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X-779 c0 p y Philadelphia 1 Pa. Y.arch 2 1 1918. Dear Governor Harding: In accord~nce with your request at the closing session of our conference yesterday 1 I take :pleasure in submitting an outl5.ne of the :plan of org~nization we have perfected in the New York District for the sale of certificates and the greater consolidation of banLtng resources into the Federal Reserve Bank. While the organization was planned prirrarily to sell certificates it seemed to us that we should not lose the opportunity of developing it SQong lines which would permit of its cooperating with us effectively along the following lines also: l. The sorting out of gold .::..nd gold certificates by every bank in the district .::..nd thej.r shipment to us for credit or for exchange into :Federal Reserve N(;Jtes. 2. The securing of a.large proportion of the desirable State banking institutions as members of the F~der~l Reserve System. 3. The completimn of our par list. {althqugh we are collecting on every b~nk in the district 1 76 banks are not remitting at par) but are being collected through Express Companies or Special Agencies .. ) 4. The education of every bank concerning the necessity of conserving credit. 5. The education of banks and their customers to reduce their requirenents for new currency. We felt th~t while we might be able to sell certificates satis- factorily by sending out salesmen we could not ~ffect thase other important X-779 - 2 things through traveling from local sources. s~lasman; they requiredsteady persistent effort We, therefore, deterrrJ.ned to establish a series of agoncies throughout the district, the agents being bankers, to work steadily for the ends above described. Our plan was to have every bank in the district attached to one of these agencies so that our effort should be ll!lOt n~erely comprehensive but complete. We were confronted, in the selection of our agents_, with the possibility that we lliight ' create jealousies by our selections. For this reason and also to ob- tain their influence, we asked the State Bankers 1 Associations within our district to cooperate with us in this work anci select the agents to act in the capacity of corr.mittees appointed by the Bankers 1 Association in its plan of cooperation with the Governrr~nt Bank for these important national purposes. and the Federal Reserve The result is that we have about seventy bankers in the district, at appropriate geographical intervals,acting as corr.mitteemen of the State Bankers 1 Association and as agents £or us in accomplishing the work above outlined. Each of these bankers has from ten to twenty-five banks in his irrmediate vicinity which he is charged with the duty of educating-along the lines of the campaign. It is understood that the work is to be done not by letter writing but by personal interviews and by keeping in touch o'l!er the telephone. Each of the seventy bankers advises us from day to day, or week to week, of the attitude of each of his banks in respect to each of the items in our prograrnrr.e, and we record his reports in our card index of the banking institutions of the district. We felt that i t was important to get thase seventy bankers tho-roughly educated to the in.portance of the work 1 to the lines upon Nhich it should ba handled} and. to the necessity for great discration X-779 and tact in carrying it out 1 before turning tham loose on the district. Governor Treman 1 therefore, wrote a letter to the President of the Association outlining fully the programme and the method of approaching ~he subject, the substance of which he in turn communicated to his committeemen, and we then had all the committeemen come to New York and spend an entire day with us going over every phase of the subject. This latter step we consider of vital iro~ortance, as we succeeded not only in explaining the work thoro'..lghly to them but in impressing each of them that in serving in this capacity he was acting as an agent of the government in a war activity of vital iroportapce. among the co~tteemen, result of this day 1 s We A degree of e~thusiasm far beyond our espectations, developed as a work~ or~ginally planned to get in an outside banker to handle the work from our end 1 but for the peersent this has not seerwd necessary and Deputy Governors Treman and Case are looking after New York, and N~N Jersey respectively. As New Jersey is a divided State the Philadelphia Reserve Bank joined with us in there. or~nizing the campaign It is understood that the Federal Reserve Bank pays the out-of- pocket expenses of the committeemen in their work. The result of the campaign, although just inaugurated 1 has already been to more than double the number of purchasers of certificates and to change the attitude of a considerable number of the 76 banks who were compellin~~s to collect on them by express. The leaders of these insurgents spent a day at the bank this Neek and determined to send out a circular to their associates ur~ing them to remit at par for the peri94. of the war as an evidence of their willingness to cooperate fully with the governnent during this period of national effort. This is a most x-779 - 4 gratifying result to us. We have not yet presented a prog~e to our committeemen suggesting the lines on which they should recommend conservation of bank credit~ Board on the subject. awaiting a staterrent from the Federal Reserve As soon as such statement is received it will be placed in the hands of our coumitteemen for discussion with their banks. I am enclosing copy of Governor Treuan•s letter to the President of the N0w York State Bankers' Association outlining the progran:n::e. In conclusion I may say that we all feel enthusiastic over the possibility of this intensive and permanent organization of our district 1 not only for the work ~diately at hand but for the future relations between the Federal Reserve Bank and all the in the District. To have sorre se~enty banks~ member and non-nember 1 centres of understanding of the Federal Reserve system and of personal influence .upon which we can call) when needed~ is a roost valuable adjunct to a Federal Reserve Bank Organization. Very truly yours) (Signed) 3/7/18 PIERRE JAY. X.... 779.,.t CONFIDENTIAL John H. Gregory, Esq. President, Central Bank, Rochester, N. Y. De~r Mr. Gregory: The growing extent ~nd importance of the national financing together with the experience of the last :six months in connection therewith have convinced the officers of this bank that the time has arrived when we must develop a more intensive and effective org<tnization of the bRnks, both member and nonmember, in this district in order that we may be in a position to render the servrices required of us both for the national Government and for our own members. We recognize of course thqt the responsibility for the success of the work of such an organization will rest primarily upon this bank but appreci~te that the New York State Bankers Association, if it will c ooper<tte v1ith this bank in such organization, can be of very great value and assistance, and we are writing to you as president of the state Association to ask whether the associntion will thus cooperate with this bank and in addition, VJhether ycu personally can arrange to give a large portion of your time in the immediate future to this work. The scope of the work at present contemplated, only part of which h~rever need to be undertaken at once, is as follows~ l. To enlarge and broaden the market for the Government 1 s short time certific"l.tes of indebtedness in vrhich every bank in the district should participate. · 2. To insure the sorting of all gold and gold certificates and their shipment to the Federal reserve bank for credit or for exchange for Federal reserve notes. 3.. To educate the banks to reduce ;their requirements i'o:r new currency, which puts unnecessary burdens on the Bureau of Engraving and Prin;ting~ 4. To educqte the banks how to conserve credit. x-779 2/1/18. John H. Gregory, Esq. 5. To bring desirable State banking institutions ihto membership in the Feder9.l Reserve System. 6. To persuade the 76 bank3 in the diJtrict which are not nov' remitting at par that it is their duty to do so The particular work to be done at the present time is along educational lines, much of Yrhich will require the exercise of great delicacy, every man in the organization in f cCt must be thoroughly convinced of the dangers which 0 might arise through making any statement or taking any action likely to give rise to 11hrm. On the other hand, a great public service will be performed if the work results in gradu::tlly allaying <tny fears thqt ms.y alrc,_dy have developed in the minds of bankers. Too gre'lt empha.sis, therefore, C'1nnot be laid upon the necessity for discretion and for the employment of able and discreet men in this work. Referring to these in the order mentioned: 1. CERTIFICATES: debtedness I believe the Since the first sale of Treasury certificates of in- b~mks in the City of Nevr York h'lve subscribed for some- thing like 60~ of the entire "mount issued, the other 40%, or thereabouts, being very unevenly distributed throughout the United St'1tes. not continue indefinitely. This condition can- The Treasury Department officials desire the reserve banks to effect an equitable distribution of the amount allotted to each district and gradually to work to the pl<J.n that every bank in the United States will consider it to be its duty to subscribe regularly for a certain percentage of its resources. The percentage c1n only be fixed after experience and uptm knoYring the amount of ee,c¥1 sale. Banke:.-purchasing the certificates may pay for them by credit, pledging the certificates or other prescribed 3ecuriti-es- as collater'll, and the money <Jt the Government '-s credit vrill be g;radu~,lly ar,d p-ro r<J.ta withdravm, but the account s.g1'dn built up as ne\" sales of certificntes 1are !Jl"ae. The certificstes, except those issued to anticiapte taxes, payable in X7fJ9 A -3--· _._ John H. Gregory, Esq. 2/1/18 June, are intended to be used in m~king p~yment for subscriptitons to Liberty bonds but it is nevertheless desirable that banks that buy them should resell -_,. thettl to their customers "ts \'Jidely r,s possible. VJhen a baflk purchases certi- ficates and pays by credit, no occ'lsion ~rises to discount with the reserve bank, as a secured Government deposit does not require any reserve- As the Govern- ment withdravrs the funds, the b~nks should: ~ccustc·m themselves to using the facilities of the reserve bank. The sb.tement will be mnde by many bn.nkers that the Government deposits 'lre withdrawn so quickly th'l.t thoy cr.nnot Rfford to take the. certific'ites; that the rn.te of interest is too lov• :-,nd th'Ct preclude their n.ccumul'lting the l~rre t~e dem~nds of their regular customers amounts desired. must be deP.lt vrith intellig-ently "1nd t..-ctfully. All of these questions The princip•ll difficulty, that of not having resources to meet the Government's requirements, will be covered in No. 4 .. 2. GOLD: to its gold stock. Since the vmr beg"m, this country has added over $1,200,000,oc:c; Between ~~1,7oo,ooo,ooo 'ind Cl,800,000 1 000. out of about ~3,100,000,000. is now held by the reserve banks.. Probably $500,000,000. or $600,000,000. more could be accumulated through withdrawal of gold now in general circul"ttion and the deposit of a larger propertion of that held in bank reserves. The reserve banks have novr so organized their affnirs that gold once paid in will not under ordinary circumstnnces be p'l.id out as all dem:tnds for currency of $100 denomin'ltion and under c"'n be met by the uee of Federal reserve notes, and, when pending amendments to the Federal Reserve Act become law, the demand for bills of $500 and higher denomin"ttions c:om likeYrise be met by the use of Federal reserve notes. Only three kinds of dem~nds upon reserve b.,nks for gold can cause a per- mttnent 1 oss: One is through gold exports. These "tre under control as the re- X779a J~hn sul t H. Greg~ry, Esq. 2/1/18 of the prcssnre of the Trading With The Enemy Act .. Another is by the accumulation of gold reserves •by the b'lnks and trust comp"lnies. This C'ln only be controlled by educRtional work rtnd we must not create the impressioh by refusr1l to P~Y out gold th'lt gold pr1yments hs.ve been definit.e1y suspended. The third, and most serious loss of gold, would n.rise as a result of <tny t,er·.6.cncy on the pFtrt of the general public t 0 hoa~d gold for fe~r they might not later be able to get it. In conducting the prop'LfRndn, therefore,, we have to consider the dunger of stimnl:'l.t:ing hoarding by b"tnks and by the public. No subject requires greater delicacy and, skill. If it is handled wrongly me might cren.te an al"Lrm which would not only defeat the purpose of this plr1n of in~re"1sing our gold supply, but might bring about a great loss of gold by the· reserve banks. At the outset, V!e particularly require inform'ltion at the Feder"tl reserve b<m.k "S pinf it to us. to v1hich b-cnks <ere sortinp their pold and ship- And the bankers themselves require educ~tion as to the of doing so, conducted, however, in such a v!ay as not to alarm them. import~nce It is not so much the 'ldV<tntage of getting the gold V!hich they now hold as it is to intercept the stress of gold certificates constantly passing throurh the banks so that they operate as sieves, all th8 gold being arrested and shipped to us and all payments of currency being Federal reserve notes. Once that process is started, the bankers will become accustomed to carrying only Federal reserve notes in their tills and W!i are likely to get most of the gold now held in bank reserves as well as gradually accumulate that in general circulation. The suggestion would be simply to have cautious inquiry made of each hank as to what its policy is in that respect; whether the tellers have any instructions and, if so, how diligently they are carried out. You will have to answer inquiries as to the ;::!f reason for this policy and it c:=tn be pointed out that the desire of the rese;rve bank to increaee its gold reserve is simply to enable it ~o protect the b~King system, the need for which is greater in time of war than in time of peace, •. X-77Sq -5~ John H. G~egory, Esq. and, in geners.l, pe1.triotism demands cooperation. 2/1/18. No urgency should be exhibited,. The men undertaking this work must be c'lutionod that no publicity, practically no letter writinp, :"tnd no urgency should be permitted. ~rticles, Newspaper or even prh=.te discussion of this m'lttcr th'lt might permeate through the goner'll public would be dangerous. 3. NEW CURRENCY: One of the grcqtost embarrassments to the Federal Government and the reserve b'lnks in connection with tho Liberty Lo~ns has boon tho inability of the Bureau of #l1F"ravinv 3.nd Prin+.inr to furnish the actual bonds promptly. The res.son for this is tho immense pressure on tho plan to prepare the gre'"'t amounts of m'3..tcrinl noquired 3.S soon 'lS the war beran. Part of the dem'lnd has been post'lge st<:.mps ur.d revenue st"Cmps, part currency, and, of course, tho chief demand, the bonds s.nd interim certifie'Ctes. If the bankers could be persuaded th'lt ordin<try economy in p'lyinf out nevt currency will relieve a great p'3..rt of the strqin on the Bure'lu, enablinr them to get the Govcrn~ent bonds out more promptly, and enable them to meet the growinf demands for small currency, it will be '1 distinct rtdv-mtare all around. 4. CONSERVATION OF CREDIT: bristles with difficulties. Here we re'3..ch <1. subject th9.t litornlly I sh'l.ll not qttempt in this letter to olaborate the <1.rguments from "ln economic st"lndpoint "ls to why our b'3..nkers must be educated, per- suaded or even, if the war l"lets, required to discrimin~te in exte~dinr credit. To illustr'ltc the point, i f the 28,000 banks in this country could uffoct u reduction of credit of only ~10,000 c'lch, it \-rould me"..n ~2,800,000)000 tion 9.nd qn immense strengthening of cur reserve position. of liquida- It would mean easier money, e9.sier Government fins.ncing, in time lower prices for materials and a more 'ldequ9.te supply of labor. It must not be inferred th"'t old customers are to be embarrassed, that m-cturing lo<tns must not be renewed, 'lt le'l.st in part, nor the ordinary conduct of •• GF~rory, .John H. -6- X-779a Esq. '··~ the country's industries interfered with, cE>rt'l.inly at the stn.rt. in mind is to impress tho b"nkers in this district 'Pith responsibility to sec th'l.t credit is not V/'.lstcc'! "'-nY or other ncces~ities cashier should feel lo-:m th"~t of life arc W!lstcd. th~t he extends to more~ ~ VJh'lt we have sons(: of their than foodstuffs, fuel, I think every b<tnk prc..sident and it is his duty to inquire into the purpose of every <~. customer, 'lltd, using tre'lsonable discretion,• so ns not to cause embarr'lssment, loss, or even diss'ltisfqction, should be '.lble to pers\AAds his customer th'lt he, likt:wise, h~s '.l duty to his Government, which c1.n on:y be performed by 'lVOidinr unnecessary expenditure involvinf. the usc of l1.bor, m'ltcrinls '1.nd credit. Should the impression ret nbro'.ld thnt the Government or the reserve b~nks intended to exercise such control OVLr credit as to interfere with the business of the b~nks or brinr hnrdship to thE>ir custcmers, we would crentc a state of feeling th"'t v1ould result in interferinr with the conduct of the W'lr. If, on the other h'lnd, no steps are t'lken to conserve the resources of the country includinr its credit resources, '\'Te tJre goinr to h:qvc n period of expansion, elcv'-ltion of prices 'lnd wnr.es 'lnd renera.l economic disorder, for which some d'.ly v:re \'!ill p<ty dearly !16 in the civil vr~.r. On item No. 4, therefore, I feel thut the gre".test C"'.ution is required -:tnd th'lt only men of discretion <tnd intelligence C'ln conduct this educ..,tion!il e"lmp"'tign successfully and Ylith0ut 9.rousinr 'll'lrm. s. STATE B:1.tTK HEMBERSHIP: Nev' York City has led the country in bring- inr St,.,te b:'nks a.nd trust ccmp'lnics into the System. members ext~...nd r~contly The tot'll resources of the admitted ae:greg9.te abcut OS,OOO,OOO,OOO. \ie are anxious to the movement throughout our entire district in order that v1e may have a compact body of banks stronr enough to take care of the requirements of the Government and to support each. other through any emergeney that may arise as a re'•: i: sul t of the vtar. X-779a John H. ~regtry, Eeq. 293 Lhts h<\ve been prep<ired ·a.t the b<Jnk of '111 stat6 banks and trust comp<'lnies th<1.t are elirible for membership. These must be carefully examined and only those that would be desirable members dealt \vith. The var·ious "l.t-guments as to why membership is desirable have alreqdy been prepared in much detail and can be furnished as required. It may be thqt at first this work should be conducted directly by the officers and employees of the bAnk, but I should hope not. If a tielrl force could be persuaded to undertake this work in the near future, I believe we could count upon a great access of membership and one which would immensely strengthen our district in every vr.ay. Vje will need to establish a care- ful filing systGm in the charge of competent men at headquarters, in which a c record of the attitude of each State bank may be maintained and an adequate follow-up system adopted. If this part of the program does not appeal to you at the moment, later develop"•i!".nts may enable you to undertake it. 6. There are now 76 State bA.nks upon which we are ' collecting checks by exprest; or through loc"ll representatives. There is no doubt COLLECTION SYSTEM: whateVAr that the reserve system and its collection facilities have come to stay. If these 76 banks could be persuaded to come into the plan it will relieve us and them of e·ttnsiderable expenee and trouble, and,, what is more desirable, will remove one of those causes of irritation that does no one any good and, in the present n~tiona.l ing to emergen.cy, does distinct harm. undert~ke this work. You and your a.ssoci<ttes may not feel will- On the other hand, your efforts in this direction would be much more likely to succeed than ours and, perhaps, after. the elapse of some time, you m~y feel willine to und~ake it. Should the State Association be willing- to cooperate in this matter a.nd do so through their various groups, it would seem advisable to omit Group No. 8 which is in Uevr York City, leaving that to be dealt with directly by' the officeJ""s 294 John H. Gregory, Esq. of the Federal reserve bank. or in such way as may be deemed best. Should you personally be v'lilling to enter upon this work there· are many important ·detaUs of organization to be discussed and we S\lfrest ~hat you arranp:e, if convenient, to C9ll at this bank on Tuesday morninr before your meetin£ vrith the group chairmen. You will unders.t"l.nd, of course, th<tt this bq:nk expects to a.rranre for all reaeon"l.ble expenditures necessary. This letter is unusually long but the subjects mentioned are so import"l.nt that a det"l.iled explanation of each seemed advisable. The work to be under- taken is <tS import"lnt as anythinr that we nov1 have on hand. We are confident of splendid results if a rood organization is effected and di~ected with skill and C"lution and v:e need not assure you of the great sense of obliration which the directors and officers of the bank will feel if you are willinp: to undert<tke it, and the State Association will join with us. Very truly you.rs, Deputy Governor. RHT/ELS