subject if the history and purpose of the Clayton Act as a whole are reviewed briefly before entering upon a discussion of the specific problems confronting the Board. The Sherman Anti-Trust ;lot dealt generally with monopolies and restraints of trade and was construed originally by the Supreme Court of the United States as makjng unlawful all contracts, combinations, etc., which restrained trade. Later decisions, however, established what is known as the "rule of reasgnn, which was to the effect that only those contracts, combinations, etc., were unlawful which operated to the prejudice of the public interest by obstructing and restraining trade unduly and unreasonably. Under both' interpretations, the Sherman Act dealt only with r e.or,z33the past, i.e., it attempted to prevent contracts and combinations in g,6/ 6P lle 4 -2- X-7278-a restraint of trade by Dena1izin-7 those which actually had restrained trade. As a result of the adoption of the rile of reason by the Supreme Court in interpreting the Sherman Act, there was much public agitation; and, in an effort to abolish the rule of reason, Congress enacted the Clayton Act, supplementing the Sherman Act and other existing laws relating to monopolies and combinations in restraint of trade. The Clayton Act sought to prevent restraints of trade in their incipiency by prohibiting certain types of agreements, relationships and transactions which may result in a substantial lessening of competition. The Clayton Act, therefore, unlike the Sherman Act, looks to the future and deals with results which may arise from the contracts, relationships and transactions with which it deals rather than with results which have been accomplished. This is an important distinction which must be borne in mind constantly in administering and applying the provisions of the Clayton Act. Following the panic of 1907, there was also an extended investigation of the so-called "Money Trust". This investigation was made by a special committee of Congress known as the Pujo Committee, which recommended a number of different legislative measures to prev3nt a restriction of credit and the stifling of comnetition between banks. One of the committee's recommendations was that interlocking directorates between banks be restricted; and it was in response to this X-7278-a -3recommendation that there was inserted in Section 8 of the Clayton Act a provision forbidding all interlocking directorates betwee n banks of certain classes. As originally enacted on October 15, 1914, therefore, Sectio n 8 of the Clayton Act forbade all interlocking directorates between banks of certain classes; and there was no authority anywhere to permit interlocking directorates between banks within the nrohibited classes. The Kern Amendment of May 15, 1916, made an exception to Section 8 of the Clayton Act, authorizing the Federal Reserve Board, in its discretion, to permit interlocking directorates between not more than three banks in the prohibited classes, if such banks were not in substantial competition. The other provisions of the Clayton Act had dealt with transactions which may result in a substantial lessening of compet ition, and it is obvious that the Kern Amendment was based upon the same policy , the theory being that, if certain banks were not in substantial compet ition, then no substantial lessening of competition could result from an interlocking directorate between them. It was found that the Kern Amendment operated illogically and in some cases unjustly. Thus, it sometimes happened that a person would serve for years as a director of three banks which were not within the provisions of the Clayton Act because of their size. One of the banks would grow until its resources exceeded $5,000,000, thus bringing the interlocking directorate within the prohibitions of the Clayton Act and making it unlawful for the director to continue to serve all three banks without first obtaining the Boardts permission. When the director applied X.47278—a for the Board's permissian, it would be found that, notwithstanding the interlocking directorate, the banks were then in substantial com— petition. The Board rculd have to deny the permit and the director would have to resign either as a director of the $5,000,000 bank or as a director of both of the other banks. He was thus penalized for having permitted the banks to compete. In order to aure this situation and to prevent this and similar injustices, the Federal Reserve Board recommended that the Kern Amendment be further amended so as to authorize the Board to permit interlocking directorates between not more than three banks in the prohibited classes if, ia the Board's judgment, such interlocking directorates null]. not result in a restriction . f credit or 12a2allaa.af competitionn between the banks involved. Congress, however, amended the Clayton 4.1.ct so as to authorize the Board to permit interlodking directorates between not more than three banks in the prohibited classes, "if in its judgment it is not incampatible with the public interest.n As pointed out by Mr. Chase in the attached memorandum, Congress probably had in mind only such interlocking directorates as might result in a restriction of credit or a lessening of competition when it used the phrase nincampatible with the public interestn; but the language has a much broader meaning and can be applied to any interlor.king directorate which may for any reason whatsoever be incompatible with the publitt interest. X-7278—a MAJOR Qt.TESTIO7S ARISING UUDER TEE AMENDMENT. This gives rise to the question whether, in passing upon a,-)plications for permits under the Kern Inendment, as amended, the Board should, (a) consider only the question whether the pro-posed interlocking directorates may result in a restriction of credit or a substantial lessening of corn-petition, or (b) should consider also whether they will be incompatible with the public interest for any other reason. Regardless of whether the Board must consider the second question, there also arises a question whether, as a matter of policy, it would be advisable for the 3oara to exercise the power conferred upon it by the amendment in such a way as to promote the public interest generally--for example, by limiting the sphere of influence of bank directors whose services in this capacity may be harmful to the banks, because of either their malfeasance or their nonfeasance. It could be argued that the language of the law is so clear that there is no justification for referring to its legislative history and that, therefore, in passing upon kyolications for permits under the Clayton Act, the Board must take into consideration every factor having any bearing upon the question whether the proposed ilterlocking directorate would be compatible with the public interest. On the other hand, it could be argued that the language is so general that the Board is justified in considering the legislative history in determining the scope of its duty in the premises; that the Clayton Act deals only with the relationships between two or more banks; and that, in the li, ;ht of the history of the Clayton Act, the Board is not required to X-7273-a consider anything except the question whether the interlocking directorate may result in a restriction of credit or a substantial lessening of competition between the banks involved. Even if the Board decides that it is not required to consider anything except the question whether the proposed interlocking directorate will result in a restriction of credit or a substantial lessening of competition between the banks involved, however, there would seem to be nothing to preclude the Board from considering other -luestions. The question whether it is incompatible with the public interest to permit an interlocking directorate is left to the Board's judgment; and the Board is not required to issue permits but is merely authorized to do so. The courts are very re- luctant to review actions taken by administrative officers under statutes vesting them with judgment or discretion and, when they review such actions, they do not overrule the administrative authority unless it appears that there was no reasonable foundation for the action taken and that it necessarily must have been based upon prejudice, whim or caprice. Even if it should appear unlikely that an interlocking directorate between two banks would result in a restriction of credit or a substantial lesseninz of competition, therefore, the courts would not be likely to hold that the Board exceeded its authority in refusing such a permit, if the Board should base its action upon some other ground having a reasonable relation to the public interest. A DIRECTOR'S QUALIFICATIONS AND RECORD. While it cannot be said in the light of its legislative history that the Clayton Act imposes a positive duty upon the Board to consider any question other than whether interlocking directorates probably would result in a restriction of credit or a substantial lessening of competition, yet it -7- X-7278-a would seem that the Board has ample authority, if it desires to do so, to refuse to grant permits for interlocking directorates when for any other reason the granting of such permits would, in the Board's judgment, be incompatible with the public interest. The question arises, therefore, whether, as a matter of policy, the Board should consider only the question whether interlocking directors probably will reult in a restriction of credit or a substantial lessening of competition or whether the Board should consider other questions affecting the public interest and especially the possibility of limiting the influence of individual directors whose activities have been positively harmful to the banks which they have served previously. Uhere it appears that a director has had a bad influence upon a bank, that he has been guilty of abusing his position as a director, that he has grossly nerlected his duties as a director, or that for any other reason he is an undesirable bank director, the Board cannot, under existing law, prevent him from serving a single member bank; but, through the exercise of the powers conferred upon it by Section 8 of the Clayton Act, the Board can limit the sphere of influence of such a director by withholding its permission for him to serve :aore thari one bank:within the classes affected by that Act. It is well known that the principal cause of bank failures is bad or careless management; the Doard has formally approved a section of the GIass Bill which would authorize it to remove bank officers and directors who have been guilty of repeated violations of law or continued bad management; and the question arises whether the Board should not take such factors into consideration in passing upon applications for its permission to serve two or more banks within the classes affected by the Clayton Act. -8- X-7278-a There are many cases in which the courts have held bank directors liable in their individual capacities for losses sustained by their banks as a result of the directors' misconduct or negligence; and in some of these cases the courts have criticized the directors severely. Suppose that, in such a case, the defendant should show the court that, with full knowledge of the course of conduct upon which the suit is founded, the Federal Reserve Board had issued a permit authorizing him to serve as a director of the bank in question and also two other banks. Or, suppose that it has be,)n clearly established that a particular individual coLa.pletely dominated the affairs of a certain bank and that his mismanagement and wrongdoing resulted in the bank's ruin. Suppose that such a director should subsequently apply to the Board for permission to serve three banks which obviously are not in substantial coLopetition. would it be good policy for the Board to grant such a director its affirmative permission to serve the three banks? On the other hand, if the Board decides to consider questions of this hind in its administration of the Clayton Act, problems will arise as to how far the Board should go in investiating the records of applicants, how far afield such investigations will lead the Board, and how large a burden of responsibility the Board must assume in this connection? Three possible alternatives are suggested: 1. The Board could consider in this connection only such inform- ation as is contained in records of which it has actual or constructive notice--i.e., information in the records of the Board, the Federal Reserve Agents and the Federal reserve banks; or 2. The Board could supplement information already in such records -9- X-7278-a by requiring the applicant (and possibly the Federal Reserve Agent and the Chief National Bank Examiner) to answer a series of questions designed to disclose the character of the uirectorls influence as such and whether his record as a director is good or bad; or 3. The Board could cause an independent and searching investi- gation to be made regarding the character, qualifications and record of each person who applies to it for a permit under the Clayton Act. If the Board decides to go into this phase of the subject, it will be necessary to consider which of these three course of action or what other course of action it will pursue. THE VEST= 02 COMPETITION. Applications involving banks which clearly are not in substantial competition usually present no difficulties, because it can safely be assumed that an interlocking directorate between them will not result in a substantial lessening of competition; and such applications clearly should be granted, unless it is incompatible with the public interest for some other reason. When the Board receives an application for a permit to serve two banks which clearly are in substantial competition, however, a number of administrative questions arise. If such banks have no common directors, it could be argued that the mere fact that they are in substantial competition is not alone sufficient evidence that a single interlocking directorate between them probably will result in a substantial lessening of competition and that, therefore, the application shou]d not be denied unless there is some other evidence tending to show that a substantial lessening of competition probably will result. • X-7278-a If this view is adopted, however, then the question will arise whether, under similar circumstances, the Board should grant permits for a second, a third, a fourth, a fifth, interlocking directorate, and so on. In other words, how many interlocking directorates between such banks should the Board permit? Should it permit a third of the directors of the one bank to be directors of the other? or half of them? or threefourths of them? or all of them? It could hardly be denied that to peruait all of the directors of one bank to serve also as directors of a competing bank probably would result in a substantial lessening of competition; and it would seem exceedingly difficult to establish anything but an arbitrary rule as to the number of common directors which should be permitted between such banks. In this connection, it must be remembered that the Clayton Act establishes a basic rule that no interlocking directorates shall be permitted between banks in the prohibited classes and that, when a director applies to the Federal Reserve Board for permission to serve two or three banks in the prohibited classes, he is asking the Board to take action which will bring him within one of the exceptions to the Clayton Act. Ho is asking the Board to make a special exception in his case; and, in order to grant his request, the Board must find that it is not incompatible with the public interest to do so. In these circumstances, it would seem that, if the banks are in substantial competition, the Federal Reserve Board, for its own protection, ought to have in its records some affirmative evidence that such an interlocking f_irectorate will not result in a substantial lessening of competition; -11- X-7278,,a and it would seem logical to place the burden of furnishing such information upon the applicant who is as-.Alin3 the Board to ranII a special privilege. It would also seem that the evidence justifying the Board's action should be somethine more than a mere expression of opinion by the applicant or the Federal Reserve Agent. In other words, the fact that the banks are in sUbstantial comnetition could be considered as creatins a presumption that an interlocking directS rate between them rill tend to lessen ompeon; and eSure could be -olaced on the applicant to furnish some affirmative ground for • ,7rantin,; the permit. It -uuld seem entirely reasonable, therefore, to adopt the policy of refusinc to grant any new permits for interlocldng fArectorates between banks which are in substantial compeon, unless the applicant is able to show the 3oard that there are exceptional circumstances which afford some affirmative basis for such action. It would be dcult, if not imIlossible, for the applicant to show affirmatively that his service as a ,fdrector of both banks will not result in a substantial lessening of com)etition (unless he can show that they are not in substantial competon); but a justification for the granting of eSerm could often be furnished in the form of some affirmative reason why it wuuld be in eSuic interest for mS serve both banks. Thus, the Board miE:ht feel justified in :ganting the application if it could bo shown that one of the banks has been in serious dculties; that the a)plicant and his friends are willing to put large sums of money in the bank to savethe applicant can become a director of such -12- X-7278-a bank in order to protect their interests as well as the interests of tho public. Likewise, the Board mijit feel justified in granting a permit for an interlocking directorate between competing banks, if it should appear that the applicant has contributed materially to the good management of one of the banks and that the management of the other bank would be materially strengthened by obtaininE, his services as a director. Another reason for placing upon the applicant the burden of shoring some affirmative reason why his application should be ;/..anted is that normally there is no one who will object to the granting of such applications. The information submitted by the applicant naturally is sub- mitted in such a way as to make out the strongest possnle case for him consistent with honesty and truthfulness, and he cannot reasonably be expected to point out reasons why his apnlication should not he granted. Experience has shown that Federal Reserve A,7ents seldom recommend that Clayton Act applications be refused and seldom produce facts not contained in the applications and accompanying exhibits which tend to show that they should not be granted. It is exceedingly difficult, if not impossible, for the Federal Reserve Board to discover and produce such information. MISCELLANEOUS QUESTIONS. Other questions arising from time to time in the administration of the Clayton Act may be indicated very briefly as follows: 1. Whether additional permits for interlocking directorates should be granted when the banks involved are already closely knit with numerous other banks in the same city by a spider web of interlocking directorates. -132. X-7278-a Whether it is in the public interest for the Board to facil- itate the organization of a chain or Eroup of banks by permitting the parent banh to have interlocking directorates with the other banks in the group or chain. 3. Whether under any circumstances it is proper to permit inter- lockinr.; Jirectorates between a rapidly expanding branch banking system and inaependent unit banks located in cities in which the parent bank has branches.. REVOUTION OF EXISTING PERMITS. Section 8 of the Clayton Act, as amended, also authorizes the Federal Reserve Board to revoke any permit for an interlocking directorate isuued thereunder ilwhenever it finds, after reasonable notice and an opportunity to be heard, that the public interest requires its revocation". The question arises, therefore, whether the Board has a duty to review existing permits fram time to time and, if so, on what T;rounds existing 13ermits should be revoked. Since the purpose of the Clayton Act, as amended, is not to penalize competition between banks but to preserve and foster such competition, it would seem obvious that: 1. A permit for an interlocking directorate should not be revoed merely because comnetition between the banks has increased since the permit was issuel; and a. A permit should be revoked if it appears that the.existence of the interlocking directorate has reduced competition between the banks or has prevented the growth f competition between them. • • -14- X-7278-a If the Board decides that, in grantinE Clayton Act permits, it will go into the question whether the influence of the applicant on the banks involved might be detrimental, it would also be proper to consider the same questions in determining whether or not to revoLe existing permits; and all of the problams sug,;- ested above should be considered in this connection. It would seem that the possession of the power to revoke existing permits whenever in its judgment the uublic interest so requires imposes a duty upon the Federal Reserve Board to exercise this Dower in such a way as to pramote the pu:olic interest. Therefore, it would seem that all existin Clayton Act permits should be reviewed at reasonable intervals with view of determinin; whether they should be revoked. existin In deciding whether to revoke permits, however, the Board could properly takB into consideration the question whether it wauld be in the public interest to do so in the liz:ht of all circumstances existing at the time, including the unsettled banking situation; and it would not seam necessary to review existing permits unless and until the Board is prepared to revoke them and thereby disrupt existing relationshios, in cases where the facts seem to warrant such action. RECWONDATION. I respectfully recommend that copies of this memorandum and of the attached memorandum by Mr. Chase be sent to all Federal Reserve Agents for their information in advance of their conference with the Board and also that I be authorized to send copies to Counsel for all of the Federal reserve banks, in order that they may be prepared to discuss the subject with the Federal Reserve kents. ar -15- X-7278-a I discussed the subject orally with Counsel for the Federal reserve banks durinz their recent conference here; but I think it would be helpful for them to have copies of these memoranda. Respectfully, WW:mw Walter Wyatt, General Counsel. CONFIDENTIAL X-7278-b Oct. 3, 1932. To: Fecleral Reserve Board Subject: Administration of Section Pram: Mr. Chase, Assistant Counsel. 8 of the Clayton Act. In this memorandum are considered various questions arising in connection with the administering of section 8 of the Clayton Act, as amended (U.S.Code, Title 15, section 19). The questions arise with regard to the scope of the Board's authority under the standard prescribed by that section, namely, compatibility with the public interest. As originally enacted, section 8 of the Clayton Act absolutely prohibited interlocking directorates between banks of certain classes. The provi- sion of that section dealing with banks was amended, first, by the Kern amendment in 1916 which authorized the Board to grant permits to serve not more than three banks provided such banks were not in substantial competition. Since thE; forbidding of interlocking directorates in all cases where competition existed sometimes actually stifled competition and produced other unsought results, the provision was again amended in 1928 so as to authorize the Board to grant such permits if in its judgment such action "is not incompatible with the public interest". The three principal questions to be considered in this memorandum are, (1) In dealing with the question of competition, if substantial compe- tition is found to exist between the banks, should the Board deny the application in all cases unless the applicant is able to show a valid reason why it should be granted, or should the Board adopt a policy of granting each application unless it feels that there is more than a remote possibility that a substantial lessening of competition will result? (2) Is the question of competition in its various aspects the only question to be considered by the Board in passinc upon an application? -2(3) X-7278-b If that is not the only Tuestion, what other matters should be considered? There are no court decisions which answer these questions specifically, and it will therefore be necessary to examine, first, certain decisions of the Supreme Couxt relating to the general purpose of the Clayton Act, second, the le,:;islative history of the particular provision of section 8, and, lastly, certain legal principles and matters of policy involved in the third question stated above. . SUPREME COURT DECISIONS RELATING TO THE GENERAL PURPOSE OF THE CLAYTON ACT. The Clayton Act was enacted with the purpose of changing and supplementing the existing statute dealing generally with monopolies and restraints of trade, the Sherman Act. The Sherman Act at first had been interpreted by the United States Supreme Cuurt as making unlawful all contracts, combinations, etc., which restrained trade. Later decisions, however, (see particularly Standard Oil Co. v. United States, 221 U.S. 1; 31 S.Ct., 502, 516-518) established what is known as the "rule of reason", which was that only those contracts, combinations, etc., were unlawful which operated to the prejudice of the "public interest" by obstructing and restraining trade unduly and unreasonablv. After considerable political agitation, and after the decision of the Standard Oil case, the Clayton Act was enacted. Two leading cases were sub- sequently decided by the Supreme Court involving the meaning of the phrase "aubstantially lessen competition" as used in the basic sections of the Clayton Act dealin with Eubjects other than banks. The first, Standard Fashion Companz v. Ma,7rane-Houston Co., 258 U.S. 346, 42 S.Ct. 360 held that: 1. Although much was said in the briefs concerning the re=rts of committees, "the words of the Act are plain and their meaning is apparent -3- X-7278-b without the necessity of resorting to the * * * often unsatisfactory aid of such reports." 2. "The Claiton Act sollelt to reach the agreements embraced within its sphere in their incipiency, and in the section under consideration to determine their legality by specific tests of its own. * * * ". In other words, under sections 2 and 3 of the Clayton Act it is not necessary to show that the acts have actually resulted in a restraint of competition: it forbids acts which "may" lessen competition, thus reaching the evil in its incipiency. 3. The use of the words "may" and "substantially" shows that the statute was intended to reach not all the acts described but only those which would "probably lessen competition or create an actual tendency to monopoly. That it was not intended to reach every remote lessening of competition is shown in the requirement that such lessening must be substantial." The second case, United Shoe Yachinery Corp. v. United States, 258 U.S. 451; 42 S. Ct. 363, illustrates point 2, above. It involved a group of transactions which had previously been hela not to violate the Sherman Act. They were held to be in violation of the Clayton Act (or rather, certain facts which were Lamaterial in the Sherman Act case were held to amount to a violation of the Clayton Act). The Court held that the first decision did not make the question res judicata under the Clayton Act, saying; "Under the Sherman Act, as interpreted by this court before the passage of the Clayton Act contracts were prohibited which unduly restrained the natural flow of interstate com_aerce, or which materially interrupt the free exercise of competition in the channels of interstate trade. In the second section monopolization or attempts to monopolize interstate trade were condemned. The Clayton Act (section 3) prohibits contracts of sale, or leases made upon the condition, agreement, or understanding that the purchaser or lessee • -4- X-7278-b shall not deal in or use the goods of a competitor of the seller or lessor where the effect of such lease, sale, or contract, or such condition, agreement, or understanding 'may 7 be to substantially lessen competition or tend to create monopoly. The cause of action is therefore not the same.." To summarize: 1. The phrase "the public interest" was used by the Supreme Court in the leading Standard Oil Case in describing the purpose of the Sherman Act, and in laying down the "rule of reason" for interpreting the prohibitions contained in that Act. 2. The Clayton Act was enacted to amend the existing law as interpreted by the courts. It sought to prevent the evils in question by reaching them in their incipiency, pnd provides a standard of its own to be applied to the specific acts with which it deals. The standard is: Whether the acts are such that they "may" "substantially" lessen competition, or tene. to create a mono-Joly, -- which means, in the words of the Supreme Court, such as will "probably" lessen competition "substantially"; that is, by amending the law, Congress did not intend to make unlawful acts which only had a remote and posible tendency to lessen competition. 3. The two Acts, as interpreted by the Supreme Court, both obey the legal maxim that the law will not concern itself with matters of trifling importance, -- the Sherman Act, by not condemning contracts unless they restrain commerce unreasonably to the detriment of the public interest; the Clayton Act, • -5- X-7278-b by forbidding certain actions only when they probably will result in a substantial lessening of com7Detition, the test in Section 8 of the latter Act being compatibility with the ugablic interestu. LEGISLATIVE HISTORY The first part of the legislative history of the present provision is completely Tmmarized in. the Annual Reports of the Federal Reserve Board. 1921 Report, pp. 87-89: "As originally enacted section 8 of the act ay,proved October 15, 1914, known as the Clayton Antitrust Act, absolutely prohibited interlocking directorates between certain classes of banks. The act of May 15, 1916, known as the Kern amendment, modified the provisions of that section so as to allow a person who first obtains the permission of the Federal Reserve Board to serve not more than three banks in the prohibited classes, if such banks are not in substantial competition. " * * * "When the work done in connection with the review of the interlocking directorates revealed to the Board how many instances there were in which a strict enforcement of the terms of section 8 of the Clayton Act would operate inequitably, the Board decided to consider the question of a further amendment to the Clayton Act to carry out more effectually the intention of Congress to promote and encourage competition. The matter was referred to the Board's committee on the Clayton Act, which, after making a careful study of the problem, with the assistance of counsel, rendered a report in which it recommended an amendment which would authorize the Federal Reserve to permit a person to serve not more than three competing banks, when the Board is satisfied that such interlocking directorates will not result in a restriction of credit or lessening of between the banks involved, the Board, however, to continue to have fall power to revoke such permits at any time. * * * The Board adopted the recommendations of its committee on the Clayton Act and a bill amending the Clayton Act in this manner was drafted and submitted to the Senate and House Committees on Banking and Currency." (H.R. 4826). The recommendation that the Kern amendment be further amended was renewed in every annual report up to and including the Report for 1926. The -6- X-7278-b recommendation was omitted from the 1927 Reiport perhaps for the reason that an amendment was then actually in the process of being enacted. 1923 Re-port, p. 52: u* * *The Board directed its 12 Federal reserve agents to make a comprehensive review * *. This investigation discloseS that in a few cases banks with common directors have become substantial competitors since the time when permits for such directorates were granted, either through the natural growth of competitive business or through the acquisition of competitive business incident to a consolidation." and the Board accordingly renewed the recommendation contained in its 1921 Report. In the interval between the Report for 1923 and the Report for 1924 a bill was introduced in the Senate 'mown as S. 3299 which contained the phrase ulessening of competitionu. A bill was introduced in the House by Representative IficFadden known as H.R. 9344 which contained the phrase which ha', subsequently been enacted, "not incompatible with the public interest". It does not appear from the Board!s files that the Board auggested to any member of Congress tlie broader language of the latter bill, but the Board approved the language, as is shown by its Report for 1924. In discussing these two pending bills, the Board said: 1924 Report, p. 29: "In its present form section 8 of the Clayton Act in operation often defeats the purpose for which it was enacted; it discriminates against national banks, and in many cases its enforceaent results in unnecessary hardshi/) to infLividilnls and to the disadvantace of the bankin,-; and credit situation in certain communities., The board has repeatedly recommended the enactment of an amendment to the Clayton Act to overcome these defects. * * * The fundamental purpose of both bills, however, was to give the board more latitude in the matter of permitting interlocking directorates and thus enable it to administer the Clayton Act more effectively and -7- X-7278-b more nearly in harmony with the apparent purpose and intent of Congress in rea1atinr interlocking directorates. The Senate bill was introduced at the board's request and the House bill with the board's approval." 1928 Report: After the enactment of the present provision, the Board made note of the fact in its Annual Report, but did not undertake to answer the question discussed herein. It said, p. 37: n* * Under the amendment the board is authorized to grant such permits if in the judgment of the board the issuance of such a permit is not incompatible with the public interest, and such permits may be granted even though no member bank of the Federal reserve system is involved." The letters and memoranda sent by the Board to various members of Congress in connection with the various bills referred to above relate only to the question of competition in its various aspects, and as indicated in the 1924 Report of the Board, its approval of the language of H.R. 9344, which was the language ultimately enacted into law, was based on those considerations. In view of the length of time which elapsed between the original enactment of the Clayton Act, - - and even between the enactment of the Kern amendment, - - and the subsequent enactment of the present provision, there is little logical justification for assuming that the thoughts of the members of Congress which were not actually put into legislation persisted unaltered until the time of the enactment of the present provision in 1928. Little help can therefore be expected from the debates and other parts of the legislative history of the earlier provisions. Three reports of committees • .8- X-7278-b concerning bills containing the language which was finally enacted into law in 1928 should, however, furnish as reliable a guide as committee reports are apt to furnish in any case. The Senate Committee inserted an amendment containing the phrase "not incompatible with the public interest" in H.R. 2 (a bill containing numerous amendments to the Federal banking laws, which, after enactment with changes, became known as the McFadden Act of Feb. 25, 1927) an,/ this amendment was passed by the Senate but rejected by the House. Two bills were introduced in the 60th Congress containing similar provisions, H.R. 9098 and S. 3007. The bill which was ultimately enacted on March 9, 1928, was known as H.R. 3491. Hone of the bills which contained the language which has since been enacted, except the proposed Senate amendment to H.R. 2 (which was rejected by the House) and H.R. 6491, was ever made the subject of a report by a committee of Congress. The report on H.R. 2 (Senate Report 473, 69th Cong.) contains; the following (at p..13): "* * *7y the passage of the Kern amendment Congress recognized the fact that it is not objectionable per se for the same person to serve as director of a limited number of banks. Interlocking directorates become objectionable when by reason of the common domination of several banking institutions competition is unduly restricted and concentration of the control of credit results. Presumably Congress intended to vest a discretion in the board to determine, within the limits prescribed by it, when it became incompatible with the public interest for the same director to serve on the boards of two or three banking institutions. The test aplied, however, namely, the dearee of competition existing as between such institutions, has proven impracticable and unworkable." * * * "This amendment retains the limit on the number of banks that may have common directors, but vests in the board a discretion to determine when interlocking directorates within the limits imposed by Congress are inconsistent with the purpose of the Clayton Act. This is a question which must be determined by consideration of all the facts in a given case and whidh can not be determined by the application of any formula." The Senate report on H. R. 6491 (Sen. Rep. 439, 70th Cong., 1st Sess.) contains no original comment but merely quotes in full the report of the House committee. The latter report is explicit. The House report on H. R. 6491, (House Rep. 487, 70th Cong. 1st Sess.) the language and substance of which is derived largely from letters and memoranda from the offices of the Board, begins with a brief statement of the original provision and of the Kern amendment. The report then states that the experience of the Board has been "that the Kern Amendment in its present form does not work out in the way in which it was intended". Illustrations are given. Competition has grown up between banks in spite of common directorates, dhowing that they had not prevented the existence of competition. In same cases requiring a director to resign might precipitate a crisis in the af— . fairs of the bank by undermining public confidence in it. The report then sums up the situation as follows: "To sum up briefly, the Xern amendment was designed to permit limited interlocking directorates, but only in cases where the public interest would not be prejudiced, as by the lessening of competition be— tween banks or the restriction of credit. * * * It is not particularly important Whether banks which wish common directors are or are not in substantial competition -- that has little to do with the ques— tion -- but it is imnortant what effect the interlocking directorates will•have on the banking and credit situation in the community. Consequently the test fSr permitting interlocking directorates should be X-7278-b -10— whether or not such directorates will injuriously affect the public interest by discouraging interbank cozIpetitien or restricting credit or otherwise, and not the -present test as to the existence of substantial competition." * * * ** * * * * * * "The above discussion Should demonstrate clearly that the Kern amendment in its present form operates in an illogical way and often defeats the very purpose for which it was enacted. It follows that the law should be further amended in such a way as to enable the Federal Reserve Board to administer it more effectively and more nearly in harmony with the apparent -purpose and intent of Congress in regulating interlocking directorates." The debate in Congress was very meagre. In the House, M2. MdFaddenis statement explaining the bill is merely a summary of the Committees report. In response to questions from the floor, he explained that competition was the ".?rincipal" factor to be con- sidered by the Board, but did not nano any other factors. Rec. Vol. 69, v. 2335). (Con&. Mr. Goldsboroui and Mr. LaGuardia op- posed the bill on the ground that interlocking directorates should be forbidden absolutely. ly no debate. An extract from In the Senate there was virtuala letter from the Board was read, saying that the amendment "will enable us to function more in accordance with the original intent of the The conclusion which I reach ::oon the first two questions are, therefore - I • X-7278-b 1(a) The Board must, as a matter of law, deny an appli- cation if in its judgment the granting of it would probably result in a substantial lessening of competition between the banks involved. (b) The Board is "authorized" to grant an application if in its judgment no substantial lessening of competition will probably result, and provided no other reason exists which in its judgment would make the granting of the application incompatible with the public interest. 2. Section 8, as amended, provides that the Board is "authorized" to issue a permit if in its "judgment" it would not be incompatible with the "Trublic interest". The words "competition" and "monopoly' are not used in this provision. It follows, therefore, that although Congress had in mind only the question of competition, or restriction of credit, the language of the act clearly vests the Board with discretion to deny an Dpplication if in its judgment it would be incompatible with the public interest to grant it; and the Board is vested with a wide discretion in deciding upon the matter. Moreover, under well-established legal principles, the courts will not disturb an exercise of discretion thus vested by statute unless the discretion has been plainly abused. and exceeded. MI\ X-7278-'b However, the fact that the Board is "authorized" to grant the permit in its discretion, also means that the permit must not be denied arbitrarily or capriciously. III.. MATTERS OTIttal THAN COMPETITION. In the event that the Board should decide to consider matters other than co;Apetition, a number of questions are raised:, Should the Board grant a . - permit, even if the banks are not in competition, if it knows that the applicant -- taking the extreme case as an illustration -- has ruined a bank by his un— lawful acts? Should it, on the other hand, attempt to improve the quality of directors generally, by exercising its limited right to deny an application involving more than one bank within the prohibited classes, -- in spite of the fact that its decision, even when adverse, can only affect the number of banks which the applicant can serve without being able to prevent him from serv6ing any bank, even though it is a member of the Federal Reserve System? Should it undertake to nass uoon the qualifications of directors although it is not in a position to make an informed decision in a great many cases? • • X-7278—b — 13 — From what sources and in what manner would the Board seek information with regard to his qualifications : (a) Should the Board grant the permit unless there is information in its files or those of the Federal Reserve Agent which indicates that it would be incompatible with the 2ublic interest to grant the permit: (b) Should the Board require the applicant to answer a series of questions regarding his ex-)erience, training and other qualifications, his attendance at directors' meetings, etc; or (c) Should the Board cause a .ipecial investigation to be made of the applicant's qualifications and record as a bank director or officer. Mese are questions of policy which are not within the scope of this memorandum. It will be assumed, however, for the purpose of discussion, that the Board may avoid the extremes indicated above, and take a middle ground, denying an ap-olica— tion, regardless of competition, when information readily avail— able to it indicates that the applicant has qualification. SOMB positive dis— - 14 - X-7278-b In order to ascertain the facts with regard to such matters, the Federal Reserve kent could be requested to give his comments at the time of forwarding the application to the Board, and, in addition, such means could be adopted as the Board may determine for ascertaining whether the reports of examination and similar sources of information either show definitely an objection to the applicant along the ?ines referred to or give an indication sufficient to make further inquiries advisable. In that event, it would seem that the questions to be considered, aside from competition, should include: 1. Whether the aplicant is dishonest or incampetent, the character of the management of the banks with which he is associated and the extent of his responsibility—therefor, being considered pertinent to this inquiry. 2. Whether the applicant discharges the duties and responsibilities of his office by attending directors' meetings, etc., -- the geographical location of the banks being one of the factors considered in this connection. 3. Whether he abuses his borrowing privilege, -- or, more specifically, uhether the examdner has criticized loans to the applicant, his family or his interests, as being excessive, or for any other reason. ••••mlo A - 15 - X-7278-b The questions outlined above are necessarily general in character since it would not be possible to predict except in a general way what facts might be developed which would make the granting of the application undesirable from the standpoint of the public interest in the less restricted meaning of that phrase. Matters such as dishonesty, incompetence and knowingly directing the bankls affairs in violation of statutory provisions, require no illustration or descriptior. The abuse of the borrowing privilege may, of course, be indirect and consist of excessive borrowing not only by the director but by members of his family and his or their interests. The character of the bank's investments may be found to be highly speculative, and the applicant be found to be responsible therefor. The undesirability of a director who serves merely as a figure-head also requires no extended comment. The point is aptly summarized by the Supreme Court of the United States in the case of Martin v. Webb, 110 U. S. 7, 3 S. Ct. 428, 433: "* * Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business, and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect the officers of the bank, and to make declarations of dividends. That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business." As was stated by the Supreme Court in another case, however, Mgr 411 - 16 - 11111 1111 X-7278-b (Briggs v. Spaulding, 141 U. S. 132, 11 S. Ct. Rep. 924) it is not possible to define with precision the degree of care and attention which a director should Ely° to the affairs of the bank. depend upon all the facts of the particular case. That must The Court con- cluded, however: "* * Without reviewing the various decisions on the subject, we hold that directors must exercise ordinary care and prudence in the administration of the affairs of a bank, and that this includes something more than officiating as figuro-heads. They are entitled under the law to commit the banking business, as defined, to their duly-authorized officers, but this does not absolve them from the duty of reasonable supervision, nor ought they to be permitted to be shielded from liability because of want of knowledge of wrong-doing, if that ignorance is the result of gross inattention; but in this case we do not think these defendants fairly liable for not preventing loss by putting the bank into liquidation within 90 days after they became directors, and it is really to that the case becomes reduced at last." In Bowerman v. Hamner, 250 U. S. 504, 39 S. Ct. 549, a decree against Bowerman as director for losses sustained by the bank as the result of unlawful and negligent management of its affairs was affirmed. Bowerman lived 200 miles from the bank and had not attended a single meeting of the board. "* * He was a man of such importance and reputation that the use of his name must have contributed to securing the confidence of the community and of depositors for the bank, and it would be a reproach to the law to permit his residence at a distance from the location of the bank, a condi, tion which existed from the time he first assumed the office of director, to serve as an excuse for his utter abdication of his common-law responsibility for the conduct of its affairs and for the flagrant violation of his oath of office when it resulted in loss to others." Respectfully submitted, G. Howland Chase, Assistant Counsel. GHC:mw
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