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The Papers of Charles Hamlin (mss24661) 368_07_001- Hamlin, Charles S., Scrap Book — Volume 249, FRBoard Members 205.001 - Hamlin Charles S Scrap Book - Volume 249 FRBobrd Members TRANSFER Fora F. R. 131 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence To The Files From Mr. Coe Date Aucrust 12, 1941 Subject: After correspondence with Mrs. Hamlin (see letters of May 25 and June 4, 1941) the items attached hereto and listed below, because of their possible confidential character, were taken from volume 249 of Mr. Hamlin's scrap book and placed in the Board's files: VOLUME 249 Page 9 Memo to Gov. Black from Mr. Smead re Devaluation of the Dollar and the Federal Reserve System. Page 25 Governor Black's revised memo to President. Page 37 Memo re transfer of gold. (Tentative draft) Page 67 Memo to Mr. Hamlin from Mr. Smead re Exchange and transfer drafts. Page 138 Earnings and Expenses of F.R. Banks, December 1933. r- • 411 ga4/4 November 23, 1933 Devaluation of the dollar and r-overnor Mack tho Federal Reserve System ''rriead In view of tho authority possessed by the President to reduce the gold II ntent of the dollar at any time by as much as 50 percent and the crowing probability that the (iollar will be devalued by the exercise of that authority, perhaps in the near future, the subject of the effect thereof upon the Federal Reserve System has OOND tO bo of vital concern. At the present time our monetary cold stock amounts to S4,322,000,000, which would bo increased to 03,000,000 if the cold content of the dollar wore reduced to GO percent of the present statutory might, corresponding roughly to the present exchange vnlue of the dollar. At this valuation our gold stock would exceed by about 0.,960,000,000 the amount or money in circulation at the present time, exclusive of subsidiary silver and minor coin. Ma other words, we 'could retire all the Federal Reserve notes, Federal Reserve Bank notes, national bank rotes, United States notes, cold certificates, silver certificates, gold coin and silver dollars in. circulation, replace them with gold coin of the new weight or with gold ceroates based on the devalued gold . dollar and have a reserve stock of gold remaining in the amount of t1,960,000,000. earing in mind also the fact that our gold stook at its present valuation is equal to more than 80 percent of our total circulation, exclusive of subsidiary silver and minor coin, it is evident that the addon of '2,880,000,000 to the value of our gold stock, that would result from a 40 percent devaluation of the dollar, would give this country an additional fund of gold in that amount not needed for monetary purposes and which would have to be held by nomoone as a nonproduotive asset. The possible holdors of this cold are three, i.e., (1) the united States Treasury, (2) the Federal Reserve VOLUME 249 PAGE 9 ,J S Governor Black - Banks, and (3) member and nonnetber banks. 'That the Treasury would hold any substantial portion .of this immense sum of id.- gold is, of course, quite inconceivable, - especially in view of the cur- rent heavy requirements of the Treasury for &rids to finance unusual GoVernmontal activities'. The Treasury night, however, it would seen be willing to carry a 100 percent gold reserve against United States notes, which would absorb about .71.90,000,000 of gold. If the Reserve Banks were permitted to retain the profit realized from the revaluation of their awn gold holdings (Which it is taken for granted they will not, 'unless perhaps in connection with the adoption of a "commodity- dollar"), they could carry the inoreased gold reserves with no ether embarrassment than that of a striking increase in their surplus accounts; but if the Reierve Banks do not share in the nrofit derived from the revaluation of the cold stook, the thrustins upon then of such an amount of unproductive gold would have very serious consequences. Assunik; that the Treasury deposited with the Federal :eserve Banks Its profits of t2,880,000,000 or so,resultinc from the devaluation of cold it would then be in position to draw on the .balances thus created in meeting its obligations. The paying out of these funds by the government in ordinary course in defraying current expenses or redeeming government securities held by the public would transfer them to nesiber bank reserve account, Single the government checks would be deposited with member banks who in turn would deposit them with the Reserve Banks. This would expand excess reserves of member banks from the present unprecedented level of 3,700,000,000. 8'0,000,000, to the fantastic total of something like The inevitable result would be tremendous pressure upon the Reserve Banks to dispose of their government securities and thereby enable member proportions. If the Reserve banks to reduce their excess reserves to more normal Governor Mack - Banks complied they would be virtually, if not completely, bereft of earning assets, as they would also be if the Treasury inste‘d used the funds in the direct purchase from the Reserve Banks of the government securities held by them. Earnings of the Reserve Banks would naturally decline almost, if net quite to the point of extinction and the eortinued existence of the roderal Reserve System would be endangeredl through inability to cover expenses. But there would also be the even more serious result of depriving the Reserve Benks of any means of credit control, whether or net they retained a substantial volume of government securities, unless there was an export movement of gold on such a tremendous scale as to wipe out exoess reserves of member banks and put member banks in debt for substantial amounts to the Federal Reserve Banks. The existence of excess paying out by reserves of member banks in such amount as would result fram the d from the rethe government of the profit (approximntely )2,880,000,000) realize consequently to valuation of gold would tend to cheapen credit in this country and cause would, of produce an export movement of ;old. Any gold exports due to this a normal level. course, cease when excess reserves of member banks were reduced to in their vaults as 44411ber and nonmemiber banks cannot be expected to hold increase in the country's a nonproductive asset any substantial portion of the gold, even if they were not monetary gold stock resulting from the revaluation of or otherwise. deterred from doing so by the risk of loss by robbery There are, banks could be forced to however, a number of means whereby member and nonmember fell an the Reserve Banks. assume at least a part of the burden that would otherwise s of member banks, and some inAmang these is the buntline, up of excess reserve obviously would not be dangerous crease in even the present large excess reserves to carry large excess reserves under existing oonditions. To force member banks Governor Black - under any and all conditions, however, would be to surrender any possibility of exercising any restrictive influence on credit expansion and to furnish Limber banks a powerful incentive to launch into credit expansion on an unprecedented scale at the very time, perhaps, when changed conditions called for restraint. Another roans of shiftinr a pert of the burden to the banks would be to induce all, or substantially all, nonnerber banks to join the Federal Reserve System. All nonmember banks, other than mutual savings banks, in the country have about $6,000,000,000 of deposits, which would call for reserve balances of about $300,000,000 with the Reserve Banks if they became member banks. Mutual savings banks have deposits of about ::,3,600,000,000, which at the rate of 3 percent applicable to time deposits would call for reserve balances with the Reserve Banks in the amount of ;!288,000,000. Accordingly, bringing all nonmember banks into the System would take care of perhaps ,600,000,000 of the around C!2,880,000,000 of excess cold. The most prompt and effective means, though one that perhaps could not be resorted to without arousing a consideral-le amount of opposition, would be to increase member bank reserve requirenents. For example, a 40 percent increase in the reserve requirements would result in increasing required reserves for present membership by about 120,000,000. about There remains the possibility of retiring the 750,000,00O of national bank notes in circulation. If all of the a':0110 suggestions, which are tabulated below, were adopted the System would no doubt be able to function measurably satisfactorily even with a 40 percent devaluation of the dollar. $190,000,000 Increase the gold reserve against U. C. notes to 100 percent 750,000,000 Retire national bank notes Increase required reserves: (a) By admission to membership of nonrenber banks (75 per450,000,000 cent of the estimated maximum) (b) By increase of 40 percent in legal reserve require900,000,000 ments of new and present membership 590,000,000 Decrease earning assets of the Reserve Banks 2,880,000,000 Total • .41 Governor lack - •,e. If, however, e:;cess reserves of member banks were alloued to fall to the normal level of around :2150,000,000, there would be a further decrease in earning assets of the Reserve Banks of about 700,000,000 in addition to the 590,000,000 indicated above, which would thereby reduce earning assets from t2.500,000,000 as at present to about fl,200,000,000, or to approximately the amount required at 3 percent to cover operating expenses, losses, and dividends. The immediate effect upon the Federal Reserve flanks, even without any decrease in excess reserves of meMber banks, could scarcely rail to be a reduction in earning assets of much greater magnitude than the 3590,000,000 assumed in the above illustration, and the Reserve Banks might find it neeessary to mkt) up for tho consequent reduction in their earnings, so far as possible, by dis- • continuing the printing of Federal Reserve currency with a gradual substitution for Federal Reserve notes in circulation of gold certificates, by obtaining full reimbursement, so far as practicable, for all services rendered the Government, and by charging member banks for some of the free services now performed for them. In the above illustration no allowance is made for a possible reduction in money in circulation, (money in ciroulation now amounts to fi5,666,000,000, eompared *with f)4,929,000,000 at- the end of NoveMber 1929), or for the Importation of gold either of which, other things being equal, would result in a corresponding further decrease in Reserve Bank earning assets. Of course, if the dollar were devalued less than 40 percent or if there were a substantial export of gold, perhaps partly as the result of an agreement with one or more foreign countries in connection with the atabilisation of the dollar, the situation would be morefavorable from the standpoint of the Federal Reserve System. • COPY • IAA- 20 14- /1114444464 KAA-1-4-44-st In event, first, the Presid'nt should write the Board with respect to the plan embracing action under the Thomas amendment and e placing of title to the gold holdings of the Federal Reserve System in the Treasury so that profits on that gold would accrue to the Governmentand when devaluation is effected; and, second, if the Secretary of the Treasury Should requisition the gold holdings of the Federal Reserve System under Section 11 (i) of the Federal Reserve Act and should offer gold oertificates in -payment of such gold holdings, then the Federal Reserve Board feels: (1) That it should express its strong conviction that appropriate legislation by Congress should be had covering this question of profits upon the gold holdings of the Federal Reserve System, although it is of opinion that this profit, being the result of the monetary policy of the Government, should ultimately g0 to the Government. (2) That neither the Federal Reserve Banks nor the Federal Reserve Agents can enter into vpluntary agreement covering the transfer of the title in this rrold to the Government because of their regponsibility as officers and directors of the Reserve Bank and of their trusteeship in connection with their duties as such, and (3) That if demand is made by the Secretry of the Treasury undar Sectic.n 11 (n) of the Fedenal Reserve Act for the gold holdings of the Federal Reserve System, then te Federal Reserve Banks and the Federal reserve agents should yield possession of the gold to the Treasury or its representatives and receive any gold certificates tendered to them, but only under protest fully preserving all legal rights. VOLUME 249 PAGE 25 It was the informal opinion of those present, after consideration of the renort which Governor Bladk gave to the meeting, and in the absence of 02.)ortunity to discuss the various questions presented with our various directors, that in the Tvent of lec;a1 devaluattn of the dollar, the nrofit on all gold held by the Federal reserve banks and the Federal reserve agents should nreferably go to the United States, provided a sufficient margin of eIvernment of heIro so resulting should be reserved to the Federal reserve banks in order adequately to protect them in the full discharge of all their obliEations. In readhing this conclusion, how?ver, we feel it is imnortant to 9oint out that in the interest of the Federal reserve banks, the amber bankn and ceSubc men should any ste-es taken to give this profit to eIvern nIur opinion definitely avoid divesting the Federal reserve banks, even tem,-)orarily, of their title to gold held by them as reserve against their notes or their deposits. We are of the opinion that any procedure which even in the slightest degree disturbs the confidence of the nublic in the integrit y Sf the position of the Federal reserve banks or the sanctity of their gold reserve will probably result in a banking crisis the extent of which it is difficult to estimate. In these circumstances we IDelieve that there is the gravest risk to any plan of action, designed to give to eI the gold profit resalting fram devaluation, which is based on the hypothesis that the title to allS held in the reserles of the Federal reserve systam is to be transferred to the Treasury, leaving title to no -3• • gold in the Federal reserve banks. The Governors, in the short time available today to study the ouestion, see no way by which the profit of gold resulting from devaluation can be transferred to the Government without the serious threat to public confidence in our banking system, exceot by appropriate Congressional action wilich at the same time provides for the protection of the necessary gold reserve agains t the obligations of the Federal reserve banks. In the event the Government decides that Con,;ressional action is inadvisable or inappropriate but that the profit should be given to the Government by other means, we are of the opinion that no stens can be taken by the Federal reserve banks except by action of their respective boards of directors. Having in mind the imoortance of a thorough exploration of the various possibilities presented today for our consideration, we are arranging for meetings of our res-)ec tive directors on or before next Wednesday. • ,•fifr 411 (2.4c4.46.:ti ,54.44.04, - TRANSFER OF GOLD 410 1,44.4 ,e,"e.d.'24 (1) All gold coin, bullion and certificates received from others by the Federal Reserve,Banks or Branches since March 4, 1933 (except in settlement of foreign balances) shall be turned over to the Treasury immediately and unconditionally; and payment therefor will be made in any coin or currency dollar for dollar or at $20.67 per ounce as the case may be. (2) The Federal Reserve Banks, Branches and Agents will forthwith transfer (subject to the condition subsequent mentioned in (4) below) to the Treasury, possession of, and title to, all other gold coin or bullion owned by them or on deposit with the United States, and will receive therefor gold certificates at the rate of $20.67 per ounce. (3) All gold certificates by whomever held shall be deemed and treated by the Treasury as dollar obligations so that no profit or loss vill accrue to any holder thereof as a result of any ohange in the gold content of the dollar; and they will be secured at all times by 100 per cent deposit of gold pledged as collateral therefor. (4) Should the forthcoming session of Congress adjourn without ratification of the transfers above mentioned, and of any change in the gold content of the dollar theretofore made, the absence of such ratification shall operate as a condition subsequent to the transfer mentioned in (2) above, revesting title to the gold so transferred, except as to that portion of such gold as is attributable to profits resulting from any such devaluation; and possession of such gold will be surrendered by the Treasury upon the surrender of the gold certificates received in payment therefor. (5) Upon devaluation so much of the gold as is not attributable to profits therefrom will be returned to the Federal Reserve Banks but without agreement express or implied that such gold will not later be called into the Treasury. (6) Such administrative acts and recommendations to the Congress as may be necessary for carrying out the foregoing arrangements will be made at the appropriate time. 12/28/33 VOLUME 249 PAGE 37 LI A statement of the things not covered therein may serve to sharpen the outlines of the tentative plans sketched on the accompanying sheet. This plan does not extend to any .of the following matters: (1) The gold status of any gold certificates or the present or future redemption of any gold certificates. (2) Any plan for having the gold representing the profit resulting from devaluation returned to the Federal reserve bank or agents in event of devaluation without Com-ressional ratification. (3) Any plan for special treatment of any particular body of gold corresponding to any particular group of gold certificates. (4) Any items in any program for legislation relative to the gencral monetary system, except, of course, the legislative ratification mentioned on the accompanying sheet. 12/28/33. Pr 131 Office.Corresportence To Mr. Hamlin 41) Date January 10, 1334 FEDERAL RESERVE BOARD Subject: Exchange and transfer drafts Mr. Morrill advises me that you would like to have for your records, definitions of "exchange drafts" and "transfer drafts" and illustrations of their practical use. As stated in the wemorandum inclosed with Board's letter X-102 of April 25, 1917, the nature of these drafts is s follows: A Federal Reserve transfer draft is drawn by a member bank on its own Federal Reserve bank and is payable on advice of the drawee bank at any Federal Reserve bank specified in the draft. The minimum amount for which transfer drafts may be drawn is $250. (Discontinued Jan. 1, 1934) A Federal Reserve exchange draft is drawn by a. member bank on its own Federal Reserve bank and is receivable for immediate availability at par at any Federal Reserve bank, although actually payable only at the drawee Federal Reserve bank. The maximum amount for which exchange drafts may be drawn is $50,000. Federal Reserve exchange drafts afford member banks a method by which they may use their acc.ounts with the Federal Reserve banks for exchange purposes, as such drafts are the equivalent of exchange on any city in which there is a Federal Reserve bank or branch. It is understood that ftchange drafts are largely used when some individual wishes to purchase from a country bank, exchange payable at some point at which the bank has no correspondent. In view of the fact that Exchange drafts are subject to immediate availability, the Federal Reserve banks have adopted the practice of granting the privilege of drawing such drafts only to member banks whose applications for the privilege have been approved by them. VOLUME 249 PAGE 67 • Om Mr. Hamlin - #2 Federal Reserve transfer drafts, the nse of which was abolished on January 1, 1934, could formerly be drawn by a member bank on the Federal Reserve bank in its district payable at any one other Federal Reserve bank designated in the draft. Payment by the other Federal Reserve bank, however, was made only upon advice from the drawee bank. A member bank drawing such drafts was reouired to advise its Peserve bank thereof each day, by mail, givine; the numbers of the drafts, the individual amounts, and the totals payable at each FederEl. Reserve benk. An advice was also forwarded by the member bcnk to the Federal Reserve bank at which the drafts were made rayable. The drawee Reserve bank, uron receipt of the advice, charged the total to the account of the drawing member bank and telerraphed the Federal Reserve 'tank at which the drafts were made payatle, confirming the advice furnished by the member bank. The use of rederal Reserve trans- fer drafts (also of Federal Reserve exchanEe drafts) was inaugurated in 1917, prior to the establishment of the wire transfer system, and at that time rroved a fairly satisfactory method of transferring bank balences. Since the privilege of making free telegraphic transfers of funds has been extended to memter banks, Federal Reserve transfer drafts have had little or no practical nee. COFFIDErTIAL rot for publication B-811 EARNINGS AND EXPETSES OF FEDERAL RESERVE BANKS, DEOEISER 1933 (PRELIMIFARY) Month Earnings from - Federal Reserve .Bant .T Boston New York. PhAladelphia Cleveland Dis-r counted bills $11,869 9g,335 287,815 26,125 U.S.Govt. chased securities bills Pnr- ! $S,903 $238,968 4,162 1,339,998 258,709 3,268 321,771 4,6s4 Other sources $4,963 60,02g 3,633 9,24g January - December 1933 1933 December Current net earnings Current net Current expenses Ratio Less accrued earnins to dividends and Total Ratio to Exclusive paid- net charges paidTotal Total Total of cost in cap-i(carrent) to in of F.R. ital profit and losl capital currency Per cent Per cent $138,441 $699,851 6.5 9.6 t264,708 $164,459 $176,135 $86,573 7,664,856 558,816 943,707 19.0 10,471,579 17.9 510,337 1,502,523 1,214,555 2,077,690 13.1 553,425 172,339 197,624 355,801 26,3 1,072,157 1,789,791 13.6 248,668 113,160 10.8 236,834 361,828 Richmond Atlanta Chicago st. Louis 17,634 25,306 12,718 3,764 1,710 1,856 5,170 1,850 118,502 107,848 617,911 141,860 18,046 3,129 10,661 21,800 155,892 138,639 654,400 169,274 126,811 105,460 238,603 115,348 130,737 113,016 257,239 120,618 25,155 25,623 397,221 48,656 6.0 6.0 36.4 14,4 154,573 3.0 365,230 7.8 2,910,545 20.4 155,',25 3,8 -136,015 109,391 2,384,184 -74,214 Minneapolis Kansas City lavas 4,958 13,029 2,847 1,457 1,912 2,255 110,790 127,300 111,423 8,485 242362 877 125,690 167,ao3 117,402 92,534 139,070 99,294 98,313 153,136 104,coc 27,377 13,967 12,594 11.2 4.0 4.0 6,268 5,2S3 251,241 11,192 273,984 205,851 213,527 60,457 6.7 3s3,575 13.4 .5 19,144 30,478 .8 1,206,200 11.4 235,751 -224,044 -178,9°5 5E13,173 184,424 4,484,928 2,2oS,940 2,372,637 2,112,291 120,166 3,938,731 2,202,688 2,377,3'9 1,561,412 119,658 2,318,037 802,087 161,801 3,401,583 2,175,456 2,262,592 1,138,991 Dec. 1532 Jan.-Dec. 1933 9,137,038 1,238,068 37,529,872 1,582,340 49,487,318 26,718,007 29,222,837120,2644n 1932 17,881,057 2,785,2'3 26,923,57o 2,428,977 50,018,817 25,185,565 26,291,381 23,727,436 FEDERAL RESERVE BOARD DIVISION OF BANK OPERATIONS JANUARY 24, 1934. 17.1 20,264,481 13.7 23,727,436 15.3 12,789,330 13,032,000 19E Francisco TOTAL Dec. '933 Nov. '933 511,168 303,23o 42,515 3,746,821 4,434 3,510,901 13.1 8.9 13.7 15.3 VOLUME 249 PAGE 138
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