Full text of Charles S. Hamlin Papers : Writings -- "Memoranda Concerning the Federal Reserve Board...," Diary Vol. 7, 13 Oct. 1922-21 Dec. 1923 (pp. 530-579) (11 of 19), Box 357, Folder 7

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The Papers of Charles Hamlin (mss24661)
357 07 001-




Hamlin, Charles S., Miscellany, Writings,"Memoranda Concerning The
Federal Research Board...," Diary Vol. 7, 13 Oct. 1922 — 21 Dec. 1923(PP.
530 — 579)(11 of 19)

r

CHARLES HAMLIN
PAPERS
Folder
Box 35-7




Miscellany

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530.

said he saw President Harding yesterday, I think, and after a few minutes
talk Mitchell said that he felt he had done some things while on the Board
which he, President Harding, had not approved of; that President Harding
said he had been greqtly disturbed because the Board had declined to
carry out his recommendations, evidently thinking or appearing to think
that he was the appointing power for the Federal Reserve System; that
he had promised the Class C directorship at Cleveland to Mullens while
the Board appointed Knight and full knowledge of President Harding's
wish; he also spoke of our not appointing Le:Tingwell in New York:
he admitted that our appointment of Hord at Kansas City was a good one.
Mitchell explained to him that the Board had not reappointed Wolfe
of Cleveland because of alleged unfair attacks on President Harding
(circulating the Negro rumor, I think) and President Harding said he
would have been very sore had we appointed Wolfe.

As to Leffingwell,

Secretary Mellon and the whole board wanted to appoint him and C.S.H.
especially

as an offset vs. Governor Strong, but Leffingwell

was

counsel for a number of banks and, as C.S.H. remembers, finally
Leffingwell himself decided he could not accept and still act for
banks.
Mitchell said Christian, President Harding' s secretary, had filled
up President Harding with idea that he had power to make all

Federal

Reserve appointments, and that in his opinion Christian was a "stinker"!
April 30, Monday
Hearing on establishment of an agency of the Federal Reserve Bank
of Boston at Havana, Cuba.

Present, Governor Harding, Norris, Welbur

and Federal Reserve Agent McCord and Deputy Governor Case of New York.




531.

Governor Harding opened the discussion saying

that General Crowder

felt it vitally important to have such an Agency established; that the
State Department offered no objection; that the Cuban Government had
Invited his bank to establish such an agency; that the United Strates
through the Platt amendment was deeply interested in Cuba; that almost
the entire circulation of money in Cuba was America currency, there being
no Cuban bank notes, no central bank, and a few

Cuban silver dollars

of same weight and fineness as ours; that the paper U.S. money then
consisted largely of National bank notes and probably from 40 to 50
millions of Federal Reserve Notes, largely of the Atlanta bank; that
the establishment of a Federal Reserve Bank agency would be of great
help to American banks in Cuba in that they could buy and sell cable
transfers through the agency, thus obtaining spot cash and that the
agency would be of great help in keeping up the quality of the paper
currency, especially Federal Reserve notes, now in filthy condition;
that 70% of Cuba's foreign trade was with the United States but that
the Royal Bank of Canada did 50% of the banking business; that Cuba
did not allow its banks to issue notes and that the central banking
system arranged for by General Crowder and himself had fallen through;
that following the establishment of such an Agency he believed many more
American banks would establish branches in Cuba and aid American commerce;
that Boston was greatly interested in developing its trade with Cuba
and had regular S.S. service there; that Boston was a lending district
and, therefore, better situated to buy and sell cable transfers--which
he estimated would amount to between 2 and 309 millions yearly, than
the Atlanta batik; that Bostont future lay in developing its sea commerce;




532.
that its directorswere unanimously and enthusiastically in favor
of such an agency; that Curtis, Bullow and Washburn had studied the
situation in Havana; that the Federal Reserve Bank of Atlanta's district had the largest population except Chicago; that it needed all
its resources for its own development.
Governor Norris said his bank did not desire an agency for
itself but he favored some agency of the Federal Reserve System in
Cuba.
Governor Wellborn opposed a Boston agency, saying that
there were probably 40 millions of its Federal Reserve Notes in circulation in Bavaria but that if Boston were given the agency there
notes would gradually be displaced by Boston notes and his bank
would lose the gold against which the Federal Reserve notes were
originally put into circulation in Cuba; that his district had an
enormous business with Cuba,--vastly greater than Boston; that his
directors had applied for an Agency in Cuba in 1921 which was declined
by the Federal Reserve Board.
Goverhor Harding replied that the bulk of the export traffic
was from other parts of the United States through the Atlanta district
and not from it; that the size of the ship entries was caused by fact
that there was in effect a ferry service between Havana and United
States; that tobacco was the principal import; that so far as putting
out Federal Reserve notes was concerned his bank would be willing to
put out only Atlanta Federal Reserve Notes or notes of other Federal
Reserve banks which wished to participate.

Governor Case deprecated

permission to a Federal Reserve Bank to establish an agency in corn-




533-

petition with our member banks, and spoke of risk in buying bills because
of exchange fluctuations; he said that the Federal Reserve Bank of New
York had always utilized the Atlanta bank in shipping notes to Cuba.

He

finally admitted that the two member banks in Cuba, the National City
and the First National of Boston- just permitted - wanted their agency
as a distinct benefit to themselves as it would give them spot cash for
cable transfers and acceptances.

It was also pointed out to him that

there would be no exchange fluctuations as all bills would be payable
in dollars.
The Board then took up the matter. Platt said the Treasury
wanted this done as also General Crowder and the State Department although latter merely said it had no objection.
C.S.H. made a rough draft of permission based on statements
of Governor Harding and read it to Board.

It gave power to deal in

cable transfers and eligible bills of exchange.
Dr. Miller said should be restricted to eligible prime
banker's acceptances and they should be secured by shipping document.
The Board finally agreed on this and Miller was asked to call up Case
in the morning and read draft to him.
May 1, Tuesday
Miller read draft over telephone to Case who said that,
without waiving his general objections to an Agency he thought this
limitation of its powers very satisfactory but wished to consult
Warburg.




534.

Platt called up l!arburg who said he thought the limitation
of powers was all right but did not want to give any general expression
of opinion because of his relations with Wing.

Counsel was asked to put

the ruling into shape.
All agreed that all Notes must be issued notes and not
unissued.
Crissinger and Dawes took oath of office, and Crissinger
was designated as Governor.
May 21 Wednesdu
C.S.H. presented revised draft drawn by counsel which put in
cable transfers as an implied power from right to buy and sell bankers
acceptances.
Miller read this to Case in New York who said the form was
satisfactory but that some bankers, e.g., Mr. Garrah wanted it changed
so that the agency could buy secured bills drawn on banks but not yet
accepted,, as otherwise it would be to prefer banks having branches in
Cuba which his did not have.

Finally Case asked that the matter be

postponed until New York bankers could be heard by the Board.

Warburg

also called up Platt and said he had been under the impression that it
was a member bank agency and not a Federal Reserve bank agency the Board
had in mind,--when he talked with Platt, and that he seriously doubted
advisability of designating a Federal Reserve Bank agency.
The Board finally voted to assign next Monday for a hearing
at which Case and the New York bankers and Governor Harding and Boston
bankers should be heard.




535.

May 3, Thursday
Governor Crissinger brought up matter of 3% reserve vs
special savings deposits in California banks.

He said the matter had

been decided by vote on October 10, 1922, no notice of which was sent
to Perrin, and again on December

6, 1922 of which Perrin was notified.

These votes C.S.H. &Mitchell voted against, Crissinger, Platt and Miller
voted for.
The last vote read:

"That the Board make no change in its

present regulation defining savings deposits and that the so-called
special or demand deposits against which must be carried the regerve
reTaired by the Federal Reserve Act to be carried against ieman d
deposits."
The banks asked us to hold up our final decision until arguments
on the law and facts were held.

Briefs were filed and oral arguments at

meeting of Governors.
C.S.H. moved to reconsider the vote and after discussion reconsideration failed by a tie vote, Crissinger and Platt, No; C.S.H. and
Miller,

yes. Miller explained his vote to reconsider and said he favored

the decision and vote rendered on December

6, 1922, and voted to reconsider

merely to give Platt the opportunity to offer a motion as to the form in
which final notice should be sent to Perrin.

Governor

Crissinger and

C.S.H. explained to Miller that no reconsideration was necessary for
Platt to offer this motion, hut he would not change his vote.

Finally

Platt offered a motion to effect that Board held that these accounts
were not savings accounts under Section 19, Federal




Reserve Act.

536.

C.S.H. said this was in proper form, but Governor Crissinger
thought it better merely to say in effect that the Board declined to
reverse its decision of December
Platt's motion failed
merits

6 or to that effect.

3 to 1, C.S.H. voting against it on the

and C.S.H. was inclined to think that Governor Crissinger's

motion was simpler, and C.S.H. felt that the vote of December

6, 1922

could be construed as an exercise of judgment on part of Board and n.ct
as a ruling of law.
Friday, May 4
Met Under Secretary Philipps at dinner at Mrs. Hennen Tennings
and spoke to him about designating a Federal Reserve Bank Branch at
Havana.

I told him that Platt said he had talked with him and had

shown us a copy of the cable General Crowder sent him (Philippe) and
added that the State Department had no objection to such a designation.
I then said that the first pUase of the matter was an international
one, bedause of the relations of United States to Cuba and thd fact
that we were supplying Cuba with practically all of her cirnulating
medium, that I thought the State liepartment shoOld do more than say
it had no objection to the designation and should tell the Board whether
it wished such a designation to be made and that I had asked Governor
Crissinger to speak with him about this.

He at once said that the

State Department wished to back up General Crowder absolutely and that
if Crissinger would talk with him, he as represenative of the State
Department would say that it favored such a designation.
to Crissinger who said he would see




Philipps.

Itold this

5:37.

May

7,

Monddi
At instance of Governor Case in behalf of certain New York

Banks another hearing was held today on Boston petition to establish
an agency in Cuba.

A largely attended hearing, New York bankers: Governor

Case, Mitchell (National City Co.), McGarrah and a representative of
Inter-America Foreign Banking Corporation, many Atlanta district bankers,
Ex-Senator Hope Smith for Fulton National, Atlanta, Addeleston for
Federal Reserve Bank of Atlanta.

Governor Harding for Federal Reserve

Bank of Boston, Federal Reserve Agent Curtiss, and a committee of
Boston Clearing House--ing, Aiken and Bancroft.

Governor Orissinger

called on liaruing who presented case of Boston with brief of Weld,
his counsel.

Governor Case said his bank did not want an Agency and

read a letter from Warburg stating that Sdction 14 (e) was taken from
Aldrich Act which he drew, and that he meant and the Federal Reserve
Board meant by "Agency" some bank other than the Federal Reserve Bank.
The report of the Federal Reserve Board Committee on Foreign Agencies as
per press statement of Federal Reserve Board dated October 12, 1915
(1 F. R. Bulletin, 348), however, shows conclusively that the committee
had in mind agencies of Federal Reserve banks.

The committee said "in

trade centers where American banks are not established it might be proper
for Federal Reserve banks to appoint joint correspondents or Agents in
order to facilitate the development of American acceptances in such
places."

It seems to me this could not refer to foreign banks but to

Federal Reservetenk agencies.

This is clear by fact that this was a

concession to McAdoo who wanted Federal Reserve Agencies in South
Americaacountries




even though American banks were already there.

538.

Mitchell, of the National City Bank, favored keeping Cuba
supplied with our currency but opposed giving an Agency any power to
buy or sell cable transfers or bills or acceptances, on account of the
competition between Federal Reserve banks and other banks.

It was ex-

plained to him that the Board if it granted an agency would restrict
it to dealings with banks and he was asked what competition

with banks

was involved when every transaction with banks was on the initiative
of the banks themselves.

He could not ans-ier this but vaguely hinted

that if all transactions were limited to member banks or at least
American banks he might favor it.

Later, after Mr. Durrellts (his

Cuban manager) testimony he practically withdrew all objections, admitting that such an agency would enable him to reduce his reserves
from 25 to 10% and he even said he might contribute to the expense of
such agency if asked.
Governor Harding pointed out that if we gave any monoply
to American banks it would cause a bitter feeling in Cuba as it would
mean a fight against Canadian banks and also the Cuban banks.

Mr.

McGarfah also opposed generally an Agency.
Mr. Ottley and Hope Smith questioned somethwat whether we had
power to create an Agency but if we had, they wanted it for the Atlanta
Bank.
Wig, Aiken and bancroft spoke for Boston and said there
would be no competition between Federal Reserve Agency anA the local
banks or branches.




539.
In the afternoon Mr. White, representing the State Department,
read letters and cables from General Crowder, stating it to be absolutely
necessary to establish such an Agency and favoring even rediscounting
by the Agency.

He represented that the banks there were in combination

and were charging from 10 to 12% for 1st class commercial paper.

White

said that the State Department felt that from the point of view of the
political situation (i.e. internationally) such an agency was most
desirable.

Later we heard a Tampa cigar manufacturer who said the banks

in Cuba were in a combination and charged for collections 3 and 1/8
per cent for commission!
May 8
Curtiss called me from Boston and said he saw Mitchell (National
City Co.) on train and that he said he considered an agency absolutely
necessary, but he did not care whether Boston or Atlanta had it; that
he had favored Atlanta as to note issue because it had agreed to furnish
him notes in Cuba, if it were designated, absolutely free of charge.
Curtiss said 1/84 should be charged.
At meetingthis A.M. Governor Crissinger said the President
had receivedmany tiegrams about the designation and knew nothing about
the facts; that he had talked with him last night and President Harding
said he would take the matter up with Hughes and the cabinet this A.M.
and asked us to take no action until we heard from him; that he had also
talked with Mellon.

Platt, therefore, withdrew his motion to redesi._nate

Boston.
On Saturday May 5, Ned and I were .cllking across the

Park

to the Metropolitan Club and met Secretary Mellon and walked along with
him.




I told him the White House had just announced the appointment of

540.

Cunningham to the Federal Reserve Board.

Mellon seemed perfectly amazed,

and it was the first he had heard of it.

He asked me who he was and sai-d he

heard or
knew nothing about him although he had a vague idea he may have
read of his name as

a candidate.

This is politics on the part of President

Harding with a vengeance.
In the afternoon of Saturday Mr. Cappelle of Kansas, an unsucresolucessful candidate told me Cunningham introduced and put through a
tion, at a meeting of the Iowa Farm Ben. Federation, condamning the subsidy
bill, President Hardingis pet hobby!

He also said Cunningham was Senator

Brookhartts right-hand man.
May 9, Wednesday
Governor Crissinger read Board a letter from President Harding
an
to him stating that he had brought up the matter of the designation of
al
agency in Cuba by some Federal Reserve Bank in its bearing on the politic
that
(i.e. International) aspect and that they were unanimous in the belief
such an agency was most desirable, -nd he requested the Board to create
one.

He said he had no suggestion to offer as to which Bank should be

designated, but he hoped the Board could arrange it so as to create as
little friction as possible.
Crissinger added that President Harding told him

the Cabinet

him
all felt Boston should be designated and that Secretary Mellon told
he was strongly in favor of Boston.
C.S.H. then moved that, in view of the canmunication from the
President, and after due consideration of the banking considerations
the
involved, the Federal Reserve Board designate an agency of one of
Federal Reserve banks in Havana, Cuba.




This was voted unanimously,

541.
after C.S.H. had explained that he was satisfied that Warburg's letter
did not sustain his point that the Federal Reserve Act Section 14 (e)
in referring to Agencies meant agencies other than Federal Reserve tanks,
and pointed out that the Federal Reserve committee of which Warburg
was chairman expressly reported that under certain circumstances therein
enumerated the Federal Reserve Board had the power to establish a Federal
Reserve bank agency in a foreign country.
question as to which bank to designate.
designated.

The Board then took up the

Platt moved that Boston be

After discussion it developed that every member favored the

designation of Boston.

It was finally decided to call the Governor and

other officers of Boston and Atlanta to Washington next Tuesday but not
to vote formally until they came and then to tell them the decision and
have them consult together to work out the details so as to keep Atlanta
note issue in Cuba unchanged.
Curtiss called me up in the afternoon to ask what our telegram,
which he had just received, meant.
Tuesday.

I said I could not say anything until

He then asked if I remembered that Boston had

not

asked for

a joint agency and I said I understood this fully.
Later I saw Crissinger and said I feared Governor Harding
would believe we were going to give an agency to both banks and would
get his directors to withdraw their application.
Crissinger advised me to call up Governor Harding and tell
him metaphorically to "keep his shirt on" and come down Tuesday.
I then told Platt about Curtiss and Mitchell came in.

Finally,

Mitchell telephoned Curtiss and said that without committing the Board
he felt that matters were going along all right and to

tell Governor

Harding to bring with him Tuesday Bullens or some practical man to work
out all necessary details with Atlanta.



542.

May 10, Thursday
Dr. Miller delivered a lecture to the Board.

He said the real

reason for rediscounting was to obtain Federal Reserve notes; that the
Board had virtually surrendered its control over issue of Federal Reserve
notes to the Federal Reserve banks and had never exercised the faintest
restraint; he said the Board had acted all these years in a shamefully
negligent manner; that inflation was caused primarily by unrestrained
issue of Federal Reserve notes.
C.S.H. said he would reply to this attack on former members
of the Board later.

Dr. Miller must be crazy:

Be thoroughly approved the letter of

Governor Harding to

Chairman of Banking and Currency Committee, August 8, 1919, stating
that increased volume of Federal Reserve notes in circulation is the
effect of advancing wages and prices and not their cause (5. F.R. Bulletin
702.)
So also the Federal Reserve Bulletin for October, 1919, which
was edited by Dr. Miller, stated that an attempt to regulate prices by
refusing to furnish Federal Reserve notes, might impede an upward movement in retail prices (although probably it would only cause recourse
to adopt devices such as due bills or bearer checks, etc.), but if successful it would be so at cost oe- business disaster; that wholesale
pAces are not appreciably effected by the volume of pocket money;
that it is the volume of circulating bank credit that influences the
trendof wholesale prices; that such note restriction would break down
organization of trade by making it difficult for retail prices to
adjust themselves to changes; that the pocket money of the country
is a function of the general money volume of the country's business;




543.
that to attempt to turn it into an instrument of credit control would
be a perversion of the currency function of the banking system.
(5 F.R. Bulletin at 913)

So also Dr. Miller said in his address at

Chicago on September 25, 1919 before the American Association of the
Baking/industry that credit expansion in U.S. has taken the form of
Banking credit in shape of Bank deposits; that expansion of the currency has played a very

subordinate

role; that it is no exaggeration

to say that expansion of the currency has been a consecuence, rather
than the cause of our high prices; that so far as expansion of the
purchasing medium of the country is responsible for our great rise in
prices, it has been and is purchasing medium in the form of Bank deposits
and not in the form of the Federal Reserve note.
May 14, Monday
Mr. J'ames and Mr. Cunningham took the oath of office as
members of Federal Reserve

Board.

May 15, Tuesday
Hearing on petition of Federal Reserve Bank of Boaton for
Cuban Agency.

Governor Wellborn and Addleston, Governor Harding and

Bullens were present.

Crissinger told them that the President and State

Department felt that the establishment of an agency was most important
al
from the point of view of Internation/policy, and that the Board, after
careful consideration of all the evidence had tentatively reached the
conclusion that Boston and not Atlanta should be designated but that
such designation should not be allowed to interfere with the cirulcation
of Federal Reserve notes of the Atlanta bank and he asked the two banks
to confer and agree upon some method to work this out.




Gov?rnor Harding

544.

said that Atlanta had only about 40 millions in circulation there
and that probably 100 millions would be required as the Federal Reserve
note would probably disliace other American money there.

He suggested

that Dallas be allowed to put out notes to a maximum of say 25 millions,
the balance to be furnished by Atlanta.
Crissinger asked the members to say a word and Miller said
if it were only a matter of currency he would vote for Atlanta, but if
only a matter of banking, i.e. purchase of bills, etc., Boston should
clearly be designated; that he looked upon the banking functions as
tht principal functions and that Boston clearly should be designated,
presuming, however, Atlanta's status as to Federal Reserve note.
Crissinger then called on C.S.H. who said, corning from the
Boston, he had purposely refrained from taking any part in the discussion feeling that it would be better to have his associates form
an independent judgment upon the evidence before them; that the conclusion that Boston should be designated was reached unanimously and
that he fully concurred in the decision; that Atlanta was nearest to
Cuba in propinquity but that 754 of the exports from Cuba to United
States and about 604 of the Imports from U.S. to Cuba went to and
came from Philadelphia, New York and Boston; that bills naturally
were financed where the goods went; that the only American banks now
In Cuba were New York banks and the First National Bank of Boston;
that, in his opinion, the principal question was assistance to the
trade between Cuba and United States and the question of Federal
Reserve notes was only incidental; that if this were a contest between




545.
Philadelphia, New York and Boston, he would be very much puzzled as
to both Philadelphia and New York did a much larger foreign business
in Cuba than did Boston; that Philadelphia and New York stated they
did not want such an agency and that, therefore, he felt Boston's
petition should be granted.

Mr. Tames told C.S.H. that although he

had always been a Democrat, he had voted for President Harding in the
last National election.
May 18, Friday
Ex-Secretary McAdoo appeared before Board and talked with
us from about 10:30 to 1:30 as to the Bank of Italy's applications
for branch banks.

He complained bitterly of Board's decision as to

(1) the Sacramento case and (2) the Yuba City case.

I

(1) the Board

declined application to permit an agency in Sacramento on ground that
It was beyond the territory of the municipality of San Francisco, (it
had granted an application for Pasadena, however, to a Los Angeles
bank); in (2) the Board declined application on ground (a) Perrin's
disapproval; (b) Statement of Comptroller

Crissinger that Bank of

Italy had tried to buy an existing National bank there but failed and
now was trying to establish a branch there to crush it out af existence.
He argued that the Federal Reserve Board was bound to accept
decision of State as to necessity for further banking facilities, and
that in passingon a Branch application, the Board could only consider
whether the Branch would impair the condition of the parent hank.

He

denied that Board had lawful power to divide State into spheres of
influence as to establishment of Branches.

He said Board had discriminated

vs Bank of Italy in giving so many local agencies to Los Angeles banks-that these agencies were to all intents and purposes branches.




546.

7 P.M.
McAdoo calls on C.S.H. at Cosmos Club; was very indignant
at alleged discrimination of Board vs Bank of Italy.

Among other things

he said to C.S.R. that, very likely he was coming back to Washington;
that many were opposing him but, By God! he had made up his mind to came
back, and when he did he would remove some of the Board for their discrimination!
C.S.H. assured him that no member of the Board intended to
discriminate against Bank of Italy and finally he admitted this but said
It was discrimination in law, if not in intent.
He had previously referred to Crissingerfs

discrimination vs

State Banks, but C.S.H. pointed out that Crissinger acted as Comptroller
of Currency but now that he was Governor he represented both national and
State banks, and that he hoped and believed he would try fairly to represent both.
C.S.H. said at the hearing he agreed generally with McAdoots
construction of the law, except that C.S.H. believed that if in any case
it were proved that a State bank wanted a Branch merely to flBstroy, (as
opposed to competing with) a national bank, the Board had power to prevent
such destruction by refusing to allow the branch.
McAdoo pointed out with some force that wherever a national
bank had a monopoly it- naturally put a very high price on its stock
and often refused to sell at any price, to perpetuate its monopoly, aad
that clearly the Board had no power to prevent fair competition
refusal to grant a branch.




This seems sound to C.S.H.

by

547.
May 21, Monday
Federal Advisory Council meeting.
Some days ago Rue wired Board

that the Council wished to be

heard on the question of appointment of a Federal Reserve Agency in Cuba.
At the meeting, Rue as Chairman of the Council, evidently very
much stirred up, said the Board should not have voted for such an agency
without first getting the opinion of the Council and this ledtto an extended discussion, brought out by fact that Crissinger had told the
Council that the Board had voted and settled the matter prior to this
meeting of the Council.

Dr. Miller at first took the view that the

Council had no right to call on the Board for a report but C.S.H. cleared
the air and said clearly the Council had such a right, but that he felt
sure Mr. Rue would not claim that the Council was an appellate body, or
that the Board was in any way bound to secure its consent prior to rendering any decision.

Mr. Rue said he did not calim this--thus backing

dawn from his original statement.

C.S.H. then explained that the Board

never thought of consulting the council but that if such a suggestion
had been made he would have been only too glad to have consulted them.
been
Finally it was brought out that Mr. Rue and Warburg had/invited to attend
one of the Hearings held by the Board, and nothing more was said of the
failure to ask the advice or consent of the Council.

The question of the

advisability or legality of appointing an agency in Cuba was then
discussed at some length, but little was said as to whether Boston or
Atlanta should be given the designation, except that Mr. Lane stated
that if Atlanta were not designated there would be violent attack on
the Board from Republicans and Senators in Congress as soon as it assembled.




548.
Dr. Miller said that this statement was blackmail.

Lane said he had

done nothing along propaganda lines, but Governor Crissinger replied
that propaganda had been used in the interest of the Atlanta bank and
that it was most reprehensible.
May 22, Tuesday
Warburg read a report of the council strongly objecting to
any Federal Reserve agency in Cuba and stating that the council believed
that by Agency the Federal Reserve Act meant the designation of
local bank as correspondent or Agent.

some

He dwelt on the danger of revolu-

tion in Cuba and said the Federal Reserve System should never be established in a foreign country.

It was replied to him that Cuba occupies

a paculiar relation to the U.S. because of the Platt amendment and because
it had made all American money—the bulk of its circulation,--legal tender.
Warburg said that our draft of power to purchase bills in open
market was well drawn but was so stringent (and rightly so) that the
Bank Agency could do little business and could not even earn its expenses,
as sugar, the principal export, moved only for 4 or 5 months in the year.
Mr. Lane, of the Council, objected to discriminating against Atlanta in
favor of Boston and said that if we did it, we shod be attacked by all the
southern Congressmen and Senators.

Dr. Miller said this was purely black-

mail.
Walking over to lunch with Lane I tried to get him to state
Atlantats position:

he said Atlanta wanted the Agency both for Federal

Reserve note purposes and banking purposes,--in short she wanted everything and was against Boston having anything.

I asked him if he thought

this a fair position, and, speaking personally, without any authority
from any member of the Board, asked him whether--if the Board were to




549.

designate both banks, they to operate together under the agreement already
agreed upon on the assumption that Boston was solely to be designated, it
would not be a fair proposition which Atlanta should accept, and after
reflection he said he thought it was fair and he would gladly urge it
on the Atlanta directors.

He was going to New York and he asked me to

talk this over with our Board and advise him, and that he believed it
a most happy solution.
In the meeting this A.M. the subject of the Cuban agency was
again taken up.

James said he thought we ought to consider the matter of

designating any Agency very carefully in view of the opposition of the
Federal Advisory Council, and that we ought to have Cunningham and Secretary
Mellon present.

Governor Crissinger reminded him that it had already

been unanimously voted and could not be further considered except upon
motion to reconsider.

Nothing further was done.

At the Council hearing Warburg said the Board
Federal Reserve notes with

should deposit

the Cuban banks taking out credits in which

Cuban exchange could be sold, that the notes would be cash in the local
banks vaults, and that any Federal Reserve bank which desired could do
this.

(This, of course, would incidentally break up Atlanta's monopoly.)

May 22, Tuesday
McAdoo and Elliott came before the Board to ask permission
for Bank of Italy or its auxiliary committee to purchase a bank at
Ontario which was in a precarious condition and a telegram from Federal
Reserve Agent Perrin and the Bank Superintendent of California was read
favoring this.

He also asked reconsideration of our adverse decision

as to Yuba City and Sacramento.




550.

After long, discussion Dr. Miller moved that permission to
acquire the insolvent bank be given with notification that a branch
would not be permitted.

C.S.H. moved to amend so as to grant permission

but with statement that such decision was based in an emergency and must
not stand as a precedent against any future policy laid down by Board.
Both motions were defeated.

Finally another motion was offered by C.S.H.

like his above amendment which was defeated by a tie vote, Platt & James
voting with C.S.J.End the Governor, Miller and Dawes voting contra.
The real reason for the adverse vote was that the three believed
that this bank was beyond the proper sphere of influence of the Bank of
Italy.

C.S.R. begged the Board not to found its policy on such a case as

this but to treat it as an emergency, saying he could not move to reconsider as he had voted to grant the application.

Finally, Dawes said he was

convinced by C.S.H. and moved to reconsider which was passed and then it
was voted to permit the purchase on condition that the State superintendent
and Bank of Italy agreed that this should not interfere with any future
policy the Board might later lay down. C.S.H. advised granting the application as one for a branch, but Miller objected, but Board agreed that if
later a Branch were asked for it would grant it on above conditions.
May 24, Thursday
Perrin wired Bank of Italy had applied for a branch at above
place and Board voted to grant it on above conditions.
Board also voted to ask Perrin to review his finding as to bank
at Yuba.
Hearing that Federal Reserve Agent McChord was in Washington,
C.S.H. sent for him and talked over matter just as he did with Lane.




551.

McChord said he felt sure that C.S.H.'s idea would

be accepted with

enthusiasm by the Atlanta Bank and by whole south; that he would talk
it over and write C.S.H. Monday.

He said clearly Boston should be allowed

to do the banking business under its own designation and added that
one of his directors told him he should be opposed to Atlanta buying
bills in Cuba even if authorized so to do.
Last night, May 23, I vaguely suggested a compromise to Governor
Harding such as I had talked over with Lane.

He flew off the handle and

said Boston would never consent and would prefer to withdraw its application.

C.S.H. advised him to think it over confidenthlly.
C.S.H. then asked Governor Harding to write him after consulting

with Wing just what business he thought the Federal Reserve bank could do
in Cuba along banking lines.

Again he flew off the handle and said we

should take his word for it, and that he had already explained this to
the Board.
C.S.H. said he had but the Board might want it in writing to
answer Warburg's denial; that in fact Dr. Miller wanted more information
as to the scope of the Agency.

He was very bitter against Miller but

C.S.H. said he should give us this information in writing.

He finally

balf said he would do this.
Governor Harding said he had seen Senator Lodge who said he
would back him up to the finish and would see President Harding tomorrow.
Two or three days ago Dawes said he wanted to congratuhte

me on my

remarks at the Federal Advisory Council meeting; he said he had never
before heard such a tactful, able and convincing address.




552.

May 24, 5 P.M.
Lane just called me up from New York.

I told him McChord

had left for New York, would see him there and he need not stop over
here as he could talk with McChord.
May 24
McChord told C.S.H. that the Atlanta papers were all praising
C.S.H. And that although he came from Boston they were saying they
would agree in advance that he should settle the dispute between Atlanta
and Boston over the Cuban Agency.
May 25, Friday
Federal Reserve Agent Curtiss telephoned that T. P. Beal,
director had just died.

Crissinger and Platt thought

I ought to attend

so I took evening train for Boston.
Before leaving I saw Crissinger, Dawes and Platt and talked
as to possibility of designating both Atlanta and Boston, but Boston
to do the operating under an agreement to be worked out.
Platt opposed but Crissinger and Dawes favored it and Crissinger
suggested I talk it over with Harding and Wing.
May 26, Saturday
At Federal Reserve Bank Boston, talked over above matter with
Harding, Curtiss and Wing.

They said they were irrevocably opposed to

having Atlanta also designated.

They did say, however, that if ordered

by the Board, they would doubtless comply but that, personally, they
would prefer to have the whole agency plan
Atlanta also designated.

fall through than have

C.S.H. pointed out that everything which

Boston could do alone, it could do with both banks designated, under




553.
an operating agreement under which Atlanta could have one representative
to hold and pay out Federal Reserve notes as directed by Boston and to
sell to Boston on the spot all bills, cable transfers, etc., bought by
Boston and paid for by Federal Reserve notes of Atlanta.

They said it

could not be done in that way, although under their own plan it would be
done in the same way except that one of their employees would act as
Agent of Atlanta.
Governor Harding read to me and then mailed to me to Washington
a letter from General Crowder dated March 26, 1923 stating that Dr.
Tarreinte, President of Cuba, and Mr. Perry, Secretary of the Cuban
Banking legislative committee announced to him their agreement with
the suggestion that the Federal Reserve Bank of Boston should at once
establish an Agency at Havana, and suggesting that the Federal Reserve
Bank of Boston establish an agency with consent of Federal Reserve Board.
Governor Harding also showed me and mailed me a copy of a
letter dated May 25, 1923 which he had sent General Crowder, stating
that he had applied for an agency, that the Federal Reserve Bank of
New York opposed any Agency, but took position that if any were established it should be Atlanta; that the Federal Reserve Board

informally

agreed unanimously that Boston should be designated and that a plan
had been worked out for operating with Atlanta (under protest); that
the Board instead of voting formally to designate Boston decided to
lay the matter before the Federal Advisory Council; that at meeting
of Council Warburg opposed any Agency but favored Atlanta, if any should
be established, etc., etc.







554Governor Harding also mailed me a memorandum stating:
1. Federal Reserve Bank of New York wants no Agency for
itself and opposes any Agency, but if any is designated,
it favors Atlanta.
2. Atlanta insists on being designated alone if any Agency
is established.

3. (a) National City Bank of New York was given an agency
some time ago, on understanding it was not to do
anything under it; that it is advertising extensively
that it is the agent of the Federal Reserve Bank of
New York and has thus created the impression in Cuba
that it has facilities and advantages not naw enjoyed
by other banks doing business in Cuba.
(b) That the National City Bank after its designation asked
the Federal Reserve Bank of New York to deposit with
it a large volume of Federal Reserve notes so that it
could excahange them for unfit currency, but Federal
Reserve Bank of New York declined.
(c)

The National City Bank made same proposition to Atlanta,
which agreed to do it, but the Federal Reserve Board
disapproved on representation from General Crowder that
such an arrangement would be a discrimination against
other banks in business in Cuba.

(d) Atlanta then filed with Board a statement that if an
agency for exchanging new notes for old were ever established in Havana, it would claim tle privilege.

555.

4. Mitchell of National City Co. does not want his agency
disturbed; told Board an agency of Federal Reserve banks
would be advantageous to American business, but if one
established, it should be Atlanta.
What was his motive?
Curtiss says Mitchell told him after the conference at
Washington that Atlanta had agreed that if designated as
Agent it would furnish the branch of the National City
at Havanawith currency free of all expense to it;
that Mitchell hopes ultimately to be designated as an
active agency by Federal Reserve Bank of New York—after
this agitation has died down,--to do all that the Federal
Reserve Bank of Boston Tants to do in Cuba,--to buy and sell
cable transfers, bankers acceptances and bills and to pay
therefor from funds to be furnished it by Federal Reserve
Bank of New York; that this would be highly advantageous
to National City branch but a discrimination against

Cana-

dian banks, Cuban banks, the Federal Reserve Bank of Boston
and any other banks doing business in Cuba.

5. Asks Board to cancel at once the nominal agency of Federal
Reserve Bank of New York now held by National City branch
bank in Cuba.
We went over the above at the meeting.

I told them that con-

sideration might show that, although largely a matter of pride of opinion,
Atlanta might have as equitable claim for at least the use of its name
as an Agent although the operating would necessarily be and should be done




556.

by Boston, especially that part relating to purchase and sale of cable
transfers, acceptances and bills.
Governor Harding said that to designate Atlanta as well as
Boston would be to *ld to a political attack.
C.S.H. said he certainly did not fear any attack, political or
otherwise,because of any vote he might cast; that there certainly would be
an attacV on the shape of a charge that the Board had unjustly discriminated
vs Atlanta in not at least designating it as well as Boston under an
operating

agreement; that the only question in his mind was whether it

would not be Board's duty to recognize both banks; that if only one
agency is to be established unquestionably Boston should have it, as to
his mind the Agency was primarily to help the Banks of U.S. in Cuba,
to assist them to increase their number, and to stahlize banking in
Cuba, as three-fourths of Cuba's foreign trade was American and three-fourths
of Cuba's exports and a majority of its imports went to or Cartle from
Philadelphia, New York and Boston; that just as trade follows the flag,
so bills follow merchandise; that the question to his mind was--could
not all this be accomplished equally by designating both banks; that if
any charge of discrimination were made, Governor Harding in his memorandum
(see above) had expressly stated that the Federal Reserve Bank of New
York, Warburg and Mitchell had all stated that if any Agency were established, it should be Atlanta and not Boston; that such a charge of
discrimination, backed up by above authorities, might not be easy to
disprove.
Governor Harding and Wing both said they did not care a rap
about any charge of discrimination in favor Boston; that if there was to
be a fight Atlanta would soon find out that Boston could fight.




557C.S.H. pointed out that the charge would be against the
Board and not against. the Boston bank, and that it was the duty of the
Board so to decide the case as to do absolute justice between the two
banks.
Wing said if the Administration turned down Boston it would
suffer politically but C.S.H.

replied that had nothing to do with

Federal Reserve Board; that it would decide the matter absolutely without
regard to politics or its effect on political questions.
Wing said he took Warburgts view that Federal Reserve banks
should not have agencies in foreign countries.

C.S.H. then asked him,

"do you or do you not, favor a Federal Reserve agency in Cuba?" and he
said Yes, because the status of Cuba is different from that of a purely
foreign country.
Wing also said the National City Bank agency should be at once
discontinued,--that his branch would be operating in Cuba within a month
and that it would be gross discrimination against his Branch to have the
National City designation continue.
McChord wires C.S.H. that Lane will wire C.S.H. from Tacksonville
Monday and that the matter is working satisfactorily.
Lane wires:
"Satisfied can be arranged.

Would you advise special meeting

or would regular meeting in Atlanta about Tune 10 be satisfactory.
Answer quick."
C.S.H. at once wired Lane to hold matters in abeyance until
he heard from him as he had not as yet mentioned it to Board.




558.

C.S.H. tells Crissinger Oetails as to conference at Boston.
Crissinger agrees fully with C.S.F. that it is most desirable to designate
both banks if we can lawfully

do so.

Crissinger said Miller is weakening on question of having
any Agency!
C.S.F. has talk with Platt and Wyatt together.

Platt is

more inclined to designate both banks.
Wyatt says the best way is to designate both with power to
buy bills, etc., but to arrange by regulations that Atlanta is to
appoint an Agent to hold its Federal Reserve Notes (perhaps in joint
custody); and Boston is to manage the agency, buy bills, etc., and the
Atlanta Agent is to pay over notes to Boston agency, releasing the bills
bought immediately, selling the bills ,etc., to Boston which will pay
for them through the gold settlement fund.
Wyatt says that if Boston alone had the agency, while it might
be possible to work the matter out, there would always be the danger of
a legal attack; that to appoint an employee of Boston agent also for
Atlanta might be construed by the court to be analagous to a Federal
Reserve Bank appointing another Federal Reserve Bank its agent to receive
and pay out its Federal Reserve notes which would be a plain violation
of the clause in Federal Reserve Act requiring a Federal Reserve Bank
receiving notes of another Federal Reserve bank to return them at once
for redemption or credit.
be signed by C.S.R.
to Governor Harding.




We asked Wyatt to prepare form of letter to

or Crissinger informally expressing these views

559.
Crissinger agreed with C.S.H. that, in view of Governor Hardingts
talk with Senator Lodge, it might be well to see Lodge, and Platt, at
C.S.H.ts request; said he would go with C.S.H. to see him.
May 29, Tuesday
At Board meeting this P.M. the various letters of Governor
Harding as to Cuban bank situation were considered by the Board.

C.S.H.

in great detail told Board of his talks with Lane, McChord, and of his
conference in .boston.

The whole matter was gone into in great detail

and Mr. James moved that a committee of three be appointed (later fixed
as Crissinger, Tames and C.S.H.) to prepare a resolution designating both
Boston and Atlanta for Federal Reserve agencies in Cuba and providing in
as great detail as possible regulations for operations as far as possible
along the lines of the contract already entered into or agreed upon by
the two banks, (on assumption that Boston alone be designated), except
that Atlanta

is to have an representative to hold and pay out gederal

Reserve notes for bills, etc., bought by Boston.

This was voted unani-

mously and it was agreed that when the Board had passed upon the report
of the committee, then C.S.F. would be authorized to take it up with
Atlanta and Boston.

4:30 P.M.
Called up Federal Reserve Agent McChord at Atlanta.

Told him

that if I had good grounds for believing that the designation of both
banks with a kind of joint operating agreement would be accepted by
Atlanta as a just and equitable solution, I was ready to take the matter
up with the
and




Board; that I had spoken of it to the Board this afternoon

was engaged in drafting a new resolution in the above lines but would

560.

proceed only if satisfied that Atlanta would be absolutely satisfied.
McChord said he, and I think he said

Wellborn, thought it would be

looked on qs a happy solution of the whole question but did not want to
assume the responsibility of saying so until they could consult their
directors.

I told him the difficulty would arise from the Boston end.

I said I might call him up again on Thursday.

5:45 P.M.
Called up Senator Lodge and told him about the situation.
(I called up his secretary at capital and he asked me to call up Lodge
at his house, giving me his telephone number.)
Lodge told me Harding had told him the whole matter was
settled.
I explained the question of establishing an agency was settled
by unanimous vote but that it was merely the sense of the Board that
Boston should have the agency and that a hearing had been held based
on this general understanding, and an operating agreement had been
made between Boston and Atlanta, based on their understanding; that
much opposition developed at the haring to the designation of Boston
alone as a discrimination against Atlanta; that at the Counsel conference,
the counsel objected to any agency, and while it did not in its report
say so specifically, there was little doubt but that its members, as
between Boston and Atlanta favored Atlanta rather than Boston, as did
also Warburg and Mitchell of the National City Company; that Governor
Harding so stated in his memorandum to C.S.F.; that O.S.F. felt it would
be a fair solution to designate both banks under an operating agreement;
that C.S.F. TFought Atlanta would be absolutely satisfied but that




561.
Governor Harding absolutely refused to agree, and said if Atlanta wanted
a fight she would find that Boston could fight also, and that Senator Lalge
had promised Governor Harding to fight for Boston to a finish.
C.S.F. told Lodge that the fight would not be vs Boston but that
the charge would be one of discrimination by the Board against Atlanta
and that Lodge would have to defend the Board, if it designated Boston
alone, knowing that the Federal Advisory Council felt that Atlanta should
have been designated.

Lodge at once said this would be an impossible

situation.
C.S.H. pointed out that his suggestion would be a happy solution and would give Boston 99% of what it wanted, merely giving Atlanta
the nominal right to have agency and use its name, although the operation would be practically all done by Boston.
Lodge thought this a good solution, although, of course, he
could not, in this short talk, know all the facts.
June 1, Friday
Crissinger, James and C.S.H. reported a draft resolution for
designating agencies for both Boston and Atlanta.

It was voted unanimously

that this draft be tentatively accepted as a basis of conference between
said committee and the Boston and Atlanta banks to see if they will accept
same.
Platt moved to reconsider the vote of the Board declining the
application of the Bank of Italy to establish a branch at Sacramento,
Platt and C.S.F. voting for reconsideration and CrissingeT, James, Miller
and Dawes contra.
C.S.H. reported form of a letter for Board to send to McAdoo
giving its reasons for the original rejection of Bank of Italy branches




562.

at Yuba City and Sacramento.

The Board had asked Perrin for another

report on Yuba City, but this letter was in response to McAdoo's recuest
for the reasons for our original refusal.
C.S.H. as to Sacramento referred to fact

that the Superintendent

of Banks gave his certificate before the new policy be adopted as to
banks de novo.

Miller insisted that this be stricken out and the state-

ment made that the Board has no information that the Bank Superintendent
give a certificate after his new policy was laid down.

C.S.F. said this

was a mistake as the Bank of Italy would probably get the superintendent
to give a new certificate, and it would put Board in apparent position of
relying upon the presence or absence of such a certificate, to which Plett
and C.S.H. would not object but to which the other members decidedly
objected to.
C.S.H. and Platt said they felt on a matter of law the Board
was bound to accept the certificate of the State Banking Superintendent,
except in some extreme case where it was clearly erroneous.
C.S.F.

telephoned McChord at Atlanta and asked them to come

to Washington and consult with him on the Cuban situation.
June 4, Monday
McChord wired earnestly asking C.S.H. to attend meeting of
Atlanta Board of Directors on Friday June 8 and C.S.H., efter consulting
Crissinger, wired that he would be there.
The California Superintendent of Banks had conference with
Board.

Present Governor Crissinger, Platt and C.S.F.

The Superintendent

said that he had brought about a change in the State policy as to branch
banks, that there was a feeling in California that prior superintendents
had gone too far and had been very easy in granting permits, that his




563.

policy, reached after an agr9ement with the various banking interests,
was now to permit branches in the town or city of parent bank when
necessary but not to permit vranches de novo outside except where for
special reasons he should grant a certificate; that he have a certificate
In case of the petition of Bank of Italy for a branch at Sacramento
before this change of policy; that he had given no certificate to

Bank

of Italy as to Sacramento since this change of policy, and if one were
asked for now he would decline to give it.
The above clearly justifies the Board's decision turning dawn
Sacramento.

C.S.H. and Platt voted to grant the petition because of the

certificate given

by the committee; if they had known his present atti-

tude they would have voted differently.
The Superintendent was asked as to Yuba City branch and said
If asked he would go over it carefully again.
He said he felt that the examination

question could be "forked

out satisfactorily and that he could examine the Bank of Italy and branches
simultaneously with his force augmented by clerks from auditing and other
departments and with such assistance as Federal Reserve bank would give
him.
He said our decision as to 10% reserve against special savings
deposits was looked on as very extreme and that it would cause great
hardship on certain banks.
3-tine 5, Tuesday
Had talk with Ex-Senator Hope Smith as to my proposed compromise
as to the Cuban Agency.

He said it was mast satisfactory and that Atlanta

ought to accept it gladly.




564..

Tune 6, Wednesday
Left for Atlanta 9:35 P.M.
June 7, Thursday
Arrived Atlanta 4 P.M.

McChord and Wellborn met met at

station.
Attended dinner at 7:30 given by Atlanta bankers, sat beside
Mr. Ottley a director and one of the bitterest objectors to designation
of Boston.
Tune 8, Friday
Attended presentation of oil paintings of Federal Reserve Agent
McChord and Governor Wellborn to
Then sat with

directors all day.

promise would be acceptable.

Federal Reserve Bank by employees.
Finally it was agreed that my com-

(See my memorandum in Scrap book)

Ottley said to me--before you came dawn I said publicaly that
I would be damned if I would agree to any compromise, but your reasoning
was so strong and convinceing, your address at the dinner was so charming
and we directors all have such an affection for you, that you twisted us
around your finger and we rather liked to be so twisted.
June 11

Tuesday
At Board meeting on reading minutes of last meeting (C.S.H.

absent) it appeared that Wyatt's memorandum, that Elliott desired to
file a brief with Attorney General--on construction of Section 9, State
banks was noted and Miller said it was the intent of the Board to reject
it.

CM when minutes were read moved to send word to the Attorney General

that Elliott desired to be permitted to file a brief, the -L'oard neither
to approve or diapprove but merely to transmit it.




On vote, Crissinger

565.

being absent, all voted for C.S.H.'s motion except Miller who voted No,
and it was passed.

Miller was very ugly and said no one should be

permitted to file a brief.

C.S.H. asked if he was afraid Elliott's arguments

would convince Attorney General that his, Miller's Opinion, or Wyatt's,
was wrong.

Then Miller intimated that someone had improperly told Elliott

such an opinion had been or was to be asked.

C.S.H. told Miller that at

the hearing at which McAdoo and Elliott were present,--May 22,--the fact
was stated that the Board had or would ask opinion of Attorney General and
Elliott then asked to be allowed to file a brief.

As a matter of fact Dr.

Miller, even suggested to McAdoo to-file a friendly suit to test the case.
Wednesday, Tune 12
C.S.H. called up Elliott and -asked him how he came to know of
reouest for opinion of Attorney General.

He said it was referred to in

above mentioned hearing, also that Governor Orissinger had mentioned it
to him.
As a fact the Board agreed to ask for an opinion before May
22 but Hoxton told C.S.H. he could find no mention of it in his minutes.
C.S.H. told this to Board and Governor Crissinger and Platt agreed with
C.S.H. that Board had so voted; later, on May 29 the Board formally
voted, although as shown above it was so agreed 10 days before.
Dr. Miller moved to reconsider vote refusing permission to
Bank of Italy to establish a de novo branch at Yuba City, California.
The Board had asked Federal Reserve Agent Perrin to review his report,
which had been adverse, and he had just sent another report changing
his recommendation.

In the report he said there was need of further

banking facilities in Yuba City; that the existing National bank would
not be crushed out of existence by the establishment of Bank of Italy




566.
branch; that the President of the national bank favored granting of the
application, as he said it was inevitable that some new bank must be
established there to take care of the growing business of Yuba City and
Sutter County in which it was situated.
C.S.H. said he originally voted Against the application, because
of statements of Crissinger that he had received a telegram convincing him
that Bank of Italy intended to crush out the National bank, not being
able to buy it, but that now it appeared that there no such danger and that,
on the contrary, the National bank favored the establishment of the bank.
C.S.H. said he understood that the State Bank Superintendent had given
his approval.

Governor Crissinger doubted this but someone pointed out

that it was the Sacramento bank where the Superintendent said he would
not give a certificate, under his new policy, and that he did favor
giving the branch at Yuba City.

C.S.H. said that he felt bound to follow

the state policy and that on the assumption, as stated above, that there
was in accordance with the State policy, he felt bound to vote to reconsider.

Dr. Miller also said he thought the motion should pass.

On vote

to reconsider, Miller, Platt and C.S.H. Aye, and Governor Crissinger,
Cunningham, James and Dawes No, and Motion was lost.
James then moved to make the Little Rock building an exception
to Board policy and to authorize its construction as an emergency at
cost not to exceed $400,000.
Long discussion.

C.S.H. and James pointed out that since

Board's policy was announced building operations had been materially
cut down and that it was right to prevent the construction.

Platt said

he would be willing to vote for this in two months; Miller said prices
would be higher than now.




567.

Platt moved to lay motion on table.

On vote, Governor Crissinger,

Miller, Cunningham and Platt voted Aye, and James, C.S.H. and Dimes, No.
Motion to lay on table prevailed.
C.S.H. then offered a motion to authorize building of Salt
Lake City--the same in form as that of James (which C.S.F. had written
Platt moved. to lay on table.

for him).

On vote, Governor Crissinger,

Miller, Platt and Cunningham and Dawes voted Aye, and James and C.S.H.
No.
Dawes explained he voted Aye, because the Little Rock motion
had been laid on table.
C.S.H. read a telegram from Senator Glass as to par clearing
decision and C.S.F. read a proposed telegram from him to Glass giving
the facts.

Board voted to allow C.S.F. to send it, but Dr. 'dialer said

he wished C.S.F. to add that he, Miller, regarded it as a body blow against
the Federal Reserve Clearing System.

Governor Crissinger said he felt

same way and told C.S.H. to put in his name.

Platt said he would join

O.S.F. in statement that he did not concur in this latter statement of
Governor Crissinger and Miller.

Governor Crissinger is evidently delighted

at court's decision, and said it had broken up the whole plan, that the
Court had decided it was illegal, etc., etc.

We pointed out to him that

the court had merely said the Board was not bound under the Act to establish a courtry wide System.
We are going to have trouble in near future.
hates

Governor Crissinger

the Federal Reserve System and I believe will do all he can to

discredit it in every way!
Tune 14, Thursday
Dr. Miller begged the Board to redonsider its action in the
Yuba City case.



He said we had

rested our decision on Perrin's adverse

568.

report and the telegram of the national bank protesting, but that we
had asked Perrin to go over the matter again and he had done so and had
changed his views, now reporting that there was need of additional banking
facilities, that the national bank would not be crushed out, but that, on
the contrary, the President of the national bank favored now the granting
of the application.
Miller said our refusal would put the Board in a ridiculous
and arbitrary position and open us to a charge of discrimination.

Governor

Crissinger said he did not believe there was need of any further banking
facilities there, and Dr. Miller said he could not claim this in view of
Perrin's finding.

C.S.H. pointed out, however, that Governor Crissinger

was logical, although he differed from him, as he took the position that
he did not accept Perrin's conclusions, and that clearly he was not bound
so to do.

No action was taken, but matter was left for the new committee

on examinations,--when appointed to consider.
C.S.H.

told Miller that Elliott first learned of intention of

Board to ask opinion of Attorney-General at Board meeting with McAdoo and
Elliott, -- see supra.

C.S.E. said Elliott said Governor Crissinger had

also spoken of this to him.
Saturdax, Tune 16
Senator Glass called

3 P.M.

Platt and Crissinger came in.

Governor Crissinger pointed out that the Supreme Court had ruled that
checks payable in exchange at option of drawee were not"checks payable
on presentation" under Federal Reserve Act and, therefore, Federal Reserve
banks had not right to take them for collection, and after long discussion,
Governor Crissinger said only way was to direct Federal Reserve banks not
to take any such check, where laws of State gave such option to drawee,




569.

but to advise them that, except in States where there was an adverse
statute the Federal Reserve banks could collect over the counter, under
Atlanta decision, and to advise the banks to accept exchange checks at par
if offered.
Governor Crissinger said if he excluded all checks drawn in
states like North Carolina be believed that the State banks would soon
see that it would be to their advantage to remain on the par list and
Senator Glass and we all agreed with him.

We also agreed that in circulariz-

ing the Federal Reserve banks, we should say that we are bound to exclude
such checks because of the Supreme Court decision.

We were all pleased that

Governor Crissinger took this view for up till now he seemed absolutely
opposed to the continuance of the par collection system.
Glass said, to clinch Governor Crissinger he would write him
a letterreferring to the interview and praising his stand.
June 18, Monday
Interview with Governor Harding on Cuban agency.

Governor Harding

and Bullen agree to separate designation of Atlanta and Boston with a few
suggestions as to change in draft agreed upon by C.S.P. and Atlanta.
Tune 2Q, Wednesd,gy
C.S.H. met with Governor Harding.

He puts his suggestions

as to Cuba in new draft.
June 26, Tuesday
Governor Harding agrees to draft of Wyatt on Cuba; at his
suggestion power given to big bills not drawn on banks.
June 27
Board at meeting passes Cuban resolution.

Chairman McChord

came this A.M. and read Wyatt's draft, which Governor Harding at 5 P.M.




57D•

initialed, and in presence of Mr. James expressed his approval and initialled
same.
The Board eliminated one or two

whereases of no importance,

it having been carefully read to Board by C.S.H.
except Miller who voted No.

Every member voted Aye

Miller said in absence of a preliminary

operating agreement it would surely cause a row between Atlanta and Boston.
C.S.E. replied that you can't make an operating agreement until you have
something to operate.
Miller then vigorously objected to broadening the powers granted
so as to permit purchase of bills drawn on other than banks or banks.

Be

said ther were trade bills and we would not permit Federal Reserve banks
to discount or purchase them in United States.

C.S.H. pointed out that

most questions of Trade Acceptances involved a preferential rate; also
that the Board long ago ruled that a Federal Reserve bank could rediscount
q bill of exchange before acceptance, if it were secured.

Miller than

read a statement prepared by Governor Case showing that on a certain date
most of the acceptances held by Boston and New York on exports from Cuba
were bankers acceptances.
Then Mr. Dawes asked Miller what his negative vote meant and
whether he was opposed to an Agency in Cuba. Miller equivocated

at great

length but finally said he favored such an agency on general principles
but was opposed to this draft, etc., etc.

Miller evidently felt or knew

the vote was sure to be favorable so he voted No to appear conservative
and, as I believe, to please Warburg.
Tulv 30
The officers of Federal Reserve banks of Atlanta came before
Board and we adjusted all controversies connected with the Cuban agencies
satisfactorily to all.



571.

July 31
Governor Crissinger read letter from Elliott again asking
to be shown the second report from Perrin as to the Petition of Bank
of Italy to establish a branch bank at Yuba City, California.

None of

those who originally voted to refuse, would move to reconsider, so the
matter was lost.
Board took up (a) petition from the Pacific S.W. Savings &
Trust Company to establish a branch at Porterville, and (b) of Bank
of Italy to establish branch at Long Beach, California.

Porterville

is 236 miles from Los Angeles but is South of Fresno—which is the
dividing line as to freight charges between San Francisco and Los Angeles.
Long Beach is 25 miles south of Los Angeles.
(a) Does not involved the doctrine of "spheres of influence" as it is
in territory reasonably within Los Angeles Banking area; (b) does
squarely invade it.
Governor Crissinger said he opposed both, as also Miller and
Tames.

Platt and C.S.H.

favored both, as Perrin had reported favorably.

C.S.H. then offered and moved a resolution originally offered on April
10, 1923, to effect that Board was bound by decision of State Banking
Commission as to need of new banking facilities and that the Board could
not legally divide State into spheres of influence.

(See Scrap book)

This caused long discussion. "liner bitterly objected to C.S.H.ts
resolution and moved reference to the committee which was finally voted .
,these
Miller then moved that in view of the strong opposition to grantint
petitions of two of the examination committee, these two petitions be
referred to that committee to report back to the Board a statement of
reasons for Board to give should it vote finally to turn down these
Petitions, and this was passed; C.S.H. voting No.



572.

August 2, Thursday
Committee reported against all of above applications in form
of a Resolution stating that State banks with numerous branches could not
be examined satisfactorily either by the State or by the Federal Reserve
bank; that admission of State banks with unlimited right to establish
branches was not consistent with the spirit of the Federal Reserve Act,
et.c, etc.

No report was made on C.S.H.'s resolution.

a minority report.

Platt presented

Vote against permission to establish branches:

Crissinger, Dawes, Cunningham, James and Miller;

Aye,

No., Platt end C.S.H.

Dr. Miller offered a letter to Perrin announcing Board's decision.
C.S.H. objected as it did not give the real reasons for rejection, and
moved that the Resolution of the Board be sent to Perrin and the Banks
Interested.

Then motion finally prevailed.

Dr. Miller voted to reject all the applications but voted against
part of the reasons given in the Resolution,--en absurd position.
6:45 P.M.
Platt called on C.S.H. at Cosmos Club.

We agreed that Platt

tomorrow morning should move that the Perrin letter should contain statement that the resolution and decision should show

that the vote was

a majority vote, and that if this were not done, he should state that he
and C.S.H. should give a public statement that they voted against both
and that Platt had filed a minority report to which C.S.H. assented.
August 14, Tuesday
Platt says Perrin strongly protests against giving the resolution to the banks interested.




573.
October 31, Wednesday
In the afternoon Elliott came in with Governor Crissinger
who soon left.

Elliott asked IS

the branch matter was going along and

I said no action had yet been taken nor was likely to be taken for the
present.

He then told me that the Committee was to report on Friday but

did not disclose the source of his information (evidently Governor Crissinger).

I learned later from Mr. James on the next day, Thursday, that

this was true.

I said I had to leave Thursday night and that Governor

Crissinger told me resolution could rot come up Friday as he was not yet
satisfied with it.

James, thereupon, rather ungraceously agreed to have

it go over until next week and said that Secretary Mellon ought to be
present to which I agreed.

I added that I would not take up more than

5 minutes.
November

Wednesday
The branch bark resolution of the majority of the committee was

adopted; Governor Crissinger, Dawes, Cunningham, and James voting aye
and C.S.F., Platt and faller, No.

Governor Crissinger said he did

not agree with the resolution, that he thought it transcended the
pI;rs of the Board, but that he feared the national banking system was
doomed to ultimate extinction unless Congress should change the law
and that therefore (?) he should vote for it.
asked to come in but sent word

Secretary Mellon was

feared he could not and esked the

Board to go in without him.
I regret this for I believe we could have persuaded him that
the Board was transcending its lawful powers.

Miller got very angry

with James for using the word "filibuster" in speakinE of the opposition arguments.
record his protest.




C.S.H. reserved riet to incorporate in the

574-

The debate centered on C.S.H.ts motion to substitute Plattts
minority report for the majority report, which was lost on same vote
as above.
November 22
Board granted petition of Pacific S.W. Trust Co. to buy a
State bank at Porterville, California, with two other branchescwned
by it.
To my surprise Dawes and James favored it although the Board
sometime ago rejected it.

James said the Boardts resolution as to

branches did not take effect until February 24 and that means time
each application should be decided on its merits.

Inasmuch as Dawes

and James are absolutely against any branches outside of the city in
which the parent bank is located, I don't see how they could now vote
to grant consent.

I told Board I originally protested against putting

date of resolution ahead as it would cause trouble, but I, of course,
would vote for this branch as I thought it a clear case.
December 7, Friday
Board discussed Govdrnorst pension plan for Federal Reserve
employees which two years ago it favored in principle.
C.S.H. offered a resolution favoring the general principle of
a pension plan, carefully guarded for limited classes of employees
defeated:

Aye, C.S.H., Platt and Miller.

Cunningham and Dawes.
Aye,

No, Crissinger, James,

Dawes then moved reconsideration.

C.S.H., Platt, Crissinger, Dawes.

Carried.

No, James and Cunningham.

Dawes then moved that without endorsing the general principle of a




575pension system as applied to the Federal Reserve System, the Board
interposes no objection to the submission to Congress of any bill
providing for an insurance plan within the System.
Aye, Hamlin, Platt, Dawes.

Defeated.

No, Cunningham, James and Miller.

Mr. Cunningham said, By God! I wontt vote for any pension plan!

I

need one myself more than they dot
December 13, Thursday
Pension plan.
a plan, etc.

C.S.H. moved that the Board favors on principle

(See scrap book)

To C.S.H.ts amazement Governor Crissinger voted for this and
it was carried.
AYE, Governor Crissinger, Miller, Platt and C.S.H.
No, Cunningham, James and Dawes.
C.S.H. then moved that the governors be informed that the Board
interposed no objection to their having this bill introduced last.
Aye, C.S.H., Platt and, I think, Governor Crissinger.
No, Miller, Platt, Cunningham and Dawes.
C.S.H. called attention to the fact that the governors had
sent us a bill

and asked for our consent.

Dr. Miller moved that the bill be referred to committee on
salaries for report.

Defeated.

C.S.H. rose to a point of order that the Board having taken
up the matter must dispose of it in some way or refer it to a committee.
Governor Crissinger sustained the point of order.

Finally by unanimous

consent it was referred to salaries committee to report within two weeks,
although Dawes and James, both on this committee, bitterly objected, as
the committee would be bound by the resolution as to principle just passed
by Board.



576.

Governor Strong told me the other day that he had talked with
Secretary Mellon who was 1005 in favor of the plan or principle.

I firmly

believe he must have talked to Governor Crissinger--the only possible
explanation of his sudden change in vote.
December 17, Monday
Board took up applications of Bank of Italy for branches at Watson
City, Long Beach and Santa Monica.

This had been sometime ago rejected

and was brought up again.
James said the Bank of Italy had broken its agreement with the
Board not to buy over 20%
Federal Reserve Board.

of stock in any new bank without consent of

McAdoo had advised the bank that it could buy

through the stockholders committee or Bankitaly Corporation as they had
no connection with Bank of Italy.

C.S.H. said he felt that whatever their

technical relation, they had not acted in good faith in the matter and that
what troubled him was whether to use this as a reason for rejecting the
petititons, as in each case the State Banking Superintendent and Federal
Reserve Agent had certified as to the public necessity.

Later it appeared

that the Bank had made the purchaser expressly subject to the approval
of the Federal Reserve Board and C.S.H. said this put a different complexion
on the matter and he was inclined to feel it removed the charge of bad
faith.

James said squarely he would votefbr at least some of these applica-

tions had it not been for the bad faith as above.
On vote, the Watson and Long branch and Santa Maria application
were not granted.

Aye, Governor Crissinger, C.S.H., Platt.

Cunningham and Dawes.




A tie.

Eo, James,

577
Dr. Miller refused to vote.

Later Dr. Miller moved to reconsider

and Governor Crissinger ruled he had this right although he had not voted
on the question.

Adjourned until tomorrow.

December 18, Tuesday
On Miller's motion to reconsider the applications for Long Branch
and Watson City were approved.

Miller voting Aye.

The Santa Maria applica-

tion failed Crissinger voting no, but Miller voting ayes.
Miller's course in not voting yesterday was extraordinary.
Miller is shirking all of his committee work., e.g., Committee
on salaries made long report.

Miller did not dissent, yet in the Board

he objected to every increase of salary.
December 19, Wednesday
Board voted against increasing Federal Reserve Agent Curtiss
at Boston from $18,000 to $20,000.

Miller led in the opposition.

salary

Platt

and C.S.R. only voted Aye.
December 20, Thursday
Salary committee voted to drop Bradley of Counsel's office.
Board finally referred it to law committee.
history of his appointment.

Platt and I reported giving

Agreed that he should be reduced to

Board, led by Miller, voted to drop him on Tune 1, 1924 although
Platt and I said he was perfectly competent to earn !1,800.

James, of

committee, said he would agree to this but on Miller's motion the Board
voted to drop him on Tune 1, 1924.

It was stated that this was done as

there was no need of this place, although Platt and I said if he were
dropped, a new stenographer would have to be appointed.
notice we would vote against any new appointee.
merciless action.

This was a cruel and

Dr. Miller has no f,
!eling of either justice or mercy.

He simply glories in cutting down remorselessly.



Platt and I gave

578.

December 19
C.S.H. also movdd to increase the salary of Federal Reserve
Agent Austin from 815,000 to 817,000.

Dr. Miller said the investigations

of the economy and efficiency committee had already shown that Austin was
utterly unfit for his position.

C.S.U. said that on that assurance from

Dr. Miller he would withdraw his motion.
December 20
Cunningham told me he misunderstood the vote of yesterday as to
Bradley and thought it merely abolished his secretarial duties
he would be glad to move to reconsider tomorrow.

and said

I asked him to see

Tames and later he said he had seen him and that Tames said he would vdbe
to give him $1,800 as a stenographer.
December 21, Friday
Governor Crissinger at my request called a special meeting.

I

stated to Board what Cunningham said yesterday,--he was not then in the
room -- and said the reading of the record this A.M. showed that all the
Board did was to discontinue the secretarial duties of Bradley, i.e., to
abolish the office of secretary and stenographer; that another motion
was, therefore, in order and I moved in behalf of Platt and myself that Bradley

oe continued as stenographer at $1,800.

started up.

A bitter altercation

Dr. Miller was particularly offensive,--said we were trying

to carry along dead timber, that the committee's report was the most
carefully made of any he had ever seen and that if we did not sustain it
he should move to discharge all committees--James sided with him and
C.S.H. said the reason he asked for a special meeting was because
Cunningham said James would vote as above.




Cunningham denied he had

579.

said this and James, as I remember, also denied it.

Governor Crissinger

said to James--I heard you say yesterday you would so vote.

James said

yes, end I am willing to now, and thereupon voted Pot with Miller and
Cunningham which would have made a tie even if Governor Crissinger voted
Aye, although he did not vote, bis motion was defeated.
Cunningham said he would vote for $1,500 as Eddy said that
was the market value of a stenographer.

We pointed outthat Bradley

had been a stenographer on the Board for nine years and, therefore, should
not now come in at the lowest rate, but all to no avail.
I then looked at Eddy rather sternly and asked if he had
recommended anyone to Wyatt to fill the Bradley vacancy.

He flushed

and stammered and admitted that he had (Wyatt had told me this) as he
had one stenographer he had to drop a good man to whom he was paying
$1,500.

I am satisfied this is the nigger in the wood pilel

I shall

try to find whether Eddy wanted to do this for the good of the service
or whether the man is some friend of his.
Wyatt also said that Eddy told him that Mr. Foulke had not
done good work and was dead wood.

I told Wyatt that Eddy came to me

lately and said Foulke had done splendid work and that he, therefore,
favored transferring him to the gold settlement fund as Assistant Fiscal
Agent at a higher salary:
almost ran itself!




that he had so systematized his office that it

Wyatt said he heard Eddy say the same to James.