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The Papers of Eugene Meyer(mss52019)
117_05_001-
Subject File, Federal Reserve Board, General Correspondence, 1931
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January 14, 1931.
Honorable Carter Glass,
United States Senate.
My dear senator Glass:
I have your letter of January 13 and will
be pleased to appear at 10130 Monday morning,
January 19, before the Subcommittee of the Senat
e
Cormittee on Banking and Currency for a hearing
on the banking situation.
tith kind reGards, I am
Sincerely yours,
Governor.
0
WESLEY L. JONES, WASH.,CHAIRMAN
REED SMOOT,UTAH
FREDERICK HALE, ME.
LAWRENCE C. PHIPPS,COLO.
HENRY W.KEYES, N. H.
HIRAM BINGHAM.CONN.
TASKER L.ODDIE, NEV.
GERALD P. NYE,N.OAK.
W.B. PINE. OKLA.
OTIS GLENN,ILL.
FREDERICK STEIWER,ORES.
LEE S. OVERMAN,N. C.
WILLIAM J. HARRIS,GA.
CARTER GLASS. VA.
KENNETH MC KELLAR,1 CNN.
EDWIN S.BROUSSARD.LA.
JOHN B. KENDRICK.WYO.
ROYAL S.COPELAND,N.Y.
CARL HAYDEN, ARIZ.
SAM G.BRATTON,N. MEX.
?JCirviteb Zfales Zenafe
COMMITTEE ON APPROPRIATIONS
KENNEDY F. RCA,CLERK
JAMES H.DAVIS, ASST.CLERK
January 13, 1931.
My dear Mr. Meyer:
This is to confirm the invitation today
extended to you over the 'phone to appear at 10:30 o'clock
on Monday, January 19th, before the subcommittee of the
Senate Committee on Banking and Currency for a hearing on
the banking situation in the country.
At this meeting the inquiry ordered by
the Senate will be initiated by hearing first the Governor
of the Federal Reserve Board, to be followed by the Comptroller of the Currency.
I cannot at this time indicate
the line of questioning to be pursued beyond the general
statement that the committee will be glad to have from you
any suggestion that you may care to make concerning necessary
or desirable modifications of existing laws or practices,
either or both.
Very truly yours,
Eugene Meyer, Esq.,
Governor, Federal Reserve Board,
Washington, D. C.
Chairman.
vo
,
I
RECEIVED
1
1931
OFFIOF OF
THE GOVERNOR
January 15, 1931.
Ur. J. t. Rixey Smith,
Secretary to 1.e.lator Glass,
United States Senate,
Wushington, D. G.
Dear Mr. Smith;
Governor Meyer directs me to acknowledge
the receipt of the copy of Senate Bill 4723 and
to say that he will be pleased to examine the
provisions of the bill in connection with the
Committee's inquiry.
Very truly yours,
406)
9*‘111
Secretary to the Governor.
WESLEY L. JONES, WASH.,CHAIRMAN
PEED SMOOT,UTAH
FREDERICK HALE, ME.
LAWRENCE C. PHIPPS,COLO.
HENRY W.KEYES, N.H.
HIRAM BINGHAM.CONN.
TASKER L.ODDIE, NEV.
GERALD P. NYE, N. OAK.
W.B. PINE. OKLA.
OTIS GLENN,ILL.
FREDERICK STEIWER,OREG.
LEE S. OVERMAN. N. C.
WILLIAM .1. HARRIS.GA.
CARTER GLASS, VA.
KENNETH MC KELLAR,TETfN.
EDWIN S.BROUSSARD, LA.
JOHN B. KENDRICK,WYO.
ROYAL S.COPELAND,N.Y.
CARL HAYDEN,ARIZ.
SAM G.BRATTON, N. MEX.
?Jertitett Zfalez ,Sencxte
COMMITTEE ON APPROPRIATIONS
KENNEDY F. REA.CLERK
JAMES H. DAVIS. ASST.CLERK
January 14, 1931.
My dear Go7ernor Meyer:
Senator Glass directs me to forward you the
enclosed bill, which he hopes to make a partial basis
for the bank inquiry.
Sincerely yours,
k•At
i
1G'il:Z.
:
SenetC7
to
S c etery
Hon. Eugene Meyer,
Governor Federal Reserve Board,
Washington, D. C.
RECS1VIED
1
1931
OFFIOF OF
TEM GOVVR.NOTI.
/1sT CONGRESS
2D SESSION
Q
1
REQ
i
IN THE SENATE OF THE UNITED STATES
MAY 16 (calendar day,.MAy 24), 1929
Mr. KING submitted the following resolution; which was referred to the Committee on Banking and Currency
APRIL 21, 1930
Reported by Mr. GLASS, with an amendment; referred to the Committee to
Audit and Control the Contingent Expenses of the Senate
[Strike out all after the resolving clause and insert the part printed in italic]
APRIL 30 (calendar day, MAY 5), 1930
Reported by Mr. DENEEN, without further amendment; considered and
agreed to
RESOLUTION
1
Resolved, That in order to provide for a more effective
2 operation of the national and Federal reserve banking sys-.
3 tems of the country the Committee on Banking and Currency
4 of the Senate, or a duly authorized subcommittee thereof, be,
and is hereby, empowered and directed to make a complete
6 survey of the systems and a full compilation of the essential
7 facts and to report the result of its findings as soon as prac8 ticable, together with such recommendations for legislation as
the committee deems advisable. The inquiry thus authorized
10 and directed is to comprehend specifically the administration
of these banking systems with respect to the use of their
12 facilities for trading in and carrying speculative securities;
\
2
1
the extent of call loans to brokers by member banks for such
2 purposes; the effect on the systems of the formation of invest3
ment and security trusts; the desirability of chain banking;
4 the development of branch banking as a part of the national
5 system, together with any related problems which the come) mittee may think it important to investigate.
7
For the purpose of this resolution the committee, or any
8
duly authorized subcommittee thereof, is authorized to hold
9 hearings, to sit and act at such times and places during the
10 sessions and recesses of the Seventy-first and succeeding Con11
gresses until the final report is submitted, to employ such cler-
12 ical and other assistants, to require by subpcena or otherwise
13 the attendance of such witnesses and the production of such
14
books, papers, and documents, to administer such oaths, and
15
to take such testimony, and make such expenditures as it
16
deems advisable. The cost of stenographic services to report
17
such hearings shall not be in excess of 25 cents per hundred
18
words. The expenses of the committee, which shall not ex-
19
ceed $15,000, shall be paid from the contingent fund of the
20 Senate upon vouchers approved by the chairman.
A_ 1
71sT CONGRESS
2D SESSION
ClD
1.1).1.U1J.
ry
I
RESOLUTION
To make a complete survey of the national and
Federal reserve banking systems.
By Mr. KING
MAY 16 (calendar day, MAY 24), 1929
Referred to the Committee on Banking and Currency
APRIL 21, 1930
Reported with an amendment and referred to the
Committee to Audit and Control the Contingent
Expenses of the Senate
APRIL 30 (calendar day, MAY 5), 1930
Reported without further amendment; considered
and agreed to
A
•
71ST CONGRESS
2(1 Session j
SENATE
J
REPORT
No. 493
SURVEY OF THE NATIONAL AND FEDERAL RESERVE
BANKING SYSTEMS
APRIL 21, 1930.—Ordered to be printed
Mr. GLASS,from the Committee on Banking and Currency, submitted
the following
REPORT
[To accompany S. Res. 71]
The Committee on Banking and Currency, to which was referred
the Senate resolution (S. Res. 71) to investigate certain operations of
the Federal reserve system and matters relating thereto, having
considered the same, reports that said resolution be amended by
striking out all of the matter contained therein, beginning with line
1, page 1, down to and including the period in line 10, page 5, and
substituting therefor the following:
Resolved, That in order to provide for a more effective operation of the national
and Federal reserve banking systems of the country the Committee on Banking
and Currency of the Senate, or a duly authorized subcommittee thereof, be and
is hereby empowered and directed to make a complete survey of the systems and
a full compilation of the essential facts and to report the result of its findings as
soon as practicable, together with such recommendations for legislation as the
committee deems advisable. The inquiry thus authorized and directed is to
comprehend specifically the administration of these banking systems with respect
to the use of their facilities for trading in and carrying speculative securities;
the extent of call loans to brokers by member banks for such purposes; the effect
on the systems of the formation of investment and security trusts; the desirability
of chain banking; the development of branch banking as a part of the national
system, together with any related problems which the committee may think it
important to investigate.
For the purpose of this resolution the committee, or any duly authorized subcommittee thereof, is authorized to hold hearings, to sit and act at such times and
places during the sessions and recesses of the Seventy-first and succeeding Congresses until the final report is submitted, to employ such clerical and other
assistants, to require by subpcena or otherwise the attendance of such witnesses
and the production of such books, papers, and documents, to administer such
oaths, and to take such testimony and make such expenditures as it deems advisable. The cost of stenographic services to report such hearings shall not be in
excess of 25 cents per hundred words. The expenses of the committee, which
shall not exceed $15,000, shall be paid from the contingent fund of the Senate
upon vouchers approved by the chairman.
•
.2
SURVEY NATIONAL AND FEDERAL RESERVE BANIiING SYSTEMS
And that as so amended the resolution do pass.
The committee is of the opinion that a comprehensive study and
survey for a more effective operation. of the national'and Federalreserve banking systems of the country should be madd.preliminary
to essential legislation..
0
71ST CONGRESS
2D SESSION
S. RES. 71
[Report No. 4931
IN THE SENATE OF THE UNITED STATES
MAY 16 (calendar day, MAY 24), 1929
Mr. KING submitted the following resolution; which was referred to the Cpmmittee on Banking and Currency
APRIL 21, 1930
Reported by Mr. GLASS, with an amendment; referred to the Committee to
Audit and Control the Contingent Expenses of the Senate
[Strike out all after the resolving clause and insert the part printed in italic]
RESOLUTION
1?-e8eleffh That in order to provide kof the most effective
operation of the Federal reserve -system, to inform the
Senate of the facts in connection with the ftse of the reserve
4
funds of banks, in carrying Of trading in securities, contrary
5 to existing law, and to furnish a basis for constructive lcgis
6 latieff o remedy such defects in Ottf 'banking system as may
7
he found e exit, the Committee Off Banking mid Currency,
8
Of ft
duly authorized subcommittee thereof, is hereby
att-
9 thoi4ffed and directed to make a fall and complete investi10 gation awl to report thereon to the Senate as soon as
:
i practicable, with such recommendations for necessary
12 lation-
deenis
40,
r
3
2
4, W11-4 defects, if
1
Cs
.
money and to the flra-vAng of +now"- from fafttl districts
have isteett found to exist in
systeitt, tth-El what
the operation of the Federal reserve
legislation is ncccssaiy to (-4H-feet such defects;
2 finfitteif4 centers for speettititii=e
3
The basis for the fteeeptaffee policies of the Federal
reserve hanks
2: Whether the facilities of the Federal
in and ettfrying
have lacier' utilized in loans for trading
4
reserve system and the extent to whielt mergers are taking
4
5
securities ;•
large
g, Whether member banks httve afforded unduly
8
accommodation to brokers;
4, Whether the htmking laws of the 1.- ftite-el States
9.
of general hank
10 should be amended so as to restrict the use
the volume of
11 credits for speculative purposes Of to limit
marginal trans
12 leans made for the purpose of carrying Off
tt speculative
13 actions in stocks and other transactions of
of term settle
14 character, either through the introduction
15
merits Of otherwise;
16
17
of
The classification of loans to lookers by members
the .Federal reserve system and the purposes for which
tion with new
18 such leans are used, partiettlarly in connec
21
& The different types of trading on the steek e-xchanges and the scope of each, as well as the extent of so-
22 called "short sales and the relative degree of concentration
23
24
25
6
pool -1-1 stoeks;
-7, The effect of the operations of the Federal reserve
call
system in cotttrihtttittfie- -the high rate of interest on
9, Whether of not eltain banking and branch banking
7 are being developed and the effect and qualities of these:
8 types of 4a+114ftgi
9
4-0- The extent to wh-ielt investment Of seem* trusts
10 are being formed by
11
Of in
connection with ntenther hanks
of the Federal reserve system, and tl=;e extent, character,
12 and effect, of their operations;
13
44, Thecxtentofthelonnstosuchtrnstsbythemcm-
14
her banks and the loans made by them at call and otherwise,
15 the dividends paid by such trusts, and the effect of
16
17
Sitth
trusts ttpoft *let-Hat:toffs in the tritif-ket ir-t4tie of stoe61
44, Whether of not the thsttfy laws are evaded by suet}
18 investment Of security trusts;
19
19
20
5 ph** between member hanks in the Federal reserve system;
-
13. Whether the member hanks of the .Federal reserve
20 ti"34-efli 410144 he prohibited froiri forming frf being
21
22
eertted with investment Of security trusts;
44: The extent of the power of Congress to regulate
23 the business of stockholders and others engaged in issuing,
24 Hegatia-thig, or trading in securities;
4.
5
4-57 Whether the 4-04 of the &Feet discounting of
1
Congresses until the final report is submitted;to employ such
2 member--bank notes by reserve banks liftS proven harmful;
3
4-6, Whether the so called
clerical and other assistants;to require by Sll4ffelift Of ether-
war amendments.11 to the
3 wise the attendance of such witnesses and the production of
4 Federal Reserve Act have not outlived their object;
4
such books, papers;and documents, to administer such oaths;
5 .
5
and to take such testimony and make such expenditures as
4-7, The number of bank failures within the period of
6 ten years prior to the passage of this resolution and the
it deems advisable, The oast of stenographic services to
7 effuses of such failures;
report such hearings shall not be in excess of 24 cents per
4-8, Whether the national banking laws should he
hundred words, The expenses of the committee, which shall
9 amended so as to prevent Federal charters being granted to
!; not exceed $2-5,-000, shall be paid from the contingent fund
10 associations having less than $4-00;000 capital;
10 of the Senate upon vouchers appro-v-ed by the ehaiiman,
11
ii
4-07 Whether the merger Of consolidation of large fman-
Resolved, That in order to provide for a more effective
12
eial institutions is beneficial Of whether such mergers Of con
1
13
solidatieifs should he restricted;
13 of the country the Committee on Banking and Currency of
operation of the national and Federal reserve banking systems
14
20, The extent of the powers of Congress to legislate
14
the Senate, or a duly authorized subcommittee thereof, be,
15
with respect to mergers and consolidations of financial insti-
15
and is hereby, empowered and directed to make a complete
16
ft:44(3ns brought about tinder State law with which the mem-
16
survey of the systems and a full compilation of the essential
17
hers of the Federal reserve system are not concerned; and
17 facts and to report the result of its findings as soon as prac-
18
24, Whether there is any evidence of concerted ftetioft
18
ticable, together with such recommendations for legislation as
19 on the part of member banks of the Federal reserve system
19
the committee deems advisable. The inquiry thus authorized
20
to disefinfinate between competing business concerns in the
21
extension of credits and the making of loans,
22
For
the purpose of this resolution the committee, or
and directed is to comprehend specifically the administration
21
of these banking systems with respect to the use of their
22 facilities for trading in and carrying speculative securities;
23 any duly authorized subcommittee thereof;is authorized to
93
the extent of call loans to brokers by member banks for such
24
hold hearings;to sit and ftet at such times and places during
24
purposes; the effect on the systems of the formation of invest-
25 the sessions and recesses of the Seventy first and succeeding
25
ment and security trusts; the desirability of chain banking;
•
6
the development of branch banking as a part of the national
2
system, together with any related problems-Whieh the coin-
3
mittee may think it important to investigate.
4
For the purpose of this resolution the committee, or any
5 duly authorized subcommittee thereof, is authorized to holdO
hearings, to it and act at such times and place& thrringt thel
7 sessions and recesses of the Seventy-first and sueceeding, Con-,
gresses until the final report is submitted, to employ such e'er9
ical and other assistants,, to require-by subpcena, ortiotheitevise
10
the attendance of such witnesses and the production of such
11
books, papers, and documents 'to-aelnifiynister,rdek Oaths. and
12
to take stwh testimony, and make 'such. expenditures -as it
13
deems advisable. The.cost of stenographic 8ervices tv, report
1-1
such hearings shall not be.inexcess of 25 centsiperuhutnthied'
15
words. The expenses of the committee, which4hailinotterceed,
16` 05,000, shall be paid from,the eon,tinventfun of t1e.8enate
17
upon vouchers approved'by the chairman.
7Iwr CONGRESS t
2D SESSION
ipp
ry 1
S. 1.b
.L:JIJ. I
[Report No. 493]
RESOLUTION
To make a complete survey of the national and
Federal reserve banking systems.
By Mr. KING
Mei 16 (calendar day, MAY 24), 1929
Referred to the Committee on Banking and Currency
APRIL 21, 1930
Reported with an amendment and referred to the
Committee to Audit and Control the Contingent
Expenses of the Senate
January 23, 1931.
IP. Abbot Goodhue, Esq.,
?resident, International
Acceptance Bank, Luc.,
31 Pine Street,
Yew York, N. Y.
Dear Sir:
I beg to acknowledge the recei-A of
your lettel. of January 20 xith enclosed reaulne of the
activities of the Inttirnational Acceptancellank, Inc.
for the year 1930, vilich I shall read with interest.
With kind regards, I remain
Very truly yours,
Governor.
For CIRCULATION,_.......„,
Nr.
Mr James
arm mill
r.
!1r.
INTERNATIONAL ACCEPTANCE BANK,INC.hr
31 PINE STREET
flcr
Pr
Mr.
1.11111,
NEW 'YORK
F. ABBOT 0001/411.TE
PRESIDENT
Mr
CABLE ADDRESS
January 20, 1931C
r: .A.CC3339"1.33.A.1%,TIC
aati retura to Li.J.
Cv
Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Sir:
have appreciated the friendly relations which
have been maintained between us in the past, and, thinking that
you might be interested in our activities during the year just
closed, I am enclosing a short informal resume of what the
International Acceptance Bank, Inc. has done during 1930.
This brief report I am sending to a very few of
our former stockholders and intimate friends, and I would greatly appreciate it if you would treat the information contained
therein as confidential.
I trust that the pleasant relations which have
existed between us in the past may continue during 1931 and the
years to come.
Ath kind regards, I am
Very sincerely,
resiaent
RECEIVED
1031
onto-iv OF
TE111 GOVhIRNOR
INTERNATIONAL ACCEPTANCE BANK, INC.
New York
Year of 1930
As all the shares of the International Acceptance Bank, Inc.,
except for the directors' qualifying shares, are held by The Manhattan
Company, the formal report previously made to the stockholders was discontinued last year, but a report of our activities of particular importance during the year was presented, and it has seemed advisable to
follow the same procedure this year.
Our capital is
Our surplus is
of which $6,250,000 was
originally fully paid in,
the balance of $1,250,000
having been transferred
from Undivided Profits in
1929
Undivided Profits are
$6,250,000 paid in
7,500,000
5,028,000
In addition to the above there are very substantial hidden free cash
reserves
which do not appear in our statement, representing cash
actually set aside on our books, against which we have no commitments
after providing for all known losses and after taking all our securities
A
at market.
The balance sheet of the International Acceptance Bank, Inc.
(in comparative form on the following page), as of December 31, 1930
shows that the year was one of satisfactory development and that the
profits were unusually gratifying in view of the low interest rates
which prevailed during the greater part of the year, and the curtailment
of general business activity due to the worldwide depression and the
depreciation in commodity prices.
INTERNATIONAL ACCEPTANCE BANK, Inc.
COMPARATIVE BALANCE SHEET AS OF DECEMBER 31st
RESOURCES
Stockholder' Liability for
Uncalled Subscriptions... $
Cash on Hand and Due
from Banks..
Acceptances of Other Banks
Call Loans Secured by
Acceptances
U. S. Government, State
and Municipal Bonds
Coll&teral Loans
Other Loans & Advances..
Other Bonds & Securities.
Customers' Liability for
Acceptances (less anticipations)
Customers' Liability under
Letters of Creclit.....
Other Assets
$
1923
1922
1921
5,OQO,OOO
5,000,000
$
$
5,0002000
(
1924
5,000t000 $
1927
5,000,000 $
.1928
5,625,000 $
.1929
6,250,000 $
3,501,569 $ 7,154,615 $ 6,253,734 $
2,115,255
1,462,469
3,623,226
7,542,067 $ 10,369,631 $ 11,076,477 $ 11,147,745 $
5,751,414
5,092,527
4,220,564
5,208,064
8,098,397 $
6,108,214
7,342,506 $ 13,283,029
6,445,731
6,305,435
4,810,000
4,600,00o
5,214,046
5,399,000
5,175,000
6,000,000
4,000,000
4,531,170
10,885,686 12,456,6)43
5,359,234
2,0142,14614 2,699,975 8,097,547
2,119,079 3,229,429 5,475,717
15,132,074
5,991,502
13,866,582
6,100,456
11,676,309
4,517,320
6,374,451
5,580,205
11,495,726
5,798,549
5,946,461
7,798,650
15,406,223
3,203,022
7,540,094
4,545,414
12,076,382
4,683,516
10,232,217
6,964,483
16,295,132
9,132,203
14,511,101
5,930,197
12,180,737
6,094,429
19,817,978
4,479,644
9,977,936 27,045,622 31,223,649
37,244,854
43,711,948
44,224,162
62,663,771
65,218,655
95,334,462
89,718,337
8,146,520
260,516
9,082,844
8,082,469
11,144,264
9,900,268
9,053,817
3,412,679
125,016
5,611,384
199,1214
6,775,729
268,855
1925
5,000,000 $
1926
5,000,000 $
1930
6,250,000
5,832,582.
324 111
234,126
254,361
322,995.
304,762
211,119
$ 31,572,742 $54,9 1,090 $79,534,334 $104,227,094 $100,346,795 $105,622,080 $130,591,971 $132,765,494 $170,369,260 $162,035,619
LIABILITIES
Capital and Surplus Fully
Subscribed
Capital Paid In
Surplus Paid In....
Undivided Profits
Due to Banks & Customers
Acceptances Outstanding
Letters of Credit
Reserves for Taxes, Unearned Discount, etc
Reserve fer Dividend
payable
$ 15,250,000 $15,250,000 P15,250,000 $ 15,250,000 $ 15,250,000 $ 15,250,000 $ 15,250,000 .$ 17,000,000 $ 18,750,000 $ 14,750,000.
$ 10,250,000 $10,250,000 $10,250,000 $
82,000
6,704,956
11,049,292
3,412,674
33,856
1,632,656
28,186,825
32,590,356
5,611,384 6,775,729
969,520
13,074,143
24,433,976
202,067
94,768
5,250,000 $
5,000,000
2,575,279
44,460,169
38,650,169
8,146,519
144,962
5,250,000 $ 5,250,000 $
5,000,000
5,000,000
3,325,136
3,902,703
30,496,606
35,476,466
46,527,795
47,117,539
9,082,844
4,082,469
264,414
5,250,000 $
5,000,000
4,502,968
38,457,986
65,785,598
11,144,263
5,750,000 $
5,625,000
5,177,005
37,694,549
64,167,359
9,900,264
290,403
297,406
241,044
102,500
153,750
170,625
6,250,000 $
7,500,000
4,600,560*
44,371,087
98,243,982
9,053,817
349,814
6,250,000.
7,500,000
5,028,000.
44,540,004
92,694,883
5,832,582
190,148
$ 31,572,742 $58,941,090 $79,534,334 $104,227,094 $100,346,795 $105,622,040 $130,591,971 $132,765,494 $170,369,260 $162,035,619
*$1,250,000..transferred to Surplus April
1(120,
-3--
Our earnings for the year amounted to
-
$1,886,986.83 and
were distributed as follows:
Reserve for Taxes, Tantieme, Bonds
and Contingencies
Dividends at the rate of
156/ per annum
Passed to Undivided Profits
$458,986.83
1,000,000.00
428,000.00
making the total amount in Undivided Profits account as of December
31, 1930, as stated above
028,000.00.
During the past year we had no such unusual profits as
occurred during 1929, which were fully explained in our report of
that year.
Earnings of the International Acceptance Bank, Inc. since its
inception are shown on page 4.
While the volume of acceptances outstanding at the end of the
year totaling $92,594,883.37, was somewhat less than the
98,243,981.95
outstanding at the end of 1929, it zas substantially in excess of the
total of $68,137,358.87 outstanding at the end of 1928.
On the other
hand the daily average of acceptances outstanding during the year 1930 $89,900,000. - vas considerably in excess of corresponding figures for
previous years, as is indicated below:
1930
1929
1928
1927
1926
1925
1924
1923
1922
$89,900,000.
71,039,000.
62,635,000.
45,307,000.
40,259,000.
39,100,000.
30,600,000.
24,809,000.
18,764,000.
INTERNATIONAL ACCEPTANCE BANK, INC.
SCHEDULE OF EARNINGS AND EXPENSES
Year Ending December 31st.
1922
1921
1923
1924
1925
1926
1927
1928
1929
1930
$1,571,718 $1,651,030 $2,539,320 $2,790,019 $3,293,196 $3,129,387 $3,348,201 $5,304,450* $3,118,509
1,231,522
995,193 1,025,569 1,213,248 1,191,223
683,775
759,552
907,883
500,518
Earnings
Expenses
$542,038
452,453
Net Earnings
$
89,585 $1,071,200 $ 967,255 $1,779,768 $1,882,136 $2,298,003 $2,103,818 $2,134,953 4,113,227 ;argg$,T57
Taxes, ProfitSharing Charge
Offs, Extr.
Reserves, etc....$
7,585 $ 183,700 $ 304,119 $ 837,089 $ 927,000 $1,310,300 $1,042,568 $ 798,006 .,2,383,352 $ 458,987
Dividends Paid
Trans. to Undivided
$ 82,000
Profits
$
887,500 $
663,136 $
942,679 $
1,000,000
1,000,000
410,000
750,136 $
577,703 $ 600,000 $ 674,500 $ 729,875 $ 428,000
Note:--Figures shown for 1921 are for April 1st to December 31st.
*Includes profit from sale of 52 Cedar St. property and other nonrecurring profits.
$1,609,000
461,250
662,387
205,000
-5-
An analysis of acceptances outstanding at the close of the last five years.
1926
Exports from
$19,713,688
U.S A
Imports to
18,395,979
U.S A
Movement of mdse
between foreign
countries
11,842,906
Mdse. stoxes in
warehouse
4,356,602
Domestic Shipments
Dollar Exchange
1,808,363
7.j17,538
1927
$25,924,586
1928
$30,804,534
1929
$36,505,182
1930
$26,111,640
10,220,300
10,460,053
21,138,426
15,585,714
18,264,720
20,660,813
32,146,038
42,053,017
10,256,454
4,019,590
5,107,335
1,119,538
$65,785,598
2,222,368
$68,167,358
3,347,000
$98,243,9U
4,548,000
1,606,022
2,790,490
92,694,883
The attached chart (page 6) shows the volume of dollar and foreign
currency acceptances outstanding at various fortnightly periods during each of
the years since our formation.
As in the past we have made every effort to maintain a satisfactory
diversification, both as to countries and commodities, of the credits which we
have extended.
At the end of the year we are extending credits in 35 countries
to finance 39 major commodities.
Year
19',30
199
1928
1E7
1926
1925
1924
1923
1922
1921
The following comparison may be of interest:
Countries
35
34
38
35
37
25
23
23
14
14
Commodities
39
37
35
33
32
33
29
29
22
21
The improvement in the broadening of the bill market, which was evidenced
during the last part of 1929, has continued, and although, as in the past, the bulk
of the bills is still held by the Federal Reserve banks either for their own
account or for account of purchases made for foreign central banks and Governments,
a much larger volume of bills has been purchased by the accepting banks themselves
and many new buyers among the banks, trust companies, savings banks, insurance
companies and larger corporations have appeared in the market.
couraging development.
This is a most en-
Our bills have always moved freely at prime rates, and never
at any time have we been compelled to hold any of our own bills in our portfolio.
-s-
CO
C.
,
.4' •-• N •-•
ON
N
.-. ,., •"'
Ln
•••• C,
co
C
Thousands Z
Z Z
< < •S
ai Ci
LA./
,...,,
Ci
>-
cs,
•-••
••
1.•.; L...4
co
L,J
a
w 6
o
j°
zc
0>' 0
c„ 00 z
t
\
26
lo'o,6bo'poO DEC. '2;9
-I _1
DDMD
$100,000
98,000
96,000
94,000
92,000
90,000
88,000
86,000
84,000
82,000
•
IA
41.2,76b.600
I
I N.,
•
•
98,000
92,000
90,000
88,000
86,000
84,000
82,000
80,000
78,000
76,000
74,000
1928
68,167,000c1927 -"
_ 1929
1.•••
,
65,800,000
64.000
_1928
62,000
60,000
58.000
56,000
40,000
1 2
38,000
I
36,000
1924
34,000 _
32,000
30,000 - 1923
28,000
•
••••
26,000
24,000
22,000
20,000
18,000
16,000
14,000
72.000
70,000
68,000
66,000
64,000
62,000
60,000
58,000
•
No.'••
56,000
54,000
52,000
•
54,000
52,000
50,000
- 1927
48,000
46,000
44,000 -1926 4"‘
42,000
•
•••
50,000
1926
4-4.•.47,100 000 ."
1925
46To07650
48,000
1924
39,200,000
40,000
38,000
36,000
34,000
32,000
30,000
•
\ •
'f\(
'Vv.•
1922
•
d-28,800,000
oc?
I
.
•••••
1-4••••
4
'
12,000 .. 1922
10,000
8,000
6.000
4,000
2,000
0
$100,000
96,000
94,000
80,000
78,000
76,000
74,000
72,000
70,000
68,000
66,000
Thousands
1929
98,300,000
1921
11,000,000
411.•• d•9
921
t
••••
COMPARATIVE GRAPH SHOWING ACCEPTANCES OUTSTANDING 1921 to 1930 INCLUSIVE
INTERNATIONAL ACCEPTANCE BANK, INC.
46,000
44,000
42,000
28,000
26,000
24,000
22,000
2000G,
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
-7--
The average acceptance commission which we receive increased
slightly during the past year, as appears from the following comparative
figures:
1.174%
1.169
1.250
1.426
1.912
1930
1929
1928
1927
1926
Once more I am happy to report that during the past year our
total credit lcsses were very moderate being less than $40,000.
The amount "Due to Banks and Customers" at the end of the year
$44,540,004.
was
against a total at the end of 1929 of
43,371,000.
Our vostro accounts represented 824 foreign acclunts, against 759 in 1929.
During the past year we arranged for two importations cf gold
$ 3,000,000.
totaling
The figures following show the number of gold importations and exportations, together with the amounts of the shipments, for each year since 1924.
EXPORT GOLD
No. Shipments
Amount
1924
12
$11,752,232.38
1925
42
12,944,488.94
1926
29
4,211,933.46
1927
20
5,989,578.20
1928
4
6,027,655.78
1929
1
1,282,473.61
0
108
0
02,208,362.37
1930
Total
-8-
IMPORT GOLD
No. Shipments
Amount
1924
3
$10,170,183.38
1925
2
2,796,783.51
1926
2
275,252.08
1927
5
1,474,610.11
1928
5
10,784,790.73
1929
6
8,313,971.30
2
25
3,000,000.00
$36,815,591.11
1930
Total
Mr. Robert Louis Hoguet, Vice President of the Emigrant Industrial
Savings Bank, was elected to our Board of Directors in December 1930 and the
Hon. Alanson B. Houghton joined us as a Director in January, 1931.
The following changes have taken place among our executives for
the year ending January 20, 1931:
Mr. Charles B. Hall resigned as Secretary to become Vice President
of The Manhattan Company, and Mr. L. D. Pickering was
appointed Secretary to succeed him.
The following officers have also resigned, - the first three to
accept appointments with the Bank of Manhattan Trust Company:
a
Mr.
Mr.
Mr.
Mr.
Mr.
A.
L.
A.
R.
1(i.
H.
R.
J.
Vi.
T.
Titus, Vice President
Mahoney, Assistant Treasurer
Moutrie, Assistant Treasurer
Proctor, Treasurer
Sheehan, Assistant Treasurer
Mr. Fletcher L. Gill was elected Treasurer, as well as Vice President.
Mr. John P. Collins and Mr. V. T. Kelly, formerly Assistant Vice
Presidents, were elected Vice Presidents.
Mr. Gorham P. Gensch and Mr. J. Phelps Zood, formerly Assistant
Treasurers, were elected Assistant Vice Presidents.
Mr. Adolph Suehsdorf, Jr. was promoted from Assistant Secretary to
Assistant Vice President, and Mr. James D. McDouall was appointed
Assistant Secretary instead of Assistant Treasurer.
-9Early in the year we, together with the Bank of Manhattan Trust
Company and the International Manhattan Company, Incorporated, made arrangements with Mr. Robert M. Hunt to act as our joint representative on the
Pacific Coast and the far Rest, with headquarters in San Francisco.
During the year the Bank was appointed Fiscal Agent for the
Nicaraguan Government and depository for its currency and bank reserves.
Our Vice Presidents, H. J. Rogers and W. H. Schubart were appointed to
serve in an advisory capacity to the Boards of Directors of the National
Bank of Nicaragua, the Pacific Railways of Nicaragua, the Mortgage Bank
of Nicaragua and the Compania Mercantil d'Ultramar, all owned directly or
indirectly by the Nicaraguan Government.
In May, The Manhattan Company building was completed and the
offices of the International Acceptance Bank, Inc., as well as the Head
Office of the Bank of Manhattan Trust Company, the International Manhattan
Company, Incorporated, and The Manhattan Company, were moved to these
quarters.
The grouping of the four companies in one building has greatly
facilitated their cooperation with one another and has worked out most
satisfactorily.
The closer proximity has enabled the -respective officers
to bring about greater simplicity and efficiency of operation and very
substantial economies.
The new quarters have more than come up to our
expectations and have proved satisfactory in every respect in regard to
their general layout and are particularly pleasing in their exquiste form
and.detail.
The building itself is owned by the 40
all Street Corpora-
tion, in which the various companies occupy six floors as tenants.
The
Bank of Manhattan Trust Company has retained title, however, to the original
plot upon which a portion of the new building now stands.
This plot was
acquired in 1799 when The Manhattan Company was established, and has been
occupied by it ever since.
FEDERAL RESERVE BANK
OF NEW YORK
April 10, 1931.
Dear Governor Meyer:
We have already forwarded to you a copy of
the replies of this bank to the Questionnaire submitted
by the Senate subcommittee.
We failed, however, to
forward to you a copy of an office memorandum prepared
in our research department on the general question of
brokers' loans, which Mr. Glass requested us to forward to his committee.
This memorandum was prepared
for consideration by the committee of governors appointed
by the last governors' conference to consider Federal
reserve practice and procedure.
It occurred to me that
it might be of interest to the Board, so I am sending it
to you under separate cover today.
Very truly yours,
George L. Harrison
Governor
Honorable Eugene Meyer,
Governor, Federal Reserve Board,
Washington, D. C.
•
MEMORANEUM ON
BROKERS LOANS BY OTHERS
Woodlief Thomas
Reports Department
Federal Reserve Bank of N. Y.
February 13, 1931.
BROKERS LOANS BY OTHERS
It is commonly recognized that one of the most difficult problems
in all attempts to check the growth of stock exchange speculation in 1928 and
1929 was that of controlling the expansion of brokers loans by others.
Some
control was more or less effectively exercised aver the expansion of brokers
loans by banks, which showed practically no increase in 1928 and 1929, and
it is probably reasonable to believe that even more stringent control could
have been exerted.
An increase in street loans by banks represents an ex-
pansion in bank credit and the growth of bank credit is limited by the volume
of reserve funds available.
The expansion of such loans can, therefore, be
restricted by credit policy working through the existing channels of control.
It is not necessary here to discuss the question of the desirability of such
restriction at any given time in view of other less desirable consequences
that it night have.
Brokers loans made by non-banking lenders, on the other hand, are
not limited by bank reserves.
At the same tire loans by others represent
in effect a potential liability on the part of banks in that if such loans
are suddanly withdrawn, they must be at least partially replaced by bank
loans in order to prevent complete collapse of the stock exchance mechanism
and destruction of values back of bank loans.
Th)
- flow of non-banking funds
into the call loan mnrket is not subject to direct regulation by Federal
Reserve credit policy.
In order to control these loans without disruptine;
the whole credit system other methods must be found.
Before discussing specific methods of control, it is yell to
2
inv3stigate the mechanism of organization and operation of the security
others
collateral loan market, to determine the role of brokers loans for
et developin this mRrket, and to analyze the stock.-market and money.mark
ments of 1928 and 1929.
A. Organization and Operation of the Security Loan Market.
This Bank is already on record in Congressional documents in
regard to the organization and operation of the call"lon market.l.
The principal characteristics of the securit7 collateral loan
market are as follows:
(1) The Market, as it is generally conceived, is centered around
the New York Stock Exchange.
The types of loans on securities for which
statistics are available and their amounts on selected dates are
shown in
Table I.
1. Senate Document #262, 66th Congress, 2nd Session, March 29, 1920 -"Rates of Interest on Collateral Call Loans." See also testimony of
Governor Strong in the "Agricultural-Inquiry" and "Stabilization" hearings.
3
TABLE I. TOTAL REPORTED SECT'RITY LOANS
(In Millions of Dollars)
Oct. 3,
1928
Oct. 4,
1929
Sept. 24,
1930
onimInnim
To Brokers and Deniers in New York
Total
City
5,509
8,545
3)482
By Member Banks in Now York City
By Outside Mamber Banks
By Other Lendorsb)
880
1,019
3,610
1,096
789
6,660
1,714
758
1,010
274
6,646
320
8,109
175
7,864
850
5,796
939
7,170
774
7,090
12,429
16,974
11,521
To &mks by Mamber Banks
To Customers by Member Banks
Total
To Brokers Outside New York City
To Other Customers
TCTAL REPOIT
a)
b)
SECTTRITY LOANS
From Federal Reserve Bulletin, Novanber 1930, pages 660 and 763.
As computed by subtraction of member banks' loans from total
borrowings; includes also loans by non-member banks.
Loans by banks and other lenders to brokers and dealers in securities in
Now York City shown in this table represent funds advanced in the open
market for security loans.
The other senurity loans grow out of customer
and bank correspondent relationships.
It would appe r that brokers' borrowings
or so-called "street" loans, represented nearly 45 per cent of all security
loans in 1928, and 50 per cent at the maximum of such loans in the autumn
of 1929, but that in 1930 they declined to 30 per cent of the total.
Brokers'
borrowings totaled around three billion dollars in 1926 and the early months
of 1927, rose steadily to 8.5 billions in October 1929, and by
the end of
fop
4
September 1930, had declined to 3.5 billions.
At present they amount to
less than two billions.
There are two types of street loans -- demand or call loans and
time loans.
The former make up by far the larger part of the total, borrow-
ings by members of the New York Stock Exchange on demand ranged from about
68 per cent of the total in April 1926, to nearly 92 per cent from April to
October 1929.
Demand loans may be called the day after they are made but as
a matter of fact most of them are renewed;
ing for several years.
same call loans have been outstand-
Owing to the open market nature of the transaction,
the calling of loans involves no personal feeling on the part of either
borrower or lender.
In fact such loans are decidedly impersonal, resembling
more in this respect the purchase of bills or commercial paper which are
automatically paid at maturity than loans on security collateral to
customers.2.
It should be noted here, however, that often New York City banks
make loans to brokers, or more particularly to security dealers, that
are
regular customers and in these cases a customer relationship rather
than an
"open-market" relationship is likely to exist, carryina with
it an obligation
to care for the customers' ordinary requirements.
For some time New York City
banks have reported figures showing the portion of brokers
loans for their
own account that are made directly to customers.
These figures for selected
dates are as follows:
2
' For a thorough description of the organization
and operation of the New
York security collateral loan market sea T. E.
Meeker, "The Work of the Stock
Exchange," Chapter XIX.
•
5
TABLE II }POURS LOANS REPORTED BY NEW YORK CITY BANKS
(In Millions of Dollars)
Total for all accounts
Dec. 5,
1928
Oct. 2,
1929
Sept. 24,
1930
5,395
6,804
3,222
1,271
1,071
1,721
397
449
950
For own account:
Total
To customers
It can be seen that of all brokers loans made by New York City
banks for their own account about 40 per cent were made directly to customers
early in October 1929, and 55 per cent a year later.
The proportions to
total brokers loans for all accounts were about 7 per cent in October 1929,
and 30 per cent in 1930.
In other words most of the brokers loans at the
maximum in 1929 were non-customer loans, whereas more recently a substantial
portion has been for customers.
(2) The Borrowers of these loans are brokers and dealers operating
principally in New York City.
Most of them are members of the New York Stock
Exchange, although the reported street loans of member banks comprise some
loans to other brokers and dealers in New York.
Brokers and dealers borrow
to purchase and carry securities for customers and sometimes for themselves.
An increase in brokers loans generally indicates an inOrease in customers'
margin accounts and for this reason tha brokers loans figures are often used
as an index of speculative activity.
(3) The Lenders are divided for statistical nurposes into two
6
main groups -- banks and others.
The banks in turn may be subdivided into
(a) New York City banks and (b) outside banks.
The other lenders include
and
private banks, foreign banking agencies, corporations, other brokers,
individuals.
Figures showing the distribution of loans among these various
groups of other lenders are not available.
by banks and by others an
Fluctuations in brokers loans
compared with those of total brokers' borrowings
are shown in Diagram I.
Figures given above in Table I indicate that loans by others comprised nearly 70 per cent of all reported brokers loans in October 1928,
and about 78 per cent at the maximum in October 1929, while a year later
they had declined to less than 30 per cent.
In October 1228, outside banks
were lending more on the street than New York City banks, while in October
1929, the latter showed the larger volume of such loans, and in September 1930,
loans by New York banks were practically as large as the total of those by
outside banks and by others.
The dominance of loans by others during the
period of speculative activity in 1928 and 1929 is clearly indicated.
In
this connection see also Diagram I.
(4) Process of making loans. -- "Sec'irity collateral loans can be
and are negotiated in New York in three different ways;
inf:s between borrower and lender;
(1) by direct deal-
(2) through professional money brokers; and
(3) through the "money desk" system on the floor of the New York Stock
Exchange."3 No exact information is available as to how much is negotiated
through each of these various means.
Time loans are never made through the
money desk on the Exchange, but are made directly between borrowers and lenders
3.
Meeker,
he pork of the Stock Exchange," page 284.
t( •
)1.10
6a
t..e Nrw Yon. Stock Lxcnange, Si-Loving Amounts Suppliod
by Banos tiro A7.o.:L! S.44.1ed by Other Lenders
t UITA..lif76
BILLIONS OF DOLLARS
10
BROKERS BORROWINGS
NY STOCK EXCHANGE
F,
I
,-+
'
I'
•
•1`.•--.
1
.
e/
• 7
•
.
dr.
....
I
/'
•,..
•
....fe.d
BROKERS LOANS
BY BANKS
.0.% 0010
•ii
...
\•,..
••
•
••
'
L
••
•11 ",
#•
•-•
•
•
•
•
4•
i
I
woo+
•
NI
%
tilli%
...0
..,,,,
%
%4i
BROKERS LOANS
FOR "OTHERS'
1927
1926
ty
:
.5tor.,ere
4*
.
N
1928
1929
1.930
ty!:tsw Yon( Meier rei.ks f or their
.de icar.s
for the
:atter ii:c:,AdIne,
-t c,w!. tams ,
r
placed
loar.e
Luars for w otr.ers" include
a:.3 a:so rQrrow/r.gs cf Stock Ex7Crri
Z.L ere (ro:: 5orce3 ot.er tr.ah. New 'fork banks).
DIAGRAM I.
7
A large part of new call loans are made through
and through money brokers.
the money desk of the Exchange, althow-,h there is considerable variation in
this proportion depending upon the relation of rates fixed on the Exchanr7e to
those prevailing outside.
.ost of the outstanding call loans, however
1.1
oriqinally made, are renewed each day at the renewal rate posted at the money
desk.
Funds offered at the money desk must be presented by a member of
the Exchange.
Bankers and other lenders having funds to lend arrange with
member firms to offer them.
Call loans are generally made under general or
"blanket" loan agreements kept on file with lending institutions and the only
specific evidence that the lender has of any individual loan appears on the
security collateral envelope that he receives from the borrower.
Borrowers
upon notification that a loan has been arranged delivr collateral to the
lender and obtain the funds.
The lender or the lending agency and the borrow-
er deal directly with each other in calling and paying off the loan.
If
desired, the payment of money and delivery of securities in making or paying
"Mb
the loan may be effected through the Stock Clearing Corporation.
For this
purpose financial institutions may become "lending members" of the Stock
Clearing Corporation.
Through this organization a lartee volume of unnecessary
transfers of securities and of funds is eliminated.
(5) Lending Agencies. -- A large proportion of brokers'borrowings
are obtained from New York City banks
count or
that may lend funds for their own ac-
or the account of correspondent banks or customers.
Of the total
borrowings of members of the New York Stock Exchange, the part negotiated by
•
8
New York banks and trust companies in recent years ranged from a maximum of
87 per cent in March 1926, to a minimum of about 82 per cent in Tuly 1029.
In 1930 this ratio rose to above 89 per cent.
The remainder wan
obtained
directly from other lenders or through other arencies.
In ne7otiatin7 these loans New York City banks may, as stated
above, lend funds of out-of-town correspondent banks, or of other customers.
The proportions of their loans represented by these different classes varied
as follows during the period 1926 - 1929:
TABLE III BROKERS LOANS BY NEW YORK BANFS
Proportions for different accounts
MEND:112.4
LIAX311U11
1926
14% -- October
1929
For own account
43% -- Tune
For account of out-of-town
banks
44% -- March 1927
185'0 -- November 1929
For account of others
59% -- Octoter1929
18% -- January
1926
In 193C loans for own account rose to 60 per cent, whilo those for out-of-town
banks declined to 12 per cent and those for others to 19 per cent.
Loans for the account of others reported by New York City banks do
not include all loans made by non-banking lenders.
In addition loans are ob-
tained directly by Steck Excthanrre members and reported by them and also the
loans made by New York banks nominally for out-of-town banks have also included at times a substantibl volume of loans for others arranged by these
banks through their New York cornespondents.
It is possibla to estimate the
amounts of the last group of such loans at member bank call report dates.
9
TablP TV shows the total of New York Steel: Exchange members'borrowings, loans
by member banks, and loans by others at reporting dates nearest the call report
dates, with the distribution of loans by others among those obtained directly
by New York Stock Exchange members, those reported by New York City banks for
the account of others, and those made for others by outside member banks
through New York City banks.
TABLE
rv
DISTRIBUTION 07 BROKET3 LOANS ,RY LlirDr'q AGErCIES
(In Millions of Dollars)
Oct. 3,
1928
Oct. 4,
1929
Sept. 24,
1930
Total borrowings of New York Stock
Exchange members a)
5,514
8,549
3,481
Street loans by member banks
Brokers loans by other lenders b)
1,899
3,487
1,885
6,416
2,472
1,168
866
1,958
663
1,472
3,907
1,037
425
719
24
Reported by New York Stock Exchange c)
By New York banks for accoun of others d)
By outside banks for others 0/
a)
b)
c)
d)
e)
For nearest end-of-month dates. Chiefly because of differences in
reporting dates the figures for total borrowings do not equal the
sum of the groups following.
Totals of sub-groups following. Chiefly b)cause of differences in
reporting dates these totals do not agree with figures given in
Table I.
For nearest end-of-month dates.
For nearest Wednesday dates.
Estimated by subtracting call report figures of street loans for
own account from nearest weekly reporting bank fieures of brokers
loans by New York banks for the account of out-of-town banks.
At the beginning of October 1D'), when loans for others
as well es
total brokers' borrowings were at a maximum, loans for others made up over
three-fourths of total brokers loans;
this mount was subdivided as follows:
•
10
those reported by the Stock Exchange, 23 per cent of all loans by others;
those made by New York City banks fol. the account of others, 61 per cent; and
those made by outside banks through Nev; York banks, 16 per cent.
Taking the last two groups together, it seems that, at the maximum,
77 per cent of all loans for others and 58 per cent of all brokers loans
represented loans for others negotiatei by New York City banks.
In October
1928, when such loans were more moderate, although large, they emounted to
48 per cent of all brokers loans, while by September 1930, they had declined
to about 20 per cent of the total.
Loans obtained by Stock Exchange members directly from private banks,
brokers, foreirm banking arencies, corporations, etc., amounted to less than
400 million dollars or 13 per cent of all brokers'borrowings in the spring of
1926, rose to over a billion dollars by the end of 1928, and on September 30,
1929, reached a maximum of nearly a billion and a half dollars.
192a
From August
to July 1929, the percentage of this group to total brokers'borrowings
increased from 14 per cent to 18 per cent.
As this
Was
a period of attempts
to restrict the growth of brokers loans these comparisons indicate the extent
to which other sources of funds less subject to control were tapped.
Despite
the increase in loans from these sources, it is clear that the majority of
brokers loans continued to be negotiated through the agency of New York City
banks and trust companies.
It is true that most of the funds came from othor
lenders but there may be some question as to how many of such funds would have ,
been placed in call loans had there not been such reliable and trustworthy
institutions to act as agents in the transactions.
B.
Relation of the Call-Loan Market to Other Branches of the
Money Market
The New York call -loan market is a distinctive institution and no
11
other important money center has a similar market so organized and so thorourhly developed.
(1) Evolution of call-money market. -- Explanation of the development of the New York market lies in the monetary and banking history of the
country.
Its evolution has been attributed to two factors (1) the absence
of a market for short-term funds, such as was filled by the bill market in
other centers, and, on the other hand, (2) the demand for capital in this
country which encouraged the growth of the stock exchange to a position of
importance.
In short, according to this theory, the country needed long-term
funds for the development of domestic industry relatively more than it needed
short-term funds for the financing of trade and commerce.
4,
Before the war
our foreign trade, which requires short-term funds, was largely financed in
other money centers.
(2) Market for surplus funds. -- Traditionally only surplus short
funds were used in the call-loan market.
"In the matter of the supply or attraction of funds to the callmoney market, there is generally a definite and well understood obligation
on the part of banks to accommodate first their own commercial clients, so
that it is only the excess of loanable funds which thy may hav'e from time
to time that is available for the collateral call-money market or for the
purchase of commercial paper in the open market. This excess of loanable
funds available for employment in the securities market varies, therefore,
according to the commercial requirements of the country. It has long been
recognized that for assurance of a sufficient amount of money to finance
the volume of business in securities, reliance cannot be placed on a rate of
interest limited to the rates which obtain or are permitted in commercial
transactions whose prior claim on banking accommodations is universally conceded." 5
.
4.
See Meeker, Op. Cit. Chapter XI.
5.
Senate Document #262.
Op. Cit. p. 6.
•
12
re the organization of the
(3) Relation to bank reserves. -- Befo
the reserve funds of country banks
Federal Reserve System a large part of
funds were used by the New York
was deposited with New York banks. These
banks at will;
to sudden withdrawal, they
generally, however, being subject
were put into the most liquid possible use.
in part to fill this need.
The call-money market developed
themselves with
At times when outside banks found
nces, or part of them, loaned on call
surplus funds they would have their bala
er yields than were paid by New
for their own account, thus obtaining high
York banks on deposits.
and surplus funds in call
This custom of keeping bank reserves
et, particularly sensitive to relaloans made this market a "marginal" mark
demand for funds. The strain that
tively small changes in the supply of and
reserves and its relation to
this feature of the market placed upon bank
ussed here.
earlier financial crises need not be disc
rve System. -- Under the
(4) Call loans under the Federal Rese
ely
the New York money market was larg
operation of the Federal Reserve System,
of
bank reserves of the country and
relieved of the burden of carrying the
d
commercial loans were given preferre
its attendant dangers. At the same time
disFederal Reserve Act provisions for
status over loans on securities by the
en the relative desirability of call
countable paper, and this tended to less
loans for the employment of bank funds.
rve
As a result under the.Tederal Rese
od of years averaged somewhat higher
System calleqoan rates have over a peri
they did in pre-Federal Reserve
relative to other money-market rates than
days.
part for reasons given below the
In part because of higher rates and in
s has, however, shown no reduction.
proportion of bank funds in street loan
13
As a result of the ease with which funds could be placed in or
withdrawn from call loans, this market continued, in effect if not in
theory, to be a highly liquid and a useful medium for carrying secondary
reserves.
In fact there has probably been some increase in the popularity
of call loans as secondary reserves and a growth of tha feeling that good
banking practice required the keeping of some funds in this market regard6.
Such a practice, if widespread, would seem to be
less of other demands.
contrary to the traditional idea, previously mentioned, that only surplus
funds found their way into the call loans after commercial requirements had
been given first consideration.
As a matter of fact the call-money market
may be said to fill both functions.
Other reasons that have been given for the increase in street
loans by banks from 1923 to 1927 were on the one hand the growth in bank
resources and on the other hand the changel financial policy of corporations
whereby short-term indebtedness was considerably reduced.
As R result the
banks had surplus funds which in accordanco with customary banking practice
were placed in security loans.
6. On this point see testimony of Prof. Sprague in Hearings before the
Senate Cammittae on Banking and Currency on the LaFollette Resolution,
Nhrch 7, 1928.
14
C. Summary of Developments in 1928 and 1929
Brokers loans increased rapidly from the end of 1921 to the
end of 1927, with temporary declines in 1923 and 1926.
the control of this growth was a banking problem.
The problem of
Most of the increase
occurred in loans by banks, while loans by others were apparently moderate in amount and showed only a small growth.
(See Diagram 1-.)
Early
in 1928 steps were inaugurated to limit the expansion of brokers loans.
Federal Reserve credit policy which during the latter part of 1927 had
been directed toward ease in the money market was reversed.
In the first
quarter of the year the discount rate of each }servo Pank was raised
from 3.5 to 4 per cent and United States security holdine.s of the Reserve
Panks were reduced by 100 million dollars.
Brokers loans by banks were reduced.
(See Diagrams II and III.)
The rise in share prices was tempo-
rarily checked, but later, rising money rates attracted funds for brokers
loans from other lenders, and with this support the rise in share 7rices
was resumed.
In the second quarter of 1920 followine: a renewed increase in
brokers loans by banks, the
another half a point.
esarve Panks raised their discount rates
Banks again reduced their brokers ions and share
prices showed some recession.
Under the influence of reeneral liquidation
- rve T'ank rate inof bank credit, furthered in July by another set of Res 3
creases, the stock market continued irregular until the middle of August.
Money rates became steadily firmer and loans by others attracted by the
hiizhir rates continued to expand, offsetting the decrease in bank loans.
.
FZ:
10 •
DIAGRAM II
CALL MONEY RATE
RENEWAL
till4, CR/
;IA ,
F. R. BANK DISCOUNT RATE
1926
1927
1928
1929
1930
RESERVE BANK CREDIT
Millions of DoIlara
2000
Total Bills
dnd Se(motes
1500
DIACRAL: III.
S
WEEKL,
' REPORT DATE FIGURE!:
1000 •
silts Discounfa
U.
500
Bills bought
0
1926
1927
1928
1929
1930
•
15
A sharp rise in share prices bes
,an in August 1028, and continued until the
end of November with exceptional stock market activity
accompanied by increases in brokers loans be banks, as well as by others.
(See Diagrams I, IV and V.)
The increase in loans by others occurred
despite attempts by New York banks to restrict such loans.
In Aurust the
charge for placini. loans for other lenders was changed from 5 per cent of
the interest received on the loan to one-half of one per cent per annum,
a revision which resulted in a higher charge when the interest rate was
below 10 per cent.*
Bank credit expansion in this period was based upon
reserve funds supplied by Federal Reserve bill purchases, especially in
November after the peak of the autumn commercial dmanls had been passed.
(So J Diagram III.)
Call-money rates, however, continued to rise.
Early in 1929 efforts were renewed to restrict the growing
volume of stock-market loans, the effects of which were being felt throughout money markets abroad as well as in the United States.
Warnings were
issued by the Federal Reserve Board, and there was considerable public
agitation in favor of restriction of stock-market activities.
Reserve
i9ank action took the form of increase in bill rates end moral
suasion on
member banks to curtail the volume of stock-market buns.
There was a
rapid retirement of Federal Reserve credit extended through the
bill
market and a corresponding increase in member bank indebtednes
s.
gram III.)
Share prices showed wide fluctuations during the first
five
* In addition
any one lender.
(Dia-
a minimum of $100,000 was required on loans placed
for
Brokers Loans Fai ort•d t y !.ew York City Veer Banks r c.mpared with Stavderd 3tat.stics Comi.af y indexes
of Stoop rlo ti e
Y
INDEX
250-
•
200I
va
%/
DIAGRAM IV.
111 ki\
BROKERS
LOANS
Pt 1
I I
D./STOCK PRICES
cj
AI
r-1
(404
STOCKS)
150-
1001-
(1926- 100)
50
1926
1927
1928
1929
1930
110.4....N.6 Of Trlid
Ytore. 5t .,c
-f
•
(
./r.11..Y.E.s; 1)24
erItnt;
I NDEX
400r --
1,1,4
NUMBER OF
SHARES SOLD
i.
n i
'
%, ii "
I
i .1,
300
1 I
I I
z i
i II
"
i t 1 II
i
I
I
ik
I ‘,1
I
200
I
i
t I
I I
I I
.4I
/ \i
r.....•
i
II
II
II
it
t
1 I
f
II 1 i I
ll II
11 t I I
I
tt
I
I I
I 1
1
I
I
I
I
I
1
I /i
I,
1
1
i
I I
I
I
I 8
1
Ir
iI
NUMBER OF
1 SHARES LISTED
it
it ,
/ ti
t s •
ivI
100
0
1926
1927
1928
DIA1_-7AM V.
1929
1930
•
16
months of the year and there was some reduction in stock-market activity.
(Diagrams TV and V.)
Street loans by banks were reduced by about a billion
dollars to the lowest level in two years;
loans by others increased by a
billion dollars in the first three months but showed little further
growth in April and May.
(Diagram I.)
There were wide fluctuations
in call-loan rates, and on two or three occasions rates rose over 15 per
cent at which level funds were offered by New York banks and the rises
were checked.
In May share prices and brokers loans declined and at the
end of the month were at about the same level as at the beginning of the
year.
(Diagram TV.)
This led to some hope that the expansion of stock-
market activity had been finally checked.
The relatively low level reached by share prices, brokers loans,
and call-loan rates at the end of May was followed in June by a new buying movement.
The rise in share prices was accompanied by a substantial
increase in brokers loans by New York City banks.
Heavy stock market
demands for credit together with mid-year settlement needs caused a
sharp rise in call-loan rates despite the large supply of funds offered
by New York City banks.
In July an abundance of l'unds from other
lenders began to come into the market, and, following Yew
York Federal
Reserve Bank action on August 9th in increasing its discount rate from 5
to 6 per cent and lowering its bill buying rate from 5 1/4 per cent to
5 1/8 per cent, bank loans to brokers decreased.
The rise in share prices during the summer months was more rapid
than all previous rises, as was the increase in brokers leans.
TV.)
(Diagram
In the third quarter of 1929 total brokers loans increased by a
17
billion and a half dollars, rractically all of which represented loans
by others.
An unusually large volume of new stock Issues at this time --
aggregating a billion dollars in September alone -- provided fluids which
were in large part placed in brokers loans, but at the same time the sale
of these securities put a heavy strain on the absorptive powers of the
market.
Note the increase in shares listed on the New York Stock Exchange
shown on Diagram V.
Share prices weakened in September, while brokers
loans continued to increase.
In October share prices turned definitely downward, and in the
last week of that month and the first half of November there were a series
of severe declines which carried th: price averages to a level ebout 40
per cent below the high level reached at the bou,inning of S:ptember.
Brokers loans showed no decrease worthy of note until the last ten days
.
7
of October when nearly three billion dollars of funds were withdralAn from
stock-exchange loans by out-of-town banks and other 13nders, and New York
banks had to rush to the rescue with nearly a billion dollars in order to
lesson the severity of the crash.
The Reserve Banks aided with security
purchases and discount rate reductions.
The relative ease of money throughout October and the fact that
brokers loans did not decline until after the fall in share prices would
• This three billion dollars deserves explanation, as the weekly figures showed a decline of a little over two billions. The assumption that
the October decrease of 675 millions in loans by others reported by the
Stock Exchange practically all occurred at the end of the month raises
the total to nearly three billions.
•
18
indicate that the price break was not initiated by any withdrawal of
funds loaned on the stock market.
Events abroad and the rise of for-
eign exchange rates indicate that foreigners were probably liquidating
their American stock holdings.
Business at this time was beginning to
show definite signs of recession and commodity nrices had turned downward.
In 1930 brokers loans declined further, interrupted by a rise
in the spring.
to customers.
In part loans to brokers were replaced by security loans
Loans by others declined steadily throughout the year,
reaching almost negligible proportions, and banks, especially New York
banks, again became the dominant source of funds for the security loan
market.
D. Polo of Loans by Others in 1928 and 1929
Fran the preceding summary of events, it is apparent that loans
by others were dominant influences in the stock market-activity of 1928
On several occasions restrictions placed on brokers loans of
and 1929.
banks by Federal Reserve credit policy, by other money-market developments, or by the banks themselvs were nullified by an expansion in loans
by oth3rs.
This occurred early in 1:428, again in April and ivi.hy and in
7u1y and August of that year, in the first quartr of 129, end finally
in August and Septamber of 1929 when the increase in loens by others
seemed completely out of control.
At times attempts were made by Now York banks to control the
volume of loans by oth:rs -- commission charges ITare raised and such loans
•
19
were discouraged.
These efforts were apparently ineffectual.
At one
time such effect as they may have had was nullified in part by a more
rapid increase in loans by others placed through Stock Exchange members.
There were times, however, when withdrawals of loans by others
were temporarily replaced by bank loans, and either developing stock
market weakness was averted or a rise was given support.
This occurred
especially at important end-of-quarter settlement dates.
Striking ex-
amples were at the close of the first quarter of 1928, the mid-year 1928,
the end of 1928, and the mid-year 1929.
The last instance gave support
to an incipient rise of share prices which with later support from loans
by others was destined to reach previously unequalled proportions and to
end in the stock market crash of October 1929.
Question may be raised as to the source of the enormous volume
of funds employed in brokers loans by others.
Although little information
on this point is available, it would appear that a large part if not most
of them, came from domestic corporations -- financial and industrial.
Loans to brokers for foreign agencies were probably small relative to the
total, although a large volume of foreign funds came into the American
money market through the purchase of securities and acceptances, attracted
in the first instance by the opportunity for profit and in the second by
high money rates.
Loans were also made by individuals, private banking
houses, and other brokers.
The abundance of corporation funds in brokers loans was due to
corporation financial policy in recent years in accumulating large cash
reserves and the ease with which new securities, especially stocks, could
20
be issued.
New security issues, excluding refunding by domestic cor-
porations, increased steadily from 2,600 million dollars in 1923 to
over 5,300 millions in 1928 and nearly 8,000 millions in 1929.
Of
these 2,200 millions in 1929 were for investment companies, designed
for the purchase of securities.
Many of the investment companies'
funds, held awaiting investment, and those of other corporations, not
immediately required in business, were placed in brokers loans.
This
was undoubtedly an important source of funds for loans by others in
the summer and early autumn of 1929 when new stock issues were unusually
large, call-money rates high, and stock prices rising to levels where
investment purchases were hardly prudent.
The heavy stock issues in
September probably strained the absorptive capacity of the stock
market and were a factor in the price weakness then developing and at
the same time provided funds for the increase in brokers loans which
continued until early October.
The continued high levels of brokers
loans and the decline in money rates during the first three weeks of
October are probably also indicative of the abundance of funds being
offered on the money market.
E. Objections to Brokers Loans by Others
Dangers growing out of such developments as those of 1928 and
1929 are indicated by the final turn of events.
In defense of the call-
money market, it has been correctly said that the market has grown up as
a result of certain demands of the American economy and is inherent in
our credit and banking system;
that call loans are, on the whole liquid,
21
as funds can be withdrawn quickly at will;
that call loans are safe, in
that there is, at least in recent years, no record of a loss by a lender;
and finally that for these reasons the call-loan market provides a well
organized, convenient, and useful medium for the employment of momentarily
idle funds and for secondary bank reserves.
It is also pointed out that
the market performs a legitimate function in supplying short-term funds
needed in the distribution of securities and in providing a continuous
market for securities.
It may be said, on the other hand, that largely because of the
smooth operation of the New York call-loan market, investment and speculative activities in this country have available for use a greater supply
of short-term funds than can be obtained in any other country, and that
consequently, these activities have become considerably over-emphasized.
Speculation in securities is encouraged, with all the attendant dangers
that excess speculation entails.
The liquidity of call loans has also
been questioned by some -- in the first place they are not automatically
self-liquidating as are loans based on certain commercial transactions,
and in the second place, in periods of excess speculation a large volume
of such loans cannot be called without destroying the values behind those
remaining.
In fact, however, under present conditions such loans can
always be quickly liquidated, as is amply illustrated by events in 1929,
when the possibility of difficulties was more likely than under any other
conditions that may reasonably be imagined.
22
Another danger in over-expansion of brokers loans is that in
high
periods when speculation has gained momentum call loans will bring
tive
rates and thus raise rates in other money markets to levels prohibi
for some industries needing to borrow short-term funds.
Corporations may
e of shares but
at such times obtain funds readily and cheaply by issuanc
funds or dethose branches of business requiring short-term commercial
penalized.
pendent upon bonds and mortgages for their financing are
brokers loans is
Another objection to a large and sustained increase in
capital to corporthat short-term funds are in effect being used to supply
an overations by enhancing the market for new security issues end thus
expansion of capital equipment is encouraged.
in the
The growth of loans by others to a position of dominance
mis-uses of
call-money market raised some new questions as to the uses and
call loans.
s
In the first place, these loans from outside defeated attempt
brokers;
to cortrol speculative activity by limitation of bank loans to
thus
secondly, as mentioned in the beginning of this memorandum, funds
obtained were not subject to direct control by bank credit policy;
and
thirdly, they imposed a potential liability on the banking system to prevent
the collapse of the market in case of their sudden withdrawal.
In the fourth
momentarily
place, although previously such loans had been made chiefly from
attracted
idle funds, in 1928 and 1929, it seemed evident that lenders were
to the market by high rates prevailing.
As a result, funds were drawn from
large volume of
other uses, there was a general rise in money rates, and a
stringency abroad.
foreign funds were attracted to this market, causing severe
•
23
Finally, a large part of such funds came from new stock issues,
thus setting up a circular inflationary process whereby share values were
increased and new issues were floated on the basis of loans the funds for
which were derived from stock issues.
Such a system became largely self-
contained with little direct effect upon other branches of the money market.
Although some sellers of securities used their receipts for business or
personal purposes, the larger volume of funds handled wan
stock market as loans to brokers.
returned to the
The net effect of these transactions
was the swapping of existing bank deposits,
no new bank credit was created
and in effect there was no net flow of funds into industry and trade.
There was, however, a tremendous inflation of the stock market, which was
destined to end in a severe crash with all of its attendant dangers to the
credit system.
This made it necessary for the banks, especially in New
York, to be kept in an unusually liquid condition in order to take care
of the demands at the time of the crash.
F. Methods of Control
Various ways of preventing the growth of brokers loans to
dangerous levels have been suggested.
Most of them involve working
through the banking system and vary from stringent credit policy with the
conventional tools of discount rate and open-market operations to moral
suasion.
It was stated at the beginning of this memorandum that it would
probably be possible to control bank loans by a severe credit policy, if
the advantages were not outweighed by possible ill effects on oth,)r users
24
of bank credit.
Experience has shown, however, that loans by others may
replace the bank loans and these loans are potentially more dangerous
and less subject to control than bank loans.
It my be possible to con-
trol these loans indirectly by credit policy but it would probably be at
the cost of severe disruption to the entire credit system.
There are three general approaches to control of brokers loans
by others:
(1) Limitation of demand -- this may be accomplished by some
means of control over speculative activity in general.
(2) Limitation of supply -(a) By curtailing the flow of outside funds to the callmoney market through attraction to other money markets.
(b) By restriction of excessive new stock issues.
(3) Control over the money market mechanism that brings supply
and demand together.
The first means of approach deals with speculation and with
brokers loans in general and is not confined to loans by others.
This
problem is partly one of mass psychology, partly one of business cycle
control, and partly one of more stringent banking and stock exchange
regulation over the machinery of speculation.
There are undoubtedly many
restrictions that can be placed on stock-exchange operations and on banking practices in connection with the stock market that would prevent
abuses and curtail excessive speculation.
These might be effected through
Stock Exchange regulations and banking rules.
25
The second means of control involves an investirration into
sources of funds loaned to brokers by these other lenders.
These
funds
came largely from domestic corporations -- financial and industrial -and grew out of the policy of accumulating large cash holdings and the
ease with which new securities could be issued.
These might be con-
trolled by stringent credit policy which would require the use of surplus
cash or by reducing profits prevent its accumulation or which would depress the market for new securities.
Some control could be exercised
through policy of issuing houses in regard to new security issues -periodical reports as to the size of their inventories would be useful.
Inv:stment trusts and similar organizations might also bettor regulate
their operations both in selling their own stock and bond issues and in
the use of their funds.
The operations of bank security companies in
the stock market are not publicly known;
publication of statements by
these companies would at least provide information in regard to their
practices and probably discourage speculative practices.
The third approach would work through the mechanism of organization and operation of the security collateral loan market.
In this
connection, the banks themselves might place stricter re7,ulet1ons around
these loans.
Although higher commission charges proved rather ineffective
in 1928 and 1929, more radical advances in charges when the volume of such
loans increases and money rates rise might be more effective.
also that some banks did not discourage these loans.
It is likely
Banks might also
exercise stricter requirements in regard to borrowers, for example, in
respect to ratio of capital to borrowings.
•
•
26
One suggestion for control of the mechanism of brokers loans
call loans
is that a tax be placed on call loans or more specifically
Besides administrative difficulties, this measure would have
for others.
ctions and unthe disadvantage of taxing sound as well as unsound transa
money rates were
less the tax was very heavy might not he effective when
high.
nt in this
The experience with higher commission charges is releva
connection.
could be exerIt is entirely possible that effective control
New York banks.
cised by collaboration of the Stock Exchange and the
e that members obtain
Stock Exchange regulations could be revised to requir
by agreement or by
loans only through banks and the banks in turn could
pondent banks and
Clearing House rules limit their street loans for corres
others as well as for own account.
This may be done by high commission
handled for any borrower,
charges, by limitations on the amount of funds
or by simply refusing to make the loans.
Such a scheme would have flex-
needed or increased
ibility in that restrictions could be relaxed when not
when the situation demanded.
-- the
Another specific means of control has been suggested
loans for nonpassage of a law prohibiting member banks to make brokers
banking lenders.
These nroposals for voluntary limitation and for statutory
prohibition will be more fully discussed.
of all funds
It has been pointed out that from 80 to 90 per cent
companies,
borrowed by brokers are obtained from New York city banks and trust
and customers.
lending either their own funds or thos9 of correspondent banks
27
At the peak of brokers loans in 1929, 77 per cent of all loans for others
and 58 per cent of all brokers loans represented loans for others negotiated
by New York City banks.
If these loans could have been prevented or
limited, alory: with the limitation of bank loans, the total of brokers
loans would have remained within moderate limits.
Three principal objections may be raised to absolute prohibition
of such loans.
(1) It would make it difficult for corporations and others
to find a liquid and convenient use for momentarily idle funds; (2) it
would prohibit an important, and on the whole, useful service that banks
perform for their customers;
and (3) it might result in driving this type
of business into other agencies more dangerous and less subject to control than member banks.
As to the first objection, it may be said that corporations
and others could invest idle funds in acceptances or in short-term government securities.
This practice is already followed b7 a number of leading
corporations, and undoubtedly could be carried much further.
Support to
any movement in that direction would be, on the whole, beneficial, as
would also some limitation on the practice of putting idle funds in brokers
loans.
It may be questioned, however, whether the short-term bill marl:ets --
for acceptances or !-overnments -- would meet every need.
example, are difficult to arrange.
Maturities, for
If a call-loan market on the basis of
acceptances and government securities in addition to stock-exchange securities could be developed, the importance of stock-exchange call loans
might be diminished.
Under present conditions, howaver, although some
28
limitation of call loans by others would be desirable, absolute and
camplete prohibition might not be advisable if it could be avoided.
Some corporations find this market exceedingly useful and under ordinary
conditions such employment of corporation funds in moderate amounts is
not dangerous.
In the second place, such a law would place an additional
restriction upon membership in the Federal Reserve System.
Banks per-
form a useful service for customers in investing their temporarily idle
funds for them.
Some banks might object to giving up this business as
it helps them to keep their customers.
some advantage from such a restriction.
Banks, of course, might obtain
Idle funds, if not invested in
short-term bills, would probably be kept as bank deposits and therefore
left under control of tha banks.
The third objection is perhaps the most important, because it
concerns the probable effectiveness of the law.
It is claimed that be-
cause of the existing bank-customer relationship, because of the reliability and trustworthiness of banks, and because of their ability to
handle the transactions, customers will not be likely to intrust their
idle funds to other institutions to place in call loans.
Loans may be
made through brokers but the liability of brokerage houses, especially
in times of great speculative activity, can not be relied upon to the
same extent as that of banks.
Little assistance in determining the probable effectiveness
of this prohibition can be obtained from the experience with loana arranged through other channels than banks in 1928 and 1929.
When New
29
-pork banks raised their commission charges in September 1928, there was
for a few months a more rapid growth in loans by others reported by the
Stock Exchange than in those made by banks.
The former, however, never
amounted to more than 18 per cent of all brokere3 loans.
It is likely
that as long as banks could make the loans, especially sinc3 the charges
after the increase wer
small relative to total returns, lenders would
rather loan through banks than throuh brokers.
This does not indicate
what would happen in case the banks were prohibited from making the loans.
Certain possibilities come to mind.
New institutions could be
formed to handle this type of business -- they might be formed by brokers,
by the banks themselves, or by any other group.
Finance or trading compa-
nies or the security affiliates of banks might handle the business.
Un-
doubtedly the activity of nonmember banks in this regard would be stimulated.
The test of such a prohibition would come in the next period of
speculative activity and growing demand for brokers loans.
If customary
channels are restricted, rates would rise somewhat more rapidly than
ordinarily.
This might, on the one hand, serve to check- the expansion of
speculation and thus accamplish the purpose desired.
On the other hand,
the higher rates might encourage the "bootlegging" of funds of non-banking
lenders through new channels.
If this should occur to an appreciable ex-
tent, the tendency would be more difficult to control thin if banks made
the loans.
The previous proposal of voluntary cooperation b(Aween the Stock
30
EXchange and New York banks in revising their rules so as to confine
Stock Exchange borrowing to banks and to limit banks in lendinr for
others might be a more effective remedy than the proposed prohibition
on banks.
It would accomplish the purposes desired and might lead to
the development of other markets for temporarily idle funds and secondary
bank reserves, yet at the same time it would not under ordinary circumstances deprive corporations of a use for their funds or banks of the
business of handling such funds, nor with Stock Exchange cooperation would
the possibilities of "bootleggin,;" be as great.
April 11, 1931.
Hon. George L. Harrison,
Governor, Federal Reserve Bank,
New. York, N. Y.
Dear Governor Harrison:
Please accept my thanks for your letter
of April 10 and for your courtesy in sending me a copy
of the memorandum prepared by your research department
on the general question of brokers' loans, for the use
of Senator Glass' Committee.
I have read the memoranm.
dum with much interest.
Very truly yours,
Eugene Meyer
Governor.
May 1, 1931.
Mr. Lionel D. Edie,
60 East 42nd Street,
New 'fork City.
Dear Sir:
In the absence of Governor Meyer, I acknowledge the receipt of your letter of April 30.
The
Governor is out of the city for two or three days,
and I shall be glad to bring the letter to his attention upon his return.
Very truly yours,
Secretary to the Governor.
Sixty Last Forty-Second Street
New York City
April
Thirtieth
1931
My dear Governor Meyer:
It would be appreciated if you would
add the two following names to the list of those
signing the Memorandum on Federal Reserve Policy
sent to you by wire on April 28, 1931:Virgil Jordan,
L.C. Marshall,
The Business Week
Johns Hopkins
Very truly yours,
Mr. isugene Meyer,
Governor i'ederal Reserve Board,
Washington, D. C.
CONFIRMATION OF TELLGRAM SENT
New York,
April 28, 1931.
Mr. lugene Ieyer,_
Governor Federal heserve Board,
Zashington, D. C.
The undersigned desire to submit to the meeting of
Governors the following memorandum on Federal deserve policy
QUOTE
(Here insert attached memorandum)
UNUOTE
Professor J. F. zbersole, of Harvard University,
while not signing the memorandum, approves the expansion of
open market purchases by Federal Reserve Banks now as we have
enough liAlidation in comtodities and probably otherwise.
Th, following approve unconditionally:
Agger,
E.
harry Gunnison Brown,
John H. Cover,
John R. Commons,
Lionel D. Edie
W. I. King
H. L. heed
J. Harvey Rogers
alter E. bpahr
Charles li. 6tewart
G. F. Warren
John Parke Young
Rutgers University
University of Missouri
University of Chicago
University of Vdsconsin
Nev York University
Cornell University
Yale university
New York University
University of Illinois
Cornell University
Occidental College
RECEIVED
1931
OFFICE OF
THE
Vr4;r4
op..,...imwoftemm.m. Ncol,
TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
151 -17
RECEIVED AT WASHINGTON, D. C.
7ewyork
"pr
• 7,wL,.ene Tl'eyer,
Go-ernor Federal Reserve TIoard -reshn
The Pndersigned desire to submit to the meetinf: of Go- rnors
the following memorandum on 7ederal Reser-e poicy.
liote (Pages 1,2,and 3) uncluote,
Professor J F Ebersole, of Harvard university, while not signing
the memorandum, appro-es the expansion of open market purchases
by 7ederal Reserve Banks now as we have enough liquidation in
commodities and probably otherwise.
The following approve unconditionally
E E Agger, Rutgers. University
Rarry Gunnison 'Rrown? university of iTissouri
John F r;over Trni7ersity of Chicago
John ID, Commons, T-ni7ersity of 7isconsin
Lionel D Edie 7 I King NewYork Uni-ersity
F T. Reed corner_ University J Harvey Rogers Yale Uni-Ter3.ity
7alter E S.
ue7Tork Uni-ersity
charles T qtewart Universjty of Tlajnois
G F 7arren cornell Univer-sity.
John Parke young Occidental College.
From time to time questions have been raised as to what contributions
can be made by eceonamists to the fundamental problem of reco-ory
frS m the present depression. The Undersigned economists
find a
meetinf-: of their mindc on certein fundnmental phases of credit
policy and hope that a statement of their views may be submitted
0 .I'
fILINTIVI• onscrin
Int
2-111101
TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
RECEIVED AT WASHINGTON, D. C.
- -
for the attention of 7ederal Reserve Officials in a spirit, not of
attempting to force their ideas on anyone, but rather of attempting
to brinil. to the attention of the constitutea authorities the
convictions of a group of economists.
7e believe that there are two problems of credit policy of fundamental importance: 7irst, the emergency problem of utilizinr, credit
policy as a means of furthering recovery from the current depression.
Second, the definition of an on-going credit policy cy:er an extended
period of time.
7ith regard to the first type of problem, we belie-e that a stage
has been reached in the depression when a broad plan of credit
expansion is urgently desirable, To the extent that gold inflow or
other factors tending toward an increase of member bank reserve
balances do not supply such expansion, we believe it should be
supplied by open market purchases of Go7ernment securities, undoubtedly many of the member banks would feel that such an expn,lion
was flooding them with excess funds at a time when they already feel
over-burdened with idle money. Tiowever, we do not belie-e that the
spontaneous attitude of the private bankers is justified from the
broader economic standpoint. -Tram this standpoint, we 'celie-e the
fundamental consideration is that deliberate policies should be
adopted to arrest the momentum of contraction and liquidation which
has already become acute and which does not show signs of beinr,
o, imminent, name 111/11el: 1014
11.4/901
TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
RECEIVED AT WASHINGTON. D. C.
terminated by other factors. 7e have gi-en due attention to
historical precedent and to economic theory in arriYing at this
opinion. Tt is i-qpossible to anticipate all of the o'njections
that will be raised to such a policy, but we have carefully
considered the sual o''
- iections and believe that they should not
stand in the way of the propose policy at the present tir:e.
Accordingly, we respectfully submit our opinion that a definite
expansionary credit policy is desirable as a means of carrying
throtgh the next impulse to business reco7ery. 7e believe that
this moyement should logically start in the 'Trilled States, where
an abundance of gold exists, and where the money and capital
markets exert a profound and, at times, dominating influence upon
world-wide financial mo-eme-Its.
7-ith reard to the second phase of the problem, namel7 the
more permanent definition of credit policy, we urge as a criterion
that the annual growth of credit 7olume should,in general, parallel
the average long-term gr5wt'2. of production and trade. 7-Te believe
that if this principle werc, to be adopted it would ten-- to a-ert
over-expansions of credit, which accentuate trade booms, and to
mitigate o - er-contractions of credit, which accentuate and prolong
periods of depressioll and deflatioE. 7e are aware of the nee-' in
O. B. •OV.XIINNT "IMMO 0,11101: IOU
2-11901
TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
RECEIVED AT WASHINGTON, D. C.
some degree of a frankly experimental attitude before all of the
problems involver' can be ironer out, but we believe that sufficient
knowledge and experience are already available to warrant a more
thorough testing of the principle proposed.
If a credit policy of the type described is to be effecti-e
in enabling the normal seasonal autumn pick-up in trade to carry
through into a sustained reco-ery, we believe it is necessary that
the policy be institute' in the very near future and applied
cumulatively during future months. -Te hope and trust that the
Federal Reserve authorities will welcome this statement of -iews
in the spirit in which it is intended and that is may be helpful
in the progress of thought in this country on the fundamental
economic Problems of the Present trying period.
Lionel B 7die.
233p
II. 0,11111LXVINT 1.1101113111 UV!C1: hi
2-11001
MEMORANDUM ON FEDERAL RESERVE POLICY
From time to time _Juestions have been raised as to
what contributions can be made by economists to the fundamental
probleu of recovery from the present depression.
The under-
signed economists find a meeting of their minds on certain fundamental phases of credit policy and hope that a statement of
their views may be submitted for the attention of Federal Reserve
officials in a spirit, not of attempting to force their ideas on
anyone, but rather of attempting to bring to the attention of
the constituted authorities the convictions of a.n
We believe that there are two problems of credit policy
of fundamental importance:
kirst, the emergency problem of
utilizing credit policy as a means of furthering recovory from
the current depression.
Second, the aefinition of an on-going
credit policy over an extended period of time.
ith regard to the first type of problem, we believe
that a stage has been reached in the depression when a broad
plan of credit expansion is urgently desirable.
To the extent
that gold inflow or other factors tending toward an increase of
member bank reserve balances do not supply such expansion, we
believe it should be supplied by open market purchase's of
government securities.
Undoubtedly, many of the member banks
would feel that such an expansion was flooding them with excess
funds at a time when they already feel over-burdened with idle
money.
However, we do not believe that the spontaneous
attitude of the private bankers is jused from the broader
economic standpoint.
From this standpoint, v,e believe the
fundamental consideration is that deliberate policies should
be adopted to arrest the momentum of contraction and liouirjation
which has already become acute and which does not show signs of
being terminated by other factors.
have given due attention
to historical precedent and to economic theory in arriving at
this opinion.
It is impossible to anticipate all of the objec-
tions that will be raised to such a policy, but we have carefully
considered the usual objections and believe that they should not
stand in the way of the proposed policy at the present time.
1.ccordingly, we respectfully submit our opinion that
a definite expansionary credit policy is desirable as a means
y.
of carrying through the next impulse to business recover
We
United
believe that this movement should logically start in the
money and
States, where an abundance of gold exists and where the
ing incapital markets exert a profound and, at times, dominat
fluence upon world wide financial movements.
With regard to the second phase of the problem, namely
urge as a
the more permanent definition of credit policy, 7;e
in
criterion that the annual growth of credit volume should,
- 3 -
general, parallel the average long-term growth of production
and trade.
Vve believe that if this principle were to be
adopted it would tend to avert over-expansions of credit,
which accentuate trade booms, and to mitigate over-contractions
of credit, which accentuate and prolong periods of depression
and deflation.
1,,e are aware of the need in some degree of a
frankly experimental attitude before all of the problems involved can be ironed out, but we believe that sufficient knowledge
and experience are already available to warrant a more thorough
testing of the principle -proposed.
If a cr.dit policy of the type described is to be
effective in enabling the normal seasonal autumn pick-up in
trade to carry through into a sustained recovery, we believe it
is necessary that the policy be instituted in the very near
future and applied cumulatively during future months.
We hope
and trust that the Federal heserve authorities will welcome
this statement of views in the spirit in which it is intended
and that it may be helpful in the progress of thought in this
country on the fundamental economic 'Problems of the present
trying period.
Vey 5, 1931.
Mr. Leslie Gould,
Financial Niter,
New York Evening Journal,
New York City.
Dear Mr. Gould:
I have your telegram of today with reference to
Jr. Traylor's address before the /rterratianal Chamber
of Commerce, and I regret that I cannot see my way clear
to comply -with your request for an expression of my views
on his ranarks.
Since assming my duties as Governor of the
Federal Reserve Board I have received Do many requests
for statements, addresses and articles, that I have been
compelled to refrain from cenplying with any of them,
and I do not see haw I can make any exceptions to this
rule.
I am sure you will understand and appreciate the
situation.
Very truly yours,
(Sip:ne6) ,1 -A Meyer
Governor.
16
i931 MAY 5 PM 3
al
v.
grettourg Department
POSTAL TELEGRAM
Zelegrapfl (Office
X-6883
FEDERAL
RESERVE BOARD
STATEMIT FOR THE PRESS
For release at 2:30 1.).m.
May 7, 1931.
The Federal Reserve Board announces that the Federal
Reserve Bank of New York has established a rediscount rate of
per cent on all classes of paper of all maturities, effective
May 8, 1931.
August 10, 1971.
Mr. Arthur Hale,
1119 Barr Bldg.,
Washington, D. C.
Dear Mr. Hale:
In the absence of Governor Meyer, I acknowledge
receipt of your letter of August ?with enclosed copy of an
arti-le printed in the Chicago Tribune by Mr. Leathem D. Smith,
President of the Door -ounty Bank, Sturgeon Bay, Wisconsin.
no Governor is out of the city for a day or so, and I Shall
take pleasure in bringing the correspondence to his attention
upon
his
turn.
Very truly yours,
(Signed) F. L, Fahy
Sseretary to the Governor
ARTHUR
1119
BARFR
HALE
BUILDING
910 SEVENTEENTH STREET
WASHINGTON, D. C.
_-...u:ust 7
Er. Eugene Meyer, Governor,
Federal Reserve Board,
',7ashinGton, D. C.
Dear Er. Meyer:
The other day I told you that a friend of
:line, tile President of a =II ban:: in the 7est, was anxious
to have a talk uith you, and you were hin'enc;i2h to sq- that
the next tine he was in 77ashincton I might bring him to see you.
I was thinking of hr. Leathen D. Snith, President of the Door
County Ban'c, Sturgeon Bay, 7isconsin.
Mai. Smith writes me that he nih
some tine
not be here for
nd Ls7-e0_ me to show you the encl-)zod Tflich he recently
printed io. the Chicago Tribune.
:=7 absolutely notbir
izt creLi :niters and
was under the impression that the 7ederal Reserve Syste_ had been
of
assistance in improving our credits Genera:
Yours vr,
inc.
CREDIT
Chicago, July 15. - We nS te your recent editorials on the easing
of money or credits for long term investment.
There is not a China-
man's chance of any business revival until such easing of credits
becomes an established fact.
Industry has maintained wage levels to keep up the purchasing
power of the consumer, but the country is being slowly and surely
starved of the credit and money necessary for these consumers to
translate this purchasing power into the buying of products of
production.
Formerly, in times of business depression, credits or money
became easy through lack of demand, and the stimulated use of this
money revived purchasing and restored business.
We now have the
federal reserve system as a supposed safeguard to our banking systems,
but the pressure of the federal reserve bank on its member banks to
keep themselves liquid and to call in their loans has upset the normal
law of supply and demand for money and resulted in the starving of small
industries, the forced liquidation of collateral and the draining of
the outlying districts of the country of the money which flows into
the large central banks, which, in turn are in danger of drowning
in their own liquidity through loss of earnings on their cash
surSluses.
An emergency cushion fund put up by the government behind the
federal reserve with instructions from the federal reserve to its
member banks to ease credits
with the assurance that in case of
emergency the federal reserve would take a broader range of paper
for rediscount from these banks than what is required by normal
tations with encouragement of preferred loans; first, to employers
of labor, for it is only by putting this idle money to work that
employment can be given; second, by loans to enable the installment
plan purchases of products of our factories which will result indirectly in the employment of labor; third, by loans on real estate,
bonds, and stock collateral, which will tend to restore the value
of these collaterals and create a greater market for them, would help
the situation.
The country at large is restive under present inactivity and eager
to buy at present bargain prices and build, but the almost complete
breakdown of the banking and credit systems under the pressure from the
top will nullify the effects of public works? stimulants and foreign
loans.
Normally our home markets consume 85 per cent of our products.
Why worry about the foreign 15 per cent and destroy the 85 per cent
market at home for lack of credit?
Leathern D. Smith.
August 12, 1931
Mr. I. T. Mallowell, President
Standard Pressed Steel Company
Jenkintowa, Pennsylvania
Sir:
Your letter of August fifth is hereby acknowledged,
mai I wish to assure yen that the Federal reserve system
is giving careful consideration to the matters to wiAch
you refer.
yours,
Very truly
Meyer
'(Silned) Eugene
11.141D1,
I-1.T. HALLOWELL,PRESIDENT
J. F. ROBERTS, SECRETARY
HARALD F. GAD E, VICE PREST&TREAS
Sr11 -1)A-1to)
s
MANUFACTURERS OF
BRANCHES
BOSTON
CHICAGO
DETROIT
-UNBRAKO"HOLLOW SET & SOCKET HEAD CAP SCREWS
-HALLOWELL"
_ STEM'SHOP EQUIPMENT
BRANCHES
NEW YORK
SAN FRANCISCO
ST. LOUIS
POWER TRANSMISSION APPLIANCES
CABLE ADDS ESS"STAMPING - PHILADELPHIA
LIEBER'S FIVE LETTER CODE
•
oNs-N,PA.
21.4gust
5 ,1931
Federal Reserve Bank,
ashington, D. C.
ATTENTION:
THE GOVERNOR
Gentlemen:
The writer does not claim to be a Financier, but there
lurks with him a certain amount of, shall I call it foresight,
or common, sense, which tells him that his fears will not be
unfounded unless the Federal Reserve System and those responsible
for loaning money abroad change their attitude.
The bulk of money that has been loaned abroad to the
has shrunk to serious proportions and there is
countries
larger
a lot of we American citizens if the principal
grave
doubt
among
a
will ever be paid back in a goodly proportion to those loans.
Frankly, it is my honest opinion that if we keep on loaning money
with doubtful merit this good old U.S.A. will waken up and find
itself in the same predicament as our unfortunate neighbors abroad.
Begging you to give consideration to this matter, I am
Yours very truly,
HTFiy
August 14, 1931
Dear Governor
You will have to blame yourself as having
been the inspiration for this letter to you. You will remember our brief chat immediately following your remarkably
effective speech here in Detroit.
At the end of June, I spent two or three days
in 7ashington, had a considerable conversation with the
President and later re-established contacts with various
governmental and civilian agencies through which the Council
of National Defense functioned durinc the rilson administration. I purposely used the term "Wilson Administration" to
emphasize the fact that the Council of National Defense was
created by Congress in 1916 as a pe%ce time body having for
its purpose service in any national emergency and that this
organization was continued during the peace time years of
1919-20. rith the advent of the Harding administration, the
Council was allowed to lapse. It was never in any official
way discontinued. The 1916 law creating it is still on the
Statute books as has recently been pointed out by the :ar
Department in the hearings before the War Policies Commission
before thich many of us have appeared within the last few
months, and over which Secretary of War Hurley presided as
Chairman.
In my testimony before this Commission, I
urged the rehabilitation of the Council, suggesting, as I
remember it, that at the next session of Congress the name
be changed to "Council of nitional Security", thereby eliminating the inference of war, and that the ,;ct be further
amended in any detailed manner suggested by our later experience.
Following my above mentioned call upon the
President, I wrote him two letters, one dated July second,
the other July tenth, copies of both of which I herewith attach, together uith his reply. You will, of course, treat
the President's reply as strictly confidential. I think you
will agree with me, holiever, that his attitude is peculiar in
that he assumes that a serious and countrywide state of alarm
does not already exist, and further makes it clear in his
second pyragraph that he does not admit or perhaps even
recognize the necessity for an orderly, definite and authoritative agency for the co-ordination of all of the elements
Page 2.
us accord
ought into harmonio and get
br
be
st
mu
h
ic
wh
ic psychology
and activities
to improve the publ harness for the repe
ho
n
ca
we
re
fo
be
same
le pulling in the
the American peop
ty.
ri
pe
os
pr
ence and
building of confid
ates
l that the United St tional
It is only natura
Na
e
th
r,
be
am
e International Ch
th
,
ce
er
mm
ified
Co
gn
di
of
r
r
he
ot
Chambe
ard and dozens of
Bo
ce
en
ose reer
cl
nf
Co
ng
hi
al
is
ri
Indust
of establ
us
ro
si
de
e
ar
s
bon
business organizati rhite House. The impossibility of su are
be
lationshipu with th onal bodies to any super agency not
ti
ordinating these na rnmental or Congressional authority is
gove
ing the stamp of
.
nt
self-evide
emerot meet the existing
The President cann created by the next Congress.
new agency to be
Detroit,
gency through any
to you when here in
id
sa
I
as
e,
or
ef
er
ided for just
rhy not, th
ss has already prov
re
ng
Co
h
ic
wh
ol
to
utilize the
oses.
such emergency purp
before
py of my testi14()ny
On page 38 of the co 1926, you will find the
es of Congress in
nse and
one of the Committe
cil of National Defe
un
Co
e
th
ng
ti
ea
cr
ll also
text of the Act
siness nen. You wi
bu
n
ve
se
of
on
si
is
th yell studied
its Advisory Comm
duties is listed, wi ich will render posss
it
g
on
am
at
th
wh
note
eation of relations
aphraseology, "The cr the immediate concentration and utiliz
ed
n
ible in time of ne s of the Nation". This broad provisio
to
ce
ur
ss
so
ne
re
ul
ef
e
us
th
here of
tion of
nd the Council's sp , from your otn exot
was inserted to exte
kn
u
e
tional need. Yo
ganized for effectiv
meet any unusual Na
or
try was
un
co
re
ti
en
16
e
19
n
th
ee
tw
at
perience, th
nel built be
and that the person ughout the country.
ro
work under this Act
th
largely an the job
and 1920 Is still
cil is
Director of the Coun better
Walter Gifford, the
ix. Telegraph. No
American Telephone
e
th
zation.
of
t
en
id
es
Pr
now
the Council's organi enad
he
n
ai
ag
to
r
fo
d
for service. The
man could be aske
men" nre again ready d intelligently orar
ye
a
r
la
ol
"D
an
The
can be immediately
tire American press is movement. rilay not make use of this
th
just
ganized to support
ined by Congress for
ik
sh
fa
en
be
ve
ha
to
need.
agency which seems
are not in such dire
we
h
ic
wh
of
e
ic
rv
that se
al regards to you,
I"ith my best person
Sincerely y,Alrs,
Governor's Office
September 4, 19U
kr. Howard E. Coffin,
First National Bank Building,
Detroit, Wichigral.
Dear lir. Coffin:
I apologize most earnestly for my delay
in answering your exceedingly interesting and suggestive
letter of Aurust 14th. I have been giving it a great
deal of consideration, and the further I get in the
crystalization of plans for handling the unemployment
situation, the nearer I get to the set-up of the Council
of National Defense. I am a thousand times obliged to
you for putting the information in my hands.
It seems clear now that Hoover will do
nothing about an extra session or Federal appropriations
for relief. I suspect, however, that the matter will be
taken out of his hsnds after Congress meets.
With all good wishes and the highest
appreciation
Sincerely yours,
HOWARD E.COFFIN
SEA ISLAND BEACH
GEORGIA
July 2, 1931
CHAIRMAN OF THE BOARD
SEA ISLAND COMPANY
COPY
Honorable Herbert C. Hoover,
White House,
Washington, D. C.
Dear Mr. President:
While I have not hesitated to express to you my disagreement with certain administration policies, you will, I know, absolve me of
any interests counter to those of our national welfare or to successful
achievement upon the part of yourself. You will, therefore, understand the
desire toward helpful suggestion with which this letter is addressed to you.
I came to Washington last week that I might in some
measure clarify at first hand my own impressions as to the present trend of
national affairs. Following my call upon you with Mr. Barrett, I visited
the American Federation of Labor, the National and International Chambers of
Commerce, the National Industrial Conference Bean, and similar organizations
with which I have formerly maintained relations. I have also had conversations with various individuals having a specialized knowledge of the country's
affairs. I am greatly impressed with the similarity of our present situation
with that of 1916-17. Because of the greatly disturbed and profoundly confused state of the public mind, I feel that the present is even more fraught
with potential disaster than was that emergency. We are now facing dangers
more subtle, more complicated and far more difficult of successful solution
than were those of this earlier period, nor have we now present those advantages of patriotic enthusiasm in the accomplishment of a definite objective
or of the material well-being which so greatly aided us in this other emergency
period. We have passed through many disccuragine months of economic puzzlement,
financial loss and shrinking values and now face a year of business uncertainty
because of the inevitable renegotiation during a bitterly partisan political
period of the international debt situation sure to profoundly affect both our
private and national affairs.
From the experience of my intimate association with the
during
the emergency period of our entry in the War, I am impressed
government
with the conviction that we must again coordinate our government agencies
and so gear them with our civil mechanisms that our entire national machine may
be brought into a practical working accord.
I offer no "cure-all" for the ills which so sorely oppress
us. But I do remind you that you have ready under your hand an agency created
by Congress for the organization of the Nation's spiritual and material resources in time of need, already well and favorably known for successful achievement in guiding public thought and effcrt in every community of the country
during a period of stress, free from the dangers of partisan political attack;
a certain source of relief from the constant flood of remedial suggestions, and
a medium through which may be brought to you in orderly condensation the best
thought of our people concerning the problems confronting us.
-2-
I refer to the Council of National Defense, charged by law
with the duties of "investigations and recommendations to the President" upon
matters and policies for the national security and welfare. Through the seven
"specially qualified" men of the Advisory Commission of the Council, there may
be set up under this Statute such subordinate bodies as may be needed in aid of
or to give force and influence to any recommended policies of which you, as our
President, may at any time approve.
I feel that the gravity of the existing emergency with its
potentialities for disaster should be adequately recogeconomic
political and
nized NOW and that an orderly, effective and confidence inspiring, non-partisan
agency for the immediate direction of the Nation's best thought and organization
of effort for the promotion of our common good is vitally essential. The impending political events, including national conventions and elections together with
the renegotiation of the international debts settlement during this period of
political strife will certainly tend toward a continuance of business uncertainty and provide opportunity for many lines of attack upon the part of antiadministration forces.
It is with all these facts and probabilities in mind that I
suggest to you the present utilization of this tried and effective method which
Congress in its wisdom provided for service in connection with the National
welfare, nor do I believe that in the re-establishment of the Council, the
Advisory Commission and such subordinate or voluntary organization as might be
considered effective, you could properly be accused of the creation of just
another "Commission."
Sincerely yours,
(Signed)
Howard Coffin.
v-
110w:AR.D E. COFFIN
SEA ISLAND BEACH
GEORGIA
CHAIRMAN OF THE BOARD
SEA ISLAND COMPANY
July 3, 1931
Honorable Herbert C. Hoover,
White House,
Washington, D. C.
COPY
Dear Mr. President:
Today, July 3rd, the papers announce the successful consummation of the moratorium negotiations.
This may be termed the corner-stone of economic recovery.
An upward surge of the stock market for the next week or two will give tangible
demonstration as to the reaction of the public mind to this definitely constructive measure which you have so wisely and so opportunely initiated. But, if
this renewal of hope and confidence is not given continuing encouragement through
the promulgation by you of an aggressively adequate program for insuring the
early completion of our structure of recovery in both its spiritual and material
aspect, then we may quite well expect as a result of July's dismal business
statements, decreasing car loadings and increasing unemployment, an even more
serious crisis in our domestic affairs.
Again let me urge the pressing need for comprehensive action including the utilization of that legally constituted mechanism already provided
for the meeting of national emergencies - for coordination of the agencies of
government with civil affairs - for inspiring that public sympathy and confidence
which will strengthen your hand - and which can be made to so relieve and serve
you in this burdensome time.
The measure creating the Council of National Defense (name
should be amended to Council of National Security) was placed by Congress upon
the Statutes in time of peace (1916), was found sufficiently flexible to permit
of emergency war service (1917-18), was reaffirmed as a peace time body in 1920,
and was expected by Congress to carry on continuously in peace time service
relating to the national security.
This note is intended to supplement my letter of July 2nd.
Sincerely yours,
(Signed)
Howard Coffin.
4
THE WHITE HOUSE
Washington
July 10, 1931
COPY
Mr. Howard E. Coffin,
First National Bank Bldg.,
Detroit, Mich.
My dear Coffin:
I have your kind letter of July 7th.
I have the feeling that if we were to launch an organization
of the type you mention we would create a state of alarm that would undermine
the growing confidence we have so carefully built up.
We have available exactly the same men you mention and they
are in daily conference in Washington on every phase of the situation. We
have, in fact, some fifteen different programs contributing to amelioration
of the depression. They are set up in various groups and have daily attention
and cooperation throughout the country. I would like to have more programs
of the same character. It seems to me that is the essence of the question what further can be legitimately done by the Government to expedite recovery?
I do hope that you, with your fine inventive mind, will
work up some constructive suggestion and submit it to me.
Yours faithfully,
(Signed)
Herbert Hoover.
6
RESOLUTION
By
AMERICAN LEGION
DETROIT
WHEREAS, a state of tinrest, indecision and dissatisfaction, resulting
in business depression and the destruction of values, has become prevalent among
the people of the United States and has assumed such proportions as to constitute
a National emergency of the utmost gravity; and
WHEREAS, the 64th Congress of the United States, by its enactment approved August 29, 1916, established a Council of National Defence and Advisory
Commission for the express purpose, among others, of the "creation of relations
which will render possible in time of need the immediate concentration and utilization of the resources of the Nation"; and
WHEREAS, this measure functioned with great success during the former
period of National stress existing from 1916 to 1920, with an organization which
covered the entire country; and
WHEREAS, it was designed to meet the problems of Peace as well as
those of war; and
WHEREAS, we believe that the principal causes of the present situation
are in general such that they cannot be promptly and efficiently met by existing
political methods;
NOW, THEREFORE, BE IT RESOLVED, that the American Legion in National
Convention assembled, hereby respectfully requests the President of the United
States to make use of this existing instrumentality, which has already proved its
efficiency by actual operation, and to direct its attention to the consideration
of the fundamental causes responsible for the existence of the present emergency,
and of the means to be adopted for their amelioration, both for the present and
the future.
September 16, 1931
Mr. tric r. Hirsch
Allenberg Cotton Company
temphis, Tennessee
Dear Mr. Hirsch:
This is the first opportunity I have had to answer your
letter of August thirty-first, in which you propose that currency be issued on the basis of seven-cent cotton.
Available information indicates that there is no shortage
of currency in this country, nor any shortage of eligible woer
that can be converted into currency by member banks at any time.
In recent years, and particularly since the establishment of the
Federal reserve system, the problel of adequate financing has
sifted entirely from currency to bank credit.
During a period
like the present, the lederal reserve system stands ready to make
available credit to maxler banks on all classes of eligible paper,
including paper uased on cotton in storage or in the process of
being marketed at rates that vary from 1 per cent on acceptances
to from 1 1/2 to 3 1/2 per cent on discounts.
Very trr:11
yours,
noEge
gnii
1@.‘
amernor.
ERIC D. HIRSCH
NT/IR:W C10111-EANI4 CCOTTC10:17 NICMCIECAIVIGIC
1.1M,IF•1311t4 CCYTICCONT lEXICELANTGE
MEMPHIS, TENN.
August 31st, 1931.
Mr. Eugene Meyer, Governor,
Federal Reserve Board,
dasnington, D. C.
Dear air:
You are probably familiar witn Dr. Irving fisner's
"weighted dollar," wnicn we may come to eventually, though
dependent on a beaurocratic board of economists.
It occurred to me that a step in this direction
would be the amendment of our oanking laws to permit issuance
of currency based on 7 cotton. I, for one, feel that 7
cotton is a sounder oasis for money than Peter's promise to
pay Paul in 90 days, and when gold is finally replaced by a
rarer metal as were silver, iron, etc., our currency will be
more easily adjusted if based on necessary commodities.
The great advantages are twofold:
1. Tends towards inflation in time of
depression, and makes for deflation in
times of boom, since high value of cotton
will cause its witndrawal into trade channels
from money channels.
2. A brand new use for cotton. l'icture the
demand for gold if in addition to its use as
money it were a universal necessity like cotton.
If you think a slight inflation along these
possiule, I will ue happy to develop the idea.
lines is
yours very truly,
Cl
September 22, 1931.
Mr. B. R. Gordon,
48 all Street,
New York, N. Y.
Dear
r. Gordon:
Upon my return to the office after a few days
absence, your letter of September 9 was brought to my
attention, but this is the first opportunity I have had
to reply to it. I have roted your comment- with interest,
but, of course, the natter to 7ihich you refer is one that
falls within the province of the Federal Farm Board or
the Department of Agriculture, or both, rather than the
Federal Reserve 3rd.
Very truly yours,
Governor
September 10, 1931.
Mr. B. A. Gordon,
48 Ytall Street,
New Yurk City.
Dear Mr. Gordon:
In the absence of Governor Meyer, I aoknom.
led6e the reoeint of your ltter of September 9.
The Governor is out of the city for a few days and
I shall be riga to brinm the Iwtter to his attention
upor his return.
Very truly yours,
(Signed) F, L. Fatly
6ecretary to the Govy-nor.
48 WALL STREET
NEW YORK
Hon. Eugene Meyer,
Governor of Federal Reserve Board,
Washington, D. C.
Dear Mr. Meyer:
September 9, 1931
1
1
Cf.:1--' 1 0 1931
OteTrzi-,— cs,-,
There has been much discussion in the press regarding
the cotton situation. Because cotton is not a world crop in
the sense wheat is a world crop, and the United States produces
a very large percentage of the cotton produced in the w)rld, it
would seem to the writer that Government aid with respect to
this situation could be applied with practical results. I am
not a student of cotton statistics and realize that what I have
to say may not be sufficiently practical. However, the following
layman's view appeals to me as being more sensible than a great
many plans which apparently have been entertained seriously.
In this morning's "Times", I note that the indicated
production of the United States for this year will approximate
1516P,51000 bales. For the sake of round figures and easy arithmetic, I shall call if 15,000,000 bales for the purpose of this
letter. It has been proposed in the past that one-third of the
current crop be abandoned and plowed under, which to my mind
would be very wasteful. On the contrary, I should suggest that
the Government buy one-third of the current crop, or 5,000,000
bales at the rate of six cents a pound, which price as I understand it is well below the cost of production. The amount involved.in this transaction would be $150,000,000.
In consideration of the Goverrmert buying this cotton,
the planters should agree to plant one-third less cotton acreage
during the coming season and either let the land lie fallow or
utilize it in the production of something else. (Hoy' this would
work out as a practical matter, I do not know, but it would be
as simple to negotiate as having them plow under one-third of
the crop as has been suggested from time to time.) I should
further propose that the Government in turn give the cotton
planters an option to purchase the 5,000,000 bales of cotton
which the Government will have on hand at a price which will
allow the Government a profit of one cent a pound net after all
charges, including storage, transportation, interest charges at
5%, etc; th t is to say, if the crop of one planter for the
current year is 600 bales, he should be allowed to plant but
two-thirds of this season's acreage next year and receive from
the Government an option on 200 bales. In order to prevent the
planters from falling down on the job entirely and not planting
any cotton, thereby making cotton very scarce and their options
extremely valuable, I should suggest a further provision design-
2
ed to insure the planting of sufficient cotton to take care
of the normal demand. Let us assume that the option price of
the cotton to the planter is eight cents a pound on the basis
described above. It could be arranged that if at a given date
next season the price of spot cotton exceeds twelve cents a
pound (or some other appropriate figure), the option price to
the planter will be stepped up by the amount of such increase
or by a certain percentage of it. In any event, something should
be done to limit, or limit in a measure, the profit which the
planter could derive under this option.
Very truly yours
B.R.Gordon:T
September 29, 1931.
nr. H. S. Hicks,
Rockford National Bank Buildinr-,
7tockford, Ill.
Dear Mr. Hicks:
Your letter of "epteMber 21 to the 2resident, enclosing
has
a communication to you from Ir. Ames Allen 'iarren, of New York,
been referred to the Federal :.eserve Board.
I have noted Mr.
arren's comnents in hiE letter to you.
So
far as I am aware, no commission hns been aointed by any of the Government Departments to study the matter to rhich he refers.
He probably
has in mind the sub-committee of the nonmittee on Banking and Currency
of the Senate, of rhich Senator Glass is Chairman, and vihich has been
engaged for some time in makinr a study of the banking situation.
Very truly yours,
(F1,1:nts,d) Liie Mees
Governor
THE WHITE HOUSE
WAS
September 24, 1931.
My dear Mr. Meyer:
By direction of the President I am
sending herewith a letter from Mr. H. S. Hicks
of Rockford in which he encloses one from Mr.
Moses A. Warren.
Sincerely yours,
LAWRENCE RICIEY
Secretary to the President.
Hon. Eugene Meyer,
Governor, Federal Reserve Board,
Washington, D. C.
Mnclosure
?
1931
H. S. HICKS
ATTORNEY-AT-LAW
ROCKFORD NATIONAL BANK BUILDING
ROCKFORD. ILLINOIS
September
21
1 9 3 1
President Herbert C. Hoover,
The White House,
Washington, D. C.
dear 1;:r. ?resident:
A few days ago
Moses Allen Warren, an old friend
of mine whose former home was in
Rockford, called at my office and we
discussed for a few minutes the subject
which is outlined in his letter to me,
dated September 19th, which I am enclosing herewith.
I recall that r. Warren
stated that some commission has been
created by some department of the
Federal Government to study the rediscount problem.
I am sending his letter to
you with the suggestion that Mr. Warren
would because of his study and knowledge
of the subject probably be of service to
such a commission.
Very sincerely yours,
c--HSH:AD
/44:61‘-
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MOSES ALLEN WARREN
170
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a."..3661
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CABLE ADDRESS:"WARLAW''
"WESTERN UNION CODE" USED
NEW
YORK
September 19, 1931.
Hon. Herbert S. Hicks,
hockford 14ationa1 Bank Bldg.,
Gor. State & Lain Sts.,
Rockford, Ill.
Lear Herbert:
I was very sorry not to have had a further
interview with you in Rockford before you left for
Chicago. I wanted to tell you that the reactions from
the article which appeared in the local paper there
relative to a possible re-discount bank system -were
very favorable, both from the older bankers and real
estate men.
As you know I have given considerable
study to this question and believe there is a proper
way to relieve the present situation as its exists
a1
with regard to the so-called "frozen" loans on r,
estate now held by the banks.
The basic fact, it seems to me, is that
perhaps the best security that can be obtE.ined is a
promise to pay secured by a first mortgage upon land.
Under the circumstances, however, it is difricult to
sell such a loan, as it lacks the elements of marketability.
On the contrary a mere promise to pay by a merchant or
corporation tacked by less security can be readily
discounted under our present banking system.
This condition as it exists today is not
conducive to progress along sound fundamental lines.
As far back as 1846 a condition arose in
Europe whereby credit was restricted upon real estate,
but it was greatly ameliorated by a method which was
developed there at approximately that time. with the
steady grortiof this country and the ever increasing
values of real estate perhaps we have not had the time
or inclination to carefully investigate the fundamental
principles, and as a result have a serious condition in
both the Urban and 'hural banks because of their loans
upon real estate.
••
You'll Enjo Solving Star
Cross Wo Puzz1\08
ROCH..FORD MORNING STAR
'PART 2
RE-DISCOUNT
BANK SYSTEM
IS FORECAST
New York Expert On
Visit In Rockford
Outlines Plan
POINTS NEED
ROCKFORD, ILLINOIS, SUNDAY, SEPT. 13, 1931
John Bendix
Is Visitor Here
For Church Meet
Smiling and radiant, Mrs. John
Bendix, mother of Vincent Bendix,
multi-millionaire, president of the
Bendix corporation, and widow of
the Rev. John Bendix, former superintendent of the Galesburg district
to which the Bethany M. E. church
belongs, is a visitor in Rockford at
the convention sessions here of the
Central Northwest conference of
Swedish M; E. churches.
To Mrs. 13endix, her visit here is
in the nattire of a homecoming as
it was in Rockford that she lived
for a while as a young girl and attended the Rockford high school.
Among the pastors meeting here and
their wives, she has
4,r erous
friends as her husband was, one of
the best known Methodist clergymen of his time. He was active in
chureh work from about 1870 until
his death in 1922. During that t.
he was superintendent of t
istrict for six years a
thany church h
nes.
' be a
Consideration by the next session
of congress of a proposed system of
re-discount banks to solve the problem of frozen loans on real estate
which has led to many bank failures was predicted here yesterday
by Attorney Moses Allen Warten,
prominent New York attorney, who
is visiting his mother, Mrs. Julia P.
Warren, 711 North Main street.
Mr. Warren, who has made an
extensive survey of the mortgage I
field, is considered one of the foremost experts in- this field of law
In the New York metropolitan area.
He is a former resident of Rockford. In an interview with the
Morning Star he outlined a proposal
for establishing a central re-discount bank with branches in various districts to create stability in
the mortgage market and stabilize
urban and rural real estate values.
"It is undoubtedly true," Mr. Warren said, "that many residents in I
this vicinity have been much interested recently in the mortgage
situation and its results in relation
to the banking situation. Mortgages are, of course, considered one
of the best investments that can be
made when the loan is secured by
adequate value in the land, but it
has one principal detriment in that
it has no marketability, and the
corporation or individual lending the
money must wait until maturity before he receives repayment. The
question, therefore, of the marketability of a mortgage is of primary
importance.
Given Much Study
"Recently much study has been
given to this question in New York
with the result that the various
real estate interests have appointed
committees for research thereon. I
have taken quite an interest in this
situation and believe that one of
the suggestions recently made will
do a great deal toward clarifying
the situation. I refer to the proposal to create a re-discount bank,
not exactly similar but perhaps
along some of the lines of the land
credit banks of Europe. Such an
institution would go a great way
toward making mortgages upon
land, either urban or farm mortgages, much more liquid and would
relieve the pressure which now
exists on various rural banks by
reason of their frozen loans upon
real estate.
"The creation of the joint stock
land banks went a certain distance
toward the end sought but has not
gone far enough to fully cure the
situation. A step further should be
taken. A central re-discount bank
having branches in various districts,
properly safeguarded as to its powers and having sufficient capital in
each district to properly take care
of its demands would, it seems to
me, both create stability in the
mortgage market and perhaps stabilize the value of real estate in
both urban and rural communities.
Appraisement Important
1
"Of course one of the vexatious
problems always has been the question of a proper appraisement. This
Is fundamental and appraisers
should be so chosen that they
would be removed from political or
other prejudicial influences, if possible. I understand that much study
has been given to this problem in
Boston and that they have recommended a new plan that may work
out toward a partial solution of
some of the difficulties.
"I have found a great deal of
Interest in studying the various
plans in existence in Europe in the
several countries which have the
land credit banks, and although
they could not be exactly followed
In their entirety, they have many
suggestions which are valuable. After all, ours is a new country and
land values have increased steadily
during the rapid growth and development of new localities, so that
there has not been perhaps the
need to study the fundamentals as
carefully as in the older countries.
"In many of our cities the situation with regard to land values has
been dominated by large financial
institutions who have controlled
marizet or mortgages on their.
that the system which
thcal
, estate 50,,, has been one which
those institutions
hias grow";:evd
'
bas benel 106 ring toward a more
rather
policN
tar-sighte
Where Hurricane Killed Hundreds
A);
*wooer,
11
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LAW
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OF
MOSES ALLEN WARREN
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M4bF-417C1-1COCK
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CABLE ADDRESS: “WARLAW''
“WESTERN UNION CODE- USED
NEW
YORK
9/19/31
The various Federal Farm Loan Acts and the
Agricultural Credits Act have gone a certain distance, but have not solved the problem and the
Joint stack Land banks have been a disappointment
in thib respect; and I believe that there is a proper
remedy as l have indicated to you.
tis you know my interest and those of the
family by reason of investments in mortgages in the
various western states, as well us my interests here,
have made it necessary for me to look carefully into
the situation; and I have no special "axe to grind"
and am only attempting to find El solution which will
be beneficial alike to bankers and owners of Urban and
Rural real estate.
Anything you can do to aid with your large
experience, both in the Legislature of Illinois and
with your wide acquaintance will be greatly appreciated,
and i hope you will have some time to devote to it.
With kindest personal regards, I am,
Very sincerely yours,
62:6eGal
kAW.FW
October ( 7/, 1931.
Mr. Ivan O. Hasbrouck, President,
Iowa Bankers Association,
Des Moines, Iowa
Dear Mr. Hasbrouck:
44V
On account of absence from the city, this iE the first
opportunity I have had to thank you for your telegram of October 8
tegarding the action taken by the Iowa Bankers Association with
respect to the program outlined by the Presiaent in his statement
of October 7.
The telegram reached ml just as 1 was about to leave the
city, and I immediately forwarded a copy of it to Mr. M. N. Buckner,
President of the New York Clewrinc House Association, who is Chairman of the organization committee that has been handling all matters
relating to the formation and operation of the National Credit Corporation. It is my understanding thout advicc regarding the plan of
operation of the Corporation mas forwarded to all Clearing House
Associations a few days ago.
Very truly yours,
Governor
Trgasurg Department
TELEGRAM
ZeIrgrapt
ffire
r.Ictober 2, 1931.
Mr. Donald G. Hamilton,
1212 Forbes Street,
Pittsburgh, fa.
Dear !!.. Hamilton:
This ir the first opportunity I have had to
acknowledge rfneipt of your telegram of October ninth,
in which you indicate your readiness to be of service
in connection with the work of the National Credit Corporation. I appreciate your courtesy in wiring me, but
as you have perhaps noted in the press, all matters relating to the formation and organization of the National
Credit Corporation have been in the hands of the Organisation Committee, of which Mr. M. N. Buckner, President
of the New York Clearing House Association, is Chairman.
Very truly yours,
Cover=
rr g
TM !O
arrasurg Department
POSTAL TELEGRAM
Ofelegrapty Offire
October 20, 1931.
"r. Ivan O. Hasbrouck, President,
Iowa Bankers Asrociation,
Des Toines, Ia.
Dear
r. Hasbrouck:
Please accept my thanks for your letter of October
fifteenth.
have noted with interest what you say concerning
the situation in Iowa, and the necessity of prompt action on
the pert of the National Credit Corporation. It is no easy
task, as I know you realize
to create and set up the necessary
machinery for such an undertaking, but I am sure there is every
desire on the part of the directors and officers of the Corporation to expedite its operations as much as possible.
As you have noted in the press, the directors had their
first meetine on Saturday, and at that meeting Mr. George M.
Reynolds, Chairman of the Executive Committee of the Continental
Illinois Bank and Trust Company, iho is the director of the Corporation from the Chicago district, was elected Chairman of the
Board.
Mr. Peynolds, of course, is familiar with the conditions
in Iowa, and if it has not already done so, it seems to me it
would be desirable for the State Committee appointed by the Iowa
Bankers Associttion to get in touch with him at the first opportunity.
Mr. Ivan 0. Hasbr,)uck
-2-
October 20, 1931.
have also read with interest thf- statements in the
postscript of your letter, and your suggestion that some additional statutory machinery should be provided by Congress to deal
with the situation.
Very truly yours,
Ugned) Euzene
Governor
Meyer
WY&1;Alttis ICV
SAVAli
ttekt
8AN
I. O. HAS BROUCK,PRESIDENT
JOS. J. BR US.TREASURER
JEFFERSON
DAVENPORT
-S-5
10A
C.J. WEIS ER. VICE PRESIDENT
DECORAH
FRANK
WAR N ER,SECRETARY
DES MOINES
wc I F.1
FOUNDED 1887
MEMBERSHIP APPROXIMATELY 1400 IOWA BANKS
DES MOINES
OFFICE OF THE SECRETARY
430 LIBERTY BUILDING
October 15,
1931
PHONE 3-0179
Hon. Eugene Meyer,
Governor Federal Reserve Board,
Washington, D. C.
Re: National Credit Corporation.
My dear Mr. Meyer:
This is to ackaowledge your kind letter of October 12th, 1921, in answer
to our wire of October 8th, 1931. We are deeply obliged to you for transferring the
subject matter of our wire to Mr. M.'Buckner, Chairman of the Organization Committee
In New York.
Being aware of the excellent work that you did for the Country, particularly the great Agricultural Liddlewest, when you administered the affairs of the
War Finance Corporation, and being aware of your broad and deep insight into the financial conditions in an Agricultural State like Iowa, and having every confidence that
you will apply that insight and appreciation of our problems in a vigorous way and
translate it into some positive and specific manner to hasten the anticipated proposed
relief measures that the National Credit Corporation is seemingly seeking to give to the
Country, we address this letter to you with the earnest and fervid hope that you will
use all the influence at your command to urge those in charge of the National Credit
Corporation to get it into operation at the earliest possible moment. In this personal
and more or less confidential letter to you we want to say that there are localities in
this State where the Banking situation is in desperate circumstances. We have innumerable
millions of dollars worth of good mortgages on farm land and city and town property, but
no place where they may be converted into cash wita which to pay depositors who may begin
any time or continue as the case may be to ask for their deposits if those depositors
become further alarmed. If the Iowa Bankers were assured of some place where they could
convert these good loans into cash and thus know that they can Day their depositors if
they have to, and if the depositors on the other hand know that the Banks have access to
some reservoir of money, we believe that confidence will tend to be restored both from the
side of the Banker and from the side of the depositor.
We respectfully say that the
publicity covering the Nation following and including the announcement of President
Hoover's financial program has given infinite hope and expectancy to all that something
is actually L-oing to be done. Everyone of course will expect sound and constructive
measures to govern the policies and. the business of the National Credit Corporation. But
if its policies, as some publicity has impressed readers communicating with us, should be
narrow or so constrictive as not to open the door to all legitimate needs for credit
based upon good mortgages and upon such good but perhaps somewhat slow paper, then the
morale of Bankers as well as the morale and the faith in the corporation of the general
public will unquestionably sink to levels lower than if the plans for the National Credit
Corporation had never been nronounced by the President. We believe that our commentators
have the wrong slant an the National Credit Corporation.
We resnectfuLly say that we feel sure that you are as aware as any of us can
be of the Luperativeness of the National Credit Corporation being organized as quickly as
•
possible with a clear and definite program broad enough
sound business policies of course, to open its doors to
rural, which is still hanging on with the hope that the
be able to give it some merited relief within a minimum
and generous enough, yet under
any deserving Bank, no matter how
National Credit Corporation will
number of days.
Without making this letter more protracted we respectfully say, Mr. Meyer, that
the situation in many of our localities is desperate. If the War Finance Corporation or
a counterpart could at this time be revived it would be a God-send. If the National Credit
Corporation could operate along somewhat the lines of the War Finance Corporation by dealing
direct with the borrower Bank through a State Agency or State Central office, we believe
that it will add still more infinitely in givirlg hope and encouragement to a great class of
our rural Bankers who so indescribably need it at this time.
As wired to you on
October g, 1931, this Association on October 7, 1931 held in Des Moines a :date meeting of
Iowa bankers, appointed a State Committee whose names are attached, representative of city
and non-city banks, national and state banks, and all geographically chosen. An entire
statewide organization has been already completed. This State Committee and its statewide
organization created to assist it in investigating distressed bank cases and credit
necessities, are all ready to be put to work as the National Credit Corporation can use them.
Office space and assistance of this State Association is even ready to at least get their
work under way. Thus, it will be seen that we are ready to begin serving the Naticnal Credit
Corporation in Iowa. Will you kindly help us, as you may find it expedient to do so, to
begin early action through the National Credit Corporation for those Iowa Banks who are so
expectantly and hopefully hanging on in anticipation of aid. In writing this we wholeheartedly
express cur respect and confidence in the able and splendid group of men who have been
working upon the unprecedented financial undertaking of the National Credit Corporation
and also in those loyal and able men who have charge of its administration. Anything that
you can do to impress all with governmental or non-governmental interest in the National
Credit Corporation with the importance of as early action as possible will be gratefully
appreciated by all of us out here in Iowa.
Yours very cordially and respectfully,
0.
IOH DBS
President.
(P.S.) To the subject matter of this letter may we kindly add this comment:
It is sound and fundamental to preserve intact the principle of liquidity upon which
the Federal Reserve System is built. We also respectfully add that it would seem that
Congress could well afford, however, to consider some measure or means to handle good. but
slow paper to tide the Nation or any section of the Nation over a period of emergency and
distress, such as the one through waich the Country is now going, by means of providing
statutory machinery under which some form of a subsidiary may be set in operation by the
Federal Reserve Board or by other Governmental agencies if and when and as deemed best, for
the express purpose of handling what is known as good but slow paper but with a more or less
extended due date. Non-commercial paper is still in the same unfortunate position as to its
marketability or liquidity during_ socalled "hard times" as commercial paper was before the
Federal Reserve System was created by the Government. We respectfully express the dire need
of the Government officials continuing their earnest and commendable research looking toward
providing such good but slow paper as herein referred to some outlet in times bordering upon
hysteria or upon panic by bank depositors in some sections of the Country and even in this
State such as have been occurring and are occurring, the evidences of which have been fully
apparent to you..
This letter goes via Air Mail.
•
October 7, 1931 - (20)
4
Committee
appointed to carry out the program adopted
today by the Officers and other members of
the Iowa Bankers Association at a meeting
held in Des Moines, October 7. 1931.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
B. F. Kauffman, President, tankers Trust Company, Des Moines, Chairmen
7a1ter T. Robinson, Cpshier, Citizens National Bank, Hampton
William J. Lewis, President, Harlan Natioial Bank, Harlan
Fred J. Figge, President, Ossian State Bank, Ossian
Raids
J. E. Hamdlton, President, Merchants National Bank, Cedar
Bluffs
Council
tank,
National
P. F. Everest, President, First
t
Wm. Heuer, President, Union Spvings Bank & Trust Co., Davenpor
Mars
Le
Bank,
R. B. Dalton, Cashier, First National
, President. I. B. A.
Ivan 0. Hasbrouck, Cashier, Iowa State Bank, Jefferson
Frank Wprner, Des Moines, Secretary of Committee
Mr.
Mr, Jarnes.__
.
Mr. Magee
Wilt('
3
.
/
Mr.
—3
J4Lfr
Mr,
October 20, 1931
Mr.
Pe
Dear lir. Hardwidk:
and retu
I have your letter of October 7 making inquiry with regard to cer-
taimrlif
the operations of the Federal reserve banks since their establish-
ment in 1914, and in reply thereto I Lire pleasure in furnishing you
herewith such of the information requested as is available.
With rez,rd to Federal reserve notes I am enclosing herewith a statement showing (a) the amount of Federal reserve notes issued throuih the
Federal reserve agents to the Federal reserve banks as of JUMA 30 of each
year from 1915 to 1931 inclusive, and (b) the amount of Federal reserve
notes issued by the Federal reserve banks (excluding those held by the
banks themselves on the same dates).
In connection with your request for figures dbowing the amount of
Federal reserve bank discounts for member banks of bills to finance
agricultural ihipments and of obligations given for other agricultural
purposes or based upon live stock, etc., I may say that it became evident
soon after the Federal Peserve System
was
established that a classifica-
tion of the paper held under discount by the Federal reserve banks gave
little if any indication of the purpose for which the proceeds of the
dismounts were being used.
This is due to the fact that from the be-
ginning member banks desiring to borrow from the Federal reserve banks
have made it a practice to go through their loan portfolios and select
at/4j
-2
such paper as was most convenient to rediscount, regardless of the purposes
for which the accommodation was needed. For examnle, a member bank in an
agricultural community may have substantial demands from its customers for
and
funds to take cure of their seasonal requirements such as the planting
harvesting of crops, but in order to obtain such funds as are needed from
the Federal reserve bank the master bank is just as likely to rediscount any
commercial paper that it may have on hand as agricultural paper. Furthermore, since the Federal Reserve Act was amended in 1916 to permit member
banks to obtain accommodation from Federal reserve banks on their own
Promissory notes secured by eligible paper or by obligations of the United
States Government, member banks needing funds for relatively short periods
have found it much more convenient to borrow on their own notes secured by
United States Government obligations than to rediscount eligible paper.
For the above reasons the Board has made no attempt in recent years
to classify paper into the various groups mentioned in your letter.
Cer-
tain classifications have been made, however, of both bills discounted for
member banks and of bills purchased in the open market by the Federal reserve banks, and we are enclosing statements covering these classifications
as of the end of June of each year from 1915 to 1931 inclusive.
As you know,
in addition to discounting paper for Federal intermediate credit banks, the
intermediate credit bank
Federal reserve banks are agthorized to buy Federal
debentures and Federal land bank bonds having a maturity of not to exceed
six months at the time of purchase. The amopnts of these securities held by
the Federal reserve banks on June 30 of each year, from 1924 to 1931, inclusive, are also shown in one of the enclosed statements.
In 1921 when the Congressional Joint Commission of Agricultural
Inquiry was making its studies the Board made a special effort to ascertain as nearly as practicable the amount of Federal reserve bank rediscounts which were made for the benefit of agriculture. In order to do
this it grouped the member banks throughout the United States into those
located in agricultural, semi-agricultural and non-agricultural counties,
and then tabulated the paper under rediscount for banks in each class of
cou#ties. The results of this survey were published in the September and
October 1921 Federal Reserve Bulletins, pages 1049 and 1150, respectively,
copies of which are enclosed herewith, and in part 13 of the hearings before the Joint Commission of Agricultural Inquiry.
Very truly yours,
(Signed) Eugene Meyet
"Eugene Meyer,
Governor.
Mr. Thomas W. Fardwick,
Pottle, Hardwick, Farkas & Cobb,
Attorneys-At-Law,
Albany, Georgia.
Enclosures
TEDXRAL Mar! NOT T, S ISSUPID TO TRM IMIRAL RMS/RVE BANKS (garn
OUrSTArDING) AND P7MSRAL RSV M N(T/S IN ACTUAL CIRCULATION
ON JUN/ 30 Or MACH YTAR FROM 1915 TO 1931
Date
Federal reserve
_notes outstanding
Federal reserve notes
in circulation
June 30, 1915
30, 1916
30, 1917
30, 1918
$84.261.000
176,168,000
547.4osmo
1,347,580,000
t74,700,000
192,244.000
509.836,000
1,727,739.000
30,
30,
30,
30,
1919
1920
1921
1922
2,687,557m0
3,405.877,000
3,000,430,000
2.555,062,000
2,513,364.000
3,130,100,000
2,648.086.000
2,152.962,000
30,
30,
30,
30,
1923
1924
1925
1926
2,676.901.000
2,339.048.000
1,542,239.000
1,995,206,000
2,253,033,000
1,860,923.000
1,650,826,000
1,697,282,000
30,
30,
30,
30,
1927
1928
1929
1930
2.077,473.000
2,002,811,000
2.194,970,000
1,746.501.000
1,720,702,000
1,644,504.000
1.712,865,000
1,423,774.000
30. 1931
2.101,579,000
1,723,434,000
?TIARA!, RMS7RV/ BOARD
OCTOIAR 10,1931
CLASSIFICATION OF ?AM DISCOMMD BY F3DTRAL RF.S"TRIFF BANKS AND liviLD AT THt 'TM) OF JUNE OF
UCH YAR FROM 1915 TO 1931.
(In thousands of dollars)
Total
(all)
classes)
Date
June 25. 1915
30, 1916
29, 1917
26, 1916
25.996
21.186
197,242
869.175
27,
25,
30,
30,
1919
1920
1921
1922
1,818,040
2.431.794
1.751,350
461,418
30,
30,
30,
30,
1923
1924
1925
1926
836,949
30,
30,
30.
30,
30,
1927
1928
1929
1930
1931
333,954
480,468
515.031
443.450
1,095.423
1.037,149
271,828
149.161
Cornmercial
and agricultural
paper,
n.e.s,
Rediscolinted bills
1
Demand 1 Bankers
Trade
and sight acceptaccentdrafts
ances
anc es
25,996
21,188
81,29
371.977
221.658
1,105,683
1.070.225
277,749
417,495
209.260
180,901
196,484
143.591*
215.636'
285.668.
119,133*
82,202*
Secured
by U. S.
Governwent
obligations
Member bank
collateral motes
Secured
by U. S.
OtherGovernwise
went
secured
obligations
.11 4.
Ai*
Mer
16.509
1.113
25a7 14
8,456
81
CIO
9
36
27
94
42
18
14
28
5.831
7.803
20.034
13,853
3.757
4.705
4,616
2,496
2.948
2.130
1,283
2.302
1,236
659
#
114.072
232,81F
315.835
113.803
3.983
4.000
1.636
1,095
1.416
2.608
2.287
901
33)4
1,604
25.074
310.284
1.340.605
962.145
523.787
163.258
403,356
113,944
244,220
251.513
242.758
74•M77
573.705
108.139
45.790
*Figures include bills discounted for Federal intermediate credit banks as follows: 1927 1928 - $412,00; 1929 - $5.790.000; 1930 - $656,030; 1931 - $371.000.
90.339
56.333
13.983
2.923
15.226
12,590
7,393
4.489
51,750
62.596
52,336
128,538
168,700
42.968
18.892
$650,000;
#Not renorted separately -- -anY euch paper held under discount is included in column 2.
,romissory notes secured by eligible paper or by United States
**Advances to meniber banks on their own :
Government s'eurities were authorized by the September 7, 1916 amendment to the Federal Reserve Act
MERAL RSS1RVS BOARD
OCTOBVR 12, 1:)31
441
CLASSIFICATION OF BILLS BOUGHT IN OPEN MARKET BY THE FMDI1RAL RTS-41RV7
BANKS AND nu AT Tir END OF JUNE OF EACH YEAR FROM 1915 TO 1931
(In thousands of dollars)
Toial
bills
bought in
open
market
Date
June 25,
30,
29,
28,
27,
25,
30,
Bankers acco pies
Based n Foreign
Domestic
Dollar
transtransexactions
actions
change
1915
191(
1917
1918
1919
1920
1921
10,379
71.095
202.270
216.8)48
304.558
399.185
40,223
28,470
30. 1922
30, 1923
-30, 1924
30, 1925
30, 1926
30, 1927
30, 1928
30, 1929
30, 1930
30, 1931
161.112
205.600
36.524
253.507
249.394
210,585
216,865
81,592
127,838
105,502
124,142
160,117
28,784
208.464
211,545
172.10
176.471
64,217
95,231
0,474
Trade
acceptances
(No classification of bills bought
in open market was reported
prior to 1921)
g.492
31,655
37.115
6.790
41,990
34,417
32,494
37.235
14.633
30,451
16,792
3.168
4,535
7.833
925
2.20
3.026
5.744
93
780
535
25
850
4o6
244
359
296
3
2.800
2,446
2,153
5,236
dElik
AMOUNT OF FEDERAL LAND BARK BONDS AND OF FFITOAL IMRIMIATI CREDIT BANK
DE3ENTUR1S HFLD BY THE MARAL RIISIIIVE BANKS AT T:71 MND OF JUNE 07
EACH YFAR FROM 1924 TO 1931, INCLUSIVE (a)
(In thousands of dollars)
Federal Land
Bank Bonds
June 30,
30,
30.
30,
30,
1924
1925
1926
1927
1928
30, 1929
30, 1930
30, 1931
_
-
5.250
750
Federal Intermediate
Credit Bank Debentures
1,250
2,250
3,200
1.300
490
12,165
_
8,177
(a) None held by Federal reserve banks on June 30 prior t, 1924.
1 .0
400
POTTLE. HARDWICK , FARKAS
St
COBB
ATTORNEYS AT LAW
J. R. POTTLE
TH05. W. HARDWICK
LEONARD FARKAS
HOWELL COBB
ALBANY,GEORGIA
LAMAR COX
10-7-1931.
Hon. Eugene Meyer,
Governor Federal Reserve Board,
Treasury Building,
Washington, D. C.
Dear Sir:I am anxious to get certain
information from you respecting fiscal
operations of the Federal Reserve Banking
System:
What amount of Federal
(1)
Reserve notes has been issued "at the
discretion of the Federal Reserve Board
for the purpose of making advances to
the Federal Reserve Banks, through Federal
Reserve agents",-- as autLorized in the
Please give
Act of December 23, 1913.
the amount of such issue, at the present time,
and, yearly, since the establishment of the
Federal Reserve System;
Please give me the total
(2)
amount of bank notes issued by the Liember
i3anks to the Federal Reserve 13anks, at the
and this same information
present time;
for each year since the establishment
of the Federal Reserve System;
Please give me the total amount,
(3)
at the present time, of the discounts by the
Federal Reserve Banks, for the Member Banks, of
(a)
Discount of obligations
arising out of actual commercial transactions;
(b)
Discount or purchase of
bills to finance agricultural shipments;
•
POTTLE , HARDWICK ,FARKAS & COBB
P-2--Hon. Eugene Meyer.
Discount of acceptances;
(c)
Discount of obligations given
(d)
for agricultural purposes, or based upon
live stock;
Re-discount for Intermediate
(e)
of obligations given for
Banks,
Credit
and,
purposes;
agricultural
All other re-discounts by Federal
(f)
A
Reserve Bapks. 7
/47,43
Le-4.6
4401,
‘1,
I wish this information covering the transactions of tne Federal Reserve Board and Federal
Reserve Banks, for the entire Country, and would
like to have it given as of date June 30, 1931,
and June 30th of each preceding year since the
establishment of the Federal Reserve System.
I had something to IS with the framing and
passage of the Federal Reserve Act, anc am anxious
to learn something about its operations.
believe the nublic is entitled to the information
which I seek, and that, as a citizen of the United
and I hope and have
States, I am entitled to it;
no doubt that the reports and records of your
office will enable you to supply tnis information
withIut any great amount of labor or trouble.
oi
l Very respectfully yours,
`C--fi° aTT
TWH-ok-
November 10, 1931.
Honorable Carter Class,
Lynchburg, Virginia
Dear Senator Glass:
In accordance with my/letter of October twenty-second,
I take pleasure in sending you two copies of certain material
prepared by the Federal Reserve System's Committee on Branch,
Group, and Chain Baakinr. This material covers: (1) Bank
Changes; (2) Suspensions; (3) Banking Costs and 'rofits; (4)
Branch Banking, and (5) Chain and Croup Banking.
The material
in these reports eonsists of tables and charts, together with
a brief explanatory text.
As the data are in preliminary form,
subject to revision, they are not yet ready for publication, and
for that reason have been marked "confidential".
I hope that these reports may be of service to your Sub.committee.
A limited number of copies has been mimeographed,
and the Committee will be plad to supply you with a few additional copies, if you so desire.
With best wishes, I am
Sincerely yours,
'or
Governor
For CIRCUI ATI N
Mr. Hamlin4le
ve
Mr. Jenes
Mr. Mi.ø•
_
Mr. Ili
Mr. Pole _.
October 22, 195'1111° g
Honorable Carter Glass,
Mr.
Lynchburg, Virginia.
Please notu-.1,440and return to GOViIIINOR.
Dear Senator Glass:
I have been out of the city for a few days and this is the
first opportunity I have had to reply to your letter of October
15.
I have discussed with Dr. Goldenweiser, Chairman of the
Committee on Branch, Group and Chain Banking appointed by the Federal
Reserve Board, the status of the work of the Committee.
He tells me
that some of the material that has been gathered by the Comitte
e
probably can be made available to you during the first part of
November.
This material, which will include statistical data, together with
some
charts and explanatory text, with respect to (A) Bank Suspensions;
(B) Earnings and Expenses of National Banks; (C) Banking Concent
ration;
(I.) Branch Banking, and (E) Group and Chain Banking, will
be forwarded
to you as soon as it can be put in shape.
thile considerable progress has been made in connection with
the
other features of the Committee's study, much remains to be
done in the
way of digesting and interpreting the material, and Dr.
Goldenweiser
thinks that some little time may be required to put it into such
shape
that it would be useful to the Committee.
ide have asked him to expedite
the work as much as possible, and he assured me that he
will do so.
M.-th best wishes, I am
Sincerely yours,
Gov-nor.
Form No. 131
Office Correspondence
Governor Meyer
T.
From
FEDERAL RESERVE
BOARD
Date October 16, 1931
Subject:
___Mr_.Crold
OTO
Mr. Harrison told me this morning that the Board has received
a letter from Senator Glass requesting that his sub-committee be
furnished, in so far as possible, with the data collected by the
conmittee on branch, group, and chain banking.
I am sending you herewith a copy of a
report of progress
which Mr. Riddle, tne committee's secretary, has prepared for
submission to the autumn conference of governors and chairmen.
This report of progress indicates the subjects that the committee
is working up and the status of the different investigations.
As
I told you the other day, I do not feel that we can give Senator
Glass anything in the nature of a report from the committee at this
time, because the material has not been thoroughly digested and interpreted, and such reports as have been prepared by the members of
the staff have not been gone over or approved by the committee.
I
think, however, that if the Board thinks it desirable the committee
can furnish
Mr.
Glass with the statistical data, together with some
charts and explanatory text, on the five principal statistical inquiries; namely, (1) Bank Suspensions; (2) Earnings and Expenses •of
National Banks; (3) Banking Concentration; (4) Branch Banking, and
(5) Group and Chain Banking.
I believe the committee can mplre this
material available to the Senator in the early part of November.
2-8495
Governor Meyer,
#2
October 16, 1931
I should like to suggest that you talk this matter over with
Senator Glass in order to make it clear to him that the system
wishes to do whatever it can to be of assistance to him, and that
we are not at this time submitting the entire report 1?ecwse it
does not exist, rather than because we are holding anything back.
7ashington, D. C.
October 14, 1931.
_ Ta
paoc2Ess .72-,
OF THE COMMITTEE 0"; BRANCH, G11.0UP AND CHAIN BANKING
TO THE XIT=N CO=E:CE OF GO7ERNOaS AITD CHAIIMMT
OCTOBIZ, 1931
Immediately after ary)ointment by the Federal Reserve Board on
Februnry 26, 1930, the Committee on Branch, Group and Chain Banking began
to autline the scope of its work and to prepare a program for its investi,;ation.
The task assigned by the Board was very broad in its terms, but
it soon becnne api.)arent to the Committee that in view of the importance of
the time element some very definite limitations to its field of study
shauld of necessity be made.
After surveying the field in a preliminary
way, it was decided to concentrate the Committee Is efforts on certain major projects which bear directly on the question of the bankinG structure
rather than to extend the investigation too broadly.
The phases of the subject to which it was decided to Give most
attention are the following:
v7 (1) Bank Suspensions in the United States
v (2) Larnings and Expenses of Uational BlAks
(3) The Dual Banking System in the United States
./ (4) Banking Concentration in the United St-ttes
(5) Branch Banking in the United States
I/7(6) Group and Chain Danhing in the United States
(7) Branch Banking ia Canada
(6) Branch Banking in England
- 2These projects will be supplemented by a .few brief chapters on
such subjects as:
economic background for bank changes, competition from
non-banking institutions, certain phases of bank supervision, and perhaps
the banking systems of one or two other foreign countries if time permits.
Among the subjects which the Committee feels that it cannot adequately
cover under its present program are:
bankin
supervision in the United
States, functional changes in our banking system, and the banking systems
of other leading foreign countries.
In view of the importance of bank
supervision in this country and its apparent shortcomings it is believed
that any adequate investigation of that subject would have to be made by
a special committee endowed with special powers.
After a survey of the material which was then available on the
various projects listed above, the Committee felt that merely assembling
and analyzing this material would make little contribution to existing
information and would not adequately meet the needs of the situ-Lti6a..
Because of the need for a more comprehensive body of data on which a constructive banking program might be based it was decided to collect through
various channels whatever additional factual material would be necessary
to give a more comprehensive picture of the causes for banking difficulties and of the forces tending towards changes in the banking structure.
Various schedules, questionnaires, forms and tables were,therefore,
prepared designed to secure the desired information regarding; (1) Each of
the 7,000 bank suspensions during the ten-year period 1921-1930; (2) Earnings
and expenses and operating ratios of each national bank for each of five years
1926-1930; (3) The organization, management, operating policies, etc., of
the leading group and branch banking systems of the country;
(4) The
details
— 3 —
of
consolidations and other bank changes (luring the ten-year period; (5)
The affiliations of banks; (6) The classification of all active banks in the
country by size of loans and investments, size of town and size of capital
stock; (7) Examination reports of suspended banks; (8) Farm loans and other
data showing the nature of agricultural commitments; (9) Quality indices of
the investment holdings of banks, and certain other supplementary bits of
information.
Much of this information has been compiled by the Federal reserve
banks but parts of it have been furnished by the state banking departments
and other agencies at the request of the Federal reserve banks. Much of the
material was not received until this past spring and summer, but, with minor
exceptions, it is now in the hands of the Committee, and the process of
analyzing it is well on the way towards completion.
Reports on these major projects have been submitted and are now
being revised, after which they will be worked over for final submission.
The following is -,. brief statement of the scope of the work undertaken under the various DrOjects.
Suspensions. The study on suspensions has been divided into four
sections and material has been collected on each of these phases of the subject.
(1) A statistical analysis which in addition to givin,, the number
and location of suspensions rakes comparisons on the basis of
the size of banks, size of towns, and geographical divisions.
This study also shows the ultimate losses to depositors of
banks completely liquidated.
These detailed statistical data
cover only the period 1921-1930, while for prior years back
to 1890 more general statistical information has been coiled..
- 4 -(2) Causes of suspensions as revealed in the study of examination
reports of a limited number of suspended banks.
This touches
upon such subjects as management, supervision, loan policies,
etc.
(3) Agricultural conditions and bank suspensions.
This is a
study of agricultural changes since 1900, including commodity
prices and land values and their effects upon bankt
tutions.
inctit-
It also includes a study of bank commitments to
agriculture and the general credit conditions in agricultural
districts.
(4)
Florida--a case study of the effects of real estate sp-Jculation on banking institutions.
Earnins and Expenses.
A detailed study of earnings and expenses
of all national banks over a five-year period, 1926-1930, classified according to size of bank, size of community and by geocra7?hica1 divisions.
is supplemented by a presentation of the general movements and factors in
bank earnings and ervenses over several decades.
The Dual Banking System.
An examination of Federal and state bank-
ing laws, recommendations, practices, etc., with a view to determining the
extent of the competition which has existed between the two systems and the
general effects of this competition.
It also includes certain comparisons
and salient facts regarding bank supervision.
Bankin
Concentration.
This is largely a statistical study of the
changes in the number, nature and size of banking institutions including
consolidations, affiliations, etc.
Vb.
-5Branch Bankin,s; in the United States.
The study on branch banking
will be covered in two sections:
(1) A Genern1 statistical and historical study of branch
banking experience in the United States including a
discussion of the sources and causes of oposition and
the factors involved in the branch banking cntroversy.
(2) Branch banking in California.
This is a social study
on the Growth and present position of branch banking in
California including motivating forces, effects of the
development, etc.
Group and Chain Banking in the United States. An outline of the
development and present position of group and chain banking, includin
ganization, management, policies, methods of operation, etc.
or-
It also in-
clvdes a discussion of the problems involved in group banking and the effects of this development.
Much of the material for this report comes from
the questionnaires answered by the principal Groups in the country.
Branch Banking in Can;tda.
This renort has been written and after
a limited mount of editing will be ready for submission.
In includes a
discussion of the following phases of Canadian branch banking:
structure
and supervision, safety, adoquacy of service, cost of service, test of the
post-war deflation, and concentration.
In addition to making use of the
documentary and other published material available in this country, a member of the research staff spent about four weeks in Canada studying the
various phases of branch bankinc.
Branch Dankinr.; in England..
The section on branch banking in Eng-
land, which covers r:dughly the same ground as the Canadian study, has been
prepared and with a limited amount of editing will be ready for submission.
October 16, 1931.
Hon. Carter Glass,
Lynchburg, Virginia
Dear Senator Glass:
In the absence of Mr. Meyer, I acknowledge
receipt of your letter of October 15, 1931.
I shall be pleased to bring it to Mr. Meyer's
attention uDon his return to the office the first part
of next week.
Very truly yours,
(otgneu) I-. L. tali!
Secretary to the Governor
irESLEY L. JONES, WASH., CHAIRMAN
REED SMOOT, UTAH
FREDERICK HALE, ME.
LAWRENCE C. PHIPPS, COLO.
HENRY W. KEYES, N. H.
HIRAM BINGHAM, CONN.
TASKER L. ODDIE, NEV.
GERALD P. NYE, N. OAK.
W. B. PINE, OKLA.
OTIS GLENN, ILL.
FREDERICK STEIWER, OREG.
WILLIAM J. HARRIS, GA.
CARTER GLASS, VA.
KENNETH MCKELLAR, TENN.
EDWIN S. BROUSSARD, LA.
JOHN B. KENDRICK, WYO.
ROYAL S. COPELAND, N. Y.
CARL HAYDEN, ARIZ.
SAM G. BRATTON, N. MEX.
CAMERON MORRISON, N.C.
KENNEDY F. REA, CLERK
JAMES H. DAVIS, ASST. CLERK
'AJCniteb Zfates Zenate
COMMITTEE ON APPROPRIATIONS
Lynchburg, Virginia.
October 15, 1931.
My dear Governor Meyer:
In closing the investigations
of the Sub-committee on Banking and making ready for its
report, I should like very much to have available such
reports of your inquiry into branch, group and chain
banking as you may be able to supply us. My understanding is that during the past year or two you have had
a special committee at work representing the Board and
the several reserve banks and that you are now approaching the conclusion of your analysis.
Without attempting to urge any
compilation of difficult material that is not now already
in hand, it has occurred to me that you may be in position
to furnish the major items of information and the principal
conclusions that you have reached in order that we may
have the benefit of them in the work of our committee.
Sincerely yours,
J41
--y
Chairman.
The Honorable Eugene Meyer,
Governor, Federal Reserve Board,
Washington, D. C.
*tonal.
4
November 30, 1931.
Mr. D. M. Hildebrand, President,
Yebraska Improved Live Stock Breeders Assn.,
Seward, Nebraska
Dear Mr. Eildebrand:
I have your letter of Noveaber 24, 1931, which I have read
with
interest.
The Federal intermediate credit banks, as you probably know,
are
under the supervision of the iederal Farm Loan Board ,
and I am sure there
is every desire on the part of the Board to see them funct
ion as effectively
as possible under existing conditions.
The Federal intermediate credit banks
are not authorized under the law to make loans direct
to stock men, but they
can and do discount agricultural and livestock paper
for state and national
banks, agricultural credit corporations, and livest
ock loan corn-on/lies.
I
understand that a number of credit corporations or loLn
companies recently
have been formed by local interests in some parts of
the territory covered
by the Federal Intermediate Credit Bank of (Aloha, and I
am wondering if it
would not be possible for those interested in the wester
n part of Nebraska
to brinp about the organization of a loan compa
ny, with adequate
capital
and competent management, which would be in a position
to do busineEs with
the Omaha institution.
I note your statement with respect to the delays that
occur in
the handling of the bu8iness of the intermediate credit
banks.
If you
have any concrete instances in mind, I suggest that
you bring them to
the attention of Or. Hogan - the Presidettpf
1
7
Omaha bank./ 1 an sure
Mr. D. M. Hildebrand
2
November 30, 1931.
that he will be glad to go over the :-Ifttea.
with a view of
determining whether the delays were justified and whether anything properly can be d.ore to expedite consideration of anplications from the
companies for which it is discounting paper,
Very truly yours,
Governor
•••••
I
D. M. HILDEBRAND, President
Seward
H. J. GRAMLICH, Treasurer
Lincoln
0. 0. WAGGENER, Secretary
Lincoln
NE -;11? RASKA IMPROVED LIVE STOCK
BREEDERS ASSOCIATION
AGRICULTURAL COLLEGE
OFFICE OF THE PRESIDENT
SEWARD. NEBRASKA
- .21
Honorable Eugene Meyer
Governor Federal aeserve Board
Washington, D. C.
Dear Sir:
Wile attending the joint meetin: of the Federal Reserve
Directors at Kansas City last week, I made mention of
the fact tht in my travels over .Nebraska I found nothing
butpraise for the Federal Reserve Bank 3ystem among the
baakers of our district, but I could not say as much for
the Intermediate Credit Bank.
the way
Apparently it does not 7,Inction in accordance
we
like
times
in
surely
and
function,
to
it was intendeu
people
agriculture
and
.itock
live
now
the
right
are having
do not seem to be able to make very much of the facilities
as the; now operate, in the Intermediate Credit Bank.
I have had an occa3ion to go to Omaha recently ith men
in the western part of the State that had lieed of help
and apparently had sufficient security, but on account of
no local organization they were unable to secure any loans
on their live stock that they had to cffer.
I find a general complaint that it takes too long to get
loans through, :;here they are made, and practically everybody
that I come in contact -7ith that as run up against the
Intermediate Credit Bank,disapproves of the red tape that
they are asked to go through Jith in order to get credit.
If it was possible to get the Intermediate Credit Bank on a
working basis in some iay, whereby it would be made available
with less red tape and less organization, I aria sure it -,:ould
bring relief not only to our banks, but provide our people
with credit that it is not possible to get just now.
At the suggestion of Yr. Mc Lucas I aL calling same to your
attention, honing that in someway a plan can be devised
whereby it will become workable.
Yours
BOARD OF DIRECTORS
CHAS. GRAFF, Bancroft
ALBERT HULTINE, Saronville
NORMAN OSCHNER, Madison
V. W. STRAUB, Avoca
A. N. CLAASEN, Beatrice
T. V. HARRISON, Indianola
C. A. ATKINSON, Pawnee
GEO. HAUSSLER, Holbrook
H. J. McLAUGHLIN, Doniphan
December 15, 1931.
201r. Jos. D. Goodman,
1423 Valnut street,
Philadelphia, Ia.
Dear Fr. Goodman:
In the absence of Governor
eyer, I acknowledge
receipt of your letter of December 14, which I shall be
pleased to brinE to the attention of the Governor upon his
return to the office.
Very truly yours,
(Signed) F. L. Fahy
Secretary to
the Governor
NEWBURGER, LOEB & CO.
MEMBERS OF
NEW YORK STOCK EXCHANGE
NEW YORK CURB EXCHANGE
PHILADELPHIA STOCK EXCHANGE
NEW YORK PRODUCE EXCHANGE
LEBANON, PA.
NEW YORK
40 WALL STREET
1423 WALNUT STREET
ATLANTIC CITY
PHILADELPHIA
NORTH PHILADELPHIA
202 FIFTH AVENUE
HOTEL TRAY MORE BLOCK
I EAST 43
,
ST.
1400 BROADWAY
HOTEL ANSONIA
3732 GERMANTOWN AVENUE
An imr9rtant matter".
Dec. 14, 1931.
Dear Mr. Meyer:
If we permit France to withdraw in gold the 600 million
she is said to have in New York, the reserve ratio will decline from
its present figure of 66 into the 40's, and the rediscount rates will
be put up to 6 or 7 percent. This would cause a 20 point decline in
our .1.4a bonds. Qur banks could not stand this.
The time to place a ban on gold exports is while we
still have some gold left, and I recommend that this be done at once,
without advance notice to anybody. If it were done, confidence would
be restored in our currency, and a lot of money would come out of its
hiding places. This would also prevent iitirore from withdrawing in gold,
the proceeds of the sale of any American securities in our markets which
she might make in the near future.
If we wait until our gold reserve is alncst exhau-sted
before placing this ban, much irreparable damage will have done in
the interim.
Yours sincerely,
To
(I/1
Hon. Eugene eye r, Jr.,
Governor, Federal Aeserve Board,
Washington, D.C.
5
,
December 18, 1931.
Mr. Henry R. Hayes, Chairman,
& Credit Ldvisory .-̀',peci41 Committee,
90 Broad ntreet,
rew York, N. Y.
Dear 7r. Hayes:
Please accept my thanks for your letter of
December 10 and for your courtesy in sending me a copy
of the December 3 issue of Investment Banking, which I
shall read with interest at the first opportunity.
Very truly yours,
Governor
L
INVESDIENT BANKERSAsSOCIATION OFAMERICA
PRESMENT
GOVERNORS
J.AUGUSTUS BARNARD
GOVERNORS
ALLAN M. POPE
NEW yORK
GEORGE W. BOVENiZER
NEW YORK
ROBERT E.CHRISTIE,JR.
NEW YORK
GEORGE N. LINDSAY
EXECUTIVE VICE F'RESIDENT
ALDEN H.LITTLE
NEW YORK
FRANK L.SCHEFFEY
NEW YORK
FRANCIS A.BONNER
CHICAGO
CHARLES D. DICKEy
T.J.BRYCE
CHICAGO
CHICAGO
PHILADELPHIA
HENRY HART
DETROIT
DUNCAN J.MC NABB
DETROIT
FRANCIS MOULTON
LOS ANGELES
DONALD CiMELVENY
LOS ANGELES
E.GERALD HANSON
MONTREAL
LEWIS B.WILLIAMS
NEW YORK
TREASURER
CHICAGO
EDWARD HOPKINSON,JR.
pHILADELPHIA
WILLIAM H. EDDY
SAMUEL W.WHITE
CHICAGO
wiLLIAM T. BACON
MILWAUKEE
ST. LOUIS
BOSTON
BOSTON
GEORGE G. APPLEGATE
DIETRICH SCHmiTZ
SEATTLE
C . T. WILLIAMS
BALTIMORE
SAMUEL O.RICE
FIELD SECRETARY
ARTHUR G.DAVIS
ST. LOUIS
HARRY F. STIX
RALPH HORNBLOWER
EDUCATIONAL DIRECTOR
CHICAGO
HENRY T. FERRISS
JOHN R.CHAPIN
VICE PRESIDENTS
JAMES H.DAGGETT
ROBERT A GARDNER
NEw yORK
CHICAGO
PITTSBURGH
WILLIAM CAVALIER
SAN FRANCISCO
A. E.SCHWABACH ER
SAN FRANCISCO
GEORGE H. NUSLOCH
NEW ORLEANS
CLAUDE G. RIVES,JR.
NEW ORLEANS
JOHN J. ROWE
SECRETARY
D. H. MARTIN
CHICAGO
C.LONGFORD FELSKE
KENELM WINSLOW, JR.
CHARLES B. ENGLE
MARY R. LINCOLN
CHICAGO
EMILy L. BLACK
CHICAGO
CLEVELAND
ALMON A.GREENMAN
MEADE H.WILLIS
OFFICE OF
HAYES. PAST PRESIDENT
DOCCUODZIEK
NEW YORK
90 Broad Street
December 16, 1931
Honorable Eugene Meyer, Jr., Governor
Federal Reserve Board
Washington, D. C.
Dear Mr. Meyer:
Referring to the chats which I had with you
more than a year ago concerning studies on the money and
credit policies of the country which this hssocietion has
been making, I enclose to you herewith Vol.II, No. 2,
December 3, 1931 issue of INVESTMENT BANKING, which gives
a reprint of the report of the special advisory committee
on that subject submitted to the 1931 annual convention.
Yours very truly,
Henry R. Hayes
Chairman
Special
Advisory
Money & Credit
RECEIVED
SEATTLE
ASSISTANT SECRETARIES
HENRY R
r,
CINCINNATI
KANSAS CITY
CHICAGO
1931
Enclosure
Committee
DENVER
ST PAUL
WINSTON-SALEm
@FedFRASER