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SUBJECT RLE
O
f f /C
£
f a
A
P 0 A J J )£ A / C £ '
^ A M
ttti . m ..I'jtfmA.
--------- — -- if
-S e f
/? 3
3
-
F o r m N o . 131
FEDERAL RESERVE
RESER)
BOARD
O ffice Correspondence
To_
Governor Meyer,
From
M is s
Date_
Subject:.
D em and
J a n u a ry
fo r
H ,
1932
C u r r e n c y _________
Joy
a'
S in c e
r a p id ly
C h r is tm a s
as
u s u a l.
$ 1 0 0 ,0 0 0 ,0 0 0
w hen
th e
a v e ra g e d
o ver
T h is
tio n a l
th is
is
cam e
B o s to n
th e
re n c y
th e
h ig h e r
and
th e
re d u c e d
in
lU ,
announced,
th e
to
y e a rs
w as
in
dem and
v o lu m e
fro m
c ir c u la tio n
o u ts ta n d in g
w as
as
o n ly
w h ile
in
th e
y e a rs
192 1926
tim e
in
th e
w eek,
th e
sam e
day
,
added
to
w eek
w hen
d o lla r
th e
fo r
in
th a n
c o n s id e r a b ly
th e
flo w
th e
U -I
^ -
re s e rv e
th re e
,
d e c lin e
th e
co st
F e d e ra l
w eeks
o f
dem and
$ 7 5 ,0 0 0 ,0 0 0 .
a d d i
a
w h o le
as
a p p r o x im a te ly
N a tio n a l
B ank
dem and
fo r
in
excess
o f
liv in g
I t
h o lid a y
in
an
th e
a c tiv e .
o f
been
w eeks.
$ 7 5 ,0 0 0 ,0 0 0
m o re
has
$ 1 0 0 ,0 0 0 ,0 0 0 ,
c o n s id e r a b ly
th a n
th e
C h r is tm a s ,
th e
v o lu m e
th e re
e a r lie r
o f
n o n -s e a s o n a l
b e tw e e n
w h ic h
exceeds
b e fo re
m o re
c u rre n c y
re tu rn
and
fa ilu r e
92 926
m o re
in
c u rre n c y
fo r
c o n s id e r a b ly
cash
cash,
th e
th e
th e
w as
in
th a t
I
p e r io d
u s u a l
o f
w hen
so
th a n
th e
w eek
p r o b a b ly
$ 2 1 0 ,0 0 0 ,0 0 0 ,
b u s in e s s
o f
fo r
flo w
C h r is tm a s ,
th e
s u c c e s s iv e
dem and
r e d u c tio n
th e
30
re tu rn e d
e a r lie r ,
about
dem and
re tu rn
in c r e a s e d
in c r e a s e
w eek
a t
th ir d
Decem ber
w as
a
n o t
$ 1 ^ 0 ,0 0 0 ,0 0 0 .
e x tr a o r d in a r y
F ro m
has
Decem ber
th a n
n o n -s e a s o n a l
o ffs e ttin g
th a t
On
le s s
h o lid a y
c u rre n c y
w as
is
n o t
p u r c h a s in g
th e
fo r
la s t
te n
m oney
Then,
in
banks
and
th e
T re a s u ry
C h r is tm a s
and
New
Y e a r*s
17
c u r
th e
p e r
th is
days
y e a r
b e fo re
th is
a d d itio n ,
D ay.
cen t
im p r o b a b le
d u r in g
w as
o f
th e
s m a lle r
S e n a te
C o m m itte e
som e
tim e
to d a y .
BANK
S U S P E N S IO N S
(P r e lim in a r y
A ll
L a s t
q u a rte r
O c to b e r
2,290
to ta l
o f
i,o U 9
1931
522
1931
Novem ber H
174
Decem ber
353
FEDEBAL
M
RESERVE
D IV IS IO N
JANUARY
OF
4 ,
\
BOARD
BANK
O P E R A T IO N S
1932.
$
s
m e m b e rs
D e T )0 3 lta
Num ber
,
4 l0
$ 4 7 3 ,0 0 0 ,0 0 0
108
,o o o ,o o o
199
2 4 4 ,0 0 0 ,0 0 0
51
302 000,000
155 000,000
100
116 000,000
25
1 1 8 ,0 0 0 ,0 0 0
,
35
2 8 ,0 0 0 ,0 0 0
*
64
100 000,000
1 759 000,000
66
*
bank
4 7 8 ,0 0 0 ,0 0 0
69 000,000
319 000,000
,
,
8
18
$
,
,
4 000,000
33 000,000
,
,
Nonm em ber
Num ber
1 ,7 7 2
banks
4J
1931
D e p o s its
S ta te
0
Y e a r
N um ber
banks
1
D e p o s its
1931
fig u r e s )
N a tio n a l
banks
Num ber
IN
$ 9 8 4 ,0 0 0 ,0 0 0
000,000
799
4 6 7 ,
397
2 4 4 ,0 0 0 ,0 0 0
131
271
37 000,000
,
1 8 6 ,0 0 0 ,0 0 0
A V I ,*
<1
U ihce Correspondence
FEDERAL RESERVE
^
rw January 9 . 1 9 3 2
T o ____Mr. Harrison_____________________
Subject:__________________________________
From
___________________________________________________________________
. M r , j S m e a d ______________________________________
( { /1) / )
\
''
A tta c h e d
R e s e rv e
h e re to
A g e n ts
in
a re
r e p ly
fiv e
to
2 — 849 5
c o p ie s
th e
o f
th e
le tte r s
B o a rd *s l e t t e r
o f
r e c e iv e d
D ecem ber
1 2 ,
fro m
th e
F e d e ra l
a s k in g
fo r
c o n ta in e d
in
an
< _
e x p r e s s io n
o f
re p o rt
o f
th e
c o p ie s
o f
a
I
assum e
you
th e ir
v ie w s
C o n m itte e
le tte r ,
w ill
on
w ith
g iv e
in
a
re g a rd
to
M em ber B an k
e n c lo s u r e ,
copy
o f
th e
r e c o m m e n d a tio n s
R e s e rv e s .
r e c e iv e d
th e s e
fro m
le tte r s
to
T h e re
a re
G o v e rn o r
each
a ls o
M a r tin
m em ber o f
th e
a tta c h e d
o f
th e
S t.
fiv e
L o u is .
B o a rd .
C O P Y
FEDERAL RESERVE BANK
or BOSTON
D ecem ber
H o n.
Eugene
F e d e ra l
M e y e r,
R e s e rv e
W a s h in g to n ,
15,
1931
G o v e rn o r,
B o a rd ,
D.
C .
SU B JEC T:
R e p o rt
o f
_____________________ B a n k
C o m n itte e
on
R e s e r v e s . _________
Dear Governor Meyer:
I
am
in
v ie w s
r e c e ip t
o f
yo u r
le tte r
o f
re g a rd
to
each
o f
r e c o m m e n d a tio n s
in
C o m m itte e
in
1 s t.
Bank
R e s e rv e s .
C o m p u ta tio n
a v e ra g e
2nd
D is tr ib u tio n
no
b a la n c e s
a llo w in g
case,
flo a t
I
re s e rv e
r e q u ir e d
re s e rv e
e ith e r
fo r
o r
som e
fo r
m it t e e *s
th e
c r e d it
g iv e n
fo r
due
in
th e
th o ro u ^ i
by
to
e xc e p t
fo u r
re s e rv e
to
a t
th e
b e tw e e n
n e t
o f
my
re p o rt
o f
d e p o s its
and
fro m
my
im p r e s s io n
o th e r
banks
d e p o s ito r s *
C o m m itte e
banks
b a la n c e s
w h ic h
th e
th a t
in
th e y
F e d e ra l
a re
c a r r ie d
m akes
i t
in
lim it
by
th e
exchange.
W h ile
I
th is
as
a ffe c ts
i t
seem s
as
to
me
i t
a ffe c ts
th a t
th e
an
in
th e
im p o r ta n c e
o f
th e
is
d e d u c tio n
Bank
and
o th e r
o f
a p p r e c ia te
in d iv id u a l
fro m
th is
n a tu re
flo a t
p o lic y
such
banks
to
i t
I f
R e s e rv e
an
p o in t
th e
o r ig in a te d
dem ands.
n a m e ly ,
in c lu d e
th a t
th a n
r e q u ir e m e n t
and
th ir d ,
w o u ld
re fe re n c e
p u b lic ,
cash
a
o f
bank
banks
lo a n ,
th e
use
b ra n c h
Com
o f m em ber
n ot
s h o u ld
c o n s id e r a tio n .
a g re e m e n t
th e
w ith
C o m m itte e ,
p re s e n t
th e
r e c o m m e n d a tio n s .
v a u lt
w ith
d e d u c tio n s
to
th e
th e
and
I
B o a rd
p r in c ip le s
have
no
b e fo re
u n d e r ly in g
o th e r
i t
F r e d e r ic
H .
th e
s u g g e s tio n s
passes
C u r tis s ,
Federal Reserve Agent.
d
th e
d e p o s its .
c o n n e c tio n
is
m eet
o th e r
th a t
in
I t
due
to
fro m
S ig n e d :
/
in
n e t
Yours very tru ly ,
f h c
e x p r e s s io n
s p e c ific
"based u p o n
p ro g ra m ,
b an ks.
re tu rn e d ,
p u rp o s e
re s e rv e
g re a te r
above
suggest
in te r e s t
an
b an ks.
a r r iv in g
b a la n c e s
e v id e n c e
o th e r
th e
re c o m m e n d e d
s ta te d
to
is
o th e r
b a la n c e s
b a la n c e s
a rg u m e n t
w e a k e n in g
in
w ant
m ake
in
C o m m itte e ^
o f
such
T h e re
to
fro m
o f
and
c itie s .
a llo w e d
th e
d e d u c tio n s
a v a ila b ility
am
th e
F e d e ra l
s u g g e s tio n s
due
I
m akes
D e d u c tio n s
and
be
s in g le
fo r
c o n ta in e d
R e -c la s s ific a tio n o f reserve c i t i e s .
U nder
"hnn| r
re p o rt
a s k in g
d e b its .
o f
in
T h is
1 2 th
Hth.
have
to
a
th e
3 rd .
d e d u c tio n s .
th e
o f
d a ily
b a la n c e s
I
th e
on
th e
changes
th a n
th o s e
re p o rt.
'• *
i
■C O P Y
FEDERAL RESERVE B A M
OF
P H IL A D E L P H IA
Jan uary 2 ,
H o n o r a b le
Eugene
1932
M e y e r,
Governor, Federal Reserve Board,
W a s h in g to n ,
D ear
D.
C .
G o v e rn o r M e y e r
S o m e tim e a g o
o f
th e
r e c o m m e n d a tio n s
H a v in g
g iv e n
o p in io n
e x p re s s e d
re s e rv e
is
to
th e ir
any
p la n
o f
re s e rv e
ie s
th e
e ra l
re s e rv e
The
lo c a tio n
in
b e a r
o f
som e
c h a rg e s
m ade,
b a la n c e s
w ill
a p p ro v e d ,
m ade
to
re s e rv e s
to
be
o f
as
th e
I t
to
a ls o
th a t
seem s
5$ on
n e t
p ro p o s e d
" d e d u c tio n s
The
c a r r y in g
o f
re s e rv e
on
re s e rv e
o f
o f
n o t
is
a ll
p lu s
w ith
th e
o f
have
th e
re s o u rc e s
n e c e s s a ry
F ro m
th e
th a t
c a re fu l
r e q u ir e m e n ts
m a in ta in e d ,
b a rk s
in
s e p a r a tin g
to o ,
R e s e rv e s *
p u rp o s e s
p ro p o s e d
each
Bank
a g r e e in g
tim e s
th a t*
to
so
th a t
th e
s tu d
w ill
Fed
p re s e n t.
to
tu rn o v e r.
have
The
50
#
a c c o rd a n c e
d e p o s its
th e
w ith
in to
tw o
re s e rv e s
r e c o m m e n d a tio n ,
on
th e
a v e ra g e
th e ir
c la s s e s
c a r r ie d
th e re fo re ,
d a ily
d e b it
a p p ro v e d .
d e p o s it
U n ite d
to
a t
and
on
a b s o lu te ly
th e
now
as
d e p o s its
fro m
fo r
th o s e
lo g ic a l,
b a n k s 1 d a ily
to ta l
to
a t
as
th a t
c la s s ific a tio n
The
o f
p r o v id e
re g a rd
p r in c ip a l
banks
i t
w ith
C o m m itte e
re p o rt
th e
re g a rd
fu n c tio n
d e p o s ito r s 1 a c c o u n ts ,
L im ita tio n
o f
s a tis fie d
eq u a l
th e
th e
re s e rv e
we
m y v ie w s
o f
to
"one
s h o u ld
is
a b le
is
th e
o f
one
fo r
re p o rt
th a t
F e d e ra l
ab o u t
re s e rv e s .
r e la tio n
r e q u ir in g
th e
r e q u ir e m e n ts
a b a n d o n in g
c a lc u la tin g
th e
c o n s id e r a tio n
C o m m itte e
th a t
h as
banks
is
in
r e s p o n s ib ilitie s ” ,
C o m m itte e
re s e rv e
th e
in s u r e
to
m a in ta in
fu rth e r
by
a d e q u a te
c o n ta in e d
you asked
15#
a c c o u n ts "
S ta te s
o f
is
a p p ro v e d .
G o v e rn m e n t
g ro s s
d e p o s its
d e p o s its
is
is
a p p ro v e d .
a p p ro v e d .
C O P Y
F e d e ra l
R e s e rv e
The
am ount
w h ic h
o f
Bank
" c o u n tin g
v a u lt
re s e rv e
f ir s t
tio n ,
we
a re
r e s u lts
a t
o f
ab o u t
it s
th e
w h ic h
re s e rv e
C o m m itte e
c o rre c t
th a t,
is
w o u ld
so
we
d a tio n s
m ade.
th a t
to
m any
re c o m m e n d
re s e rv e s
done,
th e
banks
be
banks,
la w
and
n o t
it s
fa v o r
b e in g
use
o b je c t
p ro p o s a l
F ro m
th e
v a u lt
w o u ld
its
to
o f
w ill
som e
th e
th e
p u t,
i f
o th e r
g re a t
a
b u rd e n
r e q u ir e
q u ite
a
r e a d ju s tm e n t
we
a re
and
ju s tifie d
n o t
fe a r
p e n a ltie s
th e
days
nade
u n ifo r m
by
s h iftin g
w ith
in
o f
m ay
th e
a ll
o u t
a m o u n t a g a in s t
as
a c tu a l
re c o m m e n d a
based
re s e rv e
we have
fro m
on
th e
b a la n c e s
m ade, we
th e
a re
am ount upon
r e c o m m e n d a tio n s
o f
o f
To
to w n
b an ks.
th e
C o m m it t e e 's
o th e r
in
a c c e p tin g
th e
C o m m it t e e 's
rec o m m e n
o f
re s e rv e
r e q u ir e m e n ts
e ffe c tiv e .
fo r ^ io la tio n s
w eek
F e d e ra l
c lo s in g
th e
re s e rv e
a re
o f
w o u ld
th e
p e r io d s
fro m
one
d is tr ic t
a c tu a lly
le s s
re s e rv e
th a n
tr u ly
y o u rs ,
R .
Austin
L .
th e s e
has
d is tr ic ts .
C h a ir m a n
-
O u r e x p e r ie n c e
b a la n c e s
S ig n e d :
th e
th e
be
V e ry
th a t
o f
e n fo rc e m e n t
th e y
th e
f e lt
c o u n te d
th e
d e d u c tio n
th e
on
th e
C o m m itte e ,
in v e s tig a tio n s
a
h ave
C o m m it t e e 's
m a in ta in
cash as
th a t
o p e ra te
fro m
o p in io n
th e
a lw a y s
d e d u c tio n
w ith
hope
do
th a t
d id
as
to o
fe e l
th e
r e s e r v e ” -w e
to
c a r r ie d ,
A d m in is tr a tio n
w ith
as
a llo w e d
h u t
fig u r e .
to
#2
d is p o s e d
th a t
a d o p te d ,
p r o p o s a ls ,
a p p ro v e d
h e ld ,
w e re
-
cash
he
s a tis fie d
o n ly
w e re
as
we
p re s e n t
th a t
th e
he
s tu d y ,
s a tis fie d
v a u lt
s h o u ld
s h o u ld
A t
P h ila d e lp h ia
o f
cash
re s e rv e *
h u t
o f
la w ,
o f
I
been
lik e
c o m p u tin g
I f
th a t
to
a n o th e r,
is
r e q u ir e d .
can
i9
n o t
abuse
C O P Y
FED ER AL RESER VE BANK
.
OF
R IC H M O N D
J a n u a ry
SUB JEC T:
H o n,
Eugene
F e d e ra l
D.
G o v e rn o r
la y e d
th e
o f
have
you
to
to
now
is ,
n o t
been
d u ly
i t
o f
a b le
fo r
to
a
we
h e re
jo in t
som e
c a rry
o u t
th is
d is tr ic t
seem s
to
th a t
you
b u t
be
a lr e a d y
a
th a t
fo r
o f
a
an
o p p o rtu n e
new
p la n
to
fiv e
i t
w o u ld
th e
o u r
d is tr ic t
o f
re s e rv e
in
is
th e
v a u lt
cash
w h ic h
be
in
a
r e q u ir e d
to
c a rry
o f
th e
to ta l
in
fo rth
th e
a d m in is tr a tio n
m e n t.
I
in
la w
th e
w h ic h
am
w ill
o u r
th e
m ade
o f
C o m m itte e
th e
and
Decem ber
a
12
I
such
I
th e
de
o f
E v e ry
p re s s u re
am
on
have
c o n fe re n c e
o p in io n .
and
th e
I
th is
The
a ll
one
th a t
th e re fo re
o f m em ber
th a t
m ay
be
w o u ld
m ay
pow er
on
we
w r itin g
Bank
to
be
s e rv e d
p o s itio n
i f
in
in
th e
th e
s o -c a lle d
r e q u ir e m e n ts
fo r
re s e rv e s
e n fo rc e m e n t
re s p e c t
th e
re p o rt.
g la d
to
la w
to
o f
W ith
m a k in g
w o r k a b le
new
and
lo a n s
m o re
me
fa r
in to
to
th in k
F e d e ra l
me a
lie u
o f
th e
o f
Bank
banks
s h o u ld
le a s t
th e
re s e rv e s
to
be
th r e e -fifth s
tw o -fifth s
I
r e c o m m e n d a tio n
s u s c e p tib le
am ount
R e s e rv e
r e q u ir e m e n ts ,
w hen
s t if f
p u rp o s e
r e c o m m e n d a tio n
a
s tro k e
w ith
th e
c o u n try
a t
as
c o n s id e r a tio n
s p e c ifie s
I
in
to
to
to
o f
re s e rv e
s u b s c r ib e
w is h
so
bank
th e
banks.
a p p e a rs
c e n te rs *
th a t
and
a p p lic a tio n
la r g e
and
R e s e rv e
I
bank
lo s s e s
m any m em ber
m ay m e e t
w h ic h
th e
th e
i t
re s e rv e s ,
in
I t
am ount
p r o p o r tio n ,
a p p e a rs
how
th is
la r g e
s ta te m e n t
ta k e
th e
w ith
an d
so
in
d e p o s its ,
r e c o m m e n d a tio n
in c lu d e d
o f
in
a
upon
R e s e rv e s
u n d e rs ta n d
banks
seem
th a t
o p in io n
banks
c o m p u ta tio n .
d e p o s its
s u p e r im p o s e d
fe a s ib le
g e n e ra l
h a ra s s e d
and
n o t
in
th e
th e
p r e lim in a r y
o f
r e a d ily
in
re s e rv e
p ro p o s a l
v e lo c ity
can
me
upon
fa ilu r e
e n tir e ly
C o m m itte e ^
re n d e r
le n d in g
H a v in g
p a r tic u la r ly
w ith
o f
w ith
th e
o f
b a la n c e s
le g a l
th e
m in d
u n d er
That
account
s tro n g e r
s e t
re d u c e
on
p a rt
r e c o m n e n d a tio n
w o u ld
o f
R e s e rv e s ,
r e q u ir e m e n t
d e p o s its
In
o f
in
p re s s
re s e rv e
c o n c e rn e d .
th e
to
d o lla r s .
re d u c e
p u rp o s e s
on
concur
o u r
th e o ry
a lth o u g h
r e s is ta n c e
Bank
p u rp o s e ,
re s e rv e
w o u ld
m illio n
re p o rt
sound
had
been,
tim e
r e v o lu tio n a r y
lo s s
g e n iu s ,
R e s e rv e s
v ie w s .
u n a v o id a b le
e n tir e ly
th is
n o t
th e
th re e
w o u ld
say
is
le tte r
on
e js p r e s s io n
tim e
Y o u p r o b a b ly
th is
your
C o m n itte e
because
has
in d iv id u a l
r e c e iv e d
th e
fo r m u la te
and
th a t
fro m
Bank
B o a rd
re p o rt
r e p ly in g
my
on
M e y e r:
th e
o ffic e r s
h e re
C o m m itte e
C.
I
s u b je c t
o f
1932
M eyer
R e s e rv e
W a s h in g to n ,
D ear
R e p o rt
5*
a re
r e g a r d in g
am
in
fo r
a g re e
a
change
d e fic ie n t
e n fo rc e m e n t*
Federal Reserve Bank of Richmond
C O P Y
GOV. MEYER #2
I
th e
s u b je c t
m a tte r
in to
has
o f
n o te
re s e rv e
h ad
my
o p e r a tio n
on
w ith
c lo s e
s c r u tin y
J a n u a ry
1 ,
p e rs o n a l
o p in io n
th a t
no
g r e s s iv e
p e n a lty
ra te
above
re -e n fo rc e d
tin g
by
re s e rv e
in s o lv e n c y .
a
hand
re s e rv e
s u re
ra te
is
fo u n d
n o t
O f
th e s e
o th e r
in
s ig n
lik e ly
o c c a s io n
in d iv id u a l
p e n a lty
On
im p a ir e d
a
m a x im u m
6 $ .
on
a lm o s t
to
th e
fa c e
th a t
to
i t
c u re
w r ite
d ir e c to r s
tw e n ty -n in e ,
th o s e
banks
as
o p in io n s
to
to
th e
you
I t
is
o f
6$,
p a rt
a
th e
w ill
bank
h ig h e s t
w h ic h
s u b s e q u e n tly
s e c u re d
re p o rt
le tte r
and
on
p e rs o n a l
th e
S ig n e d :
Wm.
W.
been
n o t
my
p ro
le tte r s ,
o f
p e r m it
headed
fo r
w ith
le tte r s ,
h ig h e r
an
it
is
p e n a lty
1,
1928
R e g u la tio n
w e re
T h is
cam e
th e
r u n n in g
J a n u a ry
I
D)
p e r s is te n t
have
to
th e
o ffe n d e rs .
fa ile d .
th e
he
o p in io n s
w ill
o f
s e v e ra l
d o u b tle s s
o f
tra n s m it
s u b je c t.
re g a rd s ,
S in c e r e ly
in
th e
o f
D
p r a c tic e
a re
a d m o n ito r y
S in c e
banks
th e
w h ic h
and
tr e a tin g
a d m o n ito r y
p e r s is ts
and
tim e
c o n tin u in g
th a t
h a lt
o f
s u g g e s ts .
R e g u la tio n
lo n g
by
r e q u ir e m e n ts
Seay has
ow n
a
banks
s itu a tio n .
th e
C o m m itte e ’ s
W ith
fo r
e x tr e m is ”
tw e n ty -fo u r
h is
a
r e v is e d
m y v ie w
o f
m anner
C o m m itte e
s e rv e d
p e n a lty
” in
tw e n ty -n in e
in
has
is
am ended
th e
s in c e
I t
w hen
o f
is
G o v e rn o r
m em ber
th e
(u n d e r
o f
e v e r
1928.
th e
w h ic h
g o o d p u rp o s e
d e fic ie n c ie s
th e
a p p ro v a l
d e fic ie n c ie s
I
am ,
y o u rs ,
H o x to n
C h a ir m a n
and
F e d e ra l
R e s e rv e
A gent
o u r
FEDERAL RESERVE BiJTK OF AILAITTA
January 5 , 1932
Eon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, R . C.
Rear Governor Meyer:
I have received your letter of Recenber 12th in which
you asked for an expression of ray views with regard to the reconmendations made in the recent report cf the Committee on Bank Reserves with
reference to the proposed changes in the computation and maintenance
of menber hank reserve requirements. This subject was presented at
the Recember meeting of our directors and was held over for further
discussion at the meeting on January 8th. I had thought that the con
ference in Washington would be held later than the 3th in which event
I would have been able to give you the views expressed at our January
meeting. For that reason only, I have not sooner replied to your letter.
I am in full accord with the recommendations of the Committee
to do away with the classification of deposits as to demand and time,
and with its statement as to the primary functions cf reserves. Permission
for member banks to hold a part of their increased reserve requirements as
cash in vault would go far toward removing the handicap under which many
small country banks now operate because of the distance in their location
from a Federal reserve bank or branch. For this, the Sixth Federal reserve
district, figures compiled by the Comnittee for the month of May, 193-> in
dicate that banks outside reserve bank and branch cities were carrying cash
in vault in an amount equal to 5'3$ of required reserves under present re
quirements, whereas reserve city banks were carrying cash in an anount
equal to only 195S of reserve requirements. This, in my opinion, results in
an inequality between the ‘’outside" banks and the reserve city banks which
the proposal of the Committee will tend to correct. The Committee’s recom
mendation gives relief also to the "outside" banks in providing for the
calculation of reserves for all member banks against deposits net of amounts
due from banks . It occurs to me that a reduction in the ratios of vault
cash holdings to required reserves for both reserve city and "outside"
banks would decrease the expected reduction in menber bank reserve balances
at the Federal reserve banks, and at the same time would still afford the
small ’’outside1’ banks an appreciable measure of relief*
The principles that legal reserve requirements should reflect
fundamental daanges in the demand for credit, and that reserves should re
flect the increased use of credit and enable the exercise of restraint over
its growth are appealing, and are apparently sound. Activity in deposit
accounts is an important factor, I believe, in the use of bank credit, and
such activity is best measured by debits to deposit account z . it seems '--0
me, nevertheless, that however sound the consideration of bans: debits may
e&eral R e s e r v e
Bank
of
Atlanta
~ $2
be in the determination of reserve requirements from the standpoint of
member bonks as a vhole, the injustices its blanket application would
work in practice on individual member banks iflake its adoption inadvisa
ble. Althou^i there may come a time when the exercise of restraint on
credit expansion is desirable for a member bank, I believe the decision
must be made by the officers of each individual bank according to their
judgment of conditions in its own territory, and tempered by such con
siderations as the federal reserve bank sees fit to give it .
The Committee’s proposal that member banks be permitted
to hold a part of their required reserves as cash in vault, although of
merited aid to the "outside” member banks, throws a sizable burden on the
Federal reserve banks. Inasmuch as the majority of the member banks in
this district are "outside” Federal reserve bank and branch cities, they
would be in a position to utilize practically the full amount of their
vault cash as reserves, with a resulting large reduction in the amounts
required to be carried as reserve balances with the Federal reserve bank.
From a study which has been made from the figures on banks in this dis
trict compiled by the Committee for the month of May, 1931* it has been
found that the Federal Reserve Bank of Atlanta stands to suffer a reduc
tion of $9 *313*000 in its reserve deposits, or 2.0 .Jfi o f required balances
under present law, provided the member banks made no change in the amount
of vault cash they were holding, and a reduction of $11,210,000* or 23
provided they took full advantage of the vault cash prevision permitted
under the Committee's recommendation. It is my belief that such a shrink
age in this important source of funds of the reserve bank should be sanc
tioned only after most careful consideration, especially at the present
time tfhen the total of member bank reserve balances is at a low point and
when the ne^d for use of these reserves may prove extensive.
The loss of $10,000,000 in reserve deposits of the
Sixth District Reserve Bank would have a serious effect on our free gold
position at the present time. It would necessitate the sale of $10,000,000
of our $12,900,000 in Government securities now held, thus resulting in
the practical elimination of cur means of protecting our free gold position.
The net result would be that our free gold would fall below the $3*000,000
considered necessary for our normal operations. In the absence of Govern
ment securities that could be sold, our only practicable method of improv
ing our gold position would be that of rediscounting, a procedure equally
objectionable to ourselves and the other Federal reserve banks, particularly
so in the event ary of the other reserve banks found themselves in a similar
position. Cur contracted free gold position would bar us from further carticioation in open market purchases of Government sacurities, and this con
dition might be symtoraatic of a curtailment of the System’s operations in
this account.
From the standpoint of the Federal Reserve Bah!' of
Atlanta, and cf other reserve banks similarly situated, I am therefore in
favor of the abolition of the distinction between time and demand deposits,
and of the provision whereby member banks are permitted to count a part of
their vault cash as reserve, but I feel that the vault cash and other recom
mendations of the Corrmittee should be so adjusted as to enable us to main-
Federal Reserve Bank of Atlanta - #3
tain our reserve deposits in large measure intact.
Very truly yours,
(Signed) Oscar Rewton
Federal Reserve Agent
v .
j
C O P Y
FEDERAL RESERVE BANK OF CHICAGO
December lU, 1931
Hon, Eugene Meyer
Governor, Federal Reserve Board
Washington, D. C*
Dear Governor Meyer:
I have yours of the twelfth relative to the report
of the Committee on Bank: Reserves and shall he glad to go over
this matter thoroughly and write you more fully at a later date
with any suggestions which I may have,
Very truly yours,
Signed:
EMS HH
Eugene M. Stevens
Chairman
.
. /
/
C O P Y
federal reserve bank
of
ST.LOUIS
December 2U, 1931
Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Meyer*I am in receipt of a letter from Mr. 0. J.
Sullivan, President, National Stock Yards National Bank,
National Stock Yards, 111., transmitting a memorandum
covering certain opinions of his concerning the proposed
change in the law governing reserves of member banks of
the Federal Reserve System. I have read this memorandum
with considerable interest, and requested Deputy Governor
Attebery to study it carefully and give me his opinion as
to the merits of the arguments advanced by Mr. Sullivan.
I am enclosing the memorandum of Mr. Sullivan; also the
memorandum of Deputy Governor Attebery. I thought you
might be interested in reviewing them and mi^it possibly
want to submit them to the Committee which now has the
subject under consideration.
Wishing you a Merry Christmas, I am
Very truly yours,
Signed: Jno. S. Wood
Chairman of the Board.
JSWjRMS
Enclosures
COPY
THE NATIONAL STOCK YARDS NATIONAL BANK
OP NATIONAL CITY
NATIONAL STOCK YARDS
ILLINOIS
CONTROL OP CREDITS
HIt is the function of reserve require
ments to restrain such over-expansion
“by making it necessary for banks to pro
vide for additional reserves before they
expand credit.”
The present arrangements for reserves gives the Federal
Reserve Bank ample control of credit expansion as in the case
of practically all banks using the System, an increase in the
loans reduces the amount that a member bank deducts from its
gross balances and thereby increases the reserve requirements,
i.e., a bank located in a Central Reserve City enjoying accounts
from other banks (which is true of 90$ of banks located in Cen
tral Reserve and Reserve Cities) with demand deposits of $5*000,000
having $1,000,000 on deposit with other member banks, when comput
ing reserves, deducts the $1,000,000 leaving $U,000,000 net bal
ances against which it figures 13$, which would be $520,000. The
bank then lends $500,000 and draws this amount from its deposits
with other banks, leaving at the close of business that night
$500,000 on deposit with other banks. It then deducts $500,000
from the $5 ,0 00 ,000,.deposits leaving $U,500,000 net deposits against
which it reserves 13$* which is $535*000.
On can readily see that the bank, while expanding its
credit, increases its reserves.
This example shows that while the member bank was increas
ing its loans $500 ,0 0 0 , increased its reserves $65,000 with the
Federal Reserve Bank, and yet the Federal Reserve Bank has not been
called upon to advance any funds.
C O P Y
THE NATIONAL STOCK YARDS NATIONAL BANK - #2
CONTROL OP CREDIT.
HTo perform this function adequately it is
essential that reserve requirements reflect
both the volume, activity, etc.”
Active accounts based on the business requirements of the bank*s
customers are not so frequently the basis for credit, but are carried
for service rendered. If the Federal Reserve System is going to base
reserve requirements upon the volume and activity of accounts, each mem
ber bank would of necessity analyze the cost of each account, and the
analysis then shown to the customer, and after a service charge has been
made the active account would no doubt be moved to a non-member bank,
leaving only a comparatively small inactive account with the member bank
for credit purposes.
An inactive account of $100,000 controls a
line of credit of $500,000 - a reserve of 5# on this inactive account
gives the Federal Reserve Bank a reserve deposit of $5,000.00 from the
member bank, yet the Federal Reserve Bank may be called upon, especially
when money is tight, to cariy this customer*s paper up to $500,000 while
enjoying a deposit of only $5,000.
In certain specialty lines of business, where the commodity hand
led is one of comparatively high cost, such as at the numerous Stock Yards,
the costs under the proposed change would be exorbitant and prohibitive.
The funds used in handling live 3tock at the numerous Stock Yards banks
are handled three times in a day. First the funds are deposited by the
packers to cover their purchases, and in payment of these, check out funds
and deliver them to a commission firm. The commission firm deposits those
funds and immediately draws than out and deposits them with the banks at
the Stock Yards for the credit of the country bank, use of the farmer, and
the country bank, in turn, checks out that money and deposits it wherever
its active account might be.
One can see from this operation that a million dollar a day trans
action would result in total debits of three million dollars, and if we had
to set up an additional reserve of 50# of the debits we would be reserving
$500,000 more than the first transaction.
Numerous commission firms from May to November turn their capital
over as high as five times a day, i.e., a commission firm having an Invest
ment of $5,000 which is on deposit with us, would in the course of a day,
handle as high as $25,000 in transactions, which would be debits against
its account, and if we were to set up the additional reserve of 50# o f the
debits against sudi firm accounts, we would be reserving each day from May
to November $12,500, whereas the account would be only $5,000. These
commission firms would be forced to move their balance to a non-member bank
C O P Y
THE NATIONAL STOCK YARDS NATIONAL BANK -
#3
as the charge that we would, make for handling the account would "be prohibi
tive and they could not charge it to the farmer, as under present conditions
of agriculture, he could not afford to pay that additional cost, already be
ing burdened with debts and high taxes and receiving ridiculous returns on
his products.
There are other lines of business in large cities transacted simi
lar to Stock Yards business, possibly not having the enormous turnover per
day, i£., commission merchants at Kansas City, Minneapolis, Chicago and
St. Louis selling grain on a commission basis. It is possible for a grain
merchant to have debits against his account of $50,000 a day, whereas his
average balance may be only $5,000. The same is true of cotton factors
at Fort Worth, Galveston, Houston, New Orleans, Atlanta, Richmond and numer
ous merchants handling similar commodities on a cash basis. The same is true
of bond houses located in the large cities where the transactions against
their accounts are enormous compared to their average balance. The banks
enjoying such accounts woujd be in the same position as the Stock Yards banks.
We are not thoroughly familiar with the changes that will be brought
about in the accounts of security brokers in the large cities, but doubt
less clearing houses of settlement will be established so that only net
charges will appear as bank debits, and the member banks will adopt other
systems for handling certain transactions wherever possible, which will de
feat your efforts and further weaken the Federal Reserve System.
All of this could cause removal of numerous accounts ft*om member
banks to non-members, which volume all over the country could amount from
five hundred million dollars upward, which, of course, would cause a de
crease in the deposits of the Federal Reserve System, weakening the system
to where it will not have sufficient deposits to help control credit.
OPERATION OF PROPOSED FDRMULA IN RECENT YEARS.
“Very few ordinary business accounts turn over more
rapidly than once a wedc."
The analysis of debits as shown in the Committee's report was made
from each bank's total debits of a past period. To make a fair analysis
of the working of the proposed plan, each individual account should be
analyzed; it is quite possible for 20$ of the deposits to account for 75$
of the debits. In our bank we have a class of deposits aggregating 12$ of
COPY
TEE NATIONAL STOCK YARDS NATIONAL BANK
-
our deposits which account for 3 5 $ o£ on** debits. We believe that per
centage is true of all Stock Yards banks. The analysis should classify
debits so as to find out what individual group causes the greatest activity.
It is not fair to discriminate against active accounts unless, of course,
that class of business brought on expansion of credits but the Conmittee *s
report fails to show this.
We believe that if an exhaustive analysis is made of accounts among
country banks, stock yards banks and banks specializing in accounts of mer
chants handling agricultural products, it would show the activity is caused
by the class of business these banks handle. The present analysis is sup
posed to show that had the proposed reserve requirement been in operation
during the years 1928, 1929 and 1930, the Federal Reserve Banks would have
checked expansion in security loans. We all know that during this infla
tion period, prices on agricultural products were constantly declining and
farmers were suffering while securities reached dizzy heists. The proposed
legislation would have penalized fanners1 banks and indirectly the fanner
would be asked to control security loans. The country would be better off
if the Government could bring about inflation in the prices of agricultural
products rather than place an additional burden on them.
We believe the same analysis would show the activity of accounts of
other banks is caused by certain accounts which, of course, includes brokers1
deposits and deposits of banks placed with city banks for investment purposes,
mostly the placing of money on call.
SUMMARY.
Reserve requirements can be raised to help prevent over-expansion of
credits during abnormal periods, but the increase in reserve requirements
should apply only to a bank rediscounting or borrowing from the Federal Re
serve Bank.
The proposed legislation could not have prevented over-expansion in
real estate as that class of paper was exploited by non-member banks, bond
houses and investment companies affiliated with member banks* National banks
already have a restriction as to the amount of real estate paper they can carry.
The proposed legislation would inpose a burden on banks specializing
in accounts of those handling live stock, cotton, grain and other farm products
C O P Y
THE NATIONAL STOCK YARDS NATIONAL BANK - #5
and would add ad ditional costs to the farm or to those handling h is pro
ducts .
The proposed le g is la tio n w ill he a discrim ination between active
and inactive accounts*
The proposed le g is la tio n could bring about clearing houses o f
settlement and other schemes and systems to defeat the purpose fo r which
le g is la t io n i s asked.
The proposed le g is la tio n could weaken the Federal Reserve System
which we do not want to happen.
Signed:
O .J. Sullivan
President#
COP Y
December 23, 1931«
Memorandum for Mr. Wood:
You have asked me to express my views in regard to the statements
accompanying the le t t e r dated December l6 from the President o f the National Stodc
Yards National Bank, which statements and le t t e r refer to the report o f the Com
mittee on Bank Beserves*
The illu s tr a tio n used to show that under present arrangements a member
bank enlarging the credit i t extends, at the same time increases i t s required re
serve i s true only to a lim ited extent. Por instance, taking the illu s tr a tio n used,
a ft e r another loan o f $5 0 0 ,0 0 0 i s made there would be no fir th e r increase in re
quired reserve as a re su lt o f ad ditional loans. The illu s tr a tio n takes fo r granted
that the $ 1 ,0 0 0 ,0 0 0 on deposit with other banks need not be maintained, and does not
give any consideration to the e ffe c t i t s withdrawal would have on the required re
serve o f the banks from whidi withdrawn.
I t i s agreed that credit wisely extended and in proper amounts serves
a u se fu l purpose, but unwisely extended and in excessive amounts can do great harm*
We have fresh in our minds the excessive use o f credit fo r speculative purposes and
the r e s u lts . I f basing a portion o f the required reserve o f member banks on a c t iv ity
o f deposits w ill curb the excessive use o f cred it for speculative purposes, a l l w ell
and good, so fa r as that phase o f the matter i s concerned. On the other hand, i s i t
reasonable to curb a c tiv ity o f deposits when such a c t iv ity i s the re su lt o f l e g i t i
mate business? In the case o f a stock yards bank the a c t iv ity o f the deposits o f
packers, commission firms and country banks i s high and as Mr. Sullivan has pointed
out, the funds are often turned over three times in a day, and a member bank hand
lin g th is class o f business would necessarily be obliged to pass the cost o f in
creased reserve on to i t s depositors, in th is instance the packers, commission
firm s and country banks and i t would eventually be borne by the producers and
purchasers o f liv esto ck products.
Theoretically i f Mi t i s the function o f reserve requirements to
re stra in such over-expansion by making i t necessary fo r banks to provide for
ad d ition al reserves before they eaq>and cred it” i t would be w ell to base a portion
o f the required reserve on b i l l s payable and rediscounts o f member banks, but in
p ractice th is would work a hardship on member banks borrowing fo r seasonal needs or
to take care o f unforeseen withdrawals resu ltin g from unrest, e tc .
I am not impressed with the idea that a reserve based on a c t iv it y o f
deposits w ill cause the removal o f many accounts to nonmember banks, but do be
lie v e that in cases lik e the National Stock Yards National Bank where the h i^ i
a c t iv it y ap plies to a lim ited number o f dep osits, such as those o f the packers
and commission firm s, i t would probably be p o ssib le and to th e ir advantage to
organize an a f f i l i a t e nonmember State bank to handle the deposits o f such customers.
I think the statement MI t i s not f a i r to discriminate against active
accounts u nless, o f course, that cla ss o f business brought on expansion o f cred its
but the Committee^ report f a i l s to show th is " merits careful consideration.
I am o f the opinion that the proposed plan places too much reliance
COPY
Memorandum for Mr. Wood - #2
on reserves required against a c t iv ity o f deposits and I therefore think i t
would he better instead o f having 56$ of
required reserves based on net
deposits and
against a c tiv ity o f accounts, to have a larger percentage on
net deposits and a smaller percentage on a c t iv ity o f deposits.
Signed:
O.M.Attebery,
Deputy Cover nor.
' —C O P Y
FEDERAL RESERVE BANK OF ST. LOUIS
i
:
.
December 2 9 , 1931*
SUBJECT:
.
Report o f Committee on Bank Reserves.
Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Meyer:
In your le t t e r o f December 12, you asked fo r an expression o f
my views with regard to the recommendations contained in the report o f the
Federal Reserve System Committee on Bank Reserves. A fter careful study,
I am pleased to submit the follow ing:
For the reasons stated in the report, I concur in the recommen
dation that a part o f the required reserves o f member banks be based on
“ debits to deposit accounts.” However, inasmuch as the proposed formula
i s a d istin ct departure from any plan previously trie d , and as i t appears
from the figures submitted that i t would not have increased the to ta l vol
ume o f reserves in the Federal Reserve System, and as many o f the member
banks would doubtless resort to means o f reducing the debit fig u re s, I
suggest that consideration be given to the d e s ir a b ility o f increasing the
required reserves against net deposits and lowering the percentage on
d e b its. While in th is d is t r ic t 6 3 $ o f the proposed reserves o f the member
banks was based on dep osits, page UO o f the report states that for the
country as a whole only 56$ was based on d ep osits, the remainder depending
on d e b its. I understand that Governor Martin has forwarded to you a memo
randum se ttin g out a number o f way9 in which the member banks m i^it reduce
the debit fig u re s.
The proposed b i l l omits the provision that member banks in outly
ing sections o f Federal Reserve Bank and Branch c it ie s may, with the per
mission o f the Federal Reserve Board, maintain the 3ame reserves a3 banks
located outside o f such c i t i e s .
From the work sheets showing the present
and proposed reserves o f each bank in this d i s t r i c t , i t i s noted that the
large downtown banks in St, Louis had no excess vault cash on the basis o f
the new formula, while p r a c tic a lly a l l o f the outlying banks in S t . Louis
did. I f these outlying banks must maintain f o u r -f if t h s o f th e ir required
reserves in the Federal Reserve Bank and s t i l l maintain the vault cash that
they have been carrying, i t is evident that they w ill have to maintain pro
portion ately more reserves than the downtown in s titu tio n s . In addition,
they would be at a disadvantage with the banks in the suburbs adjacent to
S t. Louis, which would have to carry only tw o -fifth s o f th e ir required re
serves in the Federal Reserve Bank. Of course, th is situ ation might be
remedied i f the Board would interpret the term “v ic in ity o f a Federal Reserve
Bank or Branch thereof” to mean within a oertain radius from the Federal
Reserve Bank short enough to exclude the outlying banks. A d iffe re n t radius
would doubtless have to be determined for each Federal Reserve c it y , accord
ing to conditions there.
C O P Y
FEDERAL RESERVE BANK OF ST, LOUIS - #2
In paragraph (d) i t is stated that a l l balances due from other
member banks in the United States may be deducted from gross d ep osits. In
the suggested b i l l attached to Assistant Secretary N o e ll’ a le t t e r o f May
2 li 1928, i t was stated: “ A deposit made by one bank in another sh all not
in*any case be considered a *time c e r tific a te of d e p o s it.1’’ Therefore, so
that there may be no misunderstanding as to including as deductions from
gross deposits a l l deposits due from other banks, whether checking accounts,
c e r tific a te s o f deposit, or otherwise, and whether demand or time, i t is
suggested that the word “balance” be changed to “ deposits or defined in
d eta il*
Paragraph (e) of the revised b i l l provides that debits to deposit
accounts sh a ll include checks, e t c . , charged to a l l accounts included in
gross deposits, "except charges resulting from the payment o f cer*,ifi
hhecks and.Sca sh ie rs1, treasurers” , or other o ffic e r s * checks." When the
Federal Reserve Board began to gather the weekly debits to individual ac
counts, the instructions sp ecified that debits in settlement o f clearing
house balances and corrections should not be included. This i s mentioned
so that these may be added to the exceptions in the b i l l , or covered la te r
in the Board*s d e fin itio n . Renewals o f c e r t ific a t e s o f deposit and trans
fe r s from one account to another should also be covered.
In paragraph ( f ) o f the revised b i l l , gold b u llio n is excluded
from the d e fin itio n o f cash. I t occurs to me that perhaps some o f the
large seacoast banks migit lik e to have gold b u llio n included m th e d e fm itio n .
From the work sheets l e f t with us by the Committee, i t appears
that the proposed plan would re su lt in a decrease in the reserves o f the
member banks in each State and in each reserve c it y , e x ^ p t S t. Louis.
There would he a lo s s o f $>+,113,000 in reserves carried
Federal Re
serve Wank o f St. Louie. However, on page 1(0 o f the report, i t is s t - .
that the proposed formula would have produced, during t-ay,
»
in vault and in the reserve hanks equivalent to 99-7« o f the actual re
quired reserves plus vault cash under present requirements, i . e . , tne
t o t a l body o f reserves would he the same under either formula. We there
fore assume that the lo ss in our d is t r ic t would he made up in other d is t r ic ts ,
Trusting that these suggestions may he o f some assista n ce , I am
Yours very tr u ly ,
Signed:
Jno. S . Wood
Federal R e s e r v e Agent.
COPY
FEDERAL RESERVE BANK OF ST. LOUIS
December 28, 1931*
Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C*
Dear Governor Meyer:
At the la s t meeting of the Governors* Conference during the d is
cussion o f the Report o f the Committee on Bank Reserves I raised the question
as to the p o s s ib ilit y o f banks so changing th e ir average d a ily debits by
diarges made to deposit accounts that 50# o f such amount would not provide
s u ffic ie n t reserve when added to 5# o f i t s ne^ deposits. Our Deputy Governor,
Mr. 0 . M. Attebery, had already given some study to th is matter and imemediately on my return I asked him to make a careful survey o f the natter a fte r
questioning bankers in d ifferen t parts o f the d i s t r i c t .
I am sending you memorandum which he has prepared.
I t may be that the Committee that has made such a thorough
study o f th is subject i s in a b etter p o sitio n to come to a conclusion as
to whether the suggested methods o f beating the provision w ill r e a lly amount
to any consequence, but i t i s something I fear w ill be hard to t e l l much
d e fin ite ly about u n til the plan i s actu ally in operation. I know that every
bank naturally w ill inmediately attempt to fin d ways to decrease the amount
o f reserve i t must carry, and the chances are w ill be ingenious enough to
exceed what we can fo re ca st. I am wondering whether some provision could
not be worked into the proposed act giving the Federal Reserve Board the
authority by regulation to increase or decrease the 50# o f the average daily
debits whenever in i t s discretion the to ta l reserves o f the country are de
creased below the minimum which the Committee used as a basis for i t s c a l
culation plus some percentage fo r the natural growth o f the country. The very
fa c t that such discretion was vested in the Board would doubtless have a
tendency to keep the banks from making very strenuous e ffo r t s to decrease
the reserve.
As the National Stock Yards National Bank, National Stock Yards, 111*
was desirous that i t s protest come to the a tte n tio n o f the Board, i t has been
sent in by our Federal Reserve Agent, Mr. Wood, together with a memorandum
discussing i t .
Yours sin cerely,
Signed:
Wm. McC. Martin
Governor.
C O P Y
December
22,
1931
Memorandum for Governor Martin:
Complying with the request you made upon your return from the last
Governors’ Conference, I have endeavored to think of ways whereby member banks
might reduce the activity of accounts with a resulting lowering of reserve re
quirements in the event the plan proposed by the Committee on Reserves is adopted.
I have discussed the matter with the other officers here end by
correspondence with the officers of our branches. It has also been discussed
with a number of officers of member banks. The following have been suggested
as possible ways of reducing activity:
(1) Tftiere it is the practice when renewing a loan to charge up
the maturing note and credit the proceeds of the new one, instead the new note
can replace the maturing note and the only charge against the account of the
maker would be for the discount or interest.
*
(2) Chain stores doing a ca.sh business and making large deposits
of cash daily, whose custom is to make frequent transfers of funds to offices
located in other cities, could with practically no additional inconvenience pur
chase exchange on other cities, making payment in cash.
(3) It is the general custom with large concerns to handle pay
rolls by drawing checks in favor of their employees on their depository banks.
Such payments could be made in cash in instances where the bank’s customer does
e heavy cash business.
(H) During periods of Government financing, large corporations
and other owners of maturing securities handle the transactions through commercial
banks, the customer receiving credit for the maturing issue and being charged with
the cost of the new issue. It would be a simple matter instead for the customer
to b e credited or charged with the difference between the maturing securities and
those purchased.
(5)
Duplicating entries might be eliminated between the paren
bank and its affiliate engaged in trust or fiduciary powers in large transactions.
(fe) By stamping a renewal clause on the back of maturing certifi
cates of deposit, thus eliminating the cancellation of the matured certificate
and the issuance of o new one. The renewal clause should indicate that the
interest on the certificate has been paid to a certain date and the maturity
extended six months to bear further interest from date.
(7) If a stamp tax on checks is adopted it would tend to reduce
activity and encourage the use of currency.
(8) ’There activity of
activity applies to a limited number
yards banks, it probably would be to
an affiliate nonmember State bank to
deposits is extremely high and the high
of depositors, such as is the case of stock
the advantage of the member bank to organize
handle the deposits
such customer4*.
Memo random for Governor Martin - #2
It is practically impco sible at long range to even hazard a guess
as to whether these methods of reducing activity are of any consequence. I am also
inclined to think that in actual practice there probably would be many ether ways
of curtailing activity.
Personally I am of the opinion that until the plan has been tried
and proven it would be better not to place so much reliance on reserves required
against activity of deposit accounts and that it would therefore be better instead
of having
of the required reserves based on net deposits and
against
activity of accounts, to have a larger percentage on net.deposits and a smaller
percentage on activity of deposits.
0. M. Attebery,
Deputy Governor.
FEDERAL RESERVE BANK OF MINNEAPOLIS
December 21., 1931
Honorable Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Bear Governor Meyer:
This is in reply to your letter of December 12, with reference
to the report of the Committee on Bank Reserves. After a detailed study,
with members of my staff, o^ the Conmittee1s recommendations and the
proposed law and regulation, I should say that I am thoroughly in accord
as to the principals involved. In my judgment, the proposed law will
serve an important purpose as machinery for automatic credit control.
From a practical point of view, there are a few objections
and I am fearful that there will be strenuous objections to the proposed
law from many parts of the country, particularly from banks in the large
financial centers. There is one point I world like to raise in connec
tion with the proposed law which concerns the unusually large volume of
transfers of funds at some member banks arising from such events as
dividend disbursements and grain settlements. For example, on May 1 the
Grain Statilization Corporation built up a special deposit in the two
largest banks in Minneapolis, which was immediately disbursed in payment
for grain purchased on May contracts. In effect, the Crain Statilization
Corporation merely placed its funds with the First National Bank and the
Northwestern National Bank of Minneapolis for transfer. These banks
could make no use of the funds and they merely acted as distributing
agents. They necessarily maintained the funds either in the fora of a
deposit due from correspondent banks or in the foim of a balance due from
the Federal Reserve Bank. In the process of distributing these funds,
they were transferred from the original account to the account of the
Farmers1 National Grain Corporation, thence to the certified check
account, and from there to commercial firms and others who again re
distributed part of these funds. Through these numerous transfers, the
original payment of eighteen million dollars was magnified into bank debit
of approximately sixty, million dollars. These necessary transactions in
handling these funds would require the banks handling the money to main
tain reserves for an eight weeki^ period of approximately one-half million
dollars greater than the normal reserve requirement. Furthermore, the
credit policy was not served hy enlarging these banks' reserves for that
eight weekfc' period.
In this district, the working out of the proposed law in actual
F e d e r a l R e s e r v e Bank o f M in n e a p o lis - f 2
practice would require the liquid and Better managed banks to carry larger
reserves and at the same time, the frozen and poorly managed banks would
have a reduction in reserve requirements. It is my opinion at the present
writing that the reserve requirement of 50 per cent of the amount of
average daily debits to deposit accounts is rather large and will be the
cause of most of the serious objection to the propbsed law. If a plan
could be worked out by increasing the percentage of reserve on the net
deposits and a reduction of the percentage of the amount of average daily
deoits to deposit accounts so as to produce practically the same amount
of reserves for the country as a whole, for example, 6 per cent of the
amount of net deposits plus
per cent of the amount of the average daily
debits to deposit accounts, I believe the nroposed law would not be con
fronted with so many objections.
Very truly yours,
J. R. Mitchell,
Federal Reserve Agent
JRM:BP
FEDERAL RESERVE BANK OF KANSAS CITY
December 14, 1931
Federal Reserve Board,
Washington, D. C.
G-enetlemen:
Attention Mr. Eugene Meyer,
__________Governor
Replying to your letter of December 12, I am
glad to advise that I am In agreement with the principles
underlying the changes recommended by the Committee on
Bank Reserves, and that each one of the recommendations
Contained in the Committee's report appears to me to be
both sound and workable.
Serious defects have been apparent in the existing
reserve requirement, as well as many inequalities in the
effects ofits application to individual member banks.
It seems to me that although the proposed changes will
no doubt aprear drastic to a few banks having an unusually
high rate of deposit turn-over, the plan will serve to
place all member banks on an equitable basis as to the
reserve requirement, ana will at the same time provide a
logical and understandable basis for the reserve require
ment .
Very truly yours,
M.
L. McClure,
Federal Reserve Agent
C O P Y
FEDERAL RESERVE BANE OP DALLAS
December 16 , 1931
Mr. Eugene Meyer, Governor
Federal Reserve Board
Washington, D. C.
Dear Governor Meyer:
Receint is acknowledged of your letter of
December 12, repeating my views with regard to each of
the recommendations contained in the recent report of
the System*B Committee on Bank Reserves.
Governor McKinney is making a careful study of
the Comnittee's report, and, in this connection, he is
calling a meeting of representative member takers
held in Dallas next Friday, December IS, for the purpose
of obt^iSng an egression*of their views with reference
to the proposed revision of reserve requirements. As
soon as this meeting is held, I shall confer
!!
nor McKinney and write you a letter embodying not only
my own personal views in regard to the natter, but also
any suggestions which the Governor of tnis bank or the
m e m b e r ^ bankers of this district may wish to have submitted
to the Board before it passes on the Committee s report.
Yours very truly,
Signed:
C. C. Walsh,
Federal Reserve Agent
F o r m JTo. 1 3 1 .
O ffice Correspondence
T o
Mr. Karri son
From
Mr. Magee______
FEDERAL RESERVE
BOARD
Date March 2, 1932
_______________ Subject:.____________________________________________ _
____
_____ ____________________________
2— K4»5
This was the original report of Dr. Willis talk which appeared
in the Journal of Commerce of January 29, 1952, and was reprinted a month
later in the New York Times of March 1, 1932.
This d o c u m e n t is p r o t e c t e d b y copyright a n d h a s b e e n r e m o v e d .
Author(s):
Article Title: Reserve W e a k in Depression, Says Dr. Willis
Journal Title: Journal of Commerce
Volume Number:
Date: January 29, 1932
Page Numbers:
Issue Number:
This d o c u m e n t is p r o t e c t e d b y copyright a n d h a s b e e n r e m o v e d .
Author(s):
Article Title: Reserve Banking Faulty, He Asserts
Journal Title: N e w York Times
Volume Number:
Date: March 1, 1932
Page Numbers: Business Records, 42
Issue Number:
F o r m N o . 131
FEDERAL RESERVE
BOARD
O ffic
yQ
Governor Meyer
■A
rw .. April 16, 1932
SnKjWt;
Bank suflpensionB_______
Mr. Smead
The
C o m p t r o lle r ’ s O f f i c e
c a l l e d up y e s t e r d a y and a s k e d f o r
hank s u s p e n s io n f i g u r e s from F e b r u a ry
number o f d a y s
2 t o A p r i l 12 and f o r th e same
( 7 1 ) p r i o r to February 2.
I u n d e r s ta n d t h i s
in fo r m a tio n
w as r e q u e s te d f o r th e u s e o f G e n e r a l Dawes.
The figures given to the Comptroller’s Office are as follows:
Total
State bank Nonmember
National
bank susbank
member
bank
•pensions suspensions suspensions suspensions
F e b r u a r y 2 to A p r i l 12, 19 3 2 ,
b o th i n c l u s i v e (71 d a y s ) :
Number of banks
Deposits*
18 2
7 9 , 7 1*
November 23 , 1 9 3 1 to February 1 ,
1932 , both inclusive (71 days) •
Number of banks
7 56
Deposits*
5 2 1 . U67
*In thousands of dollars.
3 “+
27,261*
ll*7
1 5 9 . 851*
6
l l *2
3 ,5 1 7
1*8,963
35
1*2,88 1
3 1 8 ,7 3 2
57U
J
F o r m KcJt 131
O ffice Corresppndence
To
Governor Meyer
From
Mr* Ri
FEBlERAL RESERVE
BOARD
Date April 18, 1952
Subject : Analysis of bills pending in__
Congress relating to soldiers’ adjusted
compensation certificates_____________
j/
In all, forty-two bills, dealing with the bonus, have been introduced
this session in the House.
the Senate.
Six additional bills have been introduced in
Of these forty-eight bills, twenty-one have as their prime ob
ject present payment in full of the face value of adjusted compensation cer
tificates; while the others in general are directed toward lowering or can
celling interest on loans on these certificates, or toward abolishing the
present requirement that veterans cannot borrow on their certificates until
two years after the date of issuance.
T m m A d ia t e
paym ent
o f
fa c e
v a lu e
of
c e r tific a te s
Of the twenty-one bills which provide for immediate payment of the face
value of the certificates, nine, including the first bill on the subject in
troduced by Representative Patman, provide no means of raising funds other
than a general authorization; seven provide funds through the sale to the pub
lic of long-term bonds; one provides for the delivery of bonds to veterans,
and three provide for the sale of bonds to the reserve banks.
The second Pat
man bill is the only one that provides that funds shall be raised by printing
currency in the amount needed to pay the face value of the certificates.
Many
/
of the bills are identical in form.
Inasmuch as there is no possibility that the funds necessary to cash the
bonus could be raised by taxation, there is no essential difference between
the bills which provide no financial machinery for raising funds to pay the
bonus and those which provide for a public bond issue.
If any of these bills
were passed, a bond issue for the full amount would be necessary.
These
A
bills, therefore, of which Senator Brookhart’s S-1799 is typical, are
-2-
concerned mainly with a question of public policy, namely the advisabil
ity of issuing bonds to raise funds for a veterans’ bonus at this time.
The other bills which provide for raising funds directly or indirectly
by tampering with the currency, raise additional problems.
Of these,
S-4350, introduced by Senator Thomas, is typical of those which provide
for the sale of bonds to the Federal reserve banks.
H. R. 7726, introduced
by Representative Patman, stands alone as the only bill which provides for
using the printing press directly to provide funds for payment of the bonus.
The Brookhart, Thomas, and Patman bills, discussed in this memorandum,
therefore, are typical of the various measures now advocated to provide pay
ment in full of the face value of the bonus.
S-1799— Senator Brookhart
Under the Brookhart bill the Government would be directed to pay now
the bonus which is due in 1944 less any loans at present outstanding.
The
Treasury consequently would be required to raise in the neighborhood of two
and one-half billion dollars through the issue of bonds, and turn the pro
ceeds over to the veterans who hold adjusted service certificates.
This
measure is advocated from the point of view of public policy, first as a
relief measure, and second as a means of stimulating industry.
From the point of view of relief the measure is both costly and in
equitable.
Despite the fact that only a portion of the veterans need re
lief, and that destitution is quite as widespread among the general popula
tion as among the veterans, the amount of funds involved is several times
larger than in any of the general relief measures considered by Congress.
From the point of view of stimulating business, it is difficult to
prove that a distribution of two billion five hundred million dollars in
the manner indicated in th is b i l l would not stimulate some consumption
of commodities.
I t is questionable, however, whether such stim ulation
would be more than a fla sh in the pan.
The present depression i s much
more pronounced in the cap ital than in the consumption in d u stries, and
th is measure by raisin g a l l of i t s funds in the ca p ita l market might
tend to withdraw from that market funds which would otherwise be used in
the construction of plant, housing, equipment, e tc .
From a broad economic point of view the fa lla c y o f the plan is that
i t would add to the burden o f e xistin g indebtedness without creating any
tangible productive asset in exchange.
The raisin g of funds through the
ca p ita l market, eith er by private or public bodies, i s economically sound
i f the funds are used not to meet current expenditures but to produce
needed permanent improvements which w ill themselves produce the revenue
to pay in terest and principal on the additional indebtedness created.
In
the case o f the bonus proposal, an already large public debt would be fu r
ther increased without any compensating increase in the productive assets
of the nation to provide payment fo r the debt.
S-4550— Senator Thomas
The d if f ic u lt y of raisin g funds to pay the bonus by s e llin g a bond
issue to the public has led to the suggestion of Senator Thomas that bonds
be sold to the reserve banks to provide the funds required.
Under the
Thomas b i l l , the Secretary o f the Treasury would s e ll two per cent,
th irty -y e a r bonds to the Federal reserve banks in the amount needed to
provide funds to cash the bonus.
The maturity of these bonds could be ex
tended fo r more than th ir ty years at the d iscretio n o f the Treasury and the
in te re st rate could be fixed at le s s than two per cent on agreement be
tween the Treasury and the Federal Reserve Board.
In order to permit cur
rency to be issued against these bonds the b i l l makes a l l the provisions
o f the G lass-S teag all B i l l permanent instead o f temporary.
The payment
o f the bonus is to be effecte d by Federal reserve notes so issued unless
the Federal Reserve Board in stru cts the Administrator of Veterans' A ffa irs
to make payment by check.
This mechanism has been defended as fin a n c ia lly sound on the erroneous
b e lie f that i t p a r a lle ls the fin a n c ia l mechanism o f the Reconstruction
Finance Corporation.
F ir s t, th is is not true.
The Reconstruction Finance
Corporation issues i t s se c u r itie s d ir e c tly or in d ire ctly in the market and
does not obtain i t s funds from the Federal reserve.
Second, the Reconstruc
tion Finance Corporation does not increase the to ta l volume o f net indebt
edness but merely gets under e x istin g indebtedness, i . e . funds borrowed by
the Reconstruction Finance Corporation are used to loan on ex istin g l i a b i l
itie s .
The fin an cial operation is more sim ilar to refinancing than to new
financing.
Such refinancing the veterans already have ex istin g in th e ir
loans on th eir c e r t if ic a t e s .
The economic e ffe c t o f th is b i l l as compared with the Brookhart b i l l
i s the same in sofar as i t r e la te s to the e ffe c t o f present payment of the
bonus.
In addition, however, it would have the follow ing far-reaching e f
fe c ts upon the po sition o f the reserve banks.
(1)
I t would conmit the Federal reserve banks to a two and one-half
b illio n d o lla r operation in the open market, i . e . the immediate e ffe c t
would be the same as though we bought th is amount o f U. S . se cu ritie s in
the open market.
A part o f th is amount would be used to r e tir e existin g
reserve bank credit while the remainder would increase reserves of the
member banks and create extremely easy money conditions.
The volume of
excess reserves created would be very much la rg er than was needed to f i n
ance the boom in 1929.
I t would, therefore, put more reserve bank credit
in the market than the country could sa fe ly use even i f industry were
operating at f u l l capacity.
(2)
Inasmuch as the in terest rate on these bonds cannot be higher
than 2 per cent, the Federal reserve banks would not be able to dispose
of them in the market.
Our minimum p o rtfo lio o f U. S. se c u r itie s, conse
quently, would be in the neighborhood of $ 2 ,5 0 0 ,0 0 0 ,0 0 0 for the next th ir ty
years at le a s t and the reserve banks would not be in a position to control
any in fla tio n that migit sta rt as a resu lt of superfluous excess reserves.
(3)
Under these circumstances, the chances are that gold would flow
out o f the country in a f li g h t of c a p ita l.
H. R. 7726— Representative Patman
This b i l l d ir e c ts that the bonus be paid in TJ. S . Treasury notes and
authorizes the Secretary o f the Treasury to issue such notes in an amount
s u ffic ie n t to pay the bonus.
$ 2 ,5 0 0 ,0 0 0 ,0 0 0 of greenbacks.
I t contemplates, consequently, printing
As th is currency, because of hoarding at
the present time, is now larger than is needed by business, these green
backs would not increase the to ta l volume o f currency.
Instead, they would
be deposited in banks and be returned to the reserve banri, where they
would swell the item "reserves other than g o ld ."
These are not real re
serves since they cannot be used to s e ttle international balances, and the
-fi
re serve banks would hold $ 2 ,5 0 0 ,0 0 0 ,0 0 0 of printed paper ca lle d reserves
which in fa c t would be u tte r ly unproductive, yield ing no income to the r e
serve banks, and furnishing no buffer against an adverse balance of pay
ments.
In a l l other respects the e ffe c t s of th is b i l l would not d iffe r
from the Brookhart and Thomas b i l l s ;
i t s e ffe c ts as a r e l i e f measure would
be inequitable and c o s tly ; it would give the member banks more reserves
than were needed to finance industry in the boom conditions o f 1929, i t
would r e tir e a l l ex istin g reserve bank credit and thus render the Federal
reserve system powerless to exert any restraining influence whatever on
the situ a tio n , and’, f i n a lly , i t might lead to a flig h t of cap ital from the
country involving heavy withdrawals of gold .
F o r m 'N o . 131
Office Correspondence
T o.
Mr. Harrison *
From ____
Mr * H i e f le r
FEDERAL RESERV
BOARD
Date__ November
Subject:
oro
j 0 !
Attached is a draft summary of the report
of the Committee on Bank Reserves, as requested
by the Federal Reserve Board.
/~7y *4A - * ju
■a .
SUMMARY OF REPORT OF
^
jR&.& <*»■£-
*£ & r
COMMITTEE 0N(BANK RESERVES
^
$tbix*sr£+
A committee o f the Federal Reserve System on member bank reserve re
quirements^, which included representatives of the Federal Reserve Board
and the Federal reserve banks^has recently made i t s report to the system.
This report has been released fo r publication,pending i t s consideration
^ tAq .
/■ f
.
by the. Federal reserve a u t h o r !t J L e s ^ ^ ^ ^
/
.
The report recommends a number o f fundamental changes in existin g
(
in
**7*- f * " ’-
O'
requirements! with a view to elim inating i a oqU/ttable foe.ture-e ■ »
A - - * '*'*
* *
* '
“
* ’ •* CSjJLfJLte-ie* a he to ta l volume
the exii
/v
of required r e s e r v e s / "it^^^^vides^ fo r a system of reserves which would
treat a l l number banks in the country a lik e regardless o f th eir lo ca tio n .
I t would also sim plify reserve requirements by elim inating the c l a s s i f i
cation of deposits into demand and time deposits and the c la s s if ic a t io n
of banks in accordance with th e ir lo cation in d iffe re n t c i t i e s .
At the
present tim e^all member banks must carry a 3 per cent reserve against
time deposits and reserves against demand deposits of 13 per cent at cen
tr a l reserve c i t y banks, 10 per cent at reserve c ity banks, and 7 per
cent at so -c a lle d country banks.
The new proposal drops these d istin c
tions and recommends as a substitute that a l l member banks carry a re
serve o f 5 per cent against their net deposits and^in addition a reserve
equal to 50 per cent of the average daily turnover o f d e p o s i t s ^ This
^
formula automatically,makep demand deposits carry a higher reserve than
K
( W
,
v
time deposits, and also make9 more active demand deposits, such as are
lik e ly to be found in central reserve c i t i e s , carry a higher reserve than
le s s active demand d ep osits, such as are held by a m ajority o f country
banks.
-2 -
U ttder~fch±s-f*rim la; the p ro b le m o f p r o p e r ly d e f in in g tim e d e p o s its *
w h ich has g iv e n r i s e
n a te d A
to a g r e a t d e a l o f c o n fu s io n and
Xhe^onam Lttse- h a e -found t h a t tim e d e p o s its i n many oases do not
r epresen t jgenuine
s a v in g s
,~ b u t d e p o s its c l a s s i f i e d as tim e d e p o s its
m e re ly f o r the purpose o f p e r m it t in g banks t o c a r r y lo w e r re s e rv e s
a g a in s t them .
The Com m ittee re a ch e d the c o n c lu s io n t h a t i t was im pos
s ib le to~ d e f in e tim e d e p o s its so a s to a v o id e v a s io n s o f t h i s
typ e and,
t h e r e f o r e , proposes a ^ l a n ^ y w h ^ c ^ th e d if f e r e n c e between demand and
tim e d e p o s its wfcKM)® taken c a re o f a u t o m a t ic a lly ^
$*■
D e d u c tio n s fro m g ro s s d e p o s its
The-Gonmit tee-found that~under~exi sting reserve
in the volume of reserve s-have nut'lf^respohaed
bnnipft-eg acrt l vlTy.
W k- a
with changes in the v o l-
,Si noe 1014 -ther e has been n vaiy r np id gwowth
1 end- o f-t h e ~ a c t lv it y of member-bank d ep osits, but ~
r eserve
-have not shown a corresponding growth.
In order to
this figmKtlfrBj jhe Committee recomnends a new method of deter
mining required reserves and a change in the d e fin itio n o f what con sti
tu tes reserves.
AecordiegUa
proposal, reserves sh all be heid/against
tottfrtrfe’b lt s ^ og bhdy g g y ^ - ^ g o s l t acijy-ilhts- and ■-against to ta l net depos
i t s , that i s , against the to ta l deposit l i a b i l i t i e s of the member banks,
le s s th eir items in process of co lle c tio n and th eir balances with merrier
banks.
This method o f determining net deposits d if f e r s from the e x istin g
requirements in that
deductions, which are more ca re fu lly de
fined, to be made from to ta l deposits rather than from amounts due to
jx x L
ot
banks.
'
^
P re s e n t re q u ire m e n ts have o p e ra te d i n f a v o r o f banks i n f i n a n c i a l
N
centers having large amounts of bankers* balances from which deductions
\
are permitted and against banks in country districts and elsewhere that
do not have such balances.
Vault cash taw— wat as part of reserves
The Comnittee^ propos'd!:'defines reserves as balances with the Fed
eral reserve banks and cash carried by the banks in their own vaults.
Prior to 1917 the cash which^tanks held in their vaults was counted as
part of their required reserves, but in 1917 the^
serves wenr changed so as to exclude cash held in vault and include only
deposit balances with the reserve banks. At the same time reserve re
quirements were reduced by 5 per cent on demand deposits and^ per cent
on time deposits
olaaeee-ef-iyanfcs on the theory that banks would
continue to carry about
cash in vault la QPflaw fr> bi In a l— **
tion-tc~aeetr-the-daily withdrawals' of'thair~ customers•/<^Xctual experience
has shown this not to bo true, as iembor tferyhnTO .greatly* reduced-their
cashjln vault since 1917 and. thus in substance have diminished auhstanti edAr Ihe proportion"of reserves-, Including"vanlt caoh-.-wfelctr-tfreyholg
against thair deposits- This-reduoLion has occurred--chiefly-e* banksUn
Federal reserve bank and branch cities,^-which^ai>e-/able to replenish their
cash quickly by sending^
tllfl T9S9TTB bank- Country-banker-
on the-other
liollings ^o
the—same-extent. In the aggregate, the reeult has been that tojal-swa^
ber bank reserves including vault cash^are now
700,000,000 less
than they would have been i f the reserve act had not been amended in
1917.
The 1917 anendment'l consequently, has had the e ffe c t of gradually
-4-
reducing the e ffe c tiv e reserves o f member banks.
I t has also neutral
ized to a considerable extent the e ffectiv en ess of d iffe r e n t ia ls in
reserve requirements at d iffe re n t types of banks since the c ity banks
by cutting dawtf th eir vault cash have been able to reduce th e ir e f f e c
tiv e reserves to the le v e l held by country banks.
By allowing vault
cash to count as reserves, within certain lim ita tio n s, the Committee’ s
proposal^puta banks that are not located conveniently near a reserve
bank or brancri^n^en~V qu^ity^ith banks that are in Federal r e s e ^ e ^ ^
bank or branch c i t i e s .
Tim proposal, furthermore, would makeJLt.
sib le fo r future economies in the use of vault cash tOt reduce to ta l
reserves, because any further^redtE^ion in vault cash^,would involve
a corresponding increase in member bank reserve b a lV^Vr' ances with the reserve banks.
T^>re aqui-table d is tr i but ion eff—rcssrvoo
y
The Committee’ s proposalrj ^ 4 i » - ^ o f ^ h a n ^ g Lhjia-^a*a^-^oua4--efreqrr!red~~TTseeryoa>--^^
ehange^OJasi de w bl y tihM x d i s t r i b u t i o n 's b e-
^
tween d ifferen t member banks and groups o f menber b a n k s T h e s e ohangea
would operate mainly to increase reserves at c ity banks, which have ben
e f i t e d irost from the 1917 amendment^ and to decrease reserves at country
banks, which, because of th eir lo ca tio n , have not been able to reduce
cash to the same extent •
To
conditions
^
credit transitions
~{tifc. 6tfn~*r+-♦■^GSa. if
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_
I
/f-v-vrt*r*y
the volumefof-Eequii rd ro ss-tv?? wmiyi increase as the volume or
the banks* business increased, the business being measured not only by
^
-5 -
the anount of deposits, but by their activity.
Reserves^ would be larger
in periods of activity and in periods of speculative boonm^aiid-~smalJa*
in^-periUd s~of~bueina ss depression,— ^ e ^ h H n g u ^ r c p e e e d - by~the Committee^
therefore, would make reserve requireiiJgniTB'work-w-i^fch-Federal-reaerve
jH/
policy-’in the direction of sound/.credit conditions.
This doe s-not occn n
under-existing requirements which experience shows actually permitted a
reduction irumember bank reserves during the speculative boom that cul
minated i^'lS29~andVhen operated to bring about an'increase in reserves
when-the boom was"over.
Under the formula proposed by the Committee,
the aggregate reserve requirements of member banks would have increased
sharply by about |i400,00CT,000 during the speculative period in 1928 and
1929, and would have decreased by'be tween $400 ^0GQ,OftO and ^60^^000 fQGG—
in the following two years of business recession.
The increase would
.
K
have been concentrated largely at banks whose customers were, trading
heavily in securities and^roiU^*^hav^r aetc^cb*segently \u /est^ain-the
speculative movement at- its suiirue.
The subsequent decrease in reserve
requirements when the boom was over would have helped^to ease credit con
ditions throughout the country.
Reserves to increase at right ,time and place
The Conmittee^e propOBalp therefore, would increase resexxafiliQ& only
at the. tin* bilt^aTsd at the individual banks which show an actual growth
in activity, fiDuring the farm real estate boom of 1919-1920, it would have /
considerably increased reserves at the country banks in the interior of
the country.
During the speculative boom in Florida real estate, it would
have increased reserves of the Florida banks, and during the stocx exchange
boom of 1928-1929, it would have increased the reserves of eastern city
>
- 6 -
ygaEflJu«gfr»
Purpose of reserves
The Committee considers that the two principal purposes of reserve
requirements under our present banking structure are to promote sound
credit conditions by exerting an influence on changes in the volume of
bank credit, and to provide the Federal reserve banks with s*^i££entv
resources ta-*aablu H u m
"tv
pur h u b
a n 1effective Im i i k l H g T anci
crectiTQpbTi cy .
The application of these principles should be such, fnrtne-rmnrft, that re
serves are equitably distributed among the member banks and also are simple
to calculate and to enforce
fTTW
»+ ■■ ......
ent method of administering
banks to know definitely in
eiuding thoee against the turnover of their deposit accounts.
19-of-
Under the committee’s proposal, member
banks located in the vicinity of Federal
reserve banks or branches could maintain
not more than one-fifth of their required
reserves in vault cash and allother banks
could maintain not more than three-fifths
in vault cash.
With these limitations,
further reductions in vault cash would not
result in decreases in total reserves since
corresponding increases in reserve balances
with the Federal reserve banks would be
required
OTA bJH I o r REPORT OF FEDERAL RESERVE SYSTEM. CC0M 1TTSE OH BARE RESERVES
A committee of the Federal Reserve System on member bank reserve re
quirements which included representatives of the Federal Reserve Board
ana the Federal reserve banks has recently made its report to the system.
This report has been released for publication pending its consideration
by the Federal reserve authorities.
The report recommends a number of fundamental changes in existing
reserve requirements, with a view to eliminating inequitable features in
the existing law, but does not recommend any change in the total volume
of required reserves.
It provides for a system of reserves which would
treat all nember banks in the country alike regardless of their location.
It would also simplify reserve requirements by eliminating the classifi
cation of deposits into demand and time deposits and the clasr-licstion
of banks in accordance with their location in different cities.
At the
present time all member banks must carry a 3 per cent reserve against
time deposits and reserves against demand deposits of 13 per cent at cen
tral reserve oity banks, 10 per cent at reserve city banks, and 7 per
cent at so-called country banks.
tions
The new proposal drops these distinc
recommends as a substitute that all member ban :i' carT j a re
serve of 5 per cent against their net deposits and in addition a reserve
equal to 50 per cent of the average daily turnover of deposits.
This
formula automatically makes demand deposits carry a higher reserve fc.ian
time depoaits, and also makes mors active demand deposits, such as are
likely to be found in central reserve cities, carry a higher reserve than
less active demand deposits, such as are held by a majority of country
banks.
-2-
Treatment of time deposits
Under this formula the problem of properly defining time deposits
which has given rise to a great deal of confusion and evasion is elimi
nated.
m e Committee has found that time deposits in many cases do not
represent genuine savings, hut deposits classified as time deposits
merely for the purpose of permitting banks to carry lower reaervee
against them.
The Cosmittee reached the conclusion that it was impos
sible to define time deposits so as to avoid evasions of this type and,
therefore, proposes a plan by which the difference between demand and
time deposits will be taken care of automatically.
Deductions from gross deposits
The Committee found that under existing reserve requirements changes
in the volume of reserves have not corresponded with changes in the vol
ume of business activity.
Since 1914 there has been a very rapid growth
of member bank credit and of the activity of member bank deposits, but
reserve requirements have not shown a corresponding growth.
In order to
correct this condition, the Comuittae recommends a new method of deter
mining required reserves and a change In the definition of what consti
tutes reserves.
According to the proposal, reserves shall be held against
total debits or charges to deposit accounts and against total net depos
its, that is, against the total deposit liabilities of the member banks,
less their items la process of collection and their balances with meeker
banks.
This method of determining net deposits differs from the existing
requirements in that it allows deductions, which are more carefully de
fined, to be made from total deposits rather than from amounts due to
banks.
Present requirements have operated in favor of banks in financial
-3-
centers haring large amounts of bankers’ balances from which deductions
are peimitted and against banks in country districts and alsewhere that
do not hare such balances.
Vault cash to count as part of reserres
The Comnittee's proposal defineb reserves es balances with the .Fed
eral reaerTe banka and cash carried by the banka in their own ranlts.
Prior to 1917 the cash which banka held in their vaults was counted as
part of their required reserres, but in 1917 the legal cieiiLitiou ■>- rei~
serres was changed so as to exclude cash held in rault anr include only
deposit balances with the reaerTe banks.
At the sane tine reserve re
quirements were reduced by 5 per cent on demand deposits and 2 per cant
on time deposits at all classes of banks on the theory that banka would
continue to carry about that much cash in rault in order to ba in a posi
tion to meat tha daily withdrawals of their customers.
Actual experience
has shown this not to ba true, as member banks hare greatly reduced their
cash in rault since 1917 and thus in substance hare diminished substan
tially the proportion of reserres, including ranlt cash, which they cold
against their depoeita.
This reduction has occurred chiefly at banks in
Federal reserve bank and branch cities, which are able to replenish their
cash quickly by sending a messenger to the reserve bank.
Country benka,
on tha other hand, hare not been able to reduce their cash holdings to
the same extent.
In the aggregate, the result has been that total mem
ber bank reserves including ranlt oash are now about ♦700,000,000 iocs
than they would have been if the reserve act had not been amended in
1917.
The 1917 amendment, consequently, has had the effect of gradually'
reducing the affect It © reserves o f member bank©*
It has alao neutral
ized to a considerable extent the effectiveness o f differentials in
reserve requirements at different types of banks since the city banka
by cutting down their vault cash have been able to reduce their effec
tive reserves to the level held by country banks.
By allowing vault
cash to count as reserves, within certain limitations, the uoamittee’s
proposal puts banks that are not located conveniently near a reserve
bank or branch on an equality with banks that are in Federal reserve
bank or branch cities.
The proposal, furthermore, would make it impos
sible for future economies in the use of vault cash to reduce total
reserves, because any further reduction in vault cash would involve
the necessity of a corresponding increase in member bank reserve bal
ances with the reserve banks.
More equitable distribution of reserves
T h e Committoe’s proposal, while not changing the total amount of
required reserves, would change considerably their distribution as be
tween different member banks and groups of menfcer banks.
These changes
would operate saialy to increase reserves at city banks, which have ben
efited most from the 1917 amendment, and to decrease reserves at country
banks, which, because of their location, have not been able to reduce
their vault cash to the same extent.
To promote sounder credit conditions
The proposed formula would alao promote sounder credit conditions
since the wolume of required reserves would increase as the volume of
the banks ’ business increased, the business being measured not only by
the acuunt of deposits, but by their activity.
Reserves would be larger
in periods of activity and in periods of speculative booms and smaller
in periods of business depression*
The change proposed by the Cossaittee,
therefore, would make reserve requirements work with Federal reserve
policy in the direction of sound credit conditions.
This does not occur
under existing requirements which experience shows actually permitted a
reduction in Member bank reserves during the speculative boom that cul
minated in 1929 and then operated to bring about an increase in reserves
when the boom was over.
Under the formula proposed by the Committee,
the aggregate reserve requirements of member banks would have increased
sharply by about #400,000,000 during the speculative period in 1928 and
1929, and would have decreased by between §400,000,000 and §500,000,000
in the following two years of business recession.
The increase would
have been concentrated largely at banks whose customers were trading
heavily in securities and would have acted consequently to restrain the
speculative movement at its source.
The subsequent decrease in reserve
requirements when the boom was over would have helped to ease credit con
ditions throughout the country.
Reserves to increase at right time and place
The Coanittee’s proposal, therefore, would increase reserves not only
at the time but also at the individual banks which show an actual growth
in activity.
During the fax* real estate boom of 1919-1920, it would nave
considerably increased reserves at the country banka in the interior of
the country.
During the speculative boom in Florida real estate, it would
have increased reserves of the Florida banks, and during the stock exchange
boom of 1928-1929, it would have increased the reserves of eastern city
1
F o r m N o . 131
O ffice Correspondence
T o _______
Governor Meyer/
FEDERAL RESERVE
BOARD
-
Date__^ p r iX 2 6 . 1932_____
Subject:
Currency Demand. April 21-23,
F r o m _________ Mies Joy
« , a
In the last three days of last week the increase in cur
rency demand was about $ 15,000,000 smaller than usual for the
week-end, chiefly because of relatively small demand in New
York and Chicago.
In the San Francisco district there was a
continued return of currency, and on April
23
demand was at
about the level prevailing before bank suspensions on April
lU and
15.
In the Dallas and Philadelphia districts demand
increased somewhat more than usual over the week end, but the
increases were small; while at Boston there was little change,
and circulation continued slightly above the levels prevailing
ten days earlier.
2— 8495
COPY FOR GOVERNOR
MEYER
April 26
Mr* Joslin
During the week ending April 20 there was an increase
of |77,000f000 in net demand deposits at reporting member
banks in leading cities and an increase of 126,000,000 in
time deposits* These increases, although they were accom
panied by a decline in Government deposits, were significant
because there was an increase of $61,000,000 in the banks*
loans and investments* This increase reflected a growth of
$148,000,000 at reporting banks in New York City, offset in
part by a decrease of $87,000,000 at other banks in leading
cities
F o rx a N o . 1 31
Office Corn ndence
T o __
From
-
Governor Mey
FEDERAL RESERVE
BOARD
f'
Date _____ July
1,
1932
Subject:.
George W. Christian
Mr. Goldenwe
2—8495
Mr. Christian came to me with a le t t e r of introduction from C. 0 .
Hardy of the Brookings In stitu tio n and l e f t with me a lo t of lite r a tu r e ,
including a pamphlet called "This Depression" and a b i l l , HR-1189S, in
troduced in the House of Representatives on May 5j 1932, by Mr. McFadden
at Mr. Christian*s request.
The pamphlet i s la rg ely an attack on the gold standard and the Fed
eral Reserve Board and does not present any d e fin ite proposal.
however, i s very d e fin ite indeed.
The b i l l ,
I t proposes that the standard of value
in th is country be the wage of male unskilled common labor at the 1928
le v e l of 42*62 per hour.
The b i l l provides that the Treasury of the United
States take over the Federal reserve banks and pay fo r the banks by an issue
of bonds.
The banks then become loaning agencies of the Government, the
Government to issue an unlimited amount of paper money to be loaned to people
at rates of in te r e st that w ill vary with the price of la b o r.
When the price
of labor r ise s above the amount indicated the rate of in te r e st sh all also r i s e ,
and when the price of labor f a l l s the loan rate sh all decline even to the
point of becoming negative.
sh all be paid fo r borrowing.
That i s , he assumes circumstances when borrowers
In Mr. C hristian*s opinion th is would cure a l l
the economic and so cia l e v ils that now p r e v a il. I t w ill present a new diver
sion of income from producers to lenders o f money.
In th is diversion he sees
the principal e v il of the situ a tio n , and by making loans at low rates or even
negative rates the whole system w ill be corrected
JUU 2 1932
* - -Jf
t h l
governor
re-V‘feRAL RESERVE BOARD
Governor Meyer,
July 1, 1932
#2
Christian is a fan atic and I am inclined to think a lu n a tic .
He i s
very calm and self-p ossessed and talk s in an in te llig e n t way with a very
good command of the language and of terminology of several sciences.
At
the same time he thinks that he has the power to bring about a revolution
and that the revolution i s at our doors.
He claims that there would have
been a communist outbreak yesterday i f he hadn’ t prevented i t .
He f e e ls
that he w ill not be ju s t ifie d in preventing outbreaks much longer.
What
he wanted me to do i s to arrange fo r an interview with you, and I suppose the
next step w ill be an interview with the President.
th a t.
He wants you to arrange
I to ld him that a l l I could do was to make a report on his plan and
that you being a very busy man would see him only in case you found that the
plan was important and worthy of consideration.
My suggestion is that when
he gets in touch with your o ffic e you have the o ffic e t e l l him that you do
not fin d that the plan o ffe rs any constructive p o s s ib ilit ie s and that you
have no time to spend on i t .
Mr. C hristian’ s address i s the Annapolis H otel, Washington, D. C.
CRUSADERSFORECONOMICLIBERTY
Jj^Jy
C O R P O R A T E D
NATIONAL CAPITOL
CHATTANOOGA,
TENNESSEE
C A P I T A L I S M
C O M M U N I S M
......... ...................................................... O R ...................................................................
U N D ER
E C O N O M I C
U N D ER
L I B E R T Y
T Y R A N N Y
Ar
A?
?
/
R E C E IV E D
JUL 12 1932
O FFIC E OF T H E GOVERNOR
FED ER A L R ESER V E BOARD
The
Q o l d en
Rule
I n s te a d
of
the
Rule
of
Q o l d
IN
t h e
:
h e a r t
o f
e v e r y t h i n g
July 6# 1932*
Memorandum
Perhaps the most suitable book Tor Mr# Hancock’s purpose is one en—
titled "The Gold Standard and its Future" written by T.E. Gregory in the
latter part of 1931 and published by Methuen A Company, Ltd*, London*
Another good book by an Englishman is R.G* Hawtrey’s "The Gold Standard in
Theory and Practice", second edition, 1931, published by Longnnns, Green &
Company*
Hawtrey has rather more confidence in the power of central banks
to control the course of prices than most operating bankers have, and oc
casionally his writing is somewhat abstract; but his book as a whole is a
very lucid statement*
Mr* Hancock will also undoubtedly want to read the
various reports of the Gold Delegation of the Financial Committee of the
League of Nations.
These deal with the production of gold and the demand
for it, the distribution of gold reserves, the gold legislation of various
countries, and other related matters.
The final conclusions of the Delega
tion are set forth in a report of some eighty pages, which has just been is
sued.
A short paper
by Dr. E.W. Kesnaerer on "Gold and the Gold Standard",
published in the Proceedings of the American Philosophical Society, 1932, is
also of interest on the general question, as is a collection of papers by
leading economists brought together under the title "Ihe International Gold
Problem", publiehed by the Oxford University Press in 1931.
These papers
were presented before the Royal Institute of International Affairs and were
followed by discussions which are recorded in the volume and are quite as
well worth reading afi the papers themselves.
Mr. Hancock may be interested
also in reading a book by Wm. Adams Brown entitled "England and the New Gold
Standard, 1919-1926’ (P.S. King A Son, London, 1929) and the report of the
British Committee op, Finance .and Industry — ■
r
F
llan Commit-
-2-
tee" — published in June9 1981* Brown deal with what he believes to be
the entirely new foundations of the gold standard subsequent to the world
war; and the Macmillan Committee undertakes to elucidate the banking mechan
ism in England in relation to prices and also considers the question* un
settled at the time the report was written* of whether Fngland
should or
should not devaluate its currency or abandon the gold standard altogether.
On the subject of the evolution of money and the origins of various
standards — if Mr. Hancock wants to look into such quest ions — I should
suggest a two-volume work by L. Laurence Laughlin entitled "A New Exposition
of Money, Credit, and Prices", published in 1931 by the University of Chicago
Press.
It is a useful book for reference purposes.
There is attached to this memorandum a peper delivered last December
before the .American Statistical Association by Mr. Walter B. Gardner, of
the Board’s staff.
•
i
FRAN K
COMMITTEE:
BANKING AND CURRENCY
HANCOCK
5th District
north Carolina
C o n g r e s s of tfje 3 9 m t e b S t a t e s
PAUL DOYLE
SECRETARY
of &epre£entattbeg
®iajsf)mgton, B. C.
J&ou&t
20 June 1932
Hon. Floyd G. Harrison
Treasury Department
Washington, D. C.
Dear Mr. Harrison:
In view of the fact that there is considerable loose talk
going the rounds in reference to the advisability of our nation
going off the gold standard, I have an anxiety to thoroughly in
form myself about this question.
I am very desirous of secur
ing reliable, accurate and clear-stated information regarding the
history of the gold standard, its relation to money and economics,
ana why it is desirable that we should maintain the standard.
Within the past week I have received several invitations to speak
before various Civic Clubs on the subject of the Gold Standard.
At your convenience I will appreciate your advising me where
I can get such publications regarding this subject as will enable
me to become informed, or if you can conveniently do so I will ap
preciate your having this information sent to me.
With personal regards and best wishes,
Sincerely yours,
- Personal -
CURRENCY
B t P A M S IO H
UHDER TH E
HO M E LO A H
B IL L
C M
'
S f-3 + r
■ Jh '
A n a ly s is
c u la t io n
3 3 /8
o f
p r iv ile g e
p e r
c e n t
(1 )
a t
th e
o r
p re s e n t
a re
1
p e r
in
a
e rn m e n t
v is o ,
because
and
bon ds,
o f
th e
th e
new
a c c o m p lis h
m e n ts ,
so
a b ilit y
and
o f
banks
w
c u rre n c y ,
t h is
g o in g
to
in te r e s t
a n y t h in g
to
h e lp
o f
o r
th e
c ir
ra te
o f
fu n d
pay
o ff
t h e ir
lo s s e s
a v a il
o ff
th a t
th e
a
w o u ld
its e lf
o f
th e n
on
t h is
w o u ld
th e
m ean
o f
fu n d s
th e
i t
p r iv ile g e
is
in
in
th a t
a re
B anks
th a t
a re
o th e r
th a n
G ov
p e r
a re
th e
in
such
s e llin g
th e m
o f
w
to e
fo r
to
pay
fo r
s h o rt
h an d ,
be
th e
c o u ld
banks
c o u ld
t h e ir
G o v e rn
ill
th e
be
t h e ir
G o v e rn m e n ts
m ay
in v o lv e *
banks
c it ie s ,
la r g e
p ro
th e
d e b t a t
re s e rv e
la r g e
ab o u t
new
c e n t
o th e r
b u t
any
th a t
banks
G o v e rn m e n ts
fro m
now
can
5
to
re s e rv e s
to
u n d er
th e
by
excess
a m o u n t in g
d is p o s in g
b o rro w e d
p a rt
have
a c q u ir e d
th a t
a u t h o r it y
in
ab o u t
is s u e
t h e m s e lv e s
be
in d e b te d n e s s ,
w ith o u t
to
p ap er
n o te s
B anks
d e p r e c ia t io n
la r g e
th e
t h is
$ 2 0 0 ,0 0 0 ,0 0 0
and
f in a n c e
s e c u r it ie s ,
in d e b t e d n e s s
as
use
and
t h e ir
w ith o u t
t h in g
ab o u t
a lt o g e t h e r ,
to
to
r e q u ir e m e n t *
pay
r e s u lt
o f
re c o v e ry
a u t h o r it y *
n o te s
d iffic u lt
have
t h is
b u s in e s s
have
is s u in g
i t
b ased ,
They
on
f in d
a re
th a t
e ls e w h e r e
ill
th e y
banks
N e it h e r
w
w o u ld
a u t h o r is e d
c u rre n c y *
m eans
th e y
be
exp en se,
no
to
n o t
an
to
have
a u t h o r it y
ill
h a v in g
th e
bank
G o v e rn m e n t
o n ly
e x te n d in g
a u t h o r it y *
t h e m s e lv e s
on
is
ill
th o s e
go
a d d it io n a l
banks
such
B
w o u ld
ill
o n ly
G o v e rn m e n ts
banks
w
r e d e m p t io n
sam e
Hom e L o a n
n o t do
use
a v a il
th e
th e re
to
n o t
th a t
to
th e
F e d e ra l re s e rv e
w h ic h
th e
t a k in g
S in c e
n re
because
F e d e ra l re s e rv e
use
W h ile
n o t w ant
th e y
on
w o u ld
a d d it io n a l
s e c u r it ie s
th e
G o v e rn m e n t b o n d s
b ill
a c q u ir in g
th e
to
in d ic a t e s t
th e
c o n d itio n
to
p u rp o s e ,
cause
le s s
and
o f
fro sen
in d e b te d
th e
o f
id le
c e n t,
a ll
t im e *
o b v io u s ly
ly in g
am endm ent
to
T h a t
$ 1 ,0 0 0 | 0 0 0 | 0 0 0
w o u ld
th e
on
t h is
a m o u n t*
g ro u p
The
o n ly
no
g ro u p
excess
m ent
o f
banka
re s e rv e s y a re
s e c u r it ie s *
b u y in g
a d d it io n a l
p u r e ly
as
a
S in o e
m and f o r
to
th e
s e rv e
had
m ay
is
a d v a n ta g e
in
th e
and
a re
on
a
The
banks
n e t
th a t
do
t h e m s e lv e s
c r e d it
th a t
in
s e r io u s ly
p e r io d *
a t
th e
d a n g e ro u s
t it le
s it u a t io n
th e
W h e n b u s in e s s
t h e ir
o p e r a t io n s *
a v a il
t h e m s e lv e s
s o m e t h in g
to
n o te s *
lik e
th e
T h is
th e re
i t
o f
th e
n o te
is s u e
be
re s e rv e
w o u ld
a
banks
c re a te
r e la t iv e ly
do
s m a ll
o f
in v e s t m e n t s
o f
th a t
th o u g h
th e
F e d e ra l
re s e rv e
th e
re s e rv e
w ith
re
be
banks
m em ber b a n k s *
th e
de
re tu rn
w o u ld
F e d e ra l
fo r
in
w o u ld
am ount
banks
h a rm *
and
banks
f in d
i t
th a t
and
in
The
banks
t h is
d iffe r
s e c u r it ie s
th a t
b a la n c e s
am ount o f
w o u ld
w o u ld
to
s e ll
lit t le *
a t
a
la t e r
p r o f it a b le
to
a ll
banks
o f
m uch
th e
th e
w ay
w h ic h
a t
do
becom e
s y s te m
th a t
is s u e d ,
r e t ir e
i t
m o n e ta r y
e x p e c te d
re s e rv e
p u rp o s e
in c r e a s e
c ir c u la t io n
som e
c u rre n c y
and
G o v e rn
d e s ir a b le *
p r iv ile g e *
o f
have
in v o lv e d *
n o t have
c r e d it
c o n f id e n t ly
th e
o r
s e c u r it ie s *
a d d it io n a l
th e
fo r
an
re s e rv e s
w h ic h
am ount o f
lo a n s
th e
as
banks
a u t h o r it y
th e
w h ile
w o u ld
w o u ld
and
1 1 ,0 0 0 * 0 0 0 * 0 0 0
F e d e ra l
ill
th e
c o u n t r y 's
be
new
sam e
i t
n o te s
cause
G o v e rn m e n t
m ade
c e r t a in
p r o f it
th a t
th e
th e
e q u iv a le n t
excess
be
and
re c o v e rs
m ay
p ro c e s s
w
t im e
an
h e lp *
banks
th e re fo re ,
to
th e
la r g e
am ount o f
th e
u n d er
be
a
m a k in g
to
r e q u ir e
w o u ld
o r
o f
a re
is s u e
m e a s u re
w o u ld
re s e rv e
p re s e n t
have
to
r e t ir e
th e
W h ile *
good
n o t
h o ld in g
a d d it io n a l
change
e ffe c t
c o n d itio n s
and
s e c u r it ie s *
t a k in g
n o t h in g
a u t h o r it y
deodde
banks
case
s in c e
banks
d e b t*
F e d e ra l re s e rv e
h o w e v e r*
re tu rn
o f
t h is
is s u e d
(2 )
be
o f
use
n o te s
bought an
an y*
o u t
G o v e rn m e n t
c u rre n c y *
f in d
ence*
in
th e re
m ay
th e
h e lp e d
e ffe c t
Such
m a tte r
c u rre n c y .
w o u ld
w h ic h
th e re
w o u ld
d is c o u n t s *
i t
w
ill
w o u ld
p r o m p t ly
o f F e d e ra l
re s e rv e
expand
re s e rv e
banks*
w o u ld
and
r e m a in
i f
&8 e x c e s s r e s e r v e
m ent
s e c u r it ie s
p r o b a b ly
a ls o
a ls o
back
b a la n c e * ,
to
be
up
a b s o rb
a
a t
re s e rv e s *
a
o n e - h a lf
re s e rv e
and
banks
m ig h t
f in d
F e d e ra l
A t
f lo w
re s e rv e
W it h
o f
to e
excess*
re tu rn
F e d e ra l
m em ber b a n k s 1
b illio n
to e
la r g e
to e
u n le s s
a
o f
b illio n
p o t e n t ia l
s o ld
lik e
th a t
c u rre n c y
fro m
h o a r d in g ,
and
o f
re tu rn
t h e m s e lv e s
banks
t im e
banks
a
re s e rv e
s t ill
th e re
fu r th e r
a d d it io n a l
f lo w
h o a r d in g ,
e n t ir e ly
w ith o u t
w o u ld
w h ic h
w o u ld
in o r e a s e
p o t e n t ia l
fro m
G o v e rn
e a r n in g
to e
c u rre n c y
th e
and
F e d e ra l
a s s e ts ,
and
co n -
»
s e q u e n tly
e n t ir e ly
o u t
a b ilit y
to
m eet
e x e r te d
to
p re v e n t
e rn m e n t
s e c u r it ie s
o f
excess
in g
to
expenses*
in
t h is
u s u a l
c o u rs e
w o u ld
u ltim a te ly
th e
and
to
th e
o f
and
th e re
re s e rv e
o f
t im e ,
p e rp e tu a te
to
to e
w
th e
o r
ill
engage
it s
be
g o ld
in
a
d id
n o t
sum m ed u p
an
th e
in
p u b lic
t h is
to e
as
o f
a
to
an
la r g e
a
G ov
v o lu m e
re s o rt
in fla t io n a r y
w ith
c o u n try ,
fo r
in
be
S ta te s
w ith o u t
o u t f lo w ,
b e in g
b u t
in te r e s t *
c o u n try
in e la s t ic
i
a
a
subse
th e n
lo n g e r
th e
t im e
m a n d a te
o p e n -m a rk e t
b e n e f ic ia l,
c re a s e d *
c a rry
le a d
th e
w o u ld
U n it e d
c r e d it
g o ld
le a v e
la r g e - s c a le
s in c e
p re s s u re
o f
and
c o lla p s e *
be
c o n f u s io n
n o t h in g
lik e lih o o d
w o u ld
a
say
t h e ir
expand
ab o u t
m ig h t b e
to
a
tu rn ,
to
heavy
a ll
be
to
in
b r in g
s e r io u s
r e s u lt s
e la s t ic it y ,
s e llin g
m o v e m e n t w o u ld
c o n tra ry
c u rre n c y
c u rre n c y
m o re
i f
h o w e v e r,
banks
T h is ,
p ro p o s a l m ay
to
w hen
a
fro m
c o n d itio n s ,
th e re fo re ,
w o u ld
in f la t io n a r y
le a d
t im e ,
e n a b le
b an ks*
c r e d it ,
banks
r e s u lt s
m a in t a in
o f
w o u ld ,
th a t
c r e d it
&
banks
w o u ld
c o u n try
an
e ffe c ts
p re s e n t
w hen
re s e rv e
re s e rv e
w ith
such
th e
F e d e ra l
c o n t r a c t io n
F e d e ra l
A t
w h ic h
q u en t
The
to u c h
re s e rv e s ,
th e
s it u a t io n
o f
and
to
to e
o p e r a t io n ,
n o t
a
t im e
I t
w o u ld
m ake
e le m e n t
in
w
th e
a ls o
i t
m o re
ill
be
a t
fu tu re
in o r e a s e
d iffic u lt
g r e a t ly
in
I t
m ay
s id e r a b le
ta tio n ,
be
u se
th e
e x p e c te d
o f
th e
th a t*
I f
p r iv ile g e
p re s s u re
fo r
th e
banka
b e fo re
c o n t in u in g
f in d
th e
th e
o p p o r t u n it y
e x p ir a t io n
n o t e - is s u e
o f
to
th e
m ake
any
con
th re e -y e a r
p r iv ile g e
w
ill
be
lim
i
v e ry
4"
a lo w *
I t
w
p r iv ile g e
th u s
ill
th e n
w o u ld
c re a te
be
fo rc e
t ig h t
p o in te d
o u t,
m em ber b a n k s
c r e d it
am ong
to
c o n d itio n s
o th e r
b o rro w
and
t h in g s ,
h e a v ily
th a t
a t
th e
h a m p e r b u s in e s s
la r g e
th e
N a t io n a l
am ount o f
bank
g o ld
as
n o te s
in t o
a c t iv it y ,
'
re s e rv e s
F e d e ra l re s e rv e
w h ic h
th e
F e d e ra l
w ith d r a w
re s e rv e
.
c o n v e rt
to
n o te s
banks
and
and
th a t
to
•
w o u ld
re s e rv e
th e
r e q u ir e
a
c o u ld
n o t
s y s te m
s p a re .
The
th e
to
In t r o d u c t io n
N a t io n a l b a n k s
w h at
in
y e a rs
an
th e
Though
t h is
n o t
a
o n ly
h e a lth y
b ill
d an g er
c r e d it
e le m e n t
y e a rs
has
an
e la s t ic
in
o ffe rs
b u t
I t
no
a lm o s t
e x p a n s io n
o u r
is s u in g
th e
o f
a
and
is
a
m o re
and
a
o f
c e r ta in ty
c o n t r a c t io n
p ro g re s s
m e a s u re
h e lp in g
m ade
o f
c u rre n c y
in
th e
n o t
in
a
v o lu m e
th e
and
la s t
b a n k in g
u n c o n t r o lle d
in t e n d e d
b u s in e s s
o f
in
tra n s fe r
F e d e ra l re s e rv e
c u rre n c y
r e g u la t io n
w o u ld
n o te s
am ount o f
e ffic ie n t
o f
th a t
a d d it io n a l
th e
te m p o ra ry
p r o m is e
c u rre n c y
e n t ir e
abandonm ent o f
c u rre n c y
fo rm
in t o
o f
been
e s t a b lis h m e n t
abandonm ent o f
e rg e n a y ,
an
p r iv ile g e
c o n s t it u t e s
to w a rd
e x p a n s io n .
th e
o r d in a r y
o u t s t a n d in g
o f
to
h e lp
to
eq u al
c r e d it
tw e n ty
s y s te m j
b a n k in g
in
an
e a -
re c o v e ry
and
c re a te s
d iff ic u lt ie s
and
o f un
d is t a n t
fu tu re *
F o rm N o. 131
O ffice Correspondence
T>
Y»
FEDERAL RESERVE
BOARD
IForror*
rw
July 21. I932»
ject* Revised circular re dis
counts for individuals, part
nerships and corporations*
u
R Q-
;estions and comments have now "been received from all
of the Federal reserve hanks regarding the tentative draft of a
circular on the above sub .tect which was sent to them on July 16;
and there is attached for your information a revised draft of the
circular and alternative drafts of Sections II and III thereof. The
Board may wish to consider this matter at its meeting tomorrow, in
view of the fact that the President signed the Bill containing this
amendment today.
The most important question to be determined is whether
this business ahll be confined to discounting for individuals, part
nerships, and corporations eligible paper of their customers actually
owned by them or whether the Federal reserve banks should be permitted
to make advances direct to individuals, partnerships and corporations
on their promissory notes indorsed and otherwise secured to the satis
faction of the Federal reserve banks.
Another question upon which there is considerable difference
of opinion is whether Federal reserve banks should be forbidden to
discount paper for individuals, partnerships, and corporations if the
proceeds
are to be used to pay off existing indebtedness to otner
banking institutions. The revised regulations provide that this may
not be done "except with the permission of.the Federal reserve Boaru.
%
Especial
the
circular
attention
letter which
deals
is
also
with
the
invited
rate
of
to
Section
VI
of
discount.
A summary of the suggestions received from the
various jfederal reserve banks is being prepared and I hope to have
it ready for distribution early tor™-''™® mnrnin^.
X-7207
July 21* 1932.
SUBJECT:
DISCOUNTS FOR INDIVIDUALS, PARTNERSHIPS AND
CORPORATIONS.
TO ALL FEDERAL RESERVE BANKS:
The third paragraph of Section' 13 of the Federal Reserve
Act, as amended by the Act of July
21
, 1932, provides as follows:
"In unusual and exigent circumstances, the
Federal Reserve Board, by the affirmative vote of not
less than five members, may authorize any Federal reserve
bank, during such periods as the said board may determine,
at rates established in accordance with the provisions of
section 14, subdivision (d), of this Act, to discount for
any individual, partnership, or corporation, notes, drafts,
and bills of exchange of the kinds and maturities made
eligible for discount for member banks under other provi
sions of this Act when such notes, drafts, and bills of
exchange are indorsed and otherwise secured to the satis
faction of the Federal reserve bank: Provided, That before
discounting any such note, draft, or bill of exchange for an
individual or a partnership or corporation the Federal re
serve bank shall obtain evidence that such individual,
partnership, or corporation is unable to secure adequate
credit accommodations from other banking institutions. All
such discounts for individuals, partnerships, or corporations
shall be subject to such limitations, restrictions, and
regulations as the Federal Reserve Board may prescribe."
In view of the fact that the power conferred by this provision
can be exercised only in "unusual and exigent circumstances", the Fed
eral Reserve Board has not prescribed any formal regulations governing
the exercise of this power; but the requirements of the law and the
procedure which the Federal Reserve Board will expoct to be followed
are outlined below for the information of the Federal reserve banks and
any individuals, partnerships or corporations that may contemplate
applying to them for discounts.
*4
X-7207
•
-
2 -
I. LEGAL REQUIREMENTS.
It will be observed that, by the express terms of the law:
1.
The power conferred upon the Federal Reserve Board to
authorize Federal reserve banks to discount eligible paper for in
dividuals, partnerships or corporations may be exercised only:
(a)
In unusual and exigent circumstances,
(b)
By the affirmative vote of not less than five members
of the Federal Reserve Board, and
(c)
For such periods as the Federal Reserve Board may
determine;
2.
When so authorized, a Federal Reserve Bank may discount for
individuals, partnerships or corporations only notes, drafts and bills of
exchange of the kinds and maturities made eligible for discount for member
banks, under other provisions (Sections 13 and 13(a)) of the Federal Reserve
Act.
(Such paper must comply with the applicable requirements of Regulation
A of the Federal Reserve Board);
3.
Paper discounted for individuals, partnerships or corporations
must be both (a) indorsed and (b) otherwise secured to the satisfaction
of the Federal reserve bank;
4.
Before discounting paper for any individual, partnership
or corporation, a Federal reserve bank must obtain evidence that such
individual, partnership or corporation is unable to secure adequate
credit accommodations from other banking institutions;
5.
Such discounts may be made only at rates established by the
Federal reserve banks, subject to review and determination by the Federal
Reserve Board; and
.4 •'
X-7207
- 3 6.
All discounts for individuals, partnerships or corporations
are suoject to such limitations, restrictions, and regulations as the
Federal Reserve Board may prescribe,
Ilf
.
1.
PERMISSION OF TEE FEDERAL RESERVE BOARD.
The Federal Reserve Board will not pass upon specific appli
cations for discounts by individuals, partnerships or corporations; but will
consider applications by Federal Reserve Banks for general permission to
discount eligible paper for individuals, partnerships and corporations,
and will base its decisions on the question whether in its judgment
there are unusual and exigent circumstances which justify the granting
of such permission,
2.
Permission of the Federal Reserve Board to discount eligible
notes, drafts, and bills of exchange for individuals, partnerships and
corporations must be applied for by a Federal reserve bank in writing
or by telegram, and the application must contain a full statement of the
unusual and exigent circumstances which, in the judgment of the Board
of Directors of the applying Federal reserve bank, justify such action,
3.
Such permission, when granted, will be for periods specified
by the Federal Reserve Board, not exceeding six months,
4.
Requests for renewals or extensions of such permission must
be made in the same manner as an original application,
III.
EOR WHOM PAPER MAY BE DISCOUNTED.
When authorized by the Federal Reserve Board, the Federal
reserve banks may discount for individuals, partnerships or corporations,
eligible commercial, industrial and agricultural paper actually owned
•
X-7207
- 4 -
■by such individuals, partnerships or corporations and hearing their
indorsement,
The term '’corporation*1, as used in this circular, includes
live stock loan companies, agricultural credit corporations, finance
companies and similar corporations; and eligible paper owned by such
corporations may be discounted with their indorsement.
No paper may
be discounted for nonmomber banks under the terms of this circular.
A Federal reserve bank should not discount paper for individuals,
partnerships or corporations unless it appears that the proceeds of such
discounts will be used to finance current business operations and not for
speculative purposes, for permanent or fixed investments, or for any other
capital purpose.
Except with the permission of the Federal Reserve Board,
no such paper should be discounted if it appears that the proceeds will be
used for the purpose of paying off existing indebtedness to other banking
institutions.
IV.
APPLICATIONS FOR DISCOUNT.
Each application of an individual, partnership or corporation
for the discount of eligible paper by the Federal reserve bank must be
made in writing on a form furnished for that purpose by the Federal reserve
bank and must contain, or be accompanied by, the following;
1.
A statement of the circumstances giving rise to the application
and of the purposes for which the proceeds of the discount are to be used;
2.
A statement of the efforts made by the applicant to obtain
adequate credit accommodations from other banking institutions, including
the names and addresses of all other banking institutions to which appli
cation for such credit accommodations has been made, the dates upon which
such applications were made, whether such applications have been definitely
X-7207
refused and the reasons, if any, given for such refusal;
3*
A list of all hanlcs with which the applicant has had
hanking relations, either as a depositor or as a borrower, during the
preceding year, with the approximate date upon which such hanking re
lations commenced and, if such hanking relations have been tenninated,
the approximate date of their teimination;
4.
Financial statements of the applicant and the principal
debtors on the paper offered for discount;
5.
Evidence sufficient to satisfy the Federal reserve bank as
to (a) the legal eligibility of the paper offered for discount under
Section 13 or Section 13(a) of the Federal Reserve Act and Regulation A
of the Federal Reserve Board and (b) its acceptability from a credit
standpoint;
6.
A list and description of the collateral or other security
offered by the applicant;
7.
An agreement by the applicant, in form satisfactory to the
Federal reserve bank, (a) to furnish to the Federal reserve bank, when
requested, additional financial statements, copies of recent auditors
reports, or other credit information, (b) to submit to audits, credit
investigations or examinations by representatives of the Federal reserve
bank at the expense of the applicant, whenever requested by the Federal
reserve bank, and (c) to furnish additional security whenever requested to
do so by the Federal Reserve Bank; and
8.
Any additional information or assurances which the Federal
reserve bank, in its discretion, may require.
1.1 *
X-7207
— 6
V.
-«
GRANT OH REFUSAL OF APPLICATION.
Before discounting notes, drafts, or tills of exchange for any
individual, partnership or corporation, the Federal reserve hank shall
ascertain to its satisfaction by such means as it may deem appropriate;
1.
That the financial condition and credit standing of the
applicant justify the granting of such credit accommodations;
2.
That the paper offered for discount is acceptable from a
credit standpoint and eligible from a legal standpoint;
3.
That the security offered is adequate to protect the Federal
reserve bank against loss;
4.
That there is a reasonable need for such credit accommoda
tions; and
5.
That the applicant is unable to obtain adequate credit
accommodations from other banking institutions.
A special effort should be made to determine whether the banking
institutions with which the applicant ordinarily transacts his banking
•business or any other bank to which the applicant ordinarily would have
access is willing to grant such credit accommodations.
In discounting paper for individuals, partnerships or corpora
tions, a Federal reserve bank should not make any commitment to renew or
extend such paper or to grant further or additional discounts.
VI.
RATES OF DISCOUNT.
When authorized by the Federal Reserve Board to discount eligible
paper for individuals, partnerships and corporations, a Federal reserve
V
"bank, subject to the review and determination of the Federal Reserve
Board, shall establish special rates for such discounts.
Ordinarily
such rates should be slightly higher than the rates charged on similar
classes of paper by commercial banks to which applicants ordinarily
would have access.
VII.
LIMITATIONS.
Except with the permission of the Federal Reserve Board, no
Federal reserve bank shall discount for any one individual, partnership
or corporation paper amounting in the aggregate to more than one per
cent of the paid-in capital stock and surplus of such Federal reserve bank.
VIII.
ADDITIONAL REQUIREMENTS.
Any Federal reserve bank which obtains permission from the Federal
Reserve Board to discount eligible paper for individuals, partnerships
and corporations may prescribe such additional requirements and procedure
respecting such transactions as it may deem necessary or advisable; pro
vided that such requirements and procedure are not inconsistent with the
provisions of the law and the Board’s regulations and with the terms of
this letter.
By order of the Federal Reserve Board.
Chester Morrill,
Secretary.
(Alternative for Section III)
X-7207
III FOR WHOM PAPER MAY BE DISCOUNTED.
When authorized by the Federal Reserve Board, a Federal reserve
bank may discount for individuals, partnerships or corporations:
(a) Eligible commercial, industrial and agricultural paper
actually owned by such individuals, partnerships or corporations, bearing
their indorsement, and otherwise secured to the satisfaction of the Federal
reserve bank; or
(b) The promissory notes of such individuals, partnerships
or corporations bearing satisfactory indorsements by parties other than
the makers and otherwise secured to the satisfaction of the Federal reserve
bank; provided, that the Federal reserve bank is given satisfactory assur
ances that the proceeds will be used by the makers in their own business
for commercial, agricultural or industrial purposes within the meaning of
the Federal Reserve Act and Regulation A of the Federal Reserve Board.
The term "corporation*', as used in this circular, includes live
stock loan companies, agricultural credit corporations, finance companies
and similar corporations; but it does not include either member or nonmember
banks.
The promissory notes of live stock loan companies, agricultural credit
corporations, finance companies and similar corporations would not ordinarily
be eligible for discount, because the proceeds ordinarily would be used in
the first instance for finance purposes and not for commercial, agricultural,
or industrial purposes within the meaning of the Federal Reserve Act and
the Board* s Regulations; but eligible paper owned by such corporations may be
discounted with their indorsement.
A Federal reserve bank should not discount for individuals, partner
ships or corporations either their own promissory notes or paper owned by
them, unless it appears that the proceeds of such discounts will be used
4 *'
>
X-7207
to finance current business operations and not for speculative purposes,
for permanent or fixed investments, or for any other capital purpose.
Except with the permission of the Federal Reserve Board, no such paper
should he discounted if it appears that the proceeds will he used for the
purpose of paying off existing indebtedness to other hanking institutions*
(ROTE:
If the Board decides to permit Federal reserve hanks to make
direct advances to individuals, partnerships and corporations, another
alternative would he to omit Section III of the circular altogether and
allow the circular to remain silent on this point.
This would have the
advantage of not inviting applications for direct advances, hut it pro
bably would increase materially the number of inquiries which the Federal
Reserve Board and the Federal reserve hanks would have to answer.)
>
(Alternative for Section II
of Circular Letter)
II.
X-7207
AUTHORIZATION BY THE FELERAL RESERVE BOARD
The federal Reserve Board, "being satisfied that there are in all
Federal reserve districts unusual and exigent circumstances which justify
such action, hereby authorizes all Federal reserve banks for a period of
six months from the date of this letter to discount eligible notes,
drafts and bills of exchange for individuals, partnerships and corpora
tions, subject to the provisions of the law, the Board1s regulations, and
this circular
F o rm NO. 1 3 1
Office Correspondence
To
Governor Meyer
From ...
Mr. G o l d e n w e i s e p ^ ^
a
FEDERAL RESERVE
B°ARD
i
Date
/
JxjjTStf.
1932
Subject:
opo
In accordance with your request by telephone,
I attach a chart showing Government deposits in
special depositaries, by weeks, for the year 1932
to date.
__
2—8495
- «
U. S. GOVERNMENT DEPOSITS
IN SPECIAL DEPOSITARIES
/William o fD o llars
1932
I l l ! * * * » & *
July
Yes the Federal Reserve Board
halter ty a tt0 ; General covnicl.
S3t 1033
Subjects
Ccewassta $t? Chaira&&
of Pederal ?*9*m
banks on July 1$ Draft o f Circular rs
Discounts far Individuals- Partnership*
sad Corporations*
mad Scvernorii
Six ef the Femoral reserve banks (Cleveland, Atlauta0 Chicago,
St* Louis, Dallas sad Sea Fraueisos) sad Deputy Governor Butt of ths
Federal Eessrve Bank of Philadelphia Slt&er Stated that they wars sa tisfie d with
the d ra ft of the c irc u la r regarding discounts fey in d ivid uals, partnership*
or corporations seat ts t hm os duty 16, 1193 (i~*7B01e) or suggested no
aabsrial obsess theroin*
FITS of the Federal reserve banks (Boston* Bov Tork0 Ricbsaoiid,
l&sn*apoli* and Kansas C ity) and Chairman Austin of the Federal Rooorrt
Bask of Philadelphia suggested a rte ria l changes*
The i^ o rta u t questions abqut which differences o f opinion dsvoleped
and ths wisss expressed by th* various banks w ill be stsaaarissd below* la
Suaosritlng th a ir w isss sa those questions, those banks which stated
generally that they wars sa tisfie d with the c irc u la r and those whioh wads
as sp e cific oonarmt oa the p a rticu lar question being discussed w ill bo
treated as favoring the position taken in ths draft of July 16*
DIRECT IflAJB*
Beotian ZZX o f ths d raft of Ju ly IS provided that Federal reserve
banks oould discount fo r Ind ivid uals, partnerships or corporations e lig ib le
sesneroial, in d u stria l and ag ricu ltu ral paper actually owned ty suck la~
d ivid u als, partnerships «r corporations and bearing th e ir Indorsement* It
le ft span, the question whether Federal reserve Hanks could wake direr#
-2-
Ismm
to individuals, partrmrehip* or corporations* but the Federal
reserve banks apparently interpreted i t as not permitting th«a to do ao.
On this point, eight of the banks (Clevelard, Richmond, Atlanta,
Chicago, St# Louis, Pallas and San Francisco) and Deputy Sovernor Hutt
(Philadelphia) favored the circular as drawn*
Four of tho banks (Boston, Beer York, Minneapolis and Kansas
City) and Chairman Austin (Philadelphia) feared that the benefit* of the
gzaSadnsst v?ould be restricted too severely i f the Federal reserve berks
were not permitted to make direct leans*
the vices of those who commented sp ecifically on th is point are
suaensrised beloirt
30STOB*
WS approve of le tte r except the words in See, XXX,
"actually owned by suoh individuals, partnerships or corporations and
bearing their Indorsement” ,
Believe this should be eliminated because
cattle loan companies are about the only corporatism* that we can recall
at the merest that would be able to function « We believe i f we are to
function In making loans direst that i t w ill be neeoss&iy for borrowers
to set up corporations with capital whose m in business w ill be Indorsing*
HBW TORS* Section three© paragraph one, would operate to lim it
elig ib le paper to the notes receivable of the borrower.
While this
w ill probably be desirable in most oases, i t would appear to be un
necessary and perhaps unwise to So lim it paper which can be accepted*
RICHMONDi
Section Xo Legal Requirements*— Subsection 2 states
that the Federal Keearve Bank* asy discount Xbr individuals, partner•hips or corporation* only notes, drafts and b ills of exchange of the
kinds and maturities as.de eligible for discount for member banks* e tc .
In this ease, under the present lo t member beaks' own note# are e lig i
ble for discount, whereas under section 1X1, subsection 1 of the Board's
seacrandura^ "m g ib ili^ * ', the direct obligations o f individuals, part
nership* or corporations, even I f endorsed or secured, are not made e li
gible, but only the busineee pa>«r actually owned by such individuals,
partnership* or corporations bearing their eadoreeaant end secured is
made eligib le. Frankly, we should prefer to hare the Board's
m em ora n
dum remain as It ie because capital loans are under Section V of the
Beard's amorandum, subsection B, prohibited, and It would not be possi
ble for any individual, firm or corporation to obtain a capital loan,
directly or indirectly under Section XXI0 which stakes eligible only pa
per actually owned by applicants* nevertheless, this ooezaant seems called
for,
CHXCaOOi After careful consideration end consulting with
counsel it is out understanding from both the act and regulations
that we may rediscount for individuals, partnerships and corporations only
euoh eligible paper of others which thoy asy own and endterse the same
M we now rediscount fbr member banks their own paper endorsed by them
this would preclude cur taking direct from then their notes signed
by themselves as their oorcierelal banks would do. We alec understand
eligible peper does not include type of loans provided by Glass-ote&gall
B ill and that paper which we sen rediscount ae above m y be available
to secure currency leans*. I f eur understanding at outlined above is
correct we thick proposed regulation* are in satisfactory form*
HXKHEAPOUSft Section 3 regarding elig ib ility says papsr must
bo astually oam*d by tho individual, partaorahlp or corporation offering
i t , which would aes» to U nit offerings to eon*eras lik e agricultural
credit oerporatlon and livestock loan eosananies# There sight be a
situation where a eanrtug factoxy in a small town might bo unable to
got tho neoessary srodit to pack k-ad carry their peas and corn* They
could however, offer us their note with tho endorsement of the directors
and secured by warehouse reoeipt* for canoed goods in storage, which would
seem to cofcw under tho tarsia of the act and yet would not bo paper actually
owned by the endorse* who might offer It*
SAMAS CJTTt It la the Opinion our counsel that tentative
draft proposed circular X-7*01a correctly interprets GlasaAaendka»nt
providing for discount* for individuals partnerships and corporations
under strict ooiistruotion of the amsntaant In the light of the provision
of the Federal Hecerre Act which are amended and the Act of which it is
a part,hurt that standing alone the act would permit of eongtrustion author**
Ising advances direct to borrowers of the classes mentioned* Debates in
Con rase and proceedings before ocasaittecs on the aaeodraerr.; not yet
available here but i t is our understanding that Congress intended te
authorise direct leans where credit not available through coakasrolal
bonks or other credit channels* tho provision, of the act which reads
•then such notes, drafts and b ills of exchange are endorsed sad other
wise secured to the satisfaction of ths Federal Begerve Bank” should b©
interpreted to mean, in our opinion. I f tho gaias is at a ll peralssable,
"fthan such notes, draft* end b ills of exchange are endorsed cr otherwise
«=>§•
secured to the gatisfaction o f the Federal Reserve Bank"*
Otherwise
ordinary commercial and industrial loans as & practical matter cannot
to rediscounted at the Federal Reserve Banks for the reason that industrial
and commercial corporations in the main have no security to pledge even
though their financial statements may en title them to cred it.
Such con
cerns could probably furnish accommodation endorsers and we consider
the fin al test should be whether such notes are e lig ib le and are good and
eo llectib le0 We believe the tentative draft of the circular would make
the act almost wholly inoperative in th is d istrict except possible for
livestock and agricultural loans through cattle loan companies or other
suoh organisations.
With funds available through the intermediate credit
banks and the RFC i t should be possible for the la tter olass o f loans to be
handled as satisfactorily as could be dene under the provisions of this aotc
The suggested construction of the words "and otherwise secured11 might be
ju stifie d on the theory that the loan is otherwise secured i f in addition
to bearing an endorsement i t is accompanied by a satisfactory financial
statement.
In short we believe that as an aid to comaerce, industry and
agriculture th is act is a mere gesture unless there can be read into i t
an intent on the part of Congress that loans may be made direct when the
paper is endorsed even though by an accommodation endorser and further
in any event that a construction of the words "and otherwise secured" which
requires a pledge of or a lie n on property w ill largely deprive commerce
and industry of the benefits of the a ct.
(See alternative substitute for Section I II)
BSOTCRiag
BOTH PIDOflBBmff
AMD 8B0PRITT
See Governor Hamilton** telegram which is quoted in fu ll sherye.
Ho one else objected to th is requirement* which is contained in the law
its e lf*
This is not one of the rare oases where "and" oan properly be
construed as meaning *ar" 0
USING PROCEEDS
TO PAT OFF
BB3BBIEPHBS3 ,
The Federal Reserve Beak of Minneapolisp Chairman Austin (Phil
adelphia) and Messrs. Uoldexsreiser and Smead question the advisability of
the provision in Section Y (p*>6) of the draft of July 16* which forbade
Federal resxve banks to discount paper for individuals* partnerships or
corporations i f the proceeds are to tie used to pay o ff existing indel tedness to other banking Institutions* and the revised draft (Sec. I ll* p. 4)
modifies this prohibition by inserting the word* 0 "Except with the permission
of the Federal Reserve Board” e
.
The ecrsients were as follows i
BRo GOLDENWEISSRg
I am inclined to question the absolute pro
hibition of borrowing under this proviso for the purpose o f paying o ff
existing indebtedness.
While ordinarily such loans should nob be granted,
circumstances might arise where a bank is pressing a firm for repayment of a
loan* and th is is threatening failu re to th© firm .
I should think that i f
a ll other circumstances are a ll right* the Federal reserve bank might very
well be permitted to grant a loan to such a firm*
SR. SMEADs
In the paragraph on page 6 relating to the purposes for
which the proceeds of the discounts are to be used-, i t is stated that they
must not be used for the purpose of paying o ff existing indebtedness to
other banking in stitu tion s• While this in general is no doubt a good pro-
•7'
vision , I am wondering whether i t la wise to close the door against a ll
aueh loans.
Might there not be Instances where the granting of such loans
may be in the best interests of the community?
MEffHBAPOLIS* We fe e l too that the provision that loans cannot
be made to pay o ff existing indebtedness is too drastic*
Cases might arise
where i t would be advisable to make a loan to pay o ff a receiver of a closed
bank who
would otherwise s e ll the debtor out#
Mr. AUSTBTj
in the paper we might discount would be what is so-
called * self-liqu idatin g paper* that i s , such paper would be obligations of
ether parties and fora a part of the capital of the borrower, he would not
have to provide for its payment, and we do not see why there waild be
any objection to allowing the proceeds of such paper to be used for fixed
ixwestwnfc er other capital purposes, or even liquidating indebtedness
to other banks, which banks might be pressing the borrower for payment#
The intended purpose of the Act is to provide means for stimulating business,>
starting up factories, etc# and la such cases i t probably would be necessary
to make some expenditures for capital purposes or other fixed investments,
a-nd we cannot see axy objection to so using some of the proceeds o f such d-s**
counts#
'
bate
o? discagar.
The following are the only coansnts on this subject, except
a comment by Governor Seay regarding a matter of procedures
GOYBWOR lfeDOTHMI.3
In respect to interest rates to be charged on
A
d is c o u n ts I t i s im p o rta n t t h a t c o n s id e r a t io n be g iv e n t o th e f a c t
t h a t t h e a v e ra g e b o rro w e r froze, a com m ercial bank: i s expecte d t o M a in t a in
a d e p o s it b a la n c e e
U n d e r th e s e c irc u m s ta n c e s th e minimum r a t e ch a rg e d b y
F e d e r a l R e se rve Banka s h o u ld be k e p t a t le a s t a f r a c t i o n h ig h e r th a n
p r e v a i l i n g c o u n te r r a t e # o th e rw is e b o rro w e r w o u ld have a p r e f e r e n t i a l
r a t e here#
In **$aneotioa with section 71 may we &3#\rae in
SAS! Fr m CISCQs
v ie w o f w id e v a r i a t i o n i n t w e l f t h d i s t r i c t i n i n t e r e s t r a t e s f o r came
olass o f pa pe r b o a rd w o u ld ap pro ve a 2% s p re a d between minimum and maximum
d is c o u n t ra te # #
BE,# GOI/DSHWEISKR4
I am in c l i n e d t o t h in k t h a t th e r a t e o f
i n t e r e s t s h o u ld alw a ys ho somewhat h ig h e r th a n th e p r e v a i l i n g r a t e on -.-lie.*
seme c la s s o f paper#
?5S B ggSI0g OF FED SEAL RB3EK7S B O O B #
T h e re w ere some h e l p f u l s u g g e s tio n # re g a r d in g t h e p h ra s e o lo g y
o f S e c t io n IX* bub th e f o l l o w i n g a re th e o n ly comment# on m a tte rs o f
substances
OOraOIDR SEBTg
S u b n otio n 1 states that permission to a Federal
Reserve Bank can only be granted upon written or telegraphic application
o f a Federal Reserve Bank-, containing a fu ll statement o f the unusual
nrA
exigent circumstance# which in the judgment of the Board o f fireotora
ef the Federal Reserve Bank ju s tifie s such action#
In the case of th is
bankfl and of some other Federal Reserve Banks* directors* meetings
occur only once a month* and unless a special meeting of ihe d:. .’ c>ors
of th is bank is called (their monthly meeting having ju st been held) ? this
bank would not be able to act in the natter for a month from thi« date,
and in the meantime w ill therefore not be able to issue any circular,
as provided for in Section VIII of the Boardvs memorandum*
Inasmuch as this amendment to the Act is a permanent provision,
and inasmuch as the exigencies of the current situation are well known
and understood^ also inasmuch as a ll Federal Reserve Banks in good faith
are oalled upon to aot tinder this amendment, i t would seem that under
existing circumstances no particular statement as to the unusual and exi
gent conditions vjould now be needed fend that the application of & Federal
Reserve Bank, through it s officers or Executive Committee* might be ade
quate at this time*
XI5RSAP0US8
Paragraph 1 requires a fu ll statement of ihe ururnal
and exigent circumstances, while paragraph
to consider individual oases.
Z
says the Board w ill not undertake
I t seems to us that the unusual and exigent
circumstances are almost always in connection with individual cases rather
than with the general conditions 0
(See
alternative draft of Section XX,)
FORKS*
A suggested set of forms for use in connection with such dis
counts has been prepared by th is office* but i t is not believed to be
necessary for the Board to consider or approve them, as they are intended
only as suggestions and i t is contemplated that the Federal reserve banks
w ill be at liberty to make such changes as they deem advisable in the light
of local laws,, conditions, and practices*
Respectfully,
Walter W fatt,
General Counsel*
^
F o r m N O . 181
O ffice Correspondence
To_________Governor
From
Meyer
FEDERAL RESERVE
BOARD
* ____________
f
Date __August 24, 1932
Subject:.
Mr, Parry____________________________________________________________________________ ____
oro
2— 8495
The memorandum by Mr, Gardner on British prices, which Mr, Goldenweiser
mentioned to you recently as being in course of preparation, has now been
finished, and a copy is attached.
FE D E R A L R E S E R V E BOARD
D ate:
A ugust
23,
1932
of
D e p re cia tio n
MEMORANDUM
To:
G overnor
From :
M r.
M eyer
S u b je c t:
G ardner
of
'
B ritish
stan dard
to
p r ic e s
of
of
th ese
on
goods
ten d en cy ;
ris e
m eant no
June
—
th e
E n g la n d
fo r
w ere
th ey
As
no
in
fo r
in
m em orandum
th e
re la tiv e
je c te d
to
g o ld
g o ld
and
th is
th e
fo r
a
exchange
w h ich
of
have
been
of
ten ded
m arket
M any
co n tin u e d
—
to
ste rlin g
d e ta ile d
fig u re s
are
in
tim e
ra is e
to
even
of
p rice s
—
par
w ith
th e
re la tiv e
stru ctu re.
a v a ila b le
th e
go
th e
how ever
fa ll,
p rice
w ere a t th e
to
in te rfe re d
B ritis h
to p r ic e s
g o ld
to
fa cto rs,
re strictio n s
th e
ste rlin g
re la tiv e
th e
U n ite d
th e
—
T hrough
p rice s
S tates;
yet
g o ld s u sp e n s io n ,
base.
s tr ic tly
th rou gh
E n g la n d ’ s
suspended
a llo w e d
tu rn
co u n trie s.
fa llin g
o f
in
B ritish
h e ig h te n in g
stim u lu s
p rice s
on
p rice s
stan dard
stan dard
on
p rice s
by
B ritish
B ritish
trad e
departu re
tou ch ed
in te rn a tio n a l
i.e .,
e x p a n sio n
from
upon
—
g o ld ,
but
d om estic
or
and
cre d it
in
lig h tly .
co m m o d itie s
th e
It
th at
is
are
—
co m m o d itie s,
e x p a n sio n
course
th e
of
was
th is
e ffe cts
e s p e cia lly
upon
sub
e x a m in a tio n .
E ffe ct
tn e
on
in Juneth an th e y
th e
th ey
and
w hen E n g la n d
su sp e n sio n
" g o l d 11 p r i c e s
d ate
rise n
m o tio n
The
stan dard
sin ce
th an
s t e a d ily w ith r e la t io n
low er
had
goods
perm anent
rose
1931.
qu ota s,
la te s t
lo w e r
exchanges,
g o ld
and
co n s id e ra b le
set
21,
th e
ta r iffs ,
th is
th ey
now
in te rn a tio n a l
ticu la rly
in
are
Sep tem ber
a d is co u n t
th e
E xchange on
P rice s.
p rice s
on
E ffe ct
S te rlin g
was
of
goods
fo llo w e d
cu rre n cie s.
The
trad ed
by
a
sam e
in te rn a tio n a lly .
d e p re cia tio n
fa cto rs
w h ich
of
-
The
ste rlin g
forced
th e
su sp e n s io n
re la tiv e
g o ld
of
to
su sp e n s io n
2.
fo rce d
who
th e
so ld
th ey
d e p re cia tio n .
to
E n g la n d
to
The
d is co u n t
ra is e
ste rlin g
w ere
to
o b ta in
th e
exporters
to
charge
co rre sp o n d in g ly
th e
g o ld
ted
a d ju stm e n t
ste rlin g
p rice s
and
s e llin g
to
m oved
to
up
m ig h t
w o rld
But
p rice s
dow n,
expect
we a r e
it
fu rth e r
to
under
a lte rin g
se llin g
in
m arkets.
have
w ork
e ffe cte d
to
fu ll
such
out
th at
th e
exerted
w ou ld
w o rld
a
th e
expect
a
in
in
g o ld
d iffic u ltie s
of
on
g o ld
c o m m o d itie s
form er
re la tiv e
exchange.
c o m p e titio n .
th an
o f
from
e ffe ct
th e
s te rlin g
tod ay
in d ic a
rise
in te rn a tio n a l
p e rfe ct
co n d itio n s
a
co m p e titio n
rise
on
The
fa ll
d e p re ss iv e
o f
d is co u n t
a
keener
p rice s
o f
th rou gh
th rough
b e lie v e
and
and
if
w ith o u t
to
b e fo re ;
am ount
p rice s
co n d itio n s
from
co rre sp o n d in g
th ose
ste rlin g
ste rlin g
th e
co m p e lle d
E n g lish
have
one
turn
en a b le d
co u n trie s
w hether
a
in
it
be
reason
m arkets
e q u iv a le n t
w ou ld
w ere
by
as
h ig h e r
course,
is
p rice s
p rice s
e q u a lly
s te rlin g
at
any
That
A ctu a lly ,
tim e
sin ce
w ar.
In
part
so m e th in g
d in g
of
on
g o ld
la tte r
how ever,
th ey
of
th ere
g o ld
d e p re cia te d -p a p e r
or
one
th e
in d e e d
g e n e ra lly .
th e
is ,
n ot,
it
co u n trie s
p r ic e s
sam e
w h ich
d id
p rice s;
p rice s ,
t^ ese
at
on
to
th e
to
th e
sh ip
la rg e
der
th ese
th e
sam e
goods
cou n try.
e sta b lish e d
prevent
b a rrie rs
in
m arket
o v e rn ig h t
in
to
th e
co n n e ctio n s,
circu m sta n ce s
com m od ity
fro m
in te r n a tio n a l
F u rtherm ore
se llin g
sh ifts
to
d iffe re n tia ls
v a rio u s
m arket,
m arkets
are
and
o rg a n iz a tio n
and
th e
trad e
th e
o f
am ong g o l d
th e
th ese
o f
costs
h a b its
th e
o f
in te rn a tio n a l
p rice s
w o rld
are
fo r
It
vary
m arkets,
p e rs is te n t
ch a n n e ls
o f
in e v ita b le .
costs
accor
e x iste n ce
consum ers,
trad e.
Un
s u b s ta n tia lly
u n a v o id a b le .
3.
To
been
of
in e v ita b le
added
in flu e n c e s
ta riffs
and
d e p re ss io n ;
departure
ened
exchange.
fre e
can
to
T h is
been
cu rre n cie s
The
in
th e
pu rpose
T h is
p a rticu la rly
is
form
at
com e
so
th at
and
what
w here
re n cie s
may
v e lo p in g
T h is
o th e rw is e
be
tn ere
not
is
new b u s in e s s
of
w h o lly
be
are
—
of
p ro h ib itio n
of
a ll
th e
th at
th e
fre e ,
of
th e
cou n try’ s
m a in ta in e d
of
w h ich
o b ta in
fu n d s
of
th e
m on o p o ly .
cla s se s
tra n sa ctio n s
never
consum m ated.
flu ctu a tin g
forw a rd
co n d itio n s
p a rticu la rly
w hen
is
has
co n s id e ra b le
a
in
fu n d s
present
it
in te r n a
a
ce rta in
of
th r e a t
d e a lin g s
/
w e ll-d e v e lo p e d
under
or
d is cr e tio n
are
ris k
of
can
im p o rtin g
le ft
a
v o lu m e
a d m in iste rs
trad es
is
be
im p orter
p ro fita b le
th ere
chance
an
to
of
E n g la n d ’ s
a ctu al
m a in ta in
never
th e
m atter
em barrassm ent
u n le s s
good
not
a
to
of
p e rio d
sin ce
im p ed im en t
co u ld
w h ich
a b so lu te
m ig h t
th e
prove
c o m p le x
in
■
m arkets
fa ced
or
co m m ission
s e rio u s
exchange
m ust
a lw a ys
th e
w h ich
by ra tio n in g
is
may r e s u l t
th e
is
a ch ie v e d
exchange
w ith
m o n o p o lie s
cre d ito r
or
e v id e n ce
th ese
h is
bank
w h ole
th e
m o n o p o lie s
le v e l
form
o f
governm ent
a
th e
a p p lica tio n
in
a fu rth e r
in
have
severe
of
W h eth er
fo re ig n
how ever,
governm ents
F u rtherm ore
has
of
by
sort,
ch a ra cte ris tic
abroad.
im p o rts
been
th is
in cre a s in g ly
stan dard.
in te r n a tio n a lly
Oj.
cre d it
has
g o ld
of
situ a tio n
Even
has
of
im p osed
The
tra n sfe rre d
cen tral
And
th e
m arket.
be
pay
it
tra n sa ctio n s
currency
a
fro m
d iffe re n ce
system s.
tra d e
but
breakdow n
tio n a l
in
to
of
d e lib e ra te ly
qu ota
t*i.es e b a r r i e r s
tn e
fa cto rs
cur
b u sin e ss.
in d iv id u a l
q u e stio n
of
de
abroad.
fa cto rs
le d
to
a
degree
of
is o la tio n
4.
of
m arkets.
m eat
W ith in
may o c c u r
m ovem en ts
th ere
is
at
a ll
it
is
of
th e
in
in
th e
no
th e
departure
o f
is o la tio n
in
E n g la n d
w h ich
and
s e n ta tiv e
g o ld
clo se ly .
C hart
m a jo r
liv in g ;
S tates
but
is
th e
way
w ere
in
U n ite d
cou n try)
on
of
a
h ig h e r
S tates.
Then
th e
cam e
(to
use
—
le v e l,
They
th e
it
to
fe ll,
th e
fo r
is
th e
in
gap
p rice s
as
a
repre
ra tes
and
th e
m ore
and
fa irly
U n ite d
oth er
u n til
fin a lly
1925,
base,
e a rly
E n g la n d
res
is
fo llo w s .
A p ril,
p re-w a r
th e
h e a v ily
in
as
of
c o s t-o f-
re la tio n s h ip
som ew hat
in
degree
m ovem ent
r e ta il,
broad
f a ll,
strik e
th e
in d e x
stan dard
to
S tates
E n g lish
th e
tod ay,
exchange
in d e x
lo o k s
g o ld
coal
th e
Yet
r e la tiv e
th ey
w o rld
w h o le sa le ,
th an
in itia l
co n s id e ra b le
U n ite d
w h olesa le
co n tin u e d
great
se ttle m e n t
of
th e
th e
w h olesa le
re fle cte d
e ffe ct
p e r sp e ctiv e
in
be
case,
sought.
th e
th e
th e
w h ole
show
th e
su rfa ce
o f
to
p rice
Yet
re la tiv e
p rice s
to
be
is
or
co m m o d itie s.
r e fle ct
p rod u cts
retu rn ed
m ast
th e
to
th is
ste rlin g
th at
bu tter,
re la tio n
in te rn a tio n a l
co m p a ra b le .
th e
on
m arkets
The A m e rica n
e n tire ly
on
to
co m p a riso n
m a n u fa ctu red
story
fo llo w in g
S tates
show n.
not
p rice s
but
U n ite d
B ritish
W h en E n g l a n d
even.
betw een
co a l,
W here
N o tw ith sta n d in g
e x ists
of
by
d is co u n t
stan dard
-
types
is
drew
charts.
E n g la n d .
of
in
w ith o u t
c o m m o d itie s
g o ld
d e sig n e d
p ects
th e
such
th e
stan d ard
a lso
The
fo r
th e
m ovem en ts
q u ite
in
p rice s
is
w ith
cle a r.
th e
1
w e ig n te d
it
in
th e
S tates
expect
from
o f
p rice
co rm io d itie s
to
even
lim its
U n ite d
sam e
m arkets
E v id e n ce
th ree
th e
reason
clo se ly
in
broad
and
in
B ritish
th an
1926
p rice s
clo sin g
th ose
th ey
m ou n ted;
a g a in
in
180
170
160
150
UtO
130
120
no
100
90
.
1925
Base
S ources:
1926
p e rio d s :
cost
E n g la n d ,
B olrd o f
1927
of
liv in g
end
1928
re ta il
fo o d s
1929
in d e x e s,
c o s t o f l i v i n g end r e t a i l f o o d s
T r a d e ; U n ite d S t a t e s , w h o le s a le
J u lv f i9 iH
1930
=
in d e x e s, M in istry
p r ic e s , B ureau o f
1931
100;
v rh o le se le
1932
p r ic e s ,
1313
L a l)o ^ - and w h o l e i e
Labor S t a t is t ic s
3
p ric
5.
1928.
In
dropped
have
1930
th e
som ew hat
"been a n
p e rs is te d ,
stan dard
m ore
h ow ever,
and
B ritish
tn ou gh
not
by
th en ,
in
th e
as
th e
in
of
in d e x
fu ll
com posed
th an
th is
u n til
a d is co u n t
The
in d e x ,
ste e p ly
in flu e n ce
oped,
and
E n g lish
th e
S ep tem b er,
20
to
am ount
of
in d e x
The
1931,
30
im m e d ia te ly
per
ju m p e d
th e
of
A m erica n .
situ a tio n .
from
A m erica n
m a in ly
Our
ta r iff
sim ila rity
cent
on
above
of
le ft
th e
th e
g o ld
d e v e l
A m erica n
on
d e clin e ,
may
m ovem ent
s te rlin g
p rem iu m
to
m a te ria ls,
new
E n g la n d
s te rlin g
co n tin u e d
raw
th e
——
d o l l a r ___
E n g lish
p rice s
fo llo w e d .
The
seem
apparent
th at,
com pared
ed
lis h
th e
m ent
th e
passes
m a in ly
d o m e stic
of
re ta il
fo o d s
partu re
th ose
of
tru e
from
th at
oth er
of
th e
exchange
re la tio n s h ip
w h olesa le
r is e
in
stan dard
m ore
In
fa ct
rise
1931
to
and
In
—
a
th e
was
c e rta in ly
it
was
rath er
th at
no
le s s
c o s t-o f-liv in g
th at
have
and
in
th e
th e
each
Eng
re
th e
m ove
p rice s
of
T here
has,
year;
and
fo llo w e d
m ore
th e
w h ich
costs,
way
th e
m arked
m arked.
in d e x .
e x ist
in d e x e s.
p rice s.
of
w ou ld
c o m m o d itie s
co m m o d itie s
fa ll
one
It
ste rlin g
tw o
general
th e
th e
in
d is trib u tin g
w h olesa le
in
one.
re p re s e n tin g
re ta il
—
slu g g ish
th e
co m m o d itie s ,
fo llo w e d
clo se
betw een
betw een
slu g g ish .
a
co m p e titio n
ra tio
goods,
seasonal
years.
yet
have
is
d is s im ila rity
in te rn a tio n a l
th e
m ore
th e
g o ld
p ictu re d
tra n sp o rta tio n ,
m arked
th e
to
in te rn a tio n a l
E n g la n d
a
n otew orth y
from
becom es
in
been
th e
la b o r,
p rice s
h ow ever,
p e rio d ,
here
co n s id e ra b le
o b s ta cle s
d o m in a te d
one
in d e x
fle c t
is
and
has
As
is
n o tw ith sta n d in g
th rou gh ou t
d o lla r
re la tio n s h ip
So
it
de
th an
And
th e
fa r
as
sam e
th e
6.
consum er
of
th e
in
m om entous
T h is
and
cost
groups
case
is
of
in
of
p rice s
th e
E n g la n d
even
liv in g
in
U n ite d
re ta il
tw o
E n g la n d
of
th ere
th e
U n ite d
lin k
c o m p a ris o n
p rice s
show n
in
rise n
is
is
no
C hart
are
com m on
on
is
both
th is
2
and
th e
tw o
is
S ep tem b er,
r e ta il
to
in
betw een
cost
out
o f
th rou gh
betw een
s te rlin g
re ta il
in
th ose
The
th e
p rice
th e
liv in g
co u n trie s.
th at
fo o d s
sim ila r
n o tice a b le
w orks
th e
r e fle ctio n
r e la tiv e
co n n e ctio n
and
to
no
la st
nor betw een
C hart
E n g la n d
2,
p rice
d ir e c t
S tates,
a lm o st
stan dard
in
in d ire ct
show n
in
been
P a rticu la rly
but
w h ich
has
m on eta ry
have
S tates.
m arkets
w h olesa le
as
E n g la n d
The
th ere
E n g la n d 's
th ou gh ,
and
co u n trie s.
s ig n ifica n t
rise
in
food s;
in te rn a tio n a l
ly
concerned
sh ift
tru e
th e
in
is
re a l
r e la tiv e
of
th e
d o l
la r,
E or
p rice s
th e
has
sam e
in d e x .
s t ill
th e
It
oj.
is
th e
E n g lish
th e
stan dard
on
ris in g
in d e x
s p e cia l
is
in
th e
in d e x
com posed,
as
com pose
No
A m erica n
fo r
in d e x
lin e
th is
2
to
sh o w in g
th e
th at
p rice s
cou n try,
w h ich
w h olesa le
co m p a ra b le
sin ce
have
th e
rise n
of
so
in d e x
can be
in d e x
p rice s
r e la tiv e
of
to
p o s sib le ,
so
is
784
represen ts
It
E n g la n d
d o lla r
and
fa r
p rice
C hart
in d e x .
of
w h olesa le
it
of
in
w h olesa le
made
But
was u s e d
departu re
as
B ritish
m arket.
A m erica n
.A m e rica n
fa r
th e
3 u re a u -o f-L a b o r-S ta tistics
C hart
ste rlin g
a
co m p a ra b le .
c o n d itio n s
th e
2
q u o ta tio n s
e n tire ly
in d e x
lin e
C hart
T h is
p rice
not
th a n
o ffic ia l
fro m
of
represent
The
of
been u sed.
ty p es
c o m p a ra b le
tn e
purposes
is
m ore
se rie s ,
1,
th e
ra tio
e v id e n t
fro m
th e
g o ld
p r ic e s
but
not
BAIXO OF ENGLISH TO AUXaiCAH phicis
(Sept. 1 9 3 1 = 1 0 0 )
Per Cent
Per Cent
by as much as the ste r lin g price of the d o lla r i t s e l f .
At f i r s t the
gap was wide; hut as ste rlin g developed strength in 1932 and the price
o f the dollar f e l l , while r e la tiv e ste r lin g prices continued to r i s e ,
the gap closed.
By spring the adjustment between (a) r e la tiv e whole
sale prices in the two countries and (b) exchange ra te s, had been work
ed out to a considerable degree.
The lin e s would indicate that the
price relationship of the two countries on the average r e fle cte d the
exchange rates o f their currencies, notwithstanding the often widely
diverse flu ctu ation s of prices of the same conmodity in England and
the United States.
One technical point with regard to Chart 2 should be noted.
A ll
the lin es on this chart are based on the month o f September, 1931, as
100.
During most o f September England was on the gold standard and i t
was not u n til October that there was an important upward movement of
p rice s.
Exchange, however, reacted immediately to the gold suspension,
and the ste rlin g price of the dollar fo r September on a d a ily average
basis was 7 per cent above par.
By measuring the exchange le v e l in
suosequent months r e la tiv e to the le v e l in September, th is 7 per cent
premium is l o s t ; and the line showing the ste r lin g price of the dollar
is lower throughout i t s course than i t would have been had the f i r s t
three weeks of September been taken as a base.
Since i t was not f eas-
io le to do this with commodity p rices, the entire month of September
8.
was used, as a base fo r a l l lin e s .
The chart as i t stands, therefore,
overstates somewhat the closeness of the adjustment of prices to ex
change.
Evidence o f individual commodity prices. - That the prices of
d iffe re n t commodities — bacon, coffee, cotton cloth — should not
move in unison with one another is quite to be expected.
Even i f
markets were free and competition clo se , one would look fo r consideraole variation in the movement of individual p rices.
This variation
is the very essence of the process whereby supply and demand are in
some measure kept in balance in the face of s h ifts in clim atic con
d itio n s, availab le natural resources, technical knowledge, or consum
er preferences.
The major adjustments of our economic l i f e as at
present organized are predicated upon the d iv e rsity of movement of
individual p rices.
Hence i f any dominant influence were making for
an upward movement, one would not expect i t to be re fle c te d uniformly
througn the entire range of p rices.
As a whole, the price structure
might be raised , say, by 20 per cent; but meanwhile the price of a
given commodity might r is e by 60 per cent, while that o f another might
f a l l by 10 per cent.
There would be nothing surprising in t h is ; and
i t is not the sort of problem we are dealing with in comparing B ritish
with American p rices,
Tne problem we are dealing with in making this comparison is that
9.
of the d iffe re n t movement of prices of the same commodity in two mar
k e ts.
I f competition between the two markets were free and unhampered,
the prices of different commodities might move in d ifferen t directio n s,
but the prices of the same commodity in both markets would move together
except for the variations in the rate o f exchange between the two cur
rencies concerned.
I f the ste r lin g price of the d o lla r rose 25 per
cent, one would expect the ste r lin g price of cotton to r ise 25 per
cent with re la tio n to the d o lla r price of cotton —— and throughout
the entire range of individual commodities one would expect to find
the same d iffe r e n tia l even though prices of some were moving up and
prices of others down.
A ll assuming close and unhampered competition —
such as d e fin ite ly does not e x is t in the world today.
As a matter of
fa c t the availab le evidence shows that there is enormous variation in
the a iife r e n tia ls which have developed since September in the ste rlin g
and dollar prices of approximately the same commodities.
Data are not available to enable us to compare a l l the individual
commodities o f the English wholesale price index with corresponding
commodities of the American index.
In the table follow ing, however,
the comparison is made for a considerable l i s t of individual commodi
t ie s or groups of clo sely sim ilar commodities.
About f o u r -f if t h s of
a l l the price quotations in the respective indexes are represented.
10
PRICES OF INDIVIDUAL COMMODITIES IN
ENGLAND AND THE UNITED STATES
(September, 1931 = 100)
Weight
r e la tiv e
to
150
'
r
.
A ll commodities .........................
150
Commodities
B a co n ...............................................
C o r n .................................................
Cheese ............................................
B u t t e r ............................................
Hemp.................................................
Leather: hides ...........................
C o co a ...............................................
Wool: r a w ............................... ..
Wheat ...............................................
Z i n c .................................................
L e a d .................................................
Rubber .............................................
T i n ...................................................
J u t e .................................................
Cotton: cloth .............................
Cotton: yarns .............................
Woodpulp: chemical sulphite.
Cotton: raw ..................................
Flour ...............................................
Beef .................................................
S u g a r ...............................................
Copper . ..........................................
Linen: yarns ............................. ..
Wool: yarns ..................................
T e a ...................................................
Iron and ste e l ...........................
Timber .............................................
Sulphuric acid ...........................
Coal .................................................
Sodium carbonate .................... ..
Barley .............................................
Mutton .............................................
Glass ...............................................
Lamb t * . . T.......... . _ . .
Coffee .............................................
2
2
2
3
1
4
1
1
3
1
1
1
1
1
9
5
2
2
3
6
2
4
2
8
1
24
4
1
10
1
5
2
1
1
1
* Federal Reserve Board special index,
June, 1932
English index
re la tiv e to
American
English
index
American
index*
98.9
8 3 .2
119
1 0 7 .5
1 2 8 .5
1 1 7 .3
83.6
1 0 6 .4
7 1 .8
1 09.8
9 4 .2
123.1
101.8
90.1
69 .0
1 0 0 .3
8 6 .2
9 6 .3
100.7
87.6
97.7
1 1 5 .5
9 9 .3
9 7 .3
85 .3
115.8
9 5 .4
7 9 .2
59.0
7 1 .5
69 .2
5 4 .2
69.4
4 7 .8
74.1
6 8 .4
90.0
78 .0
69.0
52.9
7 9 .0
6 9 .2
7 7 .9
81.9
7 3 .3
82.0
9 8 .0
84.1
8 2 .2
7 3 .2
100.0
82.9
7 2 .4
97 .0
86.1
100.0
9 7 .5
1 0 2 .2
7 4 .3
95.7
1 1 7 .8
1 0 1 .4
1 2 7 .5
182
180
170
154
153
150
148
1 138
137
131
131
130
127
125
124
123
120
119
118
118
118
117
116
115
109
104
103
100
98
98
95
90
90
78
76
1 0 1 .1
89.1
1 00.0
9 6 .0
100.0
7 0 .6
85.7
1 0 6 .3
7 9 .4
9 6 .5
11.
The table shows a range from a r e la tiv e r is e in bacon of 82 per
cent to a r e la tiv e f a l l in coffee of 24 per cent.
Were the commodi
tie s r e a lly id en tical and were there no barriers to competition, they
would a l l show a uniform r is e of 24 per cent, the amount by which the
ste rlin g price of the d ollar increased during the period.
In consider-
aole measure i t is possible to account fo r the divergences.
The American t a x iff is at the root of most of the cases in which
the r a tio of English to American prices has risen by more than the dis
count on ste r lin g .
lis t
bacon.
Take, for instance, the f i r s t comnodity on the
By June the price of bacon in New York had fa lle n 41
per cent from i t s September le v e l.
In England the price had risen.
Allowance mast be made in the English price fo r the depreciation of
ste rlin g daring the period; but even on a gold basis the decline was
far more d ra stic in th is country.
Had prices in the two countries
been competitive in September, a r e la tiv e drop of such severity here
in subseqaent months would have been impossible since i t would have led
to exports of bacon and consequent equalization of markets.
3ut costs
of transportation and the American t a r i f f iso la te d our bacon industry,
permitting prices here to stand in September well above those prevail
ing abroad.
From th is high protected le v e l i t was possible fo r Ameri
can prices to drop steeply without placing the American producer in
po sition to take advantage of markets abroad where the price decline
had been more moderate,
A sim ilar story of t a r i f f -i s o la t e d markets with independent price
12.
movements could be told of the next three commodities on the
l i s t — corn, cneese, and batter.
To some extent the prefer
ences and habits of the B ritish consumer play into the situ ation .
He prefers Danish butter and bacon, and he is used to Argentine
corn.
The direction of international trade is not e a s ily changed.
But the chief d if f ic u lt y has been that in each of these cases the
severe decline in American prices has been from a high protected
le v e l and has l e f t the American producer s t i l l unable to compete
abroad.
Much the same analysis can be made of those metals which stand
high on the l i s t .
I t is true that the r e la tiv e r ise in the English
price of zinc and lead (la r g e ly the resu lt of fa llin g prices here)
was much le s s in June than in May.
In June prices of both these
metals f e l l in England, while zinc recovered sharply here, and
lead held it s own.
metal to England.
There can now be no question o f exporting either
But even in May th is opportunity did not e x i s t ;
for at that time a decline of 34 per cent from the high t a r i f f —pro
tected price in the United States in September s t i l l l e f t zinc pro
ducers unable to dispose of th eir product in London, although the
ste rlin g price had risen 10 per cent.
On a more moderate seale
th is situ a tio n was repeated in the case of lead.
On the other hand t in , which comes la rg e ly from B ritish Malaya
13.
and to which no t a r i f f s apply either here or in England, has behaved
as a competitive commodity should.
Both in September and June i t
was s e llin g at nearly the same gold price in England and the United
States, which means that the ste rlin g price almost exactly refle cte d
the discount on s te r lin g .
3roadly speaking, this was also true
of copper in the month of May before we applied a t a r i f f .
The case
is not quite as clear as that o f tin because we produce most o f our
own copper while an increasing proportion of the English supply is
being drawn from sources outside the United S tates.
Nevertheless
u n til our t a r i f f went into e ffe c t in June, forcing South American,
African, and Canadian supplies d ir e c tly upon foreign markets (in
cluding London), the ste r lin g price d iffe r e n t ia l corresponded in
considerable degree to the discount on ste r lin g .
Among the te x tile s the same close competitive situ ation exists
with respect to ju te, on which there is no t a r i f f .
Raw cotton shows
a somewhat smaller d if f e r e n t ia l; but that is on account of the in
clusion o f an Egyptian quotation in the English index.
The price
of American cotton alone in the two markets r e fle c ts the f u ll d is
count on ste r lin g .
Rubber, a lso , which is free of t a r i f f , shows a
d iffe r e n tia l not much greater than the altered exchange rate of the
currencies, the actual prices on a d o lla r basis in London and New
York for ribbed sheets being much the same.
Indeed i t may in general be said that where iden tical commo-
14.
d it ie s are being compared and no t a r i f f is in e ffe c t to iso la te
the markets, the B ritish price r e la tiv e to the American substan
t i a l l y r e fle c ts the discount on ste r lin g .
This is p a rticu la rly
true when the commodity in question is imported by both countries
from a common source.
When this is the case, even the t a r i f f , pro
viding i t is unchanged, makes l i t t l e d ifferen ce.
Just how widely, however, commodities may d iffe r though desig
nated by the same general name, is shown in the case of coffee.
Coffee in England means the more expensive Central American types.
Coffee here is ch ie fly the oommon B razilian .
Since England l e f t
the gold standard the ste r lin g price of coffee has actually fa lle n
in the face of a substantial recovery in the price of the Brazilian
product in New York.
B razilian coffee s t i l l remains, however, by
far the cheaper product and there is no incentive for Americans to
change.
The tea which finds i t s mass consumption in England comes
from India and Ceylon, whereas i t is Formosan tea which figures
in the American index.
The B ritish barley quotation is for malting
barley; ours for feeding barley in Chicago.
Even in a common raw
material lik e hemp, what are in e ffe c t two commodities may be cre
ated by the practices of the respective markets.
Almost of neces
s ity the English use a low-grade hemp, fo r their machinery is ad
justed to i t .
The higher grades preferred by Americans may drop
15.
r e la tiv e ly in p rice, but the English go on consuming low-grade
hemp.
The fam iliar mat ton of the Englishman is a high q u ality pro
duct representing the slaughter of comparatively young sheep.
The
American mutton, a product of older sheep reared c h ie fly for wool,
is destined in the main for stews.
Under such circumstances the
English product is so fa r above the American in price that even a
sharp decline f a i l s to in terest Americans — quite aside from the
prohibitive t a r i f f , which, in th is case, i s irrelevan t.
In the
case of lamb the t a r i f f may have had some e ffe c t , though the fa c t
that Americans are not accustomed to frozen lamb would probably
have been su ffic ie n t to keep out the New Zealand product consumed
in England, even after i t had fa lle n in terms of gold somewhat below
the price for fresh lamb here.
The t a r i f f certain ly has had some e ffe c t on the situ a tio n in
wneat and b e e f; but there again the difference in types compared,
subject as they are to d iffe re n t seasonal movements, has played
a consideraole part in permitting r e la tiv e price changes greater
or less than the discount on ste r lin g .
The same d ifferen ces in types compared, as well as heavy
transportation co sts, underlie the fa ilu r e of two important
B ritish export groups — coal, and iron and ste e l — to r e fle c t
the discount on ste r lin g .
It is probable, however, that another
16.
factor is at work in the case of exports — - namely, the efforts
British producers to expand their foreign markets by under
cutting prevailing prices.
Particularly in a commodity like
coal where leading customers such as France and Germany have
raised obstacles to the purchase of the British product, the
necessity of an inducement in the way of price concessions is
apparent.
Incidentally it may be noted that coal prices in Ger
many have fallen considerably more than in the United States, which
is a difficult market for English coal exporters to reach.
Other British exports have done rather better, especially
cotton cloth.
Not only have prices of cotton cloth risen by the
full amount of the discount on sterling, but there has been a notable
expansion in the volume exported since the gold standard was aban
doned.
By far the largest relative increase, however, was to China
where the popular embargo on Japanese goods was a more important
factor than the exchange differential.
Furthermore, although cot
ton cloth is the highest export commodity in the list given on page
1 0 , its relative price increase no more than matches the rise in the
sterling price of the dollar.
The British are seeking volume in
their export trade rather than high unit prices.
Note on British trade. — The effect of the depreciation of
sterling on the volume of British trade is somewhat aside from
the main purpose of this memorandum, except in so far as trade
17.
recovery would, in itself lead, to a rise in prices.
it may be said that several British industries —
and steel, and even coal —
competitors abroad.
In general
textiles, iron
have stood up better than those of
But world markets have been deteriorating
so rapidly that such relative advantages as have developed still
leave England in the midst of depression.
Even had general re
covery set in, it would probably have been signalized, at least in
its initial stages, more by an expanded volume of production and
the absorption of the unemployed than by a rise of prices.
The
ultimate effects would depend upon whether the recovery of busi
ness in England spread to the rest of the world.
Actually the depreciation of sterling has not brought any
thing approaching full-fledged industrial recovery in England,
Together with the tariff it undoubtedly is responsible for the
better balance of merchandise trade enjoyed by the country since
the gold standard was suspended.
This particular difficulty of
the British situation is by way of being cured.
But at the out
set the effect has been to add to the complications faced by other
countries; and, taken alone, the improved international trading
position of England has been quite inadequate to cure a depression
wnich is due to a multitude of factors the world over.
Conclusion. - It is apparent that the only immediately effect
ive price-raising influence of the departure from the gold standard
4
$
18.
in England has been the spread introduced between sterling and gold
prices in the markets for international commodities.
Even with re
gard to international commodities the evidence points to the great
variety of spread —
sometimes actually of a reverse character _
which has followed the depreciation of sterling.
A study of indivi
dual commodities leaves one with the impression that the barriers
to international trade in the world today are so numerous and impor
tant that markets are in considerable measure isolated —
ly where heavy tariffs are in effect.
particular
Certainly there is wide room
for divergence; and the effect of the sterling discount has been far
from uniform.
It would oe easy to underestimate, however, the forces of com
petition that are still at work throughout the field.
In a large
number of cases the apparently unrelated movement of the sterling
and dollar prices of a given commodity is attributable to the fact
that really two different commodities are being compared.
Were com
parison made between identical commodities in countries in which they
are habitually traded, the movement of relative sterling prices would
in general be found to reflect the movement of the exchange rate of
sterling with the currencies concerned.
Even where the American
tariff is the factor which permits a divergent movement of
sterling and dollar prices, it is still generally true that the
»
19.
price in England relative to the price in the country from which
England has imported the conmodity reflects the discount on ster
ling.
Furthermore few of the obstacles to international trade are
absolute.
The isolation of markets is only a matter of degree.
The nexus of competitive relationship, therefore, between
England and the rest of the world is real, if somewhat loose.
And directly and indirectly that nexus extends to the United
States.
Hence notwithstanding the diversity of situations sur
rounding individual commodities, the general relative position
of British wholesale prices reflects to a large extent the dis
count on sterling relative to the dollar.
As was noted at the beginning of this memorandum, however,
the increase in sterling prices has been only relative.
They
have continued to fluctuate as much as prices in the United States
and other gold standard countries; and after a substantial initial
rise they have fallen till today they are lower than when the gold
standard was suspended in September, 1931.
CONFIDENTIAL
September 1 7 , 1932
To:
Federal Reserve Board
From:
Mr. G-oldenweiser
SUBJECT:
New Issues of National
Bank Notes
Since the Federal Home Loan Bank Act went into effect on July 22,
national banks have taken out $77,000,000 in new notes.
begin in any
Issues did not
volume until after the first of August, but since that time
have been made at the average rate of about $ 2 ,000,000 on each business
day.
Up to the present time about 60 per cent of these notes have been
issued for the account of 19 large banks.
The distribution of the issues by Federal reserve districts, together
with their potential power to issue new notes is shown on the chart.
Of
the total of $77,000,000, $22,000,000 has been issued to national banks in
the San Francisco district— using up over one-fourth of their available
new note issue.
Banks in the New York district have taken $13,000,000
out of a potential issue of a"bout $330>000»000«
An addition of about
$ 7 5 >000>000 to the potential maximum issue will arise from the grant of
a national charter to the Continential-Illinois of Chicago, maiding the
total for the country as a whole nearly $ 1 ,0 0 0 ,000,000 and increasing the
issue power of national banks in the Chicago Federal reserve district to
$170,000,000.
The effect of the issue of additional national bank notes has been to
retire a corresponding amount of other forms of currency, and since the
increased issues have come at a time when circulation has been declining,
there has been a considerable retirement of other forms of money, in par
ticular Federal reserve notes.
ust 31*
The latest complete figures are for Aug
At that time $53>000,000 in new notes had been issued to na
tional banks but not all of them had yet gone into circulation.
The ef
fect on circulation of different kinds of currency is shown in the table
below:
July 31
19^52
•
Total money in circulation
National bank notes
Federal reserve notes
Gold certificates
Other currency
August 31
19^2
Change
(In millions of dollars)
5 .7 2 6
5.692
- 3 I+
700
2 ,8 38
69^
1 .U9U
74H
2,793
669
1 ,1+86
+ 1+4
- 45
- 25
- 8
Holdings of national bank notes by Federal reserve banks have in
creased by about $ 7 ,000,000 since the passage of the new law to a total
of about $ 29 ,000 ,000 .
Extension of the circulation privilege has had some effect on the
prices of different classes of U, S, Government securities.
Prices of
3.
the 2 per cent bonds, which had a monopoly of the circulation privilege
prior to the passage of the Federal Home Loan Bank Act, declined substan
tially after the act was passed, while prices of 3 3 /S per cent bonds and
other bonds to which the privilege was extended gained substantially—
more rapidly than prices of other Government issues.
After the ruling
of the Attorney General on August 12 to the effect that at the end of
three years notes issued against bonds that had recently been granted the
circulation privilege will have to be retired, the 2 per cent bonds, hav
ing regained a part of their monopoly position, advanced rapidly in price,
and are now at par, though still below their level prior to the passage
of the Glass-Borah bill.
Different phases of the problems arising out of the new legislation
regarding national bank notes were discussed in the review of the month
and in a special article in the August issue of the Federal Reserve
Bulletin,
September 17, 1932
To:
Governor Meyer
From:
Mr. Goldenweiser
CONFIDENTIAL
THE CREDIT SITUATION
Demand and supply of reserve funds
During the past year this country lost $900,000,000 of gold that went
aoroad and in addition $ 630 ,000,000 of currency was withdrawn, largely for
hoarding.
Both the demand for gold from abroad and for additional currency
at home constituted demands on the member banks for reserve bank funds,
Thes
demands were met by the use of funds derived from the following sources:
$1,100,000,000 from an increase in Federal reserve credit, all of which was
supplied through the purchase of Government securities by the reserve banks;
$ 200 ,000,000 from a decrease in deposits of foreign central banks with the
1/
reserve banks;
and $ 150 ,000,000 from a decrease in member bank reserve bal
ances,
These figures indicate that the increase in reserve bank credit
during the year restored to the member banks somewhat less than the total
amount of reserve funds employed in meeting the gold and currency drains,
and that the difference was met by the member banks by drawing on their re
serve balances to the extent of $ 150 ,000 ,000 .
Notwithstanding this de
crease in reserve balances, however, the member banks on September 7 had
excess reserves of over $3 0 0 ,000 ,000 , because their reserve requirements had
diminished much more than their reserves, owing to the great reduction in
deposits.
Decrease in net demand plus time deposits of member banks for
1/ Last autumn foreign central banks had $207,000,000 on deposit with the
reserve banks; this year the amount is $ 1 1 ,000 ,000 .
When the deposits
!?r®
here during the summer of 1 9 3 1 , the effect was similar to
- A “ sold exports, while the subsequent release of these funds was an
offset to gold exports, similar in effect to a release of earmarked gold.
2.
the past year approximated $6,000,000,000 and required reserves diminished
sufficiently to enable member banks to reduce their reserves by $1^0,000,000
and still have over $3 0 0 ,000,000 of excess reserves,
A table follows showing factors of demand for reserve bank credit both
for the last year and for the three-year period of the depression.
If the
three-year
entire/period oe considered, the decrease in the monetary gold stock was
only $2 50 ,000 ,000 , since during the first two years of the depression there
was a growth in the stock of gold that was exceeded by the loss during the
RESERVE BANK CREDIT ADD PRINCIPAL FACTORS IN CHANGES
(In millions of dollars)
I Sept. 7,
Change from —
-------------- — _______________ 1___ 1332
._ A year ago |Three years ago
Reserve bank credit
Monetary gold stock
Money in circulation
Foreign deposits at reserve banks
Member bank reserve balances
Excess reserves
past year by this amount.
2,319
^,105
5,725
11
2 ,1^2
323
+ 1,103
+
-
—
+
+
633
196
+
+
lUS
M
253
+
905
259
93^
k
21S
288
When this three-year period is considered as a
whole, the growth in reserve bank credit of about $ 900 ,000,000 has been ap
proximately equal to the growth in money in circulation, which represents
primarily hoarding, while the decrease in member bank reserves has been
approximately equal to the decline in the stock of gold.
During this
period member bank indebtedness diminished by $55 0 ,000,000 and the reserve
banks* holdings of bills by $ 19 0 ,000 ,000 , while security holdings of the
reserve banks increased by $1,700,000,000.
It would appear, therefore,
that funds arising from security purchases of the reserve banks since the
depression began have been used to the extent of $ 750 ,000,000 in the reduc
tion of the reserve banks* holdings of discounted and purchased bills and
3
to the extent of $950 *000,000 in meeting the increased demand for currency,
Prom the point of view of appraising the effects of Federal reserve
credit policy since the autumn of 1929 , the significant fact is that at a
time of abnormal demands for gold from abroad and for currency at home open—
market purchases by the reserve banks have enabled the member banks to meet
these demands and at the same time to reduce their indebtedness to the re
serve banks from the high level prevailing in the autumn of 1929 , as well
as to build up a considerable volume of excess reserves.
All of these de
velopments have been in the direction of easing credit conditions and,
therefore, of facilitating for the member banks the financing of business
recovery.
Change in direction of gold flow
Improvement in financial conditions has become pronounced in recent
months.
Since the middle of June, when the large outflow of gold came to
an end, there has been a return of gold amounting to about $200 ,000 ,000 ,
shown by countries below:
ADDITIONS TO UNITED STATES GOLD STOCK:
JUNE l6 TO SEPTEMBER l4, 1932 l/
(In thousands of dollars)
Total
Prom:
Prance
Czechoslovakia
China
Canada
Belgium
Mexico
Japan
England
Australia
Switzerland
All other
\/
$ 219,250
10S,S5^
22,519
14,110
14 ,0 13
10,021
4,451
4,197
3,94s
2,947
2 ,0 32
32,15S
Including net imports and releases from earmark.
K
The accompanying chart shows the stock of gold in the United States
since the removal of the war embargo.
The course of gold holdings indi
cates that whenever there were losses of gold to this country they were fol
lowed by an import movement which not only restored the amount lost but
gold in 1919 - 1920 , which represented accumulations of balances by the
Orient and South America during the period of the gold embargo; of the loss
in 1925» which represented chiefly takings by the Reichsbank of a part of
the proceeds of the Dawes loan in gold; of the loss of $600,000,000 in
1927 - 1928 , following upon an extremely easy money policy in this country
and a large volume of foreign loans.
The recent inflow of about
$ 200 ,000,000 of gold, after a loss of about $ 1 ,10 0 ,000 ,0 0 0 , indicates that
the forces that tend to bring gold to this country are still at work.
Withdrawals from this country have represented repatriation of funds by
a few special interests, chiefly central banks, while at other times
commercial and financial transactions of this country with the outside
world have steadily resulted in an inflow of gold.
This inflow is due
to the fact that on balance of both visible and invisible items this
country receives more from abroad than it pays out; and that as a safe
place for keeping funds and as a place to invest funds with a chance of
an increase in value this country offers greater opportunities than any
other.
Confidence in the dollar was temporarily shaken last September
and October and again last June, but this lack of confidence has not
survived for long the certainty that the financial position of this coun
try is stronger than that of others.
It is probable that gold will con
tinue to come to this country, and with the reduction of foreign bal
ances to a level probably below actual needs, there is nothing on the
horizon to indicate a possibility of large-scale gold exports.
6.
Decrease of hoarding
Another item of improvement has "been the return flow of currency from
hoarding.
A chart showing the amount of money in circulation, adjusted
for seasonal variation, is attached.
The rise in money in circulation
from the autumn of I93 O to this summer, with seasonal influences eliminated,
amounted to something like $ 1 ,500 ,000 ,000 , notwithstanding a decrease in
the volume of business and in the level of prices.
Much of this currency
went into hoards, although an indeterminable amount represents increased
need for cash by communities that are deprived of banking services, and an
incieased use of cash resulting from charges for small accounts and from
the tax on checks.
The increase in hoarding has not been continuous.
There was an improvement in the early part of 1931 and again in the late
part of that year after the President*s program of reconstruction was an-*
7.
nounced,
A large return flow, amounting to about $250,000,000, began last
February when the Reconstruction Finance Corporation got under way*
But
this summer the heavy loss of gold and banking disturbances in Chicago and
elsewhere once more led to a crisis of confidence, so that hoarding increased
again and reached a maximum in the third week in July.
Since that time
■ there has been a decrease of about $1 7 5 *000,000 in the estimated amount of
hoarded money.
Decrease of bank failures
The recent return flow from hoards has accompanied a definite decline
in the number of bank failures.
From an average of 36 a week during the
first three weeks of July the number of bank failures has gradually declined,
and for the last week for which figures are available the number of banks
that failed was 12.
The decrease in bank failures from about 75 per week
last January represents the effects of the work of the Reconstruction Fi
nance Corporation, as well as of agreements in numerous localities between
banks and depositors to refrain from rapid withdrawals.
Liberal policies
Pursued by the Comptroller of the Currency and State banking authorities
in permitting banks to carry their portfolios at better prices than current
market quotations also have been a factor.
The decline in bank failures,
tnerefore, is in part based on conditions that are temporary in nature.
Whether the decline will be permanent depends on whether a genuine improve
ment in underlying conditions will develop.
The rise in bond values is one
such condition which has already occurred.
The advance in commodity prices,
scattered widely over different classes of commodities, is another such
element.
Tne banks are not yet out of the woods, but there appears to be
the possibility of consolidating the gains that have been achieved and of
s.
substituting permanent elements for the temporary devices that have "been
keeping the banks afloat,
La,p; in business and volume of credit
There are, however, a number of elements in the business and credit
situation which so far have not shown marked improvement.
Industrial ac
tivity, after the largest decline in the history of the country— from 125
per cent of the I923 -I925 average in June, 1929 to 58 Per cent in July,
1932 — advanced by about 2 points in August, reflecting chiefly substantial
increases in the textile industries.
Sales of textile products to distri
butors increased sharply in July and August, accompanying price increases
for raw materials, and production in the woolen, silk, cotton, and rayon
industries increased considerably from the unusually low levels prevailing
in the spring.
Reports indicate that there was an upswing in shoe produc
tion in August, but that it was only of a seasonal character.
In the
automobile industry a further decline in output was reported and in the
steel and lumber industries output in August showed none of the usual sea
sonal increase.
In the first half of September activity at steel mills
increased slightly.
In the building industry changes in the total value
of contracts have been largely of a seasonal character since early in the
year, reflecting some further decline in residential building offset by an
increase in public works.
During August the volume of freight traffic
handled by the railroads showed a seasonal increase, which is in contrast
to tnis period last year.
In July the number of employees at factories,
coal mines, and on the railroads was smaller than in earlier months of the
9
year.
Figures on employment in August are not yet available for the United
States as a whole, hut reports on factory employment in New York State show
a greater than seasonal increase in that state during the month.
Indecisive progress in business activity ha3 been paralleled by a lack
of marked growth in bank credit.
Bank loans have continued to decline,
though there has been some increase in bank investments.
Total loans and
investments of banks in leading cities show a rise from the low point reached
on July 20, the increase being entirely at banks in New York City.
The de
cline of bank deposits has been arrested and of late there has been some
increase in deposits, reflecting chiefly an increase in balances held by
banks with other banks and, therefore, not reflecting a growth in loans and
investments.
Comparison with
I92h
Notwithstanding the great decline in bank credit during the past two
years, the volume of member bank loans and investments at this time is about
the same as eight years ago in 192 U, while practically all the other ele
ments in the economic picture show a drastic reduction since that time.
This is brought out by the following chart:
10.
MEMBER BANK CREDIT AND BUSINESS-1932 COMPARED WITH 192A
DECREASE- PER CENT
70
Lo a n s
In
an s
50 ^0
30
20
INCREASE-PER CENT
10
0
10
20
30
UO
50
In v e s t m e n t s
and
v e s t m e n t s
Lo
60
-- ----
------------
D e P O S IT S - E X C L US/VE OF
IN T E R B A N K D E P O S IT S ---
Ch e c k Pa
R
y m e n t s
eserves
----
----------
In d u s t r i a l P r o d u c t i o n — B
uilding
C o n t r a c t s ---
Fa c t o r y E m
ployment
—
E a c t o r y P a y r o l l s --To t a l
M
dse
C a r l o a d /n g s
—
. C a r l o a d /n g s
—
Foreign
W
S
Tr
holesale
tock
a d e
....
P r i c e s ...
P r i c e s ......
C o s t o r L iving
(b .l .s
It is apparent from this comparison that the total outstanding- volume
of "bank credit is adequate for the present needs of business and for finan
cing a considerable recovery.
It is the inactivity of credit, as shown by
low velocity of turnover, that reflects the extreme low level of business
activity and the unsatisfactory functioning of the credit machinery,
!
11
Money rates
Member banks in the financial centers have been out of debt to the Fed
eral reserve banks for a number of months and indebtedness of banks in other
leading cities and outside has been declining in recent weeks.
member banks have had a large volume of excess reserves.
In addition,
The reserve posi
tion of member banks, therefore, has been such as to offer no obstacles to
business recovery.
market.
Money rates have been low, particularly in the open
Rates charged to customers have also shown some decline in New
York City, but outside New York these rates have been sustained at what at
MONEY RATES:
„
„
Percent
7
CUSTOMERS'
rates
and
c o m m e r c ia l
p a pe r
PerCent
ra te
----I----------------- 7
1931
1932
1933
the present time appears to be a high level— above 5 per cent in eight cities
in the North and East, and above 5 l/2 per cent in the Southern and Western
cities.
These high levels of customer rates should be viewed in connection
with the many reports received by the reserve system indicating inability
of many business enterprises to obtain credit for legitimate needs.
chart on customer rates compared with open-market rates is attached.
A
12.
Sources of reserve funds
Viewing the situation from the point of view of immediate developments
that are likely to affect member bank reserves, there are at present three
sources of reserve bank funds available to member banks independent of addi
tional use of Federal reserve credit.
These sources are:
gold imports,
return flow of currency from circulation, and issue of national bank notes.
From these three sources member banks have derived more than $300,000,000
of reserves since the beginning of July.
Gold imports are likely to con
tinue, the issuance of additional national bank notes is also likely to con
tinue on a moderate scale, and it is to be hoped that the flow of currency
from hoards will not be interrupted.
It is possible, however, that the
seasonal demand for currency between now and the end of the year will ab
sorb a large part of the money released from hoards.
The situation, there
fore, is one in which in the immediate future the reserves of member banks
are likely to be fed by moderate amounts of gold imported from abroad and
by issues of national bank notes.
These reserves are likely at first to
accumulate as excess reserves, although some diminution of member bank in
debtedness, which is about $400,000,000, may also be expected.
It would
seem probable from the evidence at hand that in the absence of any action
by the Federal reserve banks member banks in the next few months will have
excess reserves of not less than $3 5 0 ,000 ,000 , tending to increase from
week to week.
13.
Excess reserves in times of depression
Accumulation of excess reserves by commercial banks, particularly in
New York City, has been usual during periods of business depression in the
United States, with the exception of the depression of 1920-21, when liquida
tion of indebtedness to the reserve banks absorbed the funds derived from
the return flow of currency and from gold imports.
A chart is inserted showing the relation of excess reserves to the
course of business in times of depression.
It shows for the pre-war de
pressions of 1884-85, 1893 - 9^1 and 1908 , excess reserves of clearing house
banks in New York City, the course of bond prices, and the course of bank
clearings in seven cities outside New York.
Eor the post-war depressions
of 1920-21 and 1930-32 the chart shows excess reserves, bond prices, indus
trial production, and building contracts.
EXCESS RESERVES DURING BUSINESS DEPRESSIONS
1 8 8 3 -1 8 8 6
1 8 9 3 -1 8 9 7
1 90 7-1 909
192 0 -1 9 2 2
1 9 2 9 -1 9 3 2
iNoosrniAipoodocnon.
“ gSj
X
Ein
Rk
V.t
ES
iC
NES
YSCR
.lvESS
)
\
Vv
1 88 3
188V
1 88 5
1886
1893
189V
1895
1896
1897
'
1 9 0 7
1908
1909^
'
^
2 0
1921
J
EXCESSRESERVES
. 1I----—
M
-YC.Nh
nkt
o v■J(wr
in.
R
nV
kE
sS
)_
1 9 2 2
192 9
1930
1931
1932
In the depression of 1884-85 and again in 1893-9^ banks in New York City
accumulated reserves that were oO per cent above requirements and in 1908
the excess amounted to 20 per cent for several months.
The excess reserves
of 22 per cent held by New York City banks at the present time and of 15 per
cent held by banks outside New York City are not unusually large in compari
son with reserves held during pre-war depressions.
Beiore the establishment of the reserve system, however, bank reserves
functioned in a different way.
In the depression years at that time New York
banks, which performed the functions of central banks for the country, could
not obtain funds in any considerable amount from outside sources, and when
the panic was over they had no indebtedness to repay.
Consequently, im
ports of gold and the return of currency as business activity declined both
went to increase the banks1 reserves.
They accumulated very large excess
reserves for orief periods, and as financial markets and business became
more active, these reserves were quickly drawn down.
With the reserve sys
tem in operation the periods of expansion that have preceded depressions
have caused a growth in member bank indebtedness, so that when funds began
to flop to the banks because of diminished demand, as was the case in 19 2 1 ,
tney were aosorbed in the reduction of indebtedness to the reserve banks.
In tne present depression there was no return flow of funds, however, be
cause of gold exports and hoarding.
In these circumstances the funds both
for the reduction of indebtedness and for the accumulation of excess reserves
were made available to the member banks through open-market purchases by the
reserve banks
D iv is io n
o f R e s e a r c h and S t a t i s t i c s
T)
S ep tem b er 28,
1932
ISSUES 0? HEW NATIONAL BANK NOTES
Z
Up to the close of business on September 27 $100,000*000 in new
national bank notes had been issued, of which $3 0 ,000,000 were taken
by banks in the San Erancisco district, $17,000,000 by banks in the
Chicago district, and $15,000,000 by banks in the New York district*
The remainder has been distributed in small amounts among the other
districts as shown in the first table attached to this memorandum.
The issue of national bank notes did not begin in any volume un
til the first week in August and since that time has been at an aver
age rate of about $2,000,000 per business day.
The daily record of
shipments by the Treasury is shown in the second table.
There is
considerable variation from day to day, as might be expected, but on
the whole there has apparently been no particular tendency to increase
the rate of issue during recent weeks.
In the past week, in fact,
the shipments to banks in the San Erancisco district have been very
small— less than"$5 0 ,000,000 a day as compared with daily shipments
ranging from $100,000 to $6,000,000 a day in previous weeks.
National
banks in other areas, however, have taken a larger volume, Chicago in
particular.
The third table shows the record of shipments by 2-week periods
since July 22 to the 20 large banks that have taken 59 per cent of the
total new issue
2.
The recent increase in the Chicago district is largely "because of
shipments aggregating $5*000*000 since September 15 to the Guardian
National Bank of Commerce of Detroit; while the recent decline at San
Francisco is due chiefly to smaller shipments to the Bank of America
(the largest single taker of notes— $ 1 5 ,500 ,000 ), and no shipments to
the Anglo-California of San Francisco, the First National of Seattle,
and the U. S. National of Portland,
Six of these 20 banks have already used up their available issue
power, as shown in the last table— the First National of New York City,
the First National of Jersey City, the Second National of Saginaw,
Michigan, the Colorado National, and the Denver National of Denver, and
the U. S, National of Portland, Oregon,
The banks which have taken the largest amounts of notes still have
large potential issue power— the Bank of America, the Security First
National of Los Angeles, and the Guardian National, which has taken
$5*000,000, and the First Wisconsin of Milwaukee, which has taken
$3,3^01000, both have $5*000,000 unused.
These 20 banks together
can issue $329,000,000 more notes— of which more than two-thirds is
in the hands of Chase National and National City.
CONFIDENTIAL
NEW NATIONAL B A M NOTES ISSUED AGAINST BONDS
Since July 22. 1932. and u p to the close of business on September 27. 1933
(In thousands of dollars)
Federal Reserve
District
Amount
Boston .....
$ 2, 269
New York ....
14,866
Philadelphia
5,966
Cleveland ...
4,718
Richmond ....
3,123
Atlanta ....
3,963
Chicago .....
17,411
St. Louis ...
3,254
Minneapolis •
1,749
Kansas City .
9,084
Dallas .....
3,380
San Francisco
30,990
Total
$100,770
\
CONFIDENTIAL
Date
(1952)
NEW NATIONAL BANK NOTES ISSUED AGAINST BONDS
(In millions of dollars)
San Fran
Chicago
' New York
District
cisco
District
Total
District
July 22-30
1 .1
0 .2
August
1 .0
0 .1
0.4
0.3
0.9
3.1
1.3
1 .0
0 .8
2.4
1 .1
1.3
2 .6
2.3
2.3
1 .0
6.9
0.9
1.4
0.4
0.4
2 .6
6.7
2 .6
4.0
2 .0
2.3
3.5
0.9
0.7
2 .2
2.3
4.6
2,7
0.7
1.5
3.8
1 .2
1 .8
0 .8
1 .2
1.3
3.3
3.5
1.4
3.8
0.9
2.4
3.0
•••
*
*
0 .1
0.4
2 .0
0 .1
0.4
*
0 .1
*
•••
1 .1
1 .0
0.3
•••
*
0 .1
•••
•••
•••
1 .0
•••
0 .2
1.9
*
0.4
0 .2
0 .1
•••
*
1.0
*
0.1
0.1
0.5
1.5
•••
0 .6
0 .2
0 .2
0 .2
0.4
...
*
0.1
0.3
0 .1
*
1
2
3
4
5
6
8
9
10
11
12
13
15
16
17
18
19
20
22
23
24
25
26
27
29
30
31
September 1
2
3
6
7
8
9
10
12
13
14
15
16
17
19
20
21
22
23
24
26
27
*
Issues of less than $50,000.
Other
districts
*
•••
0.9
•t•
...
★
*
0 .1
0 .1
•••
0 .1
•••
*
0 .1
1 .0
*
0 .2
0.5
*
•t•
*
0 .1
0 .2
0.2
0.3
0.3
0.5
0.7
0 .2
0 .1
0.7
*
0 .1
1.4
0.5
1.5
0 .2
•••
*
0.3
0.3
0.4
0.1
0.1
0.5
0.1
2.3
0 .6
0.7
*
0.5
2 .0
0 .8
•••
0 .1
•••
•••
0.5
1 .0
0.3
0.7
1.7
0.7
•••
0 .1
0.5
1 .0
0 .6
6.6
0 .1
•••
*
•••
0.7
5.6
0.3
1 .1
0 .8
1 .0
0 .1
•••
•••
•t•
0.1
0.3
1.5
0 .2
0.4
1 .6
♦
•• •
*
0 .2
0 .2
2 .0
*
•••
*
*
*
*
0 .2
0 .1
0.3
0.2
0.4
0.5
0 .2
0 .2
0 .1
0 .6
0.3
0.3
1.4
0 .6
0.5
0.4
0.3
0.7
1.3
0 .2
0 .2
0 .6
0 .8
1 .6
0.3
1 .0
0 .8
2.5
0 .8
0 .6
0 .8
0.7
2 .8
0.9
0.4
0 .6
0.4
0.9
0 .8
0.5
0.7
0.4
0 .8
1 .2
0 .8
3.0
0 .6
1 .8
1 .0
.
1
CONFIDENTIAL
NEW NATIONAL BANK NOTES ISSUED TO 20 BANKS THAT HAVE TAKEN 59 PER CENT OF
TOTAL NEW ISSUES SINCE PASSAGE OF THE FEDERAL HOMS LOAN BANK BILL
(In thousands of dollars)
July 22 Aug. 18 Sept. 1
Sept. 15
Aug. 17 Aug. 31 Sept. 14 Sept. 27
•••
•••
1,508
1,000
1,877
2,000
2,000
...
•••
First National, Jersey City, NJ
•••
•♦ •
First National, Scranton, Pa
•• •
First National, New York, NY
Chase National, New York, NY
National City, New York, NY
First Wayne, Detroit, Mich
Guardian National Bk Commerce,
Detroit, Mich
Second National, Saginaw, M c h
First Wisconsin, Milwaukee, Wis
800
500
1,200
1,050
•••
2,202
•••
•••
• ••
•••
•••
900
1,360
1,517
436
•••
700
•••
Total:
July 22■Sept. 27
1,508
5,000
1,877
1,200
2,000
298
3,550
5,000
•••
5,000
900
•••
3,313
1,000
938
1,000
1,500
938
239
1,739
Colorado National, Denver, Col
Denver National, Denver, Col
U. S. National, Omaha, Neb
•••
•••
•••
•••
•••
»• •
1,500
First National & Trust, Okla City, Okla
•••
•••
1,500
First National, Dallas, Texas
•••
•••
1,055
•••
1,055
1,673
423
•••
2,096
10,000
3,000
••♦
Anglo-California, San Francisco, Cal
Eank America, Nat Tr & Savings, San
500
Francisco, Cal
Citizens Nat Tr & Savings, Los Angeles,
1,000
Cal
Security First National, Los Angeles,
4,466
Cal
263
First National, Seattle, Wash
560
U. S. National, Portland, Oregon
Total 20 banks
12,660
•••
2,000
15,500
•••
•• •
•••
1,000
3,534
601
54
•••
•••
•••
•••
8,000
1,128
700
20,022
264
86
16,147
10,175
59,004
CONFIDENTIAL
ISSUING POWER AND NOTE ISSUES OF 20 NATIONAL BANKS THAT HAVE TAKEN 59
PER CENT OF THE NEW NOTES ISSUED SINCE PASSAGE OF FEDERAL HOME
LOAN BANK BILL
Liabil Unused
Paid-up
capital, ity for issuing
national power
June
June,
bank
30,
notes
30,
1932
1932
out
standing
June 30,
1932
New
Unused
notes
issuing
issued
power
July 22- at opening
of
Sept. 27,
business,
1932
Sept. 28,
1932
8,492
First National, New York City..
10,000
Chase National, New York City.. 148,000 15,942
•••
National City, New York City... 124,000
First National, Jersey City,
400
New Jersey..............
1,600
First National, Scranton,
Pennsylvania..............
2,983
5,000
6,182
25,000
First Wayne, Detroit, Michigan.
Guardian National Bank of Com
10,000
•••
merce, Detroit, Michigan....
Second National, Saginaw,
350
1,250
Michigan............. ....
First Wisconsin, Milwaukee,
1,680
10,000
Wisconsin.................
Colorado National, Denver,
1,000
•••
Colorado.... ..............
Denver National, Denver,
•••
1,500
Colorado........ ..........
United States National, Cmaha,
1,100
50
Nebraska................ . •
First National and Trust, Okla
5,000
homa City, Oklahoma.........
8,000
2,945
First National, Dallas, Texas..
Anglo-California, San Fran
10,400
cisco, California..........
7,000
Bank America National Trust and
Savings, San Francisco,
50,000 15,000
California................ .
Citizens National Trust and
Savings, Los Angeles, Cali
750
5,000
fornia..........
Security First National, Los
30,000
2,001
Angeles, California...,....
First National, Seattle, Wash
3,872
8,000
ington........ ............
United States National, Port
3,300
4,000
land, Oregon..............
1,508
132,058
124,000
1,508
5,000
1,877
•••
127,058
122,123
1,200
1,200
•••
2,017
18,818
2,000
3,550
17
15,268
10,000
5,000
5,000
900
900
8,320
3,313
5,007
1,000
1,000
•••
1,500
1,500
•••
1,050
938
112
5,000
5,055
1,739
1,055
3,261
4,000
3,400
2,096
1,304
35,000
15,500
19,500
4,250
1,000
3,250
27,999
8,000
19,999
4,128
1,128
3,000
700
700
70,947
387,903
59,004
Total 20 banks...............
458,850
•••
328,899
outstanding as reported "by the banks instead of total amount outstanding as re
corded by the Comptroller of the Currency. The difference for all national
banks amounted to $20,000,000 on June 30, 1932.
@FedFRASER