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1107 COPT FEDERAL RESERVE BANK X--J226 OF KANSAS CITY October 4th, 1921. Farmers State Bank, Genoa, Nebraska. Gentlemen* <• In the recent correspondence between Governor McKelvie of Nebraska and Governor Harding of the Federal Reserve Board, r e f e r e n c e i s made t o a telegram from you t o Governor McKelvie, reading as f o l l o w s : "The Farmers State Bank joined the Federal Reserve Bank two y e a r s ago and f o r the past s i x months, has rediscounted 1C$ i n t e r e s t - b e a r i n g n o t e s . Our records j u s t i f y me i n saying that we have made no p r o f i t s owing t o t h e i r changes of r u l e s and rediscount r a t e s . " Without reference t o p r o f i t s which your bank may or may not have received by reason of discounts placed w i t h t h e Omaha Branch, we are desirous t o have you w r i t e us t o what "changes of r u l e s and rediscount rates" you referred, which prevented you from p r o f i t i n g by discounting with us and lending t o your customers at the r a t e you named - 10$t Please a l s o advise us what d i f f i c u l t y * i f any, your bank has experienced i n rediscounting paper with the Omaha Branch, and what r u l e s caused you any inconvenience with which t o comply. We are asking t h i s i n good f a i t h , w i t h the purpose of b e t t e r i n g our s e r v i c e to member banks and your compliance w i t h our request w i l l be an evidence of your w i l l i n g n e s s t o co-operate w i t h u s i n that e f f o r t . Tours t r u l y , (s) J . Z. M i l l e r , J r . , G o v e r n o r . C 0 V Y FARMERS STATE BANK Genoa, Hebr, 19211 Mr. J . Z« M i l l e r , J r . , Federal Reserve Bank, Kansas City, Mo. Dear Governor: Replying t o your favor of the lUth I n s t , , we s h a l l endeavor to show In d e t a i l why we have not been p r o f i t i n g and what rules' and rediscount r a t e s have inconvenient us, with the hisee that same may be f o r our mutual b e n e f i t . Shortly a f t e r we became members un t o October 1 s t , 1919 t h i s bank never had any rediscount and i n reply t o our question as t o hew much t h i s bank could borrow and rediscount, we on Oct. 2nd, 1919 received a reply s t a t i n g : "You may be a s sured, df our e n t i r e w i l l i n g n e s s to a s s i s t you i n meeting the l e g i t i m a t e needs of your regular customers to enable them t o carry on t h e i r current operations*" This together with s e e i n g t h a t other banks about our s i z e carried up t o $100,000.00 worth o f rediscount Induced u s t o continue making l o a n s t o the farmers even thougi with a low cadi r e s e r v e . When we reached $33,000.00 rediscount the b a s i c l i n e rule,, was placed i n t o e f f e c t so we were n o t i f i e d that we had oversteoned our c r e d i t l i n e . We could not then, nor can we now, increase our l i n e but our paper sent i n , was and i s new h e l d to meat maturing n o t e s . In 1919 the corn crop of t h i s v i c i n i t y was almost a drouth f a i l u r e , farmers had tb buy h i $ i p r i c e d c o m t o carry on t h e i r wotir and they could not l i q u i d a t e and but d e p o s i t s weht down day by day and owing t o the r u l e as mentioned we were com- » p e l l e A t o go t o our correspondent bank f o r h e l p and obtain cons i d e r a b l e money and pay as high as 9 $ i n t e r e s t . In 1920 about one h a l f of our farmer customers were h a i l e d out and a s a consequence f o r nearly two y e a r s we have had t o pay a h i g i r a t e of i n t e r e s t on account of the b a s i c , l i n e r a l e . At the time t h i s bank became a member we never had any 'borrowed money. Our d i r e c t o r s decided t o s e l l our $17,000.00 worth of U. S. Bonds. The i n t e r e s t together with advice from one of your Omaha o f f i c i a l s to not s e l l them changed our mind so we borrowed, g i v i n g the bonds as c o l l a t e r a l . The change of i n t e r e s t r a t e s as w e l l as the drop of market p r i c e on bonds has caused u s considerable l o s s . w hen the r u l e that only 85$ of f a c e v a l u e could be borrowed on the bonds i t compelled u s t o borrow $2500.00 from our correspondent a t 9^ i n t e r e s t on which we are today -oaying 11 •2- X^226 —Q. From the time t h i s bank was chartered u n t i l about s i x months ago i t has only charged i t s customers 7% and 8$> i n t e r e s t , even though we paid an i n t e r e s t r a t e of from g$6 to9i$« We r a i s e d our i n t e r e s t r a t e s about the same time other surrounding banks raised. Perhaps you w i l l say t h a i we have misused our credit# which i s t r u e , we should have known b e t t e r than t o have went i n s o deep. If we could have f o r e s e e n what was coming, namelyj part crop f a i l u r e s and a money depression we would have done d i f f e r e n t 4 However, the f a c t i s t h a t the farmers needed the loans# and i f we had not of supplied our customers some other bank would. , Since then, ones banks customers can not go t o another bank and borrow. Had we of enforced l i q u i d a t i o n , or i f we should enforce i t now, many farmers would be compelled t o cease operation* Our reason f o r sending t h e telegram t o Governor McKelvey was simply t o o f f s e t the charge t h a t bankers were p r o f i t e e r i n g by rediscounting 10# i n t e r e s t bearing n o t e s with the Federal Reserve Bank. The charge as printed i n t h e newspapers aroused the p u b l i c , and a few of our customers accused u s as p r o f i t e e r s on account of charging them 10$. We have had very l i t t l e d i f f i c u l t y i n g e t t i n g our rediscount approved, and what d i f f i c u l t y we have had has been our own f a u l t Our d e a l i n g s with t h e Ctoaha Branch o f f i c i a l s has been very s a t i s f a c t o r y i n so f a r a s the common run of b u s i n e s s g o e s . Under the r u l e s , a s layed before them they have been l e n i e n t t o us and we can say nothing but p r a i s e f o r the Omaha Branch O f f i c i a l s * We have made no complaint nor given any d e t a i l s t o anyone accept t o the Omaha Branch O f f i c i a l s and we s i n c e r e l y hope t h a t our telegram or t h i s l e t t e r has not and w i l l not p l a c e us i n bad. We are proud of being members of t h e Federal Reserve System and w h i l e w# f e e l as though i t could be improved f o r the b e n e f i t of the a g r i c u l t u r a l d i s t r i c t s we f e e l equally c e r t a i n that such improvements w i l l be made and e v e n t u a l l y work o u t . We have not been knockers, nor are we now, we are b o o s t e r s . This lengthy l e t t e r i s not w r i t t e n f o r being a c o n p l a i n t . I t i s w r i t t e n with the hope t h a t some point may be brought f o r t h t o g i v e an i n k l i n g f o r the b e t t e r of our good Federal Ressrve Bank, We thank you f o r your l e t t e r and f o r the s p i r i t i n which i t was w r i t t e n and i f there i s anything we can say or do we s h a l l be p l e a s e d t o co-operate with you. Yours very t r u l y , (s) K. C. Knudson, Pres.
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