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July 26, 1935.

Dear Governor Eccles:


I notice that Senator Glass, in his speech yesterday, referred
to the failure of the Federal Reserve Board to remove Charles E* Mitchell,
President of the National City Bank.

I am enclosing to you a review

of this whole question, made " y me on April 27, 1931. From this you
will see that what Mr. Mitchell did had nothing to do with speculation in
the New York Stock Exchange; that funds in large volume were leaving
New York for Chicago where the direct pressure campaign had forced
substantial liquidation; that Mitchell and other New York "banks simply
provided the funds to meet these Chicago drafts; that in the tense
situation then existing the removal of Mr* Mitchell might have precipitated
a financial crisis; that it was what Mr. Mitchell said rather than what
he did which would have warranted his removal; that while his remarks
in defiance of the Board would have justified his removal, yet that action
"by the Board at that time might have precipitated very disastrous
You will notice that most of the papers of the country justified
what Up. Mitchell did, while severely condemning what he said. Please
read specifically the editorial from the New York Times referred to on
page 8 of the memorandum*
Very sincerely y

Hon. Marriner S. Eccles, Governor,
Federal Reserve Board.

April 27, 1931.


(By C. S. Hamlin)

-IBanking Conditions at Time of Statement, March 26, 1929,
There was a near approach to a panic on the Bew York Stock Exchange
on Tuesday, March 25, 1929. The break was one of the sharpest in stock
exchange history.

Call loan rates reached 20$, the highest figure since

The so-called direct pressure to reduce total borrowings of the banks
had been in force since February 7, 1929, the date of the Board's warning.
There was a feeling abroad that the banks had finally determined to
adopt the most drastic methods, and would refuse even to extend credit
facilities which, under ordinary circumstances, they would have granted
as a matter of course, such as to meet temporary withdrawal of funds by
corporations for quarterly interest and dividend payments, or withdrawals
from New York to interior oarts of the country.
Brokers loans both for the New York banks' own account, and "for
others" had been declining during the week ending March 27, 1929.
The call loan renewal rates were as follows:
March 25




Undoubtedly one cause of the crisis which arose on that day, March 26th«

- 2 was the acute credit stringency in Chicago, arising from the heavy liquidation on the Chicago Stock Exchange beginning on March 21st, which resulted
in large withdrawals of funds from New York.
Frightened traders all over the country were selling stocks blindly
on that day.

By 1:30 p.m. the volume of trading on the New York stock

Exchange had reached over 5|- million shares, and the ticker tape was
58 minutes behind the market.
Under these circumstances, Mr. Mitchell, on Tuesday, March 26th,
came to the relief of the money market, advancing six millions of dollars
on call loans.

Mr. M i tchel 1' s S tat eT
In the afternoon of Tuesday, March 26th, Mr. Mitchell gave out the
following interview, as taken from the New York Herald-Tribune of Wednesday, March 27th:
"So far as this institution is concerned, we feel
that we have an obligation which is paramount to any
Federal reserve warning, or anything else, to avert,
so far as lies within our power, any dangerous crisis
in the money market.
"While we are
for the purpose of
we certainly would
where money became

averse to resorting to rsdiscounting
making a profit in the call market,
not stand by and see a situation arise
impossible to secure at any -orice."

Mr. Mitchell is quoted by the >Jew York Times of March 29, 1929,
Friday, as saying that his Bank was prepared to make available 5 millions for the call loan market at 16$, and a like amount for each gain
of ifo up to 20$.



He also made i t cl^ar that hie action was based not so much on
concern over the movement of the rates, "but to "'till the idea that
money could not be had no matter what was offered for i t .

From the

time the offer was made, the call money rates did not go above the
minimum r a t e , but did go down, closing at Sfo.
The Few York Torld of March 30, 1929, quotes Mr. Mitchell as
"Should another c r i s i s develop, will you stand by
again?" was the next question. Mr. Mitchell answered,
" I t can be saiely assumed that we will endeavor at a l l
times to prevent a c r i t i c a l situation going out of bounds.
W won't be alone. Othor banks will subscribe as stronge
ly as we to that doctrine."

-III5 en at or C-lass on Mr. Mitchell.
The Hew York Times edition of Friday, March 29, publishes an
attack on Mr. Mitchell ''oy Senator Glass, who was quoted as follows:

"The Federal Reserve Board has adopted the administrative policy of having Federal reserve banks remonstrate
with member banks against permitting the facilities of the
Federal Reserve System to be used for stock speculative
"This should have teen done long ago, before the
situation got out of hand. :Tow that it has been done,
a Class A director of a Federal Reserve Bank, himself
President of a great banking institution, vigorously
slaps the Board squarely in the face and treats its
policy with contempt and contumely. He avows his
superior obligation to a frantic stock market over against the obligation of his oath as a director of the
Hew York Federal Reserve Bank, under the supervisory
authority of the Federal Reserve Board.
"Mr. Mitchell's proclamation is a challenge to the
authority and the announced oolicy of the Federal Reserve



- 4 -

"Board. The challenge ought to be promptly met and courageously dealt with.
"The Board should ask for the immediate resignation
of Mr. Mitchell as a Class A Director of the Hew York Federal Reserve 3ank.
"If the National City 3ank in yew York, or any other
member bank of the System anywhere, imagines it is greater
than the Federal Reserve System and may defy and reject
the considered policy of the Federal Reserve Board, it
should at least be given to understand that the President
of such a bank will not be permitted to have an official
part in the management of the Federal Reserve System.
"I do not know what the Federal Reserve Board will
do about it, but I have a very decided conviction as to
what it should do, and that swiftly.
"The whole country has been aghast for months and
months at the menacing spectacle of excessive stock gambling, and when the Federal Reserve Board mildly seeks to
abate the danger by an administrative DO1icy, fully sanctioned by law, rather than by a prohibitive advance in
rediscount rates, which might penalize the legitimate
business of the entire country, an officer of the System
issues a defiance and engages in an attempt to vitiate
the policy of the Federal Reserve 3oard.
"Whatever his abilities as a "banker may be, or however high his character, the spirit manifested by Mr.
Mitchell totally unfits him for the position of director
of a great Federal Reserve Bank. This is not an age for
the manifestations of a Nicholas Biddle."
Senator Glass, in the Few York Times of April 2, 1929, in reply
to the attack of Ex-Senator Owen who had defended Mr. Mitchell, declared that the Reserve Board had the power to remove Mr. Mitchell
and to compel reserve banks to refuse the rediscount privilege to
those engaged in speculation.

Senator Glass further stated:

"Whether or not the Federal Reserve Board should
have removed Charles E. Mitchell for his open defiance
of the Board's authority and his avowed attempt to
frustrate its administrative policy, is, of course, a
matter of opinion. It was my conviction, and still is,



— 5—

"that the 3oard should have taken exactly that action.
"This should have been done promptly, not so much,
perhaps, for the offer by Mr. Mitchell's Bank of 25 millions to a dangerously extended speculative stock market
which the 5oard was conservatively trying to curb, as
for his dramatic assertion of a superior obligation to
the stock speculators over against his obligation to
the Federal Reserve System, of which Mr. Mitchell is a
sworn director.
"He was vrell aware of the policy being •oursued 'oy
the Federal Reserve Board; nevertheless he set out with
apparent deliberation to thwart it and to bring the
authority of the Board into contempt. In this he succeeded.
"The authority of the Board to suspend or remove
Mr. Mitchell or any other officer or director of the
New York Federal Reserve Bank is not a matter of opinion. It is so plain that denial of it "betrays ignorance of the law.
"There is no implied limitation on the procedure
thus sanctioned. If there were any, it is inconceivable that it would relate to an offense involving a
vitiation of the Board's vital administrative policies.
"In scores of ways the Act lodges with the central
Board at Washington supremacy of control. If the President of the National City Bank, who is also a Class A
Director of the Hew York Federal Reserve Bank, can be
persuaded to believe that the Federal Reserve Act authorizes reserve banks to rediscount paper for stock speculative purposes he is too simple to hold either position. Of course, Mr. Mitchell knows better; otherwise
there was no point in his public defiance of the Federal Reserve Board. He \~ould have thrown his Bank's
$25,000,000 in the speculative swirl as a customary
"This stock speculating with funds of Federal reserve banks is ~by law -orecluded, as it was distinctly
intended to be. To say Federal reserve banks are not
subject to the authority of the Federal Reserve Eoard
in making loans is to betray ignorance of the lav/."
The New York Times of October 25, 1929, also contains the following
interview by Senator Glass:


- 6 "The -.Tescnt troublq is due largely to Charles S.
Mitchell's activities. That man more than 40 others is
more responsible for the present situation. Had the
Federal reserve acted and dismissed him, the trouble
might be less. The crash has shown that stock gambling has reached its limit."

-IVCommcnt, - Editorial and Otherwise.
Representative Hamilton Fish in tho rTew York Times of April 2,
1929, attacked Senator 01as8 and defended Mr. Mitchell, stating that
he had averted a panic.

Ho also endorsed the recommendation of Mr.

Mitchell's Bank for an increase in rediscount rates to 6$, expressing
the belief that such a step v?ould be sufficient to end excesses in
the stock market.

~ e further stated that Mr. Mitchell18 quick thinkI

ing and acting should have "been commended instead of condemned Toy
Senator Glass.
The Hew York Journal of Commerce, March 28, 1929, speaks of Mr.
Mitchell's announcement:
"Reserve officials claim that every attempt has been
made by the Federal Reserve Bank of New York, with the
hearty support of its directors, to cut down the practice
of resorting to reserve banks for rediscounts."
It points out that:

"At the end of 1928 local bankers rediscounted heavier
in order to ease the strain in the money market, and now
they propose to do so again. On the basis of such facts
as these, the market and the public at large has gradually
come to the conclusion that the appeals of reserve banks
and their directors are not intended to be taken very
literally, and that they are really in the nature of exhortations rather than in the nature of financial precept
or advice. There has been a ^reat deal in the-whole conduct of the Reserve System to sustain this point of view,

- 7 "including, of course, the well-known statement of
Governor Young to a Congressional Committee to the
effect that all waa rail, followed by speeches of
"bankers to the same purport, and then finally by
his urgent request of last February not to loan for
speculation and not to encourage speculative activities."
It also speaks of the lack of confidence which has
been gradually engendered through the belief that leaders
of financial opinion do not mean exactly what they say.
States that it would help immensely if we could get to
some definite accepted basis of understanding on the
whole question which would be just as sound and forceful when one man's stocks are going down as when those
of another have been subjected to pressure.
Mr. David Lav/rence in the Washington Star of Friday, March 29,
1929, states that the Board has been disturbed not so much by the action
taken by Mr. Mitchell as by his statement, which Mr. Lawrence quotes.
Mr. Lawrence adds that:

"ITaturally Mr. Mitchell had to borrow the 25
million dollars at the Federal Reserve Bank of Tew
York, and by agreeing to loan this money the JFew
York institution, ~oy inference, acquiesced in his
action, for the Federal Reserve Board was only interested in breaking down speculation and not in
forcing a situation in which money could not be had
by anybody at any orice. To the extent that the
New York Board of directors are presumed to have
"oeen acting in harmony with the Federal Reserve
Board, the statement of Ur. Mitchell is recorded as
unfortunate, in that it may be construed by the banking
world as a criticism on his part of the famous Federal
Reserve Board warning of February 14th."
"It was not what Mr. Kitchell did, but what he
said, that caused discussion in official auarters here,
and for that reason the Board itself is not likely to
raise an issue at this time; in fact, Mr. Mitchellra
point of view was outlined at Thursday's meeting of
the directors of the Federal Reserve Bank of I e r York
which was attended ^cy representativesof the Federal Reserve Board at Washington."
"The Federal Reserve Board is determined to go to
the limit of its powers."


- 8 KG finally added that?
"The raising of the rediscount rate is the normal v/eapon
used, but in a situation like the present, which is abnormal,
something more drastic than a mere raising of the rediscount
rate is talked about. It is, in a nutshell, the ordering of
the Federal rc-serve banks and branches to refuse to rediscount
at all the paper of member banks v/hen presented to get funds
to aid speculation. It is difficult to draw the line between
a speculative and a commercial credit, out the burden of
proof would be on the banking institution, and the mere
announcement of the order or regulation, it is felt here,
would be sufficient to tell the speculative element that
the Federal Reserve Board in in earnest, and will not be
The New York Times, in an editorial in the edition of March GO,
1929, stated in part as follows:

"Yet it appears that the great emphasis and ~>ositiveness
with which he (Senator Glass) has denounced the action of the
National City Bank, and some other banks in ITew York, in
striving to avert a money panic this past week were some—
what misplaced.
"Senator Slass seems to have confused a temporary
emergency with a 'lerinanent policy.
IIThe banks did not come forward with funds to promote
speculation but to prevent what threatened to be a serious
crisis in the money market
"The endeavor was to surmount a threatening crisis.
It was obviously successful, and the presumption was that
these particular bank funds were thereupon withdrawn from
the money market.
"There has beon so;ne idle talk that there was an agreement to "peg" the call money rate at 15-^. The mere statement of this shows how ridiculous it is to suppose that the
movement was one to bolster vild speculation. Paying 15f6
for money to speculate with ceases to be speculation and
becomes insanity.
"Senator 3-lass does well to hold up the hands of the
Federal Reserve Board in the efforts which it has made to
keep the whole credit system of the nation from being upset.



- 9 1

In this -oo sit ion i t is probable that the great majority
of cautious and responsible bankers agree with him."


-VFur th er Commeii t.
Approval of Mr. Mitchell's course.
D. W Ellsvorth.
Mar. 29, 1929. 190 - 17.
Brooklyn Daily Eagle. 190 - 58.
Baltimore Sun
Apparently a) troves what he did but c r i t i c i s e s what he said.
190 - 58.
Financial Fcws.
April 2, 1929. 190 - 145 (2)
Fish, Hamilton, Cong.
Anril 3, 1929, 190 - 33.
Fisher, Prof. Irving.

April 1, 1929. 190 - 24.
Hartford Courarit.

190 - 58.

Few York Evening Post. 190 - 58.
Nevr York Herald-Tribune.
March 29, 1929. 190 - 3.
ITev/ York Times.
March 30, 1929. 190 - 2
Itfev York ~orld.
Mar. 28, 1929. 189 - 142.
iter; 30, 1929. 190 - 16.
Ov/en, Ex-Senator
Mar. 31, 1929. 190 - 14.
Spo Jean a S: o ke sman-Rev i ew.

Apparently approves what he did but c r i t i c i s e s what he said.
190 - 58.

/ -

- 10 Springfield Republican.
Approves what he did.
Criticises what he said.
190 - 58.
Approval of Senator Glass's c r i t i c i s m of Mr. Mitchell,
San Francisco Chronical.

190 - 58.

Lawrence, David. 190 - 5.
Raleigh News and Observer. 190 - 58.
Chicago Daily News. 190 - 58.
Kansas City J o u r n a l - P o s t . 190 - 58.
New York Journal of Commerce.

189 - 138.

The above quotations seem to show that as a rule the press of the
country approved, or at least did not object to, what Mr. Mitchell did
to relieve the money market arid to avert a threatened -oanic.
Many of the papers, however, while approving what he did, criticised
him severely for what he said.
—VIproceedings in the Federal Reserve Board.
March 28, 1929:
Dr. Miller telephoned from New York that the bankers are very angry
because of Mr. Mitchell's interview; that they did not object to his relieving the market to avoid panicky conditions, but that his interview
overthrew banking control of the situation and started up speculative
activity anew.



- 11 Governor Young was asked " y the 3oard to call up Mr. Mitchell and


ask him to inform the Board in writing just what he said in his interview.
March 29, 1929;
Dr. Miller stated that he met Mr. Mitchell at a meeting of the
New York directors; that Mr. Mitchell was very irritable and -petulant;
that he (Mitchell) told him he was in a "belligerent mood, and that the
Federal Reserve Act must " e changed to take away the power of the Board.
Dr. Miller stated that the sentiment in ITew York was against Mr.
Mitchell as having given his interview for the selfish prestige of his
Bank at the expense of his "banking competitors; that other Uew York banks
had done as much as, or more than, Mr. Mitchell to relieve financial
Dr. Miller said all was going well until Mr. Mitchell gave out his
interview; that v e could not yet say whether that interview had "blocked
direct pressure or not (previously he had told C. S. K. he feared it had.)
The Board finally agreed on a letter to Mr. Mitchell, and ordered
it sent.

Governor Young at first objected, saying that Mr. Mitchell

might put the Board in a hole.

Later, however, he dictated a letter

couched more moderately, and all agreed to it.
Mr. James said that the Board should remove Mr. Mitchell, as demanded by Senator Glass in yesterday's papers.
Most of the Board felt that we should send the letter and later
decide what further to do.
There was little, if any, criticism made in the Board as to what
Mr. Mitchell did, but severe criticism as to what he said.

- 12 To action -.vis taken by the Board and the matter s t i l l remains on
the docket as "unfinished business".

-VIICorrespondence Between Federal Reserve Board and Mr. Hitchell.
On March 29, 1929, Governor Young sent the following letter:
"The New York Herald-Tribune of Wednesday, March
27, published the following statement attributed to you;
'So far as this institution is concerned, "e
feel that we have an obligation which is oaramount
to any Federal reserve warning, or anything else,
to avert, so far as lies within our power, any
dangerous crisis in the money mprket.
HYhile we are averse to resorting to rediscounting for the mrpose of a profit in the
call market, we certainly would not stand by and
see a situation arise where money became impossible
to secure at any >rice. '
"At the request of the Federal Reserve Board anf for its
information, I would appreciate it very much if you would lot
me know whether you were correctly quoted."
On April 1, 1929, Ur. Mitchell replied as follows:
"I acknowledge receipt of /our letter of March 29th asking
on the ">art of the Federal Reserve Board, if, in a statement
accredited to r . in the New 'fork Herald Tribune of Wednesday,
March 27th, I was correctly quoted. You will realize that I
did not write or give out any statement, out as the result of
talking with a reporter for perhaps t'"O or three minutes I was
quoted in the article in question. Generally speaking, I
think the reporter correctly expressed my view.
"That a credit crisis was not only threatened but did
exist on Tuesday, March 23th, is a fact that has general
ac kno wl e dgm en t.
"If there c.-\n bo objection on the part of your Board
to the statement, I assume it must have reference to the
following words, 'so fir as this institution is concerned
wo feel that *ve havo an obligation which is paramount to
any Federal reserve warning, or anything else.'

- 13 "One of the actuating reasons for the formation of
the Federal Reserve System was to avoid credit and currency
crises and though in the formation of the System that became a Federal reserve responsibility, nevertheless I do
not believe, and I do not conceive the "oublic as believing,
that such brmks as ours were thereby relieved of a like
responsibility, and I conclude that the obligation for the
fulfillment of that institutional responsibility at any
critical moment is paramount to the maintenance of a Federal Reserve Board general policy. It wn.8 our assumed
obligation in that critical moment that is referred to
in the article in question.
"Our -oosition regarding the necessity of curbing
speculation and of restraining the unhealthy growth of
the credit structure has so often been publicly stated
and so well known everywhere that I assur.e there is no
need for elaboration thereon to your Board."

-VIIIffhat Mr. M i t c h e l l Lid, as d i s t i n g u i s h e d fro:/, what he Said.
The following t a b l e shows borrowings fror. the Federal


banks and c a l l loans made (1) By the National City Bank, (2) By 22
banks in New York City, fror. Friday, March 22nd, through Saturday,
March 30th:


(In r:.illior.s of d o l l a r s )
23 banks in rew York City
: Borrowings :
:Borrowings from :
•from Federal: Call loans
Call loans
: reserve bank;
reserve b-^jiks

Fri. Max.22
Sat. n 23
Hon. i 25
Tues. i 26
Wed. n 27





141 " <\
135 - (p



(208 - 115.)



- 14 It is interesting also to note that the IT.?tional City Bank in the
following 12 weeks, borrowed only on 11 days.
It seems to me that the above figures could hardly serve as a conclusive demonstration of borrowing from the Federal reserve tank in order
to increase call loans.
Between Friday, March 22nd, and Saturday, March 23rd, borrowings
decreased to nothing, while call loans increased slightly.
From Monday, March 25th, to Tuesday, March 25th, borrowings decreased 1 million, while call loans increased 6 millions.
From Tuesday, March 25th , to Wednesday, March 27th, borrowings
increased 11 millions, while call loans decreased 9 millions.
From Wednesday, March 27th, through the rest of the week, the
borrowings were all Daid off, while the call loans v.rere reduced on
Thursday to 135 millions and remained at that figure through Thursday,
Friday, and Saturday.
Such a record would of itself hardly have justified the Board in
removing Mr. Mitchell on the ground of having borrowed specifically in
order to obtain Federal reserve credit for speculative uses, even though
such uses, in unreasonable amounts, would undoubtedly Izave been in
violation of the Federal Reserve Act and of the policies of the Board
as announced, by Regulations or otherwise, thereunder.

-IXDiscussion as to what Mr. Mitchell actually said in his Interviews.
The question left for consideration would seem to be whether the
Board would have been justified in removing Mr. Mitchell from office

- 15 as a Class A Director, because of what he said in the above quoted interviews.
The purport of what he said was that he considered that his Bank
had an obligation, paramount to any Federal reserve warning or anything
else, to avert, as far as it lay in his Dower, any dangerous crises in
the money market, with an intimation, very clearly expressed, that he
would not hesitate to rediscount at the Federal reserve bank for this
This was clearly, and was intended to be, a deliberate defiance of
the authority of the Federal Reserve Board, and an attack on its policies
as he apparently conceived them.
This defiance and attack was made by a Class A Tirector of the
Federal Reserve 3ank of I"ev York who had taken oath that he would not
knowingly violate, or willingly permit to be violated, any of the
provisions of the Federal Reserve Act.
This interview, moreover, constituted a direct incentive to speculators to oroceed in their orgy under the belief that the speculative
market would be supported by the banks by the use of Federal reserve
In my opinion, this statement of Mr. Mitchell would have justified
the Board in removing him, even on the assumption, as to which I express
no opinion, that his action in relieving the money market may have been
justifiable, and even though, in fact, he did not secure any additional
rediscounts to provide the funds he placed, or proposed to place, on the
call loan market.


- 17 simply sought to protect agriculture and commerce by gradually withdrawing Federal reserve credit from the speculative channels into
which it had seeped, and I felt at the time there was at least some
hope that this could be done without bringing on a crisis in the stock
The final crash of October, 1929, in my opinion, came not from
the withdrawal of Federal reserve credit from speculative channels,
but from the increase of speculative credit in those channels brought
about by the avalanche of "bootlegging" credit consisting of loans
"for others" over which the Federal Reserve- System had no control, which avalanche made the speculative credit structure so top-heavy that
it finally broke of its own weight.
It would certainly have been most unfortunate if the Board,
having saved the country from a collapse in the stock market by blocking the policy of the Federal Reserve 3ank of !"ew York in entering
upon incisive, repeated increases in discount rates, had found that
by the expulsion of Mr. Mitchell, under the tense banking conditions
at the time, it had brought on the very crisis it hoped it could avoid
through the operation of direct pressure upon banks to reduce their
borrowings, and I am of the opinion that the Board showed good judgment in failing to visit this penalty upon him, however richly it may
have been deserved.
In this connection, attention should be called to Mr. Mitchell's
grotesque misinterpretation of credit conditions between the time of
the above interviews and the final crash in October.

For example, on

- 18 September 23, 1929, he stated in an interview that there was no occasion
for worrying about brokers loans or credit conditions; on October 22,
1929, returning from Europe, he stated that conditions were sound,
and that many securities were selling at trices below their real value;
on the same day, he announced, with almost sardonic humor, that the
public was suffering from brokers loanitis!
As above stated, this matter is now on the docket of the Soard
as unfinished business, and can be brought up at any time for final
determination by any member.
In my opinion, however, it would be better for the Board to leave
Mr. Mitchell in the morass in which he has placed himself, and not
incur the risk of making a martyr of him by any further proceedings.