Full text of Mimeograph Letters and Statements of the Board : Copy of Correspondence re Federal Reserve Agents' Views on Glass Bill, Number X-7077, Volume 36, Page 58

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FEDSE&L RESERVE BAM
OF BOSTON
F r e d e r i c H. C u r t i s s
Chairman

January 29, 1932

Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Meyer:
Following your r e q u e s t "by telegram I am giving herewith my views on the
proposed B i l l (S. 5215) introduced "by Senator Glass. I may say a t the
"beginning t h a t I am wholly i n sympathy with the purposes of t h i s B i l l
and t h a t my suggestions or c r i t i c i s m s a r e to "be accepted from t h a t point
of view.
1.

I have no comment to make on Section 2.

2. I t would appear to me t h a t Section 3 i s too i n e l a s t i c i n i t s p r o v i s i o n .
As long as s e c u r i t i e s and c o l l a t e r a l loans a r e allowed i n t h e National Bank
Act as proper investments f o r National "banks, and a l s o i n S t a t e laws f o r
S t a t e banks, the F e d e r a l Reserve Bank should not "be prevented from giving
a s s i s t a n c e i n reasonable i n s t a n c e s . For i n s t a n c e , when a member bank had
heavy withdrawals of d e p o s i t s , i t i s i n p o r t a n t t h a t i t should be enabled
to borrow pending l i q u i d a t i o n of i t s s e c u r i t i e s or c o l l a t e r a l l o a n s . I
b e l i e v e t h e same purpose could be accomplished i f t h a t s e c t i o n should read
as f o l l o w s :
"The Federal Reserve Board s h a l l p r e s c r i b e r e g u l a t i o n s f u r t h e r d e f i n ing and r e g u l a t i n g t h e use of the c r e d i t f a c i l i t i e s of t h e Federal
Reserve System w i t h i n the l i m i t a t i o n s of t h i s Act, and e s p e c i a l l y
with the view to the improper use of such c r e d i t f a c i l i t i e s extended
to member banks f o r the purpose of making or c a r r y i n g loans covering
the investments or f a c i l i t a t i n g t h e carrying o f , or t r a d i n g i n ,
s t o c k s , bonds, or other investment s e c u r i t i e s other than o b l i g a t i o n s
of the Government of t h e United S t a t e s . "
3. I t would appear to me t h a t t h e danger t h a t Section 4 proposes to cover
i s not only remote but i s provided f o r i n Section 1 1 ( f ) , which provides t h a t
the Federal Reserve Board may remove any d i r e c t o r of any Federal Reserve Bank.
4 . Section 5 as a t present drawn would appear to be an emergency measure to
meet tiie present c o n d i t i o n . As now drawn i t would tend t o weaken t h e Federal
r e s e r v e banks. (The Federal Reserve Bank of Boston has been obliged to draw
on i t s s u r p l u s account to meet dividends the p a s t two y e a r s , and s i m i l a r
conditions e x i s t i n other Federal r e s e r v e banks.) Under t h e proposed p l a n
a Federal r e s e r v e bank could not b u i l d up any s u r p l u s from now on. I would



t

Hon. Eugene Meyer * Governor,
Federal Reserve Board,
Washington, D. 0.

X-7077
a-1
2 -

suggest t h e r e f o r e , i n l i e u of Section 5, The f i r s t paragraph of s e c t i o n
7 of the Federal Reserve Act,
as amended, toe amended t o read as f o l l o w s :
"After a l l necessary expenses of a Federal r e s e r v e bank s h a l l have
been paid or provided f o r , the stockholders s h a l l be e n t i t l e d t o
r e c e i v e an annual dividend of 6 per centum on the p a i d - i n c a p i t a l
s t o c k , which dividend s h a l l be cumulative. A f t e r the a f o r e s a i d
dividend claims have boon f u l l y mot the net e a r n i n g s , beginning
with the net earnings f o r the year ending December 31, 1932, s h a l l
be paid to t h e F e d e r a l L i q u i d a t i n g Corporation provided f o r i n
Section 12B of t h i s Act, and s h a l l be used by t h e said c o r p o r a t i o n
f o r c a r r y i n g out the purposes of such s e c t i o n , except t h a t t h e
whole of such net earnings s h a l l be put i n t o a s u r p l u s fund u n t i l
i t s h a l l amount to 100 per centum of the subscribed c a p i t a l of t h e
bank."
5. Section 6. I would suggest the omission of l i n e s 4 and 5 on page 7,
which reads "They s h a l l a l s o comply with a l l the requirements of t h i s Act".
I t h i n k i f t h e power i s civ en to the. Federal Reserve Board to handle t h i s
p a r t i c u l a r s e c t i o n i t would be an advantage.
On t h i s same page 7, l i n e 22 and 23, I should omit "during the p e r i o d of two
y e a r s " . I see no reason why t h i s p r o v i s i o n should not begin at once and be
continuous.
6. Section 7. I t h i n k i t would be an advantage to have an uneven number
of members of the F e d e r a l Reserve Board. I a l s o wonder i f i t might not
r e l i e v e the burden of the Comptroller of the Currency i f he were not a
member ex o f f i c i o .
7.

Section 8.

I approve i n p r i n c i p l e .

8. Section 9. While I am sympathetic with the purposes which t h i s s e c t i o n
endeavors t o meet, I t h i n k during the past year or so I have come to the
conclusion t h a t i t i s the volume of c r e d i t i n use r a t h e r than t h e c h a r a c t e r ,
not the way i n which c r e d i t i s extended. I do not b e l i e v e t h a t t h i s w i l l
meet the p a r t i c u l a r purpose f o r which i t i s designed. On t h e one hand, i t
would prevent a bank extending c o l l a t e r a l loans f o r use i n commercial
purposes, on t h e o t h e r hand, i t might tend toward the use of single-named
notes to be used f o r s p e c u l a t i v e purposes. The p r o v i s i o n t h a t loans to an
i n d i v i d u a l should not be i n excess of 10 per centum of the unimpaired c a p i t a l
and s u r p l u s of such bank i s i n accord with other s i m i l a r r e s t r i c t i o n s cont a i n e d i n the p r e s e n t Nation?.! Bank Act.
9.

Section 10. I suggest t h a t l i n e s 15 and 16 be changed to read "upon
unanimous consent of members of the. Tederal Reserve Board p r e s e n t and
not l e s s than f i v e (5)"




5 9

Hon, Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.

X-707^
a-1
•* S

Page 14# l i n e s 3 and 4. I suggest t h a t the f o l l o w i n g cb&nge be made omit "with a s u i t a b l e t r u s t e e " and s u b s t i t u t e t h e r e f o r "with the Federal
Reserve Bank". Pp. 14Lines 8 , 9 , 1 0 , 1 1 and 12, omit "one-half of 1 per
centum a month f o r t h e f i r s t period of n i n e t y days of t h e l i f e of such
advance, and t h e r e a f t e r the r a t e of i n t e r e s t s h a l l be inc re ase d by
o n e - f o u r t h of 1 per centum a month f o r each succeeding period of
ninety days or f r a c t i o n t h e r e o f . " I n s e r t i n p l a c e thereof "1 per
centum above discount r a t e . "
10.

Section 11. Lines 15 and 16, omit "at the time of making t h e loan
of a t l e a s t 20 per centum more" and i n s e r t "a 20 percent margin s h a l l
be maintained of a t l e a s t 20 percent during t h e l i f e of such l o a n .

11.

Section 12A(a)Lines 6, 7 and 8, omit "of the Governor of the Federal
Reserve Board and as many a d d i t i o n a l members as t h e r e a r e " and i n s e r t
"one r e p r e s e n t a t i v e from each Federal Reserve Bank".
Line 10. I n s e r t a f t e r 9member" "and an a l t e r n a t e " .
Lines 17,18,19 and 20, omit "In t h e absence or i n a b i l i t y of
the Governor of the Federal Reserve Board to act at such meetings the
Board s h a l l d e s i g n a t e t h e v i c e governor or some other member of the
Board t o act i n p l a c e of t h e governor", and i n s e r t "The Federal Open
Market Committee s h a l l e l e c t annually one of i t s members as a Chairman
and one of i t s members as a Vice Chairman."
Section 12A.(b) Line 23 a f t e r "committee" i n s e r t "and t h e approval of
the Federal Reserve Board.
Section 12A ( d ) . I b e l i e v e if the Federal Reserve System i s t o work
as a system, every Federal r e s e r v e bank should be obliged to accept
the conclusions of t h e Federal Open Market Committee. That each
Federal r e s e r v e bank should share i n the gains or l o s s e s on some pro
r a t a b a s i s to be f i x e d by t h e Federal Open Market Committee on every
open market o p e r a t i o n , to include b a n k e r s ' acceptances, Government
s e c u r i t i e s , and advances to other c e n t r a l banks.

12.

Section 12B ( c ) . Line 1, page 19 omit " o n e - f o u r t h of the surplus of
such bank on December 31, 1931", and i n s e r t "any surplus over and
above 100 per centum of i t s c a p i t a l at the d a t e of the passage of t h i s
Act and any a d d i t i o n a l earnings b e f o r e provided f o r i n t h i s A c t . "

13.

Section 13. I recommend t h a t t h i s e n t i r e s e c t i o n be omitted. This i s
l a r g e l y an o p e r a t i n g matter and would work hardship on t h e member banks
and Federal r e s e r v e banks, and would accomplish l i t t l e .

14.

Section 14.




I have no comments.

L

61
f

Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.

X-7077

a-1

- 4 -

15.

Section 15, Page 30, l i n e s 20,21,22 and 23 "(except promissory notes
of member "banks acquired under t h e p r o v i s i o n s of the seventh p a r a graph of such s e c t i o n 13 secured "by t h e deposit or pledge of "bonds
or notes of t h e United States). 1 1 I b e l i e v e t h i s p r o v i s i o n should "be
o n i t t e d as i t would s e r i o u s l y i n t e r f e r e with the Treasury f i n a n c i n g
and dangerously r e s t r i c t the issuance of Federal r e s e r v e notes a t
t h i s t i n e . I t might be advisable i f t h i s s e c t i o n i s continued to
add "except w i t h the permission of the Federal Reserve Board."

16.

Section 16, (1) and (2) I b e l i e v e very s t r o n g l y i n the general
p r i n c i p l e s of d e f i n i t e l y s p e c i f y i n g the types of d e p o s i t s , of demand,
time, savings and t h r i f t , and the segregating of a s s e t s a proper one.
One r e s e r v e f o r demand and time d e p o s i t s would be d e s i r a b l e , as i t i s
l e s s l i a b l e to evasion. On the other hand t h e p r o v i s i o n s f o r i n c r e a s i n g r e s e r v e requirements a r e too v i o l e n t and would t h e r e f o r e
act as a d e f l a t i o n a r y measure f o r t h e years s p e c i f i e d f o r adjustment.
I would p r e f e r t h e formula developed by t h e Committee of t h e Federal
Reserve System, but i n l i e u thereof suggest t h a t the p r i n c i p l e s l a i d
down by t h i s b i l l f o r t h e d e s i g n a t i n g of c e r t a i n c h a r a c t e r s of d e p o s i t s
be adopted without any change i n the r e s e r v e requirements, member banks
being given a reasonable time to make changes i n the c h a r a c t e r of such
d e p o s i t s , p o s s i b l y a y e a r , and t h a t then the Federal Reserve Board be
r e q u i r e d to f i x a percentage of r e s e r v e a g a i n s t such d e p o s i t s , so that
the e n t i r e r e s e r v e r e q u i r e d would be a l e s s burden than immediate
adjustments would e n t a i l .
Sec. 16. (e) page 38, l i n e s 1 0 , 1 1 , 1 2 , 1 3 , 1 4 , 1 5 , 1 6 , 1 7 , 1 8 , 1 9 , omit
"unless the Federal Reserve Board s h a l l have f i r s t a u t h o r i z e d by
general order t h e making of such s a l e s or t r a n s f e r s w i t h i n such
d i s t r i c t or between such d i s t r i c t and another Federal r e s e r v e d i s t r i c t ,
but no such s a l e or t r a n s f e r s h a l l be made by any such bank without
f i r s t charging and r e s e r v i n g a f e e to be f i x e d by the Federal Reserve
Board on t h e b a s i s of the r a t e of discount then charged upon n i n e t y day paper by the Federal r e s e r v e bank of the d i s t r i c t i n which the bank
malting such s a l e or t r a n s f e r i s l o c a t e d , " I n s e r t i n p l a c e thereof
"if said s e l l i n g member bank i s indebted to the Federal r e s e r v e bank."

17.

Section 17.

18.

Section 18. Page 43 Lines 17 to 21, omit "nor s h a l l t h e t o t a l amount
of t h e s e c u r i t i e s so purchased and held f o r i t s own account a t any
time exceed 15 per centum of the amount of the c a p i t a l stock of such
a s s o c i a t i o n a c t u a l l y paid i n and unimpaired and 25 per centum of i t s
unimpaired s u r p l u s f u n d . " This would p l a c e a s e r i o u s handicap on
banks i n t h i s d i s t r i c t ,

19.

Section 19.




Ho comment.-

Ho comment.

X-70
a^-1

Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.

- 5 -

20.

Section 20.

No comment.

21.

Section 21.

Line 8, i n s e r t a f t e r the word " o f f i c e r " "except a d i r e c t o r "

22.

Sections 22, 23, 24, 25, 26, 27, 28, 29, 30 and 31.

23.

Section 32.

Page 59 l i n e 7, omit "That during the p e r i o d of two y e a r s " .

24.

Section 33.

No comment.

No comment.

This B i l l i s very long and complicated, and the time t h a t I have
had t o analyze i t s p r o v i s i o n s has been very l i m i t e d . I t r u s t , however,
t h a t the suggestions that I have made w i l l be h e l p f u l .
I am,
Very t r u l y yours,

(S)

FHC/D




F r e d e r i c H. C u r t i s s
Federal Reserve Agent.

COPY

X-7077^
8t-2
FEDERAL EEdEEVE BANK

& &CST0#
Eoy Ai Yotmg
Governor

January 29, 1932.

Hon. Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Meyer:
In r e p l y t o your wire of January 26 r e q u e s t i n g me t o study
thoroughly and c a r e f u l l y Senate B i l l No. 3215 introduced "by Senator Glass
on January 21, 1932, I advise t h a t I have attempted t o do so t u t the b i l l
covers so many t h i n g s t h a t I f e e l I should have more time "but inasmuch as
your telegram r e q u e s t s t h a t a reply "be i n your hands not l a t e r than t h r e e
o ' c l o c k Washington time tomorrow, I am o f f e r i n g the f o l l o w i n g :
Pages 1 , 2 , 3 and 4 up to l i n e 7 has to do with t h e d e f i n i t i o n
of a f f i l i a t e s , holding companies and s u b s i d i a r i e s and t h e meaning of the
word "commerce". I have no o b j e c t i o n to o f f e r to t h e s e s e c t i o n s .
Sub-sections f , g and h on page 4, l i n e s 7 to 17 i n c l u s i v e ,
d e f i n e demand, time and t h r i f t d e p o s i t s . If r e s e r v e requirements a r e
going t o be based upon t h e percentages provided f o r i n t h e proposed Glass
b i l l , I have no o b j e c t i o n to o f f e r to t h e s e d e f i n i t i o n s .
Lines 21 t o 24, page 4, suggest the f o l l o w i n g a d d i t i o n t o Section
4 - "but only i f such d i s c o u n t s , accommodations and advancements a r e intended
f o r t h e accommodation of commerce, i n d u s t r y and a g r i c u l t u r e " . From a
p r a c t i c a l standpoint I do not b e l i e v e t h a t t h i s i s p o s s i b l e . From my exp e r i e n c e i n lending c r e d i t f o r a Federal r e s e r v e bank, I have found t h a t i n
p r a c t i c a l l y every case c r e d i t i s advanced to i n d i v i d u a l member banks because
of a r e d u c t i o n i n d e p o s i t s , and f r e q u e n t l y the c r e d i t i s r e t i r e d because of
an i n c r e a s e i n d e p o s i t s . When t h e r e i s a r e d u c t i o n i n d e p o s i t s , temporarily
at l e a s t , the banks borrow. Under the se c o n d i t i o n s , i t i s impossible to
s t a t e whether or not the proceeds a r e used f o r the accommodation of commerce,
i n d u s t r y or a g r i c u l t u r e . I , t h e r e f o r e , would a l s o be opposed to t h e
a d d i t i o n a l p r o v i s i o n s t a r t i n g with l i n e 24, page 4, and ending with t h e word
" S t a t e s " on l i n e 7 page 5.
I have no o b j e c t i o n to the a d d i t i o n a l language s t a r t i n g on l i n e 7
and ending with t h e words "action i n t h e matter" on l i n e 14, page 5.
I am opposed to the d i s c r e t i o n a r y p e n a l t y p e r m i t t e d s t a r t i n g on
l i n e 14 and ending on l i n e 18 on page 5.
Lines 19 t o 25 on page 5, and l i n e s 1 to 6 on page 6, would
p r o h i b i t member banks owned by holding companies or a f f i l i a t e s from v o t i n g



X-707?

"I
Hon. Eugene Meyer

- 2 -

January 29, 1932.

I assume
f o r d i r e c t o r s i n a Federal r e s e r v e "bank. This p r o v i s i o n / i s put i n to
prevent any one holding company or a f f i l i a t e from securing a m a j o r i t y
r e p r e s e n t a t i o n on the1 "board cf d i r e c t o r s of a Federal r e s e r v e bank. I t
seems to me t h a t where the Federal Reserve Board appoints t h r e e of the
d i r e c t o r s of each Federal r e s e r v e "bank, and a small $25,000 "bank has as
much of a v o t e as a t|en m i l l i o n d o l l a r "bank, the chances f o r group control
a r e very remote. I t h e r e f o r e f e e l t h a t t h i s p r o v i s i o n i s unnecessary and
too severe on c e r t a i n member "banks even i f they a r e owned "by a f f i l i a t e s .
Furthermore, i t seems; to me t h a t t h i s p r o v i s i o n would make t h e e l e c t i o n
of d i r e c t o r s cumbersome and f i l l e d with confusion.
Lines 7 t o : 1 8 i n c l u s i v e on page 6 has to do with the payment
of dividends to member banks and, to a degree, provides f o r funds f o r a
Federal L i q u i d a t i n g C6rporation. The language of t h e proposed amendment
e l i m i n a t e s t h a t p a r t of the s e c t i o n of t h e Federal Reserve Act now c r e a t ing a s u r p l u s , and as f a r as I can observe no p r o v i s i o n i s made i n any
other p a r t of t h e proposed b i l l f o r the f u r t h e r accumulation of a s u r p l u s .
I assume t h a t t h i s was an o v e r s i g h t .
For many y e a r s the member banks have f e l t t h a t they were ent i t l e d to a l a r g e r d i v i s i o n of the earnings of t h e Federal r e s e r v e banks
a s , when and i f earned. I have leaned s t r o n g l y t h a t way f o r t h e p a s t
two or t h r e e y e a r s and I t h i n k my views a r e shared by many a s s o c i a t e d
with t h e System and, of course, by the g r e a t m a j o r i t y of our member banks.
I b e l i e v e an amendment to the act p e r m i t t i n g l a r g e r dividends to member
banks a s , when and i f earned, should be recommended.
The c r e a t i o n of a Federal Liquidating Corporation i s o f f e r e d i n
l i e u of payment of a d d i t i o n a l dividends and I do not b e l i e v e t h a t t h i s w i l l
prove an i n c e n t i v e f o r s t a t e banks to j o i n the System or f o r p r e s e n t member
banks t o continue membership. The c r e a t i o n of a Federal L i q u i d a t i n g Corp o r a t i o n may have some merits but a rough estimate convinces me t h a t the
l i q u i d a t i n g value a t t h e present time of the amount involved i n closed
banks i s f a r i n excess of what the System could do under the proposed l e g i s
l a t i o n , and someone would h#ve to go w i t h o u t . T h e r e f o r e , i f a Federal
L i q u i d a t i n g Corporation j . s d e s i r a b l e i t would be f a r b e t t e r t o permit a
l i q u i d a t i n g c o r p o r a t i o n t o purchase t h e claim of a d e p o s i t o r a g a i n s t the
Receiver of a closed bank rjather than attempt t o do i t c o l l e c t i v e l y . A
comparison by s p e c i f i c example of what t h e Glass b i l l proposes and an
a l t e r n a t e proposal w i l l b r i n g out the reasons f o r my suggestion:
(1) Glass p r o p o s a l . A bank closes with a m i l l i o n d o l l a r s of d e p o s i t s . A
committee s e t up by t h e Liquidating Corporation determines t h a t $600,000
can be recovered on t h e a s s e t s of the bank w i t h i n a reasonable l e n g t h cf
time, making due allowance f o r i n t e r e s t on the advances, they would give
the Receiver $500,000 i n cash. The Receiver i n t u r n would d i s t r i b u t e the
funds so r e c e i v e d to t h e d e p o s i t o r s . Commercial d e p o s i t o r s and the needy
could and, of course, would use t h e money so received b u t inasmuch as the
m a j o r i t y of d e p o s i t s i n closed banks r e p r e s e n t savings d e p o s i t s , t h e s e




X-7077
8r- 2
Hon. Eugene Meyer

- 3 -

January 29, 1*32if

persons would have no need f o r the money "because t h a t was why they were
savings d e p o s i t o r s i n t h e f i r s t p l a c e . When they r e c e i v e d t h e money from
the Receiver they would invest i t , deposit i t i n another bank or hoard i t .
I t would be my guess t h a t the m a j o r i t y of them would hoard i t under
conditions t h a t e x i s t a t the present time.
(2) A l t e r n a t e p l a n . The same as above except the L i q u i d a t i n g Corporation
would not advance $500,000 i n cash i n one lump sum t o t h e Receiver but
would say to anyone t h a t had a claim a g a i n s t the Receiver t h a t i t would
advance 50 per cent of t h e claim upon proper assignment, c o l l e c t 6 per
cent during t h e p e r i o d of l i q u i d a t i o n , and agree t o r e t u r n to them everyt h i n g over t h i s amount at time of f i n a l l i q u i d a t i o n . The commercial dep o s i t o r s and t h e needy would of course accept t h e proposal but i t i s my
guess t h a t t h e g r e a t m a j o r i t y of savings d e p o s i t o r s would not because
when they a r e given t h e assurance by a d e f i n i t e o f f e r from a r e l i a b l e
source t h a t t h e i r d e p o s i t i s worth a c e r t a i n amount and probably more, i t
w i l l a l l a y t h e i r f e a r s and they w i l l f e e l t h e i r money i s j u s t as s a f e i n
the R e c e i v e r ' s t r u s t as i t would be anywhere e l s e , and f o r the f u r t h e r
f a c t t h a t they would not care to pay 6 per cent to get a p a r t of i t . To
be c o n c i s e , t h i s a l t e r n a t e proposal would i n my opinion take f a r l e s s
money, r e s u l t i n l e s s hoarding, and everyone would be b e t t e r s a t i s f i e d .
I have no o b j e c t i o n to the language s t a r t i n g w i t h l i n e 19
page 6 and ending on l i n e 18 page 7, except l i n e s 4 and 5 on page 7 which
contain t h e f o l l o w i n g sentence: "They s h a l l a l s o comply with a l l the
requirements of t h i s act a p p l i c a b l e to National Banks". This would r e q u i r e
a more c a r e f u l study w i t h l e g a l a s s i s t a n c e b e f o r e making a commitment.
I have no o b j e c t i o n to the language s t a r t i n g with l i n e 18 page
7, and ending on l i n e 7 page 9, except the following which appears on
l i n e s 22 and 23, page 7s "
during t h e period cf two years a f t e r t h i s
s e c t i o n as amended t a k e s e f f e c t , . . . . " . I t seems to me t h a t t h i s should
be permanent.
I have no o b j e c t i o n to t h e language s t a r t i n g on l i n e 7, page 9
and ending on l i n e 6, page 12. In making t h i s s t a t e m e n t , I am not unmindf u l of t h e f a c t t h a t a t one time I vigorously advocated t h e continuance
of the S e c r e t a r y of the Treasury as a member of the Federal Reserve Board.
My reason f o r now agreeing to h i s e l i m i n a t i o n i s because t h e Secretary of
the Treasury i s an extremely busy man and unable to a t t e n d the Board meetings r e g u l a r l y , and f o r the f u r t h e r reason t h a t f o r a long time I have
f e l t t h a t the Board should be composed of an odd r a t h e r than an even number.
I cannot approve of the language s t a r t i n g on l i n e 6 and ending
on l i n e 16 on page 12, u n t i l the question of r e s e r v e s has been s e t t l e d .
I o b j e c t t o everything s t a r t i n g with l i n e 17 on page 12 and
ending on l i n e 11, page 13, f o r the reasons already f u r n i s h e d .




X-7077
a—2 ^
Hon. Eugene Meyer

'

- 4 -

January 29, 1932.

The amendment suggested between l i n e 15 on page 13 and l i n e
23, page 14, I b e l i e v e to "be a step i n the r i g h t d i r e c t i o n . P e r s o n a l l y ,
as t h e Board already knows, I would p r e f e r t o go f u r t h e r but at t h e same
time t h i s should be h e l p f u l . I do not b e l i e v e t h a t a d e f i n i t e higher
r a t e should be f i x e d by law and, f u r t h e r m o r e , I do not b e l i e v e i n a
p r o g r e s s i v e p r o v i s i o n . Provision f o r a higher r a t e seems to me t o be
s u f f i c i e n t . I a l s o b e l i e v e t h a t i t would be f a r b e t t e r t o change the
language so t h a t a r e s e r v e bank could accept the secured note of a member
bank guaranteed by the group r a t h e r than accept t h e unsecured j o i n t note
of a group.
I do not b e l i e v e t h a t acceptances should be included i n the
ten per cent l i m i t provided f o r i n the amendment s t a r t i n g on l i n e 24,
page 14, and ending on l i n e 25, page 15.
I am opposed t o the suggested amendment s t a r t i n g with l i n e 1
on page 16 and ending w i t h l i n e 25 on page 17, because I b e l i e v e t h a t i f
Section 14 i s amended aa suggested by the Glass b i l l s t a r t i n g with l i n e 39
on page 28 and ending w i t h l i n e 25 on page 28, such an amendment would
c l a r i f y any misunderstandings t h e r e have been i n the p a s t as t o t h e Board's
a u t h o r i t y and veto power over open market o p e r a t i o n s , p a r t i c u l a r l y i n
r e f e r e n c e to U. S. government bonds. The open market p o l i c y committee
could continue as a v o l u n t a r y o r g a n i z a t i o n , the autonomy of the s e v e r a l
r e s e r v e banks would be maintained, and t h e r e would be no question about the
Board's v e to power. Furthermore, d i s c l o s u r e of t r a n s a c t i o n s t h a t a r e
extremely c o n f i d e n t i a l would not by law be made a matter of p u b l i c r e c o r d .
As s t a t e d e a r l i e r i n t h i s l e t t e r , I am not e n t i r e l y i n accord
with t h e c r e a t i o n of a Federal Liquidating Corporation and, t h e r e f o r e , a t
t h i s w r i t i n g can not approve of the proposals contained i n the language
s t a r t i n g with l i n e 1 on page 18 and ending with l i n e 10 on page 27.
I am opposed to t h e proposed amendment to Section 13, s t a r t i n g
with l i n e 14 on page 27 and ending with l i n e 13, page 28, f i r s t because I
o b j e c t to the one per cent highey r a t e and second, because I do not b e l i e v e
t h a t t h e making of c e r t a i n c o l l a t e r a l loans by a member bank should be
dependent upon what t h e member bank owes a Federal r e s e r v e bank on a 15-day
c o l l a t e r a l n o t e . If i t i s d e s i r a b l e t o curb s p e c u l a t i v e l o a n s , i t seems to
me t h a t i t would be much b e t t e r to apply the brakes t o the member bank
r a t h e r than attempt t o do i t i n a c i r c u i t o u s way through t h e Federal r e s e r v e
bank.
As p r e v i o u s l y s t a t e d I approve of the proposal contained i n
l i n e s 19 to 25 on page 28.
I object t o the amendment proposed s t a r t i n g with l i n e 4 on page
29 and ending with l i n e 7 on page 30 because i t takes t h e i n i t i a t i v e power
away from the Federal r e s e r v e bank and provides f o r r e s t r i c t i o n s t h a t f o r




X-7077
Or- £&*•

Hon. Eugene Meyer

5 _

January 29, 1932.

a l l p r a c t i c a l purposes would make n e g o t i a t i o n s impossible. The amendment
suggested "by Senator Glass to Section 14 i t seems to me, gives the Board
a l l t h e supervisory powers t h a t are necessary.
In the amendment proposed s t a r t i n g with l i n e 11 page 30 and
ending on l i n e 2, page 34, I am opposed t o the p r o v i s i o n which excludes
promissory notes of member tanks secured "by U. S. government o b l i g a t i o n s
as e l i g i b l e f o r c o l l a t e r a l s e c u r i t y f o r Federal r e s e r v e n o t e s .
I am a l s o opposed to the change suggested i n l i n e s 18 and 19
on page 31 which reads as f o l l o w s : " . . . n o t o f f s e t by gold or l a w f u l
money deposited with t h e Federal Reserve Agent''.
The amendment suggested s t a r t i n g with l i n e 5 page 34 and ending
with l i n e 22 page 37, has to do with r e s e r v e s . I l i k e the i d e a of eventua l l y having demand d e p o s i t s and time d e p o s i t s c a r r y the same: r e s e r v e s and
I would even go so f a r as t o include t h r i f t d e p o s i t s so t h a t t h e r e woul.d
be a f l a t r e s e r v e f o r a l l d e p o s i t s , with some d i s c r i m i n a t i o n between
Federal r e s e r v e bank c i t i e s , branch bank c i t i e s , other r e s e r v e c i t i e s and
o t h e r s . I a l s o b e l i e v e that f u r t h e r c o n s i d e r a t i o n should be given to the
formula developed by t h e r e s e r v e committee of the Federal Reserve System.
The p r o v i s i o n s s t a r t i n g with l i n e 6 page 38 and ending with
l i n e 5 page 39, have t o do with d e a l i n g s i n Federal r e s e r v e funds and
while I can not agree w i t h the suggested amendments, because I b e l i e v e
them to be too severe i n normal times, n e v e r t h e l e s s I have f e l t t h a t
d e a l i n g s i n Federal r e s e r v e funds might some day become a menace. I
t h e r e f o r e b e l i e v e I would be w i l l i n g to give f u r t h e r c o n s i d e r a t i o n to an
amendment t h a t would give power to t h e Federal Reserve Beard t o deny to
c e r t a i n s p e c i f i c banks t h e r i g h t of d e a l i n g i n Federal r e s e r v e f u n d s .
S t a r t i n g with l i n e 18 on page 39 and ending with l i n e 25 on
page 41, t h e b i l l r e l a t e s to r e a l e s t a t e loans and the s e g r e g a t i o n of
a s s e t s a g a i n s t time or t h r i f t d e p o s i t s . I am not i n agreement with the
sentence - l i n e s 6 t o 10 on page 40 - which reads as f o l l o w s : "Such
v a l u a t i o n s s h a l l be r e v i s e d bjr the Comptroller of t h e Currency a t the time
of each examination of the bank making the loan and he s h a l l have power
t o order changes t h e r e i n and t o r e q u i r e the adjustment of loans to such
r e v i s e d v a l u a t i o n s " . I t seems to me t h a t t h i s i s i m p r a c t i c a l . If a bank
made a farm loan f o r f i v e years i n accordance with t h e terms of t h e act
and two y e a r s l a t e r t h e value of the farm land back of t h e s e c u r i t y dep r e c i a t e d say f o r t y p e r c e n t , I do not see how the bank could a d j u s t t h e
loan because i t i s not due f o r t h r e e y e a r s , and the bank would have no
l e g a l demand on the maker. The only t h i n g the Comptroller could do would
be determine whether or not the loan was good and i f not e n t i r e l y good,
what p r o p o r t i o n of i t was good, and r e q u e s t the bank t o charge off accordi n g l y . Under the p r e s e n t law he now has ample a u t h o r i t y t o follow t h i s
procedure.




X-7077 .
a-2 %
Hon. Sugene Meyer

-6-

January 29, 1932

I am not thoroughly convinced t h a t the segregation of a s s e t s
a g a i n s t c e r t a i n d e p o s i t s i s a good thing where a bank does b o t h a commercial
and savings b u s i n e s s . Obviously i t works to the advantage of those having
time d e p o s i t s and a t t h e same time i s a disadvantage to the commercial
d e p o s i t o r in the event of f a i l u r e of t h e bank. Perhaps t h a t should be
so in so f a r as t h e t h r i f t d e p o s i t o r i s concerned, b u t when a c o r p o r a t i o n
d e p o s i t s a l a r g e amount with a bank t h a t has the customary 60-day c l a u s e ,
I do not b e l i e v e t h a t t h e corporation should r e c e i v e a p r e f e r e n c e over
another c o r p o r a t i o n t h a t possessed a demand d e p o s i t . If $5000 i s to be
the l i m i t on t h r i f t d e p o s i t s i t seems to me t h a t the same l i m i t should
apply on time d e p o s i t s .
The amendment suggested s t a r t i n g with l i n e 1 page 42 and ending
on l i n e 10 page 42, might make i t impossible f o r a s t a t e member bank to
comply a t the same time with the p r o v i s i o n s of i t s S t a t e law and of t h i s
s e c t i o n if t h e r e were a c o n f l i c t between the two laws. For i n s t a n c e ,
in Massachusetts a t r u s t company i s r e q u i r e d to segregate a s s e t s a g a i n s t
savings d e p o s i t s but not a g a i n s t c e r t a i n other time d e p o s i t s .
I have no o b j e c t i o n to t h e wording of t h e proposed amendment
s t a r t i n g on l i n e 14, page 42 and ending with l i n e 15 on page 44, except
t h e following which s t a r t s on l i n e 24 on page 43 and ends on l i n e 4 of
page 44, which r e a d s a s f o l l o w s : "Ho such a s s o c i a t i o n s h a l l purchase or
hold any o b l i g a t i o n of any c o r p o r a t i o n u n l e s s such c o r p o r a t i o n and any
predecessor thereof earned f o r each of the f i v e years preceding such purchase a t l e a s t 4 p e r centum upon t h e o u t s t a n d i n g c a p i t a l stock of the
c o r p o r a t i o n " . If I understand t h i s c o r r e c t l y , i t would mean t h a t a
n a t i o n a l bank would be p r o h i b i t e d from buying bonds of a c o r p o r a t i o n t h a t
was not earning; 4 per cent on a very heavy c a p i t a l i z a t i o n b u t might be
earning i t s i n t e r e s t charges many times over on a very small bonded
indebtedness. This seems too severe and I w i l l recommend t h a t t h i s
c l a u s e be e l i m i n a t e d .
I am in agreement w&th the amendment suggested s t a r t i n g with
l i n e 19 on page 44 and ending vkth l i n e 7 on page 45.
I am somewhat in sympathy with t h e suggestions c o n t a i n e d
i n t h e amendment s t a r t i n g with l i n e 10 on page 45 and ending with l i n e
7 on page 46, but do not b e l i e v e the p r e s e n t t h e opportune time f o r i t s
adoption.
I am somewhat sympathetic with the language which s t a r t s on
l i n e 8 of page 46 and ends with t h e word "business" on l i n e 14 of page
46, but p r e f e r to have more time to consider b e f o r e making a d e f i n i t e
committal. If the succeeding language which reads t h a t . n o n a t i o n a l
bank or member bank s h a l l perform the f u n c t i o n s of a correspondent bank
on behalf of any such i n d i v i d u a l , c o p a r t n e r s h i p , unincorporated a s s o c i a t i o n or corporation" means t h a t they could not even accept d e p o s i t s , I




Hon. Eugene Meyer

-7-

January 29, 1932

X-7077
a-2

am very much opposed to t h i s proVidlodi .$he l a s t clause s t a r t i n g on
l i n e 17 and ending in l i n e 21 I do not understand.
The language of the proposed amendment
s t a r t i n g on l i n e 24 of page 46 and ending with l i n e 8 on page 52 p l a c e s
c e r t a i n l i m i t a t i o n s and r e s t r i c t i o n s on voting p r i v i l e g e s of s h a r e h o l d e r s of n a t i o n a l "banks which, in my opinion, would t e m p o r a r i l y deprive
c e r t a i n i n d i v i d u a l s , a f f i l i a t e s , holding companies and o t h e r c o r p o r a t i o n s from j u s t i f i e d voting p r i v i l e g e s and e v e n t u a l l y make i t i m p r a c t i c a b l e f o r a f f i l i a t e s , c o r p o r a t i o n s and holding companies to continue a s
stockholders in member banks. I t seems to me the enactment of t h i s
amendment would have the e f f e c t of d r i v i n g a vast number of both n a t i o n a l
and s t a t e member banks out of the System and I am opposed to i t .
The amendment suggested s t a r t i n g with l i n e 11 on page 52 and
ending with l i n e 13 on page 53 has to do with the establishment of branches
by n a t i o n a l banks. I b e l i e v e t h i s to be a step in the r i g h t d i r e c t i o n
but i f I understand the language of t h e amendment c o r r e c t l y i t would
only permit n a t i o n a l banks t h e extended p r i v i l e g e s of e s t a b l i s h i n g new
branches o u t s i d e of the c i t y of the p a r e n t o f f i c e where t h e S t a t e law
p e r m i t s i t and inasmuch as t h e r e i s no amendment to Section 9 of the
Federal Reserve Act in the Glass b i l l , S t a t e member banks although p e r m i t t e d by S t a t e law to e s t a b l i s h new branches o u t s i d e of the c i t y in
which the p a r e n t S t a t e member bank was l o c a t e d could not now e s t a b l i s h
them and continue as members under Section 9.
I a l s o want to throw out the suggestion t h a t no branches
should be e s t a b l i s h e d anywhere except with the approval of t h e Federal
Reserve Board in a d d i t i o n to t h a t of t h e Comptroller of t h e Currency.
The amendment suggested s t a r t i n g with l i n e 16 on page 53 and
ending with l i n e 9 on page 54 has to do with i n t e r e s t r a t e s t h a t a
n a t i o n a l bank may charge and I see no o b j e c t i o n .
Lines 10 to 24 i n c l u s i v e on page 54 have to do w i t h the r a t e
of i n t e r e s t which a n a t i o n a l bank may pay d e p o s i t o r s . I am opposed to
a l l of t h e s e r e s t r i c t i o n s because I am convinced t h a t no n a t i o n a l bank
could compete w i t h o t h e r i n s t i t u t i o n s .
I would want more time to study the amendment suggested
s t a r t i n g on l i n e 4 page 55 and ending on l i n e 6, b e f o r e making a
d e f i n i t e commitment, but my impulsive thought i s t h a t i t i s too
severe.
The suggested amendment to Section 52 s t a r t i n g on l i n e 9 of
page 52 and ending with l i n e 20 d i s c r i m i n a t e s in s p e c i f i c c a s e s a s to
t h e amount t h a t may be l e n t by a n a t i o n a l bank under the v a r i o u s except i o n s to Section 5200 and with United S t a t e s Government bonds as
s e c u r i t y , and i f I have i n t e r p r e t e d i t c o r r e c t l y i t d i s c r i m i n a t e s
a g a i n s t c e r t a i n l i v e s t o c k loan companies. I am, t h e r e f o r e , opposed
to t h i s s e c t i o n .



X-7077
a-i;
Hon. Eugene Meyer

-8-

January 29, 1932

The amendment suggested s t a r t i n g with l i n e 24 on page 55
and ending on l i n e 8 on page 56 appears to be to severe.
The proposed amendment s t a r t i n g on l i n e 9, page 55, and
ending with l i n e 19, I do not thoroughly understand and I cannot comment upon i t a t t h i s time.
I am opposed to the language to t h e amendment s t a r t i n g on
l i n e 20 of page 55 and ending with l i n e 4 on page 57, f o r t h e reasons
given p r e v i o u s l y under comments on s u b - s e c t i o n M. I approve of the
language of the proposed amendment s t a r t i n g on l i n e 8, page 57 and
ending on l i n e 15 page 58. I am opposed, however, to the language
s t a r t i n g on l i n e 15 on page 58 and ending on l i n e 3 of page 59 because
I b e l i e v e i t i s j u s t as unreasonable to p u b l i s h the p o r t f o l i o of an
a f f i l i a t e as i t would be to r e q u i r e n a t i o n a l bank to p u b l i s h i t s
portfolio.
The language of t h e proposed amendment s t a r t i n g on l i n e 7
of page 59 and ending with l i n e 2 on page 60 provides f o r examining
a f f i l i a t e s which I favor and I b e l i e v e t h a t c e r t a i n p e n a l t i e s should
be r e s o r t e d to in the event of r e f u s a l to permit such examinations.
I am opposed, however, to a u t h o r i z i n g t h e Comptroller of t h e Currency
to p u b l i s h r e p o r t of h i s examinations of any n a t i o n a l banking a s s o c i a t i o n
or a f f i l i a t e under any c o n d i t i o n .
The proposed amendment s t a r t i n g with t h e language on l i n e 8
of page 60 would, in my opinion, p r o h i b i t many d e s i r a b l e people from
being d i r e c t o r s in n a t i o n a l banks but would apparently permit t h e
same people to be d i r e c t o r s of a S t a t e member bank.
The language in t h e proposed amendment s t a r t i n g on l i n e 16
of page 60 and ending on l i n e 24 on page 60 i s d i f f i c u l t to i n t e r p r e t
b u t i f i t means, f o r example, t h a t t h e Canadian Bank of Commerce cannot lend on a promissory note secured by c o l l a t e r a l payable i n
American d o l l a r s in t h i s country, or i f a corporation cannot lend i t s
own employees, secured by i t s stock, on a p a r t i a l payment p l a n , I bel i e v e the language of the proposed amendment to be too severe.
The language of the proposed amendment s t a r t i n g on l i n e 1
on page 61 and ending with l i n e 12 on page 61, if I i n t e r p r e t i t
c o r r e c t l y , would p r o h i b i t a c o r p o r a t i o n from d e p o s i t i n g with a p r i v a t e
banker, or a country e l e v a t o r company from c a r r y i n g an unsecured c r e d i t
balance with a c i t y e l e v a t o r company, or a corporation or bank from
c a r r y i n g a deposit with a f o r e i g n bank or o t h e r c o r p o r a t i o n , e t c . I ,
t h e r e f o r e , am opposed to the amendment.




X-7071
a-2
Hon. Eagene Mayer

-9-

January 29, 1932

As s t a t e d in the opening paragraph of my l e t t e r , I f e e l t h a t
I should have had more time and a s s i s t a n c e in analyzing t h i s proposed
b i l l or to a p p r a i s e the u l t i m a t e e f f e c t of many of i t s p r o v i s i o n s , and
such views as I have expressed a r e t h e r e f o r e n e c e s s a r i l y s u b j e c t to
such r e v i s i o n as a f u r t h e r study of the b i l l may suggest to me.




Yours r e s p e c t f u l l y ,
(Signed)

R. A. Young
B. A. Young,
Governor.

0 P Y

X-7077
c-1
FEDERAL RESERVE BANK OF MlMDELFHlA
| ,
TELEGRAk

P h i l a d e l p h i a 11:20 A Jan 30
Governor Meyer:

Washington.

In Governor Morris 1 absence I am r e p l y i n g to your i n q u i r y concerning
the Glass B i l l .
The t i l l provides so many r a d i c a l changes a f f e c t i n g c u r r e n t p r a c t i c e s
and r e l a t i o n s of "banks and o t h e r c o r p o r a t i o n s , t h a t I hope a l l of i t s
p r o v i s i o n s can "be s u b j e c t e d to f u r t h e r c a r e f u l study by f i n a n c i a l
experts.
Federal r e s e r v e member banks could h a r d l y compete with nonmember banks
i f the p r o v i s i o n s of the Act were put i n t o e f f e c t .
The r e s t r i c t i o n s on a f f i l i a t e s as d e f i n e d might g r e a t l y d i s t u r b u s e f u l
c o r p o r a t i o n s whose a c t i v i t i e s are beyond c r i t i c i s m .
I t s l i m i t a t i o n s on advances and discounts f o r member banks might bar
many members doing a conservative banking b u s i n e s s from e x e r c i s i n g t h e i r
p r i v i l e g e s i n p r o v i d i n g funds to r e s t o r e t h e i r l e g a l r e s e r v e s .
Many of the powers c o n f e r r e d on the Reserve Board and the Comptroller
of t h e Currency appear t o be extreme and t h r e a t e n i n g .
Many bankers would look upon many of i t s p r o v i s i o n s as unreasonable
r e s t r i c t i o n s to a l e g i t i m a t e banking b u s i n e s s .
The recommendations of t h e Federal Reserve System's committee on l e g a l
r e s e r v e s should be s u b s t i t u t e d f o r the plan in t h e b i l l .
S t a t e bank members would o b j e c t to being s u b j e c t e d to examinations
by the Comptroller.
The p r o v i s i o n of a Federal l i q u i d a t i n g corporation seems admirable, but
would i t not be b e t t e r t o provide funds in some other way than c u t t i n g
i n t o the Federal r e s e r v e surpluses ? The surplus of Federal r e s e r v e banks
should be p r o t e c t e d , and removing a l a r g e s e c t i o n of i t by l e g i s l a t i o n
would r a i s e a question as t o whether i t w i l l not be followed by o t h e r
government a c t i o n s t o use t h e se funds which have been not too l a r g e in
our r e c e n t f i n a n c i a l s t r a i n s .
Questions w i l l a r i s e as t o whether an o f f i c i a l whose appointment i s
g e n e r a l l y looked upon as p o l i t i c a l should head the c o r p o r a t i o n .
The p r o v i s i o n s of the b i l l a g a i n s t making advancements to member banks
on t h e i r f i f t e e n day notes seem to have unnecessary r e s t r i c t i o n s .
The p r e v e n t i o n of t h e f r e e use of member bank balances in r e s e r v e banks
w i l l meet with o b j e c t i o n s .
The p r o v i s i o n f o r the v a l u a t i o n of s e c u r i t i e s a t the market value seems
u n n e c e s s a r i l y s e v e r e , and we do not see how a change i n the s i t u a t i o n
of p r o p e r t i e s securing mortgages, by the Comptroller, can accomplish
any u s e f u l purpose.
Many w i l l q u e s t i o n the d e s i r a b i l i t y or f a i r n e s s of r e q u i r i n g banks to
r e - e s t a b l i s h a one hundred d o l l a r par value f o r t h e i r s t o c k .
The p r o v i s i o n whereby stockholders should be prevented from v o t i n g t h e i r
shares might throw the c o n t r o l of a c o r p o r a t i o n to a m i n o r i t y , and t h i s
p r o v i s i o n might r a i s e s e r i o u s l e g a l q u e s t i o n s .




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2.
Federal Heserve Bank of P h i l a d e l p h i a - Telegram.
Many b e l i e v e t h a t branch banking w i t h i n s t a t e l i n e s i s not l o g i c a l
but t h a t i t would be b e t t e r to make any d i v i s i o n l i n e s on t h e b a s i s
of t r a d e a r e a s or Federal r e s e r v e d i s t r i c t s . Segregation of c a p i t a l
in the s e p a r a t e branches does not appear f e a s i b l e . The p r o v i s i o n
fop a d i f f e r e n t s e t - u p and method of operations of the open market
committee does not appear to r e p r e s e n t the a t t i t u d e of t h e banks
toward t h i s f u n c t i o n . I would e s p e c i a l l y c a l l your a t t e n t i o n to the
p r o v i s i o n t h a t a r e s e r v e bank may have t h i r t y days in which to make
a d e c i s i o n as to p a r t i c i p a t i o n .
The proposed d i s c r i m i n a t i o n a g a i n s t making advances to a member
bank on i t s f i f t e e n day notes secured by Government o b l i g a t i o n s or
e l i g i b l e p a p e r , r r i l l d i s t u r b a convenient and d e s i r a b l e method of
accommodation and the p r o v i s i o n to bar such notes c o l l a t e r a l e d by
bonds or notes of t h e United S t a t e s , as s e c u r i t y f o r Federal r e s e r v e
n o t e s , might be r e g r e t t e d a t some time when t h e r e may not be s u f f i c i e n t commercial paper a v a i l a b l e to support the volume of
Federal r e s e r v e notes t h a t might be needed.




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FEDERAL RESERVE BAiK OF PHILADELPHIA
TELEGRAM
FEDERAL RESERVE SYSTEM
(Leased Wire Service)
Received a t Washington, D. C.

55COT

P h i l a d e l p h i a , Penna.

1210PM

January 30 1932

Governor Meyer,
Washington
In compliance with telegram of 26th, submit r e s u l t of study of Glass B i l l
and our views regarding i t .
In r e Glass B i l l S 3215
Pages 1, 2, 3. and p a r t of 4 generally r e f e r to a f f i l i a t e s . The
problem of a f f i l i a t e s i s a very l a r g e one. As we have had l i t t l e contact
with them, we f e e l t h a t we should make more of a study of them and t h e i r
r e l a t i o n s with member banks b e f o r e c r i t i c i z i n g the provisions of t h i s b i l l .
Some of i t s provisions seem u n f a i r to stockholders of banks and p o s s i b l y
would endanger control of such banks. Would i t not be b e t t e r to t r e a t the
matter of a f f i l i a t e s i n a separate b i l l ?
Section 3> pages 4 and p a r t of 5» c o n t r o l l i n g a p p l i c a t i o n of proceeds
of r e d i s c o u n t s . Borrowings from Federal Reserve Banks l a r g e l y a r e to make
good d e f i c i e n c y in r e s e r v e s , to l i m i t the a p p l i c a t i o n of the proceeds to the
accommodation of commerce, industry and a g r i c u l t u r e and prevent t h e i r use i n
any way f o r the c a r r y i n g of, or f a c i l i t a t i n g the c a r r y i n g of, or t r a d i n g in
s e c u r i t i e s , by i m p l i c a t i o n would prevent any bank, holding any loans coll a t e r a l l y secured by investment or speculative s e c u r i t i e s , from r e di sc ount ing with i t s Federal Reserve Bank. We think t h i s s e c t i o n should be omitted.
Section 7 page 9» This appears to omit the s e c r e t a r y of the Treasury a s a
member of the Federal Reserve Board. For one, I see not the l e a s t objection,
but r a t h e r advantages, i n having the Secretary of t h e Treasury a member of
the Board, so b e l i e v e t h a t t h i s amendment i s u n d e s i r a b l e .
Section 8; page 11. This, and a l l other s e c t i o n s of t h i s b i l l , a f f e c t ing r e s e r v e s , we t h i n k should be omitted. The p r o v i s i o n s of the B i l l p r e pared by t h e Federal Reserve Board, based upon the f i n d i n g s of i t s committee
on r e s e r v e s , are f a r superior to t h e provisions i n the Glass b i l l r e f e r r i n g
to the same s u b j e c t . We would favor s t r i k i n g out a l l r e f e r e n c e to reserves
in the Glass B i l l and s u b s t i t u t i n g the Board's b i l l .
Section 9 page 12. This clause of the B i l l suggests t h a t t h e r e has
been abuses in the p a s t by the banks generally, in t h a t they used t h e proceeds of r e d i s c o u n t s to make loans to stock exchange houses. If the power,
which i s proposed to be given to the Federal Reserve Board by t h i s section,
can prevent in the f u t u r e any improper use of Federal Reserve funds, t h i s
provision i s d e s i r a b l e , but i t so l i m i t s the operations of the banks, t h a t
one f e e l s such a p r o v i s i o n would be vigorously opposed, and if enacted,
probably would d r i v e a great many i n s t i t u t i o n s out of the system.



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S e c t i o n 10. Seems to provide a s a t i s f a c t o r y way f o r e n l a r g i n g the
loaning powers of F e d e r a l Reserve 3an?r.s i n times of emergencies without
a general i n c r e a s e i n t h e kinds of paper or loans e l i g i b l e f o r r e d i s c o u n t .
I t i s u n l i k e l y that groups of banks would be organized to a s s i s t one or
more of t h e i r members except in times of c r i s e s , when unusual measures to
meet such c r i s e s would be J u s t i f i e d , but one f e e l s t h a t t h e bank to be
b e n e f i t e d by the emergency loan should deposit with the group i t s note,
secured by s a t i s f a c t o r y c o l l a t e r a l , which note and c o l l a t e r a l could be
used a s c o l l a t e r a l s e c u r i t y f o r the g r o u p ' s o b l i g a t i o n , which the Federal
Reserve Bank presumably would be authorized to take i n making advances to
the group.
S e c t i o n 12 A. Recognizes the open market committee as s e t up a t
p r e s e n t a s s a t i s f a c t o r y . Proper n o t i c e to the F e d e r a l Reserve Board and
the banks of the d i s c u s s i o n s and a c t i o n s of the committee i s n e c e s s a r y .
The 30 day option t o any Federal Reserve Bank to determine whether or not
i t wanted to p a r t i c i p a t e i n any of t h e committee's o p e r a t i o n s probably
would cause delays t h a t many times would prevent t h e committee's a c t i o n
being e f f e c t i v e .
S e c t i o n 12 B. The Federal L i q u i d a t i n g Corporation, as proposed,
should be a b l e to o p e r a t e e f f i c i e n t l y and accomplish a good purpose, but
we f e e l t h a t , p o s s i b l y , an o r g a n i z a t i o n f o r each Federal Reserve D i s t r i c t
might be b e t t e r than one l a r g e o r g a n i z a t i o n . I t i s a question whether or
not i t i s wise to p u t a l l the s u r p l u s earnings of the Federal Reserve Banks
into the c a p i t a l of t h i s corporation, a s proposed i n Section 5. A reasonable amount of c a p i t a l should be provided f o r i t , and p r o v i s i o n made f o r
c a l l i n g on Federal Reserve Banks f o r a d d i t i o n a l c a p i t a l any time such
a d d i t i o n a l c a p i t a l might be n e c e s s a r y .
S e c t i o n 13; page 27. The reason f o r charging one p e r cent higher
f o r l o a n s on 15 day n o t e s than f o r r e d i s c o u n t i n g paper i s hard to understand. The use of t h e 15 day note i s h e l p f u l to t h e member banks and to
the Reserve Banks, and we see no n e c e s s i t y f o r e s t a b l i s h i n g a h i g h e r r a t e
of d i s c o u n t f o r such o b l i g a t i o n s ; we think i t would be contrary to good
banking p r a c t i c e .
The p r o v i s i o n contained i n l i n e s 1 to 18, page 28, seems to be a
f u r t h e r e f f o r t to c o n t r o l and l i m i t t h e loans of member banks on investment
and o t h e r s e c u r i t i e s , t h e n e c e s s i t y and a d v i s a b i l i t y of which i s not p l a i n to
u s . We f e e l that the member banks would not consent to i t , and i t s enactment would r e s u l t i n t r o u b l e f o r the system.
S e c t i o n 15 page 30, l i n e s 20 to 24. Eliminates member b a n k ' s 15 day
notes, secured by United S t a t e s government bonds or notes, f o r u s e by a
Federal Reserve Bank a s s e c u r i t y f o r Federal Reserve notes issued to i t .
There does not seem to be any good reason f o r t h i s ; the bonds securing such n o t e s a r e i n no way permanently deposited a s s e c u r i t y f o r c i r c u l a t i o n , but c o n s t a n t l y are being r e t i r e d by the banks and so withdrawn
as s e c u r i t y f o r currency. The e l a s t i c i t y of the currency i s i n no way
impaired by t h e i r u s e ; they in no way make Federal Reserve currency l e s s
responsive to the requirements of b u s i n e s s .




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Page 31 l i n e 17, p r o v i d e s f o r gold d e p o s i t e d w i t h t h e F e d e r a l Reserve
Agent a s s e c u r i t y f o r n o t e i s s u e s only "being used a s an o f f s e t a g a i n s t o u t s t a n d i n g n o t e s and not a s a p a r t of t h e Bank's gold r e s e r v e , a s a t p r e s e n t .
This p r o v i s i o n would r e d u c e a v a i l a b l e gold r e s e r v e s i n every F e d e r a l Reserve
hank i n an amount equal to 60 p e r cent of the n o t e s so o f f s e t . If a p p l i e d
to t h i s bank today i t would be below i t s l e g a l r e s e r v e , and i f a p p l i e d to
the whole system, i t would have l i t t l e r e s e r v e i n excess of i t s r e q u i r e m e n t s .
The r e s u l t s of such a p r o v i s i o n would be very d i s a s t r o u s a t t h i s t i m e .
Page 38 l i n e s 6 to 19, f o r b i d d i n g the t r a n s f e r of excess F e d e r a l Reserve Balances, seems most o b j e c t i o n a b l e . What could hamper banking operat i o n s more, o r make f u n d s of F e d e r a l Reserve Banks l e s s d e s i r a b l e , than a
p r o v i s i o n t h a t d e p r i v e s a bank of h a n d l i n g f r e e l y i t s own f u n d s . But t h i s
p r o v i s i o n would not p r e v e n t any F e d e r a l Reserve Bank from t r a n s f e r r i n g a t
any time any of i t s r e q u i r e d r e s e r v e b a l a n c e s . The proposed r e m a r k e t a b l e
p r o v i s i o n only a p p l i e s to excess b a l a n c e s . Section 24 page 40 l i n e 6, would
give t h e c o m p t r o l l e r of t h e Currency t h e r i g h t to a d j u s t mortgage l o a n s to
comply w i t h h i s v a l u a t i o n of p r o p e r t i e s . We t h i n k t h i s would be i m p r a c t i c a b l e .
An amount of . r e a l e s t a t e l o a n s , equal to one h a l f of a b a n k ' s time and t h r i f t
d e p o s i t s , a s proposed i n l i n e s 10 to 22, i n many i n s t a n c e s , e s p e c i a l l y in
country banks, would be too much. Time and savings d e p o s i t s i n many such
banks equal 60 to 70 p e r cent of t h e i r t o t a l d e p o s i t s . A maximum i n v e s t ment a t any one t i n e of a sum n o t more than 25 p e r c e n t of t h e time and t h r i f t
d e p o s i t s would be s a f e r . The i n c l u s i o n of t h e investment i n bank premises
among r e a l e s t a t e l o a n i s a good p r o v i s i o n .
S e c t i o n 19 page 44 l i n e 19. One supposes t h i s i s a p r o p o s a l to l i m i t
the amount of any b a n k ' s d e p o s i t s to a sum equal to about seven t i m e s i t s
c a p i t a l f u n d s . Many t h i n k t h a t t h e amount of d e p o s i t s t h a t a bank could
carry should be l i m i t e d by t h e amount of i t s c a p i t a l and s u r p l u s b u t our
f e e l i n g i s t h a t d e p o s i t s equal to ten times the amount of a b a n k ' s c a p i t a l
and s u r p l u s would be a r e a s o n a b l e p r o v i s i o n . Page 44, l i n e 1 to 5. To f o r b i d
banks to hold any o b l i g a t i o n of any c o r p o r a t i o n , which had not earned f o r
f i v e y e a r s p r e c e d i n g such purchase, a t l e a s t 4 per cent upon t h e o u t s t a n d i n g
c a p i t a l s t o c k of t h e c o r p o r a t i o n , a p p a r e n t l y would p r e v e n t banks f r o m i n v e s t ing i n any s e c u r i t i e s of newly formed c o r p o r a t i o n s .
S e c t i o n 21 page 46, Seems very d r a s t i c and would unduly i n t e r f e r e with
t h e o p e r a t i o n s of many i n s t i t u t i o n s and c o r p o r a t i o n s , the o p e r a t i o n s of which
a r e now p r o p e r l y conducted.
S e c t i o n 25, page 52, Proposing to extend t h e r i g h t of N a t i o n a l Banks
to e s t a b l i s h b r a n c h e s . To r e s t r i c t such branches t o t h e s t a t e i n which the
p a r e n t bank i s l o c a t e d w i l l not enable those banks t o s e r v e p r o p e r l y t h e i r
communities, which very o f t e n extends beyond s t a t e l i n e s . We t h i n k banks
should be a u t h o r i z e d to e s t a b l i s h b r a n c h e s w i t h i n t h e i r t r a d e a r e a , a s p r o posed by t h e c o m p t r o l l e r of the Currency, o r any where w i t h i n i t s own Federal
Reserve D i s t r i c t . I t h a s been suggested t h a t , i n a d d i t i o n to the minimum




c a p i t a l of $1,000,000 which i t i s proposed that a bank mast have to
e s t a b l i s h branches, f o r every branch e s t a b l i s h e d the c a p i t a l of t h e
parent bank should be increased, say $50,000 to $100,000...
Section 25 page 5^» We question t h e wisdom of s p e c i f y i n g a maximum
r a t e of i n t e r e s t t h a t banks may pay on t i n e d e p o s i t s . We think i t wonld
be a very s e r i o u s mistake to f o r b i d t h e payment of any i n t e r e s t on demand
d e p o s i t s t h a t s u c c e s s f u l l y has been done here f o r y e a r s . If such a law
were enacted, we f e e l t h e r e would be a f l i g h t of banks fron t h e system.
S e c t i o n 8-A page 6 0 , We q u e s t i o n the p r o p r i e t y of p r o h i b i t i o n s
contained in paragraphs 1, 2, and 3 under t h i s section.. Thgr improperly
would i n t e r f e r e with t h e r i g h t s of c o r p o r a t i o n s and i n d i v i d u a l s to p u r sue t h e i r b u s in e s s o p e r a t i o n s .




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7

Federal Heserve Bank
of Cleveland
*

January 29, 1932.

Federal Reserve Board,
Washington, D. C.
Gentlemen;
This l e t t e r s e t s f o r t h the substance of o b j e c t i o n s r a i s e d "by o f f i c e r s
of the Federal Reserve Bank of Cleveland to the proposed amendments to the
Federal Reserve Act i n the Glass B i l l , as requested i n the Board's telegram
of January 26. C r i t i c i s m s have "been l i m i t e d l a r g e l y to p r o p o s a l s with which
we are e n t i r e l y out of sympathy. Where suggestions have "been o f f e r e d , they
may be accepted as i n d i c a t i v e of our approval of the p r o p o s a l s in p r i n c i p l e ,
but not of the s e c t i o n s i n t h e form i n which they are drawn. With r e f e r e n c e
to s e c t i o n s where no comment i s made, i t i s not n e c e s s a r i l y to be assumed
t h a t we accept the proposed amendments i n t o t o .
Sec. 3. Our o b j e c t i o n to t h i s paragraph i s based
p r i m a r i l y upon the f a c t t h a t i t g r a n t s to the Federal
Reserve Board powers which i t should not e x e r c i s e . I t
would tend to make the Reserve Board an o p e r a t i n g r a t h e r
than a supervisory body. We b e l i e v e t h a t d i s c i p l i n i n g
member banks, when necessary, i s c l e a r l y the f u n c t i o n
of each i n d i v i d u a l Federal Reserve "bank. I t would be
next to impossible to carry out the p r o v i s i o n s of the
proposed law, which, i f c a r r i e d o u t , would i n e v i t a b l y
r e s u l t i n withdrawals from the system of s t a t e banks
and the conversion of n a t i o n a l banks to s t a t e banks to
escape t h e i r obnoxious f e a t u r e s . In the p r e s e n t s i t u a t i o n the enforcement of these p r o v i s i o n s would r e s u l t
i n suspending the use of Federal Reserve c r e d i t f a c i l i t i e s to every member bank i n the City of Cleveland.
Sec. 5. I f a l i q u i d a t i n g corporation of t h e kind
provided by S. 3215 i s to be e s t a b l i s h e d , we b e l i e v e
t h a t i t should be accomplished through s p e c i a l l e g i s l a t i o n such as t h a t proposed i n S. 2810. We are not p a r t i c u l a r l y f r i e n d l y to the idea of member bank s u b s c r i p t i o n s to stock i n any such l i q u i d a t i n g corporation a t t h e
p r e s e n t time.
Sec. 6 . To r e q u i r e s t a t e bank members to comply with
a l l the requirements of the National Banking Act would be
to compel them to r e l i n q u i s h c e r t a i n c h a r t e r and s t a t u t o r y
r i g h t s which the law s p e c i f i c a l l y p r o v i d e s t h a t s t a t e bank
members a r e to r e t a i n . In view of the trend of r e c e n t




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y e a r s f o r important n a t i o n a l "banks to surrender t h e i r
c h a r t e r s i n favor of s t a t e c h a r t e r s , to enable them to
take advantage of the more l i b e r a l p r o v i s i o n s of the
l a t t e r , we "believe t h a t the e f f e c t s of adopting t h i s s e c t i o n would "be f a r t h e r to encourage t h i s movement and to
d r i v e s t a t e "banks which now are members out of the r e s e r v e
"bank system. A f u r t h e r o b j e c t i o n i s found i n the f a c t
t h a t the n a t i o n a l "banks normally carry the "burden of commercial c r e d i t s , whereas many s t a t e "banks engage i n "banking o p e r a t i o n s of a n a t u r e which would work h a r d s h i p s upon
them were they compelled to meet a l l the requirements and
r e s t r i c t i o n s of the laws r e l a t i n g to n a t i o n a l banks.
Sec. 8, We do not b e l i e v e i n the a r b i t r a r y d e s i g n a t i o n of r e s e r v e and c e n t r a l reserve c i t i e s . We hold t h a t
r e q u i r e d r e s e r v e s should be measured by other s t a n d a r d s .
We approve the r e p o r t r e c e n t l y made by the Reserve Comm i t t e e of the System, which would render unnecessary the
d e s i g n a t i o n of r e s e r v e or c e n t r a l reserve c i t i e s .
Sec. 9. In our opinion t h i s s e c t i o n i s thoroughly
o b j e c t i o n a b l e and i t s conditions too d r a s t i c . We do not
b e l i e v e t h a t any supervisory body should be clothed with
such power. I t would c o n f l i c t i n c e r t a i n cases w i t h the
loan l i m i t s e s t a b l i s h e d f o r s t a t e - c h a r t e r e d banks. I t
would not be e q u i t a b l e i n i t s a p p l i c a t i o n , because a
Board o r d e r aimed a t a l i m i t e d number of banks, or the
banks i n a c e r t a i n c i t y , would apply to a l l o t h e r banks
i n the d i s t r i c t i r r e s p e c t i v e of the f a c t t h a t they were
not o f f e n d i n g . In our judgment, the enactment of t h i s
s e c t i o n would r e s u l t i n the withdrawal of s t a t e banks
and conversion of n a t i o n a l banks to i n s t i t u t i o n s c h a r t e r ed by the s t a t e s .
Sec. 10. We concur i n t h e idea t h a t the Reserve Act
should contain some emergency p r o v i s i o n , b u t we b e l i e v e
t h a t a p l a n s u p e r i o r to t h a t proposed could be developed.
S i t u a t i o n s of the kind obviously contemplated by t h i s
s e c t i o n would probably o r i g i n a t e as a r e s u l t of demands
f o r currency. Since promissory notes of the groups r e c e i v i n g r e s e r v e bank funds would not be e l i g i b l e a s c o l l a t e r a l f o r Federal Reserve n o t e s , i t w?uld p l a c e a
f u r t h e r s t r a i n upon a r e s e r v e b a n k ' s gold; and since
developments making borrowing of the type d e s c r i b e d
seldom occur a t times other than p e r i o d s of unusual c r e d i t
s t r e s s , we b e l i e v e t h a t the r e g i o n a l banks should not have
t h i s added s t r a i n p l a c e d upon t h e i r gold r e s e r v e s .




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Sec 12. We do not b e l i e v e t h a t any n e c e s s i t y exi s t s f o r the c r e a t i o n of a new Open Market Committee,
in view of the f a c t t h a t the proposed committee does
not d i f f e r m a t e r i a l l y from the p r e s e n t setup of t h e
System P o l i c y Committee.
Sec. 13. We are u n a l t e r a b l y opposed to any p r o p o s a l to e s t a b l i s h a h i g h e r r a t e of discount on member bank
c o l l a t e r a l notes than on other e l i g i b l e paper o f f e r e d f o r
r e d i s c o u n t . We do not contemplate a l l c o l l a t e r a l - s e c u r e d
loans as r e p r e s e n t i n g s p e c u l a t i v e t r a n s a c t i o n s . We b e l i e v e t h a t member banks i n d i s c o u n t i n g with t h e i r r e s e r v e
bank should have access to reserve c r e d i t f a c i l i t i e s i n
the manner which i s most convenient f o r the borrowing
bank. I t i s common p r a c t i c e f o r banks to borrow on t h e i r
own c o l l a t e r a l n o t e s f o r short p e r i o d s i n p r e f e r e n c e to
r e d i s c o u n t i n g customers' paper to m a t u r i t y .
Sec. 14-b. We are opposed, i n p r i n c i p l e , to any p r o v i s i o n of law which r e q u i r e d the Federal Reserve Board to
e x e r c i s e CONTROL over t h e a c t i v i t i e s of Federal Reserve
banks. We b e l i e v e t h a t the p r e s e n t law gives the Board
ample power to supervise the r e l a t i o n s h i p s r e f e r r e d to in
t h i s s e c t i o n through the r e g u l a t i o n s which the law a u t h o r i z e s i t to promulgate.
Sec. 15. We know of no more e f f e c t i v e way t o k i l l
the system than to adopt t h i s s e c t i o n .
Sec. 16. In our opinion the r e p o r t of the System's
Committee on Reserves e s t a b l i s h e s r e s e r v e requirements on
a thoroughly s c i e n t i f i c b a s i s , and we strongly urge the
adoption of the committee's r e p o r t as a s u b s t i t u t e f o r
the r e s e r v e requirement proposed by the Glass b i l l .
Sec. 16-a, We b e l i e v e t h a t the Federal Reserve
Board should have a u t h o r i t y to r e g u l a t e d e a l i n g s i n
Federal funds, o t h e r than l e g i t i m a t e t r a n s f e r s , w i t h a
view to p r e v e n t i n g abuses t h a t may develop i n connection
with e i t h e r t r a n s f e r s or s a l e s of excess balances*
Sec. 17. Most of the p r o v i s i o n s of t h i s s e c t i o n i n volve such r a d i c a l d e p a r t u r e s from p r e s e n t banking p r a c t i c e t h a t we b e l i e v e they should be s u b j e c t to f u r t h e r
study b e f o r e enactment. We agree, in p r i n c i p l e , with the
i d e a of s p e c i a l p r o t e c t i o n f o r t h r i f t and savings d e p o s i t s .
We do not b e l i e v e t h a t a l l time d e p o s i t s , i n view of the
known n a t u r e of c e r t a i n s p e c i a l time accounts, should be




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p e r m i t t e d to be i n v e s t e d und®*1 the p r o v i s i o n s of t h i s
s e c t i o n as a t p r e s e n t d r a f t e d |
With r e s p e c t to investments i n bank p r e mises - in our judgment t h i s should "be t r e a t e d as an
e n t i r e l y separate proposal covered "by a separate s e c t i o n , and should s e t up not only the l i m i t a t i o n s w i t h
r e s p e c t to the percentage of a b a n k ' s c a p i t a l and s u r p l u s
r e p r e s e n t e d i n bank b u i l d i n g s or r e a l e s t a t e owned, but
should d i f f e r e n t i a t e between b u i l d i n g s e r e c t e d by banks
f o r t h e i r sole occupancy and b u i l d i n g s e r e c t e d by banks
p a r t s of which a r e to be r e n t e d f o r o f f i c e or commercial
uses.
Sec. 19. Since the requirement of any s p e c i f i e d
percentage of c a p i t a l funds to d e p o s i t l i a b i l i t i e s i s
p u r e l y a r b i t r a r y , we recommend t h a t f a r t h e r study be
given to the problem to determine whether the f i f t e e n p e r
cent requirement of t h i s s e c t i o n i s , on the one hand
necessary, or on the o t h e r hand, adequate. In e i t h e r
event, we suggest t h a t c a p i t a l funds f o r t h i s purpose be
l i m i t e d to c a p i t a l and s u r p l u s only, and t h a t i n the
event any p r o v i s i o n i n c r e a s i n g the c a p i t a l - l i a b i l i t y
r a t i o be enacted, ample time be allowed f o r making the
adjustmai t .
Sec.. 28. We are i n sympathy w i t h the proposal to
e s t a b l i s h l i m i t s to the r a t e of i n t e r e s t p a i d by banks
on d e p o s i t accounts, including d e p o s i t s of p u b l i c f u n d s .
In our opinion the s e c t i o n a s a t p r e s e n t drawn i s too
r e s t r i c t i v e , e s p e c i a l l y with r e s p e c t to payment of i n t e r e s t on demand d e p o s i t s . To p r o h i b i t the payment of i n t e r e s t on d e p o s i t s of t h i s type by member banks would
p l a c e them a t a d i s t i n c t disadvantage in competing w i t h
non-member i n s t i t u t i o n s f o r e i t h e r bank balances or comm e r c i a l accounts.
While t h e r e a r e p o i n t s i n the b i l l which appeal to us as m e r i t o r i o u s ,
much of t h e t e x t i s so vagae and i n d e f i n i t e as to make i t d i f f i c u l t of
i n t e r p r e t a t i o n and a n a l y s i s , or so obviously i m p r a c t i c a l as to render i t
unworkable. I t appeals i n spots as an attempt to deal with e v i l s which we
do not b e l i e v e e x i s t i n f a c t . In the main, we b e l i e v e t h a t the g r e a t bulk
of our membership would oppose i t s r e s t r i c t i o n s and requirements and t h a t
the e f f e c t s of i t s passage would be d i s a s t r o u s to a continuance of System
operations.
Comment upon q u e s t i o n s of the b i l l d e a l i n g with p r o p o s a l s which are more
of a l e g a l c h a r a c t e r a r e being prepared by counsel f o r t h i s bank and w i l l be
communicated to counsel f o r the Board a t the l a t t e r l s r e q u e s t .
Very t r u l y yours,
(S) E. E. Fancher,
Governor.



(S) Geo. DeCanp,
Federal Eeserve Agent.

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FEDERAL RES3RVE BAMK 0 ? RICHMOND
T E L E G R A M
FEDERAL RESERVE SYSTEM

(Leased Wire Service)
Received a t Washington, D. C.
B2KHEA

Richmond, Va.

850am

T

J a n . 30.

Governor Eugene Meyer,
F. R. Board, Washn.
Your wire 26th stop Have studied "bill under handicap of l i m i t e d
time stop Approve some p o i n t s stop Have always b e l i e v e d
i n i t i a t i v e in open market operations and foreigii agreements
should be v e s t e d in Federal Reserve Board stop Endorse h e a r t i l y
p r o p o s a l s r e branches of member banks stop b e l i e v e i n a s s i s t a n c e
to f a i l e d banks but t h i n k i t should be administered o u t s i d e
system stop on l i q u i d a t i n g corporations b i l l i s vague and
c o n t r a d i c t o r y in language stop r e s e r v e banks making loans °
groups of members i s wise emergency measure but I nope any proposal
to l e g a l l y introduce into Federal Reserve Banks paper not
e l i g i b l e f o r note i s s u e w i l l r e c e i v e close s c r u t i n y stop
Approve some of p r o v i s i o n s as to a f f i l i a t e s , p a r t i c u l a r l y as o
t h e i r examination, provided t h e r e i s p r e s e n t e d a reasonable and
understandable conception of an a f f i l i a t e r h i c h i s lacking in
the b i l l stop As t o r e s e r v e s much p r e f e r system committee plan^
to t h a t i n b i l l stop the considerable i n c r e a s e in r e s e r v e r e q u i r e ments would c u r t a i l lending power of member banks and r e a c t
sharply upon borrowers in a g r i c u l t u r a l d i s t r i c t s stop t o W
mind the d e s i r a b l e i n b i l l i s f a r outweighed by the u n d e s i r a b l e
stop the b i l l r e p r e s e n t s oppressive l e g i s l a t i o n in c e r t a i n
p r o v i s i o n s p a r t i c u l a r l y in those r e l a t i n g to c o l l a t e r a l loans
and to d e p o s i t s of c o r p o r a t i o n s engaged i n commerce and to ny
mind i s d e s t r u c t i v e in t h a t our good members w i l l withdraw
l e a v i n g us only those who cannot a f f o r d to withdraw. I ep ore
even the b i l l ' s p u b l i c i t y a t t h i s j u n c t u r e when t h e message
v i t a l l y needed i s one which i n s p i r e s hope and awakens courage.




HOXTOK

905a

X-707?
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COPY
f e d e r a l aesaAvk BABC
OF RICHMOND

January 29, 1932.

SUBJECT:

THE GLASS BILL.

Honorable Eugene Meyer, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Meyer;
Answering your Trans. 1434, sent on the 26th, r e l a t i v e to the
Glass B i l l , I have the following comments to make, which I am sending "by
l e t t e r since i t w i l l reach you p r i o r to t h e time f i x e d in your r e q u e s t ,
namely, 3 o ' c l o c k Saturday a f t e r n o o n .
The l e g i s l a t i o n proposed i s of such f a r - r e a c h i n g , experimental,
and r a d i c a l n a t u r e t h a t t h e r e should be no thought whatever of p a s s i n g
the b i l l without g i v i n g h e a r i n g s to the banks in every p a r t of the country.
In saying t h i s , I do not omit to bear in mind the f a c t t h a t the b i l l i t s e l f was framed as a r e s u l t of extensive h e a r i n g s . I t i s one t h i n g , however, to frame a b i l l intending to c o r r e c t e v i l s b e l i e v e d to e x i s t , brought
out a t the h e a r i n g s , and q u i t e another thing to consider the b i l l intending
to c o r r e c t those e v i l s .
In my judgment, t h e r e i s no man l i v i n g who can a p p r a i s e t h e e f f e c t s of t h i s b i l l i f enacted into law. The consequences might be — and
I b e l i e v e they would be — a p p a l l i n g . Moreover, i n my judgment, i t i s exceedingly u n f o r t u n a t e t h a t a b i l l involving as much controversy a s t h i s
b i l l i s bound to r a i s e should come up at the very time when we a r e seeking
to a l l a y u n r e s t by remedial l e g i s l a t i o n without complications which probab l y can^be p u t into immediate e f f e c t . Furthermore, the banks of the count r y a r e too much occupied a t t h i s time over t h e i r d i s t u r b e d a f f a i r s to give
immediate study to the b i l l .
This b i l l should be s p l i t up into several b i l l s . For i n s t a n c e ,
t h a t p r o v i s i o n of the b i l l which provides f o r branch banking might with g r e a t
advantage be taken from t h i s b i l l and passed s e p a r a t e l y . Unless I am g r e a t l y mistaken, i t could be passed without any g r e a t delay. I b e l i e v e t h a t
p r o v i s i o n to be imperatively needed a t the p r e s e n t time. There a r e many
communities a l l over t h e country which a r e p r a c t i c a l l y deprived of banking
f a c i l i t i e s , and a l r e a d y l e g i s l a t i v e minds a r e a t work to supply t h e need
with t o t a l l y inadequate f a c i l i t i e s . Small banks a r e being proposed, which
i n the end w i l l , of course, have to go the way which o t h e r small banks
have gone.




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X-7077

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Hdn» Eugene Meyer, Governor,
Federal Reserve Board, Page 2.

January 29, 1932.

Without attempting any d e t a i l e d a n a l y s i s of the b i l l , which I do
not b e l i e v e to be wanted, I give i t as my opinion t h a t i t would c r i p p l e the
Federal Reserve System beyond r e p a i r . My b e l i e f i s t h a t i t would r e s u l t
in an exodus from the System of those l a r g e banking i n s t i t u t i o n s in which
the commercial b u s i n e s s does not dominate, and i t w i l l p r e c l u d e g e t t i n g into
the System very many banking i n s t i t u t i o n s which might advantageously be
included. I t w i l l spur t h e competition and antagonism which a l r e a d y e x i s t
between s t a t e banks and n a t i o n a l banks, and i t w i l l give s t a t e banks
immeasurably the advantage in o b t a i n i n g the d e p o s i t s of t h e country. Even
if i t should not be f e l t immediately, when b u s i n e s s q u i e t s down and assumes
i t s customary a s p e c t the d i s i n t e g r a t i o n of the Federal Reserve System w i l l
begin.
The c o n t r o l or censorship over loans on c o l l a t e r a l , by which i t
i s assumed t h a t stocks and bonds a r e meant (although i t i s nowhere s t a t e d
in t h e . . b i l l ) , would be an i n t o l e r a b l e p r o v i s i o n . How would t h e banks
l e n d t h e i r funds? There i s not s u f f i c i e n t commercial p a p e r . I t i s
known to everybody how t h e c o r p o r a t i o n s formerly accustomed to borrow
have provided themselves with working c a p i t a l by the i s s u e of s e c u r i t i e s .
There would remain then f o r t h e investment of banking c a p i t a l s e c u r i t i e s
of a l l c l a s s e s and r e a l e s t a t e , and the b i l l seeks to r e s t r i c t and
diminish loans of t h i s c h a r a c t e r .
The p r o v i s i o n which p e n a l i z e s the 15 day notes upon a l l c l a s s e s
of c o l l a t e r a l , including b i l l s r e c e i v a b l e , would p l a c e a burden on t h e
banks which the banks would not and could not t o l e r a t e .
The p r o v i s i o n which r e n d e r s member bank notes secured by
Government bonds i n e l i g i b l e as c o l l a t e r a l f o r Federal Reserve n o t e s would
inconvenience and r e s t r i c t the o p e r a t i o n s of Federal Reserve Banks i n
supplying currency in a manner which a t times might, and would, prove
d i s a s t r o u s . I f , a t the p r e s e n t time, paper secured by Government bonds
discounted by the Federal Reserve Banks were eliminated, i t would remove
about 450 m i l l i o n d o l l a r s of f r e e gold. The b i l l takes f o r g r a n t e d , of
course, t h a t such n o t e s would be r e p l a c e d by the discount of o r d i n a r y
b i l l s r e c e i v a b l e . This might or might not be the case. There a r e other
p r o v i s i o n s a f f e c t i n g t h e i s s u i n g powers of Reserve Banks a d v e r s e l y .
That p r o v i s i o n of t h e b i l l p r o h i b i t i n g the payment of i n t e r e s t
on demand d e p o s i t s i s one of the p r o v i s i o n s mentioned above which would
give s t a t e banks a tremendous advantage in competition f o r d e p o s i t s ,
which they would not be slow to u s e .
The p r o v i s i o n s of the b i l l f o r r e s e r v e requirements a r e so
r a d i c a l t h a t t h e y could not f a i l to be r e b e l l e d a g a i n s t .




X-7077
e-2
fen* Eugene Meyer * Governor#
Federal Reserve Board, Page 3.

January 29, 1932.

That p r o v i s i o n of the b i l l which aims to form a l i q u i d a t i n g
c o r p o r a t i o n contains in i t the germ of a good idea. But i t i s such an
innovation t h a t i t needs to be thought of from a l l angles, and i t should
not "be h a s t i l y passed u n t i l i t can "be thoroughly d i g e s t e d . The p r o v i s i o n
as drawn has such obvious d e f e c t s t h a t i t shows e i t h e r a l a c k of understanding or too g r e a t h a s t e in p r e p a r a t i o n . The l a t t e r i s b e l i e v e d to
c h a r a c t e r i z e t h e e n t i r e b i l l . The p r o v i s i o n f o r the l i q u i d a t i n g corporat i o n as drawn would leave no excess earnings of Federal Reserve Banks
to i n c r e a s e the s u r p l u s , and does not provide f o r making* £ocd d e p l e t i o n
of s u r p l u s from d e f i c i e n t earnings such as t h a t experienced l a s t year,
Another proposal in the b i l l which contains the germ of a good
idea, in my opinion, i s t h a t which provides f o r the formation of groups
of banks which may act as c l e a r i n g houses have h e r e t o f o r e a c t e d in rendering a i d to a bank in t r o u b l e , and which makes the o b l i g a t i o n s c r e a t e d
thereby e l i g i b l e f o r discount by Federal Reserve Banks but not e l i g i b l e
as s e c u r i t y f o r Federal Reserve n o t e s . This needs to be thoroughly coins i d e r ed by member banks themselves.
The p r o v i s i o n of the b i l l which makes changes in the manner
in which r e a l e s t a t e loans a r e made i s b e l i e v e d to be too complicated f o r
a d m i n i s t r a t i o n by country banks, in which we a r e accustomed to f i n d t h e
g r e a t e s t volume of r e a l e s t a t e loans, according to my experience.
The f i n a l p r o v i s i o n of t h e b i l l , which p r o h i b i t s c o r p o r a t i o n s of
the country from d e p o s i t i n g t h e i r funds with any but incorporated banking
i n s t i t u t i o n s i s probably not enforceable and would not be t o l e r a t e d by
the country I am s"ure.
Those p r o v i s i o n s of the b i l l which tend to c o n c e n t r a t e f a r
g r e a t e r power in the Federal Reserve Board and to make t h e Board in a l l
but d e t a i l s the o p e r a t o r s of Federal Reserve Banks, appear to tend t o wards a g r e a t c e n t r a l banking system, which I b e l i e v e could not be operated
with success in a country of t h i s magnitude and of such d i v e r s e i n t e r e s t s
and such d i v e r s e customs and p r a c t i c e s of banking. Furthermore, i t seems
to r e l i e v e d i r e c t o r s of Federal Reserve banking i n s t i t u t i o n s of a very
g r e a t p a r t of t h e i r i n i t i a t i v e and r e s p o n s i b i l i t y , and would c e r t a i n l y
I b e l i e v e tend in the course of time, i f not immediately, to lower t h e
c a l i b r e of the men who would undertake to occupy p o s i t i o n s of such r e s t r i c t ed r e s p o n s i b i l i t y .
I b e l i e v e t h a t t h i s b i l l w i l l be t o r n to p i e c e s by the banks
of the country, and t h a t i t would be almost a crime to attempt i t s h a s t y
passage.




X-7C*7
6—2

Hon. Eugene Meyer, Governor,
Federal Reserve Board, page 4.

January 29, 1932,

The b i l l if enacted into law w i l l have a s e v e r e l y depressing
e f f e c t upon Government s e c u r i t i e s . The mere o f f e r i n g of the b i l l may
have some adverse e f f e c t .
I t i s , of course, a d r a s t i c d e f l a t i o n a r y b i l l .
Very t r u l y yours,
GJS-CGP




(S)

George J . Seay
GEO. J . SEAY,

Governor.

C

O

P

Y
FEDERAL W&&V& BANK

X-7077
f-1

OF ATLANTA
January 29, 1932.
Mr. Eugene Meyer, Governor,
The Federal Reserve Board,
Washington, D. C.
Dear Governor Meyer;
Reference i s made to your telegram (Trans No. 1434), under
date of January 26th, asking my views with r e s p e c t to the B i l l , S. 3215,
introduced in t h e Senate by Senator Glass on January 21, 1932.
I f i r m l y b e l i e v e in the Federal Reserve Act. I t i s my own
b e l i e f t h a t the p r e s e n t s e s s i o n of Congress i s not an opportune time f o r
a thorough r e v i s i o n of the Federal Reserve Act, because of t h e g r e a t l y
d i s t u r b e d banking c o n d i t i o n s which now e x i s t . While I am e n t i r e l y in
accord with t h e purposes of the B i l l as expressed in the i n t r o d u c t o r y ,
I do not favor e n t i r e l y t h e plans proposed f o r t h e enactment of t h e s e
purposes. Although the importance of t h e measures i n c o r p o r a t e d in t h e
B i l l deserves much more study than I have been a b l e to give them in t h e
l i m i t e d a time a copy of i t has been a v a i l a b l e to me, I s h a l l express my
views on such s e c t i o n s of the B i l l as I deem comment n e c e s s a r y .
SECTION' 3 OF THE BANKING ACT OF 1932, amending paragraph 8
of t h e Federal Reserve Act.
I b e l i e v e t h a t some r e s t r i c t i o n should be p l a c e d on the use
of Federal r e s e r v e c r e d i t f o r s p e c u l a t i v e purposes, but t h a t t h e p r o v i s i o n s of t h i s s e c t i o n a r e e n t i r e l y too d r a s t i c .
SECTION 4 OF THE BANKING ACT OF 1932, amending t h e 25th p a r agraph of Section 4 of t h e Federal Reserve Act, with r e g a r d to t h e e l e c t i o n of Federal r e s e r v e bank d i r e c t o r s .
I am not in favor of t h i s amendment.
SECTION 5 OF THE BANKING ACT OF 1932, amending Section 7 of
t h e Federal Reserve Act, r e l a t i n g to earnings of Federal r e s e r v e banks.
I am opposed to t h i s amendment f o r t h e reason t h a t i t would
g r e a t l y weaken the Federal r e s e r v e banks. I am f i r m l y of t h e opinion
t h a t t h e r e should be no change in the p r o v i s i o n s of t h e p r e s e n t law r e l a t i n g to the d i s t r i b u t i o n of earnings of Federal r e s e r v e banks.
SECTION 6 OF THE BANKING ACT OF 1932, p r o v i d e s f o r a new
paragraph between the 5th and 6th paragraphs of Section 9 of the Federal
Reserve Act, r e q u i r i n g a f f i l i a t e s of a bank admitted to membership under
a u t h o r i t y of Section 9, during a p e r i o d of two years a f t e r the s e c t i o n
a s amended t a k e s e f f e c t , to make and f u r n i s h to t h e p r e s i d e n t of t h e bank
f o r transmission by him to t h e Federal Reserve Board, not l e s s than t h r e e
r e p o r t s during each y e a r , e t c .



8*7

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FEDERAL RESERVE BANK OF ATLANTA
Federal Reserve Board
Washington, D. C.

-2-

1-29-32

I am in accord with t h i s p r o v i s i o n except t h a t I do not think
the p e r i o d f o r which the r e p o r t s a r e to be rendered should be l i m i t e d .
SECTION 8 OF THE BANKING ACT OF 1932, amending Section 11(e) of
the Federal Reserve Act r e l a t i n g to the r e c l a s s i f i c a t i o n of r e s e r v e c i t i e s .
Inasmuch as I am opposed to Section 16 of t h e B i l l , I see no
j u s t i f i c a t i o n f o r t h i s amendment.
SECTION 9 OF THE BANKING ACT OF 1932. amending Subsection(m) of
Section 11 of t h e Federal Reserve Act.
This amendment gives t h e power to the Federal Reserve Board to
f i x from time to time f o r each Federal r e s e r v e d i s t r i c t the percentage of
i n d i v i d u a l bank c a p i t a l and s u r p l u s which may be r e p r e s e n t e d by c o l l a t e r a l
secured loans by member banks w i t h i n such d i s t r i c t .
I am not in favor of t h i s amendment, but b e l i e v e the c r e d i t
extension and c o l l a t e r a l requirements of member banks should be allowed to
remain with t h e i r managements.
SECTION 10 OF THE BANKING ACT OF 1932, p r o v i d i n g f o r a new
s e c t i o n HA of t h e Federal Reserve Act.
This new s e c t i o n a u t h o r i z e s Federal Reserve Banks, with the
consent of the Federal Reserve Board, to make advances to groups of member
banks within t h e i r d i s t r i c t s , and provides t h a t such loans a r e not to be
e l i g i b l e as c o l l a t e r a l s e c u r i t y to Federal r e s e r v e n o t e s . This apparently
i s designed f o r a r e l i e f measure, and under the conditions the Federal Reserve Bank of A t l a n t a has experienced and i s experiencing, t h e Atlanta r e serve bank, under s i m i l a r c o n d i t i o n s , would not be in a p o s i t i o n to a f f o r d
much, i f any, r e l i e f to any bank under t h i s p r o v i s i o n of law.
SECTION 11 OF THE BANKING ACT OF 1932 r e s t r i c t s member banks in
making loans to t h e i r a f f i l i a t e s , both as to amount and as to kind of
collateral security.
I am in accord with t h i s p r o v i s i o n .
SECTION 12 OF THE BANKING ACT OF 1932, enacting a new s e c t i o n
12A of t h e Federal Reserve Act.
This section c r e a t e s a Federal Open Market Committee.
I am in accord w i t h t h i s p r o v i s i o n in the B i l l as i t r e l a t e s to
System account, except t h a t I do not t h i n k t h a t the members of t h e committee
appointed by the boards of d i r e c t o r s of the Federal r e s e r v e banks should be
s u b j e c t to the confirmation of t h e Federal Reserve Board, but t h a t they
should be s u b j e c t to removal f o r j u s t cause by the Federal Reserve Board.
SECTION 12B OF THE BANKING ACT OF 1932, e s t a b l i s h i n g t h e Federal
Liquidating Corporation.




FEDERAL RESERVE BANK OF ATLANTA
Federal Reserve Board
Washington, D. C.

X-7077
f k

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8 9

1-29-32

I am u n a l t e r a b l y opposed to t h i s p r o v i s i o n in the B i l l f o r t h e
reason t h a t t h e c a p i t a l to be f u r n i s h e d the corporation f o r use i n l i q u i d a t i n g
the a s s e t s of c l o s e d member banks i s to be f u r n i s h e d by the Federal r e s e r v e
banks and t h e i r members. Federal r e s e r v e banks would be weakened by the
amount of t h e c a p i t a l s u b s c r i p t i o n charged to i t s s u r p l u s , and under t h e
p r o v i s i o n s of Section 5 of t h i s B i l l , a l l earnings of Federal r e s e r v e
banks would be p a i d to the Federal L i q u i d a t i n g Corporation. In t h e event
a Federal r e s e r v e bank had an o p e r a t i n g d e f i c i t ( d e p r e c i a t i o n and l o s s e s )
such d e f i c i t would n e c e s s a r i l y f u r t h e r reduce i t s s u r p l u s and would make
necessary the postponement of t h e payment of dividends u n t i l such time
as they were earned. There i s no p r o v i s i o n f o r r e s t o r i n g t h e s u r p l u s of
Federal r e s e r v e banks, e i t h e r by earnings in excess of dividend requirements,
or by any o t h e r method.
I am opposed to t h i s s e c t i o n of the B i l l f o r t h e f u r t h e r reason
t h a t the member banks a r e r e q u i r e d to f u r n i s h c a p i t a l equal to one-half of
one per centum of t h e i r t o t a l outstanding net time and demand d e p o s i t s f o r
which they would r e c e i v e stock in the Federal L i q u i d a t i n g Corporation, The
a s s e t s of t h i s c o r p o r a t i o n would n e c e s s a r i l y be of a slow n a t u r e , and the
member banks would, under t h e law, be f o r c e d to use t h e i r f u n d s f o r a slow
investment. I b e l i e v e t h a t t h i s p r o v i s i o n in t h e B i l l would be very o b j e c t
t i o n a b l e to the member banks, even to the extent t h a t some would be l o s t
to membership in the Federal Reserve System.
SECTION' 13 OF THE BANKING ACT OF 1932, amending the 7th p a r agraph of Section 13 of the Federal Reserve Act, p r o v i d i n g f o r a one per
centum higher r a t e than the r e d i s c o u n t r a t e on a member b a n k ' s 15-day promissory note, and p r o h i b i t i n g a member bank from i n c r e a s i n g i t s c o l l a t e r a l
n o t e s during the term of such 15-day borrowings.
I am not i n f a v o r of t h i s amendment f o r the reason t h a t l e g i t i m a t e b u s i n e s s needs of the customers of the member bank who w i l l be a b l e
to secure t h e i r n o t e s with investment stocks or bonds as c o l l a t e r a l , c o u l d
not be met by t h e bank uqder p r o v i s i o n s of t h i s s e c t i o n . I would favor an
amendment not provided f o r in the B i l l p e r m i t t i n g Federal r e s e r v e banks to
discount d i r e c t n o t e s of member banks secured by e l i g i b l e paper f o r a p e r i o d
of n i n e t y days.
SECTION 14 OF THE BANKING ACT OF 1932, p r o v i d i n g f o r a d d i t i o n a l
subsection of Section 14 of t h e Federal Reserve Act, r e l a t i v e to t h e r e l a t i o n s h i p s and t r a n s a c t i o n s between Federal r e s e r v e banks and f o r e i g n banks.
I am in accord with the purpose of t h i s amendment.
SECTION 15 OF THE BANKING ACT OF 1932 amends the second, t h i r d
and f o u r t h paragraphs of Section 16 of t h e Federal Reserve Act, r e l a t i v e to
t h e issuance of Federal r e s e r v e n o t e s .
I am in accord with the proposed amendments to t h i s s e c t i o n .
I b e l i e v e t h a t e v e n t u a l l y t h e promissory notes of member banks acquired under
the p r o v i s i o n s of Section 13, secured by d e p o s i t s or pledge of bonds of the



FEDERAL RESERVE BANK OF ATLANTA
Federal Reserve Board
Washington, D. C.

90
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1-29-32

United S t a t e s should be declared i n e l i g i b l e as c o l l a t e r a l s e c u r i t y to Federal
r e s e r v e n o t e s . However, in my opinion, t h i s exception i s not d e s i r a b l e a t the
p r e s e n t time because of the unusual demands f o r currency which have r e c e n t l y
been in evidence, and f o r t h e reason t h a t the Government w i l l r e q u i r e t h e f u l l
cooperation of t h e member banks in the f l o t a t i o n of l a r g e i s s u e s of s h o r t
term Government s e c u r i t i e s in the near f u t u r e .
SECTION 16 OF THE BACKING ACT OF 1932, amending Section 19 of the
Federal Reserve Act, with r e s p e c t to member bank r e s e r v e requirements.
The proposed B i l l provides f o r an i n c r e a s e of 10$, 7sb and 4$ in
the r e s e r v e s r e q u i r e d to be maintained with Federal r e s e r v e banks a g a i n s t
time d e p o s i t s ( e x c l u s i v e of t h r i f t d e p o s i t s ) by banks l o c a t e d in c e n t r a l r e serve c i t i e s , r e s e r v e c i t i e s , and other c i t i e s , r e s p e c t i v e l y .
I am of the opinion t h a t any i n c r e a s e in t o t a l r e s e r v e s r e q u i r e d
would be met with opposition from our member banks. I b e l i e v e t h a t r e s e r v e s
a g a i n s t time and demand d e p o s i t s should be c a l c u l a t e d on the same b a s i s ,
but a t a r a t e which would produce a t o t a l volume of r e s e r v e s approximately
equal to our member bank r e s e r v e d e p o s i t s under p r e s e n t requirements.
I am in accord with the p r o v i s i o n s of t h i s s e c t i o n which p r o h i b i t a member bank from a c t i n g as the medium or agent of any non-banking
c o r p o r a t i o n or i n d i v i d u a l in making loans secured by c o l l a t e r a l , and which
provide t h a t no member bank s h a l l make loans and discount paper f o r any
c o r p o r a t i o n or i n d i v i d u a l who s h a l l , a t t h e time of making or renewing any
such loan, have o u t s t a n d i n g such loans secured by c o l l a t e r a l i n favor of any
investment banker, b r o k e r , member of any stock exchange, or d e a l e r in
securities.
I do not favor t h e amendment in t h i s s e c t i o n which r e q u i r e s
t h a t a f e e be charged f o r t h e s a l e or t r a n s f e r of a member b a n k ' s excess
b a l a n c e , and which a l s o r e q u i r e s a u t h o r i t y of t h e Federal Reserve Board f o r
such s a l e or t r a n s f e r .
I am not i n favor of the p r o v i s i o n t h a t r e q u i r e s the a d d i t i o n
of t h e l i a b i l i t y c r e a t e d by repurchase or o t h e r s i m i l a r agreements to the
net d i f f e r e n c e of amounts (hie to and from o t h e r banks, in computing r e s e r v e
requirements.
SECTION 17 OF THE BANKING ACT OF 1932, amending Section 24
of t h e Federal Reserve Act with r e s p e c t to r e a l e s t a t e l o a n s , e t c .
I do not favor t h e p r o v i s i o n in t h i s s e c t i o n r e q u i r i n g the
Comptroller of t h e Cur render a t the time of each examination of a bank to
r e v i s e the v a l u a t i o n s of r e a l e s t a t e securing l o a n s , and to r e q u i r e a d j u s t ments in the amounts of such loans according to the r e v i s e d v a l u a t i o n s .
I am in accord with the p r o v i s i o n l i m i t i n g the aggregate amount
of r e a l e s t a t e loans to 15$ of the amount of the c a p i t a l stock a c t u a l l y
p a i d in and unimpaired, and to 15$ of i t s unimpaired s u r p l u s , or to one-half
of i t s time and t h r i f t d e p o s i t s .
I do not t h i n k investments in bank premises and unsecured
loans whose eventual s a f e t y depends upon the value of r e a l e s t a t e should be
counted as r e a l e s t a t e l o a n s . I do, however, t h i n k t h a t some o t h e r l i m i t a t i o n
should be made on investment in bank premises.



!,

FEDERAL RESERVE SANK OF ATLANTA
Federal Heserve Soar4
Washington, D. Ci

X-707*7
f-1
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91

1-29-32

In the l i m i t e d time I have had to study the B i l l , I am not
prepared to express my views with r e f e r e n c e to t h a t p a r t of t h i s s e c t i o n
a u t h o r i z i n g t h e balance of time and t h r i f t d e p o s i t s to be i n v e s t e d in p r o p e r t y
and s e c u r i t i e s in which savings banks may i n v e s t under the S t a t e law, and
the requirement t h a t t h e r e c e i v e r of an i n s o l v e n t bank apply t h e p r o p e r t y
acquired under t h i s s e c t i o n r a t a b l y and p r o p o r t i o n a t e l y to t h e payment of
time and t h r i f t d e p o s i t s .
SECTION 18 OF THE BANKING ACT OF 1932, amending paragraph 7
of Section 5106 of t h e Revised S t a t u t e s , with r e s p e c t to investment powers
of n a t i o n a l banks.
I do not favor t h e amendment r e q u i r i n g the Comptroller of the
Currency, by r e g u l a t i o n , to p r e s c r i b e the amount of investment s e c u r i t i e s
t h a t a n a t i o n a l bank may purchase f o r i t s own account. I t h i n k t h i s should
be determined by the management of the bank. There does not appear to
me to be any o t h e r p r o v i s i o n in t h i s section t h a t i s s e r i o u s l y o b j e c t i o n a b l e .
SECTION 19 OF THE BANKING ACT OF 1932, amending Section 5138
of t h e Revised S t a t u t e s , by adding a t t h e end a new paragraph r e l a t i n g to
t h e amount of c a p i t a l of n a t i o n a l banks.
I am in favor of t h i s amendment except t h a t I do not favor
the p e n a l t i e s f o r non-compliance, a s , in my opinion, they a r e too d r a s t i c .
SECTION 20 OF THE BANKING- ACT OF 1932 provides for an amendment to Section 5139 of the Revised S t a t u t e s , with regard to the p a r value
of c e r t i f i c a t e s of stock of n a t i o n a l banks, and p r o v i d e s t h a t no c e r t i f i c a t e r e p r e s e n t i n g t h e stock of any banking a s s o c i a t i o n s h a l l r e p r e s e n t the
stock of any o t h e r c o r p o r a t i o n .
A f t e r c a r e f u l study of these p r o v i s i o n s , I am of t h e opinion
t h a t Section 5139 of t h e Revised S t a t u t e s should not be amended a t t h i s
time.
SECTION 21 OF THE BANKING ACT OF 1932, r e l a t i n g to o f f i c e r s
and employees of member ban% serving as o f f i c e r s and employees of any corp o r a t i o n , a s s o c i a t i o n , c o p a r t n e r s h i p , or i n d i v i d u a l , engaged in t h e purchasing, s e l l i n g , or n e g o t i a t i n g s e c u r i t i e s .
In my opinion the abuses a r i s i n g out of such r e l a t i o n s h i p s
a r e not of enough importance to j u s t i f y t h i s p r o v i s i o n .
SECTION 22 OF THE BANKING ACT OF 1932, amending Section 5144
of the Revised S t a t u t e s , with regard to the v o t i n g of stock.
This amendment i s so c l o s e l y connected with Section 24 of
t h e B i l l t h a t my views w i l l be expressed in connection with t h a t s e c t i o n .
SECTION 23 OF THE BANKING ACT OF 1932, with r e g a r d to oaths
of s t o c k h o l d e r s .



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Federal Reserve Board
Washington, D. C.

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1-29-32

This amendment i s also so c l o s e l y connected with Section 24
of the B i l l t h a t my views w i l l be expressed in connection with t h a t s e c t i o n .
SECT 1017 24 OF THE BACKING ACT OF 1932, r e l a t i v e
r i g h t s of n a t i o n a l banks' stock h e l d by a f f i l i a t e s .
The p r o v i s i o n s of Sections 22-, 23 and 24 would,
opinion, be so o b j e c t i o n a b l e t h a t many n a t i o n a l banks would
non-member S t a t e banks, thereby weakening both the n a t i o n a l
and t h e Federal r e s e r v e system, and s t a t e bank member would
membership, thereby f u r t h e r weakening the System.

to the voting
in my
convert into
bank system
withdraw from

SECTION 25 OF THE BANKING ACT OF 1932, amending paragraph (c)
of Section 5155 of t h e Revised S t a t u t e s with r e s p e c t to branches of
n a t i o n a l banks.
Because of the short time which I have had to study the
p r o v i s i o n s of t h i s s e c t i o n , I am not prepared to express an opinion a t
present.
SECTION 27 OF THE BANKING ACT OF 1932, amending t h e f i r s t two
sentences of Section 5197 of the Revised S t a t u t e s r e l a t i n g to i n t e r e s t
charged by n a t i o n a l banks.
I am in accord with t h i s amendment.
SECTION 28 OF THE BANKING- ACT OF 1932, l i m i t i n g t h e r a t e of
i n t e r e s t which member ban?cs a r e p e r m i t t e d to pay on d e p o s i t s .
I do not favor t h i s amendment f o r t h e reason t h a t member
banks come in competition with non-member S t a t e banks which a r e not subj e c t to such r e s t r i c t i o n s with regard to i n t e r e s t p a i d on d e p o s i t s .
SECTION 29 OF THE BANKING ACT OF 1932, amending Section 5200
of the Revised S t a t u t e s , r e l a t i v e to l i m i t a t i o n s of loans of n a t i o n a l
banks to one p e r s o n .
I have not s t u d i e d t h i s amendment s u f f i c i e n t l y to express an
opinion a t t h i s time.
SECTION 31 OF THE BANKING ACT OF 1932, amending Section 5211
of the Revised S t a t u t e s , by adding a new paragraph r e q u i r i n g r e p o r t s of
a f f i l i a t e s of n a t i o n a l banks.
I am in favor of t h a t p a r t of t h i s amendment which r e q u i r e s
a f f i l i a t e s to render r e p o r t s to t h e Comptroller of the Currency, b u t I
am not in favor of r e q u i r i n g an a f f i l i a t e to p u b l i s h i t s e n t i r e p o r t f o l i o
when indebted to t h e bank in excess of 5$ of i t s c a p i t a l and s u r p l u s .
SECTION 32 OF THE BANKING ACT OF 1932, amending Section 5240
of the Revised S t a t u t e s , by adding a paragraph r e l a t i n g to examination
of a f f i l i a t e s of n a t i o n a l or member banks.



I
FEDERAL RESERVE BAM OF ATLANTA
Federal Reserve Board,
Washington, D. C.

X-7077
f-1
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I am in favor of the amendment a u t h o r i z i n g an examiner
in making an examination of a member hank to make an examination
of the a f f a i r s of a l l a f f i l i a t e s of such banks, but I b e l i e v e the
p e n a l t i e s p r e s c r i b e d f o r non-compliance a r e too severe.
SECTION 33 OF THE BANKING ACT OF 1932 provides f o r add i t i o n of another s e c t i o n 8A to the Clayton Anti Trust Act.
I am not in favor of t h i s a d d i t i o n to the Clayton. Act f o r
the reason t h a t , in my opinion, i t i s e n t i r e l y too severe.




Yours very t r u l y
(Signed)

Oscar Newton
Federal Reserve Agent.

93

ItC O P Y

95:

X-7077
g-1

FEDERAL RESERVE BANK OF CHICAGO
230 SOUTH LA SALLE STREET

January 25, 1932

Federal Reserve Board
Washington, D. C.
Mr. Chester M o r r i l l , Secretary
Gentlemen;
I a p p r e c i a t e your promptness in sending us copies of the
Senate B i l l lio. 3215, introduced by Senator Glass on January 21.
We a r e , of course, d i s t u r b e d by the p r e s e n t a t i o n of t h i s
B i l l a t j u s t t h i s time, p a r t i c u l a r l y with r e f e r e n c e to the r a d i c a l
changes which i t imposes upon the c o n d i t i o n s of membership in the
Federal Reserve System and i t s r e a c t i o n on the i n d i v i d u a l member
banks. The e l i m i n a t i o n from a p r a c t i c a l standpoint of Government
bonds as e l i g i b l e f o r borrowings from the Federal Reserve banks
alone seems very inopportune in connection with the p r e s e n t Treasury
program, a s we a r e convinced t h a t a l a r g e p r o p o r t i o n of the holdings of Government bonds by banks a r e so h e l d because of t h e i r
eligibility.
We t r u s t that a c t i o n on t h i s B i l l may be delayed u n t i l
a more opportune time and t h a t the viewpoint of p r a c t i c a l banking
may be h e a r d .
Very t r u l y yours,
(Signed)

Eugene M. Stevens.
C h ,a i r m a n

EMS HH




k

FEDERAL RESERVE RANK OF CHICAGO

95

TELEGRAM
240gb

X—7077
G-2

Chicago Jan 29 252p
Meyer
Board Washington
Answering your r e q u e s t f o r my views on senate b i l l 5215 my primary r e a c t i o n i s t h a t l e g i s l a t i o n proposing so much of r a d i c a l changes in
conduct of banking s t r u c t u r e i s exceedingly in-opportune during present
disturbed conditions.
Believe i t w i s e r t o d e f e r any a c t i o n whatever than i n s t i t u t e fundamental changes j u s t now. Application of t h e o r i e s proposed are so much at
variance with a c t u a l and necessary p r a c t i c e in operation growing out of
experience of p r a c t i c a l bankers t h a t would expect strong p r o t e s t from
member banks everywhere and g r e a t l y l e s s e n t h e i r d e s i r e to continue memb e r s h i p i n system. Consider proposed b i l l would i n p r a c t i c e l a r g e l y
destroy e f f i c a c y of system in what i t was e s t a b l i s h e d to perform with
s t r o n g p r o b a b i l i t y of d r a s t i c weakening of n a t i o n a l system by conversion
i n t o s t a t e banks and otherwise minimizing i t s e f f i c i e n c y .
Believe passage would r e s u l t i n p r a c t i c e in g r e a t c o n t r a c t i o n in
a v a i l a b l e f e d e r a l r e s e r v e c r e d i t and would be marked d e f l a t i o n a r y measure
a t t h i s time. P r o v i s i o n p r o h i b i t i n g making of c o l l a t e r a l loans while bank
was borrowing on governments would i n p r a c t i c a l l y every case completely
estop them from any use of such c r e d i t in p r a c t i c e . Whatever may be
proper theory of bond secured currency, the f a c t s a r e t h a t p r e s e n t l y and
u s u a l l y , Federal Reserve c r e d i t t o members i s over 50 p e r c e n t based on
government bond borrowings.
Member banks have without q u e s t i o n c a r r i e d the g r e a t e r p o r t i o n of
the government f i n a n c i n g because of i t s e l i g i b i l i t y and i f dependent only
on markets f o r l i q u i d i t y would without doubt g r e a t l y decrease t h e i r
p r e s e n t h o l d i n g s . F u r t h e r , by reason of g r e a t amount of p u b l i c
f i n a n c i n g by c o r p o r a t i o n s s i n c e enactment of Act, percentage of e l i g i b l e
paper o f f e r e d t o member banks and i n t h e i r p o r t f o l i o s has g r e a t l y decreased. The f i v e p r i n c i p a l banks i n City of Chicago on l a s t c a l l showed
about 24% of d e p o s i t s invested i n U S bonds and l e s s than 6<f0 thereof i n
e l i g i b l e paper and acceptances, and i t i s probable t h a t average of a l l
member banks i n t h i s d i s t r i c t would not be over 10$ t o 15% of d e p o s i t s
in e l i g i b l e p a p e r .
In seeking l i q u i d i t y t o r e p l a c e t h e i r government bonds, which
would become in p r a c t i c e i n e l i g i b l e and f o r s u b s t i t u t e employment of t h e i r
d e p o s i t s , of which so small a p r o p o r t i o n i s r e q u i r e d i n commodity
t r a n s a c t i o n s , temptation would be almost i r r e s i s t i b l e t o employ them on
c a l l money markets a g a i n s t s e c u r i t i e s , thus d i r e c t l y d e f e a t i n g purposes
aimed a t i n proposed b i l l .
P r o v i s i o n f o r ten bank j o i n t borrowing on i n e l i g i b l e paper would
only be used in extreme emergency and in very few cases and trould not be
e f f i c a c i o u s excepting t o v e r y l i m i t e d degree i n extending f e d e r a l Reserve
c r e d i t . More p r a c t i c a l extension of such c r e d i t in emergency could be
e f f e c t e d without v i o l a t i o n of p r i n c i p a l of e l i g i b i l i t y and b a s i s of
currency i s s u e by extending m a t u r i t y of e l i g i b l e paper from n i n e t y days
to s i x months, p o s s i b l y with p e n a l t y r a t e , to banks i n d i v i d u a l l y as a t



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X-7077 !,
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£

present.

90

B i l l seems t o be drawn on assumption t h a t a l l s e c u r i t y loans are
s p e c u l a t i v e l o a n s . Truth i s t h a t very g r e a t p r o p o r t i o n thereof are
e n t i r e l y l e g i t i m a t e banking s e r v i c e with no r e l a t i o n whatever t o
s p e c u l a t i v e purposes. In my personal opinion perhaps b e s t index of
s t r i c t l y s p e c u l a t i v e loans are those made t o i n d i v i d u a l s by stock brokers
through t h e i r margin a c c o u n t s , which i s a form of banking b u s i n e s s i n no
way under d i r e c t government r e g u l a t i o n . I f s p e c u l a t o r s had t o make
t h e i r i n d i v i d u a l loans with t h e i r banks d i r e c t i n s t e a d of b r o k e r s ,
s p e c u l a t i v e tendencies would be g r e a t l y checked i n times of i n f l a t i o n .
Do not t h i n k e s s e n t i a l s t r e n g t h of f e d e r a l r e s e r v e hanks should
be impaired by c o n t r i b u t i o n s from s u r p l u s t o l i q u i d a t i n g c o r p o r a t i o n , nor
t h a t t h e i r e f f i c i e n c y i n t h e i r p r e s e n t r e s p o n s i b l e f u n c t i o n s and t h e i r
s t a n d i n g i n communities which they serve be impaired by t h e i r undertaking
management of l i q u i d a t i n g and consequent f o r c i n g c o l l e c t i o n of a s s e t s of
closed banks. Am i n sympathy w i t h some r e g u l a t i o n and examination of
a f f i l i a t e s and curbing t h e i r a c t i v i t i e s i n merchandising of stocks but
consider proposed r e g u l a t i o n s a l t o g e t h e r too d r a s t i c a t t h i s t i m e . This
a l s o a p p l i e s t o c e r t a i n r e g u l a t i o n s imposed on group and chain banking
systems. Consider f a v o r a b l y some r e v i s i o n of l e g a l r e s e r v e s on time
d e p o s i t s upward but should be accompanied by a c a r e f u l c o n s i d e r a t i o n of
e f f e c t of increased aggregate r e s e r v e d e p o s i t s i n f e d e r a l r e s e r v e banks.
Without commenting s p e c i f i c a l l y on other proposed changes from
p r e s e n t r e g u l a t i o n s , recognize some p r o v i s i o n s worth f a v o r a b l e considerat i o n . Also recognize attempt to apply c e r t a i n economic t h e o r i e s but
s t r o n g l y b e l i e v e some of them a r e not only untimely but proposed methods
of a p p l i c a t i o n a r e i m p r a c t i c a l i f not impossible.




Eugene 1,1. Stevens.
427p

FEDERAL RESERVE BJEK OF CHICAGO
TELEGRAM
194gb

I

97

X-7077
G-S

Chicago Jail 29 1255 p
Moyer
Board Washington
In response to the r e q u e s t contained i n your telegram 26th i n s t a n t f o r
an expression of my views concerning Senate b i l l No 3215 upon due cons i d e r a t i o n I submit the f o l l o w i n g :
The p r o v i s i o n s of t h i s b i l l would s t i m u l a t e d i s s a t i s f a c t i o n on
tho p a r t of member banks, would r e s u l t in withdrawals from the system,
and would remove t o a l a r g o extent the i n c e n t i v e f o r o t h e r banks t o become members.
The c a p i t a l s t r u c t u r e of the Federal Reserve System would be
s e r i o u s l y impaired through the a p p l i c a t i o n of 25% of i t s s u r p l u s t o supply
c a p i t a l f o r t h e suggested Federal L i q u i d a t i n g Corporation, and t h a t p r o v i s i o n under which f u t u r e excess earnings of Federal Reserve Banks would
r e v e r t t o the said corporation would leave the Federal Reserve Banks
without any means of r e s t o r i n g t h e i r s u r p l u s accounts: This i n tho f a c e
of p o s s i b l e l o s s e s and o t h e r charges to the s u r p l u s which i n tho n a t u r a l
course of events a r c bound t o occur as time goes on. Without questioning
the n e c e s s i t y or a d v i s a b i l i t y of e s t a b l i s h i n g some o r g a n i z a t i o n of tho
c h a r a c t e r described I f i r m l y b e l i e v e t h a t i t would be a s e r i o u s mistake
t o impose upon the Federal Reserve Banks the o b l i g a t i o n to supply any p a r t
of t h e n e c e s s a r y c a p i t a l or the r e s p o n s i b i l i t y involved i n the management
and o p e r a t i o n of any such c o r p o r a t i o n . The compulsory s u b s c r i p t i o n s f o r
the c a p i t a l of tho proposed c o r p o r a t i o n imposed upon member banks would
n a t u r a l l y be r e s e n t e d .
The r e s t r i c t i o n s imposed on loans made by member banks, b a s i s
c o l l a t e r a l s e c u r i t i e s , impress mo as unduly severe and would impose an
i n j u s t i c e on a c l i e n t e l e which i s m a n i f e s t l y e n t i t l e d t o reasonable c r e d i t
acc ommodat ions•
Tho b i l l e x p r e s s l y p r o h i b i t s the use of member b a n k ' s promissory
notes secured by Government bonds as c o l l a t e r a l f o r Federal Reserve n o t e s ,
and t h i s i n my opinion would s e r i o u s l y impair the a b i l i t y of t h e Federal
Reserve System t o f u n c t i o n i n the m a t t e r of meeting demands f o r currency.
The proposed p e n a l t y r a t e on loans t o member banks supported by government
s e c u r i t i e s would impose an u n j u s t and s e r i o u s hardship upon those member
hanks which, i n the absence of an adequate supply of e l i g i b l e p a p e r , have
purchased government bonds f o r the express purpose of borrowing on them
if necessary.
I b e l i e v e tho Federal Reserve Banks should not be denied the
r i g h t , w i t h i n reasonable l i m i t a t i o n s , to engage i n open market o p e r a t i o n s ,
which would not be p e r m i s s i b l e under the sweeping p r o v i s i o n s embodied i n
the b i l l .
There a r e some o t h e r o b j e c t i o n a b l e f e a t u r e s which would make f o r
d i s s a t i s f i e d membership, and a l s o some f a v o r a b l e p r o v i s i o n s . Viewing the
b i l l as a whole, i f enacted i n t o law, I b e l i e v e the r e s u l t s would bo
d e s t r u c t i v e r a t h e r than c o n s t r u c t i v e . The a b i l i t y of tho Federal
Reserve banks t o f u n c t i o n , even i n normal times, would bo s e r i o u s l y im-




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p a i r e d and i t would bo impossible f o r thorn to copo with s e r i o u s
emergencies, as and when they a r i s e .
Under a l l circumstances, I f . o l t h a t i t would bo extremely
u n f o r t u n a t e i f the b i l l as w r i t t e n should become the law.




IicDougal, Governor.
234p

X

"Tl 1

99

f e d e r a l Reserve Bank of St. Louis
S t . Louis Jan 29

Telegram
Meyer - Washington
Experience shows t h a t as a r u l e "bad times make bad laws and i t i s d e s i r a b l e to
make d r a s t i c changes only a f t e r most c a r e f u l and u n h u r r i e d c o n s i d e r a t i o n , except
so f a r as an emergency e x i s t s . Therefore i t i s suggested t h a t only p o r t i o n of
Glass b i l l r e q u i r i n g immediate a t t e n t i o n i s s e c t i o n 12 "B" c r e a t i n g a Federal
l i q u i d a t i n g c o r p o r a t i o n . This should be covered i n a s e p a r a t e b i l l so t h a t unh u r r i e d c o n s i d e r a t i o n can be given to o t h e r p o r t i o n s of b i l l . I t seems unwise
and u n f a i r to weaken Federal Reserve System to r e q u i r e net earnings i n accordance s e c t i o n 5 be p a i d to Federal L i q u i d a t i n g Corporation and have government
f u r n i s h f u n d s to take care non member s t a t e banks. I t would seem b e t t e r to
have government f u r n i s h e n t i r e amount and not c a l l on member banks f o r s u b s c r i p t i o n s . As t h i s s e c t i o n now w r i t t e n , i t i s i n nature of guarantee of bank
d e p o s i t s , p u t t i n g on good banks the burden of c a r r y i n g the bad ones. Section 12
"A" c r e a t i n g f e d e r a l open market committee and section 14 proposing changes to
section 14 of Federal Reserve Act take away independent c h a r a c t e r of twelve Fede r a l Reserve Banks and make a c e n t r a l bank of the System. I t changes c h a r a c t e r
of Federal Reserve Board from advisory and supervisory body and p u t s upon i t the
r e s p o n s i b i l i t y of o p e r a t i n g and in so doing i s l i a b l e to impair i t s j u d i c i a l
balance. Section 17, i n c o r r e c t l y p r i n t e d s e c t i o n 19 i n senate b i l l , would i n crease the amount of r e s e r v e s t h a t p r a c t i c a l l y a l l banks would have to carry and
r e s u l t in c o n t r a c t i o n of c r e d i t . I t would r e s u l t i n a confusion of the reserve
problem r a t h e r than h e l p i n g i t s s o l u t i o n . Section 13, p l a c i n g higher r a t e on
15 day c o l l a t e r a l notes would work g r e a t hardship on many banks, l a r g e and small,
who have found i t more convenient to use t h i s method of borrowing f o r a g r i c u l t u r e ?
and commercial purposes, e s p e c i a l l y in emergencies when under t h i s method of borrowing, they can forward to Federal Reserve Bank and pledge e l i g i b l e c o l l a t e r a l
and then as emergency develops send i n 15 day note f o r such funds as needed,
which we can s h i p by a i r p l a n e or method b e s t s u i t e d to meet emergency. Instead
of p e n a l i z i n g 15 day note would be d e s i r a b l e to a u t h o r i z e c o l l a t e r a l n o t e s of not
to exceed 90 days m a t u r i t y . In t h i s d i s t r i c t 15 day notes have enabled us to
render a s s i s t a n c e i t would have been d i f f i c u l t to render i f l i m i t e d e n t i r e l y to
rediscount o p e r a t i o n . At t h i s time p e n a l t y r a t e on government s e c u r i t i e s and
s e c t i o n 15, p r o h i b i t i n g c o l l a t e r a l notes secured by government bonds as s e c u r i t y
f o r f e d e r a l r e s e r v e n o t e s , u n f o r t u n a t e as i t w i l l discourage purchase of governments, as w e l l as reducing note i s s u i n g power of r e s e r v e bank. Third paragraph
s e c t i o n 15 and f o u r t h paragraph same s e c t i o n would seem to l i m i t use of gold as
r e s e r v e . Section 19 f o r c i n g n a t i o n a l banks to have c a p i t a l setup not l e s s than
15 p e r c e n t of t h e i r d e p o s i t l i a b i l i t i e s i s good p r o v i s i o n . This b i l l as i t stands
might f o r c e so many member banks, n a t i o n a l and s t a t e , out of t h e system t h a t the
system would cease to e x i s t . I t i s a d e f l a t i o n a r y measure.




Martin
203p

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FEDERAL RESERVE BAtiK OF ST. LOUIS
TELEGRAM

X^-7077
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214&>

S t . Louis Jan 30 1216p
Meyer
Washington
Generally the l o c a l r e a c t i o n t o g l a s s b i l l has been u n f a v o r a b l e . I t i s
believed t h e i n t e n t of the b i l l i s good and t h a t the committee was
prompted by a d e s i r e t o keep the f e d e r a l r e s e r v e banks l i q u i d , improve
the managements of t h e member banks and make funds of d e p o s i t o r s s a f e .
The fundamental e r r o r of committee l i e s i n i t s seeming b e l i e f t h a t a
l e g i s l a t i v e formula w i l l i n i t s e l f produce good bank management# There
must be a s many good bank management as t h e r e a r e banks, otherwise banks
w i l l continue t o close and d e p o s i t o r s w i l l continue t o l o s e money. The
b i l l has not attempted i n a d e f i n i t e way t o provide f o r removal of bad bank
managements, S e c t i o n t h r e e docs charge F e d e r a l Reserve Banks with informing themselves as t o l o a n and investment p o l i c i e s of member banks and empowers F e d e r a l Reserve Board t o suspend o f f e n d i n g members f o r one year from
the use of c r e d i t f a c i l i t i e s of system. This has value but w i l l n o t r e s u l t
i n permanent change of bad p o l i c i e s . The only way t o change bad p o l i c i e s
i s t o change management. Power should bo lodged i n some body, e i t h e r
Federal Reserve Board or some s p e c i a l group t o remove bad management p r o vided bank d i r e c t o r s cannot be persuaded t o remove them s t o p S e c t i o n s f i v e
and twelve B should be eliminated and the o r g a n i z a t i o n of f e d e r a l l i q u i d a t i n g
c o r p o r a t i o n handled s e p a r a t e l y as emergency l e g i s l a t i o n . Any such a i d a s
proposed should be extended by government both a s t o t h e member and nonmember banks s t e p the s e c t i o n s r e l a t i n g t o c o n t r o l of a f f i l i a t e s a r e i n a
number of r e s p e c t s i m p r a c t i c a l . I n some r e s p e c t s they a r e a l l r i g h t . The
comptroller should be given power of s u p e r v i s i o n over n a t i o n a l a f f i l i a t e s
and of c o r r e c t i o n i n t h e same degree a s I n case of N a t i o n a l Banks. Federal
Reserve Board should be given t h e same power i n r e s p e c t t o s t a t e members
except c o r r e c t i o n could only extend t o f o r f e i t u r e of membership i n System.
Investment a f f i l i a t e s have s u f f e r e d such l o s s i n p r e s t i g e t h a t t h e i r value
t o t h e i r banks has been g r e a t l y decreased s t o p Section s i x r e q u i r e s
s t a t e members t o comply with a l l the requirements of the a c t a p p l i c a b l e
t o National Banks. Might t h i s be construed t o include examinations by
National Bank Examiners thereby n u l l i f y i n g exception provided i n paragraph
seven Section n i n e of t h e a c t stop Section e i g h t should be discarded s t o p
Soction nine i n i t s p r e s e n t form would render i t d i f f i c u l t f o r a member bank
t o f u n c t i o n i n a c e n t r a l r e s e r v e c i t y s t o p Section t e n should be discarded
stop S e c t i o n s t h i r t e e n and f i f t e e n d i s c r i m i n a t e u n j u s t l y a g a i n s t a proper
farm of member bank borrowing. P r a c t i c a l l y a l l of the r e s e r v e c i t y banks i n
e i g h t h d i s t r i c t v o l u n t a r i l y use c o l l a t e r a l note f o r borrowing b o t h with
Governments and e l i g i b l e paper as c o l l a t e r a l . Also many country member banks
f i n d i t a more convenient form of borrowing. If p e r m i t t e d f o r
n i n e t y days with e l i g i b l e paper most member banks would p r e f e r i t s t o p
Section f i f t e e n c o n t a i n s r e s e r v e requirements f o r F e d e r a l Reserve n o t e s
t h a t would unduly r e s t r i c t currency o p e r a t i o n s stop Section s i x t e e n i s a




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X—7077
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disappointment i n i t s f a i l u r e t o attempt t o s c i e n t i f i c a l l y change r e s e r v e
requirements s t o p Section Seventeen attempts t o make r e a l e s t a t e loans
s a f e r f o r member banks but i t s p r o v i s i o n s a r e so involved as t o render the
s e c t i o n d i f f i c u l t f o r p r a c t i c a l operation i n member banks. I t i s q u e s t i o n able i f commercial banks should be permitted t o make r e a l e s t a t e l o a n s .
I t might be i n the i n t e r e s t of s a f e r banking t o withdraw t h e p r i v i l e g e and
permit banks a p e r i o d of say t h r e e t o f i v e y e a r s t o dispose of such loans
now held stop S e c t i o n n i n e t e e n might i n the i n t e r e s t of l i b e r a l i t y t o
smaller u n i t banks be changed from f i f t e e n pcrcentum t o twelve and one
h a l f percentum.




Wood

C0 P Y

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FEDERAL RSSESVE BAM OJ* MllfiTBAPOLIS

± 0 2

1-1

T E L E GRAM
213gb
Minneapolis Jan 29 1230p
Eugene Meyer,
Washington
A f t e r p e r s o n a l l y studying S F 3215 in d e t a i l and analyzing i t
paragraph by paragraph in conference with our o f f i c e r s we a r e of
the opinion t h a t the b i l l would be d e s t r u c t i v e of the membership
of t h i s bank f o r reasons h e r e i n a f t e r c i t e d .
With the c r i t i c i s m s and comments in the a n a l y s i s of Mr. Walter
Wyatt, we unanimously and emphatically agree, b u t d e s i r e to add
the following supplementary comments.
The burdensome c a p i t a l stock and r e s e r v e requirements could
not be met by the r u r a l members of t h i s bank who a r e numerically
in t h e g r e a t m a j o r i t y , without heavy s e l l i n g of governments and
other s e c u r i t i e s to t h e i n j u r y of the bond market.
The p r o v i s i o n s f o r t h e i n c r e a s e of the gold cover f o r f e d e r a l
reserve notes is a f u r t h e r deflationary influence.
Section 3 i s impractical and so r e s t r i c t i v e t h a t i t would
d r i v e our more important member banks out of membership.
Section 4 i s h i g h l y dangerous and u n f a i r . I t s p r a c t i c a l
e f f e c t would be to deprive one t h i r d of the member banks in our
d i s t r i c t h o l d i n g two t h i r d s of the t o t a l member banks d e p o s i t s
from voting in the e l e c t i o n of d i r e c t o r s , while a t the same time
compelling them to remain stockholders.
Section 9 i s ambiguous and unsound and would work hardship on
member banks while p e r m i t t i n g d i s c r i m i n a t i o n between r e s e r v e
districts.
In t h i s and other s e c t i o n s t h e word 11 Collateral 1 1 i s very
l o o s e l y used and should be s p e c i f i c a l l y d e f i n e d . In t h i s d i s t r i c t
c o l l a t e r a l means warehouse r e c e i p t s on a g r i c u l t u r a l and o t h e r
commodities, b i l l s of l a d i n g , c h a t t e l mortgages on l i v e s t o c k and
as w r i t t e n t h i s s e c t i o n would s e r i o u s l y i n j u r e important l i v e s t o c k and a g r i c u l t u r a l i n t e r e s t s .
Section 10 i s unworkable and we doubt the n e c e s s i t y or
d e s i r a b i l i t y of any such group a c t i o n .
In r e g a r d to s e c t i o n 12,. we recommend t h a t t h e r e be no change
in the procedure or o p e r a t i o n s of tho p r e s e n t open market committee.
Section 12 B i s i m p r a c t i c a l , unwieldy, u n f a i r to member banks
and would involve t h e system in the l i q u i d a t i o n of non member banks
over which i t has no j u r i s d i c t i o n . In the l i g h t of our own experience
we doubt t h e a b i l i t y of such an o r g a n i z a t i o n to make a p r o f i t or of
member banks to o b t a i n any r e t u r n on t h e i r stock investment under a
l i q u i d a t i o n charge which i s l i m i t e d to s i x p e r c e n t and if i n t e n t of
the s e c t i o n i s s t r i c t l y followed.




-

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" n 103

We "believe a l l the o b j e c t s of t h i s s e c t i o n can h e b e t t e r
a t t a i n e d by the r e c o n s t r u c t i o n corporation a l r e a d y s e t up.
We s t r o n g l y o b j e c t to section 13 which would handicap t h i s
bank in many cases where i t much p r e f e r s to take the promissory note
of a member bank to r e d i s c o u n t i n g i t s p a p e r .
As to s e c t i o n 14 G> we b e l i e v e that a l l agreements, formal
or informal, between any Federal Reserve Bank or banks and any
f o r e i g n bank or bankers, should be under t h e c o n t r o l of t h e Federal
Reserve Board and t h a t t h e r e should b e a p r o v i s i o n of law to t h i s
e f f e c t , but a s w r i t t e n , the s e c t i o n i s r e s t r i c t i v e to the p o i n t of
absurdity.
We disapprove of t h e amendments of s e c t i o n 15 and s e c t i o n 16
of the Federal Reserve Act which would i n c r e a s e the gold cover f o r
Federal Reserve n o t e s , which under p r e s e n t c o n d i t i o n s would be
embarassing.
We a r e s t r o n g l y opposed to p r o v i s i o n s of s e c t i o n 16 r e c l a s s i f y ing member bank d e p o s i t s and i n c r e a s i n g t h e p r o v i s i o n f o r r e s e r v e s
aa unduly burdensome upon member banks, e s p e c i a l l y under p r e s e n t
c o n d i t i o n s , and l i k e l y to f o r c e many of them out of membership.
Section 17 i s very u n f a i r and dangerous to country banks
long on farm r e a l e s t a t e loans and d i s c r i m i n a t e s a g a i n s t them and
in favor of competing non member banks. I t e v i d e n t l y intends to
throw s a f e - g u a r d s around t h e segregation of t h r i f t and time d e p o s i t s ,
but as drawn i s incomplete and ambiguous and would r e s u l t i n great
confusion in case of i n s o l v e n c i e s . This s e c t i o n would l i m i t t h e
investment in l o t and b u i l d i n g of a new bank to 15 p e r c e n t of i t s
c a p i t a l and s u r p l u s .
Section 18 i s very o b j e c t i o n a b l e in t h a t i t b a r s l o a n s , as well
as investments, of a l l new corporations f o r f i v e years of t h e i r
e x i s t e n c e , and to any e x i s t i n g c o r p o r a t i o n which during t h e f i v e
y e a r s p r e v i o u s has not been able to c o n s i s t e n t l y maintain earnings
of f o u r p e r c e n t of i t s c a p i t a l .
I t i s impossible to determine t h e percentage of earnings upon
t h e o u t s t a n d i n g c a p i t a l stock of a c o r p o r a t i o n whose s t o c k has no
par value.
The p r o v i s i o n s of s e c t i o n 19 would r e q u i r e an unnecessary
i n c r e a s e of approximately 35 percent of t h e member bank c a p i t a l in
t h i s d i s t r i c t , an amount impossible f o r them to r a i s e under p r e s e n t
c o n d i t i o n s . This would put many of them out of busine ss or f o r c e
them out of membership and with such increased c a p i t a l l a r g e numbers
of banks now experiencing very u n s a t i s f a c t o r y earnings would be
put in such a p o s i t i o n as to be unable to make an adequate r e t u r n
on t h e i r c a p i t a l .
The p r o v i s i o n s of s e c t i o n 20 a r e unnecessary.
We would be concerned about t h e adoption of s e c t i o n 24 (B)
and {C) because many of our member banks a r e " a f f i l i a t e s " , as t h a t
term i s used in the a c t , and we b e l i e v e t h a t these paragraphs would




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r e s u l t in t h e s e banks l e a v i n g the n a t i o n a l banking system and i% the
case of s t a t e banks, membership in t h e Federal Reserve System.
The b i l l i s very l o o s e l y drawn, c o n t r a d i c t o r y in some r e s p e c t s ,
and as to some of i t s p r o v i s i o n s t h e r e i s s e r i o u s doubt of t h e i r
c o n s t i t u t i o n a l i t y . As to s e c t i o n s r e g a r d i n g which no comment i s
made, we a r e in accord w i t h Mr. Wvatt's comments and c r i t i c i s m s .
M i t c h e l l , and Geery.




333p.

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FEDERAL RESERVE BANK OF KANSAS CITY
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278
Governor Meyer
Washington
In response t o your telegram of the 26th the following comments on Senate
B i l l 5215 are submitted as our views, formulated a f t e r the n e c e s s a r i l y
h u r r i e d study of the b i l l and a f t e r c o n s u l t a t i o n with o t h e r o f f i c e r s of
the bank and with our counsel. We are not making comments on those p r o v i s i o n s of the proposed b i l l in which we concur or to which we see no p a r t i c u l a r o b j e c t i o n a t t h i s time. Throughout tho a c t i t should be made p l a i n
j u s t what the meaning i s of such terms as " C o l l a t e r a l l o a n s " "Loans on
c o l l a t e r a l " e t c s e c t i o n 3: We b e l i e v e t h a t the making of a normal volume
of loans on stock and bond c o l l a t e r a l i s a p e r f e c t l y l e g i t i m a t e banking
f u n c t i o n , and t h a t t h i s f a c t should be recognized by any law designed t o
curb the improper use of member bank or F e d e r a l Reserve Bank c r e d i t . This
s e c t i o n appears t o unduly r e s t r i c t the e x e r c i s e of such f u n c t i o n . I m p r a c t i c a l
f o r Federal Reserve Bank t o keep c u r r e n t l y informed a s to loan and
investment p r a c t i c e s of member banks.
Section 4 : We a r e i n sympathy w i t h such r e s t r i c t i o n s a s may be
necessary t o prevent s u b s t a n t i a l c o n t r o l of F e d e r a l Reserve Bank
d i r e c t o r s by branch, group or chain bank Systems, but we do not b e l i e v e
t h e r e should be such a broad d e n i a l of r e p r e s e n t a t i o n i n e l e c t i o n s of
Federal Reserve Bank d i r e c t o r s .
Section 5 : Such a d i s p o s i t i o n of Federal Reserve Banks earnings
i s c o n t r a r y t o t h e s p i r i t and i n t e n t , of the F e d e r a l Reserve Act, and
would, i n theory a t l e a s t , c u r t a i l the a b i l i t y of Federal Reserve banks
t o extend c r e d i t i n time of need, and reduce the a b i l i t y t o pay
dividends t o member banks during years when t h e r e a r e no Federal Reserve
Bank p r o f i t s .
Section 8: We t h i n k t h a t our banking system, a s developed with
the Federal Reserve System, has made obsolete the old p l a n of r e s e r v e
c i t y c l a s s i f i c a t i o n s # We b e l i e v e the recommendations by the Committee
on Bank Reserves should bo f o l l o w e d .
Section 9: This p r o v i s i o n p l a c e s too much sjtmer and r e s p o n s i b i l i t y i n the F e d e r a l Reserve Board, and contains elements of danger t o
the system. We think any l e g a l p r o v i s i o n of t h i s kind should make i t p l a i n
t h a t t h e r e w i l l be no i n t e r f e r e n c e with any member bank which i s c a r r y i n g
f o r i t s customers not more than a normal amount of loans secured by
stocks and bonds. I n t h i s connection, we think i t w e l l t o mention t h a t
the proceeds of some loans so secured are used f o r commercial purposes,
and t h a t the proceeds of some l o a n s , unsecured or secured by o t h e r
c o l l a t e r a l than s t o c k s and bonds, may be used f o r s p e c u l a t i n g i n s t o c k s
and bonds.
S e c t i o n 10: We t h i n k i t i s wrong in p r i n c i p l e t o make Federal Reserve c r e d i t a v a i l a b l e f o r i n e l g i b l o purposes and on the b a s i s of f r o z e n
c o l l a t e r a l . In any event such a p r o v i s i o n should be safeguarded by




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l i m i t a t i o n s as t o amount and d u r a t i o n of advances and p r o v i s i o n t h a t the
F e d e r a l Reserve Board s h a l l have f u l l information as t o the purpose of
advance and n a t u r e and value of c o l l a t e r a l to be pledged by i n d i v i d u a l
banks b e f o r e consent i s given. We do not b e l i e v e t h a t operations under
sueh a p r o v i s i o n of law would prove t o be of p r a c t i c a l v a l u e .
Section 11: Wo b e l i e v e the c o l l a t e r a l permitted f o r loans t o
a f f i l i a t e s under t h i s s e c t i o n should be made more i n c l u s i v e and should
s p e c i f i c a l l y include conforming r e a l e s t a t e mortgages. In t h i s connection
some of the s t a t e s do not s p e c i f y t h e c h a r a c t e r of investments which may
be made by savings banks.
S e c t i o n 12: A: I t occurs to us t h a t i n order t o f a c i l i t a t e
emergency a c t i o n , an executive committee or some s m a l l e r body than t h e
whole committee should have power t o a c t . T h i r t y days appears
u n n e c e s s a r i l y long p e r i o d f o r Federal Reserve Banks t o accept p a r t i c i p a t i o n .
S e c t i o n 12: B: As s t a t e d under s e c t i o n 5 , we o b j e c t to t h e
p r i n c i p l e of such an employment of F e d e r a l Reserve Banks r e s o u r c e s . We
b e l i e v e f u r t h e r t h a t the F e d e r a l Reserve Bonks, as managers of t h e
l i q u i d a t i n g c o r p o r a t i o n and as c r e d i t o r s of suspended banks would be placed
i n an anomalous p o s i t i o n , and t h a t i f such a corporation i s e s t a b l i s h e d
i t should be e n t i r e l y s e p a r a t e and a p a r t from the Federal Reserve System.
We f u r t h e r b e l i e v e t h a t compulsory assessment of member banks f o r s t o c k
i n the c o r p o r a t i o n i s improper and w i l l tend t o d r i v e members from
system.
S e c t i o n 15: See no reason f o r any d i f f e r e n c e i n r a t e or o t h e r
d i f f e r e n c e s , i n extending c r e d i t on member bank n o t e s secured by e l i g i b l e
paper and extending c r e d i t flspugh. r e d i s c o u n t of e l i g i b l e p a p e r . As t o
member bank n o t e s secured by governments, we b e l i e v e a higher r a t e p r o v i s i o n i s o b j e c t i o n a b l e a t t h i s p a r t i c u l a r time and so long as banks a r e
encouraged t o a s s i s t i n Treasury f i n a n c i n g . The o t h e r p r o v i s i o n s of t h i s
s e c t i o n , i f taken l i t e r a l l y , would s e r i o u s l y i n t e r f e r e with a member
b a n k ' s normal and proper loaning o p e r a t i o n s , and a r e much more d r a s t i c than
they need be t o prevent abuse of F e d e r a l Rqserve Bank c r e d i t .
Section 15: Beliovo the p r o v i s i o n of t h i s s e c t i o n making member
bank notes secured by Government s e c u r i t i e s i n e l i g i b l e as c o l l a t e r a l t o
Federal Reserve n o t e s i s o b j e c t i o n a b l e a t t h i s p a r t i c u l a r time and so
long a s member banks a r e encouraged t o a s s i s t i n Treasury f i n a n c i n g , and
t h a t the p r o v i s i o n l i m i t i n g acceptances e l i g i b l e as c o l l a t e r a l to Federal
Reserve notes t o those made a g a i n s t shipment of goods a c t u a l l y s o l d i n
the f o r e i g n t r a d e cf the United S t a t e s i s a l s o o b j e c t i o n a b l e .
Section 16: We b e l i e v e t h a t any r e v i s i o n of the r e s e r v e r e q u i r e ments should be a complete r e v i s i o n which i n our judgment should be
based on the p r i n c i p l e s c a l l e d a t t e n t i o n to i n the r e p o r t of the committee
on bank r e s e r v e s . I t i s p a r t i c u l a r l y d e s i r a b l e t h a t the r e s e r v e r e q u i r e ment make proper allowances f o r cash i n v a u l t , to e l i m i n a t e many
i n e q u i t i e s now e x i s t i n g between banks i n Federal Reserve and branch
c i t i e s and banks l o c a t e d elsewhere.




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The p r o v i s i o n s of paragraph C are not r e a d i l y understandable * I f l i n e s 10 to
14, page 37, mean t h a t a member bank s h a l l not loan to a customer who i s a t
the same time borrowing from an investment banker, b r o k e r , e t c , such a r e s t r i c t i o n i s unwarranted from any viewpoint. If t h i s wording means t h a t a
member bank da a l l not loan to a customer who i s a t the same time loaning to
an investment banker, b r o k e r , e t c , the p r o v i s i o n i s too a r b i t r a r y and comprehensive, since not a l l l o a n s to investment bankers, brokers, e t c , are made to
f a c i l i t a t e s p e c u l a t i o n or a r e of such a nature t h a t payment thereof can be
had on demand. C e r t a i n l y a member bank should not be r e q u i r e d to take a
sworn statement every time a loan i s made or renewed, in order to avoid a
v i o l a t i o n of law. Paragraphs E and J are not c l e a r , I h e r e should be no i n t e r f e r e n c e whatever w i t h the t r a n s f e r of member bank balances through the
Federal Beserve Banks, so long as such t r a n s f e r s a r e i n the usual course of
b u s i n e s s . The r e f e r e n c e to purchase of o t h e r s i m i l a r agreements should be
a m p l i f i e d by d e f i n i S i b a #
In t h i s connection, i t might be advisable to i n clude i n the law t h a t a resource item r e p r e s e n t i n g a s a l e of Federal Reserve
exchange s h a l l be c l a s s i f i e d as a l o a n .
Section 17: There should be no f u r t h e r r e s t r i c t i o n of t o t a l amount
of r e a l e s t a t e loans which a member bank may make and such loans should be
confined to conforming r e a l e s t a t e l o a n s . To include bank premises and unsecured l o a n s based on the value of r e a l e s t a t e would p l a c e many banks in a
p o s i t i o n where necessary adjustments could not be made w i t h i n two y e a r s .
The p r e s e n t l i m i t a t i o n s on conforming r e a l e s t a t e l o a n s t o f i v e year terms and
to f i f t y p e r cent of market value are such safeguards t h a t t h e r e should be no
requirement f o r p e r i o d i c r e v a l u a t i o n and a d j u s t m e n t . The p r o v i s i o n f o r segreg a t i n g a s s e t s i n which time and t h r i f t d e p o s i t s are i n v e s t e d i s unsound i n our
opinion. The p r o v i s i o n s of t h i s s e c t i o n would, we b e l i e v e , be d e t r i m e n t a l to
the n a t i o n a l banking system and f o r c e the withdrawal of many member banks.
Section 18: The p r o v i s i o n l i m i t i n g investments i n bonds and s e c u r i t i e s o t h e r than governments and municipals to f i f t e e n p e r c e n t of c a p i t a l and
twenty f i v e p e r cent of s u r p l u s would prove a tremendous hardship on many
member banks, and i s , in our opinion, an u n n e c e s s a r i l y low l i m i t . The p r o v i sion t h a t no member bank s h a l l purchase or hold any o b l i g a t i o n of any corporat i o n f a i l i n g to earn f o u r p e r cent on c a p i t a l stock f o r each of the preceding
f i v e y e a r s i s a r b i t r a r y and unwarranted. The word "Obligation" i n t h i s p r o v i s i o n might be held to include c u r r e n t notes of the c o r p o r a t i o n , under a
s t r i c t i n t e r p r e t a t i o n . F a r t h e r p o s s i b l e e f f e c t of the p r o v i s i o n i s to deny
c r e d i t f a c i l i t i e s of n a t i o n a l banks to new and worthy c o r p o r a t i o n s .
Section 19: There i s such a v a r i a t i o n in the s i z e of banks and the
nature of b u s i n e s s handled, both between i n d i v i d u a l banks and between d i f f e r e n t s e c t i o n s of the country, t h a t we do not b e l i e v e an a r b i t r a r y r a t i o of
c a p i t a l funds to d e p o s i t s can be made a p r a c t i c a l or an e q u i t a b l e p r o v i s i o n
of law. In small and medium s i z e banks o p e r a t i n g expenses, i n c l u d i n g t a x a t i o n on bank s h a r e s , are so high in r e l a t i o n to maximum earning c a p a c i t y t h a t
a high r a t i o of d e p o s i t s to c a p i t a l funds i s necessary to a proper r e t u r n on
the c a p i t a l . A l i m i t a t i o n of t h i s k i n d , c e r t a i n l y one of f i f t e e n p e r c e n t ,
would be a decided hardship on many member banks and would undoubtedly b r i n g
about withdrawals from the n a t i o n a l banking system.




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Soction 20: We seo no o b j e c t i o n t o p e r m i t t i n g bank shares t o
r e p r e s e n t a p r o p o r t i o n a t e ownership i n a f f i l i a t e d c o r p o r a t i o n s .
S e c t i o n 21: The p r o v i s i o n t h a t an o f f i c e r of a member bank s h a l l
not bo an o f f i c e r or employee of a s e c u r i t i e s company should be q u a l i f i e d
by excepting a f f i l i a t e d companies. Tho p r o v i s i o n p r o h i b i t i n g a member
bank from performing the f u n c t i o n s of a car respondent bank on behalf
of s e c u r i t i e s companies should not prevent a member bank from a c c e p t i n g
d e p o s i t s and performing ordinary bank s e r v i c e s f o r such companies.
S e c t i o n 22: Depriving a c o r p o r a t i o n or holding company owning more
than t e n percent of the stock of a n a t i o n a l bank of r i g h t to vote such
s h a r e s might d r i v e a number of n a t i o n a l banks out of the system,
p a r t i c u l a r l y where a m a j o r i t y of the stock of such bank i s owned by
holding company. This s e c t i o n i s a l s o objected t o on the ground t h a t i t
would deprive a t r u s t e e or other f i d u c i a r y of tho r i g h t t o vote stock
held i n t r u s t e s t a t e .
S e c t i o n 23: Believe the p r o v i s i o n i s o b j e c t i o n a b l e i n t h a t i t
a p p l i e s only to s h a r e h o l d e r s becoming such a f t e r March 1 , 1934, as s h a r e h o l d e r s p r i o r t o t h a t date may continue ownership of stock of a f f i l i a t e
the d i s c r i m i n a t i o n a s a g a i n s t subsequent shareholders not based on any
rational distinction.
S e c t i o n 24: Our views as to t h i s s e c t i o n a r e r e f l e c t e d i n
comments on S e c t i o n s 22 and 23.
We c o n s i d e r a l l of the conditions s e t f o r t h i n t h i s s e c t i o n , f o r
obtaining a p e r m i t , a r e p r o p e r , with the exception of s u b d i v i s i o n E, which
appears too d r a s t i c .
S e c t i o n 28: P r o h i b i t i n g payment of i n t e r e s t on d e p o s i t s s u b j e c t
to check, which would a p p a r e n t l y include bank b a l a n c e s , would p l a c e
member banks under a tremendous handicap i n comparison with nonmcoiber banks.
Member banks would be prevented from a c t i n g as d e p o s i t a r i e s f o r s t a t e s
and m u n i c i p a l i t i e s where s t a t u t e s provide f o r payment of i n t e r e s t .
Soction 2.9: Paragraph A - Such an a r b i t r a r y p r o v i s i o n does not
p r e s c r i b e a proper t e s t f o r c r e d i t r i s k .
Paragraph B — Tho a c t i v i t i e s of on. i n d i v i d u a l or c o r p o r a t i o n o t h e r than
an a f f i l i a t e should not deprive the i n d i v i d u a l or c o r p o r a t i o n of the
b e n e f i t s of the exceptions t o s o c t i o n 5200, i f they a r e otherwise
e n t i t l e d t o such b e n e f i t s .
Paragraph C - The second paragraph of t h i s subsection i s ambiguous i n i t s
p r e s e n t form. See no reason why cash dividends should not be used f o r
c a p i t a l i z i n g an a f f i l i a t e , with unanimous consent of s t o c k h o l d e r s .
S e c t i o n 30: Our views with r e f e r e n c e t o the l a t t e r p a r t of t h i s
s e c t i o n a r e contained i n comments concerning s e c t i o n 9.
S e c t i o n 31: Wo a r e i n sympathy with having r e p o r t s f i l e d by
a f f i l i a t e s , but b e l i e v e t h a t t h i s p r o v i s i o n would p l a c e n a t i o n a l banks a t
a disadvantage a s compared with s t a t e member banks.
Section 32: We t h i n k examination of a f f i l i a t e s i s d e s i r a b l e , but
question the r e a s o n f o r timing the period to two y e a r s .
S e c t i o n 33: The p r o v i s i o n s of t h i s s e c t i o n appear t o us to be too
f a r reaching and unreasonable i n t h e i r terms. Some l o s s s t r i n g e n t p r o v i s i o n should serve to c o r r e c t the abuses aimed a t .




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Hamilton and McClure

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COPY

FEDERAL HlSHRVH £AJ£ OP DALLAS

X-7077
k-1

T 3 L E G JR A U
FEDERAL RESERVE SYSTEM
(Leased Wire Service)
209gb

Received a t Washington, D. C.

D a l l a s 1201 p J a n . 30

Meyer
Washington
In compliance your w i r e January 26 we have given as c a r e f u l c o n s i d e r a t i o n as time would permit to senate "bill 3215 and submit t h e f o l l o w i n g . We
f a v o r i n p r i n c i p l e some of the purposes sought to be accomplished "by t h i s
M i l , such a s a more e f f e c t i v e c o n t r o l of s p e c u l a t i o n , "better s u p e r v i s i o n
and r e g u l a t i o n of a f f i l i a t e s , f i x i n g the p a r value of member "bank s t o c k a t
one hundred d o l l a r s e t c , b u t t h e b i l l appears to u s to be l o o s e l y drawn and
ambiguous, e n t i r e l y too d r a s t i c in i t s p r o v i s i o n s and c a l c u l a t e d t o d r i v e
member banks from the system, thus j e o p a r d i z i n g both t h e r e s e r v e and n a t i o n a l
bank systems. We b e l i e v e i t should undergo c a r e f u l c o n s i d e r a t i o n and overh a u l i n g b e f o r e i t i s enacted i n t o law.
S e c t i o n 3 : We a r e i n sympathy w i t h the p r i n c i p l e t h a t advances should
be made f o r t h e accommodation of commerce, i n d u s t r y and a g r i c u l t u r e but in
our judgment t h i s s e c t i o n p r o v i d e s f o r an unwarranted i n t e r f e r e n c e and superv i s i o n of t h e a f f a i r s of member banks. The sentence beginning on l i n e 7
page 5 and ending on l i n e 10 c a l l s f o r a procedure t h a t would b e v e r y d i f f i c u l t f o r r e s e r v e banks to s u c c e s s f u l l y f o l l o w .
Section 4; While t h e general purpose of t h i s s e c t i o n racy not be und e s i r a b l e , i t would be v e r y d i f f i c u l t f o r Federal Reserve Banks to p r o p e r l y
construe and a c t under t h e l a s t p h r a s e of t h e s e c t i o n extending from l i n e s
two to s i x on page s i x .
S e c t i o n 5? Under terms of t h i s s e c t i o n no f e d e r a l r e s e r v e ban]: whose
surplus i s now or becomes below the s t a t u t o r y amount through the payment of
expenses and dividends or l o s s e s i n o p e r a t i o n and w r i t e o f f s would e v e r be
able to r e s t o r e i t . The s u r p l u s would become a d i m i n i s h i n g sum and conceivably over a period of time the c a p i t a l stock of a F e d e r a l Reserve Bank
could become impaired not to mention the p a s s i n g of d i v i d e n d s to member
banks,
S e c t i o n 6: Page
In l i n e s 4 and 5 member s t a t e banks a r e r e q u i r e d
to comply w i t h a l l the requirements of t h e f e d e r a l r e s e r v e a c t a p p l i c a b l e
to n a t i o n a l banks. In e f f e c t i t r e p e a l s the p r e s e n t p r o v i s i o n of t h e
Federal Reserve Act t h a t p e r m i t s member s t a t e ornks to r e t a i n t h e i r c h a r t e r
r i g h t s and s t a t u t o r y powers, such a s f i d u c i a r y powers. We doubt i f i t i s
intended to d e p r i v e member s t a t e banks of the concessions which a r e p e r m i t t e d
than under t h e p r e s e n t law, but such appears to be the e f f e c t , n e v e r t h e l e s s .
There a r e o t h e r changes i n t h i s s e c t i o n which we t h i n k should be made b u t
we w i l l not burden t h i s message with them.




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S e c t i o n 9« This i s p a r t i c u l a r l y an unwarranted e f f o r t to c o n t r o l
the o p e r a t i o n of member banks. Reasonable c o r r e c t i v e measures can "be i n augurated and enforced without r e s o r t i n g to t h i s proposed d r a s t i c r e g u l a t i o n s .
There a r e many member "banks y e t throughout the country t h a t a r e ably o f f i c e r e d
and supervised by capable boards of d i r e c t o r s . These i n s t i t u t i o n s would
r e s e n t t h i s e f f o r t to thus r e g u l a t e t h e i r a f f a i r s end probably seek r e l i e f
by withdrawing from t h e system. In t h i s paragraph and o t h e r s e c t i o n s of the
b i l l the word " C o l l a t e r a l " i s used as a synonym f o r investment s e c u r i t i e s .
Inasmuch a s t h e r e a r e many d i f f e r e n t k i n d s of c o l l a t e r a l t h a t form the b a s i s
of bank l o a n s t h a t a r e non s p e c u l a t i v e i n character, such as f o r example, .
b i l l s of l a d i n g , warehouse r e c e i p t s , c h a t t e l mortgages and other instruments
commonly hypothecated with banks to f i n a n c e movements of crops and merchand i s e , we t h i n k the b i l l should be c o r r e c t e d so as to c l e a r l y set out the
p a r t i c u l a r type of c o l l a t e r a l the f r a m a r s of t h e b i l l had in mind.
Section 10: We do not b e l i e v e t h a t any n e c e s s i t y e x i s t s f o r the
enactment of t h i s s e c t i o n of the b i l l , S i t u a t i o n s demanding concert of
a c t i o n on t h e p a r t of banks to save a l o c a l i n s t i t u t i o n can b e s t be handled
by them i n t h e i r own way w i t h such a s s i s t a n c e as may be rendered by the
reserve bank of the d i s t r i c t i n accordance with e x i s t i n g law. The f a c t t h a t
the note of t h e group banks would not be secured and not e l i g i b l e as c o l l a t e r a l f o r Federal r e s e r v e notes i s a f u r t h e r o b j e c t i o n a b l e f e a t u r e because
of the s h o r t a g e of e l i g i b l e paper which r e s e r v e banks now f r e q u e n t l y experience.
Section 12 A:
We see no reason f o r snaking a l e g a l body out of t h e
open market committee and hedging i t about with tho p r o v i s i o n s contained in
t h i s s e c t i o n . We b e l i e v e t h a t the a c t a s now i n f o r c e g r a n t s to t h e Federal
reserve board s u f f i c i e n t supervisory power in t h a t connection, a.t t h e same
time r e s e r v i n g to the s e v e r a l f e d e r a l Reserve Banks s u f f i c i e n t autonomous
powers to p r o t e c t them a g a i n s t any p l a n or p o l i c y inaugurated by the open
market committee which they may f e e l not i n t h e i r own i n t e r e s t or f o r the
w e l f a r e of t h e i r r e s p e c t i v e d i s t r i c t s .
Section 12 B: While we a p p r e c i a t e the motive r e f l e c t e d in t h i s section and o t h e r b i l l s having s u b s t a n t i a l l y the sane purpose, i t i s our f e e l ing t h a t t h e r e i s no j u s t i f i c a t i o n f o r t h e c r e a t i o n of a l i q u i d a t i n g
corporation in any form. The d e p o s i t s of a f a i l e d bank a r e invested i n the
notes and o t h e r a s s e t s of t h a t c o r p o r a t i o n . The l i q u i d a t i o n of t h e s e dep o s i t s i n t h e long run can come only from c o l l e c t i o n of the a s s e t s and only
to the e x t e n t t h a t they may be converted i n t o cash. The a r b i t r a r y a n t i c i pation of t h e c o l l e c t i o n of the a s s e t s by bringing f u n d s from the o u t s i d e
would tend t o c r e a t e an a r t i f i c i a l or i n f l a t i o n a r y s i t u a t i o n l o c a l l y , with
p o s s i b l e i n j u r y to the community when the funds a r e withdrawn a s t h e a s s e t s
a r e reduced to cash. Furthermore, when t h e proposed corporation l e n d s to
the r e c e i v e r what would probably be the maximum c o l l e c t i b l e value of the
a s s e t s , both the r e c e i v e r and the community would r e l a x t h e i r d i l i g e n c e in
enforcing payment of the f a i l e d banks n o t e s .
In many i n s t a n c e s d e p o s i t o r s
committees have been of a s s i s t a n c e to r e c e i v e r s i n c o l l e c t i n g a f a i l e d ban::'s
paper. In a d d i t i o n to t h i s , we do not t h i n k t h a t congress should attempt
to f o r c e member banks to make loans and investments. Member banks a r e
p r i v a t e l y owned and should be supervised but not d i r e c t e d in t h e i r investment




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p o l i c i e s . We b e l i e v e , too, t h a t in so f a r as Federal r e s e r v e "banks should
he r e q u i r e d to subscribe to the c a p i t a l stock of the l i q u i d a t i o n corpn
i t would he an u n j u s t if not u n c o n s t i t u t i o n a l c o n f i s c a t i o n of t h e i r
property and a step in the d i r e c t i o n of f r e e z i n g up t h e i r own a s s e t s and
impairing t h e i r u s e f u l n e s s as the r e s e r v o i r s of the. r e s e r v e s of t h e i r d i s t r i c t s . The proposal h e a r s some recemblence to the guaranty of d e p o s i t s .
Again, i t c a r r i e s some of the e v i l s of d e p o s i t s in a going hank, a g a i n s t
surety bonds of outside p u b l i c funds which a r e loaned l o c a l l y and which
when withdrawn o f t e n wreck both bank and community. Moreover, t h e measure
seems to contemplate t h a t we are to continue i n d e f i n i t e l y to have bank
f a i l u r e s as we have experienced them in r e c e n t months: whereas, we hope and
expect t h a t t h e time w i l l f oon come when a suspension i n t h i s country w i l l
be an unusual and r a r e happening. Even i f t h i s s e c t i o n i s sound i n
p r i n c i p l e and should be enacted i n t o law i t should be r e w r i t t e n , c l a r i f i e d
and made more workable.
Section 13: There i s no j u s t i f i c a t i o n , in our opinion, f o r applying
to f i f t e e n day notes a r a t e of i n t e r e s t higher than t h e rediscount r a t e a t
the r e s e r v e bank. The b e s t member banks i n t h i s d i s t r i c t get temporary
accommodation from us under a f i f t e e n day note, and we have regarded t h i s
p r a c t i c e on t h e i r p a r t a s evidence of conservatism and l i q u i d i t y a s well
as close a t t e n t i o n to t h e i r own a f f a i r s . We do not t h i n k t h a t any member
bank should be required to borrow money f o r a longer p e r i o d of time than
i t reasonably needs i t .
Section l 4 B: We recognize t h e f a c t t h a t the f e d e r a l r e s e r v e board
i s the c o u n t e r p a r t i n t h i s country as n e a r l y as may be of a f o r e i g n c e n t r a l
bank, and we agree t h a t a l l r e l a t i o n s and t r a n s a c t i o n s of the system and the
several f e d e r a l r e s e r v e banks with f o r e i g n bancs should be under the superv i s i o n of t h e Board; But we wonder i f t h e amendment proposed does not go
too f a r , with the r e s u l t t h a t f o r e i g n banks would h e s i t a t e to p a r t i c i p a t e
in n e g o t i a t i o n s and conferences with the f r a n k n e s s and thoroughness t h a t i s
desirable.
Section 15: I t would be u n f o r t u n a t e a t t h i s time p a r t i c u l a r l y i f
promissory n o t e s of member banks secured by government o b l i g a t i o n s would
be made i n e l i g i b l e as c o l l a t e r a l to secure- f e d e r a l r e s e r v e n o t e s . In
recent months the Federal reserve banks have been n o t i c e a b l y short on
c o l l a t e r a l which may be pledged w i t h t h e agent, ant1, t h e e l i m i n a t i o n of t h e
o b l i g a t i o n s mentioned would add to t h o i r d i f f i c u l t i e s . The recent expansion
in f e d e r a l r e s e r v e notes, i n c r e a s i n g about $1,200,000,000 over the amount
outstanding a year ago, h a s shown t h a t t h e demand f o r currency i s not
always accompanied by corresponding demands f o r a d d i t i o n a l r e s e r v e c r e d i t .
Section l 6 : For some time we have f e l t t h a t no d i s t i n c t i o n should
be made i n t h e r e s e r v e requirements as between t i n e and demand d e p o s i t s ,
and t h e r e f o r e we do not d i s f a v o r t h a t f e a t u r e of t h i s s e c t i o n : But we do
think t h a t any change in t h e reserve requirements of member banks should be
made only a f t e r thorough c o n s i d e r a t i o n by proper committees i n congress of
the report r e c e n t l y made by the s p e c i a l r e s e r v e committee of the system.




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Section l6-C: Member banks are j u s t i f i e d from time to time i n
making stock c o l l a t e r a l l o a n s to some of t h e i r customers, even in talcing
up loans p r e v i o u s l y h e l d "by brokers and o t h e r s end in l i n e with our comment upon o t h e r p r o v i s i o n s of the b i l l we f e e l t h a t t h e i n f l e x i b l e r u l e
s e t f o r t h on page 37» l i n e s 10 to 15, i s an unwarranted l i m i t a t i o n upon
the c o n t r o l of a bank by i t s o f f i c e r s and d i r e c t o r s .
In conclusion, we may say t h a t the b i l l r e p r e s e n t s an e f f o r t to
control member banks through d e t a i l e d s t a t u t o r y r e g u l a t i o n s and e v i d e n t l y
grows out of a chapter i n our f i n a n c i a l and c r e d i t h i s t o r y which may not
be repeated f o r many y e a r s ; Rather than to t r y to cover every f e a t u r e of
banking by s t a t u t e , we t h i n k a much b e t t e r plan i s to c l o t h e the Federal
Reserve Board with a proper measure of general and f l e x i b l e d i s c r e t i o n a r y
powers which w i l l enable i t to meet t h e changing n a t u r e of our economic d i s turbances without imposing undue h a r d s h i p s and unwarranted s u p e r v i s i o n and
l i m i t a t i o n s upon member banks.




McKinncy, and Walsh
237P

C O P Y

X-7077
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FEDERAL RES23VE BAM OF DALLAS
TELEGRAM

65 gb
Dallas

Feb. 2,

1025 a.m.

Meyer
Washington.
Supplementing our message of January t h i r t i e t h regarding Glass b i l l
we recommend t h a t s e c t i o n t h i r t y two page f i f t y nine be amended to
provide f o r examination of a f f i l i a t e s of s t a t e member banks by
examiners appointed or approved by Federal Reserve Board. The b i l l
as i t now stands a p p a r e n t l y l i m i t s the r i g h t of examination of a f f i l i a t e s
to examiners appointed by comptroller of currency whereas i n our
opinion t h e r e would be many cases in which i t would be d e s i r a b l e and
important t h a t a f f i l i a t e s of member s t a t e banks be examined by
Federal Reserve examiners. We t h e r e f o r e suggest t h a t s e c t i o n t h i r t y
two be amended by i n s e r t i n g the following c l a u s e in p a r e n t h e s i s
immediately f o l l o w i n g the word examiner in l i n e ten quote Whether
he be an examiner appointed by the Comptroller of Currency or an
examiner appointed by t h e Federal Reserve Board or a Federal Reserve
Bank unquote. We b e l i e v e t h i s change h i g h l y d e s i r a b l e i n order to
e x p r e s s l y c l o t h e Federal Reserve Banks with the power to examine
a f f i l i a t e s of both n a t i o n a l and member s t a t e banks.




McKinney, and Walsh.
I204p

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FEDERAL RESERVE BAKE 0? SAN FRMCISGO
TELEGRAM

X-7077
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236gfa
San Francisco Jan 30 1234pm
Governor Meyer
Washington
Pending p r e s e n t a t i o n other comments banking a c t of 1932 I would l i k e to
b r i n g t o your a t t e n t i o n S e c t i o n 17 which if adopted would s e r i o u s l y a f f e c t
c r e d i t of N a t i o n a l Banks, Ostensibly purpose i s t o give p r e f e r e n c e t o
time and t h r i f t d e p o s i t o r s over commercial d e p o s i t o r s and o t h e r c r e d i t o r s
of same bank# Unless d e f i n i t e l i m i t a t i o n s a r e placed on e x t e n t t o which
such d e p o s i t o r s may be p r e f e r r e d commercial d e p o s i t o r s n a t u r a l l y would be
r e l u c t a n t t o p a t r o n i z e bank so organized. I n t e n t i o n i s to secure savings
d e p o s i t o r s with c a p i t a l a s s e t s and commercial d e p o s i t o r s with l i q u i d a s s e t s .
Under C a l i f o r n i a Departmental law t h i s i s c a r r i e d out by c r e a t i n g i n e f f e c t
under one c h a r t e r two banks one engaging i n commercial banking having
s e p a r a t e c a p i t a l and one engaging i n savings banking l i k e w i s e c a p i t a l i z e d
and with r e s t r i c t i o n as t o c h a r a c t e r of a s s e t s which can be c a r r i e d i n
savings department, each department maintaining s e p a r a t e s e t of books. In
event of l i q u i d a t i o n no encroachment by c r e d i t o r s of one department can be
made upon o t h e r department except t h a t r e s i d u e i n one department, a f t e r
c r e d i t o r s claims a r e s a t i s f i e d i s a p p l i e d t o claims a g a i n s t o t h e r d e p a r t ment b e f o r e any r e t u r n i s made t o s t o c k h o l d e r s . C r e d i t o r s of s e p a r a t e
departments a r e on e q u i t a b l e b a s i s with a l l o t h e r c r e d i t o r s of same
department j u s t a s though, one bank only e x i s t e d . Should s e c t i o n 17 become
e f f e c t i v e i t would s e r i o u s l y impair value of a n a t i o n a l bank endorsement
which would r e s u l t i n curtailment of amount of c r e d i t obtainable and more
severe t e s t a p p l i e d t o paper which a n a t i o n a l bank may o f f e r f o r discount
a t r e s e r v e bank of correspondent bank. P r o v i s i o n s of s e c t i o n 17 a l s o
would unfavorably r e a c t upon acceptances of a n a t i o n a l bank.




Calkins