Full text of Eugene Meyer Papers : Federal Reserve Board : Office Correspondence, 1930, Subject File, Box 119, Folder 2

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

EUGENE MEYER




S U B JE C T

f il e

FEDERAL RESERVE
BOARD

Office Correspondence
deserv e

T 0 ___ F e d e r a l

From

B oard

D ate

S u b je cti_ _ j* e v i s i c m
re

M r » M cC le lla n d

P urchase

of

S eptem ber 3 0 ,

of

mem be r s h i p

Bank

1930

C o n d itio n

S tocks.

2—8495

U nder
F ederal

d a te

of

R eserve

fo llo w in g

re v is io n

and

as

w hether

th e

am ount

by

to

of

a m em ber

June
of

sh a ll
of

oth er
of

to

to

th is

F a ll

At

th e

S ep tem b er

th e

th e
th e

sh ip

th at

change

in

-

p ro v isio n

th at

it

sh a ll

m em ber

to

o b ta in

b e fo re

p u rch a sin g

am ount

of

of

th e

such

bank

"T he
change
G roup

of

order,

stock

in

w ith

th e

fo r
stock

th e

stock

20

th e

be

th e

R eserve

F ederal

of

per

cent

gave

th e

no

of

or

m em ber­

m a te ria l
of
a

a

S tate

bank

fo r

R eserve
th e

th e

10 ;£

on
fo llo w s :

was

added

w here

5 f0

exceed

of

it

be

F ederal

banks

as

co n s id e ra tio n

and

m ig h t

A gen ts

reported

co n d itio n

n ecessary
of

re v is io n

"R e v isio n

C on feren ce

oth er

and u p on

A gen ts.

ca re fu l

S tock s",

th ere

o ffic e

proposed

R eserve

C o n feren ce

present

not

C o u n se l’ s

C on fe re n ce

sm a ll

b lo ck s

to

R eserve
th e

th e

has

of

C on feren ce

of

be

B oard

a g gregate

ca p ita la n d

of

m ade

a

a

of

oth er

th e

u n til

d e fin ite

fo r

p etty

one

th e

ca p ita l

th e

of

m fte ria l
reg a rd in g

th e

th e

C o m m itte e

report

and

on

th e

recom m en d a tion .
annoyances

reason

banks

n e ce ssity
th at

no

co m p le te

th e

have

fe lt

th at

m e m b e rsh ip

m ade

m ade

e lim in a te

stock

B oard

agreem ent

sh o u ld

bank m em bers
of

in

co n d itio n

and

a ris in g

or

an oth er

a cq u ire !

to

r e lie v e

th e

a p p ro v in g

a ctio n

A t t h e sam e m e e t i n g , H r . C u r t i s s , a s C h a irm a n ,
th e F e d e r a l R e se rv e A g e n ts ’ C o n fe r e n c e :




to

purch ased

B oard,

c a p ita l

exceed

re fe r

s u b je ct,

th at

B a n k in g h as

how ever,

S tate

purchases

was

present

bank

w here

F ederal

and

p u r c h a s i n g m em ber ba n k

C h ain

G overnors'
In

does

be

pu rch ased.

th e

and

of
th e

in

th e

except

th e
to

F ederal

Bank

approval

stock

C o n fe re n ce

in

purchase

th e

stock

th e

of

not

a p p ly in g

R eserve

of

not

in

d e cid e d
and

except

a d v is a b le

re feren ce

w h ich m igh t

a fte r

and,

sh a ll

G overnors

in

H was

w ith

and

th e

s u r p lu s ."

X -6 6 9 2 ,

o p in io n
m ade

G overnors

R e g u la tio n

Federal
cent

G overnors'

of

3,

of

was

th e

of

a ll

B oard w h e th e r

re v is io n

in v e s tm e n ts

G overnors

N o.

su rp lu s

of

be

and

P urchase

th e

sh o u ld

m e m b e rsh ip

re

per

su m m a rized

le tte r ,

C o n d itio n

voted

of

C on feren ce

B oard’ s

50

G overnors
of

4

th e

com pany;

total

it

to

th e

co m p a n ie s

th e

com p a n ies

w ere

C h airm an

"T he
to

of

in

except

of

th an

stock

C o n feren ce

S e ctio n

com pany,

its

tru st

le tte r

a d v is a b le :

tru st

B oard,

C on feren ces
J o in t

26,

or

a

a d v is e

tru st

and

m ore

le tte r

by

and

tru st

bank
and

of

p e rm is sio n

own c a p i t a l

co n s id e re d

th e

or
th e

p e rm is sio n ,

banks

its

R e p lie s

banks

a cq u ire

oth er

3

to

co n ta in e d

a p p ro p ria te

bank

not

any

B oard’ s

b e in g

oth er

re ce iv in g

addressed
them

N o.

percen tages

of

Such

B oard

requ ested

co n d itio n

bank w ere

’* ( 3 )

th e

and

th e

stock

and

27,

A gen ts

tak en

reported

such
was
th e

d e s ir e d ."
fo llo w in g

a ctio n

-2-

'• T h is
reached
tim e ,
of

co n fe re n ce

th e

to

R e g u la tio n

b efore

any
bank

"T h e
a

b ea rin g

now
th a t
th e




co n clu sio n

am end

m em ber

b e in g
th e

has

stock

w h ich
of

su b je ct

C o n fe re n ce
upon

to

q u e stio n
are

at

or

a

be

h e ld

w ou ld

B oard’ s

not

be

H o*

3

re q u ire s

tru st

X -6 6 9 2

and

has

d e s ira b le ,

at

th e

co n ta in e d

in

S e ctio n

th e

co m p a n ie s

le tte r

B oard’ s

may

be

present
IV

p e rm issio n

pu rch ased

by

a

co n d itio n .

ad op ted

ch a in

by

th e

m em b ersh ip

present

th e

has

it

of

banks

branch,

stu d ie d

co m m ittee

th at

co n d itio n
H,

re v ie w e d

S ystem
in

a v a ila b le ."

and

th is
group

v ie w

C o m m itte e .
abeyance

because

b a n k in g ,
Ve

u n til

a

th e

th e re fo re
th e

q u e stio n

su b je ct

fin a l

has

w h ich

is

recom m end
fin d in g s

of

THE




FEDERAL

LAN

. OF

HOUSTON

HOUSTON, TEXAS

October 7, 1930,

Mr. James haw,
Banking Comiaaioner,
Austin, Texas.
Dear Mr# Shaw:
In the last 1 3 -1 /2 y
eral Land Bank of
Houston has loaned 0 1 97,807,891
8 borrowers, handling
onal
the business through 3G§
loan associations served
by 808 executive offi
secretary-treasurers•
During this time 31
faulted, embezzled, or
misapplied funds whi
n loss of office, and in
several cases folio
tion and conviction*

These
by the di
this per
of executive |
the same time*

ntage or~3783 plus defaulted out of 808*
ed, not by the Federal land Bank, but
ssociations* I am curious to know how
res with a like record of defalcations
of state banks operating in Texas in

The information requested may require a little tine
to assemble, though you may have it easily available, I have
the thought you may be sufficiently interested in the subject
to have it looked up, and I will appreciate your reply at your
early convenience* I am making a like request of the Comptroller
of the Currency as to national banks operating in Texas covering
the same time*
Thanking you in advance for the trouble here imposed,
I

am

Yours very truly,
/s/ M. H. Gossett
P r e s id e n t*
H IG iE C

F o r m No. 131— -

Office Correspondence
To

Governor Meyer

From

Mr. Golden

FEDERAL RESERVE
BOARD

Date._October 11, 1930

Subject:.
2—8495

You asked me the other day to give you an estimate of the amount
of reserves that has been saved through the more rapid growth of time
than of demand deposits. I have had a calculation made comparing May
U, 1920 with June 30» 1930 and find that on the basis of the distribu­
tion between net demand and time deposits at that time member banks
would at the present time require about $350 ,000,000 more reserves.
This means, speaking very broadly, that the more rapid growth of time
than of demand deposits has had the same effect on the credit situa­
tion during the period as would have an importation of $350 ,000,000
of gold




RECEIVED

CC1 1 3 1930
OFFICE O F

FEDERAL RESERVE
BOARD

D ate

O ct o b e r

1 3 ,1 9 3 0 .

Subject:
From _

Ivlr.

M cC le lla n d

___

2—8495

In
p o licy
b e lo w
m ent

order
o f

a

its

ad op ted

has

on

be

21,

th e

in

‘ B oard,
g iv e

th e

fu lle r

(S e ctio n

At

th e

F ederal
its

R eserve

A gen ts

S ta n d in g
H oxton ,
th e

B oard’ s
at

D u rin g
b e fo re

th e

d iv is io n
in g
o f

state

1926,

fo llo w in g

The

e n tire
but

appear

m atter

was

re so lu tio n

to

th e

B oard,

o f

th e

adequacy

of

th e

by

S tate

e x a m in a tio n ,
t i o n b e made
A ct.




to

o f

th e

o f

bank

of

th e

th e

bank*

on

in

th e

4,

in
up

th e
as

q u e stio n

B oard,

w ork

a ctin g

C on feren ce

of

Jay,

w ith
w h ich

o f

th e

in

th e

th rou gh

th e

o f

a n a ly zin g
th ey
th e

th e

co n d itio n
th e

B oard

o f

1926

and

sp e cia l

e m p lo y
th e

ch ie f
th e

a

a

C om m ittee

C om m ittee

attach ed ,

fo r

th e

th e

a m e e tin g

order

was

was

c o n tin u a lly

p r o p o s a l made

at

B oard,
o f

th at

purpose

such
h e ld

b u sin ess

D epartm ent

D epartm en t,

com p eten t
by

e x e cu tiv e

bank

and
or
or

as

a

and

B oard’ s

e x a m in a tio n s
was

o f

reports

re ce iv e d

e x a m in a tio n
o f

S tate

B a n k in g

are

Re­

a p p o in te d

A gen ts’

is

o f

Federal

M a rtin

th e

copy

o p in io n

a

th e

R eserve

’ by

B o a r d . T”

th e

o rg a n iz a tio n

necessary,

Federal

e x a m in a tio n

M essrs.

to
A ct

made

A g e n ts 1 C on feren ce
of

th e

1926.

0r,

B oard’ s

th e

F ederal

q u e stio n

A ugust

to

be

to

o f

th e

co o p e ra tio n
th e

A ugust

th e

th rou gh

w h ich

th e

order

be

R eserve

E x a m in a tio n s

com posed
o f

o f

sh a ll

Federal

on

in

on

F ed era l R eserve

d ir e c tio n

The

w hen,

as

th e

R eserve

su p e rv isio n

E x a m in a tio n s ,

by

1925.

w ork

F ederal

e x a m in in g

co o rd in a tin g

report

ta k en

and

o f

of

bank

A ugust

and

th e

ex a m in er

e x a m in a tio n

th e

B oard

o ffic e r ,

o f

and
h is

each

report
o p in io n

w hether

or

not

ch aracter

of

e x a m in a tio n

th e

e x a m in a tio n

d is clo se d

w arran ts th e B oa rd ’ s d ir e c t in g a
in a c c o r d a n c e w it h S e c t i o n IX o f
'

by

th e

in

a
ex a m in ­

e x a m in a tio n s
on

ad op ted :

pu rpose
state

th e

o f

u n til

That

m em ber

con d u cted

o f

th e

a ll

reserve
by

o f

report

under

C o m m itte e

p e rio d
in

g iv e n

re so lu tio n

co o rd in a tin g

on E x a m in a tio n s,

not

is

e sta b lis h ­

D iv isio n .

B oard

made

Federal

th e

h e ld

e sta b lis h e d

o p in io n

of

System

approved

was

th at

fo llo w in g

p r e s 'e n t

th e

th e

p ro v isio n s

fin a l

w ith

to

th e

fa ll

C o m m ittee

th is

th e

and

D iv isio n

on E x a m in a tio n s

"R ESOLVED ,
fo r

E x a m in a tio n s

th e

m em ber b a n k s

th is

on

o f

a m e e tin g

m em ber b a n k s

th e

re fe rre d

B oard

be

su b m itte d

su p e rv isio n

C o m m ittee

co n n e ctio n

th e

th ere

M em ber B ank E x a m in a t io n ,

th e

th e

o f

m em ber b a n k s

d is co n tin u a n ce .o f

was

C o m m ittee

su b m itte d

in

under

in

d e v e lo p m e n t

o f

E x a m in a tio n ,

on E x a m in a tio n s.
to

o f

o f

its

th e
or

B oard

th e

M ille r

H eserve

o f

th e

1925:

p ra ctica b ility

h e ld

w h ich

sin ce

f e x a m in a tio n s

or

S ystem

o f

th e

in v e s tig a te

to

se le cte d

and

D iv isio n

serve

th a t

su g g e s tio n

a d v is a b ility

o f

p r a c tic a b ility

e ffe ct

9)

ex a m in ers

to

w ith

e x a m in a tio n

D iv isio n

C om m ittee

th rou g h

B oard

a

17,

F ederal

a ctin g

R eserve

o f

19 24 M r.

and

to

a ctio n

fo llo w e d

requ ested

a d v is a b ility
w ork

th e

been

a cq u a in te d

regard

S ep tem b er

"T h at
B oard

may b e

w ith

o rg a n iz a tio n

w h ich

On N o v e m b e r
was

you

B oard

m em orandum o f

in

p o licy

th at

th e

h is

p o licie s
report

o f

s p e c i a l ex a m in a ­
th e F ed era l R eserve

11,

F o rm N o. 131

O ffice Correspondence

FEDERAL r e s e r v e
BOARD

Date.

T o __

Subject:

From

-2-

2—84#ft

"BE IT FURTHER RESOLVED, in order th at there may be a v a il­
able a s t a f f o f examiners to conduct such s p e c ia l examinations
o f s ta te member banks as may be found necessary by the Board
fo llo w in g the report o f the bank examiner r e fe rre d to in the
previous r e s o lu tio n , that the Governor be authorized to employ
as and when necessary the se r v ic e s o f a s u f f i c i e n t number o f
bank exam in ers."
On August 2 3 , 1926 Governor C rissin g e r and Mr. McIntosh were appointed
a committee with power to n egotiate fo r the employment o f the examiners
contemplated in the above r e s o lu tio n , and on September 2 , the committee re­
ported the employment o f Mr. H. W. Black as an examiner, e f f e c t iv e September
1s t .
The Governor sta te d at th is meeting that the committee a ls o had in
mind the l a t e r employment o f Mr. Claude G ilb e r t , who was then serving as
A s s is ta n t Federal Reserve Agent a t the Federal Reserve Bank o f A tla n ta ,
and that the Committee was a ls o n egotiatin g*w ith se v e ra l other examiners.
During th is period the question o f the scope o f the work contemplated
by the r e so lu tio n adopted on August 11 was before the Board but no d e fin ite
a c tio n was taken, and a t the meeting on November 3 , 192 6 , the Board*s Committee
on Examinations submitted a report reading in part as fo llo w s :
"The Board’ s Committee having given con sid eration to the re­
port o f the A gents' Committee on Examinations, begs leave to make
comment and recommendations th e r e to .
"The Federal Reserve A gen ts' Committee in summarizing i t s re­
port to the B oard's Committee makes the fo llo w in g statem ent:
'The Committee b e lie v e s in m aintaining and improv­
ing the present examination p r a c tic e .
I t does not favor
the concentration o f Federal Reserve examining resp on si­
b i l i t i e s in the Board because i t b e lie v e s i t should be
exercised in cooperation with S ta te Supervisors and Chief
N ational (Bank) Examiners, and fo r e f f e c t iv e cooperation with
those a u th o r itie s , c lo se personal r e la tio n s are important;
but the Board should s a t i s f y i t s e l f that at a l l times the
Federal Reserve Agents are s a t i s f a c t o r i l y discharging th e ir
r e s p o n s ib ili t ie s in th is regard and should require from
them such current inform ation as i t d e s ir e s .
This i s a
fundamental fea tu re o f the program which the Committee
recommends.*
"th e inform ation before the B oard 's Committee a t the present
time i s not s u f f i c i e n t to enable i t to determine to what extent i t
may u ltim a te ly become necessary to c e n t r a liz e , under the Board,
c e rta in featu res o f the examination work in order to more e f f e c t i v e ­
l y coordinate the examination work o f the system.
In the main, how­
ever, the Committee fin d s i t s e l f in hearty accord with the recomrmendations as above r e c ite d , and b e lie v e s th a t fo r the present the
Board should hold the Federal Reserve Agents resp o n sib le and should




F o rm N o. 131

✓ N

CCm

1

Urrice Correspondence
T o ___

_..

...

__________________

FEDERAL RESERVE

B
0A
R
D

.._

Date.

Subject:

F r o m ____ -_______________________________

______

- 3-

oro

"ta k e such measures as may be necessary to s a t i s f y i t s e l f that the
Federal Reserve Agents are ’ s a t i s f a c t o r i l y discharging th e ir re­
s p o n s i b i l i t i e s in t h is r e g a r d .’
"I n order to provide the Board with a l l data necessary to en­
able i t to determine the most p ra c tic a b le manner in which to pro­
ceed in the f u l l discharge o f i t s r e s p o n s ib ili t ie s with reference
to the examination o f member banks, the Board’ s Committee would
recommend the appointment o f a man w e ll q u a lifie d fo r the work,
to make a survey, and report as to the e ffic ie n c y and thoroughness
o f the examinations and c r e d it in v e stig a tio n s made by each Federal
Reserve bank, and as to the e ffic ie n c y and thoroughness o f the ex­
aminations o f S ta te banking departments - with p a r tic u la r reference
to the question whether the S ta te exam inations, or C learing House
exam inations, furnish the inform ation to Federal Reserve banks upon
which they may s a fe ly act when asked to extend c r e d it .
This survey
should not only bring in a d d itio n a l inform ation to the Board, but
should r e s u lt in recommendations fo r such a ctio n or changes o f
p o lic y as may be in d icated so that the Board may at a l l times f e e l
assured o f the competency o f the examination o f member banks.
"The Committee does not f e e l th at i t w i l l be in a p o s itio n to
make a f i n a l recommendation on the question submitted to i t in the
r e so lu tio n o f November 2 1 , 1 9 2 4 , to w it: ’ The a d v is a b ilit y and
p r a c t ic a b ili t y o f coordin ating a l l examining work in the Federal
Reserve System under the su p ervision o f the B o a rd ,’ u n t i l the d ata,
inform ation and recommendations which w i l l r e s u lt from the survey
recommended above, are a v a ila b le .
"The Board’ s Committee b e lie v e s that the id e a l system fo r
S ta te bank members in many S ta te s would be to have one examination
by S ta te a u th o r itie s , and one by Federal Reserve a u th o r itie s each
year. This cannot be done under S ta te laws excepting in a few
S ta te s at the present tim e, but an e f f o r t should be made to obtain
the necessary amendments to S ta te laws so that i t may be author­
iz e d .
Complete jo in t examinations by S ta te and Federal Reserve
a u th o r itie s are o fte n a ls o d e sira b le and an amendment to the
Federal Reserve Act to permit such examinations should be recommend­
ed when opportunity o c c u r s ."
A motion was adopted t e n t a t iv e ly approving recommendations contained
in the Committee’ s report and requesting the Committee to report back in
d e t a il the proposed d u ties o f the examiners whose employment was
recommended.
At the meeting on November 2 2 , 1926 the Committee on Examinations, in
accordance with the request made a t the meeting on November 3 , submitted a
memorandum s e t t in g fo r th the fo llo w in g questions in connection with the
survey o f examinations recommended in the Committee’ s rep o rt:




2 — 8495

F o rm N o. 181

O ffice Correspondence

FEDERAL RESERVE
BOARD

Date_.

T o __

Subject:

From

- 4-

" ( 1 ) Do the examinations now made give the necessary in fo r ­
mation to enable the Federal Reserve Board to determine whether or
not the member banks are operating w ithin the requirements o f the
Federal Reserve A c t, the reg u la tio n s o f the Board and the condi­
tio n s o f membership?
" ( 2 ) How are the examining fo r c e s o f each o f the Federal reserve
banks se le c te d and organized? Is the personnel o f the examining
fo rce made up o f men q u a lifie d and train ed fo r th e ir work? What
experience in bank examination did they have before en terin g the
Federal Reserve bank?
" ( 3 ) Are th6 Federal reserve banks r e ce iv in g adequate inform ation
as to the con d ition o f the S ta te member banks upon which they may
s a fe ly act in extending c r e d it?
" ( 4 ) Are th e ir examining fo rce s capable o f conducting an examina­
tio n o f the la r g e r banks in th e ir d i s t r i c t s ?
” (5)
Are t h e ir examining fo r c e s making adequate c r e d it in v e stig a ­
t io n s , which in volve the loan p o l i c i e s , personnel and o rg a n iza tio n ,
as w ell as an ap p raisal o f the a s s e ts o f a bank?
"( 6 )
How fa r do they r e ly on S ta te exam inations? By what means
do the Federal Reserve banks determine whether S ta te examinations
are adequate fo r t h e ir purposes and are the methods by which they
determine whether S ta te examinations should be accepted adequate?
" ( 7 ) Where Federal reserve examiners p a r tic ip a te with S tate ex­
aminers in t h e ir examinations o f s t a t e member banks does such
p a r tic ip a tio n tend to r a is e the standard o f S tate examinations?
w(8)
To what extent are Federal reserve banks aware o f the develop­
ment o f unfavorable con d ition s in member banks, through th e ir d a ily
con tacts - cash l e t t e r s , lo a n s, e t c .?
" ( 9 ) When the Federal reserve bank r e c e iv e s reports o f exam inations,
or makes c r e d it in v e s tig a tio n s , or otherw ise obtain s inform ation
with r e la t io n to the con d ition o f a member bank, i s the inform ation
p rop erly analyzed and f i l e d so that i t can be r e a d ily obtained?
" ( 10) What step s are taken by Federal reserve banks to secure the
co rre c tio n o f u n s a tis fa c to r y cond itions in member banks?
" ( 11) In general what can the Federal Reserve Board do to improve
examinations in d i s t r i c t s or in s ta te s where they are most in need
o f improvement?"
As a r e s u lt o f the d isc u ssio n which ensued, the fo llo w in g r e so lu tio n s
were unanimously adopted:
" ( 1 ) That the report o f the Board’ s Committee on Examinations,
dated October 3 0 , 1 92 6 , which report was te n ta tiv e ly approved by
the Board a t the meeting on November 3r d , be now d e f i n i t i v e l y ap­
proved, and the recommendation contained th e r e in , to the e f f e c t
that a competent examiner be appointed fto make a survey, and re­
port as to the e f f ic ie n c y and thoroughness o f examinations and




F o rm N o. 131

> "V /« /• •

|

Urnce Correspondence
To_.

FEDERAL RESERVE

B
0A
R
D

....... ........1_________

Date.

Subject:____ _____

F r o m ____________________________ ________

__

__________

________________________________ ’_____
or o

2— 8495

- 5"c r e d it in v e stig a tio n s made by each Federal reserve bank, and as
to the e ffic ie n c y and thoroughness o f examinations o f S ta te bank­
ing departments’ , be adopted;
" ( 2 ) That the o u tlin e o f the scope o f the proposed survey,
presented today in a supplementary report o f the Committee on Ex­
am inations, be approved;
" ( 3 ) That fo r the purpose o f making th is inquiry and survey
Mr. Claude G ilb e r t be employed by the Board e f f e c t iv e November
2 4 , 1 92 6 , with the t i t l e o f Supervisor o f Examination, with
compensation a t the rate o f $ 1 0 ,0 0 0 a yea r, and that fo r adm inis.
t r a tiv e purposes he be connected with the o f f i c e o f the S ecretary
o f the Board; and
" ( 4 ) That a c tio n under that paragraph o f the Board’ s re so lu ­
tio n o f August 1 1 , 1 9 2 6 , reading ’ in order that there may be
a v a ila b le a s t a f f of examiners to conduct such s p e c ia l examinations
o f s ta te member banks as may be found necessary by the Board fo llo w ­
ing the report o f the bank examiner referred to in the previous
r e s o lu tio n , that the Governor be authorized to employ as and when
necessary the se r v ic e s o f a s u f f ic ie n t number o f bank examiners’ ,
be suspended u n t i l the r e s u lt s o f the survey to be undertaken by
the Supervisor are a v a ila b le , when i t may be determined how fa r
i t may be necessary fo r the Board to go in i t s e l f undertaking
member bank examinations through a d iv is io n o f member bank ex­
am ination. ”
In accordance with the above Mr. Claude G ilb e r t was employed by the
Board, e f f e c t iv e November 2 4 , 1 9 2 6 , with the t i t l e o f Supervisor o f
Examination.
At the meeting o f the Board on November 3 0 , the attached report o f the
d iscu ssio n s at the November 1926 Federal Reserve A gents’ Conference and the
recommendations made by that Conference was referred to the Board’ s
Committee on Examinations.
The Committee on Examinations brought the
a c tio n o f the Conference up fo r d isc u ssio n at a meeting o f the Board on
December 10th , at which time the S ecretary reported that Mr. G ilb e r t had
completed that p ortion o f the survey regarding the examination o f s ta te
member banks that could be completed in Washington, and that he contemplated
v i s i t s to some o f the Federal Reserve Banks to secure a d d itio n a l inform ation.
The Committee on Examinations was vested with au th o rity in the m atter o f
perm itting v i s i t s to Federal Reserve Banks which Mr. G ilb e rt had in mind,
and a t the meeting on December 14th , reported th at i t had met with Mr.
G ilb e r t and gone over with him the work he had accomplished to date in the
m atter o f the survey he was making and had authorized him to proceed to the
Federal Reserve Bank o f S t . L ou is.
At the meeting o f the Board on A p r il 1 4 , 1927, report made by Mr. G ilb e rt
on h is v i s i t to the S t . Louis Bank, togeth er with the fo llo w in g general




F o rm N o. 131

O ffice Correspondence

FEDERAL RESERVE
BOARD

Date_

T o __

Subject:_

From _

6recommendations made by him, was considered:
" 1.
That the examination o f s ta te member banks continue, as
a t p rese n t, under the d ir e c t su p ervision o f the Federal Reserve
Agent o f S t , L o u is, but that the Board p rescribe and maintain
the necessary routine fo r observing the d e t a ils o f h is examining
o p eration s.
" 2.
Requirement by the Board th at a l l reports o f examination
o f s ta te member banks s h a ll be analyzed, as soon as received by the
Federal Reserve Agent, by h is C hief Examiner or other q u a lifie d
persons in h is examining department fo r the purpose o f adequately
appraising the f a c t s and fig u r e s recorded fo r the inform ation and
guidance o f h im se lf in connection with h is supervisory d u ties
and o f the loan o f f i c e r s o f the Federal Reserve Bank in extend­
ing c r e d it and that copies o f such analyses s h a ll be forwarded
to the Board with the rep orts to which they r e la t e .
" 3 . Adoption by the Board o f a s u ita b le form o f a n a ly sis to
be used by the C hief Examiner, or others in the Examining Depart­
ment o f the Federal Reserve Agent, whose duty i t may be to analyze
r e p o r ts.
n4 . The undertaking by the Board, through a competent bank
examiner employed fo r the purpose, o f i t s own regu lar and thorough
review o f analyses o f rep orts as prepared in the Agent’ s Depart­
ment, the reports to which they r e l a t e , and a l l r e la t iv e corres­
pondence, fo r the fo llo w in g purposes:
*a.
To inform the Board o f the current con d ition o f
S ta te Member Banks;
*b. To d is c lo s e whether the Federal Reserve Agent is
p rop erly performing fo r the Board i t s sta tu to r y d u ties r e la t in g
to exam inations; and
Tc.
To determine the q u a lity and scope o f the work o f
the in d iv id u a l Federal Reserve Examiners, and S ta te Examiners, in
those in stan ces where th e ir rep o rts are s o le ly r e lie d upon.
”5 .
Adoption by the Board o f a form o f report th a t s h a ll be
used in the examination o f S ta te Member Banks in the Eighth D is t r ic t
and s h a ll provide fo r the c e rta in assembling o f a l l inform ation re­
quired to determine solven cy, character and cap acity o f management
and v io la tio n s o f the Federal Reserve Act and the Board’ s regula­
tio n s and con d ition s o f membership based thereon, and be so designed
as to f a c i l i t a t e a n a ly s is .
”6.
Requirement by the Board that Federal Reserve Examiners
in assem bling fa c ts and fig u r e s and w ritin g reports s h a ll fo llo w
c e r ta in recommendations, made in the attached report o f survey, de• signed to improve the a r t o f r e p o rtin g , render more or le s s complete­
l y i n t e l l i g i b l e to reviewing a u th o r itie s m atters s e t fo r t h , p a r tic u .
l a r l y with referen ce to c r i t i c i z e d items o f loans and d iscounts and
other a s s e t s , and provide a means fo r r e a d ily fo llo w in g the cond i-




F o rm N o. 131

O ffice Correspondence
T o ____________ __________ :___________ ___

FEDERAL RESERVE
BOARD

Date.

.

Subject:.

F r o m ___________
,o

2— 8495

- 7"t i o n o f a bank from examination to examination.
”7.
In siste n c e by the Board th at rep o rts o f examination made
by S ta te Examiners without p a r tic ip a tio n by Federal Reserve Examiners,
which are accepted and r e lie d upon with respect to S tate Member Banks
in I l l i n o i s , s h a ll provide fo r the assembling o f a l l inform ation
needed by the Board and the Federal Reserve Bank in the discharge
o f th e ir d u ties and r e s p o n s ib il i t ie s ; otherw ise, S ta te Member Banks
in that S tate to be examined by Federal Reserve Examiners and the
c o sts a ssessed and c o lle c te d from the banks examined.
,r8 .
Requirement by the Board that the Federal Reserve Agent
s h a ll so arrange the work o f h is examiners that reports o f examina­
tio n may be forwarded promptly a ft e r the examination to the Boardf s
Examination D iv isio n .
”9 .
Inauguration by the Board o f the p ra c tic e o f r e fe r r in g
r e g u la r ly and cu rren tly such inform ation as a n a ly sis o f reports
rev ea ls to the Board’ s Examining Committee who s h a ll be in stru cted
to supervise the carrying on o f correspondence with the Federal
Reserve Agent designed to develop, when necessary, fu rth er in fo r ­
mation than the reports and analyses show and to in stru c t him
g en era lly or s p e c i f i c a l l y as need may a r is e , to the end that ex­
amination p ra c tic e may be p erfected in scope and q u a lity , the law
f u l l y enforced and member banks kept in a clean and sound c o n d itio n .
" 10.
The undertaking by the Board o f an in v e s tig a tio n and study
to determine the most s u ita b le and l e a s t burdensome method o f a sse s­
sin g and c o lle c t in g , or paying, the c o sts o f examination o f State
Member- Banks to the end that thorough and complete examinations
may be made and misuse o f the s o -c a lle d c r e d it in v e s tig a tio n fo r
general examination purposes ended.
" 11.
Requirement by the Board that a l l S ta te members s h a ll be
examined by Federal Reserve Examiners operating j o i n t l y with S tate
Examiners in those S ta te s with which co -o p era tiv e arrangements are
now in e f f e c t , a t le a s t once in each calendar year, and that a l l
s e r io u s ly sub-standard S ta te members s h a ll be examined by Federal
Reserve examiners, operating independently o f other a g en c ies, at the
e a r l i e s t p ra c tic a b le time and the c o sts assessed in accordance with
the present law with a view to taking prompt r e h a b ilita tio n measures
o r , in appropriate c a se s, moving fo r expulsion from membership.
" 12.
Requirement by the Board that in connection with each
Federal Reserve examination or c r e d it in v e s tig a tio n , there s h a ll be
s e t up in the report a b r i e f survey o f lo c a l economic cond itions
e s s e n tia l to a f u l l understanding o f other fa c ts and fig u r e s re­
corded th e r e in , the scope and d e t a ils o f which to be adopted a ft e r
fu rth er in v e s tig a tio n and conference with the Board’ s D iv isio n o f
S ta tis tic s .
” 1 3 . Adoption by the Board o f a requirement that ap p lican ts
fo r appointment as examiners s h a ll be required to pass an examina­
tio n to t e s t th e ir f it n e s s to be conducted by re p resen ta tiv es o f




F o rm N o. 131

O ffice Correspondence

FEDERAL RESERVE
BOARD

Date.

T o __

Subject:____

From

8"th e Board a f t e r re ce iv in g from the Federal Reserve Agent a complete
statement r e la tin g to th e ir education, previous business or other
experience and s p e c ia l q u a lific a tio n s fo r examining work in accord­
ance with an o u tlin e to be adopted,
" 1 4 . Adoption by the Board o f the p o lic y and p ra c tic e o f fu r­
n ish in g to member banks without c o s t , su p p lies o f in d iv id u a l, firm
and corporate forms o f statem ents o f a s s e ts and l i a b i l i t i e s to be
used by them in assembling c r e d it data r e la t iv e to borrowing
customers and the issuance o f s p e c ia l in str u c tio n s to the Federal
Reserve Agent d ir e c tin g him to s y s te m a tic a lly and p e r s is t e n t ly use
every reasonable means o f insu rin g the keeping by member banks o f
adequate c r e d it f i l e s .
" 15.
Requirement by the Board that the Examining D iv isio n and
the D iv isio n o f S t a t i s t i c s c o lla b o ra te in an undertaking to deter­
mine the best method o f studying r e a l e sta te values throughout the
country, p a r tic u la r ly o f farm lan d s, with a view to supplying bank
examiners with b a sic v a lu a tio n s to be used by them in the ap p ra isa l
o f mortgage loans and a l l other loans dependent in the l a s t a n a ly sis
upon the r e a l property holdings o f borrowers.
" 16.
Issuance by the Board o f s p e c ia l in str u c tio n s to the
Federal Reserve Agent d ir e c tin g that any su b s ta n tia l d e fic ie n c ie s
in accounting form s, books and methods found in S ta te Member Banks
s h a ll be follow ed up and every e f f o r t made to ob tain c o rr e c tio n ,
and in th is connection, that an opinion o f counsel be obtained
on the question o f the p a r tic u la r s and exten t o f the Board’ s
power to enforce s u ita b le and necessary accounting in S ta te Member
Banks.
" 17. Employment by the Board o f a q u a lifie d tr u s t exp ert, to
be loaned to the Federal Reserve Agent, as needed, to make examina­
tio n s o f tr u s t departments o f S tate Member Banks in the Eighth
D i s t r i c t , whose s p e c ia l duty i t would be to read and make w ritten
analyses o f tr u st indentures fo r the guidance o f Federal reserve
and S ta te examiners in th e ir regular examinations or c r e d it in v e s t i­
g a tio n s.
" 1 8 . Reference by the Board o f the attached report o f survey
to i t s Examining Committee f o r con sid eration with a view to adoption
o f numerous recommendations made th erein that are not se t fo r th in
t h is l e t t e r o f t r a n s m it t a l."
At t h is same meeting con sid eration was a ls o given to the attached
memorandum from Counsel dated A p r il 6 , 1 92 7 , regarding the powers and d u ties
o f the Board, the Federal Reserve Agents and the Federal Reserve Banks
with resp ect to the examination o f s ta te member banks.
As the r e s u lt o f
the d isc u ssio n at th is m eeting, the fo llo w in g r e so lu tio n s were adopted:
"I n view o f the recommendations contained in the report
o f the survey made by Mr. G ilb e r t o f the work o f examining




F o rm N o. 131

O ffice Correspondence
T o ________

FEDERAL RESERVE
BOARD-

Date_

__________________

Subject:

From _

- 9"s t a t e member banks, the Board continue the examination fu nction
as at p resen t, under the d ir e c t su p ervision o f the Federal
Reserve Agents.
"That the Supervisor o f Examinations, su b jec t to the ap­
proval o f the Federal Reserve Board, be in stru c te d to make
such arrangements as w i l l develop the d e ta ile d routine opera­
tio n s designed to enable the Board to keep i t s e l f informed as
to the con d ition o f S ta te Member Banks, and whether or not
such banks are observing the cond itions o f membership imposed,
and whether or not they are conducting th e ir business w ithin
the p rovision s o f the Federal Reserve Act r e la t in g to S tate
member banks.
"That the Supervisor o f Examinations be in stru cted to pre­
pare a form o f a n a ly sis to be used by the resp e ctiv e Federal
Reserve Agents covering each report o f exam ination, and to
prepare fo r submission to the Board fo r i t s approval, a standard
report form to be used by examiners in the f i e l d under the
d ir e c tio n o f the Federal Reserve A g e n ts.”
In accordance with the r e so lu tio n l a s t quoted, Hr. G ilb e r t , at the
meeting on July 1 2 , 1 92 7 , reported the completion o f the preparation o f a
standard form o f report o f examination and a standard form o f a n a ly sis
o f examination report to be used by the Federal Reserve Agents in the
conduct o f examinations o f s ta te member banks, and fo llo w in g some d iscu ssio n
i t was voted to request Mr. G ilb e rt to prepare a memorandum to the Board
s e t t in g fo r th in d e t a il the variance between the se v e r a l items in the pro­
posed standard form o f report and those in the form o f report now being
used by the Comptroller o f the Currency, and to s e t out in d e t a il c e rta in
fe a tu re s o f the standard form o f report described as experim ental.
I t was
a ls o voted th at fo llo w in g the submission o f the memorandum by Mr. G ilb e rt
the proposed standard form o f report should be submitted to each Federal
Reserve Bank with the request fo r qn expression o f the A gen ts’ vie7/s as
to the p r a c t ic a b ili t y o f i t s use in h is d i s t r i c t .
The question o f the o rgan ization o f the d iv is io n to carry on the work
inaugurated by Mr. G ilb e rt was d iscussed from time to time during the summer
o f 1 92 7 , but no a c tio n was taken. At the meeting on October 18th the fo llo w ­
ing re p o rt, dated September 1 s t , was submitted by the Committee on Examina­
t io n s :
"A c tin g as the Examination Committee o f the Board, we have
gone over with Mr. G ilb e rt the proposed standard form o f report
o f examination designed f o r use by a l l Federal Reserve Agents in
conducting examinations o f member banks o f the Federal Reserve
System and the comparative se t-u p o f the q u estio n s, in str u c tio n s
and m atters o f the proposed form with those o f the report form
used by the Comptroller o f the Currency in the examination o f




F o rm N o. 131

O ffice Correspondence

FEDERAL RESERVE
BOARD

Date.

T o __

Subject:.

From

-10"n a tio n a l banks, which the Board has in stru cted Mr. G ilb e r t to
prepare.
"We have paid p a rtic u la r a tte n tio n to the q u estio n s, in stru c ­
tio n s and m atters o f the proposed form fo r which there are no corres­
ponding q u estio n s, in str u c tio n s or m atters in the C om ptroller’ s
form. We have suggested a number o f changes in the phraseology
o f sev era l questions and in str u c tio n s which have no complete
counterparts in the C om ptroller’ s form which, Mr. G ilb e r t informs
u s, have been made.
’’From the statem ents made by Mr. G ilb e r t , we b e lie v e that
the proposed form in i t s present arrangement and scope should
receive the te n ta tiv e approval o f the Board with au th o rity to
have i t p rin te d , upon the understanding that before i t s h a ll be
f i n a l l y adopted and the Federal Reserve Agents in stru cted to use
i t in th e ir examination work, M essrs. G ilb e rt and Black be author­
ized to v i s i t a Federal Reserve D i s t r ic t and, u sin g the proposed
form, a s s i s t the examining fo r c e o f the Federal Reserve Agent in
making a number o f exam inations.
With the experience and data
thus o b ta in a b le , i t should be p o ssib le to a sc e rta in whether the
a d d itio n a l inform ation c a lle d fo r by the form can be assembled at
a c o st in time and money commensurate with i t s v a lu e.
" I t i s suggested th at a f t e r such a t e s t i s made and the mak­
ing o f any m o d ific a tio n s th a t , in the l i g h t o f the experience
gained, s h a ll appear to be d e s ir a b le , the A s sista n t Federal Reserve
Agents and/or other o f f i c e r s in charge o f exam inations, and the
C hief Examiners o f a l l o f the twelve Federal Reserve banks, be c a lle d
to Washington fo r a conference. With the proposed form as a b a s is ,
i t should be p o s s ib le at such a meeting to reach an agreement as
to a form that w i l l meet the requirements o f a l l d i s t r i c t s and
a t the same time produce a d e sira b le degree o f u n iform ity in the
scope and character o f inform ation r e la t in g to con d ition o f member
banks required fo r the Board’ s p u r p o se s."
Following a d isc u ssio n , the proposed standard form o f report o f
examination prepared by Mr. G ilb e r t was te n ta tiv e ly approved and ordered
printed and M essrs. G ilb e r t and Black were authorized to v i s i t the Federal
Reserve Bank o f S t . Louis fo r the purpose o f p a r tic ip a tin g in independent
examinations conducted by the Federal Reserve Agent at S t . L ou is, in which
exam inations, the proposed standard form o f report o f examination would be
used.
At t h is time there were employed in the work being conducted by Mr.
G ilb e r t f iv e employees including Messrs G ilb e r t and B lack , Mr. Good, an
examiner, and two stenographers.
A t . t h e meeting on October 18 th , the S ecretary reported that Mr.
G ilb e r t had been able to comply only p a r t i a l l y with the Board’ s in str u c tio n s




F o rm N o. 131

O ffice Correspondence

FEDERAL RESERVE
BOARD

Date.

Subject:.

T o ____

From _____________________________ l___
iro

2—8495

-1 1 that he make a survey and report as to the e ffic ie n c y and thoroughness o f
examinations and c r e d it in v e stig a tio n s made by each Federal Reserve Bank,
and as to the e ffic ie n c y and thoroughness o f examinations o f S ta te Banking
Departments, in that such surveys had been made in only the S t , Louis and
Kansas C ity d i s t r i c t s , surveys in the other Federal Reserve D i s tr ic t s being
delayed because o f Mr. G i lb e r t ’ s a c t i v i t i e s in the preparation o f the report
form. He fu rth er sta te d that i t was not contemplated that any fu rth er surveys
would be made as those completed in the S t . Louis and Kansas C ity d i s t r i c t s
were considered to be ty p ic a l and fu rth er surveys b elie v ed unnecessary.
Between th is date and the middle o f 1928 Mr. G ilb e r t v i s i t e d the
Federal Reserve Banks o f C leveland, Richmond, A tla n ta , Chicago, S t . L o u is,
Minneapolis and Kansas C ity f o r the purpose o f try in g o u t, in those d i s t r i c t s ,
the form o f examination report prepared by him and the proposed form was a ls o
d iscussed with re p resen ta tiv es o f the Federal Reserve A gents’ departments o f
the various Federal Reserve Banks.
At the meeting o f the Board on A p r il 9 , 1928 the Governor referre d to the
work being done under the su p ervision o f Mr. G ilb e r t and presented to the
Board sev era l l e t t e r s and memoranda submitted to him r e la t iv e to the con d ition
o f s ta te member banks as d isc lo se d by reports o f exam ination. He sta te d that
he objected to sig n in g c e rta in o f the l e t t e r s as he did not agree with the
p o s itio n apparently held by Mr. G ilb e r t that the Board, through the Federal
Reserve A gents, should attempt c o rrec tio n o f c r i t i c i z e d m atters d isc lo s e d by
the exam inations.
He expressed the opinion that the Board’ s r e s p o n s ib ilit y
is lim ite d to determining whether or not the s t a t e member, on the b a sis o f
i t s con d ition as d isc lo se d by the examination, should be perm itted to continue
to r e ta in i t s membership in the Federal Reserve System. He sta te d that as
he has already in form ally advised the Board, a procedure has been made
e f f e c t iv e at c e rta in o f the Federal Reserve Banks whereby a report o f
examination d is c lo s in g a s ta te member bank to be in an u n sa tisfa c to r y
con d ition i s presented by the Federal Reserve Agent to the Executive Committee
o f the bank and is forwarded to the Board with a d e fin it e recommendation as
to what i f any a c tio n should be taken regarding the bank’ s membership.
He pointed out fu rth er th at the Board has never form ally adopted a d e fin ite
p o lic y with respect to the scope o f the work to be conducted by Mr. G ilb e rt
and sta te d that by the absence o f such a p o lic y he i s handicapped in d ealin g
with the m atters submitted to him by Mr. G ilb e r t.
While a d e ta ile d d iscu ssio n
o f the general question o f examination o f s ta te member banks was had a t th is
m eeting, no a c tio n was taken.

13

The m atter was again d iscu ssed at the meeting on June 12 and on June
the fo llo w in g motion was adopted by the Board:
"That the work o f the Supervisor o f Examinations and the
se v e r a l employees a s s is t i n g him be developed along the lin e s o f
cooperating with the Federal Reserve Agents in the conduct o f




F o rm N o. 131

dT\CCm

1

Urrice Correspondence
To_

FEDERAL RESERVE

B
0A
R
D

........

Date_

Subject

From _
2-M05

-1 2 -

"th e work o f member bank examinations and o f e s ta b lis h in g an
ad m in istrative check over the operations o f the examining
departments in charge o f the Federal Reserve Agents and o f
improving the e ffic ie n c y o f said Departments where, a ft e r
in v e s tig a tio n , i t may seem to be needed; and th at the Board’ s
Committee on Examinations be requested to report to the Board
a p r a c t ic a l o u tlin e o f the procedure to be follow ed in t h is
d ir e c tio n by the Board’ s Supervisor o f E xam inations.”
At the meeting on October 4 , 1928 con sid eration was again given to
the scope o f the work t o 'b e undertaken by the Federal Reserve Board, through
the o f f i c e o f Mr. G ilb e r t .
During the d isc u ssio n a t th is meeting the question
as to whether i t i s the duty o f the Federal Reserve Board to s a t i s f y and
keep i t s e l f informed as to the con d ition o f s ta te member banks was form ally
answered in the a ffir m a tiv e .
At the meeting o f the Board on October 9th , fu rth e r d isc u ssio n was had
with regard to the m atter o f examinations and sev era l r e so lu tio n s were
introduced as a b a s is fo r the Board’ s p o lic y in connection with the examina­
tio n o f member banks, and at the meeting on October 10th , the fo llo w in g
r e so lu tio n s were adopted:
"BE IT RESOLVED, That the Federal Reserve Board recognizes
i t s duty under the Federal Reserve Act to keep i t s e l f informed as to
the con d ition o f a l l member banks;
"BE IT FURTHER RESOLVED, That the Board i s o f the opinion that
i t is j u s t i f i e d in r e ly in g upon the Com ptroller o f the Currency f o r
such inform ation as to N ation al banks;
"BE IT FURTHER RESOLVED, That whenever the reports o f examina­
tio n o f S ta te member banks furnished by the S ta te a u th o r itie s are not
deemed s a t is fa c t o r y e ith e r to the Federal reserve bank o f the d i s t r i c t
concerned or to the Federal Reserve Board, the Federal reserve bank or
the Board s h a ll cause to be made at le a s t one examination or in v e s tig a ­
tio n each year o f such character as to fu rn ish s a t is fa c t o r y inform ation,
the c o st o f such examinations to be assessed aga in st the member banks
examined."
At the meeting o f the Board on October 1 1 , 19 2 8 , the Governor presented
d r a ft o f a memorandum s e t t in g fo r th ru les and re g u la tio n s with respect to
the examination o f s ta te member banks, together with d ra ft o f a proposed
l e t t e r to a l l Federal Reserve Agents ad visin g o f the r u le s and regu la tio n s
and s e ttin g fo r th a general procedure to be follow ed in making them
e ffe c tiv e .
Copies o f t h is memorandum, one o f which i s attach ed , were fu rn ish ­
ed to a l l members o f the Board fo r d iscu ssio n a t a l a t e r meeting.




F o rm N o. 131
|

Urtice Correspondence

FEDERAL RESERVE

B
0A
R
D

To__

Date.

Subject:

From _
-1 3 -

2—8495

At the request o f the Governor, h is memorandum o f October 12th was
re fe rre d to the 1928 F a ll Conference o f Federal Reserve Agents,
and on November 13th there was submitted to the Board advice o f the a c tio n
o f the Agents* Conference in v o tin g to concur in the statements contained
in the memorandum and in the proposed l e t t e r , with one excep tion .
At the meeting o f the Board on December 4th fu rth er d isc u ssio n was had
regarding Governor Young's memorandum and the proposed l e t t e r to a l l Federal
Reserve A gents, fo llo w in g which i t was unanimously voted as fo llo w s :
MThat the present set-u p o f the Federal Reserve Board, known
as the Department o f S ta te Bank Examination, be a b o lish ed , e f fe c t iv e
February 1 , 1929.
"That the Federal reserve agents be acquainted by l e t t e r with
the r e s p o n s ib ili t ie s o f the Federal Reserve Board as the Board sees
them, and that the agents be charged with the duty o f seeing to i t
that the B oard's views are carried o u t.
"That r e s p o n s ib ilit y fo r proper fu n ction in g by the Federal Res­
erve Agents be placed upon the C hief Examiner, who now does a good
d eal o f th is work, and that a q u a lifie d man tr a v e l with the examin­
ing force and spend s u f f ic ie n t time in the a g en ts' departments o f
the reserve banks v is i t e d to in v e stig a te the ag en ts' bank examina­
tio n departments to see that the in str u c tio n s o f the Board are be­
ing carried out.
"That the Federal reserve agents be in stru cted to discontinue
th e ir present p ra c tic e o f fu rn ish in g the Board with reports o f
examination o f S ta te member banks, except in extreme cases where
the agents may wish to ask fo r advice or request the Board to cancel
membership; and that in lie u o f the complete report o f examination,
the agents fu rn ish the Board with a m odified a n a ly sis o f the bank's
c o n d itio n , a w ritten statement as to i t s general c o n d itio n , a l i s t
o f v io la tio n s o f the law, and other v io la tio n s a ff e c t in g the terms o f
membership o f the bank.
This report should a ls o be accompanied, i f
n ecessary, by a l e t t e r from the agent s ta tin g the c o rr e c tiv e measures
that have been taken by S tate a u th o r itie s or by the Federal reserve
agent h im se lf.
"That a l e t t e r o f in s tr u c tio n be given to the C hief Examiner as
to what the Board wants him to watch p a r t ic u la r ly , and at any time he
has a case where he f e e l s everything i s not being done that could be
done by the agent, or where he f e e l s the S ta te member bank i s in such
a con d ition that i t s membership is not d e s ir a b le , he should bring
such s itu a tio n to the a tte n tio n o f e ith e r the Governor or the Vice
Governor fo r determ ination as to whether or not the matter should go
before the Federal Reserve Board.
"That the fo llo w in g l e t t e r be addressed to the Federal Reserve
Agents:
'The Federal Reserve Act requ ires that the co st o f




F o rm N o. 131

O ffice Correspondence
T o ___ ' .

FEDERAL RESERVE
BOARD

Date.

Subject:

___________

From _______________ ____________
-1 4 " Exam inations o f member banks made by the Federal reserve
banks or the Federal Reserve Board through the Federal
reserve a g en ts, be assessed again st the member bank ex­
amined, The Board has already recommended to Congress
that the law be amended in such a way as to make the charges
fo r member bank examinations d isc re tio n a ry with the Board.
I t w i l l again present the amendment at the opening o f Con­
gress in December.
’ Upon sev era l occasions in the p ast the Board has a t­
tempted, by c ir c u la r l e t t e r , to d efin e a c r e d it in v e stig a ­
tio n , but a ft e r sev era l years experience i t has arrived a t •
the conclu sion th at a fa r too l i b e r a l in te r p re ta tio n has
been placed upon c r e d it in v e s tig a tio n s by the agen ts.
’ The Board has had t h is m atter under review fo r some
time and on October 10 passed the fo llo w in g r e so lu tio n s
which deal with the r e s p o n s ib ilit y o f the Federal Reserve
Board in referen ce to member banks as i t in te r p r e ts the
law:
’ BE IT RESOLVED, That the Federal Reserve Board recog­
n izes i t s duty under the Federal Reserve Act to keep i t s e l f
informed as to the co n d ition o f a l l member banks;
’ BE IT FURTHER RESOLVED, That the Board i s o f the opin­
ion that i t is j u s t i f i e d in r e ly in g upon the Comptroller o f
the Currency fo r such inform ation as to N ational banks;
’ BE IT FURTHER RESOLVED, That whenever the rep orts o f
examination o f S ta te member banks furnished by the S tate
a u th o r itie s are not deemed s a t is fa c t o r y e ith e r to the Fed­
e r a l reserve bank o f the d i s t r i c t concerned or to the Fed­
e r a l Reserve Board, the Federal reserve bank or the Board
s h a ll cause to be made at l e a s t one examination or in v e s t i­
gation each year o f such character as to fu rn ish s a t is fa c t o r y
inform ation , the c o st o f such examinations to be assessed
again st the member banks exam ined.’
"I n order to avoid d u p lic a tio n s, t r i p l i c a t i o n s , and unnecessary
expense o f op eration , which now e x i s t , the Board has in stru cted me
to ad vise you that the Department o f S ta te Bank Examination, now in
operation in the Board’ s quarters in V/ashington, w i l l be a b o lish e d ,
e f f e c t iv e February 1 , 1929, and that you are charged with the duty o f
seein g to i t that the Board’ s view s, as covered in the above reso lu ­
t io n s , are carried out in your d i s t r i c t .
This does not mean that the
Board i s attem pting to r e lie v e i t s e l f o f a l l r e s p o n s ib ili t y , and you
are advised th at through i t s examining fo rce i t w i l l check c a r e fu lly
your bank examination department.
’’ The fo llo w in g in s tr u c tio n s w i l l serve as a guide to you in
performing your d u tie s :
1.
The Comptroller o f the Currency i s a member o f the
Federal Reserve Board and under the law i s charged with the
r e s p o n s ib ilit y o f en forcin g the terms o f the N ation al Bank




F o rm N o. 131

O ffice Correspondence

FEDERAL RESERVE
BOARD

Date

To__

Subject:.

From




-1 5 "A ct and a ls o o f the Federal Reserve A c t.
The Board, th e r e fo re ,
r e l i e s upon the Comptroller o f the Currency to perform h is
d u ties and i t w i l l not be necessary fo r the Federal reserve
agents to d u p lica te the work.
n2 .
In our opin ion , S tate rep o rts o f examination can
be r e lie d upon in the great m a jo rity o f cases to fu rn ish
the necessary inform ation to the agen ts.
”3.
I f a S ta te examination i s u n s a tis fa c to r y , a c re d it
in v e s tig a tio n w i l l not be s u f f i c i e n t inform ation fo r the
agents to act i n t e l l i g e n t l y upon and a complete examination
should be made fo r which the member bank should be charged.
This does not p ro h ib it in v e stig a tio n s o f member banks by
Federal reserve banks or Federal reserve agents without
c o s t , because the Board r e a liz e s that unusual s itu a tio n s
require unusual a c tio n .
Therefore, the Board w i l l act prompt­
l y by approving or disapproving, the ’•request o f any Federal
reserve bank or any Federal reserve agent fo r perm ission to
make an in v e s tig a tio n without c o s t .
The Federal reserve banks,
however, and the Federal reserve agen ts, in making such re­
quest fo r in v e s tig a tio n without c o st must bear in mind that
i f the in v e s tig a tio n contemplates anything covered by the
fo llo w in g language, which appears in S ectio n 21 o f the Fed­
e r a l Reserve A c t, the Board cannot waive the c o s t : ’ The
expense o f such examinations s h a ll be borne by the bank
examined. Such examinations s h a ll be so conducted as to
inform the Federal reserve bank o f the con d ition o f i t s
member banks and o f the lin e s o f c r e d it wnich are being
extended by them. *
”4 .
I f F ederal reserve agents have evidence in the
form o f l e t t e r s or otherw ise, that o f f i c e r s and d ir e c to r s
o f S ta te member banks have had th e ir a tte n tio n c a lle d to
v io la tio n s o f the law and unsound banking p r a c tic e s by
S ta te a u t h o r it ie s , i t i s not necessary fo r agents to
d u p lica te t h is work.
"5 .
I f t h is su p ervision i s not conducted by S tate
a u th o r itie s Federal reserve agents are d irected to take
such a c tio n , as in th e ir opin ion , w i l l discharge the
r e s p o n s ib ili t ie s o f the Board.
"6 .
When a S tate member bank f a i l s to show any d i s c
p o s itio n whatever to correct these i r r e g u la r i t ie s w ithin
a reasonable time so as to show improvement in i t s condi­
tio n , the Federal reserve agent w i l l be expected to la y
the inform ation before the d ir e c to r s o f h is bank and ask
them to make a formal recommendation to the Federal Reserve
Board, with reasons, as to whether or not the S ta te member
bank should continue as a member.

F o rm N o. 131
/n i

1

Urrice Correspondence
T o_

FEDERAL RESERVE

B
0A
R
D

Date.

Subject

From
-1 6 -

2—840ft

"7 ,
Federal reserve agents are in stru cted to discontinue
th e ir present p ra c tic e o f fu rn ish in g the Federal Reserve
Board with reports o f examination o f S ta te member banks,
except in extreme cases where they may wish to ask fo r ad­
v ic e or request the Board to cancel membership.
In lie u
o f these r e p o r ts, agents w i l l fu rn ish the Board with an
a n a ly sis o f each report received or made by them (form o f
a n a ly sis e n c lo se d ).
"The Federal reserve agents are advised that the Board
thoroughly r e a liz e s th at i t i s u t t e r l y im possible to la y
down uniform, d e ta ile d procedure in each and every d i s t r i c t
because o f the l o c a l con d ition s which e x is t in the 48 s t a t e s .
I t does b e lie v e , however, that c e r ta in fundamental p o lic ie s
can be la id down and asks your cooperation toward that e n d .”

A l e t t e r in accordance with the above a c tio n was transm itted to a l l
Federal Reserve Agents under date o f January 2 6 , 1929.
There i s attached
hereto a d ig e st prepared by the Board*s Examiner in Charge o u tlin in g the
procedure follow ed by each Federal Reserve Bank, except Richmond, under
the p o lic y ou tlin ed in the Board’ s l e t t e r , in a ss e s s in g charges fo r
examinations again st member banks examined, from which i t w i l l be noted
that there was con sid erable lack o f u n iform ity in the manner in which t h is
m atter was handled.
Follow ing the passage o f the amendment to S ectio n 9 o f the Federal
Reserve Act v e stin g in the Federal Reserve Board d is c r e tio n in a sse s s in g
the c o st o f examinations o f member banks, the attached l e t t e r dated July 26
193Q,outlining the present p o lic y o f the Board with regard to examinations
and d e cla rin g i t s p o lic y in the m atter o f a sse ssin g c o sts o f examinations
again st the member banks examined in accordance with the Board’ s enlarged
powers under the law as amended, was forwarded to a l l Federal Reserve Agents.




BY-LA^S CF '"HE TTSDS'Pjgi RY-S^RTE BOARD
ErFECmTV?T OCTOBER 1 3 , 1 9 3 0 .

.

A r tic le 1 .
The Chairman.

The Secretary o f the Treasury, as Chairman of the Board, s h a ll
preside at a l l meetings when present.
In the absence o f the Chairman,
the Governor s h a ll act as p resid in g o f f i c e r .
In the absence of both the
Chairman end the Governor, the Vice-Governor sh a ll p resid e, and in the
absence of a l l three such o f f i c e r s , the remaining member o f the "'xocutivc
Committee sh a ll p resid e .
A r tic le 1 1 .
The Governor.
Sec. 1*
The Governor of the Federal Reserve Board sh a ll be the
a ctiv e executive o f f i c e r th ereo f; su b je c t, however, to the supervision of
the Board and to such ru les and regu lation s as may be incorporated herein
or may from time to time, by r e so lu tio n , be e sta b lish e d .
Sec. 2*
The Governor sh a ll have general charge of the executive
and routine business o f the Board not s p e c i f i c a l l y assigned under the by­
laws or by re so lu tio n o f the Board to any individual member or committee
th e re o f, and sh a ll have supervision of the B oard's s t a f f .
Sec. 3 .
The Governor sh a ll be an e x - o f f i c i o member of a l l
Standing Committees of the Board.
A r tic le 111.
The Vice-G overnor.

-

Sec. 1 ,
In the absence or d i s a b i li t y of the Governor, h is powers
s h a ll be exorcised and h is d uties discharged by the V ic e - Governor, and in
the absence or d i s a b i li t y of both o f these o f f i c e r s , such powers sh a ll be
ex ercised and such d u ties discharged by the remaining member of the
Executive Committee; in the absence or d i s a b i li t y of a l l members o f the
Executive Coimiittec the powers and d u ties o f the Governor sh a ll be exer­
cised by the sen ior member of the Board p rese n t.
Sec. 2 ,
I t sh a ll be the duty o f the Vice-Governor to cooperate
with the Governor in the adm inistration of the executive business of the
Board.




2

X-6733

-

A r tic le IV.
Secretary and A ssista n t S e c r e ta r ie s.

Sec. 1 .
The Board sh a ll appoint a Secretary and one or more a s­
s is t a n t s e c r e ta r ie s .
Sec. 2 .
The Secretary s h a ll keep an accurate record of the pro­
ceedings of the Board and s h a ll conduct such correspondence and werform
such other d u ties as may "be assigned to him "by the Governor or by the Eoa.rd.
In the absence or d i s a b i li t y of the Secretary, the d u ties o f th at o f f ic e
may, by d ir e c tio n of the Board, be performed by an a s s is t a n t sec re ta ry .
Sec* 3 .
The Secretary sh a ll have custody of the sea l and, a ctin g
underthe au th ority of the Board, sh a ll have power to a f f i x same to a l l in­
struments requ irin g i t .
Such instruments s h a ll be a tte s te d by the Secre­
tary.
Sec. 4 .
The a s s is ta n t s e c r e ta r ie s sh a ll each perform such d u ties
as may be assigned to them from time to time by the Board or by the Secre­
tary.
A rticle

V,

A ssista n t to the Governor.

Sec. 1 .
The Board may authorize appointment of an A ssista n t to
the Governor.
Sec. 2 .
The A s sista n t to the Governor s h a ll perform such d u ties
as s h a ll be assigned to him by the Governor.
A r tic le VI.
The Executive Committee.

Sec. 1 .
There s h a ll be an Executive Committee o f the Board con­
s is t i n g of three members, which s h a ll include the Governor, Vice-Governor
and one of the appointive members of the Board.
The appointive member of
the Committee s h a ll be nominated and elec ted at a regular meeting of the
Board. Members o f the Board sh a ll serve as fa r as p ra c tic a b le in r o ta tio n
and fo r approximately equal terms.
The presence of three members sh a ll be
r e q u is ite fo r the tran saction of business by the Executive Committee, and
action s h a ll be taken only on unanimous vote of the Committee.
Sec. 2 .
In the absence of the Governor and Vice-Governor the ap­
p o in tiv e member o f the Executive Committee s h a ll a ct as Chairman and s h a ll,
with two other appointive members o f the Board present in Washington to be
chosen by him in the order of th e ir s e n io r ity , exercise the powers and d is ­
charge the d uties of the Executive Committee.
In the absence o f a l l three
regular members of the Executive Committee the three remaining appointive
members of the Board, provided there be three in Washington, s h a ll a ct as
an interim committee and e x e rc ise the powers and discharge the duties of
the Executive Committee, the senior member a c tin g as Chairman.




- 3 -

X-6733

Provided, however, that i f only t wo o f the appointive members
of the Board are in Washington such two members may act as an interim
committee and exercise the powers and discharge the d u ties of the Executive
Committee.
Any action taken b"r such interim committee of two members, how­
ever, s h a ll not be f i n a l l y e ffe c t iv e u n less and u n til r a t i f i e d by the
Board.
At the next regular meeting o f the Board there s h a ll be reported
to i t fo r r a t if ic a t io n a l l actions taken by such interim committee o f two
members sin ce the l a s t regular meeting of the Eoard.
Upon r a t if ic a t io n
by the Board, a l l action s taken by such interim committee o f two members
s h a ll have the same force and e f f e c t as a c tio n s taken by the Board i t s e l f
and s h a ll be e f f e c t iv e as o f the date such action was taken bv the in te r­
im committee o f two members unless otherwise s p e c ific a ll* ' provided b " the
Board.
Sec. 3 .
I t s h a ll be the duty o f the Executive Committee to re­
view and submit d ra fts o f important correspondence in v olv in g the expression
of opinions or d ecision s o f the Board, and to orepare and make recommenda­
tions governing the conduct o f the Board’ s b u sin ess.
Sec. 4 .
The Executive Committee sh a ll a lso have charge of a l l
matters appertaining to the in tern al organization of the Board, and sh a ll
make recommendations from time to time on th is m atter.
I t sh a ll a lso pre­
pare annually a budget of proposed expenditures.
Sec. 5 .
In the absence of a quorum of the Federal Peserve Board
and fo r the transaction of business req u irin g action during the absence of
such quorum, the Executive Committee is authorized to transact business
which can be transacted in accordance ^ ith e sta b lish e d p rin c ip le s and
p o lic ie s of the Board and to perform such a d d itio n a l d u ties as may be spe­
c i f i c a l l y delegated to i t from time to time by in stru c tio n of the Federal
Reserve Board.
The Secretary o f the Board sh a ll serve as Secretary of the
Executive Committee,
A r tic le V II.
Standing Committees.
In addition to the Executive Committee there s h a ll bo the f o l ­
lowing Standing Committees, appointments to which s h a ll be made by the
Governor, su b ject to the approval of the Board.
Sec. 1 .
Law.
To the Law Committee sh a ll be referred fo r study and re­
port a l l questions of a le g a l nature.
To th is Committee sh a ll a lso be a s ­
signed the preparation or r e v isio n of the Board’ s re g u la tio n s, contemplated
amendments to the Federal Reserve A ct, a p p lica tio n s under the Kern amend­
ment to the Clayton Act, and a p p lica tio n s fo r the e x ercise bv n atio n al
banks of tr u st powers.
The General Counsel s h a ll serve as Secretary of the Com­
m itte e ,
Sec. 2 .

Examination.

To th is Committee sh a ll be referred a l l ouestions re­
la t in g to the examination c f Federal Reserve or member banks including




•

«

- 4 a d m issio n

of

state

banks

and

The

C h ie f

3.

R esearch

X-6763

p e rm is sio n

E x a m in e r

to

sh a ll

e sta b lis h

serve

as

and

operate

S ecretary

of

branches.

th is

C o m m itte e .

Sec.

T h is
of

an

e co n o m ic

su p e rv ise
p a ra tio n
sh a ll

and

a lso

F ederal

and

th e

of

have

serve

D ire cto r

as

sh a ll

Federal

T h is

C o m m itte e
of

have

charge

ch aracter

th e

su p e rv isio n

so

of

th e

of

a ll

a u th o riz e d

R esearch

Federal

of

D ire c to r

by

and

F eserve

s ta tis tica l

in v e s tig a tio n s
th e

B oard

S ta tis tic s

B u lle tin .
and

and

and

T h is

p u b lica tio n

sh a ll

the

pre­

C o m m itte e
w ork

of

th e

of

of

th e

th is

D iv isio n

of

C o rrm itte e ,

or

R esearch
in

h is

and

S ta tis tics

absence

th e

A s sis ta n t

serve.

4.

S a la rie s
th is

R eserve

make

R eserve

and

E x p e n d itu re s

C o m m itte e

Banks

sh a ll

F ederal

sh a ll

B anks.

To
from

S ta tis tics .

D iv isio n
of

S ecretary

Sec.

tax

th e

p u b lica tio n

The
sh a ll

C om m itte e

s ta tis tica l

w ork

R eserve

and

fo r

sh a ll

changes

reports

be
of

w ith

of

Federal

a ssig n ed
sa la rie s

respect

to

a ll
and

R eserve

Banks .

recom m en d a tion s
oth er

ex p e n d itu re s.

ch a rg e -o ffs

and

fra n ch ise

B anks.

The

S ecretary

5.

D is trict

of

th e

B oard

sh a ll

serve

a.s

S ecretary

of

th is

C om m ittee.

Sec.

a

C om m ittee

sh a ll
ence

be

of

th e

and

To

each

F ederal

not

le s s

th an

du ty

v is it

of

of

each

th e

in v e s tig a tio n

a tio n

any

Federal

D is trict

th at

a lso

th e

a id

g a rd in g
have
fo r

may

personnel

charge.
th e

of
Bank

re ferred

of

on

th e
of

to

Sec.
F is ca l
a ll
to

A gen t.

m oneys
be

in

F ederal

d u tie s

of

cute

sep arate

th e

Sec.
B oard

sh a ll




be

a

of

by

R eserve
2.
bond
3.

B oard

by

The

F is ca l

w ith

P aym en ts

m a d e b Tr t h e

of

th e

a lso

Agent

w ith

Agent

th e

Banks

of

Banks

oper­

R eserve
sh a ll

in fo rm a tio n
w h ich

recom m en d a tion s

F is ca l

a p p o in t
th e

D eputy

h is

Federal

C o m m itte e s

w ith

R eserve

D is trict,

to

to

re­

th ey
th e

B oard

and B ra n ch es,

V III.

D eputy

The

any

These

R eserve

make

e sta b lis h e d

Agent

sh a ll

to

expenses
A gent

be

Treasurer
on

th e

F is ca l

absence
and

A gen t.

a F is ca l

or

D eputy

s a tis fa cto ry

F is ca l

th e

B oard.

F ederal

F is ca l

su rety

of

E x p e n d itu re s

Federal

at

d u rin g

co n d itio n
of

and

It

correspond­

co n d itio n

and

B oard.

Agent

th e

a ssig n ed

by

th e

B oard

fu n d

and

be

B oard.

in fo rm e d

or

sh a ll

th e

th e

s p e cia l

F is ca l

Sec.
a

The
du ty

re ce iv a b le

p la ce d

fo r^ th e

1.
The

it s e lf

sh a ll

R eserve

a p p e rta in in g

sh a ll

Am ent

keep

D istrict
Federal

q u e stio n s

r e s p e ctiv e

F is ca l

the

a ll

it

D ire cto rs

of

Bank

A rticle
The

B ank and

on

S a la rie s

C om m itte e s

a p p o in tm e n t

to

th e

report

R eserve

be

T hese

C om m ittee

and

C o m m itte e

R eserve

tw o m em b ers

a ffa irs

an d make
of

C o m m itte e s.

and
upon

to

and

a

c o lle c t

of

th e

books

of

Agent

sh a ll

D eputy
and

d e p o s it

U n ite d

S tates,

th e

T reasurer
p erform

th e

d is a b ility .
F is ca l
th e

oth er
proper

A gent

sh a ll

each

exe­

B oard.

d isb u rse m e n ts
vouchers

out

of

th e

of

m oneys

«

*

- 5 advanced
p la ce d

to

to

p rov id ed

"by

paym ent
F is ca l

h im

h is

of

“b y

re q u isitio n

o ffic ia l

S e ctio n

5

expenses

Agent

upon

and

cre d it
of

and

vouchers

and

w arrant

o ffic ia l

cre d it

th e

T reasurer

5

and

6

of

Sec.
such

form

S tates

as

and,

su b m itte d
m en ts

of

4.

a fte r

to

th e

th e

treasu rer
as

may b e

and

6.

upon

proper

sig n

a g a in st

D eputy

by

oth er

The

th e

sh a ll

as

of

sp e cia l

th e

absence
be

of

U n ite d

th e

made

advanced

sp e cia l

fu n d

U n ite d

to

fu n d

S tates

by

and

S tates
F is ca l

th e
th e

D eputy
F is c a .1

and p la ce d
as

as
Agent

p rov id ed

to

h is

by

Sec­

sh a ll

the

th e

prepare

a

C o m p tro lle r

G overnor,

such

O ffice .

d isb u rse m e n ts

of

q u a rte rly

Such

made

q u a rte rly

G eneral
account

by

both

account

th e

account
sh a ll

th e

in

U n ite d
sh a ll

cover

F is ca l

be

pay­

Agent

and

A gen t.

B oard

T reasurer

th e
of

sh a ll

th e

th e

Agent

A cco u n tin g

G overnor

U n ite d

necessary

Sec.

se lf

F is ca l

approval

5.

of

th e

m oneys

of

of

ap proved by

G eneral

F is ca l
Sec.

th e

be

expenses

D eputy

of

out

of

a r ticle .

The

sh a ll

th e

Agent

th is

In

out

re q u isitio n

tio n s

out

Treasurer

d isb u rse m e n ts

Agent by

w ith

th e

A rticle .

oth er

proper

w arrant

w ith

th is

X-6733

The

from

fu n d s

th e

U n ite d

F is ca l

w hen n e c e s s a r y ,
advance

of

F ederal

R eserve

B oard

A gent

of

m oneys

th e

th e

o ffic ia l

S tates

make

th e

F is ca l

out

to

fo r

th e

D eputy

vouchers

sh a ll,

States

in

m a k in g

advanced

cre d it

in

th e

A rticle

IX .

of

name

of

such

to

th e

on

F is ca l

fu n d .

d isb u rs e m e n ts
to

th e
th e

re q u isitio n

sum s

th e

F is ca l
F is ca l

of

F is ca l

Agent

A gent
Agent

th e

w ith
by

h im ­

A gen t,

Gold Settlement Fund
and
F ederal

A ll
R eserve
B oard

A gen ts

and

R eserve
sh a ll
be

a ll

in

d e p o s ite d

th e

fu n d s

Federal

by

in

th e

h e ld

on

d e p o s it

w ith

th e

w ith d ra w a l

o n ly

by

su b je ct

by

th e

or

a ctin g

to

S ecretary

or

e x e cu tiv e

an

or

fo r

or

A s sis ta n t
of

account

Fund

of

check

of

S ecretary

of

fu n d

account

T reasurer

th e

Fund.

A gen ts'

fo r

S e ttle m e n t

o ffic e r

A gen ts*

R eserve

d e p o s ite d
G o ld

by

Banks

be




fu n d s

R eserve

of

th e
of

th e

th e
of
th e

th e

Federal

R eserve
Federal

U n ite d

F ederal

F ederal

re sp e ctiv e

F ederal

th e

and

re sp e ctiv e

R e s e r v e .B oa rd
States

R eserve

co u n te rsig n e d

and

B oard
by

th e

sh a ll
sig n e d
G overnor

B oard.

A rticle
R e q u isitio n

fo r

X.
D e liv e ry

of
F ederal
R e q u isitio n s

upon

th e

R eserve

ffotes.

C o m p tro lle r

of

the

C urrency

fo r

th e

d e liv e ry

«

*

-6
of

Federal

R eserve

"be ma.de b y
qu ests

th e

made

"by

The

S ecretary

th e

governor

th e

am ount

h im

fo r

to

th e

or

A s sis ta n t

th e
or

or

of

th e

n otes

S ecretary

F ederal

each

re sp e ctiv e

F eserve

A s sis ta n t
a ctin g
of

each

fo llo w in g

is

an

th e
th e

.A g en ts

response

Foard

fo r

d a ily

B oard

R eserve

reserve

The

"R eserve

in

su b m it

of

F ederal

F ederal

A rticle

The

to

sh a ll

o ffic e r
of

F ederal

S ecretary

A gen ts

S ecretary

e x e cu tiv e

d e n o m in a tio n

account

X-673S

-

o n ly
such

fo r

a

re­

n otes.

approval

sch ed u le

N otes

sh a ll
to

to

sh ow in g

re q u isitio n e d

"by

A gen t,

X I.

S e a l.

im p re s sio n

of

th e

seal

ad op ted

G eneral

C ounsel

by

th e

B oard.

SEAL.

Article XII.
Counsel,

Sec.
it

sh a ll

le g a l
at

be

to

1.

q u e stio n s

th e

B oard’ s

papers

and

by

B oard

th e

to

as

th e

sh a ll

v a rio u s

2.

to

th e

p o in t

one

of

See.
to
th e

th e

du ty

of

to

C ounsel

in

th e

The
th e
or

may




or

a

any

conduct

m em ber
cf

re g u la tio n s,
such

to

th e

R eserve

B a zik s

lo ca l

fo r

le g a l

its

th e re o f,
b u sin e ss;

ru lin g s,

se rv ice s

la w s

as

form s
he

w hoso

du ty

as

to

to

prepare,

and

such

oth er

may b e

le g a l

c a lle d

upon

of

G eneral
of

4.

attorn eys

at

of

to

th e
of

th e

request
S tates

a ll

in

to

may

be

G overnor,
w ith

th e ir

th e

th e

in

G eneral

C ounsel

o p in io n s

in clu d e d

such

deem ed

A s sis ta n t
A s so cia te
th e

C ounsel

h is

The

it
or

such

C ounsel

A s sis ta n ts

and

of

d ire ctly

as

th e ir

correspon den ce

of

to

th e

r e s p e ctiv e

sh a ll

be

fu rn ­

in fo rm a tio n .

W henever

du ty

d ir e c tio n

correspond

C o p ie s

its

A s so cia te

p erform a n ce
be

th e

to

3.

G eneral

Sec.
who

S u b je ct

B istricts .

m ore

C o u n se l.

a s sist

in

o p in io n s,
g e n e ra lly

th e

F oard

or

a ris e

a p p o in t

B oard,

a u th o rity

Federal

R eserve

ish e d

sh a ll

th e

p erform .

have

in te rp re ta tio n
Federal

may

p erform
to

B oard

w ith

request

Sec.
C ounsel

The

a d v is e

a d v is a b le ,

C o u n se l,
or

A s sis ta n t

p erform a n ce

in

h is

C ounsel

of

absence.

sh a ll

or

be

one

th e
or

C ounsel

h is

d u tie s

mh e

du ty

t r> a s s i s t

may

ap­

A s sis ta n ts

sh a ll
and

of

th e

B oard
m ore

to

such

G eneral

be

to

o erform
A s sis ta n t
C ounsel

d u tie s .

B oard
la w

may

a p p o in t

engaged

in

from

o u tsid e

tim e

to

tim e

p ra ctice .

C o n su ltin g

C o u n se l,

4 »
X-6752

- 7 -

A rticle

X III.

M e e tin g s.

Sec. 1. Five members of the Board, shall constitute a Quorum
for the transaction of business.
Sec.
of

th e

time
of

w eek

to

th e

sent

2.

and a t

tim e.
m em bers

m e e tin g s

hours

One m e e t i n g

fo llo w in g

to

Stated
such

m a tters,
of

as

day

each

advance

im p orta n t

of

th e

th e

B oard

B oard
w eek

D isco u n t

and

A pproval

of

of

to

open

be

not

be

sh a ll
set

le s s

taken

A g e n cie s ,

of

h e ld
vote

apart
th an

up

at

on

fo r

tw o
th e

such

may

fix

days
from

co n sid e ra tio n

days

b e in g

m e e tin g :

m arket m a tte r s ;

ex p en d itu res

E sta b lish m e n t

be

a m a jo r ity

sh a ll

n o tice

q u e stio n s

by

F ederal

C urrency

and

sa la rie s;

D eserve

B ranches,

S ta tio n s;

Permission for establishment of member
bank branches;
Am endm ent

of

B oard’ s

New p o l i c i e s
Such

oth er

for

man

or

order

Sec.

3.

G overnor

or

upon

Sec.

4.

At

of

S p e cia l
a ll

ru le s

changes

m a jo r

w ritte n

of

th e

reauest

m e e tin g s

of

th e

of

m atters

co n s id e ra tio n

m e e tin g s

th e

or

at

B oard
of

re g u la tio n s;

p o licy ;

as

may b e

reserved

th e

w e e k ly

m e e tin g .

may b e

th ree

B oard

and

th e

ca lle d

m em bers

by

of

fo llo w in g

th e

th e

C h a ir­

B oard.

sh a ll

be

th e

b u sin e ss;
(1 )

R e a d in g

or

re g u la r

in s p e c tio n

m e e tin g

E x ecu tiv e

and

of

th e

M in u tes

M in u tes
of

of

th e

m e e tin g s

of

la st
the

C o m m ittee .

(2 )

R eport

of

th e

G overnor.

(3 )

R eport

of

th e

S ecretary.

(4 )

R ep orts

of

th e

com m ittees

or

m em bers

on

a ssig n e d

b u sin e ss.
(5 )

U n fin ish e d

b u sin e ss.

(6) New business.
Sec.
m e e tin g

or

re ta ria l

5.

No

co n fe re n ce

sta ff

are

vote
w hen

sh a ll
oth ers

be

ta k en

th an

th e

or

m o tio n

m em bers

of

m em bers

of

made

by

th e

th e

B oard

th e

B oard

w ith

th e

B oard
and

at

its

p resen t.
A rticle

X IV .

Abse n c e s .
Sec.
fa r

as

conduct




1.

p ra ctica b le
of

th e

A bsences
be

B o a r d 's

of

arranged
b u sin e ss

a p p o in tiv e
so
in

as

not

to

in te rfe re

W a sh in g to n .

sh a ll

a

Sec­

as

e x p e d itio u s

4

•

- 8 A rticle
In form a tion

Sec.
its

b u sin ess,

sam e

to

1.

A ll

in fo rm a tio n

con trary
vote

unon

S ecretary.

G eneral

C o u n se l,

by

form

and

when

fic e

o f

2.

th e

th e

o p in io n
oth er

on

any

m em bers

b y -la w
no

statem en ts

or

d e s crip tiv e

or

sh a ll

one

sh a ll

to

statem en ts

made
a ctio n

sh a ll

th ey

d e s ig n a te d .

W h ile

each

p ro p rie ty

n e ce s sity

on

m em bers

m a tters

sh a ll

w h ich

have

sh a ll

bo

be

of

th e
as

of

qu ote

of

th e

fo rm a lly

in

m in u te s.

B oard

B oard
m ust

passed

th e
as

o f­

may

d eterm in e

h is

th e

of

and

w ritte n

th rou gh

th e

or

and

e x p re s siv e

p u b licly

been

B oard,

a u th o riz e d

o n ly

p u b licly

g iv e

d is m is sa l.

th e

B oards

is su e d

th e

sh a ll

G overnor,

is su e d
be

in v io la te
d iv u lg e

who

of

the p r e s s

e x p re s sin g

not

not

th e

m em ber

m em ber
of

or

im m e d ia te

except

sh a ll
or

to

M em ber

to

be

its

o ffic e r

q u e stio n ,

a

any

keep

e m p lo y e e

lia b le
th an

sh a ll

d is clo se

any

in sp e ct

oth er

or

not

A s sis ta n t

to

o f

B oard

and

be

oth er

and a p p ro v e d
such

th e

sh a ll

w hom soever,

-p e rm itte d

Such

by

and

S e cre ta rie s .

be

B oard.

th e

em p lo y e d

Ho

G overnor

h im s e lf

th is

B oard,

a u th o riz e d

s p e cifica lly

fo r

to
th e

sh a ll

B oard’ s p o lic y

approved

be

of

XV.

and P u b lic a tio n .

concerns,

person

A s sis ta n t

Sec.
th e

and

any u n a u th o riz e d

E xcept
tn e

persons

a ffa ir s ,

X-6733

in d iv id u a l

o p in io n
upon

by

of
th e

B oard,
Sec.
as

3.

’’ T h e . F e d e r a l

organ

or

p u b lica tio n
Sec.

by

th e

T here

R eserve

B oard

4.

on

o f

No

th e

p u b lish e d

B u lle tin ” ,
th e

w h ich

F ederal

r e so lu tio n s

te rm in a tio n

R eserve

o f

o f

m o n th ly ,

sh a ll

be

A r ticle

b u lle tin
o ffic ia l

to

be

known

p e rio d ica l

B oard,

a personal

th e

a

th e

ch aracter

m e m b e rsh ip

o f

a

sh a ll

m em ber

o f

be

passed

th e B oard,

X V I,

A m endm ents.

These
by

a

m a jo r ity

m en ts s h a l l h a v e
su ch m e e tin g .




b y -la w s

vote

o f

been

may b e

th e

am ended

e n tire

d e liv e re d

E oard,
to

each

at

any

re g u la r

p ro v id e d
m em ber

at

th at

m e e tin g
a

le a s t

copy
seven

o f
o f

th e
such

days

B oard
am end­

p rio r

to

R e f e r r in g to the d is c u s s io n w h ic h tools: p la c e a t th e m e e tin g t h i s m orn­
in g w i t h re g a rd t o th e e f f e c t o f purchases and s a le s by F e d e ra l re s e rv e hanks
o f f o r e ig n exchange, and the r e s p o n s i b i l i t y of th e Board i n c o n n e c tio n w it h
such purch ases and s a le s , th e re i s g iv e n below a s h o rt memorandum o f th e c o n s id e ra ­
t i o n w h ich has been g iv e n by th e Board to t h i s m a t t e r .
At the meeting on June 30, 1927, Mr. Miller stated he thought some ac­
tion should be taken by the Board to clarify its responsibility with respect to
the purchase and sale by Federal reserve banks of bills of exchange and bankers*
acceptances in foreigpi money markets and that he would bring the following m o ­
tion u p for action at the next meeting:
"That it be the sense of the Federal Reserve Board that the au­
thority conferred upon it in Section 13 of the Federal Reserve Act read­
ing:
*The discount and rediscount and the purchase and sale by any Fed­
eral reserve bank of any bills receivable and of domestic and foreign
bills of exchange, and of acceptances authorized by this Act, shall be
subject to such restrictions, limitations, and regulations as may be
imposed by the Federal Reserve Board*, applies to the purchase and
sale of bills of exchange and acceptances made abroad as well as at
home and that the Board rule that such purchases and sales are subject
to such restrictions, limitations and regulations as it may see fit
to impose."
I n response to a re q u e s t t h a t he subm it an o p in io n as to w h e th e r M r .
M i l l e r ’ s m o tio n was a c o r r e c t statem ent o f the le g a l s i t u a t i o n , th e B o a rd ’ s
Counsel a d v is e d t h a t i n h is o p in io n th e re c o u ld be no doubt as t o the c o r r e c t ­
ness o f th e c o n c lu s io n s s ta te d i n M r . M i l l e r ’ s m o tio n ; a ls o , t h a t the language
of th e A ct is a l l - i n c l u s i v e and a p p lie s t o the purchase and s a le o f b i l l s of e x ­
change and bankers* acceptances abroad as w e ll as to purchases and s a le s a t
heme appears so c l e a r l y from a re a d in g o f th e s t a t u t e i t s e l f t h a t no argum ent
was n e c e s s a ry to s u p p o rt M r . M i l l e r ' s c o n c lu s io n .
The entire matter was considered at the meeting of the Board on July
6, and the following motion was adopted:
"That it be the sense of the Federal Reserve Board that the
authority conferred upon it by Sect ions 13 and 14 of the Federal Reserve
Act, with respect to the purchase and sale of bills of exchange and ac­
ceptances, applies to such purchases and sales made abroad as well as
at home, and that the Board rule that such purchases and sales are sub­
ject to its regulation and approval.”
At the meeting of the Executive Committee on July 12, the Board's Coun­
sel was instructed to prepare and submit a regulation such as contemplated by
the above action.




Under date of August 17, Mr. Wyatt submitted a memorandum to

-2 the Board requesting more specific instructions as to the character of the re­
gulations which the Board desired to promulgate on this subject and the general
nature of the restrictions, if any, which the Board desired to place upon the
purchase and sale of bills of exchange and bankers * acceptances abroad.
With Mr* Wyatt’s request before it, the Board gave further considera­
tion to the matter at the meeting on August 30, 1927, but action was deferred*
Since that time, while the question has been discussed in connection with other
subjects which have come before the isoard, no action has been taken* However,
under date of October 20, 1927, Mr* Wyatt submitted a detailed memorandum on the
subject, “The Board’s Power Over Foreign Transactions of the Federal Reserve
Banks", a copy of which is attached for your information*




X-4980

(Confidential)
October 20 , 1927.
Subject: The Board’s power over foreigi
To:

The

Federal

Reserve

Board,

transactions of Federal Reserve Banks.

From:Mr. Wyatt- General Counsel

The Board has requested an opinion with respect to what
regulations, limitations and restrictions it is authorized to prescribe
as to foreign or international transactions of Federal reserve ban ,
and as to its general authority over such transactions.

I understand

that the Board desires to have the following points covered in this
op in ion:

.

(1) Whether the Board has power to regulate, limit,
or restrict transactions involving the opening of accounts, tne appoint
ment of correspondents, or the establishment of agencies in foroig
countries;
(2) Whether the Board has power to regulate, limit,
or restrict dealings in bills of exchange and bankers' acceptances
between Federal reserve banks and foreign central banks;




(3) Whether the Board has power to regulate, limit,
or restrict dealings in gold between Federal reserve banks and foreign
central banks; and
(4) Whether the Federal reserve banks may lawfully
charge a commission or fee in connection with such foreign transactions.
C O N C L U S IO N S .

After careful

c o n s i d e r a t i o n

of these questions,

I

nave reached

the following conclusions:
(1) Under the specific terms of section 14(e) oi tne
Federal Reserve Act, no Federal reserve bank may lawfully open or main-

(

ta in

accou n ts,

co u n trie s
B oard;
o f

duct

w ith o u t

and

such

th e

otn er

by

re g u la tio n s
has

m a in ta in
fo re ig n

op e n in g

and

th e

accou n ts,

is

o f

or

B oard

th e

accou n ts,

o f

fo r

corresp on d en ts

and

a p p o in tm e n t

and

th e

tra n sa ctio n "
or

su b je ct

F ederal

fo re ig n

R eserve

th e

a g e n cie s

" any

A ct

in

F ederal

on
to

b e h a lf
such

may p r e s c r i b e .

o f

By

F ederal

re g u la tio n s,

b ills

th e

such

made

a g e n cie s

In

reserve

au th ­
of

ru le s

and

a d d itio n ,

banks

e sta b lis h

con­

to

open

a g e n cie s

th e
and

in

co u n trie s.

A ct,

'b e

o f

R eserve

d ire ct

of

such

a g e n cie s

(2 )
serve

e sta b lis h

consent

e x p re s sly

R eserve

order

a p p o in t

or

F ederal

banks

to

th e

or

e sta b lish m e n t

th e

F ederal

pow er

X -^980

)

m a in te n a n ce

th e

o f

reserve

as

th e

14

-

o b ta in in g

correspon den ts

se ctio n

F ederal

B oard

fir s t

such

2

corresp on d en ts.

corresp on d en ts,

th rou gh

o riz e d

a p p o in t

-

exchange

R eserve

B oard

r e strictio n s

betw een

and

F ederal

is

v irtu e

o f

a u th o riz e d

lim ita tio n s

reserve

banks

sp e cific

and

em pow ered

g o v e rn in g
and

p ro v is io n s
to

d e a lin g s

fo re ig n

o f

th e

F edera

prein

cen tral

banks.

U>)
v isio n

over

sp e cifica lly
B oard
m

is

F ederal
gran ted

in v o lv in g

fo re ig n

cen tral

v irtu e

reserve

a u th o riz e d

g o ld

By

in
to

la rg e

banks

th e

o f

its

rig h t

banks,

and

by

F ederal

lim it

am ou n ts

betw een

under

se ctio n

ance
a

of

tra n sa ctio n
any

r e a so n a b le

re n d itio n




of

fo r,

com m ission
such

A ct,

a
or

s e rv ice s .

th e

F ederal

e x te n sio n

fo re ig n

cen tral

fe e

th e

fo r

e x e rcise
o f

of

th e

o f

e x te n sio n

F ederal

reserve

th e

to,

th ey
o f

may

such

d e a lin g s
and

R eserve

F ederal
or

pow ers

R eserve

banks

F ederal

super­

oth er

im p o rta n t

cre d it

bank,

general

ce rta in

th e

r e s tr ic t

T fh en ev er

in v o lv in g

se rv ice

or

1 4 («)

(4 )
la w fu l

v irtu e

R eserve

re g u la te ,

to

A ct.

reserve
th e

p erform ­

la w fu lly
cre d it

banks

or

charge
th e

en ter

in to

a

( -

3

-

)

X-4980

DISCUSSION.
The only one of these questions which presents any difficulty
is the question whether the Board has the power to regulate, limit or
restrict dealings in gold between Federal reserve banks and foreign
central banks.

I shall, therefore, discuss the other questions first

and take up this more difficult question last*
FOREIGN ACCOUNTS, CORRESPONDENTS AND AGENCIES.
The authority for Federal reserve banks to open and maintain
accounts,

appoint correspondents, and establish agencies in foreign

countries is conferred by the following language of Section 14:




"Every Federal reserve bank shall have power;
"(e) To establish accounts with other Federal reserve
banks for exchange purposes and, with the consent or
upon the order and direction of the Federal Reserve
Board and under regulations to be prescribed by said
board, to open and maintain accounts in foreign coun­
tries, appoint correspondents, and establish agencies
in such countries wheresoever it may be deemed best
for the purpose of purchasing, selling, and collecting
Dills of exchange, and to buy and sell, with or without
its indorsement, through such correspondents or agencies,
bills of exchange (or acceptances) arising out of actual
commercial transactions which have not more than ninety
days to run, exclusive of days of grace, and which bear
the signature of two or more responsible parties, and,
with the consent of the Federal Reserve Board, to open
and maintain banking accounts for such foreign corres­
pondents or agencies. Whenever any such account has
been opened or agency or correspondent has been appointed
by a Federal reserve bank, with the consent of or under
the order and direction of the Federal Reserve Board,
any other Federal reserve bank may, with the consent
and approval of the Federal Reserve Board, be permitted
to carry on or conduct, through the Federal reserve bank
opening such account or appointing such agency or cor­
respondent, any transaction authorized by this section
under rules and regulations to be prescribed bv the hoard."

X-4980
( - 4—

)

From a moro reading of this language it is obvious that the
Federal Reserve Board is given full control of all transactions con­
ducted thereunder.

No Federal reserve bank may open or maintain accounts,

appoint correspondents, or establish agencies in foreign countries
except with the consent and subject to the regulations of the Federal
Reserve Board; and any Federal reserve bank must open and maintain
accounts, appoint correspondents, or establish agencies in foreign
countries if ordered or directed to do so by the Federal Reserve Board.
The opening and maintaining of such accounts, the appointment of such
correspondents, and the establishment of such agencies is exoressly
made subject to “regulations to be prescribed by said board."

No Fed­

eral reserve bank may open and maintain banking accounts through such
foreign correspondents or agencies without the consent of the Federal
Reserve Board.

Other Federal reserve banks may participate in such

transactions only with the consent and approval of the Federal Reserve
Board.

And all transactions through such correspondents or agencies

in which other Federal reserve banks participate must be conducted
"under rules and regulations to be prescribed by the Board."
This gives the Board the fullest possible measure of control,
and it is important to note that the rules and regulations which may be
prescribed by the Board governing transactions in which other of the
Federal reserve banks participate pertain to all transactions authorized
by

’any part of Section 14, and is not limited to transactions under

subdivision (e).
DEALINGS IN BILLS OF EXCHANGE ARP ACCEPTANCES.
The power of the Federal reserve banks to deal on the open
marxet in bills of exchange and bankers 1 acceptances is conferred by the




( - 5 - )

X-4980

first paragraph of section 14, which reads as follows;
"Sec. 14. Any Federal reserve bank may, under rules
and regulations prescribed by the Federal Reserve Board,
purchase and sell in the open market, at home or abroad,
either from or to domestic or foreign banks, firms, cor­
porations, or individuals, cable transfers and bankers'
acceptances and bills of exchange of the kinds and matur­
ities oy this Act made eligible for rediscount, with or
without the indorsement of a member bank."
It is obvious that all transactions conducted under authority
of tnis paragraph are expressly made subject to "rules and regulations
prescribed by the Federal Reserve 3oard."
Further and more complete authority to control such trans­
actions is conferred upon the Federal Reserve 3oard by the following
paragraph of section 13;
"The discount and rediscount and the purchase and
~uale oy any Federal reserve bank of any bills receivable
and of domestic and foreign bills of exchange, aid of
acceptances authorized by this Act, shall bo subject to
such restrictions, limita.tions, and regulations as may be
imposed by the Federal Reserve Board."
It has been suggested that this paragraph pertains only to
domestic transactions and gives the

3

oa.rd no power over transactions

in foreign countries; but, the broad language used by Congress is not
subject to any such restricted interpretation.

It will be noted that

it applies not only to the discount and rediscount but also to the
pm-chase and

sale by any Federal reserve banks of any; bills receivable

and of domestic and foreign bills of exchange and of acceptances auth­
orized by this Act.

It is not limited in terms to domestic transactions

but is couched in the broadest possible language and is obviously
intended to include all purchases and sales by any Federal reserve bank
of any bills receivable, domestic and foreign bills of exchange, or
acceptances authorized by the Federal Reserve Act.



( -

It

5 -

)

X-4980

boon suggested tnot it was intended to apply only to

transactions under section 13 and does not apply to dealings under
section 14.

A glance at the legislative history of this provision,

however, shows that it could not possibly have been intended to apply
only to section 13.

As contained in the original Federal Reserve Act,

Jiio pro /_sion applied only to rediscounts but it wa 3 amended by the
Act o.;. September 7, 1916, so as to apply also to purchases and sales.
At that time section 13 did not authorize Federal reserve banks to
purchase and sell bills receivable, bills of exchange or bankers'
acceptances out dealt with discounts and rediscounts and the only
authoiity fox tue purchase and sale of bills of exchange and accept­
ances cy Federal reserve banks was contained in section 14.

Even at

this late date, the only authority in section 13 to purchase and sell
cills of exchange is the authority added by the Agricultural Credits
Act of March 4, 1923, to purchase and sell bills of exchange payable
at sight or on demand which are drawn to finance the domestic shipment
ox nonperishable readily marketable staple agricultural ■oroducts.
It is obvious, therefore, that the authority conferred upon
the Federal Reserve Board by the above quoted provision of section 13
is intended to apply to the purchase and sale of bills of exchange and
bankers' acceptances by Federal reserve bonks at home or abroad under
section 14.
In my opinion, therefore, the specific provisions of the Fed­
eral Reserve Act authorize and empower the Federal Reserve Board to pre­
sex ibe regulations, restriction^,, and limitations covering dealings in
sills of exchange and bankers' acceptances between Federal reserve banks
and foreign central banks.




( - 7 - )

X-4980

RIGHT OF FEDERAL RESERVE BANKS TO MAKS A REASONABLE
CHARGE IN CONNECTION V’lTH FOREIGN TRANSACTIONS.
Assuming that Federal reserve banks have power to engage in
transactions whereby they sell or lend gold to foreign banks, purchase
Dills for the account of foreign banks or extend credit in any way to
foreign banks, have the Federal reserve banks the right to charge a
re a so n a b le

com m ission

or

fee

fo r

lo

d o in g 's

In my opinion it is an incidental power of Federal reserve
banks to make a reasonable charge for any service lawfully rendered by
them, unless such charge is prohibited by statute or is contrary to
public policy.

There is no statute prohibiting the making of charges by

Federal reserve banks in connection with dealings in gold or bills of
exchange with foreign central banks, nor is there anything in the Federal
Reserve Act to indicate that such a charge should be considered contrary
to public policy.

Assuming that the Federal reserve banks have power

to engage in these foreign transactions, I am of the opinion, therefore,
that they are legally authorized to make a reasonable charge for the
services which they render in that connection.
GOLD TRANSACTIONS.
Section 14(a) authorizes and empowers the Federal reserve banks:
"(a) To deal in gold coin and bullion at home or abroad, to
make loans thereon, exchange Federal reserve notes for gold,
gold coin, or gold certificates, and to contract for loans
of gold coin or bullion, giving therefor, when necessary,
acceptable security, including the hypothecation of United
States bonds or other securities which Federal reserve banks
are authorized to hold;"
This section does not expressly authorize the Federal Reserve
Board to regulate, limit or restrict the exercise of the powers conferred
thereby; but I am of the opinion that such authority is to be found else-




(

-

8

-

)

X-4380

where in the Act.
I am not familial with the details of the arrangements between
tne Federal Heserve Bank of Hew York and the various central banks of
foreign countries; but it is my understanding that, whenever the Fed­
eral Heserve Banks have undertaken to miter into transactions with
ioreign central banks involving the purchase and sale of bills of excnange or dealings in gold, the Federal. Heserve Bank of Hew York has
first entered into mutual arrangements with such central banks whereby
each oank appoints the other its correspondent or agent, and that the
transactions .which take place under these arrangements are conducted
D,y

the Federal Heserve Bank of Hew York on behalf of all Federal He­

serve Banks on a pro rata basis.

Inhere this is done there can be

no doubt of the Board’s power to prescribe rules and regulations govern­
ing all such transactions which are authorized by any part of Section 14;
oecause the last sentence of Section 14(e) provides that:
"Whenever any such account has been opened or
agency or correspondent has been appointed by a Fed­
eral reserve bank, with the consent of or under the
order and direction of the Federal Heserve Board,
any other Federal reserve bank may, with the consent
and approval of the Federal Heserve Board, be permitted
to carry on or conduct, through the Federal reserve
bank opening such account or appointing such agency
or correspondent, any transaction authorized by this
section under rules and regulations to bo prescribed
by the board."
It has been suggested that the words "any transactions" as used
here refer only to the purchasing, selling and collecting of bills of
exchange under authority of subdivision (e) of Section 14; but, in
my opinion, no such restricted interpretation can properly be given
to these words.




The words "any transaction authorized by this section"

( - 9 - )

X-4980

are vex.7 oroad in their scope and clearly include every transaction
authoxized

07

any nart of Section 14, including the power granted "by

buodivision (a) oo deal in gold coin and ‘bullion at home or abroad.
In

217

opinion, therefore, this provision of subdivision (e) of Section

1“* sP scitically authorizes the

Board to prescribe rules and regulations

governing any and all transactions in gold between a federal re­
serve oank and a foreign central bank which has been appointed as
the agent or correspondent of such Federal reserve bank, if other
jederal reserve oanks participate in such transactions.
Independently of the power conferred
I am xiirther

01

07

section 14(e), however,

t.ic opinion that the Federal Reserve Board is authorized

uo x egula^e, limit or restrict international gold transactions of the
jjed^ral reserve banns, oven when such transactions are not conducted
through correspondents or agencies opened or established pursuant to
section 14(e).

This power in my opinion is included in the power con­

ferred b 7 section ll(j)

11 to

exercise general supervision over said

eedoxal x eserve banks11 and tne powrcr conferred

07

Section il(i) to

"perform the duties, functions, or services specified in this Act, and
make all rules and regulations necessary to enable said Board effec­
tively to perform the same.
In view of the great importance of this question, I shall dis­
cuss at length the nature and extent of the Board’s power of general
supervision, the legislative history of the open market powers of
the Federal reserve banks, the respective functions of the Federal
reserve oanks aid the Federal Reserve Board in the Federal Reserve
System aid tne relation of international gold transactions to other




( - 10 - )

X-4380

transactions over which the Board has been given specific powers.

Before

entering upon such a lengthy discussion, however, I shall state briefly
my ieasons for the above conclusion.

.

1. It has long teen recognized, that banking is a business af­
fected With the public interest and that banks are subject to regulation
under the police power for the protection of the general welfare of
the people.
2

. Because oi their very nature and because of the far-reaching

effects of their policies and transactions on the general welfare of
the people, this is especially true of federal reserve banks.
3. Federal reserve banks are instrumentalities of the Federal
government created for public purposes and are at all times and in all
respects subject to the paramount authority of the Federal government.
4. The Federal Reserve Board is an arm of the Federal government
created for the purpose of administering the Federal Reserve Act and
exercising general supervision over the Federal reserve banks, to the
end that they may function in a manner best calculated to carry out
the PurP°ses o f the Federal Reserve Act, to serve the public policy
of the United States, and to benefit the people of the United States.
5.

The Board’s general power of supervision includes the power

to see that the Federal reserve banks preserve and protect the banking
reserves of the country with which they are entrusted, that they do
nothing which may endanger the solvency or soundness of their cur­
rency, that they carry out faithfully the purposes of the Federal
Reserve Act and that they comply in all respects with both the letter
md




the spirit of the law.

This power carries with it the power to

•

X-4980

( - 11 - )

require the Federal reserve tanks to cease doing anything which is ultravires or which might defeat the purposes of the Federal Reserve Act or
which might he detrimental to the public interest.

Moreover, this power

is to be construed liberally so as to enable the Foard effectively to
safeguard the great public interests confided to it.
6.

From an examination of the Committee reports and legislative

deoates on the Federal Reserve Act it is perfectly clear that the power
of carrying on the regular routine everyday business of the Federal resoj-v c

banks and the power of determining local policies was entrusted

to their respective board of directors, but the Federal Reserve Board
was created as "a general board of management" entrusted with the power
to overlook and direct the general functions of the banks in order that
tne Board, on oehalf of the government, might retain some power over
one exercise of the "broader banking functions" affecting the country
as a whole.
7.

To this end, the Board was given power, among other things,

to review and determine the rates of discount to be fixed by each
federal reserve bank irom time to time, to regulate the open market
transactions of the Federal reserve banks, to exercise general super­
vision over the Federal reserve banks, and to make all rules and
regulations necessary to enable the 3oard to perform the duties, func­
tions or services specified in the Federal Reserve Act.
8.

The power to purchase and sell bills of exchange and bankers'

acceptances in the open market was conferred upon the Federal reserve
oanks in order to enable them to make their rediscount ra.tes effective
and to protect their gold reserves, but this power was subjected to




X-4980
(

-

12

-

)

r e g u l a t i o n by tn e F e d e ra l R ese rv e 3 o a r d in o r d e r t h a t th e Board m ight have
some c o n t r o l o v e r th e r e s e r v e p o s i t i o n s o f th e b a n k s, th e r e d i s c o u n t
r a t e s , and g e n e r a l c r e d i t c o n d i t i o n s th ro u g h o u t th e c o u n tr y .
9.

For tn e same re a s o n , th e Board was g iv en a g r e a t measure o f

c o n t r o l over th e o t h e r open m arket o p e r a t i o n s o f th e F e d e r a l r e s e r v e
oanks, o ver t h e i r power to a p p o in t c o r r e s p o n d e n ts , open a c c o u n ts and
e s t a b l i s h a g e n c ie s a b ro a d , and o v e r the t r a n s a c t i o n s which m ight be
co n d u cted th ro u g h such f o r e i g n c o rre s p o n d e n ts and a g e n c ie s .
10.

Tne e f t e c t i v e n e s s o f th e powers th u s c o n f e r r e d upon th e

3 o a r d would be s e r i o u s l y im p a ire d and th e B o ard ’ s a b i l i t y to e x e r c i s e some
contx-ol over th e r e d i s c o u n t r a t e s , open m arket o p e r a t i o n s and f o r e i g n
t r a n s a c t i o n s o f th e F e d e r a l r e s e r v e banks w ith a view to p r o t e c t i n g th e
g e n e r a l c r e d i t s i t u a t i o n and o v e r s e e in g th e " b r o a d e r b a n k in g f u n c tio n s "
a f f e c t i n g tn e c o u n try a s a whole m ight be re n d e re d n u g a to ry i f th e
F e d e r a l r e s e r v e banks c o u ld e n t e r in to t r a n s a c t i o n s w ith f o r e i g n banks
in v o l v i n g th e purcha.se and s a l e , le n d in g , b o rro w in g and earm ark in g o f
g o ld , th e r e b y moving g r e a t q u a n t i t i e s o f g o ld i n t o o r o u t o f th e
c o u n tr y , w ith o u t b e in g s u b j e c t to any r e g u l a t i o n o r check by th e F e d e ra l
R eserve B oard.
11 •

.

Any s t a t u t e must be c o n s tr u e d as a whole and in such a

way a s to c a r r y o u t th e i n t e n t o f th e l e g i s l a t u r e .

.The i n t e n t o f th e

l e g i s l a t u r e must oe o o t a i n e d by re a d in g th e a c t a s a whole and n o t by
c o n s t r u i n g i s o l a t e d p r o v i s i o n s o f th e same w ith o u t any r e f e r e n c e to
o h e ir r e l a t i o n zo th e o t h e r p r o v i s i o n s o f th e a c t o r th e e f f e c t o f
such c o n s t r u c t i o n upon o t h e r p r o v i s i o n s o f th e a c t .
12.

To c o n s tr u e th e B o a rd ’ s powers " t o e x e r c i s e g e n e r a l s u p e r­

v i s i o n over t h e F e d e r a l r e s e r v e banks" and " t o p e rfo rm th e d u t i e s ,



f - 13 - )

X-4980

functions or services specified in this act and to make all rules and
regulations necessary to enable said Board effectively to perform the
same" strictly and in such a way as not to include the power to exercise
some c o n t r o l over i n t e r n a t i o n a l g o ld t r a n s a c t i o n s , would c l e a r l y d e f e a t
tn e oroad p u rp o s e s o f th e Federa.1 R eserve Act and g r e a t l y im o a ir th e
Board*s ^ u n c ti o n as a " g e n e r a l b o a rd o f management" e n t r u s t e d w ith th e
power to o v e rlo o k and d i r e c t the g e n e r a l f u n c t i o n s o f the banks in o r d e r
tno.t the B oard, on b e h a l f of the governm ent, m ight r e t a i n some power over
tn e e x e r c i s e of t h e ’‘b ro a d e r oanking f u n c tio n s " a f f e c t i n g th e c o u n try as
a w hole.
13.

D e alin g s in g o ld betw een th e F e d e r a l r e s e r v e banks and f o r e i g n

c e n t r a l oantes a r e t r a n s a c t i o n s of im p o rtan ce to th e e n t i r e F e d e ra l Re­
s e r v e System and to th e p u b l i c i n t e r e s t s o f th e U n ite d S t a t e s as a w hole.
N orm ally l a r g e .amounts a r e in v o lv e d in t h e s e d e a l i n g s .

F r e q u e n tly i n

such t r a n s a c t i o n s th e fu n d s ol th e F e d e ra l r e s e r v e banks a r e i n v e s t e d
in o r r e p r e s e n t e d by a s s e t s l o c a t e d in f o r e i g n c o u n t r i e s .

T his u s e o f l a r g e

amounts o f th e funds o f th e F e d e ra l R eserve System m ignt cau se a s e r i o u s
r e s t r i c t i o n upon th e amount o f fu n d s a v a i l a b l e f o r u s e in t h i s c o u n try
and h arm fu l r e s u l t s upon th e F e d e ra l R eserve System o r upon t h e b u s in e s s
i n t e r e s t s o f t h i s c o u n try might e n su e .

I t c o u ld s e r i o u s l y a f f e c t th e

g o ld r e s e r v e s o f th e c o u n tr y and th e e f f e c t i v e n e s s o f the r e d i s c o u n t
ra te .
14.

Under th e s e c ir c u m s t a n c e s , th e q u e s tio n w hether and to what

e x t e n t F e d e r a l r e s e r v e oanks sh o u ld engage in t r a n s e c t i o n s o f t h i s k in d
i s an im p o rta n t q u e s ti o n o f p o l i c y to th e F e d e ra l R eserv e System as
a w hole.




The p r a c t i c a l r e s p o n s i b i l i t y o f such t r a n s a c t i o n s i s one

( - 14 - )

X-4980

which in th e I n s t a n a l y s i s , must r e s t upon the F e d e ra l R eserv e Board.
I f th o j c d e r a l n e s e r v e B o a r d 's power o f g e n e r a l s u p e r v is io n over Fed­
e r a l r e s e r v e "banks i s to have any p r a c t i c a l e f f e c t o r i s to he given any
s u b s t a n t i a l meaning, i t must he c o n s id e r e d to e x ten d to and in c lu d e th e
r e g u l a t i o n o r r e s t r i c t i o n o f such im p o r ta n t a c t i v i t i e s o f F e d e r a l r e s e r v e
oanks a s th e s e i n t e r n a t i o n a l d e a li n g s in g o ld , which may im p a ir th e e f ­
f e c t i v e n e s s o f th e r e d i s c o u n t r a t e and th e open m arket t r a n s a c t i o n s o v er
which th e Board i s e x p r e s s l y g iv en a l a r g e measure o f c o n t r o l .
I am o f tn e o p in io n , t h e r e f o r e , t h a t hy v i r t u e o f i t s r i g h t to ex­
e r c i s e g e n e r a l s u p e r v is io n over F e d e r a l r e s e r v e hanks th e F e d e r a l R eserve
Board i s empowered and a u t h o r i z e d to r e s t r i c t o r r e g u l a t e im p o rta n t d e a l ­
in g s in g o ld in v o lv in g s u b s t a n t i a l amounts between F e d e r a l r e s e r v e hanks
and f o r e i g n c e n t r a l hanks under s e c t i o n 1 4 ( a ) o f th e F e d e r a l R eserv e Act
and t h a t a c c o r d in g ly th e F e d e ra l R eserve Board may, i f i t so d e s i r e s ,
r e q u i r e F e d e r a l r e s e r v e hanks to o b t a i n i t s a p p ro v a l b e f o r e e n t e r i n g in to
such t r a n s a c t i o n s .
- FURTHER DISCUSSION AiTD CITATION OF AUTHORITIES.
The above i s o n ly a summary o f th e re a s o n s f o r my c o n c lu s io n s
r e g a r d i n g th e B o a r d 's power to e x e r c i s e s u p e r v is io n and c o n t r o l over
i n t e r n a t i o n a l g o ld t r a n s a c t i o n s .

In view o f th e v a s t im p o rtan c e o f t h i s

s u b j e c t , I have made a v e ry le n g th y and co m p lete s tu d y and f e e l t h a t I
s h o u ld submit below f o r f u t u r e r e f e r e n c e th e r e s u l t s o f t h a t s tu d y and
th e c i t a t i o n s o f such a u t h o r i t i e s as I have found.
GMBRAL SUPERVISORY POWER.
I have made a c a r e f u l and th o ro u g h s tu d y o f th e B o a r d 's g e n e r a l
s u p e r v is o r y power and o f th e l e g a l a u t h o r i t i e s r e g a r d i n g the g e n e r a l
s u p e r v i s o r y o r v i s i t a t o r i a l powers in g e n e r a l .

I submit th e f o llo w in g

d i s c u s s i o n o f t h a t s u b j e c t f o r th e B o ard 's f u r t h e r in f o r m a t io n .



(

-

15

-

)

X-4S80

i t i s custom ary in American law to v e s t in some b o a rd , commission,
or o f f ic e r ,

the power to e x e r c i s e g e n e r a l s u p e r v is io n o v e r c e r t a i n ty o e s

o f c o r p o r a t i o n s such as common c a r r i e r s , in s u r a n c e com panies, and b a n k s,
which a r e a f f e c t e d w ith a p u b l i c i n t e r e s t .

F u rth e rm o re , u n d e r American

law a l l c o r p o r a t i o n s a r e c h a r t e r e d by th e Government and have o n ly such
powers as a r e e x p r e s s l y g r a n te d in t h e i r c h a r t e r s or in th e laws u n d er
whlch th e y a r e in c o r p o r a te d and such i n c i d e n t a l powers as a r e n e c e s s a r y
to th e e x e r c i s e o f th e powers e x p r e s s l y g r a n te d .

I t i s w e ll s e t t l e d t h a t

cy im p l i c a t i o n th e y a r e fo r b id d e n to e x e r c i s e any o t h e r po w ers.

The St a t

t h e r e f o r e , i s i n t e r e s t e d in any a tte m p t by a c o r p o r a tio n to exceed i t s
c o r p o r a te powers and i t is w e ll s e t t l e d t h a t th e S t a t e i s th e one to com­
p l a i n o f any u l t r a v i r e s a c t s o f a c o r p o r a tio n and is th e o n ly one which
can i n s t i t u t e quo w a rra n to p ro c e e d in g s to compel a c o r p o r a t i o n to c e a se
pt.r_orm ing u ltr u . v i r e s a c t s .

Tne d u t i e s o f b o a r d s , commissions o r

o n i c e r s ch arg ed w ith g e n e r a l s u p e r v is io n over c o r p o r a t i o n s a f f e c t e d
w Un a p u b l i c i n t e r e s t , t h e r e f o r e , a r e p r i m a r i l y to see t h a t such co r­
p o r a t i o n s do n o t exceed t h e i r la w fu l powers and t h a t th e y c a r r y o u t th e
p u rp o s e s Oi t h e i r o r g a n i z a t i o n in such a way a s to b e n e f i t r a t h e r than
i n j u r e th e p u b l i c , and to p r e v e n t o r check any ab u ses o f any c h a r a c t e r .
Tnis power, i n i t s g e n e r a l n a t u r e and p u rp o se i s q u i t e s i m i l a r t o ,
i f n o t th e same a s , th e common law power o f v i s i t a t i o n .

A d iscu ssio n of

tn e a u t h o r i t i e s on th e s u b j e c t o f v i s i t a t o r i a l pow ers, t h e r e f o r e , may
tnrow some l i g h t on th e e x te n t o f th e B o ard ’ s d u t i e s and powers in the
p r e m is e s .
Tne v i s i t o r s oi eleem osynary and e c c l e s i a s t i c a l c o r p o r a t i o n s a t
common law, however, f r e q u e n t l y p erfo rm ed a l l th e f u n c t i o n s and p o s s e s s e d
a l l tn e powers which a r e now d iv id e d betw een th e d i r e c t o r s o f banks and
th e governm ental a u t h o r i t i e s h a v in g s u p e r v is io n o ver them; a u d i t i s im


( - IS - )

X-4980

p o r t a n t to keep t h i s in mind w h ile r e a d in g the a u t h o r i t i e s quoted below;
Bouvior* s Law D i c t i o n a r y , ( p . 3 4 0 4 ) d i s c u s s e s t h i s s u b j e c t a s fo llo w s :
tio n .

" V i s i t a t i o n . The a c t o f exam ining in to th e a f f a i r s o f a

c o rp o ra ­

"The power o f v i s i t a t i o n i s a p p l i c a b l e o n ly to e c c l e s i a s t i c a l
ana eleem osynary c o r p o r a t i o n s . 1 B la . Com. 4 8 0 . The v i s i t a t i o n o f c i v i l
c o r p o r a t i o n s i s by th e government i t s e l f , th ro u g h th e medium o f the
c o u r t s o f j u s t i c e . See 2 K ent, 2 4 0 . In th e U n ite d S t a t e s , th e l e g i s l a t u r e
i s th e v i s i t o r o f a l l c o r p o r a t i o n s founded by i t f o r p u b l i c 'purposes;
Dartmouth C o lleg e v. Woodward, 4 Wheat. ( U .S .) 518 4 Li Ed. 629".
* * * * * * * * * * * *

" A ll eleem osynary c o r p o r a t i o n s who a r e to r e c e i v e the c h a r i t y
o f th e fo u n d e r have v i s i t o r s i f th e y a r e e c c l e s i a s t i c a l c o r p o r a tio n s ;
and i f a p a r t i c u l a r v i s i t o r i s n o t p r o v id e d by th e f o u n d e r , th e n the
O rd in a ry o f th e p l a c e i s th e v i s i t o r ; i f chey a r e l a y c o r p o r a t i o n s ,
th e fo u n d er and h i s h e i r s a r e p e r p e t u a l v i s i t o r s ; 5 Mod. i o 4 .
I t is a
n e c e s s a r y i n c i d e n t o f an eleem osynary c o r p o r a tio n ; 1 Mod. 82; " a power
to c o r r e c t ab u ses and to e n fo rc e due o b serv an c e o f th e s t a t u t e s o f th e
c n a r i t y , 'but n o t a power to rev o k e th e g i f t s , to change u s e s o r d i v e s t
r i g h t s ; " A lle n v. McKean 1 Sunn. 2 7 3 , Eed. Cas. No. 2 2 9 , p e r S to r y , J .
"A v i s i t o r h as th e r i g h t o f i n s p e c t i n g th e a f f a i r s o f th e
c o r p o r a t i o n , and s u p e r in te n d i n g a l l o f f i c e r s who have c h arg e o f them
a c c o r d in g to th e s t a t u t e s o f th e fo u n d e r, w ith o u t any c o n t r o l o r r e v i s i o n
o f any o t h e r p e rs o n o r body, e x ce p t th e j u d i c i a l t r i b u n a l s , by whose
a u t h o r i t y and j u r i s d i c t i o n he may be r e s t r a i n e d and k e p t w i t h i n the l i m i t s
o f th e g r a n te d pow ers, and made to r e g a r d th e g e n e r a l laws o f th e land;
in r e Murdock, 2 4 Mass. 3 0 3 . No. a p p e a l l a y from a v i s i t o r u n l e s s he
v i s i t s qua O rd in a ry , when an a p p e a l la y to the Crown in Chancery. I t was
ea.id by Lord Camden t h a t v i s i t a t i o n is d e sp o tism u n c o n t r o l l e d and w ith o u t
a p p e a l; G ra n t, Corp. 5 3 4 . See, g e n e r a l l y , Tudor, C h a r i t a b l e T r u s ts ;
S te p h e n s, S t a t u t e s R e l a t i n g to E c c l e s i a s t i c a l , e t c . , I n s t i t u t i o n s ; R ep o rt
o f Oxford Commission ( 1 8 5 2 ) ; 7 Com. Dig. 545; 2 1 V in e r, Abr. 5 8 7 . See"3 4
L. Mag. and Rev. 4 0 , a s to Oxford and Cambridge U n i v e r s i t i e s .
" I n M a s s a c h u s e tts i t i s h e l d t h a t th e v i s i t a t i o n o f eleemopynary
c o r p o r a t i o n s a c c o rd in g to the common law i s in f o r c e e x c e p t as a l t e r e d by
s t a t u t e ; In r e Murdock, 2 4 Mass. 30 3 ; such s t a t u t e s may v e s t v i s i t a t o r i a l
power in th e c o u r t s , in th e a b sen ce of a u e r s o n a l v i s i t o r , or even where
t h e r e i s one; In r e T a y lo r Orphan Asylum, 36 T i s . 534; b u t where v i s i t a ­
t o r i a l power i s c o n f e r r e d on c e r t a i n p u b l i c o f f i c e r s , th e c o u r t s may n o t
i n t e r f e r e u n l e s s such v i s i t o r s s h o u ld a c t c o n t r a r y to law; K elson v.
Cushing, 2 Cush. ( 5 6 M a ss.) 5 1 9 .
"Even where a t e s t a t o r , in fo u n d in g a h o s p i t a l , d i r e c t e d t h a t t i e
t r u s t e e s sh o u ld a n n u a l l y r e p o r t t h e i r a c t s to th e c o u r t and g iv e b onds,
i t was n e l d t n a t th e c o u r t had no v i s i t a t o r i a l power o r o t h e r s u p e r v is io n ;




x-Usso

( -17- )
Jenkins v. Berry, '.\19 Ky. 350. S3 S.^. 59^.
MThe v i s i t a t o r i a l power of a c o u r t o ver a cem etery a s s o c i a t i o n does
not a u t h o r i z e i t to s u b s t i t u t e i t s own b u s in e s s judgment f o r t h a t o f th e
a s s o c i a t i o n ; Roanoke Cemetery Co. v . G-oodwin, l o i Va. 6 0 3 , UU S .E . 769 .
"Under t h e v i s i t a t o r i a l powers o f a s t a t e over c o r p o r a t i o n s doing
b u s in e s s w i t h i n i t s b o r d e r s , i t i s competent f o r i t to compel such c o rp o ra ­
t i o n s to p roduce t h e i r books and p a p e r s f o r i n v e s t i g a t i o n and to r e o u i r e th e
te stim o n y o f t h e i r o f f i c e r s and employees to a s c e r t a i n w h e th er i t s laws
have been com plied w ith , and t h is power e x ten d s to th e p r o d u c tio n o f books
and p a p e r s k e p t o u t s i d e o f th e s t a t e , and a s t a t u t e r e q u i r i n g such p r o d u c tio n
does n o t amount to an u n re a s o n a b le s e a r c h o r s e i z u r e o r a den ied o f due
p ro c e s s o f law; C o n s o lid a te d R. Co. v . Vermont, 2 0 7 U. S. 5U1 , 2 8 Sup. C t.
17S, 52 L. Ed. 327 , 12 Ann. Cas. 658 ; Hammond F. Co. v . A rk an sas, 2 1 2 U.S.
3 2 2 , 29 Sup. Co. 3 2 0 , 53
Ed. 5 3 0 , lp Ann. Cas. 6U5 . A c o r p o r a t i o n , b e in g
th e c r e a t u r e o f th e s t a t e , h a s n o t th e c o n s t i t u t i o n a l r i g h t to r e f u s e to
submit i t s books and p a p e r s f o r an ex am in atio n a t the s u i t o f t h e s t a t e , and
an o f f i c e r o f a. c o r p o r a t i o n ch arg ed w ith c r i m i n a l v i o l a t i o n of a s t a t u t e
c an n o t p l e a d th e c r i m i n a l i t y o f th e c o r p o r a t i o n as a r e f u s a l to produce i t s
books; Hale v . H enkel, 20 1 U. S. U3 , 2 6 Su p . C t. 37 O, 50 L. Ed. 652. A c o r ­
p o r a t i o n i s bound to f u r n i s h in fo r m a tio n when c a l l e d f o r by th e s t a t e , so
f a r as re a s o n a b ly p o s s i b l e , and s t a t e th e f a c t s which excuse them from an­
sw ering more f u l l y ; S t a t e v . E x p ress C o ., 81 Minn. 8 7 , 83 N.W. U65 , 50 L.R .A .
667 , 83 Am. S t . Hep. 366 ; by s t a t u t e th e r i g h t e x i s t s in Kansas; See W estern
U. T e l. Co. v . A u s tin , 67 Kan. 2 0 8 , 72 P a c . 85O.
" I t may be c o n s id e re d t h a t , to a c e r t a i n e x t e n t , r a i l r o a d com­
m is s io n s a r e th e m achinery c r e a t e d by law f o r th e e x e r c i s e o f v i s i t a t o r i a l
power.
"T his power does n o t in c lu d e th e common law r i g h t o f th e s h a r e h o ld e r
to in s p e c t th e books o f th e c o r p o r a tio n ; G u th rie v . E a rk n e s s , 19 9 U.S.
lU 8, 26 Sup. C t. H, 50 L. Ed. 1 3 0 , k Ann. Cas. U3 3 ."
In th e famous D artm outh C o lleg e Case, 17 U.S. . ( k Wheat) 517 , 672 ,
Mr. J u s t i c e S to r y d is c u s s e s th e s u b j e c t o f v i s i t o r s o f eleem osynary c o rp o r­
a t i o n s as fo llo w s ;
"To a l l eleem osynary c o r p o r a t i o n s , a v i s i t a t o r i a l power
a t t a c h e s , as a n e c e s s a r y i n c i d e n t ; f o r th e s e c o r p o r a t i o n s b e in g
composed o f i n d i v i d u a l s , s u b j e c t to human i n f i r m i t i e s , a r e l i a b l e ,
as w e ll as p r i v a t e p e r s o n s , to d e v i a t e from th e end o f t h e i r i n s t i ­
t u t i o n . Tne law, t n e r e f o r e , has p ro v id e d , t h a t t h e r e s h a l l somewh e re
e x i s t a power to v i s i t , i n q u i r e i n t o , and c o r r e c t call i r r e g u l a r i t i e s
and ab u ses in such c o r p o r a t i o n s , and to compel th e o r i g i n a l p u rp o s e s
o f c h a r i t y to be f a i t h f u l l y f u l f i l l e d . 1 3 1 . Com. k % o \
The na­
t u r e and e x te n t o f t h i s v i s i t a t o r i a l power h as been expounded w ith
a d m ira b le f u l n e s s and a c c u ra c y by Lord H o lt i n one o f h i s most c e l e ­
b r a t e d ju d g m en ts. P h i l l i p s v . Bury, 1 La. Raym. 5; s . c . 2 T.R . 3 ^ 6 .
And o f common r i g h t , by th e d o t a t i o n , th e fo u n d e r and h i s h e i r s a r e th e
l e g a l v i s i t o r s , u n l e s s th e fo u n d e r has a p p o in te d and a s s ig n e d a n o th e r p e r ­
son to be v i s i t o r . For th e fo u n d e r may, i f he p l e a s e , a t th e time of th e




X-U980
(

-IS -

)

endowment, p a r t w ith h i s v i s i t a t o r i a l power, and th e
p e rs o n to whom i t i s a s s ig n e d w i l l , i n t h a t c a s e , p o s s e s s
i t in e x c lu s io n o f th e f o u n d e r ’ s h e i r s . 1 . B l. Com. U82.
*** But where t r u s t e e s o r g o v e rn o rs a r e i n c o r p o r a te d
to manage th e c h a r i t y , th e v i s i t a t o r i a l power is deemed
to "belong to them in t h e i r c o r p o r a te c h a r a c t e r . P h i l i p s
v . Bury, 1 Ld. Raym. 5; s . c . 2 T.R. 3 ^ 6 ; Green v . R u t h e r f o r t h ,
1 Yes. ^ 7 2 ; A tto rn e y -G e n e ra l v . M id d le to n , 2 I b i d . 32 7;
Case of S u tto n H o s p i t a l , 10 Co. 2 3 , 3 1 * "
That the power to s u p e r v is e and examine banks i s a v i s i t o r i a l
power i s i n d i c a t e d by th e f o llo w in g p a ss a g e in Morse on Banks and
Banking (5 Y d.) Vol 1 , p.HU:
"A s t a t e may i n v e s t th e s u p e r v i s i o n o f banks in a bank
com m issioner o r o t h e r exam iner, and g r a n t to him v i s i t o r i a l
powers o ver banks and impose upon him th e d u ty o f e x am in atio n
o f b a n k s, th e i n v e s t i g a t i o n o f t h e i r s o lv e n c y , and th e w inding
up o f t h e i r a f f a i r s i f t h e p r o t e c t i o n o f th e d e p o s i t o r s demands
such a c t i o n . He may examine th e r e c o r d s of th e bank, change
th e p e r s o n n e l of th e b o a rd o f d i r e c t o r s , and e s t a b l i s h r u l e s
f o r th e p r o p e r d is c h a r g e o f h i s d u ty . His power sh o u ld n o t be
u n d u ly narrowed by c o n s t r u c t i o n , nor can he be removed by th e
g o v e rn o r.”
In Guthrie v. Harkness, 199 U . S. lUS, a stockholder in a national bank

a p p lie d f o r le a v e to i n s p e c t th e b ooks, a c c o u n ts and lo a n s o f th e bank f o r
th e p u rp o se o f a s c e r t a i n i n g th e v a lu e of h i s s to c k . Upon r e f u s a l to a l l o w
p ro c e e d in g s
such i n s p e c t i o n , he i n s t i t u t e d / t o compel th e o f f i c e r s o f th e bank to p e rm it
him to examine th e b ooks.

One o f th e d e f e n s e s made on b e h a l f o f th e

o f f i c e r s was t h a t th e common law r i g h t o f th e s t o c k h o l d e r to i n s p e c t
th e books o f a c o r p o r a t i o n i s c u t o f f as to s t o c k h o l d e r s o f n a t i o n a l
banks by S e c tio n

o f th e R evised S t a t u t e s , which p r o v id e s

th at

"Ho a s s o c i a t i o n s h a l l be s u b j e c t to any v i s i t o r i a l powers o t h e r th a n
such as a r e a u t h o r i z e d by t h i s t i t l e o r a r e v e s te d in th e c o u r ts o f
ju s tic e ."

The c o u r t h e ld t h a t th e s to c k h o ld e r was e n t i t l e d to examine

th e books o f th e bank and t h a t th e o f f i c e r s t h e r e o f must p e r m it him
to do s o ..




Mr. J u s t i c e Day s a id :




X-U9S0

( -19- )
"B ut, i t i s s a i d , th e r i g h t o f th e s h a r e h o ld e r to in s p e c t
th e hooks i s cu t o f f by s e c t i o n 52^ 1 , p r o v id i n g 'no a s s o c i a t i o n
s h a l l he s u b je c t to any v i s i t o r i a l powers o t h e r th a n su ch a s a r e
a u th o r iz e d hy t h i s T i t l e , o r a re v e s te d i n th e c o u r t s o f j u s t i c e .
'We a re u n a b le to f in d any d e f i n i t i o n o f ‘v i s i t o r i a l p o w e rs’ which
can he h e ld to in c lu d e th e common law r i g h t o f th e s h a r e h o ld e r to
i n s p e c t th e hooks o f t h e c o r p o r a t i o n * * *.
* * * * * * * * * * *

"The meaning o f t h i s s e c t i o n was b e f o r e Judge B a x te r in th e
c a se of F i r s t N at. Bank o f Youngstown v* Hughes, 6 Fed. Rep. 7 3 7 ,
and o f th e meaning o f th e term ' v i s i t o r i a l p o w e rs ', a s u sed in
s e c t i o n 52^-1 , t h a t le a r n e d ju d g e s a id :

1 V i s i t a t i o n , in law, i s th e a c t o f a s u p e r i o r o r su p e r­
i n t e n d in g o f f i c e r , who v i s i t s a c o r p o r a t i o n to examine i n t o
i t s ma n n e r o f c o n d u c tin g b u s i n e s s , and enf o r c e an observ an ce
V^—1 ° T s and r e g u l a t i o n s . B urr i l l d e f in e s th e word to mean
" i n s p e c t i o n ; s u p e r in te n d e n c e ; d i r e c t i o n ; r e g u l a t i o n . " '
At common law th e r i g h t o f v i s i t a t i o n was e x e r c is e d hy th e King
as to c i v i l c o r p o r a t i o n s and as to eleem osynary ones hy th e fo u n d e r
o r d o n o r. 1 C o o le y 's B la c k s to n e , US1.
' I n th e U n ite d S t a t e s th e l e g i s ­
l a t u r e is th e v i s i t o r of a l l c o r p o r a t i o n s c r e a t e d hy i t , where th e r e
i s no i n d i v i d u a l fo u n d e r or d o n o r, and may d i r e c t j u d i c i a l p ro c e e d ­
in g s a g a i n s t suen c o r p o r a t i o n s f o r such abuses o r n e g l e c t s as would
a t common law cau se f o r f e i t u r e o f t h e i r c h a r t e r s . ' 1 C o o le y 's B lack s to n e , 4 8 2 , n o te .
"I^i th e case b e f o r e us t h e Supreme Court o f Utah q u o te s from
M e r r i l l on Mandamus as fo llo w s :

1Vi s i t o r s o f c o r p o r a t i o n s h av e power to keep t hem
w i t h i n th e l e g i t i m a t e sp h ere o f t h e i r o p e r a t i o n s , and to
c o r r e c t a l l abuses of au t h o r i t y , and to n u l l i f y a l l i r - ~
r e g u l a r P r o c e e d in g s .
In America t h e r e a r e v e ry few c o r ­
p o r a t i o n s which have p r i v a t e v i s i t o r s, and in th e absence
o f such, th e S t a t e i s th e v i s i t o r of a l l c o rp o r a t i o n s . '
_ In no c a se o r a u t h o r i t y tha.t ^ e have been a b le to f i n d has
t h e r e been a d e f i n i t i o n o f t h i s r i g h t , which would in c lu d e th e
p r i v a t e r i g n t o f th e s h a r e h o ld e r to have an ex am in atio n o f th e b u s i ­
ness in wnich he i n t e r e s t e d , and th e r i g h t o f d is c o v e r y of th e
methods and means by which th e a g e n ts o f th e c o r p o r a t i o n a r e con­
d u c tin g i t s a i f a i r s . The r i g h t o f v i s i t a t i o n b e in g a p u b l i c r i g h t ,
e x i s t i n g i n th e S t a t e .tor th e p u rp o se o f examining i n t o th e conduct
——
c o r p o r a t i on w itn a view to k e e p in g i t w i t h i n i t s l e g a l p o w e rs,
k ? .^ 1*655
iu nmo. in p a s s in g t h i s s e c t i o n t h a t in o t h e r s e c t i o n s
——the law i t had mode f u l l and com plete P r o v i s i o n f o r i n v e s t i g a t i o n
by th e C o m p tro lle r of th e C u rre ncy and exam iners a p p o in te d by him ,
and,—a u t h o r i z i n g th e a p p o in tment o f a r e c e i v e r , to t a ke p o s s e s s io n
—t-he b u s in e s s w ith a view to w in d ing up th e a f f a i r s o f th e bank.
I t was t h ‘c i n t e n t i o n t h a t t h i s s t a t u t e sh ould c o n t a i n a f u l l code o f

(

-2 0 -

)

X-4980

" p r o v i s io n s upon the s u b j e c t , and t h a t no s t a t e law or enactm ent
sh o u ld u n d e r ta k e to e x e r c i s e th e r i g h t o f v i s i t a t i o n over a na­
t i o n a l c o r p o r a t i o n . Except i n so f a r as such c o r p o r a t i o n was l i a b l e
to c o n t r o l i n th e c o u r ts o f j u s t i c e , t h i s a c t was to be th e " fu ll
measure o f v i s i t o r i a l n e w e r . 11
The B o a rd 's power to e x e r c i s e g e n e r a l s u p e r v i s i o n o v e r F e d e ra l r e ­
serv e banks and examine i n t o t h e i r a f f a i r s i s q u i t e s i m i l a r to th e c o rre s p o n d in g
power o f th e C o m p tro lle r o f the C urrency over n a t i o n a l b anks, an d i t would seem
t h a t th e n a tu r e and p u rp o se o f th e B o a rd 's power must be p r a c t i c a l l y th e same as
t h a t o f th e C o m p t r o l l e r 's .
In th e case o f S t a t e v . Morehead, ( N e b r .) 1 5 5 N. W. 8 7 9 ,

the c o u r t i n

d i s c u s s i n g th e r i g h t o f the S t a t e Banking Board to r e f u s e to is s u e a c h a r t e r to
a s a v in g s bank s a id :
"When t h e g e n e r a l r u l e o f s t a t u t o r y c o n s t r u c t i o n i s a p p l i e d
and s e c t i o n 1 6 i s c o n s id e r e d in c o n n e c tio n w ith th e o th e r p r o v i ­
s i o n s , i t must be h e l d t h a t th e b o a rd i s v e s t e d w ith a u t h o r i t y not
o n ly to c o r r e c t e v i l s t h a t may c r e e p i n t o t h e management o f an e x i s t ­
in g bank, out to g u a rd a g a i n s t d a n g ers, t h a t may t h r e a t e n i n s t i t u t i o n s
a b o u t to be formed.
" 'The power to compel, b e fo re h a n d , c o - o p e r a t i o n ,
and th u s , i t i s b e l i e v e d , to make a f a i l u r e u n l i k e l y and
a g e n e r a l p a n ic a lm o st im p o s s i b le , must be r e c o g n iz e d , i f
government i s to do i t s p ro p e r work, u n l e s s we can say
t h a t th e means have no r e a s o n a b le r e l a t i o n to th e end. Noble
S t a t e Bank v. H a s k e ll, 21 9 U. S. 1 0 4 , 1 1 2 , 31 Sun. C t. 1 8 6 ,
1 8 8 ( 5 5 L. Ed. 1 1 2 , 3 2 L . R . A . ( F . S . ) 1 0 6 2 , Am. Cas. 1 9 1 2 A , 4 8 7 ) , '
" * * * be t h i n k th e i n t e n t i o n o f th e L e g i s l a t u r e was to v e s t
th e b a n k in g b o a rd w ith g e n e r a l c o n t r o l and w i t h a u t h o r i t y to do a l l
t h in g s r e asona b ly n e c e s s a r y f o r th e p r o t e c t i o n o f d e p o s i t o r s th r o ugh­
o u t th e s t a t e .
The Board a l s o s ta n d s i n t h e n a tu r e o f a t r u s t e e f o r
tn is g u a ra n tee
fund, and i t i s i t s d u ty to t a k e such p r e c a u t i o n s as
may be n e c e s s a ry to p r o t e c t i t s i n t e g r i t y . The terms 'g e n e r a l s u p e r­
v i s i o n and cont r o l ' v e s t t he b a n k i ng b o a rd w ith d u t i e s o f a v e r y h ig h
o r d e r , and th e y a r e n o t to be p e r f u n c t o r i l y d is c h a r g e d , b u t to be ad w ith th e h i g h e s t d e c re e o f i n t e l l i g e n c e ana d i s c r e t i o n .
>
^-s customary f o r L e g i s l a t u r e s to g r a n t to a d m i n i s t r a t i v e
b o d ie s o f t h i s c h a r a c t e r th e power to a d o p t r u l e s , b y -law s, and
r e g u l a t i o n s r e a s o n a b ly n e c e s s a r y to c a r r y o u t the p u rp o se f o r which
th ey a r e c r e a t e d , and t h i s g r a n t i s n o t an im proper d e l e g a t i o n




( ' - 21-

)

X-4S80

:,o f a u t h o r i t y . Blue v. Beach, 1 5 5 In d . , 1 2 1 , 56 N .E . 8 9 ,
50 L .R .A . 6 4 , 80 AKI. S t. Rep. 1 9 5 and c ase s c i t e d . T his
i s h e ld g e n e r a lly to he th e r u l e in m a tte rs coming w ith in
th e p o l i c e power o f th e s t a t e .
T hat th e h a n k in g b u s in e s s
comes w ith in t h a t power i s no lo n g e r an open q u e s tio n .
" ‘The p o lic e power e x te n d s to a l l th e g r e a t p u b lic n e^d s
(C am field v . U n ite d S t a t e s , 1 6 7 U .o . 5 1 8 , ( 1 7 Sup. C t. 8 6 4 ,
42 L. Ed. 2 6 0 ) and in c lu d e s th e enforcem ent of com m ercial
c o n d itio n s such as th e p r o t e c t i o n o f hank d e p o s its and checks
drawn a g a in s t them by co m p ellin g c o o p e ra tio n so as to p re v e n t
f a i l u r e and p a n i c . ' (N oble S ta te Bank v. H a s k e ll, 2 1 9 U. S. 1 0 4 )
"The b u s in e s s o f ban k in g coming w ith in th e p o l i c e power o f
the s t a t e , the same r u le o f c o n s tr u c tio n may be a p p lie d to banking
a c ts and to r u l e s and r e g u la tio n s e s ta b lis h e d by banking b o ard s as
a p p lie s to a c t s c r e a t i n g o th e r a d m in is tr a tiv e b o d ie s coming w ith in
the p o lic e p o w er. The Supreme C ourt o f J u d ic a tu r e o f In d ia n a , in
d is c u s s in g t h i s p h a se o f th e Q u e stio n , in Blue v . Beach, s u p ra ,
says:
" 'W hile i t i s tr u e t h a t th e c h a r a c te r or n a tu re o f
such b o ard s i s a d m in is tr a tiv e o n ly , s t i l l th e pow ers
c o n fe rre d upon them by th e L e g is la tu r e , in view o f th e
g r e a t p u b lic i n t e r e s t s c o n fid e d to them, have alw ays
re c e iv e d from th e c o u r ts a l i b e r a l c o n s tr u c ti o n , and
th e r i g h t o f th e L e g is la tu r e to c o n fe r upon them th e
power to make re a s o n a b le r u l e s , b y -la w s, and r e g u la ­
t i o n s , i s g e n e r a lly re c o g n iz e d by th e a u t h o r i t i e s . ' "
The c ase o f G reat n o r th e r n R ailw ay Company v . Snohomish C ounty,
4 8 7v'ash. 4 7 8 , 9 3 P a c . 9 2 4 , in v o lv e d th e c o n s tr u c tio n o f a S ta te s t a t u t e r e ­
q u ir in g th e S ta te Board of Tax C om m issioners to e x e r c is e " g e n e ra l s u p e r v is io n "
over a s s e s s o r s and co u n ty b o a rd s o f e q u a li z a tio n and th e a sse ssm e n t o f t a x ­
a b le p r o p e r ty in o rd e r to s e c u re e q u a li ty in t a x a t i o n .

The c a se tu rn e d upon

th e p ro p e r m eaning o f th e term " g e n e ra l s u p e rv is io n " - w hether i t a u th o r iz e d
th e Com m issioners to a c t m erely in an a d v is o ry c a p a c ity o r w hether i t a u th o r iz e d
them to c l a s s i f y in te r - c o u n ty r a i l r o a d s and f i x th e v a lu e th e r e o f f o r th e
p u rp o se o f t a x a t i o n .

The c o u rt h e ld t h a t th e s t a t u t e a u th o r iz e d th e Com­

m is s io n e rs to c l a s s i f y in te r - c o u n ty r a i l r o a d s and f i x th e v a lu e th e r e o f f o r
p u rp o se s o f ta x a tio n ; t h a t th e words " g e n e ra l s u p e rv isio n " in ro ly som ething




( -23- )

X-4980

more th a n a mere power to a d v is e and s u g g e s t; th a t th ey c o n fe r a u th o r ity
to o v e rse e and rev iew th e a c t s and c o r r e c t e r r o r s o f th o s e o v er whom th e
r i g h t o f s u p e r v is io n i s g r a n te d .

In th e c o u rse o f th e o p in io n th e c o u rt s a id ;

"While th e s e s e v e ra l p r o v is io n s h e ar more o r l e s s d i r e c t l y
on th e q u e s tio n u n d er c o n s id e r a tio n , th e case tu r n s p r i n c i p a l l y
on th e m eaning o f th e term 'g e n e r a l s u p e r v is io n ' in th e a c t de­
f i n i n g th e pow ers and d u tie s o f th e s t a t e h o a rd o f ta x commis.
s i o n e r s . * * * The s t a t e h o a rd o f ta x com m issioners i s given
g e n e ra l s u p e r v is io n o v er a s s e s s o r s and co u n ty h o a rd s o f e q u a li­
z a ti o n , to th e end th a t a l l ta x a b le p r o p e r ty s h a ll he p la c e d on
th e a sse ssm e n t r o l l s and e q u a liz e d a s betw een th e d i f f e r e n t coun­
t i e s and m u n i c i p a l i t i e s , so t h a t e q u a li ty o f ta x a t i o n s h a l l he s e ­
c u re d a c c o rd in g to th e p r o v is io n s of law . What i s meant by 'g en ­
e r a l s u p e r v is io n '? C ounsel f o r re s p o n d e n ts c o n ten d th a t i t means
to c o n fe r w ith , to a d v is e , and t h a t th e h o a rd a c t s i n an a d v is ­
ory c a p a c ity o n ly . We can n o t b e lie v e t h a t th e L e g is la tu r e went
th ro u g h th e i d l e f o r m a lity o f c r e a tin g a h o a rd th u s im p o te n t. De­
f in i n g th e term 'g e n e ra l s u p e r v is io n ' in V antongeren v . H efferm an, 5
Dak. ISO, 38 N.«v. 5.3, th e c o u rt s a id :
'The S e c re ta r y o f th e In ­
t e r i o r , and under h is d i r e c t i o n , th e Commissioner o f th e G eneral
Land O ffic e , h a s a g e n e ra l " s u p e r v is io n o v e r a l l p u b lic b u s in e s s
r e l a t i n g to th e p u b l i c l a n d s ." What i s meant by " supe r v i s i o n " ?
W ebstar sa y s s u p e r v is io n means "to o v e rse e f o r d ir e c tio n ; to
s u p e rin te n d ; to in s p e c t; a s to s u p e r v is e th e p r e s s f o r c o r r e c ~ki°n - 11
And, u s e d in i t s g e n e ra l and a c c e p te d m eaning, th e Sec­
r e t a r y h a s the power to o v e rse e a l l th e a c ts of th e l o c a l of ­
f i c e r s fo r t h e i r d i r e c t i o n , o r , a s i l l u s t r a t e d by k r . W ebster, he
h a s th e power to suue r v is e t h e i r a c ts f o r th e p u rp o se o f c o r r e c t ­
in g th e same; and th e same power i s e x e r c is e d by th e Commission­
e r u n d e r th e S e c re ta r y of th e I n t e r i o r .
I t i s c l e a r , th e n , t h a t
a f a i r c o n s tr u c ti o n of th e s t a t u t e g iv e s th e S e c r e ta r y o f th e
I n t e r i o r , and u n d er h i s d i r e c t i o n , th e Commissioner o f th e Gen­
e r a l Land O ffic e , th e power to rev iew a l l th e a c ts o f th e l o c a l
o f i i c c r s , an d to c o r r e c t , o r d i r e c t a c o r r e c t i o n o f , any e r r o r s
com m itted by them .
Any l e s s power th a n t h i s would moke th e
" s u p e r v is io n " an i d le a c t - a mere o v e rlo o k in g w ith o u t power o f
c o r r e c t io n o r s u g g e s tio n .'
D e fin in g th e l i k e term in S ta te v .
F .E . & i n . Y . R .R , C o ., 2 2 N ebr. 3 1 3 , 3 5 IT.W. 1 1 8 , th e c o u rt
s a id :
'W ebster d e fin e s th e word " s u p e r v is io n " to be " th e a c t of
o v e rs e e in g ; in s p e c tio n ; s u p e r in te n d in g ." The b o a rd th e r e f o r e i s
c lo th e d w ith th e pow er of o v e rs e e in g , in s p e c tin g , and s u p e r­
in te n d in g th e ra ilw a y s w it h in th e s t a t e ,_f o r th e p u rp ose o f c a r ­
r y in g in to e f f e c t th e p r o v is io n s o f t h i s a c t , and th e y a re
c lo th e d w ith th e power to p re v e n t u n ju s t d is c r im in a tio n
a g a in s t e i t h e r p e rs o n s or p l a c e s . ' I t seems to u s t h a t th e term
'g e n e r a l s u p e r v is io n ' i s c o r r e c t l y d e fin e d in th e s e c a s e s . Cer­
t a i n l y a p e rs o n o r o f f i c e r who can o n ly a d v is e o r su g g e st .to
a n o th e r h a s no g e n e ra l s u p e r v is io n o v er him , h i s a c ts o r h i s c o n d u c t."
S im ila r ly , i t w ould seem th a t th e B o ard ’s power to e x e r c is e " g e n e ra l




(

-23

X-4980

)

s u p e rv is io n " ov er th e F e d e ra l r e s e rv e ta n k s w ould in c lu d e th e power to
r e q u ir e th e F e d e ra l re s e rv e hanks to c a r r y o u t th e p u rp o se s o f th e Act
and to cneck any p r a c t i c e s w hich w ould he d e trim e n ta l to th e p u b lic in ­
t e r e s t o r i n c o n s i s te n t w ith th e p u rp o se s o f th e A ct.

C e r ta in ly , th e B o ard ’s

power o f g e n e ra l s u p e r v is io n sh o u ld n o t he c o n s tru e d in such a way as to
"make th e ’ su p e rv isio n * an i d l e a c t - a mere o v e rlo o k in g w ith o u t power
o f c o r r e c t io n o r s u g g e s tio n ."
On the o th e r hand, th e r e a re some c a s e s i n d i c a t i n g th e l i m i t a t i o n s
on th i s power of g e n e r a l s u p e r v is io n .
One o f such c a s e s i s th a t o f S ta te v . B ronson, ( k o .) 21 S .W .1 1 2 5 .
ik e c o n s t i t u t i o n o f k i s s o u r i p ro v id e s th a t " The s u p e r v is io n of i n s t r u c t i o n
in th e p u b lic sc h o o ls s h a ll he v e s te d in a h o a rd o f e d u c a tio n whose pow ers
and d u tie s s h a l l he p r e s c r i b e d by la w ."

The l e g i s l a t u r e p a s s e d a law

c r e a tin g a com m ission to p u rc h a se the hooks n e c e s s a ry f o r u se in th e s c h o o ls .
T his la*.r was o b je c te d to by th e d i r e c t o r s o f a school d i s t r i c t as b e in g
u n c o n s t i t u t i o n a l on th e ground th a t i t was in v i o l a t i o n o f th e powers
v e s te d in th e h o ard o f e d u c a tio n Ty th e c o n s t i t u t i o n .
The c o u rt h e ld t h a t the s e l e c t i o n and p u rc h a s e o f the school
booms aocs n o t come w ith in the f a i r m eaning o f th e words " th e s u p e r v is io n
o f i n s t r u c t i o n " and th e law does n o t v i o l a t e the c o n s t i t u t i o n a l p r o v i­
s io n .

In so h o ld in g th e c o u rt s a id :
" ^ i t h such a g e n e ra l system o f p u b lic s c h o o ls i t
must he e v id e n t th a t when th e c o n s t i t u t i o n say s th e s u p e r­
v is io n o f i n s t r u c t i o n s h a l l he v e s te d in th e s t a t e h o ard
o f e d u c a tio n , i t does n o t mean th a t t h i s h o a rd s h a l l e n te r
i n to th e d e t a i l s o f g iv in g i n s t r u c t i o n o r c a r r y in g on th e
schopl_s.
A ll t h i s i s and may he l e f t to s u b o rd in a te o f f i c e r s .
I t means no more th a n a g e n e ra l o v e rs ig h t over th e m a tte r o f
in s tr u c tio n ."




(

-2 4 -

)

In th e case o f Roanoke Cemetery Co. v . Coodwin, 101 Va. 6 0 5 ,
4 4 S .E . 7 6 9 , th e low er c o u rt had rev iew ed th e re a s o n a b le n e s s o f r e g u la ­
tio n s p r e s c r i b e d by th e cem etery a s s o c i a t i o n f o r th e conduct of i t s
b u s in e s s and th e fe e s c h arg ed f o r opening g ra v e s and h a d is s u e d a de­
c re e whereby th e c o u rt u n d e rto o k to p r e s c r i b e i t s own r u l e s and r e g u la ­
tio n s f o r th e management o f th e a f f a i r s o f th e company, even g o in g to
th e e x te n t o f d e te rm in in g th e fund o u t of w hich th e s a la r y o f th e s u p e r­
in te n d e n t s h o u ld be p a id .
th a t th e decree-

The Supreme C ourt o f A ppeals i n V ir g in ia h e ld

exceeded th e power o f th e c o u rt and s a id :

11I t i s n o t p e r m is s ib le f o r a c o u rt to th u s sub­
s t i t u t e i t s own b u s in e s s d i s c r e t i o n an d judgm ent f o r
t h a t o f th e company; i t s v i s i t o r i a l pow ers have no
such sco p e. 1 C la rk & liar s h a l l , p . 5 4 7 . !l
S im ila r ly , i t m ight be s a id t h a t th e a u t h o r i t y to e x e r c is e g en ­
e r a l s u p e r v is io n ov er th e F e d e ra l re s e rv e banks does n o t c a r ry w ith i t
th e

duty to e n te r in to th e d e t a i l s o f o p e r a tin g th e banks n o r th e a u th o r­

ity

f o r th e f e d e r a l R eserve E oard to s u b s t i t u t e i t s own b u s in e s s ju d g ­

ment and d i s c r e t i o n f o r th a t o f th e d i r e c t o r s .
w ith o u t a tte m p tin g to la y down a p r e c i s e d e f i n i t i o n o f th e B o a rd 's
power o f g e n e ra l s u p e r v is io n , i t may be s a id t h a t g e n e r a lly i t in c lu d e s
th e power and c a r r i e s w ith i t th e duty to see t h a t F e d e ra l r e s e rv e
banks do not ex ceed t h e i r c o rp o ra te pow ers; th a t th e y do n o t d is c rim ­
i n a t e i n fa v o r o f o r a g a in s t any c la s s o f th e p u b lic o r any member
banks; t h a t th e y p r e s e r v e an d p r o t e c t th e b an k in g r e s e r v e s o f th e coun­
try

w ith which th e y a r e e n tr u s te d ; th a t th e y do n o t do a n y th in g which

may

endanger t h e i r so lv en c y o r th e so u n d n ess o f t h e i r c u rre n c y ; th a t

th e y c a r r y o u t f a i t h f u l l y th e p u rp o s e s o f th e F e d e ra l R eserv e Act; and
t h a t th e y comply in a l l r e s p e c ts w ith b o th th e l e t t e r and




s p ir it of

( -25- )

th e law .

X-4980

I am f u r t h e r o f th e o p in io n t h a t t h i s power c a r r i e s w ith i t th e

power to r e q u ir e th e f e d e r a l re s e r v e hanks to c ea se d oing a n y th in g which
i s u l t r a v i r e s which m ight d e f e a t th e p u rp o se s o f th e F e d e ra l R eserve
Act or w hich m ight he d e trim e n ta l to th e p u b lic i n t e r e s t .
L o reo v e r, t h i s power i s to he c o n s tru e d l i b e r a l l y so as to e n ab le
th e Board e f f e c t i v e l y to s a fe g u a rd th e g r e a t p u b lic i n t e r e s t s
it.

Blue v . Beach, 1 5 5 In d . 1 2 1 , 4 5 N .E . 8 9 .

c o n fid e d to

As s t a t e d in S ta te v. M oreland,

s u p ra , "The term s 'g e n e r a l s u p e r v is io n and c o n t r o l ' v e s t th e b an k in g b o a rd
w ith d u tie s o f a v e ry h ig h o r d e r , and th e y a r e not to be p e r f u n c t o r i l y
d is c h a rg e d , b u t to be a d m in is te r e d w ith th e h ig h e s t d eg ree o f i n t e l l i g e n c e
and d i s c r e t i o n . 11
On the o th e r h an d , I am o f th e o p in io n t h a t t h i s power does n o t
c a r r y w ith i t e i t h e r th e du ty o r th e pow er to i n t e r f e r e in th e d e t a i l s
o f the o p e r a tio n o f th e F e d e ra l r e s e r v e banks o r to s u b s t i t u t e th e B o a rd 's
own b u s in e s s judgm ent and d i s c r e t i o n f o r t h a t o f th e d i r e c t o r s o f th e
F e d e ra l re s e rv e b a n k s.
I t does, how ever, in c lu d e th e power to check any a c tio n s on
th e p a r t of th e F e d e ra l re s e r v e ban k s w hich would n u l l i f y o r im p a ir th e
e f f e c t i v e e x e r c is e o f any la w fu l powers o f th e F e d e ra l R eserve Board
o r w hich w ould c o n s t i t u t e an e v a s io n o f any c o n tr o l w hich th e F e d e ra l
R eserve Board i s a u th o r iz e d to e x e r c is e o v er th e g e n e r a l c r e d i t p o lic ie s
o f th e System a s a w hole.

W ith in t h i s c l a s s o f a c tio n s which a r e s u b je c t

to r e g u la tio n u n d er th e B o a rd 's g e n e ra l s u p e rv is o ry power w ould c l e a r l y
be in c lu d e d i n t e r n a t i o n a l d e a lin g s i n g o ld , w hich m ight te n d to a f f e c t
o r im p a ir th e e f f e c t iv e n e s s o f th e r e d is c o u n t r a t e , w hich i s e x p re s s ly
made s u b je c t to review and d e te r m in a tio n by th e F e d e ra l R eserve B oard, o r
w hich w ould n u l l i f y th e e f f e c t of th e B o a rd 's r e s t r i c t i o n s on th e open
m arket o p e r a tio n s o f th e b a n k s.



( -26- )

X-4980

THE RELATIVE FJI'CTIOUS OF THE BOARD AND THE BaMS
AS SHQhN BY LEGISLATIVE HISTORY.
That th e s e views* "based u p o n a p u r e ly l e g a l i n t e r p r e t a t i o n o f th e
B o a rd 's pow ers, a re i n acc o rd a n ce w ith th e i n t e n t o f C ongress a t th e tim e i t
e n a c te d th e F e d e ra l R eserve Act a p p e a rs from th e fo llo w in g p a ss a g e s in th e r e ­
p o r t on th e o r i g i n a l F e d e ra l R eserv e Act su b m itte d to th e House o f R e p re s e n ta ­
t i v e s "by k r . G la ss, on "behalf o f th e B anking and C urrency Committee,

under

d a te o f Septem ber 9 , 1 9 1 3 (p a g e s 1 6 , 1 8 , 1 9 , 4 2 and 4 5 ) :
1 In o rd e r t h a t th e banks may be e f f e c t i v e l y in s p e c te d ,
a n d. i n o rd e r th a t th e y may p u rs u e a b an k in g p o lic y w hich
s h a l l be u n ifo rm and harm onious f o r th e c o u n try as a w h o le, the
com m ittee p ro p o se s a g e n e ra l b o a rd o f management i n t r u s t e d w ith
power to o v e rlo o k and d i r e c t the g e n e r a l f u n c tio n s o f th e
r e f e r r e d t o . To t h i s i t a s s ig n s th e t i t l e o f 'The F e d e ra l
re s e r v e b o a r d . " 1

_
UThe
f a c t o r o f c e n t r a l i z a t i o n w hich h a s been p ro v id e d
in th e c o m m itte e 's p la n i s found in th e F e d e ra l r e s e r v e board,
w hich i s to be a s t r i c t l y Government o r g a n iz a tio n c r e a te d f o r
th e p u rp o se o f in s p e c tin g e x i s t i n g b an k in g i n s t i t u t i o n s and o f
r e g u la tin g r e l a t i o n s h i p s betw een F e d e ra l r e s e r v e banks and 0017/0011
them and th e governm ent i t s e l f . C a re fu l stu d y o f th e e lem en ts o f
th e p roblem h a s c o n v in ce d th e com m ittee t h a t ev ery elem ent o f ad­
v a n ta g e found to e x i s t i n c o o p e ra tiv e o r c e n t r a l banks a b ro a d can
be r e a l i z e d by th e d e g re e o f c o o p e ra tio n w hich w i l l be s e c u re d
th ro u g h th e re s e rv e -b a n k p la n recommended, w h ile many d an g ers and
p o s s i b i l i t i e s o f undue c o n tr o l of th e r e s o u rc e s o f one s e c tio n by an­
o th e r w i l l be a v o id e d . Local c o n tr o l o f b an k in g , l o c a l a p p l i c a t i o n
oj* r e so u rc e s to n e c e s s i t i e s , com bined w ith F e d e ra l s u p e r v is io n , and
l i m i t ed by F e d e ra l a u t h o r i t y to compel th e j o i n t a p p l i c a t i o n o f bank
re s o u r c e s to th e r e l i e f o f dangerous o r s t r i n g e n t c o n d itio n s i n any
l o c a l i t y a r e th e c h a r a c t e r i s t i c f e a t u r e s o f th e p l a n a s now n u t
fg rw a rd . The l i m i t a t i o n o f b u s in e s s v/hich i s p ro p o s e d in th e s e c ­
ti o n s g o v e rn in g r e d is c o u n ts , and th e m a in ten an ce o f a l l o p e ra tio n s
upon a f o o tin g o f r e l a t i v e l y s h o r t tim e w i l l keep th e a s s e t s
o f th e p r o p o s e d i n s t i t u t i o n s i n a s t r i c t l y f l u i d and a v a il a b le
c o n d itio n , and w i l l in s u r e th e p re s e n c e o f th e means c f accommoda­
t i o n when banks a p p ly f o r lo a n s to e n a b le them to e x te n d to t h e i r
c l i e n t s l a r g e r d e g re es o f a s s i s t a n c e i n b u s in e s s . I t i s p ro p o se d
Governm ent s h a l l r e t a i n a s u f f i c i e n t power ove r th e r e s e r v e
banks to en a b le i t t o e x e r c is e a d i r e c t i n g a u t h o r i t y when n e c e s s a ry
to—do—so_, b u t t h a t i t s h a l l in no way a tte m p t to c a r r y on th ro u g h i t s
own mechanism th e r o u ti n e o p e r a tio n s o f b an k in g w hich r e q u ir e d e t a i l e d



( -27- )

X-4980

know ledge o f l o c a l and in d iv id u a l c r e d i t s and w hich d eterm in e
th e a c t u a l u se o f the fu n d s o f th e community i n any g iv e n
in s ta n c e . In o th e r w ords, t h e re s e rv e -h a n k p la n r e t a i n s to
th e Government power over th e e x e rc is e o f th e b ro a d e r hanking
f u n c tio n s , w h ile i t le a v e s to in d iv id u a ls and p r i v a t e l y owned
i n s t i t u t i o n s th e a c tu a l d i r e c t i o n o f r o u t i n e . 11

*

*

*

*

*

*

*

" In t h i s s e c tio n p r o v is io n h a s heen made f o r th e
c r e a tio n o f a g e n e ra l h o a rd o f c o n tr o l a c ti n g on h e h a lf o f
th e n a t i o n a l Government f o r th e p u ro o se o f o v e r- s e e in g th e
r e s e rv e hanks and o f a d j u s t i n g the h a n k in g tr a n s a c tio n s of one
p o r ti o n of th e c o u n try , as w e ll as th e Government d e p o s its th e r e ­
in , to th o s e of o th e r p o r t i o n s ."
" ( e ) In p a ra g ra p h s ( e ) , ( f ) , ( g ) , ( h ) , and ( i ) a r e con­
veyed pow ers which a r e l a r g e l y s e lf - e x p la n a to r y and ab o u t which
th e r e can he l i t t l e or no q u e s tio n , g r a n tin g th e g e n e ra l id e a of
e f f e c t i v e Government o v e r s ig h t th rough a F e d e ra l r e s e r v e h o a rd
o r some s im ila r o r g a n iz a ti o n ."
The power o f c a r r y in g on th e r e g u l a r r o u ti n e e v ery -d ay b u s in e s s o f
th e F e d e ra l re s e rv e h an k s, t h e r e f o r e , and o f d e te rm in in g th e lo c a l p o l i c i e s
was e n tr u s te d to t h e i r r e s p e c tiv e h o ard s o f d i r e c t o r s , h u t th e F e d e ra l R eserve
Board was c r e a te d a s "a g e n e ra l h o a rd o f management" e n tr u s te d w ith th e power
to o v e rlo o k and d i r e c t th e g e n e r a l fu n c tio n s o f th e hanks in o rd e r t h a t th e
B oard, on h e h a lf o f th e G-overnment, m ight r e t a i n some pow er o v e r th e e x e r c is e
o f th e " Droader h anking fu n c tio n s " a f f e c t i n g th e c o u n try a s a w hole.
That th e open m arket o p e ra tio n s o f th e F e d e ra l r e s e r v e hanks and
t h e i r tr a n s a c tio n s w ith f o r e ig n c e n t r a l banks i n g o ld , c r e d i t s and h i l l s o f
exchange i s a f u n c tio n a f f e c t i n g th e c o u n try as a w hole, seems p e r f e c t l y ob­
v io u s , and i t w ould seem to fo llo w t h a t th e B oard was in te n d e d to have a
c o n tr o l over a l l such o p e r a tio n s .

T his w ill a p p e a r more c l e a r l y from a con­

s i d e r a t i o n o f th e h i s t o r y and n a tu r e o f such t r a n s a c t i o n s .




( -28- )

X-4S80

HISTORY AITS HATURF OF OPEN MARKET FUNCTIONS .
The r e p o r t of th e House B anking and C urrency Committee (p p . 5 2 and 5 3 )
d is c u s s e s s e c tio n 15 o f th e o r i g i n a l F e d e ra l R eserve B i l l , w hich l a t e r Became
s e c tio n 1 4 o f th e F e d e ra l R eserve A ct a s fo llo w s :
" S e c tio n 1 5 .
" I t w i l l have b een o b se rv e d t h a t th e tr a n s a c tio n s au­
th o r i z e d in s e c tio n 1 4 (now s e c tio n 1 3 o f th e F e d e ra l R eserv e A c t)
were e n t i r e l y o f a n a tu r e o r i g i n a t i n g w ith member banks and in ­
v o lv in g a re d is c o u n t o p e r a tio n . I t i s c l e a r l y n e c e s s a ry to ex­
te n d th e p e r m itte d tr a n s a c t i o n s o f th e F e d e ra l r e s e r v e banks
beyond t h i s v e ry narrow scope f o r two re a so n s :
"1• The d e s i r a b i l i t y o f e n a b lin g F e d e ra l r e s e r v e banks
to make t h e i r r a t e o f d is c o u n t e f f e c t i v e i n th e g e n e ra l m arket
a t th o s e tim e s and u n d e r th o s e c o n d itio n s when r e d is c o u n ts were
s la c k and when th e r e f o r e th e r e m ight have b een a c c u m u la tio n o f
fu n d s in th e r e s e r v e banks w ith o u t any m otive on th e p a r t o f
member banks to a p p ly f o r r e d is c o u n ts o r p e rh a p s w ith a s tro n g
m o tiv e on t h e i r p a r t n o t to do s o .
" 2 . The d e s i r a b i l i t y o f o p en in g an o u t l e t th ro u g h which
th e fu n d s o f F e d e ra l r e s e r v e banks m ig h t be p r o f i t a b l y u s e d a t
tim e s when i t was so u g h t to f a c i l i t a t e tr a n s a c t i o n s i n f o r e ig n
exchange o r to r e g u la te g o ld m ovem ents.
" I n o rd e r to a t t a i n th e s e ends i t is deemed w ise to a llo w
a r e s e rv e bank, f i r s t o f a l l , to buy and s e l l from anyone whom i t
chooses the c la s s e s of b i l l s which i t i s a u th o r iz e d to r e d is c o u n t.
The re s e r v e bank e v id e n tly w ould n o t do t h i s u n le s s i t sh o u ld be
in a p o s i t i o n w hich, a s a lr e a d y s t a t e d , f u r n is h e d a s tr o n g m otive
f o r so d o in g . O u trig h t p u rc h a se s i n th e open m arket would o f
c o u rs e r e q u i r e th e payment o f th e fa c e o f th e p a u er l e s s d is c o u n t,
w hereas re d is c o u n t o p e r a tio n s w ould r e q u ir e sim ply th e h o ld in g o f
a r e s e r v e o f 3 3 l / 3 p e r c e n t b e h in d th e n o te s is s u e d o r d e p o s it
a c c o u n ts c r e a te d i n th e c o u rse o f th e r e d is c o u n t o p e r a tio n . A p art
from t h i s fundam ental p e rm is s io n , i t was deemed w ise to allo w th e
b anks to buy c o in and b u l l i o n and borrow o r lo a n th e re o n and to
d e a l i n Government b o n d s. The power g ra n te d i n s u b s e c tio n (d ) to
f i x a r a t e o f d is c o u n t i s an o b v io u s in c id e n t to th e e x is te n c e o f
th e r e se rv e panks, b u t th e power h a s been v estecl i n ~t h e Fede ra l
r e s e r v e b o a rd to re v ie w t h i s r a t e o f d is c o u n t when f ix e d by th e
l o c a l r e s e r v e bank a t i t s di s c r e t i o n . T h is i s i n t e nded to p ro v id e
g-ga i n s t —the p o s s i b i l i t y t h a t th e lo c a l bank m ight be e s t a b l i s h ­
in g a dangero u s ly low r a t e o f i n t e r e s t , which th e re s e rv e boa r d ,




( -29- )

X-4980

f a m i l i a r a s i t w ould be w ith cr e d i t cond i t io n s th ro u g h o u t th e
c o u n try , would deem h a s t to r a i s e .
"The f i n a l power to open and m a in ta in h an k in g
a c c o u n ts in f o r e ig n c o u n tr ie s f o r th e p u r rose of d e a lin g
in exchange and of b uyin g f o r e ig n h i l l s i s n e c e s s a ry in
o rd e r to e n ab le a r e s e r v e b ark to e x e r c is e i t s f u l l power in
con t r o l l i n g g o ld movements and in f a c i l i t a t i n g paym ents and
c o l l e c t i o n s a b ro a d ."
The open m arket pow ers g ra n te d to F e d e ra l r e s e r v e banks u n d e r Sec­
tio n 1 4 , th e r e f o r e , w ere d e sig n e d p r im a r ily to e n a b le th e F e d e ra l r e s e r v e
banks to make t h e i r d is c o u n t

r a t e s e f f e c t i v e , to f a c i l i t a t e tr a n s a c tio n s

in f o r e ig n exchange, and to r e g u la te a n d c o n tr o l g o ld movements.

The

banks w ere g iv e n power to f i x d isc o u n t r a t e s s u b je c t to review and de~ky

F e d e ra l R eserve B oard, and i t was e x p la in e d t h a t th e

power to review d is c o u n t r a t e s was v e s te d in th e F e d e ra l R eserv e Board
in o rd e r to p ro v id e a g a in s t th e p o s s i b i l i t y th a t a F e d e ra l r e s e r v e bank
m ight e s t a b l i s h a d a n g e ro u sly low r a t e w hich th e F e d e ra l R eserve B oard, in
view o f g e n e ra l c r e d i t c o n d itio n s th ro u g h o u t th e c o u n try , m ight c o n sid e r
i n a d v is a b le .
H aving th e power to review and d e term in e r e d is c o u n t r a t e s i t
would seem n e c e s s a ry t h a t th e F e d e ra l R eserve B oard sh o u ld a ls o have power
to rev iew , r e g u l a t e , and r e s t r i c t any tr a n s a c tio n s which m ight have a b e a r­
in g on th e e f f e c t iv e n e s s o f th e re d is c o u n t r a t e .
O b v io u sly , th e in v e stm e n t o f F e d e ra l r e s e r v e funds a b ro a d w ould
have a b e a r in g on th e e f f e c t i v e n e s s o f th e re d is c o u n t r a t e and th e F e d e ra l
R eserve ^ o a r d was g iv e n s p e c i f i c power to r e g u l a t e , l i m i t and r e s t r i c t
tn e p u rc h a se and s a le of b i l l s o f ex ch an g e.

While no s p e c i f i c power to

c o n tr o l g o ld movements was g iv e n to th e F e d e ra l R eserv e E oard, i t w ould
seem c l e a r t h a t th e F e d e ra l R eserve B oard was in te n d e d , in th e e x e r c is e




( -30-

)

X-4380

of its general supervisory power, to have some control over gold trans­
actions which might have a oearing on the effectiveness of the redis­
count rate or which might affect general credit conditions in this
country.

This is entirely consistent with the theory that the Boards

of Directors of the federal reserve hanks are intended to manage the
local transactions of the federal reserve hanks, hut that the Fed­
eral Reserve Board is given power to control any transactions which
mignt have a hearing on general credit conditions in this country,
or m

the position of this country in the international money market.
^LATIOi^. BETWEEN OPEN MARKET TRAITSAC TI01TS. REDIS COURT
RATES ARP GOLD RESERVES.
The intimate relation between open market transactions, the

rediscount rate and international gold movements is further illus­
trated hy a report submitted to the federal Reserve Board under date
of October 12, 1215, hy Messrs. Warburg and Delano.

The Board at

that time had been giving very careful study to a proposal made hy
Mr. MeAdoo, Secretary of the Treasury, to have the federal reserve
hanks establish branches or agencies in Latin-American countries;
and the above mentioned report discussed the open market powers of
the Federal reserve banks in great detail, pointed out the proper
scope and purpose of such transactions, and the disadvantage of hav­
ing too large a proportion of the Federal reserve banks’ funds in­
vested in foreign countries.

This entire report is very illuminating

and the following passage is of especial interest in this connection;




X-4980
(-31-)

_ "The Federal Reserve Benks have "been organized as
custodians and conservators of the reserve money of the
member conks. T^c law permits member hanks to count as
part of their reserve the balances kept by then with
these Federal Reserve Banks, and it is the first duty
of the Federal Reserve Banks to .maintain their funds in
a. condition so liquid taut their monber banks may confi­
dently roly upon tho .ability of the Reserve B:inks to urovidO gold and credit when required. This function of
the Federal Reserve Banks is at no time to he considered
lightly, and in tines of stress involves grave re­
sponsibilities and di 1 1 iculties. It is from this point
Ox view that tnc lav; has imposed very distinct restrictions
as to the character of the investments which may he made
by the Federal Reserve Banks, permitting only a certain
proportion of their funds to ho normally invested -and
requiring tnot suer, investments ns are made he essentially
of a self-liquidating character, and of a short maturity.
It would he unsafe and would shake the foundations of
confidence on the part of the member hanks as well as
of other nations should Federal Reserve Banks use a sub­
stantial portion of their resources for investment in
Latin .American credits.
"Such procedure would run counter to all banking
practice in those countries where banks of the character
of tne Federal Reserve Banks have been in successful
operation for generations. Neither the Bonk of England,
the German Reiehsbank, the Banque of France, nor any
otner of the government banks of the less important
countries has ever adopted such a policy. The operations
of those banks are primarily confined to transactions at
home, and foreign exchange transactions aro engaged in only
as far .as they nay be considered necessary for the protection
of the gold holdings of these government banks. The leading
government banks normally maintain a. substantial holding
of ninety-day bills on such foreign countries as
are apt
to become important creditor nations from time to time,
but these bills are drawn only on such countries as have
a well-established gold standard, well-developed discount
facilities, and a broad market where these bills can be
promptly resold. T>p object of these foreign holdings
can best be illustrated by a concrete case, c.g.,
should the Bonk of the Netherlands find that exchange on
London advanced to a point where gold began to move from
Holland tc England, it would offer for sale drafts on London
in order to counteract this movement. When its English cash
balance had been exhausted, the Bank of the Netherlands
would rediscount in London the long bills that it might
previously have accumulated and thus create new balances
with which to step the outflow of gold.




(-32-)

X-4980

"Such foreign tills r,rc taken only on tho few f a r o It is to to Greeted that American
tankers1 acceptances will in the future, when peace shall
have teen restored, become one of the privileged invest­
ments of these government banks. In order to maintain
their 'position1 in the foreign exchange .market, it is
necessary for government banks to renew from tine to tine
N their foreign paper as it natures, and it is for this
purpose that they use .accounts with correspondents in those
few countries, none but the strongest firms being selected
to act in this capacity. These firms or banks are permitted
to buy only first class banking paper, and they endorse
tnis paper to the government banks so that such government
banks do not run any risk of loss of capital in the trans­
actions and so that the government banks hold only, paper
v/hich can at any time be resold in the open market or to
the foreign government banks if need be.
m o s t financial powers.

"It was this function of foreign correspondents or
agents that the writers of the Federal Reserve Act had in
mind when they provided that Federal Reserve Banks should
have the right, with the consent of the Federal Reserve
Board,
" 'to open and maintain banking accounts in foreign
countries, appoint correspondents, and establish
agencies in such countries wheresoever it may deem
best for the purpose of purchasing, selling, and col­
lecting bills of exchange, and to buy and sell with
or without its indorsement, through such correspondents
or agencies, bills of exchange arising out of actual
commercial transactions which have not more than
ninety days to run and which bear the signature of
two or more responsible parties.1
"For operations as above described the powers granted by
the Act Y/ill no doubt be availed of to good advantage, when
normal conditions shall have been restored in the important foreign
exchange markets.
"Your committee wishes to emphasize the fact that the
purpose of this paragraph v/as to give to the ^federal Reserve
Banks a greater strength and additional liquidity by enabling
them to maintain a secondary gold reserve and to possess
themselves of assets upon which the Federal Reserve Banks
could realize in case of need without being forced to con­
tract the credit facilities granted at home - the liquid
element of these foreign investments and the additional
protection that they would give to the Federal Reserve
System being the essential ground for permitting Federal
Reserve Banks to enter a foreign field."




/

X-4980
(-33-)

The following passage from a preliminary report on this subject pre­
pared by tH.r* Warburg under date of October 4, 1915, also throws much light
on the history .and purpose of Section 14 of the federal Reserve Act:
"When dealing with interpretations of the Act, a great
deal has often been said concerning the ’intention of the
writers of the law’. Inasmuch as paragraph (e) of Section 14
has been bodily taken over from the Aldrich Plan, we have to
go beyond the writers of the Federal Reserve Act in order to
find the true intent of this paragraph, and inasmuch as Senator
Aldrich consulted lb concerning this particular phase of the
intended act, and inasmuch as I suggested to Senator Aldrich
the insertion of this very paragraph, I may be pardoned for
venturing to explain what its original intention was.
"The two paragraphs read as follows:
Section 14(e) of the Federal
Reserve Act provides that every
Federal Reserve Bank shall have
power:
"with the consent of the Federal
Reserve Board, to open and main­
tain banking accounts in foreign
countries, appoint correspond­
ents, and establish agencies in
such countries wheresoever it
may deem best.
for the purpose of purchasing,
selling, and collecting bills of
exchange, and to buy and sell,
with or without its indorsement,
through such correspondents or
agencies, bills of exchange a­
rising out of actual commercial
transactions which have not more
than ninety days to run and which
bear the signature of two or more
responsible parties.’

Section 35 of the Aldrich Plan
reads:
"national Reserve Association
to have power
to open and maintain banking
accounts in foreign countries;
to establish agencies in for­
eign countries for the purpose
of purchasing, selling and col­
lecting foreign bills of ex­
change; to buy and sell, wi th or
without its indorsement, through
such correspondents or agencies,
checks or prime foreign bills
arising out of commercial trans­
actions having not exceeding 90
days to run and bearing the sig­
nature of two or more responsi­
ble parties.'

"It will be seen that the only substantial change was the in­
sertion of the words 'bill of exchange' where the Aldrich Plan
read 'foreign bills of exchange* and 'prime foreign bills'.




"From actual operation (having been active in several banks

X-4,980
(-34-)

"in foreign countries acting ns correspondents or agents for
government "banks in other countries) I was in a position to ap­
preciate from my own experience the importance of the functions
of foreign correspondents or agents, and was anxious to secure
the advantages of such connections for our future financial
system. The operations of these foreign agents for their gov­
ernment hanks are substantially as follows:
"Let me choose the Bank of the Netherlands as an illus­
tration, though practically all important government hanks have
been operating on similar lines.
"There 'will be certain times when, for economic reasons,
through the movement of products from or to the Netherlands into
or from other countries, or for extraordinary reasons, exchange
on Holland will move up to the gold exporting point or down to
the gold importing point. When the point is reached where gold
may leave the country, the Bank of the Netherlands has two main
means of protecting itself; one is by increasing the discount
rate, which measure will result in higher interest rates apt
to attract foreign money into Holland and thereby to counteract
the flow of money from the country. The other is to sell from
its portfolio bills on foreign countries in order to .create
balances in those countries and thereby provide means of pay­
ment without shipping the yellow metal. It, therefore, has
been the policy of foreign government banks to acquire foreign
bills of exchange on such countries as are apt to be creditor
nations from time to time and such countries only as have safe
gold standards and en/joy first class banking credit. These
purchases of foreign exchange on such countries are being
carried on whenever exchange is low or when interest rates
in the home country are so low that it would seem prudent for
the government bank to withdraw its funds from active employ­
ment at home arjd invest the funds thus withdrawn in foreign
countries, whence they can be called back whenever rates become
active at home and whenever the influence of the government bank
may be used to advantage in preventing home rates from becoming
burdensome to the borrowing community.
"When acquiring a ninety day draft on a British bank,
the Bank of the Netherlands will draw interest on this bill
at the discount rate; but when the bill matures or if the
Bank of the Netherlands acquires checks on London, it creates
a balance which needs to be converted into an interest bearing
investment. These balances will then be employed by the cor­
respondents or agencies (whichever name we may give to them)
for the purchase of other ninety day drafts on London. Ac­
cording to its requirements, the Bank of the Netherlands will
renew from time to time its foreign investments. The Bank




X-49S0
(-35-)

of the Ns the r lands considers these foreign holdings as a second­
l y gold reserve and continues them almost perpetually, with
such casual interruptions as may he cone necessary for the pro­
tection of its own gold holdings.
"It was the consideration of these conditions that led
to the insertion in the Aldrich draft of the clause above
quoted, and it will now become, apparent what was meant when
it was provided that the National Reserve Association - or the
Federal Reserve Banks - should have power to ’open and maintain
banking accounts in foreign countries * * *, establish agencies
in suen countries * * * for the purpose of purchasing, selling
and collecting bills of exchange’ and that they should be .able
to 'buy and sell with or without its indorsement, through such
correspondents or agencies, bills of exchange * * *'. In case
,
a ’pinch^ the Bank of the Netherlands was to be in a posi­
tion of ordering its correspondent to rediscount with the Bank
of England or ir. the open market millions of its holdings of
British acceptances so as to enable the Bank of the Netherlands
to draw a cneck against the balance so produced and so to protect
its gold. That is why it was stipulated that the bills to be pur­
chased by these agents should be 'prime bills’ and should not run
beyond ninety days and should bear the signature of two or more
responsible parties, so that these bills should be current bills
that the correspondents should be able to sell freely at all timos
and bills on which a loss should practically be excluded.
"It ought to be stated that the foreign governments
select the strongest possible firms in foreign countries to
act for them as agents, and that they invariably buy these bills
with the indorsement of thoir agent (or correspondent) so that
they could loso only in case, not only the foreign correspondent
or agent should fail, but also tho two additional signatures on
the bill.
"I am well aware of the fact that these banking habits
nave developed as a protection in times of pea.ee but that in
times of war tnese large foreign balances may be a source of some
anxiety.
It must be borne in mind, however, that government
banks normally work in times of peace and that these methods of
protecting their country against acute gold withdrawals or
against the tendency of too low rates of interest have effectually
met many an acute emergency, and furthermore that even in times of
war these balances have eventually been paid. I night draw at­
tention to the fact that a year ago, when we were called upon
to meet our large debts abroad,, it would have been a great pro­
tection for us if at that time balances could have been made
available in London to meet this first onrush.




X-4980

(-3 6 -)
"My object in reviewing the origin and original intent
of this paragraph is to show that this clause was inserted
for the sole purpose of providing -all additional piece of ma­
chinery for the protection of the Federal Reserve System* Clear­
ly, no other intention was underlying this section!"
The question whether the Federal reserve hanks should establish
branches or agencies in Latin American countries was submitted to the
Governors’ Conference, the Conference of Federal Reserve Agents and the
Federal Advisory Council, and, after obtaining the views of these three
different bodies, a further report wa 3 submitted to the Federal Reserve
Board under date of January 8, 191S, by a committee consisting of
Governor Harding and Messrs. Delano and Warburg.

This final report

reads in part as follows:
"Your Committee is happy to report that complete agree­
ment was found to exist in all three bodies with the principles
expressed by the Board at its meeting on October 27th, the
substance of which was published on that day in a notice
(Mimeograph 385) of which a copy is appended hereto. * * *
It is the first duty of the Federal reserve banks to maintain
their funds in a condition so liquid that their member banks
may confidently rely upon the ability of the Federal reserve
banks to provide gold and credit when required. This function
of the Federal reserve banks is at no time to be considered
lightly and in times of stress involves grave responsibilities
and difficulties. * * * It would be unsafe and would shake
the foundation of confidence on the part of the member banks
as well as of other nations, should Federal reserve banks
use a substantial portion of their resources for investment in
Latin-American credit. Such procedure would run counter to all
banking practices in those countries where banks of the char­
acter of the Federal reserve banks have been successfully oper­
ated for generations * * *. The operations of these banks
are primarily confined to transactions at home,and foreign
exchange transactions are engaged in only as far as they may
be considered necessary for the protection of the gold hold­
ings of these Government banks. * * * (Discussion of opera­
tions of European Central banks).
In order to maintain their
’position’ in the foreign exchange market, it will be neces­
sary for Government banks to renew from time to time their
foreign paper as it matures, and it is for this purpose




X-4980
>(-37-)

that they use accounts with correspondents in those foreign
countries, none hut the strongest firms being selected
to act in this capacity, * * * It was this function of foreign
correspondents or agencies that your committee is confident
the writers of the Federal Reserve Act had in mind when they
provided that the Federal reserve hanks should have the right,
with the consent of the Federal Reserve 3oard, to exercise
the powers conferred under Section 1 4 ( e ) * * * ,
Your commit­
tee has no doubt that the purpose of this paragraph 7ras to give
to the Federal reserve banks greater strength and additional
liquidity by enabling'then to maintain a secondary gold re­
serve and to possess themselves of assets upon which the Fed­
eral reserve banks could realize in case of need without be­
ing forced to contract the credit facilities granted at home the liquid element of these foreign investments and the ad­
ditional protection that they would give to the Federal Re­
serve System being the essential ground for permitting Fed­
eral reserve banks to enter a foreign field. * * * Should
Federal reserve banks be empowered to lend to foreign
G-overnments notwithstanding the law ’distinctly provides that
Federal reserve banks can now purchase only United States
Government securities and warrants of United States municipal­
ities, carefully circumscribed and having a maturity of not
exceeding six months ? * * * Should Federal reserve banks
be allowed to embarrass the Government by being themselves
important creditors of foreign Governments in case of war
with, or revolution in, such countries? Your committee is
very positive in its view that such enlarged powers should not
be granted; * * * n
While these reports arose out of a controversy entirely
different from, and extraneous to, the question now under consideration,
they serve to show the intimate connection between the open market powers
of the Federal reserve banks, the effectiveness of the rediscount rate, and
the protection of the gold reserves of the Federal Reserve System.
They show clearly that one of the most important purposes of
the rediscount rate and the open market purchase of bills of exchange is to
protect the gold reserves of the Federal Reserve System.

Over the re­

discount rates and the open market transactions the Federal Reserve




X-4980

(-38-)

Board is given a great measure of control.

To sag that the Federal

Reserve Board could exercise this control over rediscount rates and
open market transactions with a view of protecting the gold

reserves

of^the Federal Reserve System hut that it could do nothing to prevent
the Federal reserve hanks from engaging in international transactions
in gold in such a way as to impair the gold reserves would he to give
the Federal Reserve Act an interpretation which clearly would defeat
the v/ill of Congress.

,
Respectfully,

.

WW -WLH-0MC-SA3D




Walter Wyatt
General Counsel

• F o r m N o . 131

g*\ C C m

1

Urrice Correspondence
T o ______Governor Meyer
From

___

FEDERAL RESERVE

Date^oct. i6 , 1930.

Subject:__________ _________

________

Mr. Hamlin___________________ ______________________________ ________________

•to

.

2—8495

Dear Governor Meyer:
You will remember there was some talk in the Board the other
day as to the effect of the easy money policy of 1927, and the purchase
during that period of large amounts of Government securities.
I take pleasure in enclosing a memorandum I prepared in September,
1928, on this subject, which peihaps you will lay aside for Sunday reading.




Sincerely yours,

September

28,

1928*

The Effect of Government Security Operations on Member Bank
Reserves During the Period of the 3-1$ Rate, Namely,
from August 4, 1927, to February 3, 1928:

The claim is often made that the reduction in the discount rate from
4 to 3-^0, and the accompanying purchases of Government securities during
the period in which this rate was in force, - August 4, 1927 to February 3,
1928, - caused 11easy11 or"Cheap" credit which was responsible for the
speculative craze on the New York Stock Exchange.
For example, the New York Commercial Chronicle of August 4, 1928,
stated:
'•Who is responsible for the speculative folly, the ill
effects of which are now visible on every side? Rot the banks,
no matter how their course is to be deprecated, but the Federal
Reserve, every move of which during the last twelve months has
been fraught with latent mischief. Did not the Federal Reserve
banks last summer reduce their rates of rediscount to 3g$, even
compelling one obstreperous Reserve bank in the west to make
the reduction against its emphatic objection and protest? At
that time, the member banks were not borrowing, as they are today,
over $1,000,000,000 at the reserve tanks, out barely half that
amount, and could not be induced to increase their borrowings even
at the low rate of 3-^, since they had no use for the money. Did
not the Reserve banks then undertake to thrust out Reserve credit
on unwilling banks by purchasing several hundred million dollars
of Government bonds, thereby flooding the market with Reserve funds
to a corresponding amount?”

The 3

discount rate was in forcer at least at Row York, from

August 4, 1927, to February 3, 1928, and it will be interesting to consider
just what was the course of Federal Reserve credit in the whole System
during this period, and examine as to how far the above criticism of "cheeps




money

is

through

lower

discount

rates

and

Government

security operations,

justified.

The essential figures are as follows:
August 4, 1927 - February 3, 1928:
Member bank reserve balances increased
Gold stock decreased
Discounts increased
Acceptances increased
United States securities decreased
All other Federal Reserve credit decreased
Total Federal Reserve credit increased
Treasury credit increased
Money in circulation decreased
Foreign bank deposits, etc. decreased

107.000.000
203,000*000
61,000,000
205.000.
000
2,000,000
60,000,000
204.000.
000
8,000,000
105.000.
000
6,000,000

Taking this period as a whole, it is clear that, comparing the
beginning and end of this period, neither discounts nor Government secuiitks
were having any inflationary effect, for discounts had increased-only
61 millions, a normal seasonal increase, at the end of the period, while
Government securities had actually declined 2 millions.

Furthermore, the

total increase of Federal Reserve credit during the period, - 204 millions,just offset the gold exports which were 203 millions, while the decline in
money in circulation, - 105 millions, - practically accounts for the incimse
in member bank reserves, - 107 millions - during the period.
The above figures show that the hundreds of millions of Government
bonds, the purchase of which by the Federal Reserve System "flooded the
market" - as claimed in the above quoted editorial, - had oeen neutralized
by the sale of even larger amounts of these bonds, there being at the end
of the period 2 million dollars less of such holdings than at the beginning,and all this under the 3




rate]

It may be claimed, however, that these figures do not give a clear

picture of what took place, "because during the month of January, 1928, the
tide turned, Federal Reserve credit declining 373 millions and member "bank
reserve "balances declining 113 millions.

Let us then consider the period

from August 4, 1927, to December 31, 1927, excluding the month ox January
1928 when credit'conditions were reversed.

The following table shows the

situation:
August 4, 1927 to December 31, 1927:

•

Member bank reserve balances increased
Gold stock decreased
Discounts increased
Acceptances increased
United States securities increased
All other'Federal Reserve credit decreased
Total Federal Reserve credit increased
Treasury credit increased
Money in circulation increased
Foreign bank deposits decreased
Other items increased

220,000,000
200,000,000
173.000.
222.000.
205.000.
23.000.
577.000.
20.000.
175.000.
3.000.
5.000.

000
000
000
000
000
000
000
000
000

The above figures show that during that period there were gold
exports to the amount of $200,000,000, while the purchase of Government
securities increased $205,000,000.
the one against the other.

It would seem to me fair to set off

So also the increase in money in circulation

was $175,000,000, and this was practically offset by the increase in dis­
counts of $173,000,000.
It would seem clear that the gold exports of $200,000,000 during this
period, if not offset in some manner, would have forced a deflation of
member bank deposits amounting to at least ten times the amount, or about
2 billions of dollars, and the worst that can be said as to Government
security operations during this period is that they prevented a radical
deflation caused by gold exports.




They certainly, taking the period as a

-4-

whole, brought about no inflation of deposits.
It may be claimed, however, that while these figures arc correct,
taking the whole period, yet that there were ^articualr times during
this period when the purchase of Government securities placed money in
the market which went directly into member bank reserves, thus making
additional deposits growing out of loans, possible.

Let us then consider

the two quarterly periods of the latter part of 1927, during which the
3§$ rate was in force.
Let us take the quarter beginning in July and ending in September,
during ail of which period, except July, the 3>$ rate was in effect.
The figures for this period are as follows:
Member bank reserve balances increased
Gold stock doercanod
Discounts decreased
Acceptances increased
Government securities increased
All other Federal Reserve credit decreased
Total Federal Reserve credit increased
Treasury credit increased
Money in circulation increased
Foreign bank deposits decreased

44.000.
000
16.000.
000
6,000,000
39.000.
000
136.000.
000
20.000.
000
149.000.
000
9,000,000
97,000,000
. 5,000,000

The increase in member bank reserves during this period was very
moderate, - only 44 millions,. - and taking the quarter as a whole could be
covered by acceptances, - 39 millions, - and foreign bank deposits, 5 millions, while the Government security operations, - showing an increase
of 136 millions, - would, as to all but 17 millions, have offset the gold
exports 16 millions, the decline in discounts, 6 millions, and money in
circulation, which latter increased 97 millions.




~5~

Let

us

now

consider

The

figures

for

this

the

quarter,

quarter

are

October

as

through

December,

1927

follows:

194.000.
192.000.
145.000.
142.000.
111.000.
26,000,000
424,000,000
13.000.
55.000.
3.000.
1.000.

Member bank reserve deposits increased
G-old stock decreased
Discounts increased
Acceptances increased
United States securities increased
All other Federal Reserve credit increased
Total Federal Reserve credit increased
Treasury credit increased
Money in circulation increased
Foreign bank deposits decreased
Other items decreased

000
000
000
000
000

000
000
000
000

From the ohove figures, it appears that gold exports had increased
192 millions, and money in circulation had increased 55 millions, which
was offset by Government security purchases, - 111 millions, and discounts,
145 millions.

On the other hand, the member bank reserves at the end of

this period had increased 194 millions, which increase was practically
furnished from the increase in acceptances, - 142 millions, other Federal
Reserve credit - 26 millions, and Treasury credit, - 13 millions.
An examination of the above table seems to show that neither the
discounts under the 3v$ rate, nor the Government security operations were,
on the whole, primarily or necessarily responsible for the increase in
member banks reserves upon which the pending speculation on the New York
Stock Exchange rests.
While it is often claimed, as shown above, that the lowering of the
discount rate to 3

produced "easy” or "cheap*1 credit, it should not bo

forgotten that credit was easy or choap, if you so

wish to call it, be­

fore the rate reduction of August 4, 1927, from 4 to 3




For example, on March 31, 1927, as compared with the previous

.

*

-6-

Do center 31, 1926, gold imports had increased 105 millions, money in
circulation had decreased 233 millions, discounts had decreased 186
millions, and acceptances had decreased 142 millions, the total Federal
Reserve credit decrease “being 308 millions.
Similarly, comparing June 30, 1927, v/ith March 31, 1927, we find
that discounts had decreased 8 millions, acceptances decreased 28 millions,
*

.

money in circulation decreased 11 millions, and that while Government
securities increased 22 millions, the total Federal Reserve credit increase
was only 9 millions.
The above gives a fair picture of the easy money conditions existing
before the rate was reduced from 4 to 3j$.
The purpose of the reduction of the rate from 4 to 3|^ ^as primarily
to prevent a continuance of gold imports into the United States, which, in
the absence of any large volume of discounts which could have been paid
off, would certainly have tended to inflate the credit structure.

Another

reason was to give, if possible, some relief to business, commerce, and
agriculture, which had been in a state of recession but was just beginning
to improve.

It is fair to state that this lowering of the rate did

accomplish both of the above purposes in more or less degree.
The conclusion I reach from these figures is that while psychologically
an easier feeling was created, the increase in member bank reserves cai
be explained without reference to lower discount rates or Government security
operations.
Turning now to the so-called brokers* loans, a study of the charts will
fail to reveal any material difference in the increase of such loans, either




prior to, during, or subsequent to the 3>$ discount rate, except that
the Hew York hanks have shown a tendency to reduce these loans, more
or less overcome by an increase on the part of out-of-town banks, while
the loans made "for others" have steadily increased from the middle of
1926 to date, this increase being practically the same, whether during
low rate or high rate periods.
As regards Government security operations, I am inclined to believe
that Federal Reserve credit conditions would have boon substantially
the same had there been no such operations during the 3g$ period, as
discounts would have taken their place.

.

In conclusion, it seems to me that the claim that the 3j^ discount
rate and Government security operations during the period running from
August 4, 1927, to February 3, 1928, created cheap money, and flooded the
member bank reserve account, thus exciting speculation on the Hew York
Stock Exchange, is a myth which has no foundation in reality.




F o r m N o . 131
FEDERAL r e s e r v e
BOARD

Date

October 23, 1930

Subject:.

From

Mr* Goldenweiser ffaKJ

»
2— 8405

o

In accordance with your recent request, I have prepared two tables deal­
ing with the general banking structure of the United States.

In the first

table are shown the total number of banks in the United States, the number of
member banks, national and state, and the number of nonraember banks, also the
loans and investments of all banks and of member banks, and the percentage
that the resources of members constitute of total bank resources.
The table shows that the number of banks in the United States increased
materially until

1921 and

1930 being about 7,000.

then began to decline, the decline by the middle of
A larger part of the decline was in nonmember banks

but member banks also diminished by about 1,U00.
this decrease were bank failures.

The largest single factor in

Loans and investments of member banks, in

contrast to their number, showed an uninterrupted increase for the entire
period, excepting in the last year, and the percentage of total loans and in­
vestments that is held by member banks has remained practically constant at
about 60 since 1 9 1 9 *

Prior to that time it was increasing as state banks join­

ed the system, particularly after the outbreak of the war and the special appeal
issued by President Wilson.
The second table analyzes in some detail the character of the changes in
the membership of the Federal reserve system.

It shows that the principal two

factors in diminishing the number of member banks have been suspensions and
mergers, including mergers between two member banks which would reduce their
number and absorptions of member banks by nonmember banks, which would have
the same effect.




You will note that in recent years mergers have been the

Governor Meyer,

October 23, 1930

#2

principal single factor in the situation.
large number of withdrawals.

There has also lately been a

In no case, however, were the withdrawals

larger in number than newly created memberships, either through the grant­
ing of charters to national banks or through admission to membership of
state banks.




BANKS IN THE UNITED STATES:

MEMBER AND NON-MEMBER OF THE FEDERAL RESERVE SYSTEM: 1915-1930
(AS OF JUNE CALL)

NUMBER
Total in
U. S.

jNational
1... —...

OF

BANKS

MEMBER
State

, Total

Non­
member

LOANS AND INVESTMENTS
(In millions of dollars)
MEMBER BANES
All
banks
Amount * Percentage
of total

1915
1916
1917
1918
1919

27,062
27,513
27,923
28,380
29,123

7,605*
7,579*
7,604*
7,705*
7,735*

17
34
53
513
1,042

1 7,615
7,606
1 7,653
8,213
3,822

19,447
19,907
20,270
20,667
20,301

21,466
24,587
28,287
31,813
36,570

8,764
10,315
12,453
13,507
22,242

41
42
44
58
61

1920
1921
1922
1923
1924

30,139
30,812
30,389
30,178
29,343

8,030*
! 8,154*
8,249*
i 8,241*
3,035*

1,374
1,595
1,648
1,620
1,570

9,399
9,745
9,892
; 9,856
9,650

20,740
21,067
20,497
20,322
19,698

41,685
39,999
39,9 56
43,738
45,180

25,559
24,121
24,182
26,507
27,167

61
60
61
61
60

1925
1926
1927
1928
1929

23,841
28,146
27,061
26,213
25,330

8,072*
7,972
7,790
7,685
7,530

1,472
1,403
1,309
1,244
1,177

9,538
9,375
9,099
8,929
8,707

19,303
18,771
17,962
17,284
16,623

48,830
51,562
53,750
57,265
58,474

29,518
31,184
32,756
35,061
35,711

60
60
61
61
61

1930

23,852

7,247

1,068

8,315

15,537

58,018

35,656

61

* Includes nonmember national banks in Alaslsa and Hawaii




•

Changes in Membership of Federal Reserve System:

Year

Active at
beginning
of year

Additions
during
year ±J

1915-1929

Losses during year
Total Withdrawals Mergers &

Sus pension^-

'Voluntary
liquidation
etc.

(Number of banks)
21
63
40
12
47

55
56
35
36
78

15
6
3
2

17
18
20
12
16

136
200
201
300
337

23
25
22
43
41

77
104
125
120
118

17
59
28
112
146

14
12
26
25
32

327
395
370
307
437

61
84
46
64
91

113
151
201
167
266

140
147
114
67
77

13
13
9
9
3

1915
1916
1917
1918
' 1919

7,582
7,631
7,614
7,910
8,692

157
126
393
845
517

108
143
97
63
143

1920
1921
1922
1923
1924

9,066
9,606
9,779
9,859
9,774

576
373
281
215
150

1925
1926
1927
1923
1925

9,587
9,489
9,260
9,034
8,837

229
166
144
110
112

|
j
!
1

o

1J Not including suspended banks reopened
2 j Absorption of a member either by another member or by a non-member
3/ Suspensions less suspended banks reopened




•

F o r m N o . 131

-^r-v

Oiiic© Correspondence

To __ Governor

FEDERAL RESERVE

B
0A
R
D

rw October sif 1 9 30 _

Subject^Unfinished

M e y e r , ______

business.

From -VjW Me* McClelland*
»•

2— 5

As requested by you this morning, I am giving below a brief statement re­
garding each item now carried on the Board’s docket of unfinished business.
X*

Proposed regulation on purchases and sales of bills of exchange and accept­
ances abroad.
A separate memorandum regarding this item was addressed to you under date

of October 15.
2.

Capital requirements of national banks granted peraiission to exercise trust
powers.
4. Question of granting trust powers to national banks, stock of which is owned
by a holding company or investment trust.
14. Letter from Governor Harrison re basis for recommendations of directors on
applications for fiduciary powers.
The consolidated file on these three questions affecting the granting of
trust powers is quite voluminous and will be submitted to you at your convenience.
/

3.

Letter from Hr. Mitchell re public statement of March 271 1929.
This letter, referring to Mr. Mitchell’s public statement regarding call

loans, does not seem to call for any action at this late date and probably should
be removed from the docket.
5.

Revision of procedure in effect with regard to changes in bill rates.
This is a suggestion made by Dr. Hiller that no change in bill rates shall

be effective until after approval by the Board.

The last Board action was to au­

thorize the executive officer to approve effective buying rates within maximum and
minimum limits approved by the Board.

The procedure with regard to bill rates has

been under discussion between the Board and the Mew York bank for a long period,
the New York bank maintaining that some leeway in the fixing of bill rates is nec­
essary for effective operation on its part.
6.

.Thether deposits of certain public funds in Richmond and San Francisco districts
are subject to reserves.
The Secretary of the Treasury must xule on this question. It was submitted

to him in November, 1929, but to date we have been unable to secure a ruling.




-2-

'7•

Special rates on seasonal agricultural and livestock paper.
This question has been on the docket for sometime. At the meeting of the

Board with the Governors and Chairmen of the southern Federal reserve banks on
September 23, however, it was the sense of the meeting that with the existing low
level of discount rates, a differential in favor of commodity paper would not be
effective, although should discount rates tend to rise, the establishment of special
rates on commodity paper should be considered.

In view of this fact it would seem

that the question should be removed from the docket of unfinished business and re­
introduced as a new matter whenever in the opinion of a member of the Board it
should be again considered.
8.

Memorandum from the Chief Examiner on the question of simultaneous examinations.
This question has also been before the Board for* a long time, dating back

to the period when the large branch bank systems, particularly in California, were
State members.

It has not been actively considered recently due to the fact that

the larger systems have converted into national institutions and the Comptroller of
the Currency does not make simultaneous examinations.
9.

Reply to letter from the Hew York Bank accepting participation in the Open Mar­
ket Policy Conference.
Governor Young was requested to prepare a reply to a qualification made by

the New York Bank that whereas the volume of purchases or sales of Governments may
be determined directly, the holdings of bankers acceptances are subject largely to
a rate control which must be adjusted promptly from time to time to changing market
conditions, and therefore does not subject itself to determination in advance by an
t
Open Market Policy Conference.

Governor Young held this matter without action up

to the time of his resignation.
10.

Letter from the Agent at Philadelphia re form of condition report of State
member banks.
Governor Young personally submitted this matter to the Board because of his

objection to the language used by Mr. Austin in a letter to Mr. Smead that ,Twhen




-3-

you require a bank: to include in its resources items such as mortgages with the
ownership of which it has absolutely parted, though it guarantees their payment,
and which mortgages have become the property of others, you are requiring the bank
to make a false statement, and when you ask officers to swear to such statements,
you are compelling them to commit perjury.
fuse to sign such a statement.

I

If I were a bank officer, I would re-

In fostering false statements you are inflating

the resources of the banks, something that is inexcusable.”

No action having been

taken on this matter to date, it would seem it could properly be removed from the

I unfinished business docket.
11*

Activities of the Board which should be subject to periodic audits.
Governor Young felt that possibly some of the activities of the Board,

such as the Gold Settlement Fund and the office of the Fiscal Agent, should be
audited.

In checking up various matters referred to him following his departure,

, it was discovered he had secured a memorandum on the question from Mr. Sinead
' and had sent it to the files apparently satisfied that the activities mentioned
are being sufficiently checked.
12.

Application of Peoples-Pittsburgh Trust Company for approval of purchase of
597 shares of stock in First National Bank of Wilkinsburg, Pa.
This question involves a violation of a condition of membership by the

applicant bank and requires action by the Board.

The file on the natter will be

submitted to you for your information at your convenience.
Application of the National Capital Bank of Washington D. C. for fiduciary
powers.

3

cient.

The question involved here is whether the capital of the bank is suffi­
The District code requires a capital of )l,000,000 for barks exercising

trust powers.

Under a ruling made by the Board early in its history that tbe

District is not a state within the meaning of the Federal Reserve Act, fiduciary
powers have been granted to ten national banks in the district, only three of
which had a capital as large as ,,‘1,000,000.
is ;200,000.



The capital of the applicant bank

Tnis matter requires action by the Board and will be brought up at

your pleasure#
15#

Question whether a note evidencing a loan by an intermediate credit bank to
a livestock loan company or agricultural credit corporation is eligible for
rediscount at a Federal reserve bank#
This matter is already receiving your attention*

16•

Question of Mercantile Commerce Bank and Trust Company of St# Louis holding
stock of mercantile Commerce National Bank of St. Louis.
At the time of the formation of the Mercantile Commerce Bank & Trust Com­

pany of St. Louis, the charter of the National Bank of Commerce was continued, with
a reduced capital, with the understanding that it would be retained only until the
trust business of the national bank was terminated or turned over to the new insti­
tution#

With this understanding, the Board approved the holding by the Mercantile

Commerce B ank & Trust Company of the stock of the national, bank#

It now appears

that it will take sometime to dispose of the trusts, that the title of the national
bank has been changed to the Mercantile Commerce National Bank, and that it has re­
sumed an active banking business as a neighborhood bank at a new location#

The

question of whether the Mercantile Commerce Bank & Trust Company will be permitted
to continue to hold the stock of the national bank requires action by the Board and
will be presented at your pleasure.
The other items on the docket of unfinished business .arose more recently
and are being held pending reports which have been requested by the Board#




3 1930

H ovem ber

Mr. Pole

C o n d itio n

Ur. Goldenweieer

n a tio n a l

C o m p a r is o n s

2k

S e p te m b e r

o f

a re

th e

n o t

c o n d itio n

p r o p o r tio n

o f

tio n

re p re s e n ts

a c t u a l b a n k in g

d a te

w hen

by

th e

in

an

have

la r g e

fis c a l

e x c e p tio n a lly
m ade

in

th is

banks

on

S e p te m b e r

p o rts

in

th e

Loans

y e a r
o f

*

o f

o f

$

2U ,

I

o f

.

$ 7 1 2 ,O X , 0 0 0

and

th e

to

th e

o f

I t

d e c lin e

25

th e

in

P«r

c en t

in te r e s t,

and

o th e r

th is

O c to b e r
and

th e
,

a

dem and

c r e d it

th e

th e

th e

p o r tfo lio ,
(T h e

o ffs e t

r e s u lt

w h ic h

I

n a tio n a l

th e

c a ll

liq u id a tio n

in

bank

c u s to m e r

lo a n s

o th e r

e s ta te ,

d e c lin e d

by

re ­

a

in

in

v ie w

26

c en t

in

m illio n s ,

fig u r e s .)

to

c u s to m e rs ,

caused

lo a n s
fo r
o f

o f

d e c re a s e

th e

th a n

an

in c r e a s e

in d u s tr y

$ 8 7 1 * X O ,X O

p e r

an

lo a n s

s u r p r is in g
o f

show ed

a re

r o u n d in g

p r o d u c tio n ;

d is to r te d

th e

b y

fig u r e s

th a t

in d u s tr ia l

o f

o f

n o t

th e

w h ic h

o f

r e s u lt

is

3 0 ,

p e r io d

r e s u lt

and

cen t

o f

d a te s

tra d e

p e r

June

p ro p o r­

c o m p a r is o n

by

n o te d

fo r

w hat

p a y m e n t?

and

d e te r m in e

s e r io u s ly

th e

d u r in g

c u s to m e rs .

re p re s e n ts

fo r

3 0

y e a r.

b e in g

th e

and

c o n d itio n

1929

banks

th is

11

to

la s t

in c r e a s e

to

re a s o n ,

b ,

is

about

F ig u r e s
a lw a y s

$ 2 ,O X ,O X

re a l

fa c to rs

to

o f

banks

June

p o s s ib le

a re

o f

on

n o t

seaso n al

o p e n -m a rk e t

lo a n s

is

b e tw e e n

end,

n a tio n a l

th is

b a te s *

an

F o r

y e a r
o f

to

i t

c o n fin e d

O and

,

w ill b e

in

is

93

th e ir

and

o f

to

flo a t.

th is

d e c re a s e d

s e c u r itie s ,

T h is

in

s p e a k in g ,

d e p r e s s io n .
on

,

d is c re p a n c y

B r o a d ly
o w in g

*

because

banks

d e v e lo p m e n ts .

d iv id e n d ,

heavy

n a tio n a l

due

com es

in v e s tm e n ts
^

is

m e m o ra n d u m

a u tu m n

and

change

3 5 000000
1 079 000,000

in c r e a s e
$

th e

v o lu m e

o f

s ig n ific a n t,

w hat

th e

re p o rt

,

to

th e
th e

b y

th e

b an ks,

y e a r.
d e c re a s e

p a y r o lls ;

and

lU

w as

n o t

th e
p e r

c en t

th e

r e s u lt

b an ks,

is




in

p r ic e s .
in

any

show n b y

T h at

w ay
th e

o f

th e
th e

fa c t

liq u id a tio n
s c a r c ity

th a t

th e

o f

o f

bank

fu n d s ,

banks

lo a n s

excep t

d u r in g

th is

in /a g g r e g a te
p o s s ib ly
p e r io d

a t

c o u n try

in c r e a s e d

th e ir

M r. P o le ,

H 0vsmber 3* 1930

#2

o p e n -m a rk e t

in v e s tm e n ts

o th e r

w o rd s ,

th e ir

c u s to m e rs ,

th e ir

h o ld in g s

O th e r

in d ic a tio n s

in

th e

n o t

in

lo a n s *

D e p o s its

o f

and

ab o u t

000

in

$

a

o f

and

$^

y e a r

th e

w e re

p a y a b le

in

th e

d u r in g

96

,0 0 0 ,0 0 0 .

th e

The

p a p e r,

o f b ro k e rs

th e

and

open

and

in c r e a s e

130 000,000

o f

g o ld

fro m

a b ro a d

and

a

B o th

o f

in

c ir c u la tio n .

s ta te m e n t
T h e re

b an ks.

The

m o re

g ro w th

ta k in g
b e in g

in c r e a s e

have

has

b y

ro a d s b y

th e

lo w

a

s m a ll

and

ra te

on

c a ll

p o r tio n

o f

th e s e

s m a ll

is

in

tw ic e

been

lo a n s

d e a lt

been

bsnks

th a n

o ver

has

in

New
as

Y o rk

Y o rk

in

th a t

o f

banks

o th e rs

w ith d r a w n

m oney

and

lo a n s .

in d ic a te d

by

on

a

o u t-o f-to w n
have

th a t

in

end

th a n

w as

in

an
$

in flo w

300 000

ab o u t

to

in c r e a s e

a g g re g a te
b e tw e e n

an

,

,­

d e p o s its

o f

n a tio n a l

th e

and

New

banks

T h at

th e

p r o p o r tio n
th e

w e re
ta k e n

d e c re a s e

banks

lo a n s

fu n d s

Y o rk

Y o rk

o b lig e d
o ver
in

lo a n s

has

le n d e r s .

a ll

d iffe r e n t

in

n o n b a n k in g
fro m

fo r

th e

in c r e a s e

a ll

p o r tio n

and

th a t

-

o f

s e c u r itie s ,

New

fa c t

th e

fo r

th e

th e

th e re

te n d

show ed

lo a n s

banks

d r a s tic

d e p o s its

d iffe re n c e s

as

th e

in v e s tm e n ts .

C ity

la r g e

$ U 3 8 ,0 0 0 ,0 0 0

and

d e c re a s e

changes

im p o r ta n t

lo a n s *

$ 2 8 2 ,0 0 0 ,0 0 0

in

fa c to rs

and

w ith

la r g e ly

Hew

th e s e

in c r e a s e d

o v e r-th e -c o u n te r

dem and b y

fa c t

,

in

a ls o

o f

r e d is c o u n ts

-

la r g e r

and

d e c re a s e

m a rk e t

y e a r

am ong

and

th e

to




a re

fu n d s

In

s e c u r itie s

by

c o r p o r a tio n s

is

ease

th e ir

fo r

w o rd s ,

banks

c o m m e r c ia l

fo r

a c c o u n te d

T h is

s e n te d

b o th

o f

$ 1 ,0 0 0 ,0 0 0 ,0 0 0 .

is

in v e s tm e n ts

w h o le .

,

b ills

in c r e a s e d

by

b r ie f

o f

678 000,000
o f

th a n

e m p lo y m e n t

fin a n c ia l
on

ra te s ,

n a tio n a l b a n k s .
c la s s e s

tfe e

c o r r e s p o n d in g

T h is

$

m o re

In v e s tm e n ts

m oney

w ith o u t

bought

a c c e p ta n c e s ,

m oney

hypos its

lo a n s

th e y

c o n s id e r a b ly

s u ffic ie n t

lia b ilit y

d e c lin e

tim e

fin d in g

o f

b a ik s *

by

b y

lo a n s

as

re p re ­

w h ic h
In

la r g e ly

ta k e

th e
b y

la s t

o th e r

o w in g
to

a

New

o ver
Y o rk

n o n b a n k in g

lenders was about $U,000,000,000, while the increase in New Tork^ lendings
was about $240,000,000* The banks in other reserve cities show a larger
increase in investments and in commercial paper and a smaller growth in
security loans* They also show a considerable liquidation of commercial
loans and an aggregate increase in loans and investments of about $238,000,­
000* In the country banks, there has been liquidation all along the line*
They have had a decrease in the customer demand for loans amounting to about
$425,000,000 and have also diminished their open-market loans and investments
by $221,000,000* This open-market decrease reflects a withdrawal of funds
from the New York market which is similar in character to the withdrawal by
nonbaaklng lenders. The liquidation at country banks reflects in part the
loss of funds by agricultural districts, owing to diminished value of their
products* Investment holdings of country banks showed a slight increase of
about $17*000,000* Corresponding to the decrease in loans and investments,
the country banks also show a decrease in deposits, chiefly in demand de­
posits; their time deposits show little change for the year. These banks,
as well as the other two classes of boiks, show a reduction in ttieir in­
debtedness.
In general, the picture shown by these figures is one that is usual for
a period of economic depression. A decline in commercial demand for loans;
an Increase in open-market operations by the banks which seek amployment for
their funds; areduction of bank indebtedness, and a decline in the loan-todeposit ratio. Similar change# in the condition of banks have occurred in
other periods of business inactivity*




HATIQBAL BANKS*
CHANG'S IN CONDITION OCTOBER H. 1929 - SEPTEMBER 2U, 1910
(In millions of dollars)
New York City
Other reserve c ity
banks (including
(cen tral re­
All National
Banks*
serve c ity banks) Chicago cen tral re ­
serve city)
Loans and investments, total**
Titona tft ffliatnmar*. totfil
To banks
On securities***
On real estate
Other* *
Open-market loans and investments, to tal
Acceptances
Commercial paper
Security loans to New York brokers
Investments, to ta l
Net demand deposits
Time deposits
Capital funds****
B ills payable and rediscounts

**
****

♦

165
712

—
♦ 131
4* 71
871
+1.079
+ 3s
♦ 2 lU
4* lU9
4* 678
*► 282
•4 U96
4 20 U
U38

4- 773

+
4*
—
♦
4*
4

♦

4*
44
♦

2k

237
5
23
591
28
6
236

321

520
129
lU8

9

4* 238
U71
36
39
4* 37
- U33
4 708
4* 33
4* 198
4* 1 3 7
4*
4* 235
4- 383
4“ 57
313
3 U 0

Including national banks in Alaska and Hawaii
Including overdrafts
Other than to banks
Total of coital, surplus, undivided profits, and reserves for dividends, contingencies, etc




Country
banks

44*
♦
-

_____
U25
16

67
39
M3
221
2k

9

223

17
*73
15
l
H5

N A T IO N A L

BANKS*

(In aU li^ s.o C .^ oJL ^ g)
*.
-v^sses.

Other reserve city
banks
(including Chicag Country banks
New
York
City
(central
All National
central reserve city)
banks*
reserve city banks)
Sei>t.2U.iq304-0ct.4,1929 Sept.24,19301 Oct.4,1929 Sent.2U.19301Oct.U.1929 Sep.24.1930l0ct,lt./?if

Loan* and inve&t~*nts, total** 21.788
Loans to cantoners, total ____13.028__
To banka
On securities***
* 3
On real aetata
other*•
a
a

pen-^ar^t loan* and invest-lents, total
8,7^0
Acceptances
155
CormerciAi r*per
359
Security loan* to New
York hrnJnem
1,052
Invest-xsnt* total
____ Z,l^f
Bat demand deposits
11.¥*5
Time deposit**
8,798
Capital furvto****
U.OOS
Bllla payable axv\ radiicounts
220

•
*•
• * •

mm

21 .U23
» ! * o

3 U0
4 ,2 2 7
1 .4 1 6
7.7 5 7

7,tei
U7

3.852

3.079
1.830
120
I T
954
717
20
15
____ 250__ ____ 9 7 ?

~

2 .0 1 5

1.247

s.ofe
5.024
148
‘ • 8 ?

2.421*

7,824
*5.'496

9.874
5.989

10,5206.4iU

1.874
58O
___2.857

1 .5 S9
^5
3 .5 1 2

I.63 I
816
3.9 2 5

3 .8 8 5
7
137

4,106
31
128

2.3 3 0

58
2

3*°^
2$i
o.3S4 6l
2

JLlJ

11.163

399
m
2 .1 8 4

4.5f9

4.;

3 .8 0 4

508
788

185

ej

8. 3oe
6 58

4l

3.063

1 .3 0 9
32

2 .1

1 *2*

Incladlng national tanka in Alaslss and itamil
Including overdrafts
O t h e r t h a n to tanka
Total of capital, surplus, undivided profits, and reserve* for dividend*, contingencies, a te .




53

T*!i52
5.098
1.763

156

.| 9 5
3 - f 52
5 .5 2 5

5.1J3
1 .7 6 4

271

F o rm N o . 181

FEDERAL RESERVE
BOARD

Date _November 17, I93O

Subject:^ Estimates of Unemployment
From _

Mr. Goldenweisi
• r•

I am sending you a copy of a confidential memorandum giving
the latest estimates of the number of unemployed. According to
this estimate those out of work in September numbered 3,360,000,
an increase of 2 ,900,000 over last year.
These figures were prepared for the confidential use of the
Secretary of Commerce and of Colonel Woods by Mr. Dewhurst of the
Department of Commerce, with the collaboration of some of the
members of our staff. They are apparently as accurate as avail­
able statistics permit. It should be emphasized, however, that
they are estimates and that any errors are probably in the direc­
tion of under-statement, which may amount to 500,000 or more.
The estimates are subject to revision on the basis of more com­
plete data from the Census of Unemployment.
Changes in employment in manufacturing, coal mining, and on
the railroads, tabulated each month in this Division, show an in­
crease in the number of jobless of 1,800,000 since September,
1929 in these three industries alone.
The detailed figures are
shown in the attached table.




Number of Workers Employed by
F actories, Coal Mines, and Railroads
1929 and 1930

I
1

Factories
Coal mines
Railroads
1/
Anthracite Bituminous

Total

1929

January
February
March
April
May
June
July
August
September
October
November
December

9.185
9.391
9,523
9.565

9.5 4 s
9,550
9 ,550
9 .726
9 .846
9.651

9.265
8.9 63

1930
January
February
March
April
May
June
July
August
September

8,809
8.83?
8 ,824
8 ,78 6
8.639

8.U66

8.19 6

8,187
S.323

October




8,141

160

l6 l
lUg
153
157
lUl
126

535
5 U2
537
50 U
U86

1 .595

476

1 .7 3 6

1 ,6 2 8
1,666
1 . 71 U
1.745

1 1 ,4 7 5
11.6 99
1 1 ,8 3 7
1 1 ,8 8 7

11.905
11,904
11.895

138
15 U
l6 l
158

^73
U81
US9
U97
508

162

1 .7 4 s
1.750
1 ,681

510

1.6 0 5

11,2U0

155

516

125
127
1 U2
138
139
122
1 U2

3 1

1 .561
1.51*5
1 .5 4 s
1.573

11,041
11,057
10,993

1 ,5 6 4
1.532
1 .514
1 ,486

10 ,6 12

162

150

^75
455
UU5
UU3
UU9
455
462

Exclusive of car repair shops,
p Preliminary
\ /

1,60 6

1 .7 6 0

1 ,6 0 1

p 1,486

Change
from
preceding
year
(Total)

12 ,10 5

12,237
12,059

1 1 ,6 1 2

10,960

10,838
10,309

1 0 ,2 7 1

io,Uo6

p 10,239

U3 U
- 6U3
- 8UU
- 927
- 1,0 6 8
- 1,29 2
- 1 ,5 8 5
-1 .8 3 3
- 1 ,8 3 2
-

-1 ,8 2 0

COPY

November 11, 1930*
CONFIDENTIAL
To:

The Secretary.

From:

J. F. Dewhurst.

Subject: Unemployment.

1,
Interpretation of available employment statistics in terms
of the results of the April Census of Unemployment indicates that
the number of unemployed persons in September was at least 3#3^0,000
and may have been considerably larger* This total, compared with
an estimated minimum of 3*^80,000 for August, indicates that some
improvement, chiefly of a seasonal nature, occurred in September.
Calculated estimates of the minimum number of unemployed by months
for 1929 and 1930 are shown below:
1929
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

2,U60,000
2.U00.000
2,0U0,000
1,760,000
1,U50,000
1,120,000
980,000
850,000
U6o,ooo
780,000
1,680,000
1,900,000

1930
2,970,000
3.170,000
3,170,000
3,000,000 (Census)
2,860,000
2,800,000
3,200,000
3,U80,000
3,360,000

2.
No information is yet available upon which to base estimates
for October and November. Assuming that unemployment will increase
seasonally from September to December, and without taking into account
the improvement which will result from nation-wide efforts to increase
employment, the minimum of unemployed during the last quarter may be




2
somewhat as follows:
Oct. 3,500,000

Nov. U,200,000

Dec. H,200,000

3* I cannot emphasize too strongly that these estimates are at
best hut the roughest approximations indicating the probable minimum
number of unemployed in each month. The April total of 3*000,000
is based upon the Census report of approximately 2,500,000 jobless
to which has been added an estimated 500,000 persons who had "jobs"
but were laid off and not receiving pay at that time. This latter
estimate of 5Q0,000 was calculated from the ratio of "laid-off" em­
ployees to Mjobless" in Arkansas, Delaware, New Hampshire, Buffalo,
Rochester, Philadelphia, and Washington, D. C. These areas are
the only ones for which this information is now available and the
ratio may be changed considerably as new returns become available.
This would have the effect of changing the April "base-point" of
3,000,000, and hence the figures for each of the other months by an
equal amount.
Totals for other months were estimated on the basis of changes
in employment reported to the Bureau of Labor Statistics and other
official agencies by establishments in the following industries and
occupations: agriculture (hired farm labor), manufacturing, con­
struction (estimated from contract awards), anthracite, bituminous
and metalliferous mining, quarrying, public utilities, railroads,
wholesale and retail trade, and hotels.
U. An indication of the severity of unemployment in various
occupations can be gained by comparing the number employed in Septem­
ber with the number employed in the month of maximum employment
(during 1929 and 1930). The difference between the number employed
in the maximum month and the number employed in September of course
does not measure the actual number unemployed in each of the desig­
nated industries, as there is a considerable shift between occupa­
tions. Moreover in the case of highly seasonal occupations there
are large seasonal declines which are not accompanied by actual un­
employment of the workers affected since they are not usually occu­
pied in slack periods. This is particularly true of agriculture
and retail trade; many of these workers return to their homes or to
other occupations during the periods of seasonal decline.




3

Maximum month
Minina!

Anthracite
Bituminous
Metalliferous
Quarrying

Sent. 1930

Decrease

968.051
162.258
5U1 ,723

S03.192
1U2.108
**55.209

16U.S59

160,686

120,901
SU.97 U

39.785
lS.Uio

103, 3s**

20,150
S6 ,51U

Per cent o f
Maximum

___ 11______
12
16

25
18

Manufacturing

9 .8U6.307

8 ,322,583

1 .523 ,72U

Railroads

1.7*59.553

1.51U.366

2U5 .1 S7

lH

Public Utilities : 1,020,017
Tel. and tel.
Un]6S9
Fower, light,
3U2,60S
and water
Electric R.R.
265.720

961,729
38 *+’296

58,297
27.393

6
7

338 ,7UU

238,680

3 .S6U
27 .0 U0

10

___ 15____

1

Trade:
Wholesale
Retail

U,319.900
1 .5 ^3.500
2 .776 .U00

3.^U6.000

873.900

20

1 ,U22,000
2 ,02 U,000

121,500
752 ,1*00

27

Hotels

1.285.000

1 ,251.250

33.750

3

Agriculture

2 .316.670

.... 2 .016.660

300.010

13

Construction

1 .36U.QS9

367.695

27 ...

... 996.33**

8

5* An estimate of the occupational d istrib u tion of the 3 .3 6 0 ,0 0 0
persons unemployed in September i s given below.
In th is table also
the percentages for agriculture and r e t a il trade probably may over­
state the real unemployment in these occupations since many of these
workers are not usually employed in slack periods.




u

Per cent
o f T otal

Number
Unemployed

1 3 6 . Hl 6
1 6 , SOO

U .l

71,568
32.928

2 .1
1 .0

1 5 ,1 2 0

.5

1 ,2 5 8 ,6 5 6

3 7 .5

202.608

6 .0

Mining:
Anthraci te
Bituminous
M e ta llife ro u s
Quarrying
Manuf acturing
R ailroad s, steam

U7.712

Public U t i l i t i e s :
T e l. & T e l.
Power, lig h t & water
E le c t r ic r a ilr o a d s

•5

....

2 2,5 12
3 . 02 U

1 .5
.7

.

.1
..7 "

2 2 ,1 7 6

Construction

3 0 3 ,7UU ....

Trade:
Wholesale
R e ta il

72 2 , 06 H
10 0 , U6U
621,600

1 8 .5

2 7,88 8

.8

A gricu ltu re

2 U7.9 6 8

,.Z A -

A ll other occupations

U1 2 . 9UU

1 2 ,3

H otels

T o ta l

9 .0
2 1 .5
3 .0

3 ,3 6 0 ,0 0 0

6,
In view o f the seasonal employment c h a r a c te r is tic s o f r e t a i l
trade and a g r ic u ltu re the fo llo w in g ta b le i s presented to show the
probably minimum monthly number o f unemployed c a lcu la te d on the b a sis
o f employment changes in a l l occupations except a g r ic u ltu re and r e t a i l
trad e, i . e . , the employment flu c tu a tio n s in these two occupations are
assumed to have had no e f f e c t upon the monthly unemployment t o t a l s .
This r e s u lt s in somewhat in c rea sin g the estim ated t o t a ls fo r recent
months and a ls o has the e f f e c t o f g r e a tly reducing the apparent seasonal
flu c tu a tio n s in unemployment t o t a l s .




1222
Jan.
Feb.

Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.

Nov.
Dec.

2,250,000
2,090,000
1,980,000
1,870,000
1 , 7 U0,000

1,600,000
1,U70,000
1 , 200,000

1,100,000
1,390,000
1.950,000
2,U90,000

1230

2,830,000
2,910,000
2,990,000
3,000,000
3,070,000
3,190,000
3,U30,ooo
3.U90.000
3,U80,000

K

F o rm N o.

O ffice Correspondence

FEDERAL RESERVE
BOARD

T o ____ Governor Lieyer

Pafe

November 18. 1930

Subject: Public debts________________

From _ Mr. Goldenwelsan

The accompanying table shows public debts of certain foreign countries,
and the part held in the United States, for the years 1921, 1925, and 1930.
All figures are exclusive of intergovernmental debts, such as the inter­
allied debts, or any of Germany’s commitments under the Young Plan— except
the mobilization loan of which about $100,000,000 was issued in this country
and $250,000,000 in other countries.
The figures shown for the total government debt are exclusive of the
debts of provinces and municipalities, for v/hich satisfactory figures are
not available, but figures are available for the provincial and municipal
securities held in the United States and are given in the table.
For all countries except the United Kingdom and Italy the figures
shown for the national debt include both internal and external debt.

For

the United Kingdom and Italy, however, only figures of the internal debt
are given, as satisfactory figures for the external debt (exclusive of in­
tergovernmental) are not available.
In converting the debts into dollars the internal debt has been con­
verted at the average rate of exchange for the year.

Conversion of the ex­

ternal debt has involved the use of various methods.

Changes in the figures

from time to time reflect in part fluctuations in the rate of exchange, es­
pecially in the period 1921-1925.
The figures given for total national debt for 1930 are in general those
of 1929.

The figures for the part held in the United States are as of the

third quarter of 1930; the basic records of these figures are those of pub­
lic flotations in this country, with allowance for redemption and sinking




November 18, 1930

Public debts //2

fund operations.

No allowance, however, has been made for the private pur­

chase by Jjjrericans of foreign internal issues or for the resale to foreigners
of issues originally floated in the American market.
Eecause of the character of the available data and the amount of re­
search required to put figures on a comparable basis, the figures given are
to be considered as subject to revision.




GOVERNMENT DEBT OE VARIOUS FOREIGN COUNTRIES

(In millions of dollars)
Held in United States
National
Provincial
debt
National
Total
and
Municipal

Country

United Kingdom
1921

1925
1930

.

France
1921

1925
....... 1930

.

Germany
1921

1925
.1930

_

2U.99U
31,6 0 2

U50

31,7^2

158

is, 602
iU .6 31

216
265

10 .6 6 1

205

71
75

0

2,986
637

2,646 .

292

0
0
0

U50

65

281
336
280

292

1<38

0

0

108
185

7H
199

182
384

Italy

1921
1925
1930
Poland
1921

1925
1930
Austria
1921

*

1925
1930
Argentina
1921

.




1925
1930
Brazil
1921

1925
1930

3 ,7 1 0
3 .6H3
U.586

j55

0
0

137

52

*
38 U
U71

23
58
102

0
0

41
3 U9

333

0

25
45

15
0
8

l5
189

.

23
58
117___
0

33

33
79
4
214

650
896
1 ,1 5 5

1

3

185

29
16 s

4g7

647

25

28
77
222

53
i=u
363

836

1,001

319

77
142

♦Figures unavailable or unsatisfactory.

ForrHL No. 131
1

Urhce Correspondence
To.

Governor Meyer

From

Mr. Goldenweiser /'y^Q

FEDERAL RESERVE

B
0A
R
D

Subject:____

Date ffovember 26 , 19^0
__ __ __

«

- g

I transmit herewith a memorandum from Mr. Gardner giving
information on the monetary standards and gold holdings of dif­
ferent countries, as requested in the letter from Senator Pittman.
I believe that this memorandum is in such form that you could
transmit it to the Senator without modification.




ltormNo. 1^1
1

O ffice Correspondence

FEDERAL RESERVE

B
0A
R
D

Date.November 26, 1930,

To__

Mr. Goldenweiser

Subject: Data on monetary s tandards and

From

Mr> Gardner_____

gold holdings requested by Senator
Pittman.
.

Monetary standards.

Practically all countries with a fixed metallic

standard are today on a gold basis.

Below is given a representative list of

such countries.
Countries, the currencies-of which are fixed
with relation to gold:
Albania
Austria
3elgium
Bolivia
Bulgaria
Canada
Chile
Colombia •
Czechoslovakia
Danzig
Denmark
Ecuador

Estonia
Finland
France
Germany
Great Britain
Greece
Guatemala
Hungary
India (British)
Indo-China
Irish Free State
Italy

Japan
Java
Latvia
Lithuania
Netherlands
Norway
Poland
Rumania
South Africa
Sweden
Switzerland
United States

The methods by which currencies in the above countries are fixed with
relation to gold differ.

In some the currency is redeemable in gold coin;

in others it is redeemable in gold bullion; in yet others it is redeemable
in foreign currencies which are themselves redeemable in gold coin or gold
bullion.

Whichever method is employed, the currency can fluctuate from its

gold par only within the limits of the gold points as determined by the costs
of moving gold from one country to another.
No country today is completely on the silver standard.

In fact there

is only one country of any importance which is even approximately on the
silver standard; and that country is China.

Most transactions in China are

carried on in terms of silver taels (a weight unit) or of silver dollars.




But

2.

small transactions are carried on in terms of copper coin the value of
which bears no fixed relation to silver; and large transactions may in cer­
tain regions or for certain types of business be settled in terms of gold
or banknotes which bear no fixed relation to silver or to copper or to each
other.

In Hongkong, for instance, the prevailing currency is composed of

banknotes which have long stood at a high, though fluctuating, premium with
relation to the silver in which they are nominally redeemable.

Strictly

speaking, therefore, China is on a copper-i/silver-gold-fiduciary paper
standard; but the prevailing medium of exchange in most localities and for
most transactions is unquestionably silver.

The only other country whic^

might have been classed with China in this respect is Persia; and Persia is
now in process of transition to the gold standard.
There are a number of countries the currencies of which are not legally
fixed either with relation to gold or silver —
and Turkey.

for instance Spain. Portugal,

These three countries have, however, signalized their intention

of returning to the gold standard in due course.

Yugoslavia has actually

stabilized its currency de facto with relation to gold; and is now only
awaiting a favorable opportunity to establish the necessary credits and com­
plete the process by making the stabilization de jure.

Russia is professedly

on the gold basis; but, in view of government control of foreign exchange and
gold operations, it is questionable just how much this means.

Mexico, also,

is professedly on the gold standard with a gold peso and a silver peso defined
in terms of gold.

For some time, however, there has been interference with

the free movement of gold out of Mexico; and furthermore the silver peso has
gone to a marked discount from its gold parity, though still worth three
times its silver content.

Argentina returned to the gold standard August 27,

1927 and remained on it till December 16. 1929 when the Government conversion
1J Perhaps one should say ‘'fiduciary copper coin", as the exchange
value of the coin is not necessarily the same as its copper content.



3office was closed.

The

closure was intended to he temporary, hut is still

in effect; and A r g e n t i n e currency fluctuates today without reference to its
gold parity.

Brasil. Uruguay, and Peru are in the same situation.

Australia,

also, is temporarily off the gold standard as a result of the prohibition of
private export of the metal, the Australian pound being now at a discount of

8 l/2 per cent from its gold par.
Legal reserve requirements.

In general the maintenance of the monetary

standards adopted by the various countries is entrusted to their respective
central banks. Not all the countries have such banks, and not all of those
having central banks impose specific reserve requirements upon them; but we
were able to present a table of the legal reserve requirements of 36 foreign
central banks in the Federal Reserve Bulletin for August 1930.

A copy of

this table is attached.
Sold holdings. Total gold holdings of central banks and governments in
U 5 countries are published monthly in the Federal Reserve Bulletin.

In this

monthly gold table the holdings of the l6 most important countries are given
individually, the other 29 countries being given as one total.

In the table

which appears each year in the April Federal Reserve Bulletin, however,
figures are given for each country individually on an annual basis from 1913
to date.

Copies of the latest monthly and annual gold tables are attached to

this memorandum







Honorable Key Pittman,
United States Senate*

My dear Senator:
Referring to your letter of Soveober 21, I
take pleasure in enclosing herewith a copy of a
memorandum prepared for me by the Division of Research
and Statistics of the Federal Reserve Board, which, I
believe, covers the points mentioned in your inquiry*
If. there is anything further on these subjects that
you would like to have and which we can obtain,
please do not hesitate to call upon me*
I shall be very glad to confer with you with
regard to the work of your committee, and if you
will write or telephone me I shall be happy to make
an appointment with you*
M t h kind regards, I am
Very truly yours,
\

Governor*
EM-FLF
Enel*

COMMITTEES:

KEY PITTMAN
UNITED STATES SENATOR
STATE OF NEVADA




FOREIGN RELATIONS
M INES AND M IN IN G
IN TER S TA TE COM M ERCE
P UBLIC LANDS AND SURVEYS

J&encile

IRRIGATION AND RECLAM ATION
TE R R ITO R IE S AND INSULAR AFFAIRS

WASHINGTON
November 21, 1930

Hon, Rugene Meyer, Chairman,
Federal [Reserve Board,
Washington, 0. C.
My dear Mr. Meyer:
I thank you for sending Mr. J. F. Darling, Director
of the Midland Bank of London,to confer with me.
much interested in his statement.

I am very

He is wholly opposed to the

British financial policy in India.
I desire to confer with you in the near future with
regard to the work of our committee.

If you have not in your

possession some printed matter relative to the economic and
financial standards of the various countries, I wish that you
would have a brief synopsis made for me if it is not too much
trouble.

I would also like to know the amount of gold reserves

now maintained in the various gold standard countries.

.

I had a very delightful visit with your wife on the
way to New York on Sunday.

Sorry that you were not with us.

With regards, I am,
Sincerely,

F o r m N o . 131
d T \|

O i l 1C©

To

|

FEDERAL RESERVE

C o r r e s p o n d e n c e

IiOARD

Governor Meyer_________:
____

F r o m __ Mr# Goldenweiser_____

Date_ December

2 , 1930

Subject:_ Austra1ian Issues________

____

__________________ ■
________________
2— 8495

We have found 13 Australian issues that have been floated in the United
States since 1921, of which 11 are quoted on the New York Stock Exchange and
one on the Curb Exchange. They include issues for the Commonwealth, for the
provinces of New South Wales, and Queensland, and for the cities of Brisbane
and Sydney. Corporate issues are not included.
These issues amount altogether to $274,500,000, were issued to the pub
lie at prices ranging from 90 to 99^-, and are now selling at prices ranging
from 66-g to 85.
Australian Bond Issues
Issue

■
#

Commonwealth of Australia:
5%, 1925-55
5%, 1927-57
4 ^ , 1928-56

Amount

:
:

Date
offered

Present
:Issue price :
: to public : quotation

$75,000,000
40,000,000
50,000,000

July, 1925
Aug., 1927
May, :
1928

99i
98
92j

78
77 7/8
71

New South Wales:
5%, 1927-57
5%, 1927-58

25,000,000
25,000,000

Feb., 1927
Apr., 1927

96vr
96J

69i
69§

Queensland:
7%, 1921-41
6%, 1922-47

12,000,000
10,000,000

Oct., 1921
Feb., 1922

99
96®

90i
83§

7,500,000
7,500,000
5,000,000

Mar., 1927
Feb., 1928
June, 1930

96
94-1
96§

66§ bid
68
85

City of Brisbane:
5%, 1927-57
5%, 1928-58
Gfo, 1930-50
City of Sydney:
5 M , 1930-55
5p>, 1930-55
5j/, Metropolitan
Water Board,1930-50




•
5,000,000
5,000,000
7,500,000

Mar., 1930
Mar., 1930
Apr., 1930

90
90
92'g

74
74
•••

- F o r m N o . 131
FEDERAL RESERVE
BOARD

To_

Governor Meyer

From _

Date December 27, 1930 .

Subject:.

Mr. McClelland.
2—8495

In response to your request for a memorandum relative to inter-Federal
reserve dank rediscounting, I respectfully submit the following:
Section 11(b) of the Federal deserve Act authorizes the Federal deserve
Board —

"to permit, or, on the affirmative vote of at least five members

of the deserve Board to require Federal reserve banks to rediscount the dis­
counted paper of other Federal reserve banks at rates of interest to be fixed
by the Federal deserve Board."
On March 10, 1915, the Federal deserve Board established a rate of 3-l/2
per cent for paper maturing within 30 days, and 4 per cent for paper maturing
after 30 but within 90 days, when rediscounted by one Federal reserve bank with
another,

fhese rates were changed on May 29, 1917, to 3 per cent for paper

maturing up to 90 days.

No rediscount transactions were consummated, however,

until December, 1917, at which time rates on paper discounted by Federal de­
serve Banks for their own member banks were higher than in the early part of
the year, and accordingly rediscounts between Federal deserve Banks were made
at rates fixed when each transaction took place, having in mind the prevailing
discount rates both of the bank extending and of the bank receiving accom­
modation.

Effective September 7, 1920, however, the Board fixed a rate of 7

per cent on paper discounted by the Federal deserve Bank of Cleveland for other
reserve banks, and effective September 13, 1920, the same rate was made
applicable to all inter-Federal deserve Bank rediscounts.

Ihe rate was changed

to 6-1/2 per cent on May 13, 1921; to 6 per cent on June 23, 1921; and to
5-l/2 per cent on November 3, 1921.




Governor Meyer

-2-

With respect to the change made effective on November 3, 1921, the
minutes record that Governor Harding stated that in view of the reduction in
discount rates at the Federal reserve banks, he would request the Board to
consider a reduction from 6:jo to

5-l/2/o

in the inter-bank rediscount rate and

that upon motion it was so ordered.
It is my impression that the policy of the Board between December, 1917,
and September, 1920, or at least during part of that period, was to fix the
rediscount rate in individual transactions at the discount rate of the lending
bank.

I am not able, however, to find any entry in the Board’s records to

support this recollection.
The Annual Report of the Board for 1921 contains the following discussion
of rediscounting which you may find interesting:
"Reserve ratios of Federal Reserve Banks, considered separately,
are closely related to the rediscount transactions between Federal
Reserve Banks. A Federal Reserve Bank will seek rediscount accom­
modations from other reserve banks at times when its own reserve is
insufficient, without declining to a point below the legal minimum,
to supply the credit demands of its member banks. Reserve ratios
on the basis of reserves actually owned by a bank are known as
’actual’ reserve ratios, while reserve ratios on the basis of reserves
before inter-bank borrowing or lending are referred to as ’adjusted’
ratios. It is the adjusted ratio, therefore, that is an index of the
reserve position of a Federal Reserve Bank from the standpoint of its
ability to make rediscounts for other reserve banks or its need to
apply for accommodation to other reserve banks.
Two tables are presented below, (*) one showing the actual and
adjusted reserve ratios of each Federal Reserve Bank at the and of
each month during 1920 and 1921 and the other showing for each
Federal Reserve Bank the net amount of accommodation received from or
extended to other reserve banks. During the year 1920 inter-district
rediscounting assumed large proportions, the amount at the end of
October being #260,440,000. During the year 1921 credit require­
ments throughout the country were less urgent and banks were better
able to meet local demands out of their own resources. The maxi­
mum amount of Federal Reserve Bank rediscounts at the end of any
month subsequent to the high mark of #91,365,000 on January 31 was
.#68,304,000 at the end of August. Since that time inter-bank borrow­
ings decreased rapidly and from December 15 to the end of the year
no Federal Reserve Bank was rediscounting with others.

(*) See pages 44 and 45 of 1921 report




Governor Meyer

-3-

”The Federal xieserve Banks which have received the largest amount
of accommodation from other Federal xieserve Banks during the past two
years are those at Richmond, Atlanta, St. Louis, and Dallas, whose
districts were affected by the decline in the price of cotton, and
the Federal Reserve Banks of Chicago, Minneapolis, and Kansas City, which
felt the effect of the decline in the price of grains, wool, and other
agricultural products.
The chart in the appendix of the complete report shows the actual
and adjusted reserve ratios for each Federal Reserve Bank during the
years 1920 and 1921. It is apparent from the chart that the banks
in the principal agricultural districts, with the exception at times
of Chicago, would not have been able to serve the needs of their
communities nearly- so well had it not been possible to obtain addi­
tional funds from the banks in the North and East which were in a
stronger reserve position.
In 1920 the principal lending bank was the Federal Reserve Bank
of Cleveland, which extended accommodation to other Federal Reserve
Banks up to a maximum amount of .^145,000,000, when it was extend­
ing indirectly through its loans to other reserve banks more credit
to member banks outside of its own district than to its own members.
In 1921 the Federal Reserve Bank of Cleveland was called upon to lend
to other Federal Reserve Banks in a much more moderate degree. The
Federal Reserve Bank of Boston rediscounted for other Federal Reserve
Banks almost continually during the two years, and the Federal Reserve
Bank of New York at different times appeared in inter-district trans­
actions, either as borrower or lender. During 1921, however, owing to
the constant flow of gold from abroad, and to marked liquidation of
advances to its own member banks, the New York Federal Reserve Bank’s
reserve ratio shows a marked and constant advance, and it has been
extending accommodation to other Federal Reserve Banks since April. The
Federal Reserve Bank of Philadelphia was borrowing from other Federal
Reserve Banks during the early part of the year 1920, but as its re­
serve position improved the bank became a heavy lender to other Federal
Reserve Banks beginning with July. This bank was not called upon during
the year 1921 to extend any large amount of accomodation to other
Federal Reserve Banks.
As a result of the rediscount transactions between Federal Reserve
Banks, the actual reserve ratios of the several banks remained fairly
steady throughout the year 1920 at between 40 and 45 per cent. In
1921, chiefly in consequence of the constant influx of gold and the
reduction of Federal Reserve note circulation, an upward tendency in
reserve ratios was noted at all the banks, the greatest advance being
recorded in the case of the Federal Reserve Bank of New York, which
had a reserve ratio of 37.9 per cent at the end of January, 1921, of
83.6 per cent at the end of November and 78.8 per cent on December 31.”
7/ith regard to the mechanics of rediscounting —

after the Board adopted

the policy of establishing a fixed rate of rediscount, the Governor of the
Board was authorized to approve inter-bank transactions at that rate, which
he currently reported to the Board along with information relative to the




-4-

Governor Meyer

reserve positions of the several Federal reserve hanks*
In a letter addressed to the Federal reserve hanks under date of October
18, 1920, in order to secure uniformity and eliminate confusion, the Board
requested that commencing not later than November 1, 1920, all inter-deserve
Bank transactions through the Gold Settlement Fund, unless otherwise directed
by the Board, be made through the daily Clearing, with the following exceptions
which should always be made by direct transfer through the Gold Settlement
Fund:
1.
2.
3.

Payments on account of all inter-Federal deserve Bank
rediscaunts*****.
All transfers on account of maturing rediscounts and
advance payments and rebates of rediscounts.
Transfers of funds for account of the Treasurer of the
United States.

These exceptions were provided to enable the Board to be promptly advised
of the effect of large inter-district movements of gold upon the reserve
positions of the Federal reserve banks in connection with the arranging of
inter-deserve Bank rediscounts and also in order that the Board might be ad­
vised of changes in the status of rediscounts between deserve Banks.
With regard to the routine of the individual transactions —

upon receipt

of a request from a Federal reserve bank that the Board arrange a rediscount
for it, the request was submitted by the Secretary of the Board to the Governor
with information which would enable him to select the Federal reserve bank
in best position to afford the accommodation.

After the transaction had been

approved by the Governor, a wire was dispatched to the Bank selected for the
lending, requesting it to arrange to make the advance.

The lending bank then

authorized the Board to make the transfer to the borrowing bank through the
Gold Settlement Fund.

The borrowing bank was then advised and before the

transfer was effected deposited collateral with its Federal deserve Agent for




Governor Meyer

account of the lending bank.

-5-

As pointed out above, all payments, rebates, etc.

were currently effected through the Gold Settlement Fund thereby coming to the
Board’s attention.
In arranging rediscounts, in addition to giving consideration to the
reserve position of the banks, close cooperation was maintained between the
Board and the treasury Department regarding pending Treasury transactions in
order that transfers of funds and deposits made by the Treasurer and inter-Re­
serve Bank rediscounting should not conflict.

During the period of heavy re­

discounts, the Treasurer endeavored wherever practicable, to make his deposits
with those banks having a low reserve percentage and to transfer funds from
the banks which could afford to lose gold.
With regard to reporting inter-Reserve Bank transactions in the published
statements, the Board ruled that the rediscounting or borrowing bank should
include the amount of rediscounted bills under the general caption "Bills
discounted for member banks," and report the amount thereof against the
liability item "Bills rediscounted with other Federal reserve bants•"

The

discounting or lending bank showed the transaction as "Bills discounted for
other Federal reserve banks" as distinguished from "Bills discounted for
member banks" and "Bills bought in open market."