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The Papers of Charles Hamlin (mss24661) 368_04_001- Hamlin, Charles S., Scrap Book — Volume 246, FRBoard Members P05.001 - Hamlin Charles Scrap Book - Volume 246 FRBoard Members CONHOENTiAL (FR) Form F. R.131 BOARD OF GOVERNORS • FEDERAL RESERVE SYSTEM Offi.ce Correspondence To The Files Rona Mr. Coe 134l144 Date August 11, 1941 SuMect: • 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 246 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 246 Page 1,3 Executive Order relating to the Hoarding, Export, and Earmarking of Gold Coin, Bullion, or Currency and to Transactions in Foreign Exchange. Page 18 Earnings and Expenses of F.R. Banks, September 1933. Page 80 Earnings and Expenses of F.R. Banks, August 1933 Page qz Mr. Hamlin from Mr. Goldenweiser transmitting analysis of Senator Owen's proposal. Page 95 Memo to Mr. Hamlin from Division of Examinations attaching statement covering the period March 15, 1933 to September 15, 1933, showing the number of applications for membership in the System approved by the Board and membership completed by the bank; etc. Page X-7598) Liability of banks on deferred certificates issued to depositors. Page 145 Memo to Mr. Hamlin from Mr. Smead re Depreciation on U. S. Gov. securities owned by F.R. Banks. Page 151 Memo re price of dollar in foreign exchange in determining the ratio between payments out-from and payments in-to the country. Page 154 Copy of memo prepared by Dr. Miller for the President, October 11, 1933. d % • d EXECUTIVE ORDER Relating to the Hoardin. Export, and Earmarking Of Gold Coin, Bullion, or Currency and to Transactions in Foreign Exchange By virtue of the authority vested in me by Section 5(b), of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled "An Act to Provide Relief in the Existing National Emergency in Banking and for other Purposes," I, FRANKLIN D. ROOSEVELT, PRESIDENT of the UNITED STATES OF AMERICA, do declare that a period of national emergency exists, and by virtue of said authority and of all other authority vested in me, do hereby prescribe the following provisions for the investigation and regulation of the hoarding, earmarking, and export of gold coin, gold bullion, and gold certificates by any person within the United States or any place subject to the jurisdiction thereof; and for the investigation and regulation of transactions in foreign exchange and transfers of credit and the export or withdrawal of currency from the United States or any place subject to the jurisdiction thereof by any person within the United States or any place subject to the jurisdiction thereof. Sect-in 2. DEFINITIONS. As used in this Order the term "person" means an individual, partnership, association, or corporation; and the term "the United States" means the United States and any place subject to the jurisdiction thereof. Section 3. RETURNS. Within fifteen days from the date of this Order every person in possession of and every person owning gold coin, gold bullion, or gold certificates shall make under oath and file as VOLUME 246 PAGE 13 • — 2— • hereinafter provided a return to the Secretary of the Treasury con— taining true and complete information relative thereto, including the ! _ name and address of the person making the return; the kind and amount of such coin, bullion, or certificates held and the location thereof; if held for another, the capacity in which held and the person for whom held, together with the post office address of such person;- and the nature of the transaction requiring the holding ofpuqh coin, bullion, or certificates and a statement explaining why such :transaction cannot be carrted out by .t4d use ofreurrency other than gold certificates; provided that no Teturns Are required to be filed with respect to (a) Gold coin, gold bullion, And gold certificates in an amount not ex— ceeding in the aggregate $100 be— longing to any one person; •1! .c't (b) Gold coin having a recognized spe— ', cial value to.collectors_of rare and unusual coin; (c) •1 d Gold coin, gold bullion, and gold certifiCates acquired or held under;:. a license heretofore granted by or Under - authority of the Secretary of the Treasury; and ' Gold coin, gold bullion, and gold certificates owtred-,by. Federal re— serve banks. Such return required to be made by an individual shall be filed with the Collector of Internal Revenue for the collection district in which such individual resides, or, if such individual has no legal residence in the United States, then with the Collector of Internal Revenue at Baltimore, Maryland. Such return required to be ma.fie by a partnership, association, or corporation shall .b filed with the Collector of Internal Revenue of the collection district in which is located the principal place of business or principal office or agency - 3of such partnership, association, or corporation, or, if it has na principal place of business or principal office or agency in the United MarySt&tes, then with the.Collectoy of Internal Revenue at Baltimore, Such return required to. be made by an individual residing in land. 'Alaska shall be filed with the Collector of Internal Revenue at Seattle, Washington. Such return required to be made by a partnership, associa- l .tion, or corporation having ,its principal place of business or principa office or agency in Alaska shall be filed with the Collector of Internal Revenue at Seattle, Washington. The Secretary of the Treasury may grant a reasonable extension of time for filing a return, under such rules and regulations as he shall prescribe. No such extension shall be for more than forty-five days from the date of this Executive Order. An extenpion granted hereunder shall be deemed'a license to hold fora period ending fifteen days after the expiration of the extension.- • The returns required to be made and filed under this Section shall constitute public records; but they shall, b.e open to public inspection only upon order of the President and under rules and regulations prescribed by the Secretary of the Treasury. A return made and filed in accordance with this Section by the owner of the gold coin, gold bullion, and gold certificates described therein, or his duly authorized agent, shall be deemed an application for the issuance under Section 5 hereof of a license to hold such coin, bullion, and certificates. Section 4. ACQUISITION OF GOLD COIN AND GOLD BULLION. No person other than a Federal reserve bank shall after the date of this Order acquire in the United States any gold coin, gold bullion, or gold • certificates except,under license therefor issued pursuant to this e SysExecutive Order, provided that member banks of the Federal Reserv tem may accept delivery of such coin, bullion, and certificates for further surrender promptly to •a Federal reserve bank, and provided sion, or that persons requiring gold for use in the industry, profes stocks of art in which they are regularly engaged may replenish their gold bullion gold up to an aggregate amount of $100, by acquisitions of necessity of held under licenses issued under Section 5(b)t without obtaining a license for such acquisitions. r regulations The Secretary of the Treasury, subject to such furthe acquisition as he may prescribe, shall issue licenses authorizing the of (a) Gold coin or gold bullion which the Secretary is satisfied is required for a necessary and lawful transaction for which currency other than gold certificates cannot be used, by an applicant who establishes that since March 9, 1933, he has surrendered an equal amount of gold coin, gold bullion, or gold certificates to a banking institution in the continental United States cr to the Treasurer of the United States; (b) Gold coin or gold bullion which the Secretary is satisfied is required by an applicant who holds a license to export such an amount of gold coin or gold bullion issued under subdivisions (c) or (d) of Section 6 hereof, and (c) Gold bullion which the Secretary, or such agency as he may designate, is satisfied is required for legitimate and customary use in industry, profession, or art by an applicant regularly engaged in such industry, profession, or art, or ih the business of furnishing geld therefor. Licenses issuedpursuant to this Section shall authorize the holder ta acquire.gold coin and gold bullion only from the sources specified by the Secretary of the Treasury in regulations issupd hereunder. Section. 5. CERTIFICATES. HOLDING OF GOLD COIN, GOLD BULLION, AND GOLD After thirty days from the date of this Order no person shall hold in his possession or retain any interest, legal or equitable, in any gold coin, gold bullion, or gold certificates situated in the United States and owned by any person subject to the jurisdiction of the United States, except under license therefor issued pursuant tc this Executive Order; provided, however, that licenses shall not be required in order to hold in possession or retain an interest in gold coin, gold bullion, or gold certificates with respect to which a return need not be filed under Section 3 hereof. The Secretary of the Treasury,, subjpet-to such further regulations as he may prescribe, shall issue lipenae.s.authorizing the holding of • (a) Gold coin, gold bullion, and gold certificates, which the Secretary is satisfied are required by the person owning the same for necessary and lawful transactions for which currency, other than gold certificates, cannot be used; Gold bullion which the Secretary, or such agency as he may designate, is satisfied is required for legitimate and customary use in industry, profession, or art by a person regularly engaged in such industry, profession, or art or in the business of furnishing gold therefor; (c) Gold coin and gold bullion earmarked or held in trust since before April 20, 1933, for a recognized foreign government or foreign central bank or the Bank for International Settlements; and J • ) Gold coin and goldtullicn imported for reexport or held pending action upon application for export licenses. .Sectiop. 6. EARMARKING AND EXPORT OF. GOLD COIN AND GOLD BULLION. After the,.date of, this Order no_,..pqr,s(g.k.L._ 11,earmark or export any gold coin, gold bullion, or gold certificates from the United States, except under license therefor issued by the. Secretary of the Treasury pursuant to the provisions of this Order, The Secretary of the Treasury, in his discretion and subject to such regulations as he may prescribe, may issue licenses authorizing (a) The export of gold coin or gold bullion earmarked or held in trust since before April 20, 1933, for a recognized foreign government, foreign central bank, or the Bank for International Settlements; (b) The export of gold, (i) imported for reexport, (ii) refined from gold-bearing materials imported by the applicant under an agreement. to export gold, or (iii) in bullion containing no more than five ounces of gold peTA0,1?;.,,li The export of gold coin or gold bullion o the extent.iactually re, quired for the fulfillment .of a contract entered into l b'y t4e applicant prior to April 26, 1933; hut not-in excess of the amount of the gold coin, gold bullion, and gold certificates surrendered by the applicant on or after March 9, 1933, to a banking institution in the continental United States or to the Treasurer of the United States; and (d) The earmarking for foreign account and/or export of gold coin or gold bullion, with the approval of the President, for transactions which the Secrotrav,of the Treasury may deem necessary to promote the public interest. -7Section 7. UNITED STATES POSSESSIONS - SHIPMENTS THERETO. The provisions of Sections 3 and 5 of this Order shall not apply to gold coin, gold bullion, or gold certificates which are situated in the Philippine Islands, American Samoa, Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the Virgin Islands of the United States, and are owned by a person not domiciled in the continental United States. The provisions of Section 4 shall not apply to acquisitions by persons within the Philippine Islands, American Samoa, Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the Virgin Islands of the United States of gold coin or gold bullion which has not been taken or sent thereto since April 5, 1933, from the continental United States or any place subject to the jurisdiction thereof. Section 8. Until further order, the Secretary of the Treasury is authorized, through any agency that he may designate, to investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit from any banking institution within the United States to any foreign branch or office of such banking institution or to any foreign bank or banker, and the export or withdrawal of currency from the United States, by any person within the United States; and the Secretary of the Treasury may require any person engaged in any transaction referred to herein to furnish under oath complete information relative thereto, including the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody or control of such person either before or after such transaction is completed. Section 9. The Secretary of the Treasury is hereby authorized 8anS empowered 'to issue such regulations as he may deem necessary to carry out the purposes of this Order. Such regulations may provide for the detenti,n in the United States of any gold coin, gold bullion, or gold cercates &plight to be transported beyond the limits of the continental United States, pending an investigation to determine If such coin, bullion, or cercates are held or aro to be acquired in violation of the provisions of this Executive Order. Licenses and permits granted in accordance with the provisions Of this Order and the regulations prescribed hereunder, may be -issued through such officers or acencies as the Secretary may designate. Section 10. Whoever willfully violates any provision of this Executive Order or of any 14ce4se, order, rules or regulation issued or prescribed hereunder, shall, upon conviction,-be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than 10 ybars,-or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be • punished by a like fine, iEprisonment; or both. Section 11. The Executive Orders of-April 5, 1933, Forbidding the Hoixrding of Gold Coin', Gold Bulli6n. and Gold Cercates .and April 20, 1933i. relating to Itreign Exchange and the Earmarking and -. Export of Gold Coin or Bullion or Currency, respeCtively, are hereby revoked. The revocation of such prior Executive Orders shall not affect any act done, or any right accruing or Accrued, or any suit or proceeding had or coramenced in any civil or criminal cause prior 'to said revocation, but all liabes under said Executive Orders shall continue and may be enforced in the same manner as if said revoca' Si had not beedmade. This Executilie Order and any regulations or — 9— licenses issued hereunder may be modified or revoked at any time. FRANKLIN P. ROOSEVELT TEE WHITE HOUSE, August 28, 1933. - EXECUTIVE ORDER Relating to the Sale and Export of Gold Recovered from Naural Deposits By virtueo.f.the.authority -vested in me by Section 5(b) of , the Act:Of Octgber. 1917,. as amended by Section 2 of the Aet af .March a, 1933, entitled "An Act to Provide Relief in the Existing NationalEmergncy.j.n...Tiapking and for:other Purposes", I, FRANKLIN D. ROOSEVELT, PRESIDENT of the UNITED STATES OF AMERICA, do declare that a per.ipd. f natipnemergency exists, and by virtue of said authority and of all. o;ther:.iatuthority vested in me,. do hereby iSSUR the following executive:order; The Secretary of the Treasury is hereby'authorized to receive on consignment for sale, subject to such rules and regulations and upon such conditions as he shall prescribe, gold recovered from natural deposits in the United States or any place subjeet to the jurisdiction thereof. Sales may be made: (a) .T.o. persons licensed to acquire gold for use in the arts, industries or professions, or (b) By export to foreign purchasers. Such sales shall be made at a price ihich the'Secretary shall determine to be equal to the best pr),ce obtainable in the free gold markets of the world after taking into consideration any incidental expenses such as Shipping costs and insurance. Such sales may be made through the Federal reserve banks or such other agents as the Secretary may from time to time designate and shall be subject to such charges as the Secretary may from time to time in his judgment determine. . A , Eveiy person depositing 61d for sale as provided herein shall be deemed to have agreed to 'accept as conclusive without any right of recourse or review,. the determination of the Secretary or :his duly authorized agent as to the amount due such person as a result of any sale. • shall be sold as nearly as may be in the order Consignments , 9f their receipt. .The Secretary 9f the Treasury, in his discretion and subject to such regulations as he may prescribe is hereby authorized to issue licenses permitting the export of articles fabricated from gold sold pursuant to this executive order. This executive order may be modified or revoked at any time. FRANKLIN D. ROOSEVELT THE WHITE HOUSE, August 29, 1933. C ONFIDENTIAL "Jot for publication B-811 EARNOGS AUD EXPETSES OF FEDERAL RESERVE BANKS, SMDTELD3at Sep ter40010000°- 1:onthof Federal Current expenses Earnings from Iliferve Discounted bills Bank Purchased bills U.S. Govt. securities Other sources Total Exclusive of cost of P.R. currency Total 1933 1933 Current net earnins Ratio to paidTotal in capital January - September 1933 Current net earnings Less accrued and dividends Ratio to net charges paid-in Total capital (current) to profit and loss Per cent Per cent Boston New York Philadelphia Cleveland $7,736 97,946 44,049 29,457 Richmond Atlanta Chicago St. Louis 50,305 $1,371 $196,851 5,746 1,189,764 224,204 1,972 285,093 ,56 18 33,255 lo,841 8,000 Minneapolis s City as San Francisco TOTAL Sept. 1933 1933 Aug. Sept. .1932 Jan.-Sept. 1933 lit 8,509 9,904 12,332 21,843 340,178 375,685 1,061,280 7,932,302 1932 15,283,878 1,500,094 1$.1 11.9 15.0 572,644 177,413 243,739 $459,505 7,938,624 1,407,423 $166,862 323,565 535,024 167,041 218,931 $223,156 1,308,266 270,949 -$2m 5,559,929 712,155 884,116 $56,294 6.4 735,422 15.3 93,536 7.2 79,626 7.9 $143,823 $17,198 14,810 724 7,159 5.7 731 656 2,442 691 98,065 91,411 525,411 121,312 4,298 4,500 18,993 4,372 153,419 129,823 563,687 134,375 131,308 94,925 286,251 114,381 134,573 104,989 313,211 119,743 18,846 4.6 24,834 6.2 250,476 23.1 14,532 4.4 100,915 317,805 1,831,565 58,482 2.6 C.9 17.1 1.9 -174,015 104,033 1,424,854 -144,863 417 544 570 2,141 98,735 106,411 86,515 216,427 3,959 15,293 3,202 12,353 111,620 132,152 86,870 137,615 94,405 200,253 90,877 142,190 101,037 205,983 20,743 -10,038 1,582 46,781 8.8 292,909 5,617 3,947 1,013,693 13.7 .2 .1 12.8 166,464 -181,345 -169,795 519,541 14,980,580 13.5 6,700,794 16.8 13,496,694 19,137 3,240,219 102,619 252,764 106,861 3,706,395 143,909 3,868,919 28,031 3,321,294 136,166 4,031,245 123,001 2,710,798 1,177,262 26,762,173 1,176,623 37,068,380 2,420,545 19,571,174 2,008,666 39,284,265 .5 53 2,211,027 2,373,461 1,332,934 11.1 2,233,233 2,432,585 1,436,334 11.6 2,105,882 2,184,640 1,846,405 14.7 120,090,345 22,087,880 14,980,580 13.5 18,608,255 19,676,428 19,607,637 16.8 19,607,837 -------- -------------------------------------------------------------- FEDERAL RESERVE BOARD DIVISION OF BANK OPERATIONS OCTOBER 17, 1933. VOLUME 246 PAGE 18 C ONFIDEUTIAL Not for publication 3-511 EARNINGS AND EXPENSES OF FEDERAL RES2RVE DAYKS, AUGUST Federal Auc4ust of Lionth Earnings from - Reserve Bank . e Zoston New Yori: Phi1ade1'1a Clevuland I Discounted bills Purchased bills U.S. Govt. securities Total 1933 Current expenses [ Exclusive of cost Total of F.R. currency $235,823 1,407,341 300,085 336,902 $151,800 555,599 155,341 216,936 $151,040 617,126 297,425 $34,370 29,509 695 7,547 183,212 236,570 7,688 8,197 226,501 17,235 $1,635 $]90,30g 105,653 12,160 2,356 1,259,659 233,475 2,218 Richmond ._ Atlanta Chicago St. Louis 349963 17,000 25,545 6,203 575 734 2,917 740 96,256 91,656 510,204 123,054 3,007 14,555 19,060 2,575 135,134 124,326 557,726 132,872 123,997 99,457 279,472 107,442 127,446 116,129 331,225 115,637 nnneapolis Kansas City Dallas rancisco 12,199 17,009 13,323 40,985 501 650 690 2,499 102,646 106,992 sb,062 221,467 4,592 16,464 2,046 5,555 119,938 141,115 104,121 273,536 ST5,579 131,'(52S 94,929 214,523 59,599 136,471 99,991 218,139 W August July AuRust Jan-.u. 1933 1533 1932 1933 1932 1.8 2.0 20.2 5.1 January - Atv:ust 1933 Current net earnings Less accrued dividends and to Ratio net charges Total paid-in capital (current) to profit and loss Per cent $403,211 7,203,201 1,313,557 1,421,595 5.6 18.5 12.4 15.5 430,159 4,982,826 660,310 530,564 52,070 292,971 2.4 -180,643 9.3 1,631,090 16.4 43,549 1.6 95,546 1,191,224 -151,476 154,380 -159,346 -163,592 503,9, 5 7,736,592 12,367,341 L[,6144 1.3 4,13o 55,397 1.3 6.1 272,166 14,3 .6 15,656 .1 2,365 966,912 13.5 375,655 25,031 3,321,294 143,909 3,868,919 2,233,233 2,432,555 1,436,334 96,255 *3,851,927 2,198,620 2,291,962 *1,559,965 *373,535 32,551 3,349,1E3 1,284,044 1?,9 564 2,753,662 199,155 4,366,725 2.1_133,507 2,_340,30 2 026 416 7,592,124.1,155,145 23,541,954 1,069,762 33,361,955 17,579,315 19,713,009 13,045,976 14,222,600 2,2, 11,544 16,560,376 1,572,502 35,253,022 16,702,374 17,491,559 17,761,433 11.6 *12.6 15,6 13.5 17,1 13,645,976 13.5 17,761,433 17.1 FEDERAL RWERVE BOARD DIVISION OF BAla OPERATIONS SEPTEMBER 15, 1933, Current net earn Ratio to paidTotal in capital Per cent $74,753 8.2 790,215 15.9 5.7 116J73 100,332 9.5 $9,07 63,556 29,712 Other sources 1933 30,339 12.4 *Revised. VOLUME 246 PAGE 80 • n.44 rpr. Office Correspoillence To Mr. Hain From Mr. Goldenv,eise FEDERAL RESERVE BOARD ar te September 18_, 1933 Subject: •••••••.1 GPO 2-8405 Mr. Thomas has prepared the attached analysis of Senator Owents proposal, received with your memorandum of Septeiber 8, 1933. 2 VOLUME 246 PAGE 87 • lAym to 4031 *Office CorresporMence Mr. Goldenweiser From Mr. Thomas CiT j FEDERAL RESERVE BOARD September 15, 1933 Subject: Senator Owen's proposal ro 16-852 Senator Owen's proposal is to make use of the provisions of the socalled Thomas Amendment, calling for the purchase of Government securities either by the Federal reserve BANKS in the usual manner or by the Treasury in exchange for United States notes (greenbacks). Either of these methods would increase member bank reserves. Currency issued to retire bonds would immediately flow back to banks and thence to the reserve banks. Either method would also increase bank deposits to some extent, although securities purchased from banks would not directly affect the volume of bank deposits. They would simply be an exchange of assets by banks. The principal difference in the two schemes would be shown in the reserve bank statement. Issuance of greenbacks would reduce the volume of Federal reserve notes in circulation and when the occasion called for a tightenin,; of the money market the reserve banks would be unable to absorb all of the surplus reserves by open-market sales of securities. Open-market purchases in lieu of greenback issues, however, would give the reserve banks additional assets that could be used to mop up excess reserves then necessary. In regard to the advisability of adopting this proposal, and to the theories advanced by Senator Owen in its favor, the following comments may be made: (1) In a moderate manner open-market purchases are now being made by the Federal reserve banks. (2) Extensive purchases to the limits permitted by the Act do not seem to be necessary, Member banks already possess more than 4700,000,000 of excess reserves, an amount that is sufficient to support an expansion in member bank credit to the maximum amount outstanding in 1929. (3) The principal problem now is not so much to increase the quantity of basic reserves as to stimulate the use of available resources by ILJI concerns, and individuals. banks, (4) The price level depends not only upon the supply of money, but also upon the extent and manner in which the money supply is used. The holding of idle bank deposits or of hoarded currency has no positive effect upSn prices or upon the volume of business. (5) For this reason the value of money cannot be regulated solely by laws and governmental policies, but depends upon the operation of a variety of economic forces. (6) Since most of the money supply is in the form of bank deposits, the value of money depends in the final analysis upon the goodness of the assets held by banks. A Form No.&II Office Correspontence To • FEDERAL RESERVE BOARD Mr. Goldenweiser Date September 11, 1933 Subject: Senator Omen's Proposal From Mr Thomas Cir In the final analysis Senator Owents proposal is to make use of the /visions of the so-called Thomas Amendment in order to stimulate a rise in prices. The mechanism provided for in the Thomas Amendment is familiar. Either the Federal reserve banks are to purchase Government securities in the open market or the Treasury is to purchase them in exchange for United States notes (greenbacks). The latter process would simply turn currency over to present holders of Government securities, which are mostly banks, institutional investors, and individual investors. So far as concerns the institutions and individuals, the currency would no doubt be immediately deposited in bPnles awaiting subsequent reinvestment and bmilc deposits would be correspondingly increased. As concerns securities pur- chased from banks, there would be no increase in bnrk deposits but a decline in the investment holdings of banks. Since the amount of currency in circulation depends entirely upon the needs for hand cash plus hoarding, banks would find themselves with a redundance of cash in vault both because of cash received for their own securities and cash deposited by others. They would immediately turn in their redundant cash to the Federal reserve banks, either retiring borrowings or increasing their reserve balances. Since member bank borrowings at the reserve banks are now so small as to be considered almost negligible, most of the effects of these transactions would be reflected in an increase of member bank reserve balances. Ai• mr. Goldem:eiser Mr. Thomas September 11, 1933 - 2 - As Senator Owen recognizes, the same effects upon member bank reserves can be obtained by Federal reserve btu* open market purchases of Government securities. Holders of Government securities would obtain checks on Federal reserve banks which would be deposited in member banks and used by them to increase their reserve balances. The principal difference between the two schemes would lie in the effect upon the condition of the reserve banks. In the case of open market operations the reserve banks increase their assets in the form of holdings of Government securities and increase their liabilities in the form of member bank reserve balances. There might be other changes, but under present conditions with gold ,borrowings practically negligible these movements prohibited and member bPrl changes would probably not be particularly important. ment of Government debts by means of In the case of retire- sreenbacks,the new notes, which can be retired only slowl.y.iwould replace Federal reserve notes or Federal reserve bank notes in circulation. Consequently the increase in member bank reserve balances at Federal reserve barlrs would be balanced by a decrease of notes in circulation. There would be no increase in assets. This difference would become important when a reversal in Federal reserve policy became necessary and it was desired to restrict credit expansion. In this case the reserve banks would possess an insufficient amount of earning assets to mop up all of the excess reserves of member bprirs,and the potential expansion of credit would be almost unlimited. It is, of course, possible in such an event to take advantage of another provision of the Thomas Amendment and increase reserve requirements. This step would place restric- tions upon all banks alike, including some which might not have been expanding credit and some which might be unable to supply the additional reserves required\ 'Office CorresponMence To Mr. Hamlin. FEDERAL RESERVE BOARD 4 1 1, 144- 644 Dee September 21, 1033. Subject: From Division of Fwninntiona_. There is attached a statement covering the period March 150 1933, to September 15, 1933, showing the number of applications for membership in the System approved by the Board and membership completed by the bank; approved by the Board and membership not completed by the bank; applications upon which action has been deferred; application withdrawn, etc. o • 4 # Exam 5 (9-18-33) RECAPITULATION Number of banks Admitted to melabership 124 Applications approved, membership not completed 20 ascellaneous applications; deferred by Board, withdrawn, etc. 27 Grand Total 171 CaDital Surplus 330,764,000 023,379,000 Undivided profits and reserves Total Deposits 1.61267,000 0361,900,000 430,000 1,514,000 1,493,000 35,119,000 10,590,000 9,743,000 Z,970,000 81,854,000 ',43t784,000 ',.)34 2636,000 ',)21,730,000 ::'478,873,000 4 • • Exam 5 (9-18-:53) STATE INSTITUTIONS ADMITTED TO MEMBERSHIP MARCH 1, 1933, to SEPTEMBER 15, 1933. District No. 1. Capital Union & Nei Haven Tr Co., New Haven,. Conn. 1,459,000 Surnlus Undivided profits and reserves Total Deposits U,000,000 300,000 308,000 Brooks Bank & Tr. Co., Torrington, Conn. 100,000 100,000 84,000 1,112,000 Waterbury Trust Co., Waterbury, Conn. 300,000 200,000 114,000 2,129,000 Bridgewater Trust Co., Bridgewater, Mass. 100,000 100,000 61,000 519,000 Boulevard Trust Co., Brookline, Mass. 350,000 350,000 155,000 4,809,000 Everett Bank & Trust Co., Everett, Llass. 200,000 200,000 694,000 163,000 ':.2,509,00C $1,950,000 il,408,000 040 000 Summit Trust Co., Summit, N. J. 600,000 200,000 136,000 5,727,000 Bank of Millbrook, Millbrook, N. Y. 100,000 100,000 147,000 2,176,000 Garden City Bank & Tr Co., Garden City, N. Y. 150,000 92,000 32,000 1,875,000 2,000,000 1,000,000 258,000 19,568,000 Salamanca Trust Co., Salamanca, I. Y. 200,000 400,000 155,000 2,852,000 Adirondack Trust Company Saratoga Springs, N. Y. 250,000 250,000 554,000 7,212,000 State Bank of Se Ciff, N..7. 100,000 50,000 89,000 518,000 Southampton Bank, Southampton, N. Y. 100,000 200,000 55,000 1,604,000 District No. 2. County Trust Co, New York, N. Y. - 2 Ca4tal Suraus ILadividd ,)rofits and reserves Total denosits District No. 2 Tashington Irving Trust Co., Tarrytoun, N. Y. $1002000 Citizens Bank, rbite Plains, N. Y. 100,000 122,000 1,231,000 400 000 400 000 $4,000,000 2,792,000 213 000 1,791,000 874 000 $48,437,000 District No. 3 Gimbel Bros. Bank & Tr. Co., Philadelphia, Pa. ' .200 000 50 000 5,-.)0,000 District No. 4 Bourbon Agricultural Bank & Trust Co., Paris, Ky. 200,000 200,000 114,000 1,021,000 Ashland Bank & Savings Co., Ashland, Ohio 150,000 150,000 11,000 1,292,000 Fayette State Savings Bank, Fayette, Ohio 50,000 25,000 4,000 237,000 Citizens Bank & Svgs. Co., Leesburg, Ohio 25,000 5,000 1,000 126,000 Peoples Savings Bank Co., Martins Ferry, Ohio 200,000 200,000 65,000 1,969,000 Knox County Savings Bank, Vernon, Ohio 150,000 90,000 39,000 941,000 25,000 25,000 45,000 251,000 Commerce Guardian Bank, Toledo, Ohio 500,000 250,000 290,000 4,646,000 Peoples Savings Bank, Van Wert, Ohio 100,000 100,000 37,000 899,000 Homewood Bank at Pittsburgh, Pittsburgh, Pa. 100,000 25 000 01,500,000 1,070,000 29 000 8644 000 _, 613,000 $11,995,000 Bank of Russellville, Russellville, Ohio • k • - Exam 5 - Undividee„ nrofits and reserves Total deposits American Security & Tr.Co., Uashington, D. C. (:;'61400,000 "- 400000 855,000 32,042,000 Washington Loan & Tr. Co., Washington, D. C. 1000000 3509000 115,000 14,595,000 1,000,000 1,2509000 627,000 15,454,000 Farmers EYchange Bank, Abingdon, Va. 50,000 10,000 4,000 263,000 Planters Bank & Trust Co., Farmville, Va. 50,000 125,000 21,000 910,000 Bank of Glade Spring, Glade Spring, Va. 50,000 50,000 53,000 362,000 Lynchburg Tr. & Svgs. Bank, Lynchburg, Va. 300,000 300,000 270,000 3M2,000 Merchants & Farmers Bank, Smithfield, Va. 300,000 300,000 307,000 3,633,000 Farmers & ilechanics Bank, West Point, Va. 50,000 25,000 7,000 288,000 Buffalo Bank, Buffalo, IT. Va. 259000 1 20,000 7,000 117,000 Greenbrier Valley Bank, Lewisburg, 17. Vo.. 75,000 389000 1,000 351,000 Bank of St. Albans, St. Albans, '7. Va. 60,000 100,000 „000 303,000 80,000 22,000 W,990,000 1 ,000 62,7)5'7,000 432,000 2,7,11,000 Ca-Dital SurlDlus District No. 5 Fidelity Trust Co., Baltimore, Ld. Traders Tr. & Eankin Spencer, W. Va. Co., _, Ca9lta1 Exam 5 Sur-aus Uncivided Drofits end reserves Total deposits District No. 6 Bank of Pine Apple, Pine Apple, Lla. c, 25,000 C 25,000 Bank of York, York, Ala. 25,000 15,000 7,000 227,000 Peoples Savings Bank, Clanton, Ala. 50,000 25,000 2z),000 235,000 Colu.nbiana Savings Bank, Columbiana, Ala. 3.5,000 7,000 10,000 182,000 Dothan Bank & Trust Co., Dothan, Ala. 60,000 60,000 34,000 670,000 Ilarion Junction State Beak, Jarion Junction, Ala. 25,000 15,000 5,000 29,000 Watkins Banking Faansdale, 50,000 35,000 12,000 111,000 250,000 250,000 150,000 2,985,000 Bank of Adairsville, Adairsville, Ga. 25,000 - 2,000 46,000 State Bank of Cochran, Cochran, Ga. 25,000 7, 00 2,000 125,000 Merch. & Dechailics Bank, Columbus, Ga. 200,000 200,000 170,000 1,481,000 Bank of Tifton, Tifton, Ga. 100,000 150,000 66,000 570,000 4,000 40,000 Central Farmers Trust Co., Vest Palm Beach, Fla. Truckers Exchange Bank, Crystal Springs, 25,000 Citizens Bank C!.. Trust C-)., Carthage, Tenn. 25,000 American Tr. F2 Banking Co., Chattanooga, Tenn. 625,000* s 5,000 5,000 750,000 $ 169,000 154,000 57,000* 0,00z,,000* . * These figures taken fror.i call report of June 30, 133. Bank of Hartsville, Hartsville, Tenn. 253000 r, 25,000 .4'4,569,000 205,000 T13,267,000 -5-- Capital Surplus Exam 5 Undivided profits and reserves Total deposit;', District No. 7 Farmers State Bank, Belvidere, Ill. $100,000 0.00,000 Peoples Bank, Bloomington, Ill. 100,000 500,000 51,000 3,817,000 50,000 10,000 1,000 190,000 Amalgamated Tr. & Svgs. Bk., Chicago, Ill. 200,000 100,000 86,000 1,903,000 Rock River Community Bank, Byron, Ill. 9,000 $ $ 525,000 Hamilton State Bank, Chicago, Ill. 200,000 40,000 2,000 243,000 Lake Shore Tr. & Svgs.Bank, Chicago, Ill. 400,000 150,000 543,000 3,800,000 Lake View Tr. & Svgs. Bank, Chicago, Ill. 500,000 500,000 1,081,000 5,811,000 Liberty Bank of Chicago, Chicago, Ill. 300,000 100,000 211,000 2,198,000 Merchandise Bank & Tr. Co., Chicago, 111. 5003000 500,000 217,000 3,339,000 Metropolitan State Bank, Chicago, Ill. 200,000 100,000 71)000 385,000 Sears Comnunity State Bank, Chicago, Ill, 200,000* 20,000* 40,000* 3,069,000x * These figures taken from call report of June SO, 1933. Skala State Bank, Chicago, Ill. 200,000 20,000 27,000 381,000 State Bank of Clearing, Chicago, Ill. 100,000 25,000 49,000 667,000 Upper Avenue Bank, Chicago, Ill. 200,000 100,000 99,000 1,267,000 Uptown State Bank, Chicago, Ill. 500,000 100,000 6,000 1,323,000 41/ 111 -6- Canital Surplus "Exam 5 Undivide(2 profits and reserves Total deposits District No. 7 (Contld) State Bank of London Mills, Ill. 40,000 40,000 Metamora State Bank, Metamora, Ill. 50,000 Citizens State Bank, Milford, Ill. 3 2,000 216,000 11,000 34,000 250,000 50,000 10,000 20,000 391,000 State Bank of Niantic, Niantic, Ill. 60,000 25,000 4 000 220,000 Poplar Grove Bank, Poplar Grove, Ill. 25,000 20,000 4,000 233,000 Tusccla State Bank, Tuscola, Ill. 70,000 70,000 2?,2000 Z73,000 Citizens State Bank, Walnut, Ill. 25,300 5,000 9 000 166,000 Danforth Banking Co., Wasnington, Ill. 50,000 10,000 1-,-.2 1 000 L83,000 600,000 200,000 109,000 11,489,000 Davenport Bk. & Tr. Co., Davenport, Iowa , State Savings Bank, Fontanelle, Iowa 40,D00 17,000 17,000 368,000 Holstein State Bank, Holstein, Iowa 50,000 10,060 4,000 478,000 Ida County State Bank, Ida Grove, Iol7a 40,000 8,000 - 125,000 75,000 60,000 2,751,000 25,000 7,000 2,000 180,000 400,000 400,000 480,000 2,148,000 60,000 ;4 :5,460,000 40,000 '5,322,000 :3,073,000 483,000 . 000 472 Muscatine Bank & Tr. Co., Muscatine, Iowa Templeton Savings Bank, Templeton, Iowa West Sids Bank., Milwaukee, Home State Bank, South Jilwaakce, Pis. 325,000 - 7 - Capital Exam 5 Surolus Undivided profits and r;erves Total deposits District No. 8 Bankers Comil Trust Co., Little Rock, Ark. 6300,000 30,000 40,000 2.,941,000 Peoples Bank, Little Rock, Ark. 200,000 40,000 10,000 1,670,000 Union Bank, Little Rock 9 Ark. 300,000 60,000 41,000 3,942,000 State Bank of Breese, Breese, Ill. 50,000 50,000 15,000 644,000 First State Bank, Chester, Ill. 50,000 25,000 /14,000 873,000 Bank of Edwardsville, I!;dwardsville, Ill. 150,000 150,000 44,000 1,092,000 C. P. Burnett e: Sons, Eldorado, Ill. 50,000 50,000 10,000 1,b36,000 200,000 100,000 60,000 1,679,000 25,000 25,000 24,000 557,000 Neat, Condit E: Grout,Bankers, Winchester, Ill. 110,000 30,000 8,000 296,000 Glasgow Savings Bank, G1asgow, 7.1o. 75,000 75,000 33,000 441,000 Bank of ilemphis, Memphis, Uo. 25,000 5,000 4,000 188,000 The Plaza Bank of St. Louis, St. Louis, flo. 200,000 40,000 6,000 1,929,000 5,000 ';715,000 3,000 345,000 425,000 417,819t000 Elliott State Bank, Jacksonville, Ill. State Dank of Steeleville, Steeleville, Ill. Sedalia Bank & Trust Co., Sedalia, Uo. 1009000 1,835,000 -8- Ca,Ditai Exam 5 Surplus District No. 9 Undivided profits and reserves Total deposits 4 State Bank of Terry, Terry, 'dont. 20,000 60,000 3 27,000 610,000 Belvidere State Bank, Belvidere, S. Dak. 25,000 5,000 11,000 10,000 Hand County State Bank, Hiller, S. Dak. 25,000 5,000 3,000 159,000 Bear Butte Valley Bank, Sturgis, S. Dak. 25,000 15,000 16,000 327,000 Sanborn County Bank, Woonsocket, S. Dak. 25,000 10,000 17,000 179,000 25,000 $145,000 $35,000 1,000 „)75,000 106,000 1,57l,000 50,000 50,000 z3,000 602,000 150,000 52,000 4,000 958,000 20,000 20,000 5,000 502,000 150,000 56,060 49,000 1,131,000 Bank of Craig, Craig, 25,000 15,000 11,000 144,000 Citizens Bank, Bancroft, Nebr. 30,000 30,000 4,000 145,000 Stromsburg Bank, atromsburg, Nebr. 20,000 10,000 8;000 352,000 State Bank of Wheatland, Wheatland, Wyo. 40,000 60,000 323,000 470,000 Stockgrowers Bank, Wheatland, 40,000 26,000 21,000 260,000 25,000 $550,000 33,000 l348,222 2,000 $)473,000 266,000 $4,630,000 Peoples State Bank, Bloomer, his. District No. 10 Citizens Bank, Abilene, Kans. Hutchinson State Bank, Hutchinson, Kans. Citizens State Bank, Osage City, Kans. Bank of Carthage, Carthage, Farmers State Bank, Worland, Wyo. Canital Surnlus Undivided profits and reserves Total deposits District No. 11 Huntsville Bank & Tr. Co., Huntsville, Texas 50,000 City State Bk. & Tr. Co., LIcAllen, Texas 60,000* Roscoe State Bank, Roscoe, Texas 30 000 C140,000 10,000 3 18,000 264,000 143,000* 15 000 25,000 1 000 19,000 191 000 593,000 * Thef)e figures taken from call report of June EO, 19E3. DistrJ.ct No. 12 California Bank, Los kngeles, Calif. 5,000,000 1,700,000 3,860,000 78,790,000 Central Savings Bank, Oakland, Calif. 1,200,000 1,G50,000 1,587,000 35,576,000 Citizens State Bank, Santa Paula, Calif. 100,00C 50,000 19,000 435,000 State Security Bank, Brigham, Utah 100,000 '50,000 7,000 792,000 25,000 ,?6,423,000 3,000 ::E,455,000 1,000 St;',47,1,000 207,000 00,000 :30,764,000 F. ) 12 23,379,000 16,267,000 361,900,000 Cashmere Valley BankIII, Cashmere, Wash. Total nulaber of banks -10-- Exam 5 APPLICATIONS APPROVED - 1.76IIBIRSHIP NOT COMPLETED Undivided profits and resurves Total deposits Capital Surplus ':,;200,000 $300,000 422,000 '11,925,000 100,000 50,000 45,000 1,286,000 225,000 100,000 56,000 1,685,000 50,000 25,000 7,000 288,000 200,000 70,000 20,000 974,000 Boulevard Bridge Bank, Chicago, Ill. 500,000 250,000 397,000 7,887,000 Western State Bank, Cicero, Ill. 200,000 100,000 180,000 389,000 50,000 25,000 29,000 309,000 300,000 150,000 24,000 1,267,000 Fordyce Bk. C.: Trust Co., Fordyce, Ark. 50,000 5,000 6,000 275,000 Peoples Bank of Indianola, Liss. 25,000 3,000 3,000 171;000 District 1 Brooklifie Trust Co., Brookline, Flass. District io. 2 Leonia Bank & Tr. Co., Leonia, L. J. District No. A Doroont Svgs. & Tr. Co., Dormont, Penna. District No. 5 Farmers & Mechanics Bank, West Point, Virginia Capital City Bank, Charleston, W. Va. District Lo. 7 nerch. & Farmers BRnk, Grays Lake, III. Citizens Banking Co., Anderson, Ind. District 11.o. 8 - 11 - Capital Surnlus Exam 5 Undivided profits and reserves Total deposits District No. 10 Sylvan State Bank, Sylvan Grove, Kans. 25,000 r2;50,000 :,12,000 Commercial Bank, Grand Island, Nebr. 100,000 34,000 5,000 Southern Ariz. Bk. &Tr. Co., Tucson, Ariz. 250,000 300,000 174,000 25,000 7,000 11,000 349,000 Buhl State Bank, Buhl, Idaho 30,000 10,000 6,-000 426,000 Caldwell State Ilar Caldwell, Idaho 50,000 10,000 18,000 520,000 Nampa State Bank, Nampa, Idaho 50,000 10,000 ,2,3,000 547,000 Rupert StateIUT;1. k, Rupert, Idaho 50,000 10,000 29,000 309,000 50,000 5,000 $2,430,000 $1,a4,000 6,000 01,493,000 580 000 035,119,000 881,000 District No. 11 Atoka State Bank, Atoka, Okla. A 709 000 District No. 12 Weiser State Bank, eiser, Idaho NMI - 12 - Exam 5 MSCELLANEOUS (Applications deferred by Board & withdrawn by applicant, etc.) Surplus Undivided profits and reserves Total deposits District Eo. 1 Hartford-Conn. Tr. Co., Hartford, Conn. 03,000,000 ,000,000 22,746,000 District No. 2 Town Trust Co., TIontclair, N. J. 100,000 25,000 10,000 381,000 1,075,000 1,500,000 30,000 6,096,000 South Side Bank, Bay Shore, N. Y. 100,000 20,000 1K,000 1,203,000 Erie County Trast Co., East Aurora, N. Y. 100,000 50,000 28,000 1,606,000 Bank of Elmira Heights, Eluira Heights, N. Y. 60,000 15,000 22,000 582,000 Uatkins State Bank, Watkins Glen, N. Y. 50,000 50,000 36,000 486,000 300,000 1,725,000 300,000 300,000 10,000 1,596,000 Peoples Deposit Bk.84Tr. Co., Paris, Ky. 150,000 150,000 18,000 1,004,000 Cincinnati Bank C: Tr. Co., Cincinnati, Ohio 150 000 200,000 155,000 2,689,000 50,000 186,000 555,000 West Side Trust Co., Newark, N. J. Westchester Trust Co., Yonker3, Y. 7,632,000 District Bank of Commerce, Lexington, Ky. Ohio ilerchants Tr. Co., ilassillon, Ohio 250,000 411 tt 411 -13- 22.21IO2- Surnlus Exam 5 Undivided profjts and reserves Total deposits District No. 4 CContld) Union Trust Co., Butler, Penna. '2200,000 1.25,000 :114,000 2.,578,000 125,000 175,000 119,000 1,586,000 150,000 50,000 - 1,440,000 100,000 54,000 (34,000 743/000 2,-- 30,000 8,000 4,000 168,000 Banco Di Napoli Tr. Co., Chicago, Ill. 300,000 100,000 119,000 989,000 Drovers Tr. & Svgs. Bank, Chicago, III. 350,000 500,000 375,000 4,301,000 Personal Loan & Svgs. Bk., Chicago, Ill. 9 •-• 1 0001000 500,000 700,000 3,920,000 25,000 17,000 5,000 340,000 Guaranty Plaza Trust Co., St. Louis, Mo. 200,000 200,000 48,000 2,038,000 Lafayette South Side Bank & Trust Company, St. Louis, 1Io. 600,000 200,000 9,000 5,465,000 25,000 4,000 Farmers & :lerch. Tr. Co., Greenville, Penna. District No. 5 Bank of Raleigh, Beckley, Va. District No, 6 Florida Bank at Orlando, Fla. District IA). 7 Farmers State Bank, Chadwick, Ill. District No. 8 Buena Vista State Dank, Chester, Ill. District No. 9 Bank of Alpena, Alpena, S. Dak. 77,000 • • Exam 5 -14- Ca'Dital 04ty Ban ;Kansas C Surplus Undivided profits Total deposits and reoerves 6300,000 400,000 501,000 ,s?6,062,000 500,000 300,000 105,000 4,682,000 Robinson State Bk.er. Co., Palestine, Texas 5Q,000 (.10,590,000 25,000 ij,746,000 19 000 487,000 81,854,000 District No. City Svgs. B14: & Tr. Co., Shreveport, La. (All figures taken from banks t applicotion papers) S.,t446--tt • FEDERAL RESERVE BOARD WASHI NGTON ADDRESS OFFICIAL CORRESPONDENCE TO . THE FEDERAL RESERVE BOARD X-7598 September 21, 1933. SUBJECT: Liability of banks on deferred certificates issued to depositors. Dear Sir: There is inclosed herewith for your infornation a copy of a letter the Federal Reserve Board has addressed to the Auditor of Public Accounts of the State of Illinois with regard to the liability of certain banks in that State on deferred certificates issued to depositors who waive their right to demand immediate payment of a part of. their claims against the bank. Yours very truly, L. P. Bethea, Assistant Secretary. Inclosure. TO ALL FEDERAL RESERVE AGENTS. VOLUME 246 PAGE 99 siAA- 104 Form No.131 Office Correspontence FEDERAL RESERVE BOARD 411 Date November 17,1933 Subject: Depreciation on U. S. Government Mr. Hamlin securities owned by F. R. banks Er. Smead OP° 16-852 With reference to your recent request it was not practicable to ascertain from data on file in this office the amount of depreciation on United States Government securities owned by the Federal Reserve banks and accordingly we have obtained from the Federal ReF.erve Bank of New York the necessary information with respect to securities held in the Special Investment Account and in thc New York bank's own portfolio. According to the fires furnished by the Federal Reserve Bank of New York, on November 15 there as a net depreciation, on the basis of closing bid prices, of $5,618,300 in the System Special Investment Acco'm 4. and of $362,100 in securities owned by the Federal Reserve Bank of New York. On the basis of such information as is available regarding the Government securities held by other Federal Reserve banks and the book value of such securities, it is estimated that on November 15 there was a net depreciation of about $650,000 in Government securities held in their own portfolios by Federal Reserve banks other than New York. Liberty bonds held in Special Investment Account on November 15 had a market value of approximately $3,250,000 in excess of book value while other securities held in Special Investment Account showed depreciation as follows: Other bonds $282,300 Treasury notes 8,263,600 Certificates of indebtedness 200,500 Treasury bills 121,;'On detailed statement showing the depreciation or appreciation in securities held in the Special Investment account and in the New York bank's ' own portfolio is being furnished the Board, VOLUNY 246 PAGE 145 B O A, T. IL12s. e t, Qs.) 1,933• The price of the dollar in foreign exchange is determincd by the ratio betv,een payments out-from and payments in-to the country. It is a simple supply and demand phenomenon, like any price. Payments out-from and into a country may be classified as follors: (1) p4yments on income account which my be subdivid- ed (A) goods and services, (B) interest cnd profits; and (2) payments on capital account shich may be subdivided (A) short term capital, (B) long term capital. The dcclinc of the dollar in the last few months must imply an expectation on the part of speculators that our balance of international payments is about to undergo an important chn7e. Is such sr expectr,tion reasonable? The fallacy that lies behind speculation in foreign exchange to-day is that a change in the price-level in one country necessarily leads to a corresponding change in the value of its currency on foreign exchange. The ansNter is:- it does only in so far ss international trade and investment lead to a shift in that country's bnlance of pnyments. Take, for ex.fmple„ the drop in the price-level in this country from the summer of l9`9 to the summer of l92 relz,tive to the drop in other countries on the gold standard. One %ould think that the French franc ought to have deprec- iated, or that the dollar ought to have appreciated, as there vas Rifi5f46 1 0, Memo. R.A.T. Sept. ;, alb such a marked difference in the behaviour of these respective pricelevels which had for several years shown a good correlation. On the contrary, they both showed the same tendency (to appreciate with gold). This vas due, of course, to movements of capital in the case of the franc, and movements of income (or lack of movement of capttal, if you rill) in the case of the dollar. In this part- icular case, therefore, the change in our internal price-level must have teen offset by e chanre in our balance of payments on capital account (thich now eppotre to have been highly unstable during the !twenties *). It is true, of course, that violent chcnges in the relative internal rrice-levels totween to or more eowttries does often lead to a change in foreign exchange rates. But there is :hich this crel occur (except temporarily by seeculation) no way in 1, except through a nhift of international trede and investment 'etich the new price level brings tthout. It is my thought that, given the ?eculiar position of the United States in foreiga trade and investment, such a shift in our BALANCE of payments is not likely to occur, and therefore that a permanently loer level for the dollaf in terms of other currencies is not a reasonable expectation. * The stability of any unfavorable balance of payfdents on capital account eeems to be dependent upon vhether the annual new investment is equal to the increase in productive efficiency of its debtors, ror any country. If not, a kind of snowball is rolled up and the end-result is apt to be catastrophic. In the case of the U.E.A. during the ftv'enties„ it was certainly not eual, and became catastrophic. 4 R.A.T. Sept. 30, 1972. 3. During the 13201 s, the balance of payments was so heavily in our favor that we had to invest half a billion to a billion a year abroad In order to maintain equilibrium. At: soon as ve stopped this annual investment, other countries' currencies began to crack. Now, I nubmit that we are not likely to go in for heavy foreimi investments in the next fer years. There will therefore be a great pressure from this cause to send the dollar up. Our balance of trade shows great obstinacy against turning from tTavorablen to nunfavor:3ble. V:ith protective tariffs, nd 7uotas being continually increased, it se' more embargoes likely that our foreign trade will dwindle to zero than thct it rill turn unfavorable, the amount And even if it should turn unfe7orable, ill be small on account of the great increse in obstacles to international traffic. Thus there viould not be any great press- ure to depress the dollar from this source. The return of interest, dividends, tind amorti7ation on our vast foreign investments has shrunk very gret;tly end many of them have doubtless been irretrievably lost, But it is absurd to say that they are all lost forever, and with a world-ride pickup in business such as now seems to have been started, it is reasonable to expect that these payments %ill be in some measure restored. doubt that the drop in this investment income plus the drop in our export surplus will exceed the amount Ithich accustomed to invest abroad annually during the 'twenties. were This is a matter of esflmate, but, taking it oVer a period of normal • IIF w" • • • Memo. B.A.T. Sept. 70 1933. - 4. years, most students, I think vould agree. Any discrepancy would be offset by a decrease in tourists' expenditures and imigrant remittances which are most unlikely to show any large gain over their 192030 levels:- decrease is more to be expected. Therefore it seems to me that the dollar is a better buy than sell to-day, (Quotations $4.80 sterling and 60 franc). As for the gold value of various currencies, it is scarcely imnortant or interesting enough to merit discussion. Gold may go up or down, but it is the relation betveen currency values on the exchange market which matters. Copy of Memorand-um prepared by Dr. Miller for the Pre.id.ent October 11, 1933. The platform on which I was elected declared in favor of "A sound currency to be preserved at all hazards.'! On that declaration I stand. It is my desire to see our currency placed on a gold basis when conditions become favorable. standard. But a sannd currency means something Liore than the gold . Our experience under the gold standard in recent years has Clearly demonstrated that the gold standard alone is not sufficient to insure monetary safety and stability. It is my intention that when our currency is again placed on a Permanent basis, it shall be under conditions and safeguards which will insure its maintenance and soundness and promote monetary, financial and economic stability. The conditions under Which the gold basis can be restored safely do not at this time exist in the United States and elsewhere in the world at large. Economic recovery must first proceed to the point where the price structure will have attained more stable relatilaships and price levels a more normal position. When that point is reched in the process of recovery, the true position of the dollar can be determined and the currency of the country be placed on a permanent and sound basis. naPi5446 • • X-7590-a September 21, 1933. COPY Hon. Edward J. Barrett, liuditor of Public Accounts, State of Illinois, Springfield, Illinois. Dear Lir. Barrett: 1- ?Leference is made to the conferences which you and members of your staff had Nith members of the Federal Reserve Board and the Board's staff on September 11, and 12, 1933, with regard to the obligation of reorganized State banks located in the State of Illinois on deferred certificates which they have issued to their depositors who have waived their right to demand immediate payment of their deposits. Reference is also made to your letter of September 12, 1933, inclosin copies of the Depositor's Agreement and the Deferred Cer- tificato which have been used in the reorganization of the State Bank of Collinsville, Collinsville, Illinois. It is understood that the Provisions of this agreement and certificate are substantially similar to the provisions of agreements and certificates which have been used in the reorganization of many other State banks in Illinois, and the Federal ileserve Board has given most care2u1 and sympathetic consideration to the problem involved in this matter. It has been observed that the Depositor's Agreement provides that, in lieu of payment in cash of 50 per cent of his deposit claim, the depositor will accept a deferred certificate issued by the bank for a like amount, payable out of future recoveries on segregated assets and the net profits of the 2- ,ank, and before any dividend or • Hon. Edward J. Barrett -2- X-7598-a returns of any hind or character are payable to stockholders. The Deferred Certificate which is issued by the bank states that the bank agrees to pay the amount represented by the deferred certificate to the holder thereof solely out of the future net profits of the bank and recoveries, but, in all events, before the payment of any dividends to the stockholders of the bank. It further provides that, in the event of liquidation, the termination of the bank's business, the consolidation with or transfer of all or a major part of its assets to another banking institution prior to the payment of the deferred certificate, the holder of the certificate shall be entitled to share in the proceeds of the liquidation, sale, merger, or consolidation after liabilities of the bank to its depositors and other creditors shall have been paid or provided for and that, in any event, the holder of • the certificate shall be entitled to priority over any of the stockholders of the bank. In these circumstances, it seems apparent that a bank issuing such a deferred certificate assumes a definite obligation to pay the amount of such certificate at some time, and that there is no way by which it can be released from such obligation except by the consent of the certificate holder. The obligation of the bank for the payment of such deferred claim is a liability of the bank, to the same extent as the obligation of the bank to pay the claim of any depositor. The only differences between the two classes of claims are as to time of payment and preference of payment in the event of liquidation, and it • Hon. Edward J. Barrett X-7598-a seems clear that these differences do not justify a conclusion that there is no liability on the bank for the payment of the deferred certificates described above. The Board has considered the suggestion which has been made that the stockholders of the bank have authorized the bank to act merely as agent in distributing to deferred certificate holders future recoveries and earnings, to which the stockholders would normally be entitled, and that, accordingly, the liability for the payment of such deferred certificates is on the stockholders of the bank rather than on the bank itself. However, it does not appear how this can be true, on the basis of the facts involved in the case presented, when the stockholders of the bank are not parties to any of the agreements but such agreements are between the bank itself and the depositors thereof. It may also be noted that there does not appear to be any way in which a stockholder can relieve a bank from its liability to pay the claims of depositors, but that a bank can only be relieved of such liability by the agreement of the depositor and in accordance with the terms of any agreement executed by the depositor. As noted above, the depositors here involved have not relieved the bank of the obligation to pay their deposits but have merely entered into agreements with the bank, permitting a deferment of payment of such claims. After a careful consideration of all the circumstances involved in this matter, the Federal Reserve Board is of the opinion that a bank which issues deferred certificates such as the one inclosed a. • • e is A Hon. Edward J. Barrett X-7598-a -4- in your letter of September 12, 1933, has a liability for the payment of such certificates. Under the provisions of Section 9 of the Federal Reserve Act, a State bank may not be admitted to membership in the Federal Reserve System unless it has an unimpaired capital. Accordingly, in any case where a bank has issued deferred certificates of the kind described above and the amount of liability on such certificates, together with tho other liabilities of the bank to depositors and other creditors, as compared with the amount of the assets of the bank, is sufficient to impair the bank's capital stock, it would not be eligible for admission to membership in the Federal Reserve System. As suggested when you conferred with members of the Board, the fact that reoranized Illinois State banks may not at this time be eligible for admission to merbership in the Federal Reserve System on account of an impairm.ent of their caldtal, as a result of liability on deferred certificates of the kind described above, need not necessarily result in serious consequences to such banks. It is possible that these banks may obtain the benefits of the Federal Deposit Insurance Corporation and, while entitled to such benefits, eliminate their liability on deferred certificates and become eligible for admission to membership in the Federal Reserve System. It is understood that you have taken this matter up with the Federal Deposit Insurance Corporation. S Hon. Edward J. Barrett _5- X-7598-a It would seem that the liability of a bank on such deferred certificates might be eliminated by having the bank transfer all charged off assets to trustees for the benefit of deferred certificate holders and obtain from each certificate holder an agreement releasing the bank from any liability on such certificates and accepting, in lieu thereof, a certificate from the trustees entitling the certificate holder to a pro rata share of any recoveries from the charged off assets transferred to the trustees. If deemed advisable, agreements night also be obtained from the stockholders of the bank to the effect that, until all certificates issued by such trustees have been paid in full, the stockholders will transfer to the trustees, for the benefit of the certificate holders, any dividends declared on their stock by the bank. The Board questions the advisability of a bank obtaining any such agreement from its stockholders, since it is apparent that, for a considerable period of time, any dividends on the stock of the bank will not be for the benefit of stockholders and that, for such period, the bank's stock will have little, if any, value from the standpoint of the earnings of the bank and, accordingly, will not be marketable. It appears questionable, therefore, whether on such a basis the people of the community will retain confidence in the bank so as to enable it to maintain or increase its deposits in competition with other banking institutions. The Board feels that, in any case of a reorganization of a bank where *0 6 Hon. Edward J. Barrde -6- • X-7598-a the stockholders have done everything possible to discharge their obligation to the bank and to save the depositors from loss, the de- positors are not equitably entitled to future earnings of the bank. However, there may be circumstances where the stockholders have not fully discharged their obligation and the depositors have already agreed to a plan of reorganization and accepted the obligation of the bank to conserve future net earnings for the benefit of depositors, until their claims are satisfied, which justify the execution of agreements by stockholders to turn over any dividends to deferred certificate holders, in lieu of tho agreement of the bank to conserve earnings for the benefit of such certificate holders. As you know, the State Bank of Collinsville, Collinsville, Illinois, is now a member of the Federal Reserve System, and the question involved in that case is whether the Secretary of the Treasury should issue a license to that ban': to reopen as a member bank. This question is not one for the determination of the Federal Reserve Board, but, since it is understood that the liability of the bank on the proposed deferred certificates 7Jould subs-Lantially impair, if not entirely elLminate, its capital, it would not seem advisable to reorganize and reopen this member bank until its capital is restored. It is sug- gested that, in the case of the State Bank of Collinsville and similar cases, the procedure outlined in the first paragraph commencing on page five of this letter be followed prior to the reopening of the bank in order to eliminate the liability of the bank on deferred certificates and the consequent impairment if not entire elimination of its capital. Of course, as you know, this bank might voluntarily withdraw from membership in the Federal Reserve System and reopen as a nonmember State bank and, after its liability on the deferred certificates has been eliminated, apply for readmission to the Federal Hon. Edward J. Barrett Reserve System. -7_ J1-7598-a The Board feels, however, that it would be morcie. sirable for such elimination of liability to be accomplished pric'!': to the reopening of the bank. The Board fully appreciates the efforts you are making to effect sound reorganizations of banks in your State, and it desires to be of all possible assistance to you in this connecnon. Accordingly, if there is any further information you desire or anything that properly can be done by the Board to be of assistance, it will be appreci• ated if you will advise the Board. Vary truly yours, (Signed) E. R. Black E. R. Black, Governor. OUR NATIONAL PROBLEM ,..111.=••••••••••••••1111/•••••••••••• Our immediate, great national problem is to restore and maintain the value of "Money" and regulate its future value as dlrected by the Constitution of the United states. It can be done alone by the Congress of the United States, under the Constitution. Our money is the medium of exchange in commerce. Such money consists of coin and paper, with which about 8% of our business is transacted, and checks based on bank credit, with which over 92% of our business is done. IThe value or purchasing power of money absolutely and positively depends upon the supply of money available to the general public. Money is best referred to as a "means of payment". It is "the means of payment' for purchases, for debts, for interest on debts, for taxes, for freight, and all fixed charges involved in the cost of living and in the transaction of business. \ben the increased supply of money or "the means of payment" is not accompanied by a corres„ponding, rise in the volume of corn odities produced or property existing - it necessarily results in diminishing the value of such money and increasing the market price of such commodities, as ell as corporate stocks and other forms of property. In the boom market preceding October, 1929, there was an increase of bank credits for speculation in corporate securities Trapproxiately ELEVEN BILLION DOLLARS, which appeared largely as brokers' loans. This expansion of money or bank credit caused the purchasing power of moneys in terms of such corporate securities, to come down and the market price of such corporate securities to 4,o up. As this bank expansion was not for the primary purpose of buying commodities, it did not greatly affect the commodity market - and for the further reason that the volume of commodities was greatly increased thru the active employment of the people under the stimulation in Dart of the bull stock-market. When it became generally accepted that corporate securities were selling at a price at which they could not possibly pay reasonable returns on the investment, the bull market collapsed - purchasers in some cases selling for prudential reasons, others being compelled to sell by the calling of loans secured b:y margins. -2The result of this collapse was that the 11 billion dollars of money which had been expanded for the purchase on margin of corporate securities as entirely withdrawn within three or four years. Corporate stocks were a drug on the market, with no money available to the public with which to buy such stocks - altho the stocks were essentially, in many cases, worth several times the market price. The shrinkage of bank loans exceeded 15 billions by December 31, 1933, and the shrinkage of bank deposits was 131 billions. Since then, 5 billions more of bank deposits have been frozen by the closing of banks. The shrinkage of checkmoney was approximately one-half from 1929, when the volume of checks paid by banks was 1200 billions, to 1932, when the volume of checks pnid by the banks was about 600 billions. • This shrinkage of the supply of money, while the demand for money became increasingly urgent, caused a sudden increase in the purchasing power of money, so that money increased in value anywhere from normal up to 10005 in terms of corporate securities and in terms of real-estate - resulting in widespread bankruptcy, not onlyof debtors but of creditors who were ruined by the collapse. The creditor was often ruined by the inability of his debtor to pay. The whole nation was misled by a speculative mania, because there was no sound, adequate opinion in the United states with regard to the national advantage and ability "to regulate the value of money". It is true our great and wise constitution of the United Etates authorized Congress to do this but it never had been done. In order to have it done, it was necessary to have an informed public opinion. It took a great national calamity to direct public opinion to the urgency and value of this constitutional requirement. It took the World var and the economic consequences of that var to impress upon the world the importance of stabilizing the value of money - the supreme importance of preventing the evils of uncontrolled expansion and uncontrollt'd contraction. Many patriotic men have studied and attempted to solve this problem. The means, at last, has been discovered as to how this can be done. The fi_st vital principle to be understood is that (1) The value of money depends absolutely and positively upon the available supply of money - that is, of credit as well as of currency - to the general public. (2) The national government alone has the constitutional, legislative power and the financial means with which to "regulate the value of money". (3) The general commodity index - representing the value of all the products of labor in terms of money - is the most stable, existing index of the value of money as well as of commodities. (4) The value or the purchasing power of money and the value of commodities representing all human labor is one and the same thing, and a stnndard was fixed by the Department of Labor at 100 for the year 1926. When the supply of money expands in and labor - the value of money goes commodities (the products of labor) money contracts, the value of money commodities goes dawn. relation totommodities down and the value of and labor go up. When goes up and the value of rhen the dollar thdex went to 60 in May, 1920, the commodity index went to 166; when the dollar index in February, 1933 went to 166, the commodity index went to 60. \lien the value and the purchnsing power of money is stabilized at or about 100, it means thathe general commodity index representing labor and the products of labor will be stabilized at or about 100. Stability alone in the purchasing power of money and the comiodity values will prevent the future evils of so-called "inflation" and "deflation" - or the evils of over-expansion or over-contraction. The United States Government has the financial power to do this - either directly thru the Treasury or indirectly thru the Federal reserve banks; either using the facilities of the banks by voluntary cooperation or using these banks as Governmental agencies. 'hen money is suffering from excessive contraction, it should expanded; when money is suffering from excessive expansion, it should be contracted. The one is as easy to do as the other. To expand money, the Government should cause the purchase of bonds by the Reserve banks or by its on Treasury with paper money. To contract money, the Government should sell the bonds which had been bought, and take up the paper money, for retirement, with which such bonds had been bought. Thru the Federal reserve banks, the same thing coua: accomplished, by the Federal reserve banks buying bonds with Federal reserve credit in an amount sufficient to accomplish the desired result; aria-Mgrit became desirable to prevent the value of money going below par, to sell such bonds in an amount sufficient and contract credit or money. If the Federal reserve banks bought 3 billions of bonds, it would establish a surplus reserve of the member banks in the same amount; and the member banks, on an average, could expaid their own loans (for productive purpopes) ten times as much (against adequate assets), with safety. In this manner, money would be abundantly supplied to restore its purchasing power to normal. "hen the purchasing power of money is restored to normal, the value of all forms of property will be restored to normal - including real-estate, commodity values, and corporate securities. Table 19 of "Statistics of Income", compiled by the Bureau of -Internal Revenue, giving the resources and liabilities of 440,000 corporations in 1929, showed that they represented . property values of 335 billions. The actual value of these stocks and bonds liol4d be restored to normal based upon their normal income producing power. When the value of property and money is stabilized - normal consumption, production, and employment will automatically follow. The National Recovery Act establishing fair competition In the United States, reasonable hours of labor: reasonable compensation for labor, putting an end to unfair and corrupt trade practices, and stimulating the re-employment of people by dividing the work to be done thru shorter hours - is a constructive conception of great importance. Its success, however, will depend very largely, indeed, upon restoring the va1-1 of property and the purchasing power of money to normal. Unless this is done, the hopes of the American people for prompt recovery from the depression may meet with agonizint disappointment. There is no proulem in Amelica of such vital importance r_ the duty imposed by the Constitution of the United States upon Congress by Article 1, Section 8, "to regulate the value of money". The power has now been delegated by Congress and the direct official responsibility rests upon Franklin D. Roosevelt. The responsibility is great; and if it is adequately met, his name will go down in history as our greatest President. 9/6/33 ROBERT L. 01;EN
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