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The Papers of Charles Hamlin (mss24661)
367_04_001-
Hamlin, Charles S., Scrap Book — Volume 238, FRBoard Members
205.001 - Hamlin Charles S
Scrap Book - Volume 238
FRBoard Members
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
The Files
From
Mr. Coe
•
Date
August 11, 1941
Subject:
lyreAfter 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 238 of Mr. Hamlin's scrap book and placed in the Board's
files:
' VOLUME 238
Page 27
Memo to Mr. Morrill from Mr. Van Fossen re Direct Loans to Individuals, etc.
Page 94
Letter to Gov. Meyer from President Hoover re Bank Holiday.
Page 25
Memo to Mr. Mitchell from Mr. Wyatt re meaning of phrase "tested
banking experience" as used in Section 4 of the Federal Reserve Act.
Page 98
Letter to Secretary Woodin from Mr. Hamlin re emergency legislation.
Pe 121
Memo to Mr. Hamlin from Mr. Parry re acceptances against receivables.
Page 126
Decline in cost of living. (Mr. Smead to Mr. Hamlin)
Page 127
Bylaws of the Federal Reserve Board.
Page 12,2
Data prepared by Gov. McKinney of F.R.Bk. of Dallas re advisability
of reducing the scale of salaries.
Page 133
The Policy of the F.R. Board in the Extension of Credit to Agricultural Interests.
Page 139
(X-1894) Deficiencies in Reserves.
Page 12
Letter from President Hoover to F.R. Board urging Board to take action
in the control and management of currency.
MAN* 1,
1933
Direct LOFsA6 to
kr.vorril1
etc.
Ur. Tan 'Poison
AOMIELVELMi
Attached hereto is a statement showing the
MISber
of app1lerltions of in-
dividuals, prztrserships and corporations for loarm not granted by the radkar.11
reserve 1)-tn7c_t to .Tftnnary 31.
1933, including a, tabulation uf the reasons for
not eric:nting the 1seise applied for.
It will be noted that of i.)0) 4.-oplic,!!tions rlfused. Its shown in the statemeat. 3141 sere becttuse of unsntisfactory irocurity; 214- panto' rot eligible,: 12
loans placed rtth other banks; 14 proeent crevlit dowsed adequate and. 5 denial
of credit by other benks not shown.
Div.ot loans to ine.tviduals, partnerships and car!:.orntions eranted by
the federal reserve bLnko to 'Taiwan 31 and the anotutt of tneh looms outstanding on tl-Jtt date 'arc!, as follows:
gMtIrrl Onlk.11-1122-1.2aAmeralk Purser)? C*TIV r'ITY
44.trawa3,k, N. T •
Perth Adoky, .J.
Ira R. Crouse
artort a. 5. T.
Damao Prattlers
York. W. T.
Pew
roster and Stewart 7-t.
Fri Admen 4 Sons. octoenre
,York, W. T.
NO
Co.. Inc.
low York.
flosept‘.. . 'er 9Tee
1411, York, N. Y.
11or-Cummings Co., I nc
New York, S. Y.
Morris white Pfg.
Clifton, N. J.
To. Jersey Flour i11s Co.
New York. 1, Y.
Saaramelli 6- Co.. Inc.
Wow York, N. Y.
S. 'Auff Sons. Inc.
Type.Corona
L. C. foith
New York, N. Y.
writers. Inc.
leieral_it4e'Tire F;t4vr
J. T. Apple & Ce.. Inc.
last* a•frigerator Co.
J. S. Fenkeln (reskeln &
Meer)
VOLUME 238
PAGE 27
amok
rALtSIC-1313AM
t15.000
10.000
5,000
75.000
110000
2,900
25.00'
15,900
1b5.000
31.000
9).000
20,000
10.300
17,5)':J
13.950
165.000
3.000
25.000
10.000
9.500
300.000
300.000
o
Lesoester, Pa.
Clearfield, Po.
3,000
Philadelphia, Pa.
3.1427
75,000
Mr. Morrill — E2
put Altura pit
Poderal Ft,
rve_ moc
Attioulta,
Continsmtpl Turpentine X
otrOorpor,tion
Missigsippi Cotton Soot
Prod ts Compiler
Richmond 7osier7 010/Whir
LLABILit
aricelyn Chattan. r',C)
rt r;oraprkrf
Kithit9 Cym Convey
f-rid Owepaqr
New Med (to Ixact er
Vera*
Laurel 'Asa
,fackson, Miss.
Islasville, La.
$19,150
14.000
50,000
0111 MO
$25.000
11a
Irice1yn.14inn. 90.211.7
.
7,900
5t .Clo tad
nnez.•no1 .Mirin. 7.5(X)
?Argo , ": • .
7.27
Dimbr Co.
rri11i1o.. . 178.2g5
/14,87P
2.220
.275
64.735
.PTT I ilk i
10.1?1
3Y
Federal •
tl.eseirve
an
i.maresisarsasiiMasmseoferamosas......
ton
Now York
Phil adel ohia
r.I1
clam nd
t.t 1 anta
c8tio
St. Touis
'Anneapolis
Items ps .)71ty
Dallas
San Franci sco
Tot RI
Ftr) rric:I7srt‘r GRA";TRD
- TO J JATZY 31 , 1933
71,1;s7'Ir
Y")!D 'arl,AT 3, '3
I/kr-1)er of applications !Total nirter of Roa:Ions rpr Apt zry_ntirt.:..: _],o L;
ipll Pd far
-..-.1kt ket:rnted 1
Loans
,lapplic•Aions
Pc.;Pr
enisl
1
1 Pec. 4 to f.
Janu:37.not granted.
i pieced
t'r esent
?moor 1
not
1
of
! 31, 1932 I
rith
1933 .July 21, 1 .32
crmdi t
not
1 est I sfac- 1 credit
. . to June 31.19331
o tl,er 1 deetred
el 1 rtbls
t
goctr
ci
aly
rsd It not
I
benks !ad0
tp
, shown
1
.11•••
Obla GIB
10
11
1
1
0111.0
41.111
1
1
OM 010
MN am.,
41.
1
OW WO
214
32
1
01E1=1
30
7
PI
20
11
1
1
12
amide
Ali
pit
alb OD
1
,1
22
Po1
12
11
1
60b
#t.ryorry,i -ate; ram ants soro timer, not
1
••11.4•11
11.
1
2
10
13
3
11
41111.011
1
12
tilt
0.41.
11
2141,
341
I
1
.11.0.16
OSP oho
115
OP NO
3
20
.0 OVID
he
117
1.
2
3
MO Olt
11
143
51
12
, Amount of
lore decl!nod
July 21 1
to
1 Jam*.ry 21,
1131t
1
t114,"1-10
5.079.55n
t467,610
101.n0
878.446
1.9i:17.76g
1.140r,.goo
271,300
287.010
1114,1tt,9
193,400
17I! PC*7)
SAA.
THE WHITE HOUSE
Washington
T.Iarch 4, 1933
Hon. Eugene ...leyer
Federal Reserve Board
'.."jashington, D. C.
'1,:y
dear Governor 'leyer:
I received at half past one this
dated ,.:arch 3rd. I must assume
letter
morning your
written on the basis of informawas
that this letter
tion received by you prior to 11.30 o'clock last night
for the reason that before your letter was sent you
had certain information as follows:
t 11 o'clock last night the Presidenta.
elect had informed re he did not wish such a proclamation
issued.
b. The .i.ttorney General had renewed the
sane opinion which he had already given to the Board that
the authorities on which you were relying were inadequate
unless supported by the inCOIlliri€'
c. That groups of repr esentat iv e bankers
New York, embracing rrembers of the
and
both
Chicago
in
the Federal Reserve Banks in those
s
of
-oard of Director
cities, were then in conference with the governors of the
states of Illinois and 'hew York, and that the governors
of these trro states were prepared to act if these representative groups so recommended. It appears that the
governors did take action under their authorities, declaring a teriporary holiday in these two critical states,
and thus accomplishing the ma jor purp oses which the hoard
apparently had in mind.
In view of the above I em at a loss to
a
communication should have been sent
such
rthy
nd
understa
of this .A.drninistration, which
hours
few
to me in the last
now
a.clnit was neither justified
I believe the Board must
nor necessary.
Yours faithfully,
NANYE9F8
I.E.EPIBERT HOOVER
r.
Form
o.
-OffiCe Correspolittence
T.
O
Date
144L, 44,44
October
30_,_ 1922.
Subject: Meaning
Mr. Mitchell.
Frorm_Mr.
FEDERAL RESERVE
BOARD
Wyatt- General Counsel.
of phrale "tested
banking experience" as used in Section
4 of the Federal Reserve Act.
Section 4 of the Federal Reserve Act requires that each Federal
Reserve Agent and each Assistant Federal Reserve Agent shall be a Person
of "tested banking experience", and you have requested me to advise you as
to the meaning of the expression "tested banking experience."
So far as I can find, the term "tested banking experience" has
never been defined either by the lexicographers or by the courts.
"tested" seams never to have been defined by the courts.
The word
The word "banking"
has been defined freeuently by the courts, out the definition riven by Weosterwhich is euoted below, is substantially the same as those given by the
courts, and the meaning of the term is so well understood that it is not
believed necessary to Quote here the definitions given by the courts. While
there have been a few definitions of the word "experience", the Tuuject
matter and context has been such that those definitions would De of little
or ao value in this connection. It is necessary, therefore, to rely upon the
definitions of these words -
given by the dictionary.
Webster's unapridged dictionary defines the verb "test" as follows:
"To put to the test or truth; to try the truth, genuineness, or quality of by experiment, er—tor-e.ente
atriaeip-ealswe.44 or by some other principle or standard; as, to test the soundness of a principle, the
validity of an argument, the strength of a material."
It also uefines the noun "test" as follows:
"Examination or trial by the cupel;hence, any critical
examination or decisive trial; as to put a man to a
test.Hence (a) Leans of trial; uiscriminative characteristic of fact; specif. subjection to conditions that
show the real character of a nerson or thing in a certain particular; as ausence is a test of love.(b) That
with which anything is compared for proof of genuineness; touchstone; standard."
VOLUME 238
PAGE 95
v..
•
It defines the word "oanking" as follows:
"The aasiness of a bank or of a banker. The business of
banking originally was that of money changing; at present banking, in general, consists in taking money on
deoosit suoject to cheek or draft, loaning money, as
by discountinc notes and pills, issuing drafts, and any
other associated form of general dealing in money or
credit. One or more of the operations if carried on with
the quolie in general may oe construed as banking."
It defines the word "experience" as follows:
" 1. Trial or test; either a tentative trial or experirent, or a crucial test, or demonstration.
2. The actual living throuph an event or events;
narticination in anything through sensation or feelingt
the real life as contrasted with the ideal or imaginary;
personal acquaintance with reality; actual enjoyment or
suffering; hence, the effect upon the judgment or feelings oroduced bv. Tersons and Airect impression as contrasted with description or fancies;as, to know by experience."
*
*
*
* *
*
*
* *
"4. Knowledge, skill or techniaue resulting from experience; experimental or inductive knowledge; hence skill
facility, or practical wisdom gained by personal knowledge, feeling or action.
*
*
*
*
*
*
*
*
*
*
*
*
"7. Philosophy. The sum total of the conscious events
which compose an individual life; also the ultimate,
non-analyzed data of all hapnenings that may be apprehonied; the sumnum genus of all knowable reality."
Exnerience,therefore, is the actual living through an event or
events or tne participation in anything through sensation or feeling. In
another sense, it is the knowledge, skill or technique resulting from
such living through an event or events or from such narticipation in anything.
Banking experience, then, must be knowledge, skill or technique
resulting from actual pvrticipation in the ousiness of banking. If we
accept this as a definition of oanking experience, it only remains to
ascertain what added significance is given by the use of the word "tested".
From the definition quoted apove, it appears that the noun "test" means
"suajection to conditions that show the real character of
3
person or
thing in a certain particularl and the verb "test" means "to
put to the
It is reasonable to assume, therefore, that the word "tested"
test".
was used in this connection to require that the nerson selected should
be a person who has ueen subjected to such conditions as to show the
real character of his banking exnerience - 1. e., the real character
of his knowledge, skill or technique resulting from actual participation
in the uusiness of banking.
Reading these words together in the light of the above definitions, therefore, I should say that a person of "tested banking experience" is a person who has knowledge, skill, or technique resulting from
actual participation in the uusiness of banking, and who has been subjected
to such conditions as to demonstrate his ability as a tanker. To
state it more freely, one might say that a Person of "tested uanking
experience" within the meaning of Section 4 is a person who has proven
his ability as a uanker through actual participation in the business
1
banking.
I realize that this is not a very precise definition, but I
believe that it is not practicable to frame one which is more precise.
In the last analysis, the question whether a particular person is a
person of tested banking exoerience is a buestion of fact to be decided
in the light of all the attendant circumstances; and no definition can
be f:amed which will be properly applicaule to all circumstances which
might arise.
Respectful4,
z'
General Counsel
'NW MC
roh 7* 19-1
Dear 3Lr. Secretary:
Today at noon I het2pene1 to met Ion. Robert Lx a, a
ilepublicaa timber of the Bartlziniknd Currency Cetriittee of the
Hquse of Representatives. He asked a* if I would be .-.-ood eneuet
to give notice that if the administration requires buy etAergency
ledislation* the Limbers of the 3solkini;4Inj. Currency emz.littoe
of the iious3 should be taisin into meertaience before the legislation is foinally pro2oest0
lie stated that this was the
oalevese followei in the emergency legislation of Last year, and
ho intimated that observance of this suggestion utideit tend to
erviditit bottom greLltly• I told him .11-1at I 1.4 no authority to
accept any 3uch notice, i.4.4s I me net ensigind in the matter of
2re?atring legislation* IKI
hen he aolo3c1 me to Ave this Liesm.4-_,
to the proper authority, .4.2141 this is Ry rq.ason for now troubling
Jou.
Sincerely jours,
H.3n. Villian H. Woodin,
Secretary of the Treasury,
Was:lington„ D. 0.
VOLUME 238
PAGE 98
S.(441,41
Form1.31
'Office Correspontence
FEDERAL RESERVE
BOARD
Mr. Hamlin
From
Subject:
Date
December 22, 1932
Acceptances against Receivables
Mr. Parry/ Ahl,
OPO
2-8495
This proposal, as submitted to you by ex-Senator Owen, wculd (1) authorize any member bank to accept, and (2) any Federal reserve bank to rediscount, bills secured by "notes, bills, or accounts receivable
arising
from the sale of merchandise and due by merchants, manufacturers or distributors."
The proposal contemplates that acceptances created in this
way would
be secured by the designated receivables not only at the time of acceptance
but also, through the use of a revolving fund of such receivables, throughout
the life of the acceptance.
The principal legal effect of this proposal, as it seems to me, is to
authorize member banks to accept without "shipping documents" bills of exchange of the same essential nature as certain of the bills that they may
and do now accept only when accampanied by such documents.
The security of
the accepting bank throughout the life of the acceptance, and not merely as
at present only after shipping documents have been detached, would consist
merely of claims against the seller and the buyer of the goods figuring in
the original transactions.
The accepting bank, however, would look for its
pay first to the seller of the goods, with recourse to collecting claims
represented by the collateral, instead of looking first to the buyer, as at
present, with recourse to the seller.
In practical effect, however, the proposed change would merely offer
certain customers of member banks the opportunity to ask that acceptance
credits, secured by the designated receivables, be extended to them instead
of outright loans secured by the same collateral.
In the present circum-
stances, at least, there is no reason to suppose that member banks would be
nan2f38
41,
2.
any more willing to grant an acceptance credit than to make an outright
loan.
Loans of this type, considered as assets of member banks, are of
course eligible for rediscount at the reserve banks.
Some comments of miscellaneous character are attached.
Theory of proponents.
-
From the way the proposal is set up, I infer
that its proponents think that the member banks must at present be withholding credits, in some cases at least, because the banks "have no money
to loan," and that the proposal would enable them to get the necessary
money by rediscounting the proposed acceptances at the reserve bank.
The
truth is, of course, that with $500,000,000 of excess reserves many of the
banks have plenty of money to loan and other banks could get it by resort
to the Federal reserve banks, either with eligible assets tiat they already
own or with the eligible paper that would arise from loans secured by the
designated receivables.
It is the unacceptable borrower that is likely to
be told by his bank that it has "no money to loan."
Receivables.
- "Notes, bills, or accounts receivable
arising
from the sale of merchandise" represent of course a large part of the current assets of merchants, manufacturers, etc., and must at all times figure directly or indirectly as security for a large part of the bank loans
outstanding.
They are often specifically pledged by borrowers as collateral
for loans.
Due by merchants, manufacturers or distributors.
-
This description,
by eliminating the promissory notes, etc., of consumers, confines the designated receivables to paper representing in some sense "goods in motion."
The description appears to mean "owing from" merchants, etc.,--not "past due."
90k
3.
Attitude of the acceptance market.
-
From my general knowledge of
the acceptance market, I should expect that banks engaged in the acceptance business, dealers in acceptances, etc., would see no point in the
proposal, but I have made no specific inquiry in these quarters.
Opinion of Counsel.
A detailed examination would apparently re-
quire an opinion from Mr. Wyatt's office concerning the legal effect of
the proposal.
I have not consulted Mr. Wyatt's office on this.
FOIM 2Cd.
office Corresponance
To
Dir. Hamlin
Fr=
Ur• Sme_a4 (by telephone)
111
Date_ne.,30
,_1932.
FEDERAL RESERVF.
BOARD
Subject:
2—S495
Between June, 1929, and June, 1932, the cost of items entering
into the cost of living declined as follows:
Food
Clothing
Rent
Fuel and light
House furniShing goods
Miscellaneous
35.3%
20.8(;;
16.9
10.3%
22.7
2.5
All itams
20.3;40
The relative imnortance in the fanily budget of the working man
of food is 38.2
according to the Bure:.0 of Labor Statistics, and
according to the National Industrial Conference Board it is 33
(
ii).
The relative inportance of food is, of course, higher in the
working man's budget than in that of the salaried amnloyee.
The
National Industrial Conference Board shows that 20 of the woiking
man's budget goes for housing, 12,; for clothing, 5% for fuel and light,
and 30,0 for sundries.
VOLUME 238
PAGE 126
Ii
•
X-67'3
17-LA'S C7 717 77L117:"ALR7.7:RVI; BO=
E777CmIOCTOBER 13, 1930.
Article 1.
The Chairman.
The Secretary of the Treasury, as Chairman of the Board, shall
preside at all meetings rthen present. In the absence of the Chairman,
the Governor shall act as presiding offirer. In the absence of both the
Chairman and the Governor, the Vice-Governor Shall preside, and in the
absence of all three such officers, the remaining member of the -x:',cutive
Committee shall preside.
Article 11.
The Governor.
Sec. 1. The Governor of the Federal Reserve Board shall be the
active executive officer thereof; subject, however, to the supervision of
the Board and to such rules and regulations as may be incorporated herein
or may from time to time, by resolution, be established.
Sec. 2. The Gov.:rnor shall have general charge of the executive
and routine business of the Board not specifically assigned under the bylaws or by resolution of the Board to any individual member or committee
thereof, and shall have supervision of the Board's T,taff,
Sec. 3. The Governor shall
an 0x-officio member of all
Standing Committees of the Board.
Article 111.
The Vice _Governor.
Sec. 1. In the absence or disability of the Governor, his powers
shall be exercised and his futirs discharged by the Vice- Governor, and in
the absence or disability of both of these officers, such nowors shall be
exercised and such duties disdhamed by the remaining member of the
Executive Committee; in the absence or disability of all members of the
Executive Committee the ---,ewers and duties of the Governor shall be exercised by the senior member of the Board present.
Sec. 2. It shall be the duty of the Vice-Governor to cooperate
with the Governor in the administration of the executive business of the
Board.
VOLUM 238
PAGE 127
- 2-
X-57:1;
Article IV.
Secretary and Assistant Secretaries.
Sec. 1. The Board shall appoint a Secretory and one or more assistant secretaries.
Sec. 2. The Secretary shall keep an accurate record of the nroceedinEs of the Board and shall conduct such correspondence ane. nerform
such other duties as may be assigned to him by the Governor or by the Board.
In the absence or disability of the Secretary, the duties of that office
may, by direction of the Board, be performed by an assistant secretary.
Sec. 3. The Secretary shall have custody of the seal and, acting
under the authority of the Board, shall have power to affix same to all instruments requiring it, Such instruments shall be attested by the Secretary,
Sec. 4. The assistant secretaries shall each perform such duties
as may be assigned to them from time to time by the Board or by the Secretary.
Article V.
Assistant to the Governor.
Sec. 1. The Board may authorize appointment of an Assistant to
the Governor.
Sec. 2. The Assistant to the Governor shall perform such duties
as shall be assigned to him by the Governor.
Article VT.
The Executive Committee.
Sec. 1. There shall be an Executive Committee of the Board consisting of three members, which shall include the Governor, Vice-Governor
and one of the appointive members of the Board. The appointive member of
the Committee shall be nominated and elected at a regular meeting of the
Board. rembers of the Board shall serve as far as practicable in rotation
and for approximately equal terms. The presence of three members shall be
requisite for the transaction of business "my the 7xecutive Committee, and
action shall be taken only on unanimous vote of the Committee.
Sec. 2. In the absence of the Governor and Vice-Governor the appointive member of the Executive Committee shall act as Chairm.n and Shall,
with two other appointive members of the Board present in 7ashington to be
chosen b- him in the order of their seniority, exorcise the powers and discharge the duties of the Executive Committee. In the absence of all three
regular members of the E;:ecutive Committee t1-.re three remaining ampointive
members of the Board, provided there be three in 7ashington, shall act as
an interim committee and exercise the powers and discharge the duties of
the Executive Committee, the senior member acting as Chairman.
_ 3-
X-6733
Provided, ho-ever, that if only tero of the appointive members
of the -:oard are in 7ashin=ton such two members may act as an interim
committee and e:-ercise the powers and discharr_re the duties of the Executive
Committee. Any action taken b- such interim committee of two members, however, shall not be finally effective unless and until ratified b- the
Board. At the next regular meeting of the Board there shall be reported
to it for ratification all actions taken by such interim committee of two
members since the last regular meeting of the Board. Upon ratification
by the Board, all actions taken b7 such interim committee of to members
shall have the same force and effect as actions taken by the Board itself
and shEll be effective as of the date such action was taken b- the interim committee of two members unless otherwise specificall- provided b- the
Board.
Sec. 3. It shall be the duty of the Executive Committee to review and submit drafts of important correspondence involving the expression
of opinions or decisions of thc Board, and to prepare and maim recommendations E7overning the conduct of the Board's business.
Soc. 4. The arecutiire Committee shall also have charge of all
matters appertaining to the internal organization of the Board, and shall
make recommendations from time to time on this matter. It shall also prepare annually a budget of proposed expenditures.
Soc. 5. In the absence of a quorum of the rederal Peserve Board
and for the transaction of business requiring action during the absence of
such quorum, the 7xecutive Committee is authorized to transact business
which can be transacted in accordance -ith established principles and
policies of the Board and to perform such additional duties as may be specifically deleeated to it from time to time b- instruction of the Federal
Reserve Board.
The Secretary of the Board shall serve as Secretary of the
Executive Committee.
Article VII.
Standing Committees.
In addition to the 3xecutive Committee there shall be the following Standing Committees, appointments to iThich shall be made by the
Governor, subject to the approval of the Board.
Sec. 1. Law.
To the Law Committee shall be referred for study and report all questions of a legal nature. TO this Committee shall also be assigned the preparation or revision of the Board's regulations, contemplated
amendments to the federal Reserve Act, applications under the Kern amendment to the Clayton Act, and apiplications for the exercise b- national
banks of trust powers.
The General Counsel shall serve is Secretary of the Committee.
Sec. 2.
Examination.
To this Committee shall be referred. all ouestions relatin64 to the examination of rederal 'Reserve or member banks including
I
•
- 4-
X-6763
admission of state banks and permission to establish and operate branches.
The Chief 7xaminer shall serve as Secretary of this
Committee.
Sec. 3.
Research and Statistics.
This Committee shall have charge of all investigations
of an economic and statistical character authorizeel by the Board and shall
super7Lse the work of the Division of esearch and Statistics and the preparation and publication of the Federal Reserve Bulletin. This Committee
shall also have supervision of the statistical and publication work of the
Federal 'Reserve Banks.
The Director of the Division of research and Statistics
shall servo as Secretary of this Committee, or in his absence the Assistant
Director shall so serve.
Soc. 4.
Salaries and 7xpenditures of Federal Reserve Banks.
To this Committee shall be assigned all recommendations
from Federal Reserve Banks for changes of salaries and other expenditures.
This Committee shall make reports with respect to charge-offs and franchise
tax of Federal Reserve Bpnks.
The Secretary of the Board shall serve as Secretary of this
Committee.
Sec. 5.
District Committees.
To each Federal Reserve Bank and District shall be assigned
a Committee of not less than two members of the Federal Reserve Board. It
shall be the duty of each Committee to keep itself informed by correspondence and visit of the affairs of the Bank and the condition of the District,
and make investigation and report on all questions appertaining to the operation of any Federal Reserve Bank or the condition of any Federal Reserve
District that may be referred to it by the Board. These Committees shall
also aid the Committee on Salaries and 11xpenditures with information regarding personnel of the respective Federal Reserve Banks of which they
have charge. These Committees shall also make recommendations to the Board
for the appointment of Directors at Federal Reserve Banks and Branches.
Article VIII.
The Fiscal Agent and Deputy Fiscal Agent.
Sec. 1. The Board shall appoint a Fiscal Agent and a DePuty
Fiscal Agent. The duty of the Fiscal Agent shall be to collect and deposit
all moneys receivable by the Board with the Treasurer of the United States,
to be placed in a special fund established on the books of the Treasurer
for the Federal Reserve Board. The Deputy Fiscal Agent shall perform the
duties of the Fiscal Agent during his absence or disability.
Sec. 2. The Fiscal Agent and Deputy Fiscal Agent shall each execute a separate bond with surety satisfactory to the Board.
Sec. 3. Payments of expenses and other disbursements of the
Board shall be made b- the Fiscal Agent upon proper vouchers out of moneys
- 5-
X-6703
advanced to him b- requisition and warrant out of the special fund and
placed to his official cr'dit with the Treasurer of the United States as
provided by Section 5 of this Article. In the absence of the Fiscal Agent
payment of expenses and. other disbursements shall be made by the Deputy
Fiscal Agent upon proper vouchers out of moneys advanced to the Fiscal
Agent by requisition and warrant out of the special fund and placed to his
official credit with the Treasurer of the United States as provided by Sections 5 and 6 of this article.
Sec. 4. The Fiscal Agent shall prepare a quarterly account in
such form as shall be approved by the Comptroller General of the United
States and, after approval b- the Governor, such quarterly account shall be
submitted to the General ccounting Office. Such account shall cover payments of expenses and other disbursements made by both the Fiscal Agent and
the Deputy Fiscal Agent.
Sc. 5. The Governor shall, when necessary, make requisition on
the Treasurer of the United States for the advance of such sums to the Fiscal
Agent as may be necessary from the Federal Reserve Board fund.
Sec. 6. The Deputy Fiscal Agent in making disbursements of the
Board upon proper vouchers out of the moneys advanced to the Fiscal Agent
shall sign against funds to the official credit of the Fiscal Agent with
the Treasurer of the United States in the name of the Fiscal Agent by himself as Deputy Fiscal Agent.
Article IX.
Gold Settlement Fund
and
Federal Peserve Agents , Fund.
All funds deposited by or for account of the respective Federal
Reserve Agents in the Federal Reserve Agentst fund of the Federal Reserve
Board and all funds deposited by or for account of the respective Federal
Reserve Banks in the Gold Settlement Fund of the Federal Reserve Board
shall be held on deposit rith the Treasurer of the United States and shall
be subject to withdrawal only by check of the Federal Reserve Board signed
by the Secretary or an Assistant Secretary and countersigned by the Governor
or acting executive officer of the Board.
Article X.
Requisition for Delivery
of
Federal Reserve Totes.
Requisitions upon the Comptroller of the Currency for the delivery
9
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X-6733
of Federal 'eserve notes to the respective Federal Reserve Agents shall
be made by the Secretary or Assistant Secretary in response only to requests made by the Federal Peserve Ageats to the Board for such notes.
The Secretary or Assistant Secretary shall submit daily for approval to
the 'Iovernor or acting executive officer of the Board a schedule showing
the amount of each denomination of 7odoral Reserve 'Motes requisitioned by
him for the account of each Federal :reserve Agent.
Article XI.
The Seal.
The follorring is an impression of the seal -dopted by the Board.
SEAL.
Article XII,
Counsel.
Sec. 1. The Board shall appoint a General Counsel whose duty
it shall be to advise with the Board, or any member thereof, as to such
legal cuest ions as may arise in the conduct of its business; to prepare,
at the Board's request opinions, rezulations, rulings, forms and other legal
papers and to perform generally such legal services as he may be called upon
by the Board to perform.
Sec. 2. Subject to the direction of the Governor, the General
Counsel shall have authority to correspond directly with the Counsel of
the various Federal Reserve Banks and to reouest their opinions as to the
interpretation of the local laws of the States included in their respective
Federal Poserve Districts. Copies of all such correspondence shall be furnished to the Board for its information.
Sc. 3. 7henever it may be deemed advisable, the Board may appoint one or more Assr.ciate or Assistant Counsel, or one or more Assistants
to Counsel. The duty of such Associate or Assistant Counsel shall be to
assist the rencrol Counsel in the polformance of his duties and to nerform
the duty of the General Counsel in his absence. The duty of such Assistant
to Counsel or Assistants to Counsel shall be tr assist the General Counsel
in the performance of his duties.
Soc. 4. The Board may appoint from time to time Consulting Counsel,
rho may be attorneys at law engaged in outside practice.
*
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X-6733
Article XIII.
Meetings.
Sec. 1. Five members of the Board shall constitute a quorum
for the transaction of business.
Sec. 2. Stated meetings of the Board shall be held on such days
of the week and at such hours as the Board by a majority vote may fix from
time to time. One meeting day each week shall be set apart for consideration
of the following matters, advance notice of not less than to days being
sent to members of important questions to be taken up at the meeting:
Discount and open market matters;
Approval of expenditures and salaries;
Establishment of Federal Reserve Branches,
Agencies, Currency Stations;
Permission for establishment of member
bank branches;
Amendment of Board's rules and regulations;
New policies or changes of policy;
Such other major matters as may be reserved
for consideration at the weekly meeting.
Sec. 3. Special meetings of the Board may be called by the Chairman or Governor or upon the written request of three members of the Board.
Sec. 4. At all meetings of the Board the following shall be the
order of business:
(1) Reading or Inspection of the Yinutes of the last
regular meeting and :'inutes of meetings of the
Executive Committee.
(2) Report of the Governor.
(3) Report of the Secretary.
(4) Renorts of the committees or members on assigned
business.
Unfinished
business.
(5)
(6) Now business.
Soc. 5. No vote shall be taken or motion made by the Board at a
meeting or conference when others than the members of the Board and its Secretarial staff are present.
Article XIV.
Absences.
Sec. 1. Absences of appointive members of the Board shall as
far as practicable be arranged so as not to interfere with the expeditious
conduct of the Board's business in Washington.
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110
X-6733
Article XV.
Information and Publication.
Sec. 1. All persons employed by the 3oard shall keep inviolate
its business, affairs, and concerns, and shall not disclose or divulge the
same to any unauthorized person whomsoever, and any employee who shall give
information contrary to this by-law shall be liable to immediate di'smissal.
Except u-oon vote of the Board, no one other than a Member of the Board, or
the Secretary, Assistant Secretaries, Assistant to the Governor, and
General Counsel, shall be permitted to inspect any of the Board's minutes.
Sec. 2.
To statements shall be made to the press expressive of
the Boardls policy or descriptive of its action except as authorized and
ay)roved by the Board. Such statements shall be issued only in written
form and when authorized and approved. they shall be issued through the office of the Governor or such other officer or member of the Board as may
be specifically designated. 'Mile each member of the Board must determine
for himself the propriety or necessity of expressing publicly his individual
opinion on any question, members shall not quote publicly the opinion of
other members on matters which have not formally been passed u,Don by the
Board.
Sec. 3. There shall be published monthly, a bulletin to be known
as "The f
- ederal Reserve Bulletin", which shall be the official ocriodical
organ or publication of the Federal Reserve Board.
Sec. 4. No resolutions of a personal character shall be passed
by the Board on the termination of the membership of a member of the Board.
Article XVI.
Amendments.
These by-laws may be amended at any regular meeting of the Board
by a majority vote of the entire Board, provided that a copy of such amendments shall have been delivered to each member at least seven days prior to
such 1-,leeting.
•41
(17.4,
1
52,
The executive officers of the bank fully recognize the fact
that any question relating to the advisability of reducing the scale of salaries paid by the bank involves their own salaries, a circumstance which naturally causes them to feel some hesitancy in expressing their views on the
subject.
Nevertheless, they recognize also that even this circumstance does
not exsuse them from the duty they owe to the board of directors to assist
as much as possible in the task of bringing out all of the various facts and
factors that have a bearing upon the question under consideration.
We have
already assembled and turned over to the Board's special committee a compilation of facts and figures which present a comprehensive basis for studying
the present salary structure of the bank.
It only remains to supplement
this report with a brief outline of the views of the officers as to the fundamental principles that should be considered in connection with these facts.
These views are respectfully submitted to the Board for what they may be
worth and with the full knowledge that they will be given only such consideration as they may deserve.
It is the opinion of the officers of the bank that the question
of effecting a general reduction in the salaries and wages of a business institution should be considered in the light of the facts and circumstances surrounding that institution's affairs.
It should not be determined, in our judg-
ment, as a result of any public pressure or clamor.
Putting it another way,
the compensation of officers and employees of any particular concern should
not be arbitrarily reduced, as we understand has been suggested by a director
•
of another Federal reserve bank, for the purpose of setting a precedent or
giving comfort to the managers of those enterprises whose situations unhappily
require such action.
As a matter of fact, it is doubted if any business organi-
zation in the country whose income and dividends remain unimpaired has brought
about a general reduction in wages.
VOLUME 238'
PAGE 129
Moreover, no genuine benefit accrues to
64
Page 2
an enterprise, which has made such a reduction, from reductions made by other
organizations.
On the contrary, every reduction affects the purchasing power of
the country and serves to lessen business activity.
The larger the nuMber of
business organizations who are able to maintain their wage schedules the greater
will be the benefit to accrue to those who found it necessary to bring about a
reduction and the sooner Jill the latter be able to return to the pre-reduction
status.
Someone has well said that there are two situations that justify
a reduction of salaries.
One is when an employee doesn't earn his Rglaza and
the other is when the Raployer can't continue to pax it.
These broad principles,
when applied to our situation, give rise to the following questions:
1.
Have the salaries paid by this bank reached a point where they
exceed the level of salaries paid by other comparable institutions for services
of similar quality and quantity?
Strictly speaking, the other eleven Federal reserve banks are
the only institutions in the country whose earnings, expenses and services are
analogous to ours, and, therefore, the only ones whose salaries are really comparable to ours.
Nevertheless, it is well worth while to make some salary com-
parisons in the broader, if less analogous, field occupied by the larger commercial banks of our district.
These comparisons, which have been covered in detail
in a separate memorandum, show that the average salaries received by the officers
and employees of the comparable commercial banks are not only well up to the
level of salaries in our own institution, but, when closely analyzed, if there
is any advantage at all it is found to be on the side of the compensation received by officers and employees of the commercial banks.
In contrast with these
institutions, we find that the average officer or employee of a Federal reserve
bank receives only one form of compensation for his services, namely, the actual
salary that he receives.
On the other hand, the compensation enjoyed by the
Ad
Page 3
average individual mployed in a large commercial bank takes several forms, as
follows:
(a) His salary.
(b) Bonuses, dividends, and other forms of extra direct
compensation, including in some instances participation in excess profits of the bank.
(c)
Opportunities for making profits in trading and investment transactions that arise in the normal course
of his contacts with the bank's customers and the
general public, including in many cases proper advisory
or service relationships with other corporations and
organizations, which carry fees or other compensations.
(d) Greater opportunes for promotion to higher posons
in the banking world by reason of his more intimate and
frequent contacts with other commercial banks and bankers.
In adon to the foregoing, the comparison would not be complete
unless it be extended to the relative demands that are made upon the earnings of
Federal reserve bank paople as compared with those
as; on commercial bank people.
Commercial banks, operating under less restrictive legal regulations, are large
givers to charitable, educational and reous enterprises, while Federal reserve
banks are prohibited from making such donations.
The result is that although com-
mercial bank officers and employees do their share of individual giving to these
causes, they are not subjected to anything like as much pressure in this connection as are those who hold posons in a bank whose restrictions are such that
the bank's own funds cannot be used to aid these philanthropic enterprises.
While
this inequality is not of serious importance in ordinary times, it becomes a matter
of considerable proportions in times of unusual distress like the present.
A further factor that deserves some consideration at this time is
•
4
.0
Page 4
the current policy with respect to salary reductions pursued by corporations
other than banks.
Aside from the fact that the factors which determine the poli-
cies of a Federal reserve bank in the management of its earnings are fundamentally
different from those governing the policies of an ordinary commercial or industrial enterprise that is operated purely for profit, it is only fair to keep in
mind the fact that during the boom days preceding the present depression the level
of corporate salaries, generally speaking, followed the upward trend of corporate
profits; whereas, there was no corresponding expansion of salaries in the Federal
reserve banks.
For example, during the four-year period from 1926 to 1930, the
average salary paid to the officers of our own bank showed an average annual increase of 2.7 per cant.
It might be well observed here, too, that in connection
with many corporations throughout the country the reductions in salaries that
have been effected have been more than offset by the benefits that have accrued to
officers, and in some cases employees, in their capacities as stockholders, through
the preservation of the corporations' capital structures.
2.
The second important question that should be considered in connec-
tion with our salary situation is the one that applies the test of the capacity
to pay.
There come times when an enterprise, even though served by officers and
employees who by every test deserve the salaries paid them, finds itself in such
a financial condition that it is compelled to reduce salaries in order to keep
its expenses within the limits of its ability to pay them.
has that point been reached by our institution?
The question arises,
The only factor that appears to
have a legitimate bearing upon this question is the interpretation that should be
placed upon the laws that created our bank with particular reference to the uses and
purposes of its earning power.
If the purposes of the law have been fulfilled when
we have accumulated a sufficient surplus of earnings to meet our obligations to
member banks in the form of dividends and services, we are justified in using our
accumulated earnings for the main enance of fair salaries to our workers in years
-1•111."--
•
Page 5
when our current gross earnings are deficient.
It seems reasonable to assume that
the purpose of the law that authorizes us to build up a surplus twice the amount
of our capital was, among other things, to enable us in years of large earnings
to create a fund for meeting our obligations to our stockholders, including dividends and services, in years of lean earnings.
If we now repudiate this policy
the logical alternative would be to establish current net earnings as the governing factor of our salaries, increasing or decreasing the salary scale each year
according -Co the annual fluctuations in our net earnings account.
Such a policy,
of course, while more or less followed by ordinary business enterprises, would
certainly not conform to the peculiar nature of a Federal reserve bank.
3.
A third question that may be worthy of some consideration, in view
of present economic and political conditions, is the question whether or not, wholly
aside from the considerations discussed above, it would be advisable for our bank
to take some action at this time in regard to its salaries as a matter of publis
policy.
The pressure of public opinion for retrenchments and economies in the
costs of government has given rise to the belief in some quarters that the Federal
reserve banks, being linked in the public mind with government institutions, are
expected to get in line with the general program of salary cutting, and unless
they do so will be exposed to criticism.
Those, however, who see in the recent
reduction of the salaries of certain employees of the Federal government a criterion
that should be followed by all business institutions, including Federal reserve banks,
should bear in mind two important points: First, that the reduction of salaries of
Federal employees was not based on the thought that their salaries had become excessive by reason of a decline in the cost of living, but, on the contrary, it was
necessitated by the very opposite situation.
It grew out of the fact that one of
the largest elements of the nation's cost of living, namely: taxation, had increased
to such intolerable proportions that it became necessary to reduce government salaries in order to reduce the tax burden to more tolerable proportions.
Another im-
Page 6
portant distinction between the position of the Federal government and that of the
Federal reserve banks is the fact that the government has no surplus of accumulated
s.
earnings in its Treasury available for the maintenance of its usual scale of salarie
the
These vital differences should be borne in mind; and yet it is the thought of
officers of the bank that if any Federal reserve bank finds upon investigation that
s and
its salaries are out of proportion to the value of the services of its officer
should proemployees, or out of proportion to its ability to pay them, such bank
particular
ceed to readjust its salaries to conform to the requirements of its own
case.
On the other hand, if it is decided that a reduction of salaries should be
to the
made solely as a matter of public policy, every consideration would point
Federal reconclusion that such action should be taken concurrently by all of the
serve banks, as a System matter.
It seems to us that any other course of action
would be ineffective, and in certain cases rather unfair.
Our awn institution,
any other rehaving reduced its general expenses this year more drastically than
reserve banks beserve bank in the System, should at least be joined by the other
n in its salaries.
fore making, out of deference to outside conditions, any revisio
the effects
In this connection, some thought may well be given to
have upon the publas
that a general contraction of our payroll disbursements would
welfare.
the clerical
A certain financial writer has recently well said that
are now the bone and
workers of this country, the so-called "white collar" class,
sinew of our nation's purchasing power.
It seems clearly apparent that the com-
e be benefited by a submunities in which our four offices are situated would not
stantial curtailment of our payrolls.
Any deficiency that might be caused in the
times over in the ultimate
earnings of our employees would multiply itself several
ying power of the
curtailment that it would cause in the purchasing and debt-pa
communities in which they live.
differentiate
Notwithstanding the facts heretofore referred to, that
4
•
•
Page 7
our institution from ordinary business enterprises, and thinking alone of the
general economic situation, your officers have come to the conclusion that our
bank would be well justified in participating in the nationwide movement to relieve unemployment through the "share the work" plan that has been adopted by
large employers of labor throughout the country, including several Federal reserve
banks.
Since our bank's cooperation has been requested by the national committee
in charge of the movement, and since the plan, as adopted by the Federal Reserve
Banks of New York and Philadelphia, has been definitely approved by the Federal
Reserve Board, your officers recommend that it be put into effectby our bank
for a reasonable period of time.
By this means, through a moderate reduction
of the salaries of our officers and employees, we could reemploy a number of our
former employees whom we were compelled to release and who have not yet found connections elsewhere.
These people have been tested and in most cases found competent,
trustworthy, loyal and discreet.
We would be safe in taking such people back tempo-
rarily into our various departments, and if it is found that we cannot meet our full
requirements from the ranks of our former employees, we can undoubtedly make up the
deficiency with other competent and deserving people who are filing applications
with us almost daily.
Such a step on our part Gould not contract the aggregate
purchasing power growing out of our payroll, and -/ould require only a moderate and
temporary sacrifice on the part of members of our force whose individual salaries
would be reduced under the plan.
Unlike a generaa reduction of our total payroll,
such a plan would have a distinctly stimulating effect upon the community and the
general business situation.
And for that reason yr)* officers recommend it as an
appropriate and constructive method of contributing ;'the public welfare.
44
4,
4
February 7, 1925.
The Poli; of the Federal Reserve
Board in the xtension of Credit
to Agricultural Interests.
The rulings of the Federal Reserve Board involving extension
of credit to the agricultural interests of the country have always
been extremely liberal.
In construing and administering the Federal
Reserve Act the Board has done all that it lawfully could do to improve the credit standing and economic position of the farming interests of the country in the greatest eossible degree and to place the
resources of the FeCeral Reserve System at their disposal so far as
is consistent with the principles of sound banking.
The amendments
to the Federal Reserve Act which have been passed for the Purpose
of liberalizing the extension of credit to farmers and live stock
growers, cooperative marketing associations and other agricultural
interests have in nearly every instance had the approval of the Federal Reserve Beard.
Jts
indicative of this liberal rclicy toward the
agricultural interests which the Federal Reserve Board has pursued
since its organization a number of rulings involving the extension
of credit to agriculture will be mentioned.
1,iany of the rulings
mentioned involved very close questions of law in which the decision
night well have been either in favor ef extension of credit to the
agricultural interests or against such credits.
in every case men-
tioned, however, the Board decided in favor of the desired credit.
VOLUME 238
PAGE 133
•
•
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Several rulings of the Board favoring agriculture were made
as early as the year 1915, shortly after the organization of the Federal Reserve System.
For example, the Board held that agricultural
pa-Jer is eligible i'or reedscount at a FeCeral reserve bank, irrespective of security, provided that the direct primary purpose of the
lon is to carry on the ordinary operations of agriculture.
The
Board also rule(' that horses and mules constitute live stock within
the r_eaning of that provision of Section 13 of the Federal Reserve Act
making paper based on live stock and having a maturity not e-ceeding
six months eligible for rediscount.
It also held that six months notes
given for commercial fertilizer to be used under growing crops are
eligible as agrioultltral paper, and further that notes made by a farmer in payment or part payment of mules to be used on his farm are
agricultural paoer which nay be rediscounted with maturities up to
six months.
At the time these rulings were .nade the limitation upon
the maturity of agricultural pa er eligible for rediscount at a
Federal reserve bank was six months; this has since been increased
to nine months by an a-iendnent to the Federal fleserve Act.
The favorable rulings 1:ade by the Board in 1915 seem
to have been precedents for the liberal policy which the Board has
pursued with reference to agricultural interests since that time.
The following paragraphs are synopses of various rulings-which the
Board has made since 1015, showing the liberal attitude the Board
has adopted taward the agricultural interests in interpreting and
construing the Federal Reserve Act:
Agricultural implement paper. Notes
given by farmers in payment for agricultural
implements to be used on the farm are eligible for rediscount as agricultural paper. A
bill drawn by a dealer on a farmer in payment
for agricultural implements purchased by the
farmer is a bill that has been "drawn or issued
for agricultural purposes or the proceeds of
which have been or are to be used for agricultural purpc,ses", and agricultural implements
which wear out rapidly and in most cases hzve
to be replaced within a comparatively sLort
the are not to be considered as permanent
or fixed investments. Notes of a farrer and
bills drawn by implement dealers on a farmer
against the sale to him of agricultural implements are therefore eligible f)r rediscount
as agricultural paper. But notes of a dealer
or merchant which are given for the purchase
of articles intended for use in agriculture,
to be later retailed or sold, are not agriculture pager and hence cannot be discounted
by a Federal reserve bank if they have a maturity at the time of discount of more than
90 flays.
Cattle Pa9er. Caws.. A note issued by a
farmer and discounted by him at a bank, the
proceeds of which are used for the purchase of
cows which will be retained for a considerable
length of time to produce milk, butter, cheese,
etc., is eligible for rediscount as a note drawn
for agricultural purposes or based on live stock
since live stock includes cows.
Cattle Paper. Loans on cattle for breeding,
raising, or fattening may be made under the
classification of agricultural paper which may
be rediscounted as such with the Federal reserve
bank.
Cattle Paper. A loan made by a member bank
in good faith to a fairer for the eurpose of
assisting hi:a to produce a crop or to fatten
his cattle will be eligible for rediscount as
agricultural pai)er by a Federal reserve bank
whether secured by a mortgap;e or not.
-4-
Tractors used in agricultural operations.
Notes Given for the purchase price of tractors
which are to be resold may be discounted as
comhercial paper and ntes given for the purchase price of tractors which are not to be
resold, but are to be used for an agricultural
purnose, may be discounted as agricultural paper,
since a tractor, although its use is extended
over several seasons, is not classed as a fixed
investr.ent, but, like horses and mules is considered as being used for current agricultural purposes.
Notes of fariers for commodities used
Mere a farmer makes his note
in farming.
payable to the seller of a coradity and actually
uses the commodity for agricultural purposes,
such a note may be treated as agricultural paper,
whether discounted with a memb r bank by the
farmer as the raker, or by the seller as the
indorser; and whre the fanner makes his note
payable to the member bank and uses the proceeds for an agricultural purpose, such note
is likewise eligible as agricultural aper.
If, however, the farmer does not use or intend to
use the commodity for an agricultural purpose, although it is capable of being so used, the note
in question may be treated as com_crcial paper
and may be rediscounted only if it has a maturity
of 90 days or less.
Notes for purchase price of commodities
used for agricultural purposes. A note given
for the purchase price of a commodity can be
classed as agricultural naer eligible for
rediscount when having a maturity in excess
of 90 days, if the maker is to use the commodity for an agricultural purpose, regardless
of whether the note is discounted by the maker
or by the indorser.
Notes for draining and tilling farm land.
'/here land to be drained is alfeady in use as
farm land, the draining may be tre.ted as incidental to the cultivation of the land, and notes
the proceeds of which are used for draining purposes are eligible as agricultural paper. Notes
the proceeds of which are used for tilling farm
lands are clearly agricultural paper.
•
-5
Drafts of growers acceptec' by cooperative marketing associations. Tobacco growers
deliver tobacco to their cooperative mar*eting
associations, to be sold in due course, each
grower receiving a distributive share of the
proceeds of the sales. To finance themselves
the growers obtain advances from the association by drawing drafts on it and discounting
them after acceptance by the association. If
the proceeds of such drafts are used by the
growers for agricultu.al purposes, the drafts
are eligible as agricultural paoer. If the
delivery of the tobacco to the association
amounted to a sale thereof, and the drafts
were drawn to pay for the tobacco, the original negotiation of the drafts would have been
for a corn ercial purpose and would have preclude, them fram being eligible as agricultural
paper; (Note. Under the law as amended
Larch 4, 1923, drafts drawn and accepted for
such a eurpose are expressly made eligible
as agricultural paper) but under the facts
stated the association does not purchase the
tobacco, but merely loans its credit in making the acceptances, and the original negotiation of the drafts is their discount by the
growers.
Drafts of growers accepted by cooperative associations - Carrying crops as agricultural purpose. As held in the ruling last
mentioned, drafts drawn upon the association,
accepted by it and discounted by the growers at
ther banks, are eligible for rediscount as
agricultural paper if the proceeds are used by
the growers for an apTicultural purpose. If the
growers use the proceeds to lay obligations
previously incurred by them in growing and harvesting their crops, this may be considered an
agricultural purpose, in that it enables the
grower to meet his obligations without selling
his crop immediately, and thus he uses the proceeds specified in the Board's Regulation A
as constituting eligibility. If, however, the
cro)s are held for speculative purposes, rather
than carried pending the ord)rly marketing thereof, drafts drawn to finance the growers would
be ineligible. The dividing line between legitimate carrying and speculative withholding
involves a question of fact to be determined
by the lending banks.
-6-
In 1923 the Board published a summary of its rulings affecting the rediscount and purchase by Federal reserve banks of
cooperativr: marketing association naper.
In this suns.ary were
contained a number A' rulings favorable to such cooperative marketing associations.
Some of these rulings have been mentioned
The others are shownin brief form in the following para-
above.
graphs.
Drafts drawn on and accented by cooperative marketing associations. Where a member
of a cooperative narketing association doing
business in the manner described delivers his
crop to the association and at substantially
the sane time drafts a draft on the association,
which is accepted gy it and discounted by the
drawer at his awn bank, such a draft is a bill
of exchange drawn against actua4y existing
values within the meaning of the fourth naragronh of section 13 and is therefore excepted
from the limitation prescribed therein on the
aggregate amount of paper of any one borrower,
which a Federal reserve bank may rediscount
from any one member ben::.
Notes and drafts of associations for
funds to finance packing and marketing products
of their members may be eligible for discount
as agricultural paper.
Notes and drafts of associattons for
funds to pay for products purchased from their
members may be eligible for discount as agricultural paper.
Notes and drafts of associations for funds
to advance to their menbers for an agricultural
purpose Ry be eligible for discount as agricultural
paper.
Bankers' acceptances drawn by associations for agricultural purposes are eligible
for acceptance and discount with maturities
up to six months. when secured by varehouse
receipts covering readily marketable staples.
-7-
In 1922 the Board amended its Regulation B so as to
permit Federal reserve banks to Purchase in the open market
bankers' acceptances with maturities not in excess of six
months, which are drawn by growers or by cooperative 1,arketing 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 secured at the time of acceptance by warehouse, terminal or sidlar receipts issued by parties independent of the borrowers conveying security title to
such products.
In transmitting this regulation as amended
in this respect, the Board stated that it "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."
-r 41i:i regulation of 1922 was superseded by Regulation B of 1923 which contains even more liberal provisions
along this line, to accord with the changes in the Federal
±toserve Act made by the amendment of larch 4, 1923.
•
•
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 10,1920.
Subject:
Deficiencies in Reserves.
Dear Sir:The attention of the Federal Reserve Board
has been directed to the fact that there is some sli4ht
confusion in the method employed by different Federal
Reserve Banl-s in determining the amounts of their -2:old
reserves ar:ainst note and de,
?osit liabilities.
There is enclosed, herewith, for your information an eninion filed by Counsel, dealine with the
general subject of deficiencies in reserves and the
riehts and oblizations of the Federal Reserve Banirs in
the matter of allocating their eold assets against
derosit and note liabilities.
Yours very truly,
Governor.
To Chairmen of all F.R.
VOLUME
PAGE i39
.4241
S
•
XelS94 a
March 5,1920.
To:
Federal Reserve Board
From: ,Jr. Harrison
Suejeet:
Deficiencies in reserves.
Uloon the request of the Federal Reserve Board I wish to
confirm in writing a statement which I made orally to the Board
at its metine on February 26th, .Nith reference to the allocation
of its eold reserves a,
,;eainst denosit and note liabilities and
:4
•
with reference to the tax uron the deficiency in reserves against
either of those liabilities.
The question first presented is whether a Federal Reserve
ank whose total reserves against the agi:,-reate of note and
derosit liabilities is below the minimum requirements may allocate
Its gold assets in such a manner that its reserves against notes
are maintained at 40 7per cent while its reserves against denosits
fall below
35
per cent.
A study of the provisions of Section 16 of the Federal Reserve
Act indicates that beyond a doubt a Federal reserve bank may maintain its 40 per cent reserves against Federal Reserve notes even
thouph the reserves a7„ainst de-T)osits may, as a result, fall below
the
35
per cent limit.
Paragraph 3 of Section 16, which fixes
the minimum reserve requirements against both note and deposit
liabilities, provides "that when the Federal Reserve Agent holds
4o1d or )zold certificates as collateral for Federal Reserve notes
issued to the ban, such Flold or gold certificates shall be counted
as part of the ,zold reserves which such ban17 is required to maintain
against its Federal reserve note . in actual circulation."
Under
the terms of this Paragraph all gold or cold certificates held by
as collateral for outstanding notes must
a Federal ;;Teserveent
-J
• a
1110(-1594 a
-2-
necessarily be counted as reserves against those outstanding notes
and cannot lawfully be considered as part of the reserve against
deposits.
So, also, Section 16 provides in. next to the last paragraph
that "Gold deposits standing to the credit of any Federal
reserve bank with the Federal Reserve Board shall, at the
?art of the lawful reontion of said })ank, be counted as ,
serve which it is reql.ired to maintain against outstanding
Federal reserve notes, or as part of the reserve it is required to maintain against deposits."
Under the t :- rms of this clause the Federal reserve bank is
granted express authority at its own antion to count credits in
the Gold Settlement Fund as a -ocar
of the reserves which it is re-
quired to maintain against Federal reserve notes.
There is no express rrovision in the law itself conferring upon
the '',ank the right to allocate the frea Rold held by it (that is,
gold not with the Federal reserve agent and not with the Gold Settlement Fund) as a part of its reserve against Federal reserve notes
instead of as a part of its reserves against deposits.
It is believed,
howe,ver, that that option must exist since for 411 practical Pur7poses
the
the same result may be attained under those other sectims of
law previously referred to.
In other words, inasmuch as the ban
is
authorized to procure Federal reserve notes fr.= the Federal reserve
inasmuch
agent AxDon the deposit of as much as 100 per cent gold, and
must necessarily count
as all deasits with the Federal reserve agent
outstanding,
as rart of the reserves to he maintained against notes
against
the Federal reserve banir may always maintain its reserves
transferring
notes at the expense of its denosit reserve account 'ey
for outstanding
fro? gol4 to. the Federal reserve agent as collateral
notes.
It teen automatically becoffes a part of the reserve against
•
-3notes.
410
X-1S94 a
The bank may also accomplish this same purpose by de-oositing
free gold in the Gold Settlement Fund since credits in the Gold
Settlement Fund may by law, at the °lotion of the bank, be counted
either as reserve against notes or as reserve against deposits.
In
view of these facts it would seem to be futile to deny the right of
the banR to consider free gold in its vaults as reserve against notes
even though to do so results in a deficiency in the reserve against
denosits.
Assuming this to be true, the sole question to be considered is
whbther the Federal Reserve Board is required to imose a tax unon
the deficiency in reserves against denosits.
Section 11 (u) provides:
"To suspend for a neriod not exceeding thirty days, and from
time to time to renew such susnension for periods not exceeding
fifteen days, any reserve requirements specified in this Act:
PROVIDED, That it shall establish a graduated tax unon the
amounts by which the reserve requirements of this Act may be
Permitted to fall below the level hareinaft-r specified, AND
PROVIDED FURTHER, That when the gold reserve held against
Federal reserve notes falls below forty per centum, the Federal
Reserve Board shall establisn a graduated tax of not more than
one per centum par annum unon such deficiency until the reserves
fall to thirty-two and one-half 'oar centum, and when said reserve
falls below thirty-two and one-half ner centum, a tax at the
rate increasingly of not less than one and one-half per centtm
per annum unon each two and one-half per centum or fraction
thereof that such reserve falls below thirty-two and one-half
per centum. The tax shall be 'paid by the reserve bank, but
the reserve bad.: shall add an amount equal to said tax to the
rates of interest and discount fixed by the Federal Reserve
Board."
Two questions are mresented in connection with the construction
of this paragrarh, (1) whether the Federal- Reserve Board is obligpd
to establish a graduated tax unon the amounts by which the Federal
reserve bank reserves against deposits fall below the required minimum,
and (2) if so, whether the amount of the tax shall be added to the
retes of discount fixed by the Federal Reserve Board.
The first nroviso of SUb-section (c) requirea that the Federal
II/
x-1694 a
Reserve Board shll esta'-lish a graduated tax upon the amounts by
which "the reservl requirements of this Act" may be permitted to fall
below the specified levels.
There is little doubt that the law which
uses the obligatory "shall", and not the optional "may", imposes upon
the Federal Reserve Board an obliLation to establish a graduated tax
upon the deficiency in the reserves aainst Federal Reserve Bad.: deposits since that is one of the "res-rve requirements of this Act".
This
tax, hmuver, my be fixed at any amount, large or small, that the Board
dacms to be advisable.
amount.
Technically, it may even be an infinitsimal
It must, however, be a graduated tax based upon the aTount of
the deficiency in the res-q•ires.
There is nothiniz in the law specifying to whom such a tax rust be
paid.
In the
CRSZ3
of a member bank it is paid to the Federal Reserve
Bank, but in the case of a Federal Reservc %n17 there is no one to
wham the tax could reasonably be paid other than to the Government.
But if paid to the Government, it would amount in substance to a tax
upon the Government's own equity in the Federal Reserve eank's surplus.
The decisions of the Supreme Court have frequently held that no F3deral
tax law should be construed to innose a tax upon the Governe:ent itself
and it might by analogy be argued with some force that. Congress did not
,.intend to require the Federal Res;rve
aril: to ppj e. tax, even though in
the nature of a penalty, to the Government out of a fund which, in the
final analysis, belongs to the Government.
It would seem however, that although there is nothing in the law
to indicate that the tax should be paid to the Government, and although,
as suggested above, it is perhaps illogical to require the Federal
Reserve Bank to pay a tax to the Government out of its surnlus, nevertheless, if any effect is to be given to those provisions of the lew iee)osing
the tax, the Government is the only logical payee, and if ieeposed, it is
-5-
to'
believed that it would have to be paid in that manner.
0
-18914 a
These in-
consistencies are referred to mly for the nurnose of emphasizing the
fact that this section is not in its entirFt.y susceptible of any complete
or satisfactory construction.
Tho remaining question for cohsideration is whether the imnosition
of such a tax upon the deficiency in the reserves against deposits must
necessitate a corresponding increase in the rate of discount fixed by
the Federal Reserve Board.
Unon this question there can be little doubt
since the phrase requiring the increase in discount rates is not a part
of the first proviso of Sub-section (c) which nrovides for the tax upon
the deficiency in reserves against deposits, but instead is enacted as
a mart of the second proviso of that paragraph which relates solely to
the tax upon the deficiency in reserves against Federal reserve notes.
It might be contended that the last sentE.nce of sub-naragramh (c) refers
bad: to the first proviso as well as to the second nroviso but that is
a position which it would be difficult to sustain.
In the first nlace, sub -section (c) of Section 11 as originally
passed by the House contained only one proviso which read as follows:
"Provided that it shall establish a graduated tax upon
the amounts by which the reserve requirements of this Pct
may be permitted to falr-below the level hereinafter specified,
such tax to be uniform in its aoplication to all 'banks, _but said
'Boprd shall not susrend the reserve requirment_s with reference
to Federal Reserve notes."
nroviso
when the bill was passed by the Senate the first part of this
the
was left substantially as it reads above but the requirement that
to
9oard "shall not suspend the reserve requirements with reference
proviso
Federal reserve notes" was struck out and the present _s_cond
was inserted in lieu thereof.
It is this sec_ond Proviso, imposing an
against notes,
automatic graduated tax upon the deficiency in the reserves
amount
that contains the clause requiring the reserve bad: to "add an
X-1634.
equal to said tax to the rates of int-rest and discount fixed by
the Federal Reserve 9oard."
Inasmuch as that clause was enacted at
the same time, and as a tart of, the present second nroviso, and
inasmuch as the two to2ether were substituted for that part of the
House bill nrohibitine- a suspension of reserves against notes, the
lo:ical inference is that the autematic incree,se in discount rates
results ,only in the case of a tax unon a deficiency in the reserves
ae-ainst F -Kieral reserve notes -.:nd not in the case of a tax 117?on a
deficiency in the reserves ae-ainst denosits.
}3ut even if the legislative
history of this section leaves any doubt as to its meaning, nevertheless,
the context of the section as a whole nrecludes the nossibility of any
other construction.
The first nroviso nrovides for the astablishment of a Lrraduated
tax uron the deficiency in .eny of the reserve requireleents of the
Act other than those relatinr, to Federal Reserve notes which are exnressly
covered in the second nroviso.
That 1)eing so, if the last sentence
of sub -section (c), providing for the automatic increase in the discount
rates equal to the amount of tax unon deficiency in reserves should
be construed to apIply to the first nroviso, than a deficiency in the
reserves of any member bad: would necessitate an increase in the discount
rates since member banl- s' reseeves are one of the reserve requirements
of the Act.
Any increase in the discount rates, regardless of the cause,
would be arplicable to all member banl:s Alike.
It is certain that no
such result could have be -?n contemPlated by Congress.
;'side froa: the provisions of the paragraph under consideration,
and indeleendently of the question of the tax unon deficiencies in
reserve, the Federal Reserve T3oard, of course, has power to determine
rates of diztorrt for each class of raper and that tower would in itself
include the nower to nullify any automatic increase resultin7 from
a
.
•-
11/X-18914 a
•
deficiency in reserves against denosits, even if a contrary internretation of the law, discussed in this memorandum, could be supported.
In ccmclusion, it is the opinion of this office, first, that
a Federal reserve bank may allocate its free aold in such a way as
to maintain its reserves apainst notes at a minimum of 40 per cent even
thouah that results in a ddficiency in reserves against denosits;
second, that the Federal Reserve Board is required by law to establish
a graduated tax unon deficiencies in reserves against de-vsits althouah
that tax may be made so small as to be practically negligible; and
third, that a tax unon deficiencies in reserves against denosits does
not result in an autmatic increase in the rates of discaunt fixed
by the Federal Reserve Board.
Respectfully,
GEORGE L. HARRISON.
•
General Counsel.
eA 644
THE iiH1TE HOUS3
Washington
Tebruary 22, 1933
Gentlemen:
I wish to leave no stone unturned for constructive action durity, the present crisis. ,Athout
beini3 technical in regard to the provisions of the
law, it is obvious that the Federal Reserve Board has
a great responsibility in the control and management
of the currency. It is obvious that hoarding of
currency, and to some minor extent of gold, has now
risen to unprecedented dimensions, and this, together
with the evidence that our own people are showing of
a disposition to exnort their capital, has become
a threat to public interest.
I should like to be advised by the Board as
to whether the Board considers that the situation is
one that has reached a public danger and whether the
Board considers the Federal Reserve System can protect
the public interest, or whether the Bonn" considers any
measures should be undertaken at this juncture and
especially what, if any, further authority should be
ootained.
Yours faithfully;
(Signed)
The Governor and Members
of the Federal Reserve Board,
tlashington, D. C.
VOLUME 238
PAGE 142
Herbert Hoover
@FedFRASER