The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
X-474. F E D E R A L R E S E R V E WASHINGTON B O A R D Memorandum: In re - Clearing House Examinations. In nineteen cities members of the Clearing House Association and nonmembers with clearing privileges are sub ject to examination by the Clearing House Examiner, usually once each year. The examination is thorough, particular at tention being paid to the loans, discounts and credits of the bank. After each examination a copy of the examiners report is delivered to the bank for the information of the directors. In case an unsatisfactory condition is disclosed, the report is called to the attention of the Clearing House Committee. Clearing House Examinations have proven very effective in the elimination of unsatisfactory assets and the correction of unsound tendencies in institutions under criticism. While no disciplinary power is vested in the Clearing House Committee, still it was in a position to recommend the discontinuance of clearing privileges which in itself would be a public notice of unsatisfactory condition. X-474. - 3In Spokane the Clearing House Examinations are no-'/ being made under the supervision of the Federal Reserve Branch, the manager being the Clearing House Exaiminar. In Portland, it is apparently the intention to have the examinations under the supervision of the Portland Branch of the Reserve Bank. The Clearing House Association at Seattle is desirous of having the local branch undertake the examination of Clearing House member banks in that city. In view of the fact that Reserve Banks or Branches are located in at least two-thirda of the cities where Clearing House examinations are now conducted, and further that a majority of the Clearing House members in those cities are members of or maintain clearing balances with the Reserve Bank, it is quite likely that the question of the Reserve Bank undertaking the supervision of the Clearing House Examinations is likely to be suggested to the Board in the near future for consideration* If the Clearing House Examinations are to be undertaken by the Reserve Banks with the approval of the Federal Reserve >loard, it should be definitely understood that the responsibility for 3uch examinations shall be vested solely in the Federal Reserve 3ank and X-474 —3 t not in the Clearing House Committee. will prove very unsatisfactory. Dual control or supervision In the appointment of examiners, while it would he well to consider the suggestions of the Clearing House Association, still the Reserve Banks, subject to the approval of the Reserve Board, should appoint the examiners and have the super vision of all examinations. With reference to the expense of maintaining the examining department, there seem3 to be no reason why the present joint fee system should not he continued if agreeable to the Clearing House Banks, otherwise the cost of examination should he assessed upon the hank examined, as provided for in the Federal Reserve Act. The Reserve Bank should he free to assign men in the examining division to other duties or assign them to make examinations of institutions in other cities. Reports of examinations should he filed with the Federal Reserve Bank and if an unsatisfactory condition is disclosed, the matter should he handled by the Re serve Bank officials and not the Clearing House Committee. Banks are now examined efficiently twice each year. National If a further investigation is to be made, it should be limited to loans, credits, and investments, unless a complete examination is requested by the X-474. - 4 bank under examination. Unless it is possible to nake an arrangement as out lined above, the Clearing House examinations should not be under taken by the Reserve Banks. The Reserve Banks should have in its files information as to the condition of all state banks and of banks maintaining clearing accounts with it. - For that reason in the event of the examinations not being undertaken by the Reserve Bank, it would be well to arrange a system of cooperation with the Clearing House Associations whereby copies of reports of examinations should be given to the Reserve Bank for its files. Under such a plan it would be possible and desirable to designate a local Clear ing House Examiner to act as Special Federal Reserve Examiner in the examination of State Member Banks and State Banks maintaining clearing accounts with the Reserve Banks, so that examinations made by him might be accepted in lieu of special examinations made by examiners of the Board or of the Federal Reserve Bank. This is desirable particularly in instances where it has not been possible to make satisfactory arrangements with the State Banking Conmisioners, or where the report of the Clearing House examination would be prefer able to that of the State Banking Commissioner. X-474 - 5 - Reserve Banks should have definite data as to condition, before permitting a nonmember bank to open a clearing account for the reason that the public is likely to assume that the Reserve Bank is satisfied with financial condition of such nonmember bank. Respectfully submitted, (Signed) J. A. BRODERICK. N W . P . 6 . HARDING. GOVERNOR P A U L M. WARBURG. VICE GOVERNOR FREDERIC A. DELANO ADOLPH C. M ILLER CHARLES S. HAMLIN EX-OFFICIO MEMBERS W ILLIAM 6 . MCADOO SECRETARY OF THE TREASURY CHAIRMAN JOHN SKELTON W ILLIAM S COMPTROLLER OF THE CURRENCY FEDERAL RESERVE B O A R D H. PARI SHERM) and fiscal SECRETARY . ASST. SECRETARY Agent ADDRESS REPLY TO W A S H IN G T O N FEDERAL RESERVE BOARD November 6, 1917 Dear Sir:-r For some weeks past the Board has been making an analysis of the items constituting the "float" and has ascertained in the case of each Federal Reserve bank the percentage that this flo at bears to total earning assets and to deposits. Reference is made to the table attached hereto, from which it w ill be seen that these percentages are by no means uniform, but that there are wide variations. In some instances the amount of the float is entirely out of proportion to what it should be and it should be remembered that investments in float weaken the loaning power of the Federal Reserve bank because it is a nominal or unavailable asset which cannot be uCed as security for the issue of Federal Reserve notes. However, the present figures cannot fa ir ly be used as a basis for defihite conclusions, because of the abnoimaliy large transfers which are now being made for government adCount) and normal Conditions are naturally ob scured or affected by the loan subscriptions now in prbcess of ' settlement. But the Board prcpasds to continue its analysis, which w ill, in the course of time, show more clearly the real conditions at each tank* The attached sheet is sent you for the purpose of directing the attentidn of your officers and ex ecutive committee to the problems involved, and with the reunest that careful consideration be ^iveil to the best methods of re ducing the bank's investment in floatt The Board wishes to be advised at your early convenience as to the interest rates ad-* Opted by your bank ih dealing with transfers» purchases Of checks dr b ills for collection and similar items Which constitute float. In the opinion of the Board this rate of interest should ap proximate the fifteen day interest rate, and in cases where the bank is inclined to invest too large a proportion of its funds in float, it might be even higher. . Very truly yours Governor. Chairman. Federal Reserve Bank
@FedFRASER