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584 COPY X-7034 October 27, 1931 Federal lie serve Board Mr. Smead Topics for j o i n t conference of Governors and P. H. Agents The Board's l e t t e r X-S940 of August 11 requested each Federal reserve "bank to advise the Federal Reserve Board, in advance of the next j o i n t conference of Governors and Agents, of i t s t o t a l expense in handling s e c u r i t i e s of member banks for safekeeping during the year 1930, or as close an estimate of such expense as could be made. The f i g u r e s furnished by the Federal reserve banks are as follows: Boston Hew York Philadelphia Cleveland Richmond Atlanta $12,486 138,000 50,000 * 4,000 #2,400 Chicago $30,000 St. Louis 13,350 Minneapolis 39,380 Kansas City 25,000 Dallas 4,400 San Francisco 500 Total (11 banks)319,516 •Bank s t a t e s that i t seems impossible f a i r l y to estimate the expense but t h a t i f the e n t i r e cost of the Custodies Function were taken, p l u s considerable p o r t i o n s of the cost of P r o t e c t i o n , Registered Mail, and Non-Cash Collection Functions, a s u b s t a n t i a l amount would be arrived a t e a s i l y in excess of $100,000. However, i f safekeeping f o r member banks were discontinued the p o s i t i v e savings would not exceed $1,000 per y e a r . #Estimated savings i f the safekeeping function were discontinued. An examination of the r e p l i e s to the Board's l e t t e r which are attached hereto i n d i c a t e s that the f i g u r e s furnished by the several banks do not represent in many instances costs of the same operations. Some banks con- fined t h e i r estimates to a portion of the cost of operating the S e c u r i t i e s function, while others, in addition, included some of the expenses of the Don-cash Collection, Registered Mail, F i l i n g , Accounting, Auditing, and General Overhead f u n c t i o n s , under the theory that such expenses are an c u t - — 2 -• growth of the "banks' safekeeping oparationls* X-7034 f o r example, the reserve banks c l i p a l l the coupons on "bonds held in Safekeeping and then, a c t i n g on i n s t r u c t i o n s from member "banks, send most of them out f o r c o l l e c t i o n . This adds m a t e r i a l l y to the expense of the Hon—cash Collection f u n c t i o n . For the Board's information, t h e r e f o r e , there i s shown "below the cost of operating the Vault Custody u n i t of the Securities function a t each Federal reserve "bank. These f i g u r e s , which were compiled from the semi-annual functional expense r e p o r t s furnished the Board, represent the cost of r e c e i v ing, vaulting, coupon c u t t i n g and delivery of s e c u r i t i e s and the maintenance of the immediate vault records t h e r e o f . While these f i g u r e s are thought to "be a reasonably s a t i s f a c t o r y measure of the cost of the safekeeping service, two points should he "borne in mind, ( l ) They include the cost of handling s e c u r i t i e s owned "by the "bank or held as c o l l a t e r a l f o r rediscounts, also sec u r i t i e s held in safekeeping f o r Government and other o f f i c i a l s . These s e c u r i t i e s are l a r g e l y Government obligations and consequently the cost of handling them i s r e l a t i v e l y small. (2) The f i g u r e s do not include any expenses connected with t h i s service incurred elsewhere in the hank, f o r example, in the Registered Mail, F i l i n g , Auditing and Non-cash u n i t s . In case the Federal reserve hanks discontinued the safekeeping service f o r member hanks there would he some reduction in these costs although the reduction would no doubt be small i f member banks continued to use the Federal reserve banks f o r c o l l e c t i n g maturing s e c u r i t i e s and coupons. Expense during 1930 Custody u n i t of the Boston New York Philadelphia Cleveland Richmond Atlanta a t each F. R. Bank (including branches) of the Vault S e c u r i t i e s function $15,598 Chicago $23,385 124,218 S t . Louis 13,341 42,692 Minneapolis 11,583 21,672 Kansas City 10,651 8,589 Dallas 8,794 6,112 San Francisco 2.931 Total 289,566 - 3 £ X-7034 The amount of s e c u r i t i e s held in custody f o r the account of member "banks "by each Federal reserve "bank may "be h e l p f u l to the Board in t h i s connection and accordingly such amounts are given "below. In a few instances the f i g u r e s , which were taken from the most recent examination reports a v a i l a b l e , include c e r t a i n s e c u r i t i e s held in safekeeping f o r Government, State and municipal o f f i c i a l s , nonmember p a r - r e m i t t i n g banks, e t c . .Amount of s e c u r i t i e s held in safekeeping f o r member "banks, e t c . . "by each F.R. Bank (including branches) Boston New York Philadelphia Cleveland Richmond Atlanta (11-15-30) $169,685,000 Chicago (7-18-31) $224,141,000 ( 4-11-31) 520,863,000 S t . Louis (1-24-31) 44,936,000 (12- 6-30) 271,798,000 Minneapolis (2-17-31) 113,305,000 ( 3 - 7-31) 164,477,000 Kansas City (6-30-31) 141,488,000 ( 3-24-31) 47,258,000 Dallas (1- 6-31) 29,765,000 (10- 4-30) 44,906,000 San Francisco(6- 6-31) 5.223.000 total 1,777,845,000 Deputy Governor Attebery of the S t . Louis bank s t a t e s that the following appears upon each acknowledgement issued to member banks covering s e c u r i t i e s l e f t for safekeeping; "Theft, burglary and holdup insurance carried by the Federal Reserve Bank of S t . Louis i s in a limited amount and covers money and negotiable s e c u r i t i e s owned by the bank in addition to s e c u r i t i e s held f o r safekeeping. In the event of l o s s , the amount recovered through insurance w i l l f i r s t be applied against l o s s of Federal Reserve Bank property and only the excess w i l l be available f o r pro r a t a d i s t r i b u t i o n against l o s s e s of member banks. If a member bank d e s i r e s i n surance p r o t e c t i o n in addition to that outlined above, i t must arrange the same d i r e c t with i t s own insurance companies." In h i s l e t t e r to the Board, Governor Calkins s t a t e d that he thought i t would be h e l p f u l to the Federal reserve banks i f the Board would inform them concerning the circumstances under which the loss r e f e r r e d to in Board's l e t t e r X-6940-a was sustained
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