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REVISED REPORT •4 FEDERAL nFf'"PV~ I'i'oHINGTOD SOa RD November £ 7 ^ 1915T i the Federal Reserve Boara. i There are; now pending for consideration by the Board the following appeals from decisions of the Reserve Bank Organization Committee, regarding the determination of Federal Reserve Cities and District lines : First : The appeal of Baltimore that it be selected in pref erence to Richmond as the Feaeral Reserve City of the Fifth District ; Second: The appeal of Pittsbrgh that it be selected in pref erence to Cleveland as the Federal Reserve City of the Fourth District ; Third : . The appeal of a group of banks in certain counties of Wisconsin that they be takerp out of the Hinneapolis District and added to the Chicago District ; Fourth: The appeal of certain banks in the western half of Connecticut that they be taken out of the Boston Dis trict and added to the hew York Distract; ( The Board has not fixed the time for hearing this appeal ). Fifth: The appeal of certain banks of Louisiana that they be included in the Atlanta District and operate through the New Orleans Branch, in preference to being included in the Dallas District» ( This appeal has not been heard by the Foard, but the facts of the case are being in vestigated ) . Your Committee recommends that these five cases be dealt wit in a comprehensive way by considering the broader question of read justment of Districts. 4: ;t i We may assume that among the important objects which Congress desired to achieve in enacting the Federal Reserve Act were: . The creation of independent banking centers indeterminate in number and regional rather than local in character - in each of which would be concentrated a substantial portion of the banking reserves of its District which could be effectively utilized as the basis of an elastic system of credit and note issue and which would create and sustain a ready market for commercial paper and bankers’ acceptances. 1 2. The steadying of interest rates by more nearly equalizing the supply of credit facilities in different parts of the same district or between districts, more particularly by making available for active use where needed, funds which might otherwise or elsewhere be unemployed. 3. The establishment of an economical and efficient system of clearings and collection of checks and of transferring funds within or between districts. Decentralization of credit facilities through the agency of the great and strong regional centers, subject to centralized supervision, is the plan of organization which dif ferentiates the Federal Reserve System from any other comparable banking system, and the success of our new American departure in the field of management of a system of reserve banking will be conditioned upon the wisdom and discrimination with which this plan of administration is applied. Abundant evidence is to.be found, both in the debates of Congress and in the Reserve Act itself, that the framers of the Federal Reserve Act were fully alive to this tact;,but it is necessary to recognize and empha size that however much importance the framers of the Act attached to the choice of suitable divisions in the effective administration of the system, the Act, nevertheless plainly regarded this as a question which could not be settled in advance and a question that could not even be definitively settled by the Reserve Bank Organization Committee on the basis of such investigation as could be had before the actual inaugura tion of the new banking system. The Act, therefore, did not undertake to fix the boundaries of districts nor even the exact number* Congress was satisfied to prescribe an upper and a lower limit within which the precise number of districts should be determined in accordance with changing conditions and after the necessary experience might be at handThe ultimate judgment on this important question was to be that of the Federal Reserve Board, and Congress.did nothing to impede the free exer cise of the Board's judgment on this question other than laying down the requirements that the districts should not be more than twelve in number nor less than eight, and by prescribing that due regard should be given to the "convenience and customary course of business." Observation of the actual working of the Feaeral Reserve banking system and of the factors that make for strength and for weak ness, has satisfied your Committee that there is a limit in the pres e n t circumstances of the country, beyond which decentralization ray defeat its purpose without making for independence- Experience has satisfied, us that the fundamental purpose of decentralization as well as the other important objects of the reserve system, will never b e attained in the degree..which your Committee believes- possible without at least a partial consolidation of certain now contiguous districts* Tire Reserve Bank Organization Committee to whose judgment in the first instance the question of fixing the number and boundaries of the Fed eral Reserve districts was referred, did not have and could not have had the data, which alone could be derived from experience, necessary for a final disposition of the problem. Its conclusions were neces sarily more or less conjectural in character and, therefore, not to be regarded, under any reasonable construction of the authority and responsibilities of the Federal Reserve Board in the matter, as final. It may be assumed that the Act, in referring the problem of districting along v/ith other preliminary questions to the Organization C&mmitte© for initiative action, did so with full appreciation of the difficul ties! and the importance of the problem and in order not to delay the organization of the Federal Reserve Banks by postponing considera tion of the question until after the appointment of the Federal Re serve Board; * and this method of handling the problem was doubtless also adopted by Congre-sssin fulllappreciation by it of the fact that (*) See speech of Hon. Carter Glass, December 22. 1913, on the conference cor.mittee report on the Federal Reserve Act. u ■' 5 in its;first stagessthe whole reserve banking organization would be so flexible in character that such readjustments in the fundamentals of the regional structure as might commend themselves as necessary or expedient to the judgment of the Federal Reserve Board, could be made without injury to or impairment of the normal development of the sys tem* In organizing the new banking system it was obviously neces sary to begin at some point, even though it was to be expected that some of the action taken would have to be revised* The task of the Organization Committee was of necessity one beset with many and varied difficulties and uncertainties. No one can appreciate this bet ter than your Committee which, in reviewing the problem of district ing, has had the advantage of much definite knowledge derived from experience which was; lacking to the Organization Committee. It there fore implies no criticism of the work and findings of the Organization Committee if your present Committee, with the benefit of a year’s observation of the workings of the Federal Reserve System has reached the conclusion that the regional structure outlined by the Organization Committee can be simplified in some of its features with a gain in efficiency and economy of operation. It is, indeed, a tribute to the insight exercised by the Organization Committee in laying out the boundaries of the reserve districts;, that the readjustments considered -413. -6 necessary by your Committee should be found to involve so little change in the fundamental lines of the Organization Committee1s map* Opinions, it may welllbe expected, willllong differ as to the best alignment of districts under the Federal Reserve System* However muck experience may do to help the solution of the problem, experi ence alone may not fdr a very long time, perhaps never, be expected to settle it. Thnfu will always be a considerable margin of doubt on points of detail which will have to be resolved by the unaided judgment of the Board. It is true that all!the data which may in time be expected to become available, are not yet at hand for a finalland definitive solution of the problem if experience alone is to settle it, but your Committee is of the opinion that there has already been eufficiatai experience to make it possible to undertake the work of readjustment with intelligence and substan tial confidence in the permanency of the results. Any risks of possible necessary readjustments of a minor character in the future are to be regarded as slight and negligible compared with the in jury possibly to be done through holding back the development of the Federal Reserve System and keeping the business and banking communities of the seferal districts in a state of suspense as to what willibe the final disposition of the districting question, to say nothing of the considerable dislocation and disturbances in established arrangements which every additional day of delay will entail* Speaking p r a c t i c a l l y , th erefo re, on the q u e s t io n o f r e a d j u s t ment of districts, your Committee is firmly of the opinion that so far as any large and comprehensive handling of the problem is concernedq it is a question of now or never ' • The time has come when the Federal Reserve Board must either accept the responsibility of sanctioning the existing arrangement of districts or else of making in the near future such revision as in the exercise of its best judg ment, it now believes to be necessary. The problem is preeminently one for the exercise of general judgment as to what willlmake for the most effective organization of the Federal Reserve Banking system and your Committee does not, therefore, think it necessary to develop at length or in detail the reasons which have weighed with its individual members, each of whom has reached his conclusions in his own way. Attention may, however, be called to some of the considerations in favor of a re duction in the number of districts.- Some of thesp which recom mend themselves on the ground of business efficiency are bo ob vious as not to require extended reference. They are the increased economy of operation that would result from diminished-, overhead expenses;1 diminishedc costs of issue and redemption of notes, etc. , Eut however important these and similar considerations of a strictly business nature, there are in the opinion of your coi-Xiittee, adminis- -3. ministrative advantagesoi a large and compelling character that would result from a well* conceived readjustment of the districts» (1) The Federal Reserve system is still in the developmental stage; the test of its capacity is still to come. The primary re sponsibility for making it a success rests with the Federal Reserve Board. In the opinion of your committee, experience already shows the embarrassment which the Board may expect in dealing with and through units that are weak. Effective decentralization of banking facilities, we believe, depends not merely upon the number of Federal Reserve Banks but upon the vigor v/ith which they function. To achieve • t the purposes of the Act the component units of the Federal Reserve system must be strong enough in themselves to be effective, large enough/to command respect, and active enough to exert a continuous and decisive influence in the banking affairs of its district* This means that in the less we1 1 ]developed and settled parts of the country a well]constructed district must embrace a territory sufficiently wide in extent and diversified in its interests to give balance to its banking situation, and not too'much tied up to a single crop cr line of industry, and that everyydistrict should be free from any suggestion of sectionalism. (2) A reduction in the districts will help the working out of the check clearing and collection problem by seeming a subtreasury in every district as well as by reducing the overhead ex pense and hence, overcoming one of the obstacles to the undertaking. (3) Last and perhaps most important we must not let the fact trmt the reserve banking system has gone through the first year of its o ' p eration without any untoward event in its life, mislead or deceive us as to the future. We should, as a Board, be unworthy of our responsibilities if we did not realize that severer tests than any to v/hich the system ha3 yet been expsed might be expected. Sooner or later this test will come and when it cones it will cone with a suddenness and abruptness for which we must now prepare. Econ omists and financiers are not agreed as to precisely what the sit uation will bo when the war is over. That the world will be con fronted with a gigantic problem in industrial, commercial and fi nancial reconstruction as a result of the disorganization of credit, commerce and industry wrought by the war and the destruction of life and property is, however, agreed * No one can pretend at this time to calculate with accuracy the extent of the shock to which < our banking and credit system will. be subjected, but it is tain to be of extraordinary severity and extent. cer Readjustments in the world of commerce and finance such as the world has not seen since the close of the Napleonic wars will have to ye worked cut and we, as a nation, must be ready to meet alike the necessities and the opportunities of the new and changed situation, and for this purpose our chief reliance must be the perfected Federal . v -'l V -1 0 - Reserve System. This means, in the judgment of your Committee that all the several reserve banks must be made capable and strong, able and accustomed to act with promptness, with vigor,, with in telligence, and when necessary, in concert with one another, and in subordination to broadly conceived policies national in their scope and purpose. * Of the twelve Federal Reserve Banks one-half may be said to be strong and the other half weak. The remedy for this situation, in the opinion of your committee, is such a readjustment of the districts as will leave us with perhaps eight or nine districts, all of adequate extent and banking power and each able to support a strong and active regional center. Your committee has reached this conclusion only after much reflection and not without con sideration of the obstacles, legal, political, and administrative, which will be encountered in 'working out a program along the lines indicated.. It is our belief that the members of the Federal Re serve Board will not be deterred from fidelity to their higher and more difficult responsibilities by any adventitious considera tions, or by local and personal sympathies. It ought therefore, in our opinion, to be possible for the Board to act in substan tial if not complete accord on this question if we Keep steadily in mind the best development of the Federal Reserve System and -li' 41 :- set our loyalty to the system above and beyond any other. Both the Federal Reserve Board and the Federal Reserve Banks are still on trial before the bar of public opinion and advantage will be taken of every real or imagined difference of opinion in the Board by its critics and the enemies of the Federal Reserve System. We should not hesitate, however, because of this difficulty;.prompt ness and unanimity of action is the way to meet it. What Congress had in mind when it made the provision that the Federal Reserve Boara might add to the number or reclassify the cities heretofore classified as Reserve and Central Reserve Cities is evident and it seems reasonable to draw the conclusion, in view of the differences in reserve requirements, that cities of sufficient importance a3 banking centers to be named Federal Reserve Centers should also be classed as Central Reserve Cities and their reserve requirements raised to 18f°; whereas, cities ■which , from their geographical position and rank in the banking /orld, might be classed as branches of Federal Reserve Banks, should be classed as Reserve Cities. To acceept this reasoning and adopt this grouping of the cities would not only strengthen the Reserve Banks by increasing their reserve deposits, but would also effectively inhibit cities without adequate banking statuscfrom seeking the benefits of 1 t -413 1 recognition as Feder al Reserve Cities, without being willing to accept the burdens and responsibilities which should be a.neces sary concomitant of the privilege. Your Committee believes that such a rule should be adopted by the Board and that it would go far toward.facilitating any readjustment of the districts. Your committee, having presented the case for redistrict ing in its general aspects, before making further report and sub mitting a definite program asks instructions on the following : (a) rS Shall the committee prepare and submit a plan of changes in district boundaries involving the consolidating of adr joining districts and reduction in the number of districts ? or (b) Shall the committee proceed to recommend answers * to each of the five cases now on appeal befohe the Board without touching the larger issues involved in a comprehensive handling of the redistricting problem ? Respectfully submitted, ( ( ( Committee( | Appendices attached . II/1 3 /I5 r* ' F. A. DELANO - -------- F. M. V A f RBURG W- P- G. HARDING Appendix 1. Per Cent of Share of total paid-in capital of all F. R. Banks. Aggregate Capital & Surplus of Member banks Sept.2, 1915 3 Per Cent o f Cap ital and Surplus of Member Banks, Sept. 2, 1915. Per Cent of Share of Capi tal of F. R.Bank paid-in by member banks in Cities Named. $57,071,000 2,750,000 1,600,000 3,200,000 3,025,000 1,930,000 1,800,000 $1,712,130 82,500 48,000 96,000 90,750 57,900 54,000 33.2 1.5 .9 1.9 1.8 1.1 1.0 3.1 .1 .1 .2 .2 .1 .1 New Haven, Conn. Hartford, 6,820,000 5,950,000 204,600 178,500 4.0 3.5 .3 .3 Concord, N. H. Portsmouth, Manchester, Keone, 1,150,000 540,000 1,300,000 1,100,000 34,500 16,200 39,000 33,000 .7 .3 .8 .6 .1 .0 .1 .1 Providence, R. I. 8,850,000 265,500 5.1 .5 Portland, Maine 3,125,000 93,750 1.8 .2 100,211,000 3,006,330 58.2 5.5 172,409,385 5,172,282 100.0 9.4 Name of City. 1. Boston, Mass. Worcester, Lowell, Springf ield, Fall River, Haverhill, Holyoke, Total, Above Cities TOTAL for DISTRICT -4.13- APPENDIX 2 • 3 Per Cent Aggregate cap. & Of cap. & surplus of surplus of Member banks,member banks Sept. 2, Sept. 2, 1 9 15. 1 9 15. Name of City Per Cent of share of cap. of F.R. Bank paidin by mem ber banks in cities named. Per Cent of Share of total paid-in cap. of all F.R. banks * 243,425,000 12,100.000 4,275,000 4,235,000 4,300,000 7,302,750 363,000 128,250 127,050 129,000 66,4 3.3 1.2 1.2 1.2 13.3 .7 .2 .2 .3 2,200,000 1,060,000 10,644,000 66,000 31,800 319,320 •6 .3 2.9 .1 .1 .6 Total,Above Cities 282,239,000 8,467,170 77.1 15.5 TOTAL for DISTRICT 364,526,860 10,935,806 100*0 20.0 3 .Philadelphia, Pa. Scranton Reading Wilkes Barre Allentown Lancaster Chester York Johnstown 61,480,000 6,200,000 4,750,000 3,750,000 2,725,000 2,332,000 1,985,000 1,953,000 1,800,000 1,844,400 186,000 142,500 112,500 81,750 69,960 59,550 58,590 54,000 35.0 3.5 2.7 2.2 1.6 1.3 1.1 1.1 1.0 3-4 .3 .3 .2 .1 .1 .1 .1 .1 Y ilmingt on ,Del / Total,Above Cities 1.203.175 88,178,175 36.095 2,645,345 .7 50.2 .1 4.8 175,398,550 5,261,956 100.0 9.6 2 .New YorkCity Buffalo Rochester Syracuse Albany Jersey City,N.J. Hoboken Newark TOTAL FOR DISTRICT -4 1 3 APPENDIX 3 . Aggregate capital & surplus of member banks Sept. 2, 1915- 3 Per Cent of cap* & surplus of member banks Sept. 2, 1915. NAI1E OF CITY Per Cent of share of cap.of F.R.Bank paid-in by member banks in cities named * Per Cent of Share of total paid-in cap.of all F.R.banks. 0432,000 616,500 7-3 10.4 .8 1.1 Pittsburgh,Pa. 46,460,000 1,393,800 Washington," 2,209,000 66,270 Erie 2,050,000 61,500 23.4 1.1 * 1.0 2.6 .1 .1 4.Cleveland,0. Cincinnati Total,Above Cities 014,400,000 20,550,000 85,669,000 2,570,070 TOTAL for DI5'~ . 198,020,09# 5,940,603 TRICT . * * * * * ' . * * * * * * * * * * * * * * * * * * 5»Richmond,Va. 9,885,800 296,574 Baltimore,lid. 19,005,710 570,171 Washington, D.C. 12,669,250 380,077 Tota 1,A* ove Cities 41,5i60,76b 1,346*822 43.2 100.0 * * * * * * * 8*8 16.9 11.3 37.0 - 477 ~ 10.9 * * * * * * * ♦6 1.0 .7 * 2.3 6-1 100.0 TOTAL for DIS111,645,470 3,349,364 TRICT ***** ********** *********** **************** ************* ********* ********* 9** : 10.7 6 .Atlanta,Ga. 8,600,000 258,000 .5 .2 Birmingham,Ala. 3,300,000 99,000 4.1 8.3 .3 New Orleans,La. 6,730,000 201,900 Total,Above Cities 18,630,000 558,900 23.1 r.o 100.0 4.4 TOTAL for DI380,408,747 2,412,262 TRICT * ,** ********** ************************** ** -***************** **** *•.** .* >•* 4 r • *, . ;„ • 34.0 7.Chicago,111! 74,975,000 2,249,250 4.1 Indianapolis, Ird. 9,730,000 291,900 4.4 .5 C Milwaukee,Wis. 9,800,000 294,000 4.4 Detroit,Mich. 10,250,000 307.500 4.6 >6 “5.7 Total, Above pieties 1)34,755,000 3,142,650 ~ ' W X TOTAL for DISTRICT 221,263,906 6,637,917 100.0 12-1 -413 APPENDIX 4 . 3 Per Cent Aggregate of Cap. & Cap. & surplus of Surplus of member member banks , banks Sept. Sept. 2, 2, 19151915. Per Cent of share of cap. of F.R. Bank paidin by mem ber banks in cities named. ^41.4 8.2 49.6 Per Cent of share of total paid-in cap. of all F.R. banks. Name of City. 8. St.Louis, Mo . Louisville,Ky. Total, Above Cities 387640^000 7,700.000 46,340,000 '171597206 TOTAL FOR DISTRICT 92,670,447 2,780,113 100.0 9 .Minneapolis , I n : Lin; St. Paul Duluth Total,Above Cities 16,960,000 10,100,000 3j95Q_,000 31,010,000 508,800 303,000 118.500 930,300 20.0 12.2 4.7 ...* * . 369 TOTAL FOR DISTRICT 84,704,850 2,541,145 100.0 4.6 1C. Kansas City,Mo. Omaha, Nebr. Denver,ColoTotal,Above Cities 13,556,000 6,233,000 7^288^,000 29,079/000*'“ 13.5 8.2 7.2 ~28.9 .7 .5 .4 231.000 1,390,200 406,680 247,050 218,640 87*2,370 ‘ 7 2.1 .4 2.5 5.1 .9 .6 .2 i.T~ 1.“ 6 101,089,245 3,032,677 100.0 5.6 11. Dallas,Tex. Ft .Worth Houston Galveston San Antonio Total,Above Cities 7,271,500 4,300,000 7,250,000 800,000 3,840,000 23,£61,500 218,145 129,000 217,500 24,000 115,000 703,845 7.9 4.7 7.9 .9 4.1 25.5 .4 1.2 TOTAL FOR DISTRICT 91,991,961 2,759,759 100.0 5.0 TOTAL FOR DISTRICT .2 .4 .2 " ■ “ A 3 Appendix 5, Aggregate Capital & Surplus of Member banks Sept.2, 1915. Name of City. 3 Per Cent of Capital and Surplus of Member Banks, Sept. 2, 1915, 1 12. San Francisco,Cal.45,185,000 Seattle, Wash, 5,390,000 Portland, Ore. 7,900,000 Los Angeles,Cal. 9,775,000 Salt Lake City, Utah 3,280,000 Per Cent of Share of Capi tal of F.R. Bank paid-in by member banks in Cities named. Per Cent of Share of total paid-in capital of all F. R. Banks. 1,355,550 161,700 237,000 293,250 34.5 4.1 6.0 7.5 2.5 .3 .5 .5 98,400 2.5 .2 Total, Above Cities 71,530,000 2,145,900 54.6 4.0 TOTAL for DISTRICT 131,435,490 3,943,065 100.0 7,2 TOTAL for MEMBER ) Banks in Specified 922,663,435 Cities ) 27,679,902 50.5 TOTAL for MEMBER Banks in all Reserve Cities ) (814,999,450 )3 24,549,983 44.8 TOTAL for COUNTRY Banks ) (1010,565,557 30,216,967 55.2 TOTAL for ALL MEMBER BANKS ) )l,825,565,007 54,766,950 100.0 100.0 Apendix 6. LIST OF CITIES SKOWIHC- PERCENTAGE OF CAPITAL WHICH THEIR MEMBER BANKS BEAR TO THE ENTIRE CAPITAL OF TEE FEDERAL RESERVE SYSTEM (Cities are listed in ac cordance with percentage of their capital in the Federal Reserve System) (Rank) 1. New York (Percentage) 13.3 (Rank) 19. Milwaukee (Peressntage) .5 2, Chicago 4.1 20. Los Angeles .5 3. Philadelphia 3.4 21. Indianapolis .5 4. Boston 3.1 22. Providence .5 5. Pittsburgh 2.6 23. Atlanta .5 6, San Francisco 2*5 24. Omaha .5 2.1 25. % Portland, Ore. ,5 7, St, Louis (Minna* St. Paul combined) 1,5 8. Cincinnati 1,1 26. Louisville 14 9. Baltimore 1.0 27. Denver .4 10. Minneapolis .9 28. Dallas ,4 11,' Cleveland .8 29. Houston .4 12. Kansas City .7 30. New Haven ,3 13. Washington, D, C, .7 31. New Orleans .3 14. Buffalo .7 32. Scranton .3 15. Newark .6 33. Hartford .3 16. Detroit ,6 34. Seattle ,3 17. St. Paul .6 35. Reading, Pa. *o 18. Richmond .6 36. Albany, N. Y. ♦
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