Full text of Mimeograph Letters and Statements of the Board : January 1916 - December 1917, [Volume 4]

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r
EX-OFFICIO MEMBERS

COMPTROLLER OF THE CURRENCY

ADOLPH C.MILLER

FEDERAL RESERVE BOARD

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
ADDRESS REPLY TO

WASHINGTON

FEDERAL RESERVE BOARD

At t h e b e g i n n i n g of my s e r v i c e on t h e F e d e r a l
Reserve Board I had a r a t h e r s t r o n g f e e l i n g , which p e r h a p s
amounted t o a p r e j u d i c e , t h a t F e d e r a l Reserve n o t e s should
not be counted as r e s e r v e by N a t i o n a l banks.

During t h e

twenty-two months of my s e r v i c e I have given t h e m a t t e r
c a r e f u l thought and study and w h i l e my mind i s perhaps
not f u l l y made up, and c e r t a i n l y s t i l l open t o c o n v i c t i o n ,
I have r a t h e r come t o t h e conclusion t h a t my f i r s t view
was a mistake and t h a t t h e r e i s a t l e a s t a good d e a l t o
be s a i d on t h e o t h e r s i d e ,
I have attempted t o s t a t e t h e case f u l l y and
f a i r l y i n t h e a t t a c h e d memorandum and I should be v e r y glad
t o have

you read i t a t your convenience and give me t h e

b e n e f i t of your s u g g e s t i o n s and c r i t i c i s m s .

Please under-

s t a n d t h a t t h i s memorandum e x p r e s s e s only my p e r s o n a l
views and e x p r e s s i o n s .




7 3

C H A R L E S S . H A M L I N , GOVERNOR
F R E D E R I C A . D E L A N O , VICE GOVERNOR
PAUL M.WARBURG
W. P. G. HARDING

W I L L I A M G . MCADOO
SECRETARY OF THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS

v

1373"
W . P . 6 . H A R D I N G , GOVERNOR
P A U L M . W A R B U R G , VICE GOVERNOR
F R E D E R I C A. DELANO
ADOLPH C. MILLER

WILLIAM 0 . McADOC
SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

7 Q j H A

FEDERAL RESERVE BOARD
WASHINGTON

R

L E S

ADDRESS REPLY TO

F E D E R A L R E S E R V E BOARD

June 16, 1916.
Dear S i r
There i s enclosed f o r your i n f o r m a t i o n and a t t e n t i o n
copy of a r e s o l u t i o n adopted by the F e d e r a l Reserve Board a t a
m e e t i n g h e l d on June 16, l e v y i n g an assessment of s e v e n t y - f i v e
t h o u s a n d t h s of one p e r cent ( ,00075) a g a i n s t F e d e r a l Reserve
Banks t o d e f r a y t h e e s t i m a t e d g e n e r a l expenses of t h e F e d e r a l
Reserve Board from J u l y 1 t o December 31, 1916.

This assessment

does n o t i n c l u d e t h e c o s t of e n g r a v i n g and p r i n t i n g F e d e r a l Reserve n o t e s .
There i s a l s o enclosed a s t a t e m e n t showing t h e
b a s i s upon which t h e assessment i s l e v i e d .
I have t h e honor t o r e q u e s t t h a t you b r i n g t h i s
m a t t t e r to t h e e a r l y a t t e n t i o n of t h e Board of D i r e c t o r s of
your bank, and forward t h e assessment t o t h e F e d e r a l Reserve
Board, one-half t o be payable J u l y 1 s t and one-half on September 1 s t , 1916, as i n d i c a t e d i n t h e r e s o l u t i o n .
Very t r u l y y o u r s ,

F i s c a l Agent.
Enclosures.




S . HAMLIN

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
AND FISCAL AOENT

13Y4&
EX-OFFICIO MEMBERS

C H A R L E S S . H A M L I N , GOVERNOR
F R E D E R I C A . D E L A N O , VICE GOVERNOR
PAUL M.WARBURG
W. P. G.HARDING
ADOLPH C.MILLER

WILLIAM 6 . McADOO
SECRETARY OF THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
ADDRESS REPLY TO
F E D E R A L REL

Dear S i r :
The F e d e r a l Reserve Board has g i v e n c a r e f u l c o n s i d e r a t i o n t o t h e l e t t e r s r e c e i v e d from t h e v a r i o u s F e d e r a l r e s e r v e
banks i n response t o a l e t t e r s e n t out by Mr. McKay r e g a r d i n g
t h e i s s u a n c e of par l i s t s i n connection with t h e c l e a r i n g system
t o be i n a u g u r a t e d J u l y 15th.
In order t o meet as n e a r l y as p o s s i b l e t h e wishes of a l l ,
i t has been decided f o r t h e p r e s e n t t o p r i n t a p a r l i s t showing
each S t a t e s e p a r a t e l y along t h e l i n e s of t h e enclosed specimen
sheet.
The m a j o r i t y of t h e banks having advised t h e i r i n a b i l i t y
t o f u r n i s h b e f o r e J u l y 15th a l i s t of non-member banks on which
items w i l l be r e c e i v e d a t p a r , t h e p r i n t i n g of t h e l i s t s w i l l nece s s a r i l y be delayed, but i t i s d e s i r e d t h a t t h e p r e l i m i n a r y l i s t
be i s s u e d i n time f o r d i s t r i b u t i o n b e f o r e August 1 s t .
You a r e , t h e r e f o r e , r e q u e s t e d t o f u r n i s h i n d u p l i c a t e a
l i s t of t h e S t a t e member banks and non-member banks i n your d i s t r i c t upon which items can be handled by you a t p a r , t h i s l i s t t o
be i n t h e hands of t h e Board by J u l y 23rd. I t i s intended t o d i s t r i b u t e t h e complete l i s t by August 1 s t , as w e l l as t o i n c l u d e i t
i n t h e August B u l l e t i n .
You a r e a l s o r e q u e s t e d t o send i n t o t h e F e d e r a l Reserve
Board, so as t o be r e c e i v e d b e f o r e t h e 2 J r d of each month, a l i s t
showing a l l a d d i t i o n s and r e d u c t i o n s i n t h e l i s t of non-member banks
upon which items can be handled by you a t p a r . These l i s t s when
r e c e i v e d w i l l be c o n s o l i d a t e d , and each F e d e r a l r e s e r v e bank w i l l
be advised of a l l changes, so t h a t t h e i n f o r m a t i o n can be t r a n s m i t t e d t o i t s member banks. I t i s a l s o intended t o show t h e l i s t
of changes i n t h e monthly B u l l e t i n .




Very t r u l y y o u r s ,

Governor.

1375
707
f e d e r a l

RESERVE

BOARD

WASHINGTON

To a l l F e d e r a l Reserve Agents:
The p r o h i b i t i o n s of S e c t i o n 8 of t h e Clayton Act which
r e l a t e t o i n t e r l o c k i n g "bank d i r e c t o r a t e s go i n t o e f f e c t on October 15, 1916.

These p r o h i b i t i o n s r e l a t e t o banks o r g a n i z e d or

o p e r a t i n g under t h e laws of t h e United S t a t e s , and, t h e r e f o r e ,
apply t o S t a t e banks or t r u s t companies which a r e members of t h e
F e d e r a l Reserve System as w e l l as t o n a t i o n a l banks.

For con-

v e n i e n c e , t h e r e f o r e , banks "organized or o p e r a t i n g under t h e laws
of t h e United S t a t e s " w i l l be r e f e r r e d t o as "member b a n k s . "
ANALYSIS OF SECTION 8 OF THE ACT
As o r i g i n a l l y e n a c t e d , Section' 8 of t h e Clayton Act p r o vides, in substance -




(a)

That no person s h a l l . b e a d i r e c t o r , o f f i c e r or

employee of a member bank having r e s o u r c e s a g g r e g a t i n g more
t h a n $5,000,000 and a t t h e same time a d i r e c t o r , o f f i c e r , or
employee of any o t h e r member bank;
(b)

That no p r i v a t e banker or p e r s o n who i s a d i r e c t o r

of a non-member bank h a v i n g r e s o u r c e s a g g r e g a t i n g more t h a n
$5,000,000 s h a l l be e l i g i b l e t o s e r v e a t t h e same time as a
d i r e c t o r i n any member bank;

1376
707-

(c)

2

-

That no member bank i n a c i t y of more t h a n 200,000

i n h a b i t a n t s s h a l l havs as a d i r e c t o r or o t h e r o f f i c e r or
employee any p r i v a t e banker or any d i r e c t o r or o t h e r o f f i c e r
or employee of any o t h e r bank or t r u s t company l o c a t e d i n t h e
same p l a c e .
EXCEPTIONS.
The p r o v i s i o n s of S e c t i o n 8:
(1)

Do not apply t o mutual s a v i n g s banks n o t h a v i n g

a c a p i t a l s t o c k r e p r e s e n t e d by s h a r e s .
(2)

Do not p r o h i b i t a person from b e i n g a t t h e same

time (a) a Class "A" d i r e c t o r of a F e d e r a l r e s e r v e bank and
a l s o an o f f i c e r or d i r e c t o r , or both an o f f i c e r and a d i r e c t o r ,
i n one member bank; (b) an o f f i c e r , d i r e c t o r or employee of
one member bank and one o t h e r bank or t r u s t company, whether
a member bank or non-member bank,where t h e e n t i r e c a p i t a l
s t o c k of one i s owned by t h e s t o c k h o l d e r s of t h e o t h e r .
THE KERN AMENDMENT
By an Act of Congress, approved May 15, l $ l 6 , S e c t i o n 8
was amended by t h e a d d i t i o n of a f u r t h e r p r o v i s o r e a d i n g a s f o l l o w s :




"Nothing i n t h i s Act s h a l l p r o h i b i t any o f f i c e r ,
d i r e c t o r , or employee of any member bank, or Class 11 A"
d i r e c t o r of a F e d e r a l r e s e r v e bank, who s h a l l f i r s t p r o cure t h e consent of t h e F e d e r a l Reserve Board * * * * *
from b e i n g an o f f i c e r , d i r e c t o r , or employee of n o t more
t h a n two o t h e r banks * * * * * if such o t h e r bank * * * *
i s n o t i n s u b s t a n t i a l c o m p e t i t i o n w i t h such member b&nk."

1377
707
The duty imposed upon t h e F e d e r a l Reserve Board i n p a s s i n g
upon any a p p l i c a t i o n nads under a u t h o r i t y of t h i s amendment i s t o d e t e r mine Whether or n o t t h e two banks i n q u e s t i o n ( o r e i t h e r of them) a r e
i n s u b s t a n t i a l c o m p e t i t i o n w i t h t h e member bank.

If both &re non-member

banks t h e act does not r e q u i r e t h a t t h e y s h a l l n o t be i n s u b s t a n t i a l
c o m p e t i t i o n w i t h each o t h e r .
In r e a c h i n g a c o n c l u s i o n on t h i s p o i n t , i t w i l l be n e c e s s a r y
f o r t h e Board t o c a l l upon t h e F e d e r a l Reserve Agent, as i t s l o c a l r e p - ,
r e s e n t a t i v e , t o make i n v e s t i g a t i o n of t h e f a c l s i n each c a s e , t o r e p o r t
t h e same t o t h e Board and t o give t h e Board t h e b e n e f i t of h i s recommendation whether t h e consent a p p l i e d f o r s h a l l be g r a n t e d or r e f u s e d .
I t i s , t h e r e f o r e , n e c e s s a r y t o c a l l t o t h e a t t e n t i o n of t h e F e d e r a l
r e s e r v e agents some of t h e f a c t o r s which must be c o n s i d e r e d i n d e t e r mining t h e q u e s t i o n of whether or n o t t h e banks involved- a r e i n subs t a n t i a l competition.
PURPOSES OF THE ACT AND THE AMENDMENT.
The s i g n i f i c a n c e of t h e language " s u b s t a n t i a l c o m p e t i t i o n " .
can n o t be f u l l y understood without c o n s i d e r i n g t h e purpose of t h e
o r i g i n a l a c t a s w e l l as t h a t of t h e amendment.
As o u t l i n e d by t h e J u d i c i a r y Committee, i n r e p o r t i n g t h e
o r i g i n a l b i l l t o t h e House, t h e purpose of S e c t i o n 8, of t h e o r i g i n a l .
Clayton Act w a s • -




"to p r e v e n t as f a r as possible, c o n t r o l of g r e a t agg r e g a t i o n s of money and c a p i t a l t h r o u g h t h e medium of
common d i r e c t o r s between banks and banking a s s o c i a t i o n s , the object being t o prevent t h e ' c o n c e n t r a t i o n

,

13 78
70?.
•

- U-

of money or i t s d i s t r i b u t i o n through a system of i n t e r locking d i r e c t o r a t e s .
I t w i l l "be observed t h a t t h e Act does not u n d e r t a k e t o
p r e v e n t i n t e r l o c k i n g d i r e c t o r a t e s of banks l o c a t e d i n s m a l l c i t i e s
and having s m a l l aggregate r e s o u r c e s .

I t a p p l i e s i n terms t o t h e

q u a l i f i c a t i o n of d i r e c t o r s , o f f i c e r s and employees of banks (a) i n
c i t i e s of more than 200,000 i n h a b i t a n t s c r (b) having r e s o u r c e s agg r e g a t i n g more t h a n $5,000,000.
While t h e g e n e r a l purpose of t h o Act, as i n d i c a t e d by i t s
t i t l e , v/a.s Ho'supplement- e x i s t i n g laws a g a i n s t u n l a w f u l r e s t r a i n t s
and m o n o p o l i e s , " and while monopolies are c r e a t e d by a r e s t r a i n t of
l e g i t i m a t e competition a l i t e r a l i n t e r p r e t a t i o n of S e c t i o n 8 as
o r i g i n a l l y enacted would p r o h i b i t a person from s e r v i n g a t t h e same
time as a d i r e c t o r , o f f i c e r or employee of two or more banks, under
c e r t a i n c i r c u m s t a n c e s , whether or not such banks were c o m p e t i t o r s .
The Kern amendment, however, a u t h o r i z e s t h e Board t o p e r m i t a d i r e c t o r , o f f i c e r or employee of a member bank^who o t h e r w i s e would
be i n e l i g i b l e , t o serve as a d i r e c t o r , o f f i c e r o r employee of not
more t h a n two o t h e r banks or t r u s t companies, whether S t a t e or
n a t i o n a l , provided such o t h e r banks or t r u s t companies a r e not i n
s u b s t a n t i a l c o m p e t i t i o n w i t h such member bank.
I t should be borne i n mind t h a t t h e Act does n o t v e s t an
a r b i t r a r y d i s c r e t i o n i n t h e Board t o permit t h e same p e r s o n t o
s e r v e on t h e board of d i r e c t o r s of any two or more b a n k s , when
such banks come w i t h i n t h e r e s t r i c t i v e language of t h e Act as




1379
707

- 5 -

o r i g i n a l l y p a s s e d ; b u t i t merely c o n f e r s a u t h o r i t y upon t h e Board
t o permit i n t e r l o c k i n g d i r e c t o r a t e s when such banks a r e not i n
s u b s t a n t i a l c o n p e t i t i a n , w i t h i n t h e meaning of t h e A c t .
SUBSTANTIAL COMPETITION.
I t i s m a n i f e s t t h a t no f i x e d r u l e can be p r e s c r i b e d by
which t h i s q u e s t i o n can be a u t o m a t i c a l l y d e t e r m i n e d .

The f a c t s

i n each case must be c a r e f u l l y considered and i t i s t h e duty of
t h e Board t o withhold i t s consent i n any case i n which i t would
d e f e a t t h e purposes of t h e Act t o permit t h e same p e r s o n t o serve
as an o f f i c e r , d i r e c t o r , or employee of more t h a n one bank.
If t h e two "banks i n q u e s t i o n a r e n o t c o m p e t i t o r s i n any
r e s p e c t no q u e s t i o n a r i s e s .

If t h e y do compete t h e very d i f f i c u l t

q u e s t i o n a r i s e s , whether or not t h e c o m p e t i t i o n i s " s u b s t a n t i a l " .
I t i s n e c e s s a r y t o keep i n mind t h a t t h e main purpose of
t h e Act was t o prevent t h e monopolization and c e n t r a l i z a t i o n of
c r e d i t through i n t e r l o c k i n g • d i r e c t o r a t e s of banking i n s t i t u t i o n s .
One of t h e i n j u r i o u s r e s u l t s of such c o n d i t i o n s i s t h a t t h e p u b l i c
i s d e p r i v e d of t h e b e n e f i t of l e g i t i m a t e c o m p e t i t i o n .
In g e n e r a l , t h e r e f o r e , two banks coming w i t h i n t h e p r o h i b i t i o n of t h e o r i g i n a l Act would be deemed t o be i n s u b s t a n t i a l c o m p e t i t i o n w i t h i n t h e meaning of t h e language used i n
t h e amendment if t h e b u s i n e s s engaged i n by such banks under




13 80
707- 6 n a t u r a l and normal c o n d i t i o n s , c o n f l i c t s o: i n t e r f e r e s t o r i f t h e
c e s s a t i o n of c o m p e t i t i o n between t h e two would be i n j u r i o u s t o
customers, or wo;M-bo customers, or would p r o b a b l y r e s u l t i n app r e c i a b l y l e s s g r i n g t h e volume of b u s i n e s s or kinds of b u s i n e s s of
either institution.
I t i s r e a l i z e d t h a t some d i f f i c u l t y w i l l be e x p e r i e n c e d
i n t h e a p p l i c a t i o n of t h i s t e s t .
Two banks engaged i n t h e same c h a r a c t e r of b u s i n e s s ( f o r
example, where both r e c e i v e commercial d e p o s i t s and make commercial
l o a n s ) would be regarded as i n s u b s t a n t i a l c o m p e t i t i o n i f t h e i r
f i e l d s of a c t i v i t y extended over the same geographical, t e r r i t o r y *
If t h e i r o p e r a t i o n s were not c a r r i e d on i n t h e same g e o g r a p h i c a l
t e r r i t o r y , t h e n , although t h e y engaged i n t h e same c l a s s of b u s i n e s s , t h e y would not n e c e s s a r i l y be reg ard ed as s u b s t a n t i a l com~
petitors.
Again, i f t h e y conducted t h e i r o p e r a t i o n s i n t h e same
p l a c e , b u t , because of t h e i r comparatively s m a l l s i z e i n r e l a t i o n
t o t h e t o t a l banking o p p o r t u n i t i e s of t h e l o c a l i t y , and because
/ of t h e f a c t t h a t t h e y did not d e a l with t h e same c l a s s of customers,
t h e c e s s a t i o n of

c o m p e t i t i o n between them m i g h t , from t h e

p u b l i c p o i n t of view, be u n i m p o r t a n t , t h e y would n o t n e c e s s a r i l y be
deemed t o be i n s u b s t a n t i a l c o m p e t i t i o n .

Or, i f t h e i r o p e r a t i o n s

were conducted i n t h e same l o c a l i t y but t h e c h a r a c t e r of b u s i n e s s
engaged i n d i f f e r s ( f o r example, where one does a s t r i c t l y comm e r c i a l banking b u s i n e s s vtfiile t h e o t h e r c o n f i n e s i t s o p e r a t i o n s




t o a t r u s t company or f i d u c i a r y "business), such banks need n o t be
regarded as i n s u b s t a n t i a l c o m p e t i t i o n .
I t i s , t h e r e f o r e , n e c e s s a r y t o c o n s i d e r t h e scope o r
e x t e n t of t e r r i t o r y t h a t a b a n k ' s Operations cover and t h e charact e r and kinds of b u s i n e s s i t engages i n .

S i z e , measured by a g g r e -

g a t e r e s o u r c e s , w i l l c o n s t i t u t e one of t h e f a c t o r s t o be c o n s i d e r e d ,
s i n c e to i n c r e a s e t h e volume of l o a n a b l e funds u s u a l l y i n c r e a s e s
t h e r a d i u s of a b a n k ' s o p e r a t i o n s .

A bank with $100,000,000 r e -

s o u r c e s would seek investments i n a l a r g e r a r e a and of a more d i v e r s e c h a r a c t e r t h a n a bank with $5,000,000, and so might come i n t o
c o m p e t i t i o n w i t h banks l o c a t e d some d i s t a n c e away, while t h e bank
with $5,000,000 r e s o u r c e s might not extend i t s a c t i v i t i e s t o any
r e a l e x t e n t beyond t h e b o r d e r s of t h e c i t y i n which i t i s l o c a t e d .
For example, a bank i n New York might come i n t o s u b s t a n t i a l compet i t i o n w i t h a bank in Chicago if both were engaged i n t h e same
c l a s s of b u s i n e s s and if both had become so l a r g e as t o be more
than local i n s t i t u t i o n s .
Where t h e o p e r a t i o n s of t h e two banks cover a common
t e r r i t o r y from a g e o g r a p h i c a l s t a n d p o i n t , i t i s n e c e s s a r y t o cons i d e r c a r e f u l l y t h e c h a r a c t e r of b u s i n e s s engaged i n .

As gu very

l a r g e p r o p o r t i o n of t h e member banks do a commercial banking b u s i n e s s , t h e volume of t h i s b u s i n e s s w i t h i n t h e t e r r i t o r y covered by
t h e o p e r a t i o n s of t h e banks i n q u e s t i o n becomes an i m p o r t a n t f a c t o r .
In a c i t y of 250,000 i n h a b i t a n t s any two banks which engaged i n a




1382
707.
-

8 -

commercial banking b u s i n e s s t o any g r e a t e x t e n t would presumably
come i n t o s u b s t a n t i a l c o m p e t i t i o n , v i i e r e a s , i n a c i t y of 2,000,000
i n h a b i t a n t s one bank might c o n f i n e i t s o p e r a t i o n s t o t h e wholesale
d i s t r i c t while a n o t h e r might draw i t s customers e x c l u s i v e l y from
t h e r e t a i l d i s t r i c t , and so might be n o n - c o m p e t i t i v e i n t h e sense
t h a t an i n c r e a s e of t h e b u s i n e s s of one would n o t a f f e c t t h e b u s i n e s s of t h e o t h e r .
i
R E S U M E '
I t i s , t h e r e f o r e , n e c e s s a r y t h a t c o n s i d e r a t i o n should
be given xt-




(1)

To t h e s i z e i n a g g r e g a t e r e s o u r c e s of banks i n v o l v e d ;

(2)

To t h e c h a r a c t e r of b u s i n e s s engaged i n , i . e . , t h e
e x t e n t of commercial b u s i n e s s and e x t e n t of p u r e l y
investment or t r u s t company b u s i n e s s of t h e two i n stitutions.

(3)

Whether t h e o p e r a t i o n s of t h e two banks cover t h e same
geographical t e r r i t o r y .

(4)

Whether t h e two banks a c t u a l l y compete t o any a p p r e c i a b l e e x t e n t i n any important a c t i v i t y - f o r example,
( a ) i n s o l i c i t i n g d e p o s i t s on demand or on time from other
banks or i n d i v i d u a l s , (b) i n t h e purchase or s a l e of comm e r c i a l paper or o t h e r s e c u r i t i e s , (c) i n t h e purchase
o r s a l e of f o r e i g n exchange, (d) i n s o l i c i t i n g t r u s t e e ships, etc.

±383
•

707.

w ^ e—

The form of a p p l i c a t i o n approved by t h e Board i s intended
t o f u r n i s h an a n a l y s i s of t h e c h a r a c t e r of 'business of t h e banks
involved as tat
of t h e bank.

as i t i s p o s s i b l e t o determine t h i s from t h e books
The F e d e r a l r e s e r v e agent should supplement t h i s ,

however; with any i n f o r m a t i o n he may be a b l e t o o b t a i n and should
base h i s recommendation upon t h e f a c t s i n each c a s e .

If he con-

cludes t h a t t h e r e i s s u b s t a n t i a l competition between t h e banks or
t h a t i n t e r l o c k i n g d i r e c t o r a t e s or common o f f i c e r s o r employees of
t h e two banks might r e s u l t in any i n j u r y t o t h e p u b l i c , or i n any
s u b s t a n t i a l r e s t r a i n t of or d e t r i m e n t t o t h e b u s i n e s s of e i t h e r
bank, he should recommend t h a t t h e a p p l i c a t i o n be r e f u s e d .

The

Board, i n r e a c h i n g a d e c i s i o n , w i l l c a r e f u l l y c o n s i d e r t h e recommendation of t h e F e d e r a l r e s e r v e agent and w i l l base i t s c o n c l u s i o n upon t h e r e p o r t and recommendation of t h e agent t o g e t h e r with
o t h e r i n f o r m a t i o n which i t s own i n v e s t i g a t i o n may d i s c l o s e .
The Kern amendment a u t h o r i z e s t h e F e d e r a l Reserve Board
a t i t s d i s c r e t i o n "* * * * t o revoke such c o n s e n t . "

In o r d e r t h a t

t h e F e d e r a l Reserve Board may revoke i t s consent a t any time i t
becomes n e c e s s a r y , F e d e r a l r e s e r v e agents should keep i t advised
of any change e i t h e r i n l o c a l b u s i n e s s c o n d i t i o n s or i n t h e r e s o u r c e s or c h a r a c t e r of b u s i n e s s conducted by t h e banks which may
t e n d t o make them s u b s t a n t i a l c o m p e t i t o r s .




1384
707-

10 -

«
In view of t h e g r e a t amount of time n e c e s s a r y t o an
adequate c o n s i d e r a t i o n of each case i t i s d e s i r a b l e t h a t d i r e c t o r s ,
o f f i c e r s and employees f i l e t h e i r a p p l i c a t i o n s a s soon as p o s s i b l e .
The Board w i l l endeavor t o a c t upon a l l a p p l i c a t i o n s deceived bef o r e August 15, 1916, on or b e f o r e September 15, l $ l 6 .

6/23/16.







709

RESOLUTION ADOPTED BY THE FEDERAL RESERVE
BOARD.
F r i d a y , June 23, 1916.
oOo
WHEREAS. I t appears t h a t t h e twelve
F e d e r a l r e s e r v e banks have purchased i n t h e open
market "bonds i n excess of t h e amount which might
have been a l l o t t e d to such banks a t the end of t h i s
q u a r t e r l y p e r i o d on the b a s i s h e r e t o f o r e determined
upon and announced by the Board.
NCW. THEREFORE. BE IT RESOLVED. That i t
i s the sense of t h e Board t h a t no n e c e s s i t y e x i s t s
f o r e n f o r c i n g t h e requirement provided f o r u n d e r Sect i o n 18 of t h e F e d e r a l Reserve Act a t t h e end of t h i s
q u a r t e r l y p e r i o d ending June 30, 1916, and t h a t i t
w i l l n o t git t h i s time r e q u i r e the F e d e r a l r e s e r v e
banks t o purchase any of those bonds which a r e o f f e r e d f o r s a l e by member banks through the T r e a s u r e r
of t h e United S t a t e s under the p r o v i s i o n s of S e c t i o n
18.
BE IT FURTHER RESOLVED, That t h e S e c r e t a r y
be i n s t r u c t e d t o send a copy of t h i s r e s o l u t i o n t o t h e
v a r i o u s F e d e r a l r e s e r v e banks and t o t h e member banks
which have o f f e r e d bonds f o r s a l e in o r d e r t h a t t h e y
may be n o t i f i e d of the a c t i o n of the Board i n t h e premises.

6/23/16

. 1386
W . P . 6 . H A R D I N G . GOVERNOR
P A U L M . W A R B U R G , VICE GOVERNOR

EX-OPPIClO MEMBERS

F R E D E R I C A. DELANO
WILLIAM G. McADOC
SECRETARY OF THE TREASURY
CHAIRMAN

ADOLPH C. Mil.
CHARLES S. I

J O H N SKELTON WILLIAMS
COMPTROLLER O F THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
AND FISCAL AGENT
ADDRESS REPLY TO

F E D E R A L R E S E R V E BOARD

. June 23, 1916.
Bear Sir:
For your information there i s given below a copy of a
resolution adopted by the Federal Reserve Board at i t s meeting
today covering the separation of the gold order c e r t i f i c a t e s
making up the Gold Settlement Fund and Federal Reserve Agents 1
Fund.
RESOLVED, that the gold c e r t i f i c a t e s comprising the
Federal Reserve Agents' Fund and the Federal Reserve Banks'
Fund in the Gold Settlement Fund s h a l l hereafter be separated so that certain c e r t i f i c a t e s s h a l l be credited t o
each fund by number and transfers made upon the books of
the Federal Reserve Board by both numbers of c e r t i f i c a t e s
and amounts in dollars, and
BE IT FURTHER RESOLVED, that any l o s s which niay occur
in the Gold Settlement Fund a f t e r June 23 j 1916, s h a l l be
charged against the Federal Reserve Agents' Fund or the
Federal Reserve Banks' Fund accordingly as ownership of
the l o s t c e r t i f i c a t e s h a l l by i t s number be indicated on
the books of the Gold Settlement Fund.




Very truly yours,

Governor.

714

memorandum.
WHY MEMBER BANK DRAFTS ON FEDERAL RESERVE BANKS SHOULD BE
ACCEPTED BY ALL FEDERAL RESERVE BANKS FOR
IMMEDIATE CREDIT AT PAR*
*

1„

*

*

Thrtftigh t h e e s t a b l i s h m e n t of the F e d e r a l Reserve

System, ( membership compulsory ) N a t i o n a l banks a r e obliged
t o c a r r y t h e i r r e s e r v e s i n F e d e r a l Reserve Banks.

Drafts

a g a i n s t t h a t account should possess a l l the c i r c u l a t i n g
value t h e i r d r a f t s had h e r e t o f o r e on any or a l l of t h e i r
former r e s e r v e c o r r e s p o n d e n t s .
2«

In the o p e r a t i o n of the c o l l e c t i o n system an i n -

c e n t i v e to use f o r o v e r - t h e - c o u n t e r drawings, d r a f t s on Fed*
eral - Roberto Banks should be o f f e r e d . These d r a f t s , c r e d i t e d
on member bank books when drawn w i l l f l o a t f o r a t l e a s t one
day and o f f s e t through the c l e a r i n g .of f l o a t t h e i r e q u i v a l e n t
i n items charged.
3,

In t h e o p e r a t i o n of the c o l l e c t i o n system the b a l a n -

ces between t h e F e d e r a l Reserve Banks a r e c r e a t e d by check
t r a n s a c t i o n s t h a t a r e e q u i v a l e n t of gold through the Gold S e t t l e m e n t Fund,

The exceptions to t h i s a r e some payments r e -

ceived through l o c a l c l e a r i n g h o u s e s , d e p o s i t s of l a w f u l money
or r e d i s c o u n t s .




. 1388

-7X4*»2*»
4.

Clieeking i n a n t i c i p a t i o n or k i t i n g can be c o n t r o l l e d

by reasbti 6f t h e s u p e r v i s o r y r e l a t i o n s h i p of F e d e r a l Reserve
Banks t o t h e i r member banks.
5.

Through making a low open d i s c o u n t r a t e 6n d o l l a r e x -

change , very much lower ,than open r a t e s p r e v a i l i n g f o r s t e r l i n g
d r a f t s on London, t h e F e d e r a l Reserve Banks a r e s e e k i n g t o popu l a r i z e a c c e p t a n c e s of American banks i n world c e n t e r s . I t i s
j u s t as important t o s t i m u l a t e t h e u s e of d r a f t s on F e d e r a l
Reserve Banks i n t h i s country, even t o the p o i n t of c o n c e s s i o n o r some expense in the b e g i n n i n g ,
6.

D r a f t s on F e d e r a l Reserve Banks w i l l be c o l l e c t e d only

through o t h e r F e d e r a l Reserve Banks f o r immediate c r e d i t . I t
amounts t o t h e same p r o p o s i t i o n as d r a f t on a branch p r e s e n t e d
through t h e p a r e n t bank or v i c e v e r s a .
7*

A s e t t l e m e n t fund c o n s i s t i n g of l a w f u l money can be

c o n s t i t u t e d in Washington if e x p e r i e n c e i n immediate payments
make i t n e c e s s a r y o r d e s i r a b l e .

D e t a i l s , such as c h a r g i n g

!

t h e member banks r e s e r v e account w i t h the d r a f t on t h e day
i t r e a c h e s any F e d e r a l Reserve Bank, and bank t r a n s f e r s upon
r e q u e s t only can be made p a r t of t h e p l a n .
Postscript.
To the above might be added t h e f o l l o w i n g , as a s u p plemental reason :




—714—
-3The public g e n e r a l l y have been educated by e x p e r i e n c e
t o the f a c t t h a t a d r a f t on a New York bank i s given immediate
c r e d i t and i s a v a i l a b l e f o r funds a t any town i n t h e United
S t a t e s o r f o r t h a t m a t t e r i n North America. So t r u e i s t h i s
t h a t a c a r e f u l study of bank s t a t i s t i c s shows t h a t t h e r e are
very few banks i n the United S t a t e s , National or S t a t e , t h a t
do not keep accounts in New York, the reason being t h a t in
no o t h e r way can they meet the wants of t h e i r customers
i n making payments a t d i s t a n t p o i n t s .

The q u e s t i o n i s

whether t h i s requirement w i l l s t i l l be made, or whether a
d r a f t drawn by a member bank on i t s own Federal Reserve Bank
can be made ( by reason of the Gold Settlement Fund and
t e l e g r a p h i c t r a n s f e r ) immediately a v a i l a b l e .
Many member banks m a i n t a i n t h a t r e s e r v e s in Fede r a l Reserve Banks w i l l be worth l i t t l e if t h i s i s not done.
Furthermore, if i t i s not done, i t i s argued w i t h some f o r c e
t h a t t h e Federal Reserve System, i n s t e a d of d e c e n t r a l i z i n g
r e s e r v e s , w i l l tend t o c e n t r a l i z e them more than e v e r i n
New York C i t y ,
Is i t not d e s i r a b l e t h a t a d r a f t on a F e d e r a l Res e r v e Bank should be p o p u l a r i z e d i n every p o s s i b l e way, and
t h a t a member bank be j u s t i f i e d in charging a moderate f e e
t o i t s customer f o r such a d r a f t ?




- 714
"-4~
So f a r as s a f e g u a r d s are concerned., t h e r e i s no
o b j e c t i o n t o s u r r o u n d i n g them w i t h a l l p o s s i b l e s a f e g u a r d s .
For example, a member bank might be r e q u i r e d t o s e n d , a t
t h e end of each day, by m a i l , t o i t s F e d e r a l Reserve Bank
a l i s t of a l l d r a f t s drawn a g a i n s t i t , showing to what
p o i n t s they have been s e n t , if i t i s known. This would
do away w i t h "check k i t i n g " .

6/27/16




. 1391
C H A R L E S S . H A M L I N , SflVBRNOR
EX-OFFICIO MEMBERS

F R E D E R I C A. D E L A N O / p t j / f OlflgHOR
PAUL M.WARBURG
W. P . G . H A R D I N G
ADOLPH C.MILLER

WILLIAM G . McADOO
SECRETARY OF THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S . SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
ADDRESS REPLY TO
FEDERAL RESERVE BOARD

June 29, 1 9 l 6 .

Dear S i r :
In response t o my t e l e g r a m of June 21, t o each F e d e r a l
Reserve Bank a s k i n g f o r views i n r e s p e c t t o g i v i n g immediate c r e d i t
a t par f o r d r a f t s drawn a g a i n s t F e d e r a l Reserve Banks, we have r e ceived r e p l i e s from each "bank, f i v e of vtfiich, are f a v o r a b l e , namely:
Cleveland, Richmond, M i n n e a p o l i s , D a l l a s and San F r a n c i s c o ; and
seven a r e opposed, namely: Boston, New York, P h i l a d e l p h i a , A t l a n t a ,
Chicago, S t . Louis and Kansas C i t y .

In view of t h i s marked d i f f e r -

ence of o p i n i o n , t h e Board i s undisposed t o p r e s s t h e m a t t e r unduly
a t t h i s t i m e , but proposes t o l e t t h e m a t t e f run along f o r f u r t h e r
consideration.
The s u g g e s t i o n has been made by one of t h e Reserve Banks
t h a t t h i s p r i v i l e g e should not be g r a n t e d u n l e s s each F e d e r a l r e s e r v e
bank' m a i n t a i n s a s u b s t a n t i a l b a l a n c e w i t h every o t h e r Reserve Bank
whereon i t s members nay d e s i r e

f u n d s j t h e s u p p o s i t i o n b e i n g , however,

t h a t t h e b a l a n c e s would be m a i n t a i n e d l a r g e l y i n New York.

The

F e d e r a l Reserve Board w i l l , of c o u r s e , have no o b j e c t i o n t o t h i s ,
because t h e law p e r m i t s t h e v a r i o u s F e d e r a l Reserve Banks t o keep
b a l a n c e s w i t h each o t h e r f o r exchange p u r p o s e s , b u t i t may be p o i n t e d
out a t t h i s time t h a t the o b j e c t of t h e Gold S e t t l e m e n t Fund was t o
keep a j o i n t fund i n Washington which could be c l a s s e d a s r e s e r v e

I.



• 1392
714 a»
- 2 and which would operate with g r o a t a r smoothness and f a c i l i t y
t h a n f o r each t a n k t o keep "balances w i t h e l e v e n o t h e r "banks.

It

has been s t a t e d t h a t t h e r e i s no n e c e s s i t y f o r h a s t e i n t h i s n a t t e r , t u t i t would appear t h a t t h i s i s one of t h e problems which
should have t h o u g h t f u l c o n s i d e r a t i o n of t h e Executive o f f i c e r s
and t h e Reserve Agents of each "bank and "be s e t t l e d i n t h e n e a r
future*
An

important f e a t u r e of t h e problem, i s t h a t a f t e r .

November, 1917* d e p o s i t s i n banks o t h e r t h a n a F e d e r a l Reserve Bank
a r e not r e s e r v e s #

These d e p o s i t s , while drawing i n t e r e s t , must be

c o n t i n u e d if a t a l l , as e x c e s s d e p o s i t s #
The s u g g e s t i o n h a s been made by Mr* H a r d i n g , of t h e
Board*s Committee, t h a t i n s t e a d of i n s i s t i n g on any g e n e r a l r u l i n g ,
each F e d e r a l Reserve Bank make i t s own arrangements so t h a t d r a f t s
drawn a g a i n s t them woiild be g i v e n immediate c r e d i t a t such Reserve
Banks as t h e y thought d e s i r a b l e «

I f , f o r example, t h e San F r a n c i s c o

Bank d e s i r e d t o h a v s i t s d r a f t s immediately a v a i l a b l e a t par i n
Chicago and Hew Yo:C%, i t could make arrangements with t h e Chicago
and New York Reserve Banks t o e f f e c t t h i s <

This would be a

p a r t i a l i f not complete s o l u t i o n of t h e problem which would p e r haps answer t h e purpose f o r t h e p r e s e n t and t i l l a more comprehensive plan i s devised.
A f a c t not t o be overlooked i s ths.t t h e p u b l i c g e n e r a l l y
have been eduofLted by e x p e r i e n c e t o t h e f a c t t h a t a d r a f t on a
New York Bank i s given immediate c r e d i t and i s a v a i l a b l e f o r f u n d s




. 1 3 9 5
71^ a .

a t any town i n t h e United S t a t e s or f o r t h a t n a t t e r i n North America.
So t r u e i s t h i s t h a t a c a r e f u l study of bank s t a t i s t i c s shows t h a t
t h e r e are very few banks i n t h e United States,, N a t i o n a l or S t a t e ,
t h a t do not keep accounts i n New York., t h e r e a s o n being t h a t i n no
o t h e r way can they meet t h e wants of t h e i r customers i n making payments a t d i s t a n t p o i n t s *

The q u e s t i o n i s vdnether t h i s requirement

w i l l s t i l l be made, or A e t h e r a d r a f t drawn by a member bank on
i t s own F e d e r a l Reserve Bank can be made (by r e a s o n of t h e Gold
S e t t l e m e n t Fund and t e l e g r a p h i c t r a n s f e r ) immediately a v a i l a b l e #
Many member banks m a i n t a i n t h a t r e s e r v e s in F e d e r a l Res e r v e Banks w i l l be worth l i t t l e i f t h i s i s not dene.

Furthermore,

i f i t i s n o t done, i t i s argued with some f o r c e t h a t t h e F e d e r a l
Reserve System, i n s t e a d of d e c e n t r a l i z i n g r e s e r v e s , w i l l t e n d t o
c e n t r a l i z e t h e n more than ever in New York C i t y .
I t / i s not d e s i r a b l e t h a t a d r a f t on a F e d e r a l Reserve
Bank should be p o p u l a r i z e d i n every p o s s i b l e way, and t h a t a member
bank be j u s t i f i e d i n c h a r g i n g a moderate f e e t o i t s customer f o r
such a d r a f t ?
So f a r a s s a f e g u a r d s are concerned, t h e r e i s no o b j e c t i o n
t o s u r r o u n d i n g t h e s e o p e r a t i o n s with a l l p o s s i b l e s a f e g u a r d s # For
example, a member bank might be r e q u i r e d t o send, a t t h e end of
each day> by mail,* t o i t s F e d e r a l Reserve Bank a l i s t of a l l
d r a f t s drawn a g a i n s t i t , showing t o what p o i n t s t h e y have been
s e n t , or made p a y a b l e , ~ which would be a s a f e g u a r d a g a i n s t "check




71- 4 -

kiting".

F u r t h e r m o r e , s p e c i a l s a f e g u a r d s might be r e q u i r e d

on t r a n s f e r s of f u n d s or t h e making of d r a f t s f o r l a r g e amounts
say over t e n thousand .-or t w e n t y - f i v e thousand d o l l a r s .
Yours t r u l y ,

Chairman., Committee on C l e a r i n g .

Statement e n c l o s e d




1395
711' Ve
-

2 -

. .

: S t a t e Banks and Trust Cos.
: n o t i n c l u d i n g Savings
:Banks and P r i v a t e Banks.
:
: Nizaber
. :Number
: l i s t i n g New
: l i s t i n g New
Total
: York c o r r e - :
:York correNumber
:
:spondent
: spondent.

N a t i o n a l Banks

STATE
Oklahoma
Oregon
Pennsylvania
Rhode I s l a n d
South C a r o l i n a !
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West V i r g i n i a
Wisconsin
Wyoming
TOTAL

6/29/16




Total
Nmber
351
89
837,
18
71
112
117
536
23
Us
137
80
117
138
33
7,627

251
86
750
17
71
7%
116
518
23
4l
125
78
113
112
30
6,690

556
154
44g
28
319
494
396
890
87
35
282
282
190
680
72
16,955

'

134
111
397
28
283
77
245
621
7U
28
179
227
171
213
38
9,799

1396
714 t,
NUMBER OF BAMS LISTING CORRESPONDENT TS NEW YORK CITY
AS SHOOT BY BANKERS' DIRECTORY.

: S t a t e Banks and Trust Cos.
: n o t i n c l u d i n g Savings
:Banks and P r i v a t e ' Banks.
Number
:
: Number
l i s t i n g New : T o t a l
: l i s t i n g New
York c o r r e - : Number.
: York c o r r e spondent.
:
: spondent.

N a t i o n a l Banks

STATE
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D i s t r i c t of Columbia
Florida
Georgia
Hawaiian I s l a n d s
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusette
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New J e r s e y
New Mexico
New York
North C a r o l i n a
North Dakota
Ohio




Total
Number
92
3

:
:
:
•

169
106
280
36

92
3
13
51
252
115
72
11
14
54
111
5
53
351
226
248
21J
133
38
36
79
122
101.
223
36

197
11
56
204
37
479
80
152
377

61
169
11
30
195
34
478
79
115
366

f
26l

120
72
24
14
55
112
5
58
472
257
348
219
140
£

P

.

258
12
66
395
354
179
68
24
12
198
654
17
121
807
575
456
959
439
232
67
108
85
319
993
268
1,293
217
815
18
13
137
44
325
402
64l
480

254
11
62
121
304
101
66
12
12
186
639
8
64
320
285
201
556
197
175
40
60
75
259
449
226
295
109
506
17
2
123
31
323
299
199
417












































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































906-b
AMENDMENT TO SECTION 11 ( c ) .
INCREASE OF RESERVES.
BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That
c l a u s e ( c ) of S e c t i o n 11 of t h e Act approved December 23, 1913,
known as t h e F e d e r a l Reserve Act, as amended by t h e Act a p p r o v e d September 7, 1916, be and i s h e r e b y amended by a d d i n g
a t t h e end t h e r e o f t h e f o l l o w i n g s e n t e n c e ;
"The F e d e r a l Reserve Board s h a l l a l s o have
power, whenever e x t r a o r d i n a r y c o n d i t i o n s j u s t i f y ,
t o i n c r e a s e , from t i m e t o time f o r p e r i o d s n o t
e x c e e d i n g t h i r t y d a y s , on t h e a f f i r m a t i v e v o t e
of f i v e of i t s members, t h e amount of b a l a n c e s
r e q u i r e d by t i i i s Act t o be m a i n t a i n e d by member
banks w i t h t h e i r r e s p e c t i v e F e d e r a l r e s e r v e b a n k s ,
p r o v i d e d such i n c r e a s e s h a l l a t no time exceed twenty
p e r centum of such b a l a n c e s and s h a l l be a t t h e same
r a t e f o r a l l member banks of any one d i s t r i c t , and •
p r o v i d e d , f u r t h e r , t h a t t h e • F e d e r a l Reserve Board
s h a l l make a r e p o r t t o Congress i n w r i t i n g s e t t i n g
f o r t h t h e c o n d i t i o n s on which s u c h a c t i o n i s b a s e d . 1 1

1/2/17




1805

947
COLLECTION OF CHECKS FOR NONMEMBER BANKS.
BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That t h e
f i r s t p a r a g r a p h of S e c t i o n 13 of t h e Act approved December 23,
1913, as amended, "by t h e Act of S e p t e m b e r 7, 1916, be f u r t h e r
amended so as t o r e a d as f o l l o w s :
Any F e d e r a l r e s e r v e bank may r e c e i v e from any of
i t s member banks and from t h e U n i t e d S t a t e s d e p o s i t s of
c u r r e n t ifunds in l a w f u l money, n a t i o n a l bank n o t e s , F e d e r a l r e s e r v e n o t e s , o r checks and d r a f t s p a y a b l e upon
p r e s e n t a t i o n , and a l s o f o r c o l l e c t i o n , m a t u r i n g b i l l s ,
o r , s o l e l y f o r p u r p o s e s of e x c h a n g e o r of c o l l e c t i o n ,
may r e c e i v e from o t h e r F e d e r a l r e s e r v e banks OR FROM NONMEMBER BANKS OR TRUST COMPANIES d e p o s i t s of c u r r e n t f u n d s
i n l a w f u l money, n a t i o n a l tank n o t e s , o r checks AND DRAFTS
upon BANKS OR TRUST COMPANIES OR o t h e r F e d e r a l r e s e r v e
banks
e h e e k s aaet d-eaSta- p a y a b l e upon p r e s e n t a t i o n w i t h i n i t s d i s t r i c t and m a t u r i n g b i l l s p a y a b l e w i t h i n i t s
d i s t r i c t ; PROVIDED, HOWEVER, THAT NO FEDERAL RESERVE BANK
SHALL RECEIVE CHECKS AND DRAFTS FROM A NONMEMBER BANK FOR
THE PURPOSE OF EXCHANGE OR COLLECTION UNLESS SUCH NONMEMBER
BANK MAINTAINS WITH THE FEDERAL RESERVE BANK OF ITS DISTRICT
A BALANCE IN AN AMOUNT TO BE DETERMINED BY THE FEDERAL RESERVE BOARD UNDER SUCH RULES AND REGULATIONS AS IT MAY PRESCRIBE.

1/2/17




905-a
AMENDMENT TO SECTION 22.
EE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATESOF AMERICA IN CONGRESS ASSEMBLED,
That t h a t p a r t of S s c t i o n 22 of t h e Act approved December 23,
1913; known a s t h e F e d e r a l Reserve Act, which r e a d s as f o l l o w s :
"Other t h a n t h e u s u a l s a l a r y or d i r e c t o r ' s ferns p a i d
t o any o f f i c e r , d i r e c t o r , o r employee of a member bank
and o t h e r t h a n a r e a s o n a b l e f e e p a i d by s a i d bank t o such
o f f i c e r , d i r e c t o r , o r employee f o r s e r v i c e s r e n d e r e d t o
such bank, no o f f i c e r , d i r e c t o r , employee> ot* a t t o r n e y of
a member bank s h a l l be a b e n e f i c i a r y of or r e c e i v e , d i r e c t l y or i n d i r e c t l y , any f e e , commission, g i f t , 6r b u s i n e s s of t h e b a n k , »
be and h e r e b y id Amended and re«-e.nact6d so a s t o read as f o l l o w s :
"Other t h a n t h e u s u a l s a l a r y or d i r e c t o r ' s f e e s FEE p a i d
t o any o f f i c e r , d i r e c t o r , o r employee OR ATDRNEY of a memb e r bank and o t h e r t h a n a r e a s o n a b l e f e e p a i d by s a i d bank
to such o f f i c e r , d i r e c t o r ,
employee, OR ATTORNEY f o r
s e r v i c e s r e n d e r e d t o such bank, no o f f i c e r , d i r e c t o r , emp l o y e e o r a t t o r n e y of a member bank s h a l l be a b e n e f i c i a r y
of o r r e c e i v e , d i r e c t l y o r i n d i r e c t l y , any f e e , commission,
g i f t or o t h e r c o n s i d e r a t i o n f o r or i n c o n n e c t i o n with any
t r a n s a c t i o n or b u s i n e s s of t h e bank, PROVIDED, HOWEVER, THAT
NOTHING IN THIS ACT CONTAINED SHALL ffi CONSTRUED TO PROHIBIT
A DIRECTOR, OFFICER, OR
EMPLOYEE FROM RECEIVING THE
SAME RATE OF INTEREST PAID TO OTHER DEPOSITORS FOR SIMILAR
DEPOSITS MADE WITH SUCH BANK; OR TO PROHIBIT A DIRECTOR,
TOO IS NOT AN OFFICER OR EMPLOYEE, FROM RECEIVING, DIRECTLY
OR INDIRECTLY, THE USUAL AND CUSTOMARY COMMISSIONS OR FEES
FOR SERVICES RENDERED IN BUYING AND SELLING SECURITIES OR
OTHER INVESTMENTS FOR OR ON ACCOUNT OF SUCH BANK, BUT IN
THIS LATTER CASE THE ACTION OF THE BOARD OF DIRECTORS, IN
DIRECTING EACH PURCHASE OR SALE OF SUCH SECURITIES OR OTHER
INVESTMENTS, MUST BE BY AN AFFIRMATIVE VOTE CR WRITTEN ASSENT OF AT LEAST THREE-FOURTHS OF THE MEMBERS OF THE BOARD
EXCLUSIVE OF THE DIRECTOR INTERESTED, AND MUST BE RECORDED
IN THE MINUTES OF THE MEETING OF SAID BOARD, SUCH MINUTES TO
SPECIFY THJS NAME OF THE DIRECTOR AND THE FIRM OR CORPORATION ,
WITH WHICH HE IS CONNECTED, IF ANY, THROUGH WHICH SUCH ORDER
IS TO EE EXECUTED TOGETHER WITH THE AMOUNT OF THE FEE OR COMMISSION TQ BE PAID ON EACH TRANSACTION; AND, PROVIDED, FURTHER, THAT NOTES, DRAFTS, BILLS OF EXCHANGE OR OTHER EVIDENCES
OF DEBT EXECUTED OR INDORSED BY DIRECTORS OF A MEMBER BANK
DISCOUNTED WITH SUCH MEMBER BANK ON THE SAME TERMS AND
8 A S OTHER NOTES, DRAFTS, BILLS OF EXCHANGE OR EVIN C E S Of DEBT UPON THE AFFIRMATIVE VOTE OR WRITTEN ASSENT OF
OF S U C H ^ J ^ ^ ^ ^ 1 1 1 3 ° F T H E M E M S R S 0 F T H E BOARD OF DIRECTORS



1806

1807

910

BE

OF

IT

ENACTED

THE U N I T E D S T a T E S

OF

BY THE
AMERICA

L&NaTE AND HOUSE OF

I^PID^NTATIVES

IN CONGRESS .ubSEMB-bED, T h a t t h e f i f t &

p a r a g r a p h of S e c t i o n 1'j of t h e . ^ c t approved. December 2 3 , 1 9 1 3 , known
a s t h e F e d e r a l R e s e r v e a c t , a s amended by t h e

A

c t s a p p r o v e d March 1 5 , 1915,

and September 7 , 1 9 1 6 , be and i s h e r e b y amended so a s t o r e a d a s f o l l o w s :
iuiy member b a n k may a c c e p t d r a f t s or b i l l s o f e x c h a n g e
drawn upon i t h a v i n g n o t more t h a n s i x m o n t h s 8 s i g h t t o r u n , e x c l u s i v e of days of g r a c e , which grow o u t of t r a n s a c t i o n s i n v o l v i n g t h e i m p o r t a t i o n o r e x p o r t a t i o n o f g o o d s ; or svhich grow o u t
of t r a n s a c t i o n s i n v o l v i n g t h e d o m e s t i c s h i p m e n t o f goods p r o v i d e d
s h i p p i n g documents c o n v e y i n g or s e c u r i n g t i t l e a r e a t t a c h e d a t
t h e t i m e of a c c e p t a n c e ; or w h i c h a r e s e c u r e d a t t h e t i m e o f a c c e p t a n c e by a w a r e h o u s e r e c e i p t o r o t h e r s u c h document c o n v e y i n g
o r s e c u r i n g t i t l e c o v e r i n g r e a d i l y m a r k e t a b l e s t a p l e s . No Memb e r b a n k s h a l l a c c e p t , w h e t h e r i n a f o r e i g n or d o m e s t i c t r a n s a c t i o n , f o r a n y one p e r s o n , company, f i r m , o r c c o r p o r a t i o n t o a n
fca amount e q u a l a t a n y t i m e i n t h e a g g r e g a t e t o more t h a n t e n p e r
c e n t u m of i t s p a i d - u p a n d u n i m p a i r e d c a p i t a l s t o c k and s u r p l u s
u n l e s s t h e bank i s s e c u r e d e i t h e r by a t t a c h e d documents o r by
some o t h e r a c t u a l s e c u r i t y g r o w i n g o u t o f t h e same t r a n s a c t i o n
a s t h e a c c e p t a n c e and no b a n k s h a l l a c c e p t s u c h b i l l s t o a n
amount e q u a l a t any time, i n t h e a g g r e g a t e t o more t h a n o n e - h a ^ f
of i t s p a i d - u p and u n i m p a i r e d c a p i t a l s t o c k a n d s u r p l u s ! pxstx

.

P R O V I D E D , HOWEVER, T H A I THE FEDERAL R E S E R V E BOARD, UNDER SUCH GLIJERA L R E G U L A T I O N S A S I T MAY P R E S C R I B E , WHICH SHALL A P P L Y TO A L L BANKS
A L I K E R E G A R D L E S S O F THE AMOUNT O F C A P I T A L STOCK AND S U R P L U S , MAY
A U T H O R I Z E ANY MEMBER BANK TO ACCEPT SUCH B I L L S TO AN AMOUNT NOT
E X C E E D I N G A T ANY T I 1 E I N THE AGGREGATE ONE HUNDRED PER CENTUM O F
I T S P A I D - U P AND U N I M P A I R E D C a P I T A L STOCK AND S U R P L U S , P R O V I D E D ,
HOY,'EVER, THAT T I E AGGREGATE OF ACCEPTANCES GROW ING OUT OF DOILJOTIC
TRANSACTIONS SHALL I N NO EVENT EXCEED F I F T Y PER CENTUM O F SLTCII

CAPITAL STOCK P D

12-ia-ie




SURPLUS.

1808
*9 / % -

BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That S e c t i o n 17 of t h e Act approved December 23, 1913, known a s t h e F e d e r a l Reserve A c t , be and i s h e r e b y amended so as t o read a s f o l lows :
S e c . 1 7 . So rou eh of t h e p r o v i s i o n s of s e c t i o n f i f t y one h u n d r e d and f i f t y r - n i n e of t h e R e v i s e d S t a t u t e s of t h e
U n i t e d S t a t e s , and s e c t i o n f o u r of t h e Act of June
t w e n t i e t h , e i g h t e e n h u n dre d and s e v e n t y - f o u r , and s e c t i o n
e i g h t of t h e Act of J u l y t w e l f t h , e i g h t e e n hundred and
e i g h t y - t w o , and of any o t h e r p r o v i s i o n s of e x i s t i n g s t a t u t e s a s r e q u i r e t h a t b e f o r e any n a t i o n a l b a n k i n g a s s o c i a t i o n s s h a l l be a u t h o r i z e d t o commence b a n k i n g b u s i n e s s
i t s h a l l t r a n s f e r and d e l i v e r t o t h e T r e a s u r e r of t h e
U n i t e d S t a t e s a s t a t e d amount of U n i t e d S t a t e s r e g i s t e r e d
bonds AND SO MUCH OF THOSE PROVISIONS OR OF ANY OTHER,
PROVISIONS OF EXISTING STATUTES AS REQUIRE ANY NATIONAL
BANKING ASSOCIATIONS N0'7 OR HEREAFTER ORGANIZED TO MAINTAIN A MINIMUM DEPOSIT OF SUCH BONDS WITH THE TREASURER
i s hereby r e p e a l e d .

12/12/16




BRANCH BANKS
BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That S e c t i o n 25 of t h e Act approved December 23, 1913, known as t h e F e d e r a l R e s e r v e A c t , as amended by t h e Act of September 7, 1916, be
amended by a d d i n g a s u b - s e c t i o n ( a ) t o r e a d as f o l l o w s :
"Sec. 2 5 a . That any member bank l o c a t e d i n a c i t y
o r i n c o r p o r a t e d town of more t h a n one hundred t h o u s a n d i n h a b i t a n t s and p o s s e s s i n g a c a p i t a l and s u r p l u s of $ 1 , 0 0 0 , 0 0 0
o r more may, u n d e r s u c h r u l e s and r e g u l a t i o n s as t h e F e d e r a l
R e s e r v e Board may p r e s c r i b e , e s t a b l i s h b r a n c h e s , n o t t o e x ceed t e n i n number, w i t h i n t h e c o r p o r a t e . l i m i t s of t h e c i t y
o r town in which i t i j l o c a t e d J
P r o v i d e d , That no such b r a n c h
s h a l l be e s t a b l i s h e d i n any S t a t e i n which n e i t h e r S t a t e banks
n o r t r u s t companies may l a w f u l l y e s t a b l i s h b r a n c h e s . "




951

1 8 1 0

MEMBERSHIP OF MUTUAL SAVINGS BANKS.
BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That S e c t i o n
9 of t h e Act a p p r o v e d December 23,

1913, known as t h e F e d e r a l R e s e r v e

A c t , as amended "by t h e Act of September 7 , 1916, be amended by a d d i n g
a s u b s e c t i o n ( a ) t o r e a d as f o l l o w s :
Section 9 ^ a \

Any m u t u a l s a v i n g s bank of a s s o c i a t i o n o p e r a t i n g

u n d e r t h e laws of any S t a t e , may make a p p l i c a t i o n t o t h e F e d e r a l Res e r v e Board f o r t h e r i g h t t o become a n a s s o c i a t e member of t h e F e d e r a l
r e s e r v e bank of t h e d i s t r i c t i n which such s a v i n g s bank o r a s s o c i a t i o n
is located.
The F e d e r a l Reserve Board u n d e r s u c h r u l e s and r e g u l a t i o n s
as i t may p r e s c r i b e may p e r m i t s u c h bank o r a s s o c i a t i o n t o become an
a s s o c i a t e member of t h e F e d e r a l r e s e r v e bank, b u t s u c h Board b e f o r e
g r a n t i n g any a p p l i c a t i o n s h a l l r e q u i r e s a t i s f a c t o r y e v i d e n c e t h a t t h e
laws of t h e S t a t e in which t h e a p p l y i n g bank o r a s s o c i a t i o n i s l o c a t e d , a u t h o r i z e s u c h bank or a s s o c i a t i o n t o engage i n t h e b u s i n e s s of a ,
m u t u a l s a v i n g s bank and p r o v i d e f o r a p r o p e r s u p e r v i s i o n o v e r t h e o p e r a t i o n s of s u c h bank o r a s s o c i a t i o n .
Any m u t u a l s a v i n g s bank o r a s s o c i a t i o n which becomes an
a s s o c i a t e member of a F e d e r a l r e s e r v e bank, s h a l l a g r e e t o comply
w i t h a l l t h e p r o v i s i o n s of S e c t i o n 19 of t h i s Act*

Such a s s o c i a t e

members s h a l l be e n t i t l e d t o a l l t h e c l e a r i n g p r i v i l e g e s g r a n t e d
t o member b a n k s , "and F e d e r a l r e s e r v e banks s h a l l be a u t h o r i z e d
to discount the promissory notes
having




a

of

such

associate

members

m a t u r i t y of n o t more t h a n t h i r t y days and which a r e s e -

951

- 2 -

cured,

( a ) by p a p e r e l i g i b l e f o r r e d i s c o u n t u n d e r S e c t i o n

13 of t h e F e d e r a l R e s e r v e A c t ,

(b) by U n i t e d S t a t e s b o n d s ,

(c) by s u c h m u n i c i p a l w a r r a n t s as F e d e r a l r e s e r v e banks a r e
a u t h o r i z e d t o p u r c h a s e u n d e r t h e p r o v i s i o n s of S e c t i o n 14 of
the F e d e r a l Reserve Act, or

(d) by commercial p a p e r o r b a n k -

e r s 1 a c c e p t a n c e s b e a r i n g t h e s i g n a t u r e of n o t l e s s t h a n t h r e e
p e r s o n s , f i r m s , or c o r p o r a t i o n s *

1/3/17




1812

950.
BE IT ENACTED BY THE'SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That p a r a g r a p h f i v e of S e c t i o n 18 of t h e Act approved. December 2 3 , 1913,
known as t h e F e d e r a l R e s e r v e A c t , be and i s h e r e b y amended so as
t o read as f o l l o w s :




Upon t h e d e p o s i t w i t h t h e T r e a s u r e r of t h e U n i t e d
S t a t e s of bonds so p u r c h a s e d , o r any bonds w i t h t h e c i r c u l a t i n g p r i v i l e g e a c q u i r e d u n d e r s e c t i o n f o u r of t h i s
A c t , OR ANY THREE PER CENT ONE YEAR GOLD NOTES ISSUED IN
ACCORDANCE WITH THE PROVISIONS OF THIS SECTION, any F e d e r a l r e s e r v e bank making such d e p o s i t i n t h e manner p r o v i d e d by e x i s t i n g law FOR THE DEPOSIT BY NATIONAL BANKS OF
BONDS BEARING THE CIRCULATING PRIVILEGE, s h a l l be e n t i t l e d
t o r e c e i v e from t h e C o m p t r o l l e r of t h e Currency c i r c u l a t i n g n o t e s i n b l a n k , r e g i s t e r e d and c o u n t e r s i g n e d a s p r o v i d e d by law* e q u a l i n amount t o t h e p a r v a l u e of t h e NOTES
OR bonds s o d e p o s i t e d .
Such CIRCULATING n o t e s s h a l l be
o b l i g a t i o n s of t h e F e d e r a l r e s e r v e bank p r o c u r i n g t h e same,
and s h a l l be i n form p r e s c r i b e d by t h e S e c r e t a r y of t h e
T r e a s u r y , and t o t h e same t e n o r and e f f e c t as n a t i o n a l bank
n o t e s now p r o v i d e d by l a w .
They s h a l l be i s s u e d and r e deemed u n d e r t h e same t e r m s and c o n d i t i o n s as n a t i o n a l
bank n o t e s e x c e p t t h a t t h e y s h a l l n o t be l i m i t e d t o t h e
amount of t h e c a p i t a l s t o c k of t h e F e d e r a l r e s e r v e bank
i s s u i n g them,
CIRCULATING NOTES OF FEDERAL RESERVE BANKS
SECURED BY THREE PER CENT ONE YEAR GOlD NOTES SHALL BE SUBJECT TO THE SAME TAX IMPOSED BY LAW ON CIRCULATING NOTES
WHICH ARE SECURED BY THREE PER CENT BONDS OF THE UNITED
STATES.

,

-9^9-

1813

M AMENDMENT TO SECTION 4 OF TEE FEDERAL RESERVE ACT*
BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED> That S e c t i o n
4 of t h e Act approved December 23, 1913,1 known a s t h e F e d e r a l Res e r v e A c t , be amended, "by s t r i k i n g o u t t h e s e n t e n c e r e a d i n g a s f o l lows:

"One of t h e d i r e c t o r s Of C l s s s C, who s h a l l be a p e r s o n

of t e s t e d b a n k i n g e x p e r i e n c e , s h a l l be a p p o i n t e d by t h e F e d e r a l
R e s e r v e Board as deputy c h a i r m a n and deputy F e d e r a l r e s e r v e a g e n t
t o e x e r c i s e t h e powers of t h e chairman of t h e b o a r d and F e d e r a l
r e s e r v e a g e n t i n c a s e of a b s e n c e o r d i s a b i l i t y of h i s p r i n c i p a l " ,
and by a d d i n g i n p l a c e t h e r e o f t h e f o l l o w i n g :
" S u b j e c t t o t h e a p p r o v a l of t h e F e d e r a l R e s e r v e
Board> t h e F e d e r a l r e s e r v e a g e n t s h a l l a p p o i n t one o r
more a s s i s t a n t s .

Such a s s i s t a n t s , who s h a l l be p e r s o n s

of t e s t e d b a n k i n g e x p e r i e n c e , s h a l l a s s i s t t h e F e d e r a l
r e s e r v e a g e n t i n t h e p e r f o r m a n c e of h i s d u t i e s and s h a l l
a l s o have power t o a c t i n h i s name and s t e a d d u r i n g t h i s
a b s e n c e or d i s a b i l i t y .

The F e d e r a l r e s e r v e a g e n t may

r e q u i r e s u c h bonds of h i s a s s i s t a n t s a s he may deem n e c e s s a r y f o r h i s own p r o t e c t i o n .

Assistants to the Federal

r e s e r v e a g e n t s h a l l r e c e i v e a n a n n u a l c o m p e n s a t i o n t o be
f i x e d and p a i d i n t h e same manner a s t h a t of t h e F e d e r a l
reserve agent."

1/3/16.



a
OATH

o r

FEDERAL RESERVE AGEWT OR DEPUTY FEDERAL RESERVE AGENT.
( O t h e r C l a s s "C" d i r e c t o r ' s may u s e t h i s
for:.;, w i t h r e f e r e n c e s t o F e d e r a l r e s e r v e
agent e l i m i n a t e d ) .
S t a t e of
S3

C i t y or County of

I , t h e u n d e r s i g n e d , h a v i n g been a p p o i n t e d a C l a s s
of t h e F e d e r a l R e s e r v e Bank of
e r a l R e s e r v e C i t y of
and i n D i s t r i c t No.

...

,

.,

T, I!

C

director

, l o c a t e d i n t h e Fed-

> S t a t e of

_,

, as d e t e r m i n e d i n a c c o r d a n c e w i t h t h e p r o -

v i s i o n s of t h e F e d e r a l Reserve A c t , and h a v i n g been d e s i g n a t e d a s (Deputy)
F e d e r a l R e s e r v e Agent by t h e F e d e r a l R e s e r v e Board, b e i n g a c i t i z e n of
t h e United S t a t e s and r e s i d e n t of t h e S t a t e of

,

do solemnly swear ( a f f i r m ) t h a t I w i l l , so f a r a s t h e duty d e v o l v e s upon
me, d i l i g e n t l y and h o n e s t l y a d m i n i s t e r t h e a f f a i r s of s a i d bank f a i r l y
and i m p a r t i a l l y and w i t h o u t d i s c r i m i n a t i o n i n f a v o r of o r a g a i n s t any
member bank o r b a n k s ; t h a t I w i l l n o t knowingly v i o l a t e , o r w i l l i n g l y
p e r m i t t o be v i o l a t e d any of t h e p r o v i s i o n s of t h e S t a t u t e s of t h e U n i t e d
S t a t e s u n d e r which t h i s bank h a s been o r g a n i z e d ; t h a t

I w i l l w e l l and

f a i t h f u l l y d i s c h a r g e t h e d u t i e s of t h e o f f i c e of (Deputy) F e d e r a l R e s e r v e
Agent on which I am a b o u t t o e n t e r ; t h a t I am n o t an o f f i c e r , d i r e c t o r ,
employee, o r s t o c k h o l d e r i n any . o f h e r bank; and t h a t I - t a k e t h i s o b l i g a t i o n f r e e l y w i t h o u t any m e n t a l r e s e r v a t i o n o r p u r p o s e of e v a s i o n .
S u b s c r i b e d and sworn ( a f f i r m e d ) t o b e f o r e t h e u n d e r s i g n e d , a
Notary P u b l i c i n and f o r t h e S t a t e and
day of




aforesaid, this

, 191 .

Notary P u b l i c .

1814
9^7 a .
COLLECTION OF CHECKS FOR NONMEMBER BANKS.

BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That t h e
f i r s t p a r a g r a p h of S e c t i o n 13 of t h e Act approved. December 2 3 , 1913,
a s amended by t h e Act of September 7 , l $ l 6 , be f u r t h e r amended so
as t o read as follows:
Any F e d e r a l r e s e r v e bank may r e c e i v e from any of i t s
member banks and from t h e U n i t e d S t a t e s d e p o s i t s of c u r r e n t
f u n d s i n l a w f u l money, n a t i o n a l bank n o t e s , F e d e r a l r e s e r v e
n o t e s , or checks and d r a f t s p a y a b l e upon p r e s e n t a t i o n , and
a l s o f o r c o l l e c t i o n , m a t u r i n g NOTES AND b i l l s ; o r , s o l e l y
f o r p u r p o s e s of exchange or of • ^ c o l l e c t i o n , may r e c e i v e
from o t h e r F e d e r a l r e s e r v e banks d e p o s i t s of c u r r e n t f u n d s
i n l a w f u l money, n a t i o n a l bank n o t e s , o r c h e c k s upon o t h e r
F e d e r a l r e s e r v e banks and checks and d r a f t s p a y a b l e upon
p r e s e n t a t i o n w i t h i n i t s d i s t r i c t and m a t u r i n g NOTES AND
b i l l s p a y a b l e w i t h i n ' i t s d i s t r i c t ; OR, SOLELY FOR THE PURPOSES OF EXCHANGE OR OF COLLECTION, MAY RECEIVE FROM ANY
NONMEMBER BANK OR TRUST COMPANY DEPOSITS OF CURRENT FUNDS
IN LAWFUL MONEY, NATIONAL BANK NOTES, FEDERAL RESERVE NOTES,
CHECKS AND DRAFTS PAYABLE UPON PRESENTATION OR MATURING
NOTES AND BILLS, PROVIDED SUCH NONMEMBER BANK OR TRUST COMPANY MAINTAINS WITH THE FEDERAL RESERVE BANK OF ITS DISTRICT
A BALANCE IN AN AMOUNT TO BE DETERMINED BY THE FEDERAL RESERVE BOARD UNDER SUCH RULES AND REGULATIONS AS IT MAY PRESCRIBE.

1/6/17. .



EX-OFF1CIO MEMBERS

C

"

E

™ » M " * »

(0
%

. UJ U^A
I A

W I L L I A M G . MCADOO
"

'

f

T

" "

S 0

"

T

O A / V ^

W . P . G . H A R D I N G . GOVERNOR
. W A R B U R G . VICE GOVERNOR

X
^

FREDERL

$ > * < "

AND FISCAL AGENT
ADDRESS REPLY TO
Y 4 ® E D E R A L

J a n u a r y 2, 1 9 1 7 .

Dear S i r :
Under s e p a r a t e c o v e r we a r e f o r w a r d i n g 1 5 0
c o p i e s of R e v i s e d f o r m 38 f o r r e p o r t i n g d i s t r i b u t i o n
by m a t u r i t i e s and c l a s s e s of b i l l s and s h o r t - t e r m i n v e s t m e n t s on hand a t c l o s e of b u s i n e s s on F r i d a y s .
Your s p e c i a l a t t e n t i o n . i s c a l l e d t o t h e l o w e r
p o r t i o n of t h e f o r m , r e q u e s t i n g i n f o r m a t i o n a s t o t h e
v a r i o u s c l a s s e s of d i s c o u n t e d p a p e r on hand u n d e r t h e
t w o - f o l d h e a d of s e c u r e d and u n s e c u r e d b i l l s .
P l e a s e d i s c o n t i n u e u s e of o l d Form 38 and r e t
p o r t t h e i n f o r m a t i o n r e q u e s t e d on t h e new f o r m , b e g i n n i n g w i t h J a n u a r y 5 of t h e p r e s e n t y e a r .




°

CHARLES S. HAMUN

FEDERAL RESERVE BOARD
WASHINGTON

1816

Respectfully,

Secretary.

RESERVE BOARD

1817
-9%9AN AMENDMENT TO SECTION k OF THE FEDERAL RESERVE ACT.
EE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That S e c t i o n
4 of t h e Act approved December 23> 1913# known a s t h e F e d e r a l Res e r v e A c t , be amended by s t r i k i n g out t h e s e n t e n c e r e a d i n g a s f o l lows:

"One of t h e d i r e c t o r s of C l s s s C, who s h a l l be ?- p e r s o n

of t e s t e d banking e x p e r i e n c e , s h a l l be a p p o i n t e d by t h e F e d e r a l
Reserve Board as deputy chairman and deputy F e d e r a l r e s e r v e a g e n t
t o e x e r c i s e t h e powers of t h e chairman of t h e board and F e d e r a l
r e s e r v e a g e n t i n c a s e of absence or d i s a b i l i t y of h i s p r i n c i p a l " ,
and by a d d i n g i n p l a c e t h e r e o f t h e f o l l o w i n g :




" S u b j e c t t o t h e a p p r o v a l of t h e F e d e r a l Reserve
Board, t h e F e d e r a l r e s e r v e a g e n t s h a l l a p p o i n t one or
more a s s i s t a n t s .

.

Such a s s i s t a n t s , who s h a l l be p e r s o n s

of t e s t e d banking e x p e r i e n c e , s h a l l a s s i s t t h e F e d e r a l
r e s e r v e a g e n t i n t h e p e r f o r m a n c e of h i s d u t i e s and s h a l l
a l s o have power t o a c t i n h i s name and s t e a d d u r i n g t h i s
absence o r d i s a b i l i t y .

The F e d e r a l r e s e r v e a g e n t may

r e q u i r e such bonds of h i s a s s i s t a n t s a s he may deem n e c e s s a r y f o r h i s own p r o t e c t i o n .

A s s i s t a n t s t o "the Federal

r e s e r v e a g e n t s h a l l r e c e i v e a n a n n u a l compensation t o be
f i x e d and p a i d i n t h e same manner a s t h a t of t h e F e d e r a l
reserve agent.11

1/3/16-

1818

950.
BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That p a r a graph f i v e of S e c t i o n 18 of t h e Act approved December 23, 1913,
known as t h e F e d e r a l Reserve Act, be and ia h e r e b y amended so as
t o read as f o l l o w s :




Upon t h e d e p o s i t w i t h t h e T r e a s u r e r of t h e United
S t a t e s of bonds so p u r c h a s e d , or any bonds w i t h t h e c i r c u l a t i n g p r i v i l e g e a c q u i r e d u n d e r s e c t i o n f o u r of t h i s
Act, OR ANY THREE PER CENT ONE YEAR GOLD NOTES ISSUED IN
ACCORDANCE WITH THE PROVISIONS OF THIS SECTION, any Fede r a l r e s e r v e bank making such d e p o s i t i n t h e manner p r o v i d e d by e x i s t i n g law FOR THE DEPOSIT BY NATIONAL BANKS OF
BONDS BEARING THE CIRCULATING PRIVILEGE, s h a l l be e n t i t l e d
t o r e c e i v e from t h e C o m p t r o l l e r of t h e Currency c i r c u l a t i n g n o t e s in b l a n k , r e g i s t e r e d and c o u n t e r s i g n e d as p r o v i d e d by law, e q u a l i n amount t o the p a r v a l u e of t h e NOTES
OR bonds so d e p o s i t e d .
Such CIRCULATING n o t e s s h a l l be
o b l i g a t i o n s of t h e F e d e r a l r e s e r v e bank p r o c u r i n g t h e same,
and s h a l l be in form p r e s c r i b e d by t h e S e c r e t a r y of t h e
T r e a s u r y , and t o t h e same t e n o r and e f f e c t as n a t i o n a l bank
n o t e s now p r o v i d e d by l a w .
They s h a l l be i s s u e d and r e deemed u n d e r t h e same terms and c o n d i t i o n s as n a t i o n a l
bank n o t e s e x c e p t t h a t t h e y s h a l l n o t be l i m i t e d t o t h e
amount of t h e c a p i t a l s t o c k of t h e F e d e r a l r e s e r v e bank
i s s u i n g them,
CIRCULA?I.1G NOTES t f FlQSfiAI. KESBRVE BAKKS
SECURED BY THREE PER CENT ONE YEAR GOLD NOTES SHALL BE SUBJECT TO THE SAME TAX IMPOSED BY LA"' ON CIRCULATING NOTES
WHICH ARE SECURED BY THREE PER CENT BONDS OF THE UNITED
STATES.

951

1819

MEMBERSHIP OF MUTUAL SAVINGS BANKS.

BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That S e c t i o n
9 of t h e Act a p p r o v e d December 23, 1913, known as t h e F e d e r a l R e s e r v e
A c t , as amended by t h e Act of September 7, 1916, be amended by a d d i n g
a s u b s e c t i o n ( a ) t o r e a d as f o l l o w s :
Section 9 ^ .

Any m u t u a l s a v i n g s bank o r a s s o c i a t i o n o p e r a t i n g

u n d e r t h e laws of any S t a t e , may make a p p l i c a t i o n t o t h e F e d e r a l Res e r v e Board f o r t h e r i g h t t o become an a s s o c i a t e member of t h e F e d e r a l
r e s e r v e bank of t h e d i s t r i c t i n which such s a v i n g s bank or a s s o c i a t i o n
is located.
The F e d e r a l Reserve Board u n d e r such r u l e s and r e g u l a t i o n s
as i t may p r e s c r i b e may p e r m i t s u c h bank o r a s s o c i a t i o n t o become an
a s s o c i a t e member of t h e F e d e r a l r e s e r v e bank, b u t s u c h Board b e f o r e
g r a n t i n g any a p p l i c a t i o n s h a l l r e q u i r e s a t i s f a c t o r y e v i d e n c e t h a t t h e
laws of t h e S t a t e in which t h e a p p l y i n g bank o r a s s o c i a t i o n i s l o c a t e d , a u t h o r i z e s u c h bank or a s s o c i a t i o n t o engage i n t h e b u s i n e s s of a
m u t u a l s a v i n g s b'ank and p r o v i d e f o r a p r o p e r s u p e r v i s i o n o v e r t h e o p e r a t i o n s of such bank o r a s s o c i a t i o n .
Any m u t u a l s a v i n g s bank o r a s s o c i a t i o n which becomes an
a s s o c i a t e member of a F e d e r a l r e s e r v e bank, s h a l l a g r e e t o comply
w i t h a l l t h e p r o v i s i o n s of S e c t i o n 19 of t h i s A c t .

Such a s s o c i a t e

members s h a l l be e n t i t l e d t o a l l t h e c l e a r i n g p r i v i l e g e s g r a n t e d
t o member b a n k s , and F e d e r a l r e s e r v e banks s h a l l be a u t h o r i z e d
to discount the promissory notes
having




a

of

such

associate

members

m a t u r i t y of n o t more t h a n t h i r t y days and which a r e s e -

951
- 2 -

cured,

( a ) by p a p e r e l i g i b l e f o r r e d i s c o u n t u n d e r S e c t i o n

13 of t h e F e d e r a l R e s e r v e A c t ,

( b ) by U n i t e d S t a t e s b o n d s ,

(c) by s u c h m u n i c i p a l w a r r a n t s as F e d e r a l r e s e r v e banks a r e
a u t h o r i z e d t o p u r c h a s e u n d e r t h e p r o v i s i o n s of S e c t i o n 14 of
the F e d e r a l Reserve Act, or

( a ) by commercial p a p e r o r b a n k -

e r s ' a c c e p t a n c e s b e a r i n g t h e s i g n a t u r e of n o t l e s s t h a n t h r e e
p e r s o n s , f i r m s , dr c o r p o r a t i o n s .

1/3/17




1821
EX-OIPFICIO M E M B E R S

W . P . 6 . H A R D I N G , GOVERNOR
P A U L M. W A R B U R G , VICE GOVERNOR
F R E D E R I C A. DELANO
ADOLPH C. MILLER
C H A R L E S S . HAMLIN

W I L L I A M G . MCADOO
-SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD

952

WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
AND FISCAL AGENT
ADDRESS REPLY TO
FEDERAL

January 4, 1917.

Dear S i r :
I am s e n d i n g you h e r e w i t h f o u r c o p i e s of d r a f t s of
t h e v a r i o u s amendments w h i c h h a v e b e e n p r e p a r e d by t h e Board
and s u b m i t t e d a f t e r d i s c u s s i o n t o t h e Committees on B a n k i n g
and C u r r e n c y of t h e S e n a t e and t h e House of R e p r e s e n t a t i v e s .
You w i l l s e e t h e amendments c o v e r t h e f o l l o w i n g s u b j e c t s :
1.

AMENDMENT TO SECTION 16 w h i c h p r o v i d e s
(a)

f o r t h e i s s u e of F e d e r a l r e serve notes d i r e c t l y against
t h e d e p o s i t of 100% g o l d ; o r
1 0 0 $ of p a p e r , o r b o t h .

(b)

f o r t h e c o u n t i n g of g o l d h e l d
by t h e F e d e r a l r e s e r v e a g e n t s
as s e c u r i t y f o r n o t e s , as p a r t
of t h e g o l d r e s e r v e r e q u i r e d t o
be h e l d by t h e b a n k a g a i n s t
such Federal reserve n o t e s .

T h i s amendment was a p p r o v e d and e n d o r s e d by
a m a j o r i t y of t h e B o a r d .
2.
and
which




AMENDMENT

simplifying
relate

t

the
to

OF

SECTION

clauses
reserve

19
in

abbreviating
Section

requirements.

19
This

RESERVE BOARD

±822
952.
-

2 -

p r o p o s e d amendment p r o v i d e s t h a t a l l member banks s h a l l m a i n t a i n r e s e r v e s
i n t h e F e d e r a l R e s e r v e Bank as f o l l o w s :

(a)
(b)
(c)

A g a i n s t Demand
Deposits
Count r%r Banks
7$
R e s e r v e C i t y Banks
10$
C e n t r a l R e s e r v e C i t y Banks
13$

A g a i n s t Time
Pep os i t s
3$
3$
3$

and i n a d d i t i o n e v e r y member bank i s r e q u i r e d t o keep i n i t s own v a u l t
f o r t i l l money an amount of s p e c i e o r c u r r e n c y ( n o t n e c e s s a r i l y gold
o r l a w f u l money) e q u a l t o f i v e p e r c e n t of i t s demand d e p o s i t s , l e s s
t h e amount of n e t b a l a n c e s w i t h F e d e r a l R e s e r v e Banks i n e x c e s s of t h e
minimum above s t i p u l a t e d .
3.

AMENDMENT OF SECTION

11 s o as t o p e n n i t t h e F e d e r a l R e s e r v e

Board t o v a i s e r e s e r v e r e q u i r e m e n t s i n e m e r g e n c i e s ,

j u s t a s i t i s now

empowered i n c e r t a i n c o n t i n g e n c i e s of a d i f f e r e n t k i n d t o l o w e r t h o s e
requirements,
4.

AMENDMENT OF SECTION 16 t o p e r m i t nonmenber S t a t e banks and

t r u s t companies, e v e n though t o o s m a l l t o be e l i g i b l e f o r membership
i n t h e F e d e r a l R e s e r v e Banks, t o a v a i l t h e m s e l v e s of t h e c l e a r i n g and
c o l l e c t i o n f a c i l i t i e s of t h e F e d e r a l Reserve Banks, p r o v i d e d t h a t t h e y
c o v e r a t p a r checks on t h e m s e l v e s s e n t f o r c o l l e c t i o n by t h e F e d e r a l
R e s e r v e Bank, and p r o v i d e d f u r t h e r t h a t t h e y keep a c o m p e n s a t i n g b a l a n c i
w i t h t h e F e d e r a l R e s e r v e Bank i n an amount t o be d e t e r m i n e d u n d e r r u l e s
p r e s c r i b e d by t h e F e d e r a l R e s e r v e B o a r d .
5.

AMENDMENT OF SECTION 22 - t h e p e n a l s t a t u t e - s o as t o d e f i n ®

more c l e a r l y t h e r i g h t s and l i m i t a t i o n s of d i r e c t o r s i n t h e m a t t e r of




952
-3a c c e p t i n g f e e s or compensation other t h a n t h e ordinary f e e s paid
d i r e c t o r s f o r l e g i t i m a t e s e r v i c e s rendered i n the r e g u l a r course
of b u s i n e s s , t h e p e r f o r m a n c e of which s e r v i c e s i s n o t incumbent
upon them i n t h e i r c a p a c i t y a s d i r e c t o r s .
6.

AMENDMENT OF SECTION 1 ] t o r e s t o r e t h e p r o v i s i o n which

was by e r r o r s t r i c k e n from t h e Act i n t h e amendments of September
7 , 1916, t h u s r e s t o r i n g t o n a t i o n a l b a n k s , w i t h t h e a p p r o v a l of
t h e F e d e r a l R e s e r v e B o ar d , t h e r i g h t t o a c c e p t up t o 100$ of t h e i r
c a p i t a l and s u r p l u s i n t r a n s a c t i o n s i n v o l v i n g i m p o r t s o r e x p o r t s .
7.

AMENDMENT OF SECTION 17 t o c a n c e l t h e p r o v i s i o n of t h e

N a t i o n a l Bank Act which r e q u i r e s n a t i o n a l banks t o m a i n t a i n a
minimum d e p o s i t of Government bonds w i t h t h e T r e a s u r e r of t h e
United S t a t e s .
8.

AMENDMENT OF SECTION 25 t o a u t h o r i z e member banks l o -

c a t e d i n c i t i e s of more t h a n 100,000 p o p u l a t i o n and w h i c h have a
c a p i t a l and s u r p l u s of more t h a n $ 1 , 0 0 0 , 0 0 0 , t o e s t a b l i s h b r a n c h e s
i n t h e same c i t y , p r o v i d e d t h e S t a t e laws do n o t p r o h i b i t S t a t e
banks and t r u s t companies from e s t a b l i s h i n g b r a n c h e s .
9»

AMENDMENT OF SECTION 9 t o a u t h o r i z e m u t u a l s a v i n g s banks

n o t h a v i n g c a p i t a l s t o c k t o become a s s o c i a t e members of t h e F e d e r a l
r e s e r v e system under c e r t a i n p r e s c r i b e d c o n d i t i o n s .
10.

AMDNEMENT OF SECTION 18 so a s t o g i v e t o U n i t e d S t a t e s

one y e a r 3% g o l d n o t e s i n t h e h a n d s of F e d e r a l r e s e r v e b a n k s t h e




1824
952
-Hi-

c i r c u l a t i o n p r i v i l e g e f o r t h e i s s u a n c e of F e d e r a l r e s e r v e bank
notes.
11.

AMENDMENT OF SECTION 4 t o a b o l i s h t h e t i t l e and o f f i c e

of Deputy F e d e r a l Reserve A g e n t , t h u s h a v i n g two u n a t t a c h e d
C l a s s C d i r e c t o r s i n s t e a d of one as a t p r e s e n t , and t o c r e a t e t h e
p o s i t i o n of A s s i s t a n t F e d e r a l Reserve A g e n t , who s h a l l n o t be a
d i r e c t o r of t h e b a n k , b u t who s h a l l be a s a l a r i e d bonded o f f i c e r
i n t h e F e d e r a l Reserve A g e n t ' s D e p a r t m e n t , s e r v i n g a t a l l t i m e s
a s a n A s s i s t a n t t o t h e F e d e r a l Reserve Agent and q u a l i f i e d t o a c t
f o r t h e Agent i n h i s a b s e n c e .
Very t r u l y y o u r s ,

Governor.

Inc l o s u r e .




1825
S3?-

STATEMENT FOR THE PRESS.
J a n u a r y 3, 1917*
The Boston C l e a r i n g House banks have a d o p t e d a new
form d e s i g n e d t o show t h e change i n t h e i r r e s e r v e p o s i t i o n from
week t o week> a s g i v e n a t t h e bottom of t h e i r u s u a l c l e a r i n g
h o u s e bank s t a t e m e n t •

In t h e p a s t t h e y have announced t h e d e -

f i c i e n c y or e x c e s s of t h e i r v a u l t c a s h , and a l s o t h e i r d e f i c i e n c y
or e x c e s s w i t h t h e F e d e r a l r e s e r v e bank*
S i n c e t h e a d o p t i o n of t h e r u l i n g making i t o p t i o n a l
w i t h member banks t o keep r e s e r v e s i n v a u l t o r i n tiie F e d e r a l
r e s e r v e b a n k , t h e Boston banks have shown a d e f i c i e n c y i n t h e i r
v a u l t c a s h , and an e x c e s s w i t h t h e F e d e r a l r e s e r v e b a n k .

It

has been f e l t t h a t t h e s p i t e m s might p r o p e r l y be c o n s o l i d a t e d
j u s t a s s i m i l a r f i g u r e s a r e c o n b i n e d i n E n g l i s h bank s t a t e m e n t s ,
and t h a t s u c h c o n s o l i d a t i o n would be a f i n a l r e c o g n i t i o n on t h e
p a r t of t h e C l e a r i n g House t h a t d e p o s i t s w i t h t h e F e d e r a l r e s e r v e
bank a r e p r a c t i c a l l y i n t e r c h a n g e a b l e ( s o f a r a s r e s e r v e a v a i l s a b i l i t y i s concerned) with cash i n v a u l t .

When t h e m a t t e r was

r e c e n t l y c a l l e d t o t h e a t t e n t i o n of t h e C l e a r i n g House Committee
i n B o s t o n , t h e members a c q u i e s c e d i n t h e s u g g e s t e d change• This
i s r e g a r d e d as a f u r t h e r i n d i c a t i o n of t h e d e s i r e of t h e l a r g e r
New England banks t o c o o p e r a t e w i t h t h e F e d e r a l r e s e r v e bank
i n e v e r y way p o s s i b l e .




1826
EX-OPFICIO MEMBER*

W . P . 6 . H A R D I N G , GOVERNOR
P A U L M. WARBURG. VICE GOVERNOR
F R E D E R I C A . DELANO
A D O L P H C . MILLER
C H A R L E S S . HAMLIN

WILLIAM 6 . McADOO
SKCRKTARY OF THK TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . PARKER W I L L I S . SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
AND FISCAL AGENT
A D D R E S S REPLY TO
FEDERAL RESERVE BOARD

960.
J a n u a r y 8 , 1917 •
Dear S i r :
T h e ' F e d e r a l R e s e r v e Board h a s t c - d a y d e t e r m i n e d , i n t h e
e x e r c i s e of t M d i s c r e t i o n v e s t e d i n i t Under t h e p r o v i s i o n s of
S e c t i o n 18 of t h e F e d e r a l R e s e r v e A c t , t h a t , i t " / i l l not r e q u i r e
F e d e r a l Reserve Banks t o p u r c h a s e d u r i n g t h e y e a r 1917 more t h a n
f i f t e e n m i l l i o n d o l l a r s of U n i t e d S t a t e s bonds o f f e r e d f o r s a l e by
member banks t h r o u g h t h e T r e a s u r e r of t h e U n i t e d S t a t e s .
It will
r e q u i r e F e d e r a l R e s e r v e Banks t o p u r c h a s e on A p r i l 1,, 1$17, t h e
f u l l amount of t h i s f i f t e e n m i l l i o n d o l l a r s , o r so much t h e r e o f a s
may be o f f e r e d f o r s a l e on o r b e f o r e March 2 1 s t .
Under4 t h e p r o v i s i o n s of S e c t i o n 18 F e d e r a l R e s e r v e Banks
a r e not p e r m i t t e d t o p u r c h a s e f r o m member banks t h r o u g h t h e T r e a s u r e r ,
more t h a n t w e n t y - f i v e m i l l i o n d o l l a r s of bohds i n any one y e a r , l e s s
t h e amount of bonds b e a r i n g t h e c i r c u l a t i o n p r i v i l e g e a c q u i r e d i n
ttie open m a r k e t d u r i n g th&t y e a r . I f , t h e r e f o r e , F e d e r a l Reserve
Banks a r e d e s i r o u s of g i v i n g member banks an o p p o r t u n i t y t o s e l l t h e
f u l l amount of f i f t e e n m i l l i o n d o l l a r s undet* t h e p r o v i s i o n s of
S e c t i o n 1 8 , t h e y s h o u l d r e f r a i n from i n v e s t i n g i n t h e open m a r k e t
d u r i n g t h e f i r s t q u a r t e r a n y t h i n g i n e x c e s s of t h e d i f f e r e n c e between
f i f t e e n m i l l i o n d o l l a r s and t w e n t y - f i V e m i l l i o n d o l l a r s .
committee*




P l e a s e b r i n g t h i s t o t h e a t t e n t i o n of y o u r e x e c u t i v e

Respectfully.,

Governor

1827

^

•*

STATEMENT FOR THE PRESS.
J a n u a r y Sj 191$*

r

The F e d e r a l R e s e r v e Board has d e t e r m i n e d , i n t h e e x e r c i s e of
t h e d i s c r e t i o n v e s t e d i n i t u n d e r t h e p r o v i s i o n s of S e c t i o n 18 of
the F e d e r a l Reserve Act; t h a t i t w i l l not r e q u i r e F e d e r a l r e s e r v e
banks t o p u r c h a s e d u r i n g t h e y e a r 1917 more t h a n $ 1 5 , 0 0 0 , 0 0 0 . of
U n i t e d S t a t e s "bonds o f f e r e d f o r s a l e by member banks t h r o u g h t h e
T r e a s u r e r of t h e U n i t e d S t a t e s *

It will require Federal reserve

banks t o p u r c h a s e on A p r i l 1, 191%, t h e f u l l amount of t h i s
$ 1 5 , 0 0 0 , 0 0 0 . o r s o much t h e r e o f as may be o f f e r e d f o r s a l e on o r
b e f o r e March 2 1 s t , t h e l a s t day on which a p p l i c a t i o n s w i l l be
r e c e i v e d by t h e T r e a s u r e r f o r t h d s a l e of bonds on A p r i l 1 s t •
Under t h e p r o v i s i o n s of S e c t i o n 18 F e d e r a l r e s e r v e banks a r e
n o t p e r m i t t e d t o p u r c h a s e from member b a n k s t h r o u g h t h e T r e a s u r e r
more t h a n t w e n t y - f i v e m i l l i o n d o l l a r s of bonds i n any one y e a r ,
l e s s t h e amount of bonds b e a r i n g t h e c i r c u l a t i o n p r i v i l e g e a c q u i r e d i n t h e open m a r k e t d u r i n g t h a t y e a r .

There i s no l i m i t

imposed by law on t h e amount of bonds which may be p u r c h a s e d i n
t h e open m a r k e t by F e d e r a l r e s e r v e banks*




963

ANNUAL

REPORT

TO THE SPEAKER OF THE HOUSE OF REPRESENTATIVES i
SIR:
The F e d e r a l R e s e r v e Board t r a n s m i t s h e r e w i t h i t s a n n u a l r e p o r t f o r t h e c a l e n d a r y e a r 1916.
This r e p o r t ^ t h e t h i r d s u b m i t t e d , i s made j u s t a f t e r
t h e c l o s e of a y e a r of unexampled commercial, i n d u s t r i a l and f i n a n c i a l a c t i v i t y in the United S t a t e s .

Never b e f o r e i n t i m e of

d o m e s t i c p e a c e have wages and p r i c e s r e a c h e d s u c h h i g h l e v e l s .
In p r a c t i c a l l y a l l i m p o r t a n t i n d u s t r i e s l a b o r and c a p i t a l have
t h r o u g h o u t t h e y e a r found f u l l and r e m u n e r a t i v e employment.

The

s i t u a t i o n may b e s t be summed up i n t h e s t a t e m e n t t h a t d u r i n g
t h e c a l e n d a r y e a r 1916 e x p o r t s of m e r c h a n d i s e from t h e U n i t e d
S t a t e s t o o t h e r c o u n t r i e s amounted t o a b o u t $ 5 , 4 6 0 , 0 0 0 , 0 0 0 , w h i l e
i t s i m p o r t s amounted t o a b o u t $ 2 , 3 6 0 , 0 0 0 , 0 0 0 , l e a v i n g a n e t
t r a d e b a l a n c e in f a v o r of t h e United S t a t e s of a b o u t $ 3 , 1 0 0 , 0 0 0 , 000.

Domestic t r a d e , s t i m u l a t e d as i t has been by t h e p r e s e n c e of




963

u n u s u a l l y h i g h wages and p r i c e s , has d e v e l o p e d an a c t i v i t y p a r a l l e l i n g t h a t of t h e n a t i o n ' s f o r e i g n b u s i n e s s , and t h e r e s u l t s of
t h i s whole s i t u a t i o n have been r e f l e c t e d i n t h e a u g m e n t a t i o n of
bank r e s o u r c e s , as i l l u s t r a t e d by t h e f a c t t h a t t h e d e p o s i t s of
a l l banks and t r u s t companies i n t h e United S t a t e s have shown
an i n c r e a s e d u r i n g t h e y e a r of n o t l e s s t h a n $ 4 , 3 0 0 , 0 0 0 , 0 0 0 .

INFLOW OF GOLD AND ATTENDANT PROBLEMS.
S i n c e t h e b e g i n n i n g of t h e European w a r t h e p r o b l e m i n c i d e n t t o t h e d i s t r i b u t i o n of g o l d t h r o u g h o u t t h e w o r l d , as f a r
as t h e United S t a t e s i s c o n c e r n e d , has been r e v e r s e d .

I t w i l l be

remembered t h a t a t t h e o u t b r e a k of t h e war American i m p o r t e r s and
b a n k i n g h o u s e s were i n d e b t e d t o t h e i r c o r r e s p o n d e n t s a b r o a d on
c u r r e n t a c c o u n t t o t h e e x t e n t of about $ 4 5 0 , 0 0 0 , 0 0 0 .

The l i q u i d a -

t i o n of t h i s i n d e b t e d n e s s a t f i r s t i n v o l v e d n o t only l a r g e s h i p m e n t s of g o l d , b u t t h e c o n d i t i o n s u n d e r which g o l d could be e x p o r t
ed were such as t o add g r e a t l y t o t h e normal c o s t of s e t t l e m e n t s .




963
-3To a s s i s t i n t h i s s i t u a t i o n t h e r e was o r g a n i z e d , a t t h e i n s t a n c e
of t h e F e d e r a l R e s e r v e Board, a "bankers' gold f u n d of $ 1 0 0 , 0 0 0 , 000, t h e o p e r a t i o n s of which were f u l l y r e v i e w e d i n t h e f i r s t a n n u a l r e p o r t made by t h i s B o a r d .

Due t o t h e a v a i l a b i l i t y of t h e

f a c i l i t i e s p r o v i d e d by t h i s g o l d f u n d , as w e l l as t o t h e i n c r e a s i n g volume of o u r e x p o r t s t o E u r o p e , b a l a n c e s s h o r t l y began t o
a p p e a r i n f a v o r of t h i s c o u n t r y .

These b a l a n c e s have i n c r e a s e d

e v e r s i n c e a t an u n p r e c e d e n t e d r a t e .

The Board has i n f o r m a t i o n

showing t h a t from t h e b e g i n n i n g of t h e war u n t i l t h e end of Decemb e r 1 9 1 6 , t h e r e was a n e t movement of g o l d i n t o t h e U n i t e d S t a t e s
of a p p r o x i m a t e l y $ 8 7 0 , 0 0 0 , 0 0 0 , and i t i s e s t i m a t e d t h a t d u r i n g
t h e same p e r i o d no l e s s t h a n $ 2 , 5 0 0 , 0 0 0 , 0 0 0 of s e c u r i t i e s of
American o r i g i n ,

i n c l u d i n g o b l i g a t i o n s of t h e n a t i o n a l Government,

of S t a t e s , of m u n i c i p a l i t i e s , and of f i r m s , c o r p o r a t i o n s and i n d i v i d u a l s , have been t r a n s f e r r e d from f o r e i g n t o d o m e s t i c o w n e r ship.

During t h i s p e r i o d , a c c o r d i n g to t r u s t w o r t h y e s t i m a t e s ,

a b o u t $ 2 , 0 0 0 , 0 0 0 , 0 0 0 of s e c u r i t i e s i s s u e d by f o r e i g n Governments,




963

c o r p o r a t i o n s and f i r m s , have been a b s o r b e d and a r e now h e l d by
American f i n a n c i a l i n s t i t u t i o n s and i n v e s t o r s .

European h o l d -

i n g s of -American s e c u r i t i e s have t h u s b e e n c o r r e s p o n d i n g l y r e *
d u c e d , and f o r t h e n e a r f u t u r e , a t l e a s t ,

t h e U n i t e d S t a t e s must

choose between t h e e x t r e m e s of e x c e s s i v e i m p o r t a t i o n s of g o l d
on t h e one hand, and t h e undue a b s o r p t i o n of t h e c r e d i t o b l i g a t i o n s of f o r e i g n c o u n t r i e s on t h e o t h e r s o r i t must a d h e r e t o a
s a f e middle course $

thd&e c i r c u m s t a n c e s > t h e m a n i f e s t d u t y

of t h e F e d e r a l r e s e r v e banks had been t b e n c o u r a g e c o n s e r v a t i s m ,
and s o f a r as p o s s i b l e t o p r e v e n t undue and unwise e x t e n s i o n s of
credit.

The y e a r ' s b u s i n e s s d i d n o t d e v e l o p even t h e s e a s o n a l

demand which on some o c c a s i o n s r e q u i r e s a c t i o n and w h i c h , d u r i n g
t h e y e a r 1915 l e d t h e Board t o e s t a b l i s h what i s known as t h e
commodity r a t e , d e s i g n e d p a r t i c u l a r l y t o a i d p r o d u c e r s d u r i n g
t h e crop-moving s e a s o n .

To a g r e a t d e g r e e t h e e a s e of money and

smoothness of o p e r a t i o n of o u r f i n a n c i a l m a c h i n e r y have b e e n due




963
-5t o t h e f a c i l i t i e s a f f o r d e d and t o the c o n f i d e n c e i n s p i r e d by
the Federal r e s e r v e system;

as w e l l as t o t h e l a r g e l y i n c r e a s e d

s t o c k of r e s e r v e money r e s u l t i n g from t h e i m p o r t a t i o n s of g o l d .
D u r i n g t h e y e a r t h e r e was a c o m p a r a t i v e l y l i g h t demand on t h e
p a r t of member banks f o r r e d i s c o u n t accommodations, t h e maximum
amount of r e d i s c o u n t e d p a p e r h e l d by t h e F e d e r a l r e s e r v e banks
b e i n g $ 3 8 , 3 4 5 , 0 0 0 on December 8;

and t h e a c t i v i t i e s of t h e F e d -

e r a l r e s e r v e banks have been c h i e f l y u n d e r t h e open m a r k e t p r o v i s i o n of t h e law i n t h e p u r c h a s e of a c c e p t a n c e s , of Government
b o n d s , and of m u n i c i p a l w a r r a n t s .

T r a n s a c t i o n s of t h e s e k i n d s

were engaged i n t o s u c h an e x t e n t t h a t t h e t o t a l i n v e s t e d r e s o u r c e s
of a l l F e d e r a l r e s e r v e banks on December 30, 1916, amounted t o
$221,897,000.

Ae a l r e a d y i n d i c a t e d , t h e Board *s p r i n c i p a l p r o b l e m

h a s been t h a t of m a i n t a i n i n g , so f a r as p o s s i b l e , t h e l i q u i d c o n d i t i o n of t h e b a n k i n g community, and i n t h i s i t was of c o u r s e p r i m a r i l y concerned w i t h t h e b u s i n e s s of t h e F e d e r a l r e s e r v e banks themselves.




The F e d e r a l R e s e r v e Act p r o h i b i t s t h e i n v e s t m e n t of f u n d s

1833
—*6-*

of F e d e r a l r e s e r v e banks i n l o n g - t e r m s e c u r i t i e s ,

excepting

o n l y bonds and n o t e s of t h e Government of t h e U n i t e d S t a t e s ;
and, k e e p i n g i n mind t h e s p i r i t , as w e l l as t h e l e t t e r of t h e
A c t , t h e Board has r e c e n t l y i n two i n s t a n c e s deemed i t n e c e s s a r y
to take decisive action.

The f i r s t was i n c o n n e c t i o n w i t h t h e

u s e of b a n k e r s * a c c e p t a n c e s i n i n t e r n a t i o n a l t r a n s a c t i o n s *

The

American a c c e p t a n c e i s now Wftll e s t a b l i s h e d in t h e w o r l d 1 s m a r k e t s , b e i n g known in almost a l l p a r t s of t h e g l o b e , and even in
t h o s e c o u n t r i e s which t h r e e y e a r s ago had a monopoly of t h e a c c.ag>4ance b u s i n e s s y American c r e d i t f a c i l i t i e s a r e now b e i n g f r e e l y
used.

The development of t h i s a c c e p t a n c e b u s i n e s s has been h i g h l y

g r a t i f y i n g and t h e F e d e r a l r e s e r v e banks have done t h e i r f u l l p a r t
i n p r o m o t i n g i t s growth, as t h e y have been l i b e r a l p u r c h a s e r s of
acceptances•

More t h a n a y e a r ago, i n August 1915, t h e Board was

i n f o r m e d of c e r t a i n r e n e w a l s of a c c e p t a n c e c r e d i t s which c l e a r l y
grew out of t h e shipment of goods i n t h e f i r s t i n s t a n c e , and i t




963
-7ruled t h a t ,

as a m a t t e r of p r i n c i p l e , such a c c e p t a n c e s need n o t

be e x c l u d e d and t h a i F e d e r a l r e s e t V d banks m i g h t C o n s i d e r as
e l i g i b l e b i l l s h a v i n g n o t l o n g e r ttiah i h r a e motitHd t o f u n , drawn
u n d e r such c r e d i t a r r a n g e m e n t s ,

I t was f o u n d , however, d u r i n g

t h e l a t t e r p a r t of 1916, t h a t r e n e w a l a c c e p t a n c e s wore b e i n g o f f e r e d on t h e m a r k e t i n i n c r e a s i n g volume, and t h e Board t o o k o c c a s i o n t o warn F e d e r a l r e s e r v e b a n k s , and t h r o u g h them t h e member
b a n k s , a g a i n s t u n d u l y l a r g e p u r c h a s e s of p a p e r w h i c h , w h i l e e l i g i b l e i n form, m i g h t n o t be i n f a c t o r i n e s s e n c e of a t r u e s e l f liquidating character.

It is,

of course^ p r o p e r t o e x t e n d a c c e p t -

a n c e c r e d i t s i n l i b e r a l amounts t o f a c i l i t a t e commercial t r a n s a c t i o n s a l l o v e r t h e w o r l d , and t h e Board e x p e c t s t o s e e b u s i n e s s of
t h i s k i n d grow i n t o v e r y l a r g e f i g u r e s , b u t i t f e e l s t h a t b a n k s
s h o u l d n o t p e r m i t mere c o n s i d e r a t i o n s of p r o f i t t o cause them t o
d i s r e g a r d l o n g e s t a b l i s h e d and sound p r i n c i p l e s , t h e o b s e r v a n c e
of which i s so n e c e s s a r y f o r s a f e t y .

One f u n d a m e n t a l r u l e g o v e r n -

ing t h e bankers1 acceptance is t h a t the acceptance should f i n a n c e




t h e drawer and n o t t h e a c c e p t i n g b a n k .

When a b a n k e r makes a

c a s h advance a t a g i v e n r a t e of i n t e r e s t f o r a c e r t a i n l e n g t h of
t i m e , h i s d e b t o r s h o u l d n o t draw upon him f o r t h e p u r p o s e of e n a b l i n g t h e b a n k e r t o r e i m b u r s e h i m s e l f by t h e s a l e of h i s a c c e p t ance f o r t h e advance which he h a s made t o t h e b o r r o w e r .

This

p r o c e s s would make i t p o s s i b l e f o r a l o n g - t e r m b o r r o w i n g t o b e
f i n a n c e d by an accommodation b i l l drawn f o r t h e b e n e f i t of t h e
banker;
ing.

and s u c h a d r a f t would n o t be e s s e n t i a l l y s e l f - l i q u i d a t -

The r e a l b o r r o w e r tray h a v e s e c u r e d t h e advance by r e n e w a l

agreements f o r a long-term a t a f i x e d r a t e f o r the e n t i r e time
and n o t s u b j e c t t o r e a d j u s t m e n t a t any r e n e w a l p e r i o d .

In such

a c a s e t h e b o r r o w e r i s n o t concerned w i t h t h e d i s c o u n t t r a n s a c t i o n , and when t h e f i r s t b i l l m a t u r e s t h e a d v a n c e w i l l c o n t i n u e
t o run and no i n c r e a s e i n r a t e would cause t h e b o r r o w e r t o c o v e r
h i s a c c e p t a n c e and seek accommodation e l s e w h e r e , b e c a u s e d u r i n g
t h e t e r m of t h e e x t e n d e d c r e d i t he would have no i n t e r e s t i n t h e




963

1886

-9d i s count r a t e of t h e c o u n t r y upon which he has drawn.

The a c c e p t -

o r and not t h e a c t u a l d e b t o r would be t h e b o r r o w e r i n t h e d i s c o u n t
m a r k e t , and as r e g a r d s t h e o r i g i n a l b o r r o w e r t h e a c c e p t a n c e would
become m e r e l y an accommodation d r a f t f o r t h e b e n e f i t of t h e a c c e p t o r , who a l o n e would be s u b j e c t t o t h e c h a n g i n g v i c i s s i t u d e s
of t h e d i s c o u n t m a r k e t .

I t is c l e a r in t h e second p l a c e , t h a t

d r a f t s drawn in one c o u n t r y upon a n o t h e r a g a i n s t l o n g - t e r m s e c u r i t i e s a r e n o t s e l f - l i q u i d a t i n g , no m a t t e r how s h o r t t h e t i m e t h e
d r a f t s t h e m s e l v e s may have t o r u n .

Where a c c e p t a n c e s a r e b a s e d

upon a c t u a l commercial t r a n s a c t i o n s t h e sum t o t a l of t h e a c c e p t a n c e
b e a r s a d e f i n i t e r e l a t i o n t o , and i s r e g u l a t e d by t h e volume of i n t e r n a t i o n a l t r a d e , b u t when b i l l s a r e a c c e p t e d a g a i n s t s e c u r i t i e s ,
t h i s automatic regulation disappears,

and i f

finance b i l l s are

p e r m i t t e d t o be drawn w i t h o u t d i s c r i m i n a t i o n t h e y would c o n t i n u e
t o accumulate j u s t as l o n g as t h e r e i s a s u b s t a n t i a l d i f f e r e n c e




-10-

i n t h e i n t e r e s t r a t e s of t h e two c o u n t r i e s c o n c e r n e d .

It is

e n t i r e l y n a t u r a l and p r o p e r t h a t c o u n t r i e s o r s e c t i o n s Where
w e a l t h h a s a c c u m u l a t e d and which have l a r g e h o l d i n g s of g o l d

.. -

s h o u l d a f f o r d c r e d i t f a c i l i t i e s t o o t h e r s n o t so f o r t u n a t e l y
s i t u a t e d in this

respect.

As between n a t i o n s t h i s can be done

t h r o u g h s h o r t commercial c r e d i t s by means of b a n k e r s 1 a c c e p t a n c e s ,
where t h e a c c e p t a n c e i s l i q u i d a t e d o u t of f u n d s coming f r o m t h e
borrower b e f o r e m a t u r i t y ;

o r s t r i c t l y as an i n v e s t m e n t p r o p o s i t i o n ,

by t r a n s a c t i o n s o u t r i g h t i n s e c u r i t i e s i s s u e d o r h e l d by c i t i z e n s
of t h e b o r r o w i n g c o u n t r y .

Both methods may be p e r f e c t l y s o u n d , b u t

d e a l e r s in c r e d i t s h o u l d d i s t i n g u i s h c l e a r l y between t h e two t r a n s actions.

We must be c a r e f u l n o t t o c o n f u s e commercial b a n k i n g w i t h

i n v e s t m e n t b a n k i n g , n o r s h o u l d we p e r m i t o u r d i s c o u n t m a r k e t t o b e come so s a t u r a t e d w i t h o f f e r i n g s i n t r i n s i c a l l y of an i n v e s t m e n t c h a r
a c t e r a s t o i n f l u e n c e d i s c o u n t r a t e s and impede t h e f r e e o p e r a t i o n
of t h e d i s c o u n t m a r k e t , which i s i n t e n d e d t o d e a l i n s h o r t - t e r m or
commercial b o r r o w i n g s and s h o u l d n o t be u s e d o r abused t o s e r v e
m e r e l y as an a d j u n c t of t h e i n v e s t m e n t m a r k e t .




The second o c c a s i o n which i n t h e B o a r d ' s judgment c a l l e d f o r
a c t i o n a r o s e out of t h e t r e n d t o w a r d a b s o r p t i o n of f o r e i g n s e c u r i t i e s
"by t h e banks, of t h i s c o u n t r y , and b6Cause of t h e announcement t h a t
T r e a s u r y b i l l s , n o m i n a l l y s h o r t t e r m , but o b v i o u s l y r e p a y a b l e , i f p l a c e d
i n l a r g e volume by t h e s a l e of a d d i t i o n a l s e c u r i t i e s of t h e same k i n d
were a b o u t t o be o f f e r e d on t h e m a r k e t i n an i n d e t e r m i n a t e amount.

The

Board f e l t t h a t s u c h p u r c h a s e s i n any c o n s i d e r a b l e volume would i n e x i s t i n g c i r c u m s t a n c e s t e n d t o p l a c e t h e onus upon t h e F e d e r a l R e s e r v e
Banks b e c a u s e w h i l e b i l l s of t h i s c h a r a c t e r a r e a d m i t t e d l y i n e l i g i b l e
f o r r e d i s c o u n t or p u r c h a s e by F e d e r a l r e s e r v e b a n k s , t h e member banks
would r e d i s c o u n t w i t h t h e Reserve i n s t i t u t i o n s e l i g i b l e p a p e r i n o r d e r
t o r e p l e n i s h t h e i r r e s e r v e s which might have been d e p l e t e d t h r o u g h p u r c h a s e s of such Treasutty b i l l s .

The Board a c c o r d i n g l y , on November 28,

made a p u b l i c s t a t e m e n t i n which t h e banks were c a u t i o n e d a g a i n s t i n v e s t i n g too f r e e l y i n the proposed o f f e r i n g s .

This a c t i o n was t a k e n

n o t b e c a u s e of any doubt a s t o t h e u l t i m a t e payment of t h e o b l i g a t i o n s ,
but m e r e l y b e c a u s e t h e y o b v i o u s l y d i d n o t c o n s t i t u t e a l i q u i d b a n k i n g
investment.




The Board s t a t e d t h a t ,

i n i t s o p i n i o n , member banks s h o u l d

p u r s u e a p o l i c y of k e e p i n g t h e m s e l v e s l i q u i d ; of n o t l o a n i n g down t o
t h e l e g a l l i m i t , but of m a i n t a i n i n g an e x c e s s of r e s e r v e s - n o t w i t h
reserve agents,

where t h e i r b a l a n c e s a r e l o a n e d out and c o n s t i t u t e

no a c t u a l r e s e r v e , but i n t h e i r own v a u l t s or. p r e f e r a b l y w i t h t h e i r F e d e r a l Beserve banks,

The Board a d v i s e d banks t h a t t h e y s h o u l d p r o c e e d

w i t h much c a u t i o n i n l o c k i n g up t h e i r f u n d s i n l o n g t e r m o b l i g a t i o n s or
i n v e s t m e n t s which a r e s h o r t term i n form o r name b u t which may i n t h e
a g g r e g a t e have t o be renewed u n t i l normal c o n d i t i o n s r e t u r n .

The Board

does n o t f e e l t h a t i t i s incumbent upon i t t o a d v i s e p r i v a t e i n v e s t o r s
and so s t a t e d , b u t i n v i e w of t h e f a c t t h a t t h e U n i t e d S t a t e s i s becoming
t h e b a n k e r of f o r e i g n c o u n t r i e s t h r o u g h o u t t h e w o r l d , and &s s e c u r i t i e s
of v a r i o u s k i n d s a r e b e i n g o f f e r e d i n our m a r k e t s , t h e Board t o o k o c c a s i o n
t o s u g g e s t t h a t p a r t i c u l a r l y i n t h e c a s e of u n s e c u r e d l o a n s , i n v e s t o r s
s h o u l d r e c e i v e f u l l and a u t h o r i t a t i v e d a t a .

In making t h i s s t a t e m e n t , •

i t was n o t t h e p u r p o s e of t h e Board t o q u e s t i o n t h e c r e d i t of any govern-ment,, n o r d i d i t seek t o r e f l e c t up on any p a r t i c u l a r o b l i g a t i o n s .

The

Board sought m e r e l y t o i n d i c a t e t h a t t h e same b u s i n e s s l i k e h a b i t s which




963.

- 13 -

a r e w e l l e s t a b l i s h e d r e g a r d i n g d o m e s t i c l o a n s s h o u l d be d e v e l o p e d i n t h e
m a r k e t i n g of f o r e i g n f l o t a t i o n s *

I t i s t h e p r a c t i c e of e v e r y i s s u i n g

house i n o f f e r i n g s e c u r i t i e s t o f u r n i s h s p e c i f i c i n f o r m a t i o n and t o g i v e
a l l n e c e s s a r y d e t a i l s e i t h e r o v e r i t s own s i g n a t u r e o r t h a t of t h e head
of t h e "borrowing c o r p o r a t i o n .

The i m p o r t a n c e of c o m p l e t e and a u t h e n t i c

i n f o r m a t i o n i s nowhere more f u l l y u n d e r s t o o d and a p p r e c i a t e d t h a n i n
Europe; and i n f o r e i g n c o u n t r i e s a p r o s p e c t u s c o n t a i n s a l l t h e important,
f a c t s r e l a t i n g t o t h e l o a n , i n a s t a t e m e n t s i g n e d by an a u t h o r i z e d
r e p r e s e n t a t i v e of t h e government o r by t h e i s s u i n g h o u s e , o r i n some
c a s e s by b o t h .

The t i m e l i n e s s of t h e B o a r d ' s s t a t e m e n t was d e m o n s t r a t e d

by t h e f a c t t h a t , n o t w i t h s t a n d i n g t h e f a c t t h a t t h i s o f f e r i n g of f o r e i g n
b i l l s was w i t h d r a w n s h o r t l y a f t e r t h e s t a t e m e n t a p p e a r e d , t h e r e was a
n o t a b l e s t i f f e n i n g of r a t e s f o r c a l l l o a n s i n our p r i n c i p a l money m a r k e t ,
which advanced t o 15$, a h i g h e r l e v e l t h a n t h e y had r e a c h e d s i n c e t h e
e s t a b l i s h m e n t of t h e F e d e r a l r e s e r v e b a n k s .

I t developed t h a t the r e -

s e r v e s of t h e banks i n our most i m p o r t a n t money c e n t e r w e r e , a s a m a t t e r
of f a c t , none t o o l a r g e , and t h a t




'-.he money t e n s i o n , which was f e l t how-

- 14 -

963

e v e r , only i n t h e c a s e of c o l l a t e r a l l o a n s n o t e l i g i b l e f o r r e d i s c o u n t
a t t h e F e d e r a l r e s e r v e b a n k s , was e a s e d by t h e r e s u m p t i o n of g o l d imp o r t s on a l a r g e s c a l e *

CONSERVATION OF GOLD SUPPLY

The Board, however, has r e c c g t t i z e d from t h e f i r s t t h a t m e r e l y
n e g a t i v e o r p r e v e n t i v e m e a s u r e s s u c h a s t h o s e j u s t r e f e r r e d t o can n o t
be e x p e c t e d t o meet a l l t h e r e q u i r e m e n t s of t h e u n u s u a l s i t u a t i o n w i t h
which t h e c o u n t r y h a s been c o n f r o n t e d and i t h a s r e a l i s e d t h a t d e c i s i v e
s t e p s e n l a r g i n g t h e power of t h e F e d e r a l r e s e r v e banks t o c o n s e r v e and ?
p r o t e c t t h e c o u n t r y ' s gold s u p p l y ought t o be t a k e n .

In t h e s t a t e m e n t

of November 28th above r e f e r r e d t o , t h e Board announced t h a t i t would
a s k Congress t o advance t h e d a t e upon which t h e f i n a l t r a n s f e r of r e s e r v e s from c o r r e s p o n d e n t banks i n r e s e r v e and c e n t r a l r e s e r v e c i t i e s
t o t h e F e d e r a l r e s e r v e banks would t a k e p l a c e , and s u g g e s t e d t h a t t h i s
d a t e , o r i g i n a l l y f i x e d on November l 6 , i g i ? , be advanced t o F e b r u a r y
or March.




There a r e s e v e r a l r e a s o n s f o r u r g i n g t h i s c o n s i d e r a t i o n upon

184£

- 15 -

t h e immediate a t t e n t i o n of Congress«

. 963

The U n i t e d S t a t e s has t o d a y a

p l e t h o r a of g o l d , and w h i l e t h e Board does n o t b e l i e v e t h a t f u r t h e r
i m p o r t a t i o n s of t h e m e t a l must of n e c e s s i t y p r o v e gt s o u r c e of d a n g e r or
d i s t u r b a n c e , i t i s d e s i r a b l e , i n o r d e r t o a v o i d danger^ t o c o n t r o l t h e
i n f l o w i n g g o l d and n o t p e r m i t i t t o become t h e b a s i s of abnormal
e x p a n s i o n s and of i n f l a t i o n .

The a b s t r a c t of r e p o r t s made by a l l n a -

t i o n a l banks on November 7> 1916, shows a s u r p l u s of a b o u t $ 1 , 0 1 6 , 0 0 0 , 0 0 0 .
T h i s s u r p l u s i s b a s e d upon t h e r e d u c e d r e s e r v e s p e r m i t t e d u n d e r t h e Fed*
e r a l R e s e r v e A c t , and i t s enormous s i z e i s due i n p a r t t o t h e f u r t h e r
f a c t t h a t i n t e r i o r banks a r e s t i l l a b l e t o count b a l a n c e s w i t h n a t i o n a l
bank a g e n t s a s r e s e r v e *

The l a w now p r o v i d e s t h a t a f t e r November l 6 t n

t h e e n t i r e r e s e r v e s of member banks must be c a r r i e d p a r t l y i n t h e i r own
v a u l t s and p a r t l y w i t h t h e F e d e r a l r e s e r v e bank of t h e i r d i s t r i c t .

It

i s e s t i m a t e d t h a t t h e r e s e r v e s of c o u n t r y banks c a r r i e d w i t h r e s e r v e
city

c o r r e s p o n d e n t s r e p r e s e n t a b o u t $ 1 ^ 0 , 0 0 0 , 0 0 0 , and t h e e f f e c t of a

p o s s i b l e w i t h d r a w a l of t h i s sum from t h e r e s e r v e d e p o s i t o r i e s n e x t
November h a s been viewed w i t h some? a p p r e h e n s i o n ^ b u t w i t h t h e lar^,




S6>

- 16 -

s u r p l u s r e s e r v e now c a r r i e d by t h e b a n k s , i t does n o t seem t h a t t h e r e
would be any w i t h d r a w a l s n e c e s s a r y s h o u l d t h e d a t e f o r t h e f i n a l t r a n s f e r be advanced a s s u g g e s t e d by t h e Bdai*d«
against existing deposit l i a b i l i t y
Banks h o l d $ 2 > 4 7 2 , 0 0 0 , 0 0 0 , o.'

The p r e s e n t r e s e r v e r e q u i r e d

of n a t i o n a l banks is. $ 1 , 4 5 6 , 0 0 0 j 0 0 0 *

r e s e r v e s , bf which $ 1 , 4 3 7 > 0 0 0 , 0 0 0 c o n s i s t s

of c a s h i n V a u l t , a n d b a l a n c e s w i t h F e d e r a l r e s e r v e b a n k s , where a l l r e s e r v e s must u l t i m a t e l y be c o n c e n t r a t e d .

From t h i s i t a p p e a r s t h a t only

$ 1 9 , 0 0 0 , 0 0 0 must be t a k e n out of t h e b a l a n c e of $ 1 , 0 ^ 5 , 0 0 0 , 0 0 0 now c a r r i e d
by t h e banks w i t h n a t i o n a l bank r e s e r v e a g e n t s i n o r d e r t o g i v e t h e banks
the e n t i r e .reserve required.

T h i s p r o c e s s would g i v e t h e banks t h e i r

e x a c t r e s e r v e r e q u i r e m e n t s i n v a u l t and w i t h F e d e r a l r e s e r v e banks and
would l e a v e no s u r p l u s r e s e r v e a t a l l -

This would n o t n e c e s s a r i l y a l t e r

t h e t e c h n i c a l p o s i t i o n of t h e banks i n t h e s l i g h t e s t d e g r e e , f o r t h e c i t y
'banks would have b a l a n c e s .with t h e i r c o u n t r y c o r r e s p o n d e n t s j u s t a s b e f o r e . ,
w i t h t h e e x c e p t i o n of t h e c o m p a r a t i v e l y s m a l l amount r e q u i r e d t o be
t r a n s f e r r e d , and t h e o n l y d i f f e r e n c e would be t h a t b a l a n c e s w i t h f 0 r a e r
r e s e r v e c o r r e s p o n d e n t s would no l o n g e r count a s bank r e s e r v e s , b u t




3

o t h e r r e s p e c t s would p r o v i d e f o r t h e same f u n c t i o n s as a t p r e s e n t .
The Board has g i v e n much a t t e n t i o n t o t h e whole r e s e r v e problem
and has t r a n s m i t t e d t o t h e Chairmen

of t h e a p p r o p r i a t e c o m m i t t e e s r e -

recommendations f o r f u r t h e r amendments t o t h e F e d e r a l R e s e r v e A c t , which
had b e e n a g r e e d upon by a m a j o r i t y of t h e B o a r d .
g e s t e d amendments i s p r e s e n t e d i n e x h i b i t

The t e x t of t h e s e s u g , b u t a s two of them a r e

d i r e c t l y c o n n e c t e d w i t h t h e c o n t r o l and c o n s e r v a t i o n of our g o l d s u p p l y ,
i t i s deemed p r o p e r t o make p a r t i c u l a r r e f e r e n c e t o them a t t h i s p o i n t .
The two amendments a r e a s f o l l o w s :
( i n s e r t n o t e i s s u e amendment, and
amendment r e g a r d i n g r e s e r v e s . )
When t h e F e d e r a l R e s e r v e Act was d r a f t e d i t s p r i n c i p a l o b j e c t was t o
d e a l w i t h n a t i o n a l problems of b a n k i n g and c u r r e n c y , b u t s i n c e i t s
e n a c t m e n t f i n a n c i a l and economic c o n d i t i o n s i n t h e U n i t e d S t a t e s have
undergone f a r r e a c h i n g changes which were not f o r e s e e n t h r e e y e a r s a g o .
The U n i t e d S t a t e s has grown t o be a world power i n f i n a n c i a l a f f a i r s
and i t seems n e c e s s a r y t h a t t h e A c t , which h a s p r o v e d of s u c h g r e a t
v a l u e i n t h e t r e a t m e n t of our d o m u r t i c p r o b l e m s , s h o u l d now be amended




-

. 1 8 4 5
91>>

18 -

somewhat i n o r d e r t o e n a b l e us t o d e a l e f f e c t i v e l y w i t h t h e i n t e r n a t i o n a l
problems which now c o n f r o n t us and which seem d e s t i n e d t o p l a y so
p o r t a n t a p a r t i n our economic l i f e .

-

The "banking system of t h e U n i t e d

S t a t e s s h o u l d be p r e p a r e d t o meet e f f e c t i v e l y two c o n d i t i o n s of o p p o s i t e
c h a r a c t e r , - one, t h e e x c e s s i v e and u n c o n t r o l l e d i n f l o w of g o l d , and t h e
o t h e r t h e e x c e s s i v e and u n r e g u l a t e d o u t f l o w of g o l d .

The amendments p r o -

posed by t h e Board a r e d e s i g n e d t o p r o v i d e means of c o n t r o l l i n g an over
e x t e n s i o n of l o a n s b a s e d on new a c c r e t i o n s t o our g o l d s t o c k and t o p r o v i d e f o r t h e m o b i l i z a t i o n ana c o n c e n t r a t i o n of t h e g o l d h o l d i n g s of t h e
U n i t e d S t a t e s so t h a t w h a t e v e r t h e develo^izairte may be l e a d i n g t o t h e f l o w
of g o l d back i n t o E u r o p e , o r t o S o u t h America o r t o t h e O r i e n t , t h e
g o l d may be r e l e a s e d by t h e banks of t h i s c o u n t r y w i t h o u t f o r c i n g any
v i o l e n t c o n t r a c t i o n of l o a n s or c a u s i n g undue d i s t u r b a n c e t o l e g i t i m a t e
business.

At p r e s e n t o u t of a p p r o x i m a t e l y two and t h r e e - q u a r t e r b i l l i o n s

of g o l d i n t h i s c o u n t r y t h e r e a r e h e l d or c o n t r o l l e d by F e d e r a l r e s e r v e
banks a b o u t $ 7 3 8 , 0 0 0 , 0 0 0 .

Qf t h i s amount $283.-000,000 i s h e l d by

F e d e r a l R e s e r v e Agents a s s e c u r i t * ' f o r J f a d o r a l r e s e r v e n o t e s o u t s t a n d i n g .




- 19 -

and. $ 4 5 5 > 0 0 0 0 0 0 a r e r e s e r v e money and must t h e r e f o r e "be u s e d c o n s e r v a tively .

But even if we assume t h a t t h e F e d e r a l r e s e r v e banks wbuld "be

w i l l i n g t o r e d u c e t h e i r g o l d r e s e r v e s t o k0f> of t h e i r d e p o s i t s and n o t e
l i a b i l i t y (which would be r e g a r d e d a s a minimum and i n normal t i m e s would
be i n a d e q u a t e ) t h e amount of f r e e g o l d , i . e . , t h e amount of g o l d t h a t
t h e F e d e r a l r e s e r v e banks would l o s e b e f o r e r e a c h i n g t h i s bof? minimum,
would be a l i t t l e more t h a n $ 3 0 0 , 0 0 0 , 0 0 0 .

While t h i s i s a v e r y l a r g e

sum i t s s u f f i c i e n c y may w e l l be q u e s t i o n e d when we c o n s i d e r t h e wide
scope of o u r t r a n s a c t i o n s i n w o r l d f i n a n c e and t h e phenomenal growth
of o u r own c r e d i t s t r u c t u r e .

It is estimated t h a t there are in circu-

l a t i o n a t p r e s e n t from seven t o e i g h t h u n d re d m i l l i o n d o l l a r s i n g o l d
and g o l d c e r t i f i c a t e s , and t h a t t h e r e a r e a t p r e s e n t h e l d i n t h e v a u l t s
of member banks a b o u t $ 7 6 8 , 0 0 0 , 0 0 0 of r e s e r v e money.

There s h o u l d be

added t o t h i s e s t i m a t e a b o u t $ 6 0 0 , 0 0 0 , 0 0 0 of l a w f u l money i n t h e v a u l t s
of nonmember S t a t e banks and t r u s t companies.

It is d i f f i c u l t to estimat

t h e amount of g o l d t h a t i s h o a r d e d by i n d i v i d u a l s o r c a r r i e d as p o c k e t
money.

The amount i s no doubt s u b s t a n t i a l , "cut w h a t e v e r i t may b e , i t




i s l o s t f o r r e s e r v e p u r p o s e s and i s n o t f u l f i l l i n g i t s t r u e and. h i g h e s t
function.

The use of gold, a s a medium of d o m e s t i c c i r c u l a t i o n i s a

n a t u r a l waste.

The t e n d e n c y i n f o r e i g n c o u n t r i e s i n normal t i m e s has

"been t o s u b s t i t u t e Government bank c i r c u l a t i o n f o r t h e u s e of m e t a l l i c
g o l d and t o c o n c e n t r a t e t h e g o l d i t s e l f

i n t h e c e n t r a l "banks.

The

F e d e r a l r e s e r v e n o t e , which i s an o b l i g a t i o n of t h e U n i t e d S t a t e s s e c u r e d
by an ample r e s e r v e of g o l d and commercial p a p e r , i s a c c e p t e d a s w i l l i n g l y
by t h e p u b l i c a s a n a t i o n a l bank n o t e o r as any o t h e r form of c u r r e n c y ,
and t h e p u b l i c does not d i s c r i m i n a t e between one form or a n o t h e r of
United S t a t e s currency*

To t h e e x t e n t of a b o u t t h r e e h u n d r e d m i l l i o n

d o l l a r s F e d e r a l r e s e r v e n o t e c i r c u l a t i o n has been s u b s t i t u t e d f o r g o l d
certificates.

Under t h e r e q u i r e m e n t s of t h e p r e s e n t law, however, t h i s

g o l d i s d e p o s i t e d w i t h t h e l e d e r a l Reserve Agents i n r e d e m p t i o n of t h e
Federal reserve notes issued against i t .

The n o t e so p r o v i d e d f o r there",

c e a s e s t o be an o b l i g a t i o n of t h e F e d e r a l r e s e r v e bank; b u t a s t h e g o l d
does n o t f i g u r e a s an a s s e t of t h e F e d e r a l r e s e r v e b a n k s , t h e F e d e r a l r e s e r v e system i s u n a b l e t o show t h e g r e a t e r s t r e n g t h which m i g h t be




e v i d e n c e d if t h e laxv p e r m i t t e d , as p r o p o s e d i n t h e amendments, t h e
i s s u a n c e of F e d e r a l reyrirva n o t e s n o t only a g a i n s t commercial p a p e r ;
b u t a l s o a g a i n s t g o l d or a g a i n s t e i t h e r , p r o v i d e d always t h a t e v e r y
F e d e r a l r e s e r v e n o t e must be c o v e r e d by a t l e a s t 100% of commercial
p a p e r or gold., and t h a t thy re must always be a g o l d r e s e r v e of n o t
l e s s t h a n 40% a g a i n s t a l l o u t s t a n d i n g F e d e r a l r e s e r v e n o t e s .

The

c o n t r o l of g o l d by F e d e r a l r e s e r v e banks i n t i m e s of p l e t h o r a a s a t
p r e s e n t , w i l l d e c r e a s e t h e dc-nger of i n f l a t i o n of d o m e s t i c c r e d i t s and
a t t h e same t i m e w i l l e n a b l e t h e c o u n t r y When t h e t i d e t u r n s t o p a r t
w i t h l a r g e sums of g o l d w i t h l e s s i n c o n v e n i e n c e or s h o c k , and w i l l
e n a b l e us more s a f e l y and e f f e c t i v e l y t o piroceed w i t h t h e development
of o u r f o r e i g n t r a d e and t o g i v e t h e n e c e s s i t y c r e d i t f a c i l i t i e s f o r
building i t up.

We s h o u l d be i n a p o s i t i o n t o f a c e c o n d i t i o n s which

may c a l l f o r an o u t f l o w of g o l d w i t h o u t any j a r t o our own o r t o t h e
w o r l d ' s b u s i n e s s , and w i t h o u t making n e c e s s a r y d r a s t i c changes i n our
i n t e r e s t or d i s c o u n t r a t e s ' *

The ..amendments s u g g e s t e d by t h e Board a r e

d e s i g n e d t o e n a b l e t h e F e d e r a l r e s e r v e - banks t o w i t h d r a w g o l d from




a c t u a l c i r c u l a t i o n w h i l e e n a b l i n g them a t t h e same t i m e t o r e l e a s e g o l d
which a t p r e s e n t i s t i e d up i n t h e i r own v a u l t s .

The amendments a r e

p r o p o s e d on t h e t h e o r y t h a t a l l of t h e i n d i v i d u a l banks s h o u l d s t r e n g t h e n
t h e g o l d h o l d i n g s of t h e F e d e r a l r e s e r v e "banks,

The count r y 1 s h o l d i n g s

of g o l d a r e n o t u s e d most e f f e c t i v e l y when t h e y a r e i n t h e v a u l t s of a
l a r g e number of banks s c a t t e r e d a l l over t h e c o u n t r y > b u t i t s g r e a t e s t
u s e would coma from c e n t e r i n g i t , as f a r as p o s s i b l e , i n t h e hands of
t h e F e d e r a l r e s e r v e b a n k s , where i t can be p r o t e c t e d e f f e c t i v e l y when
n o t r e q u i r e d and used e f f e c t i v e l y i n t i m e s of n e e d .

The member bank

does n o t r e q u i r e g o l d so much as c u r r e n c y w i t h which t o s u p p l y t h e
o r d i n a r y demands of i t s d e p o s i t o r s .

I t i s from t h i s p o i n t of v i e w

t h a t t h e F e d e r a l Reserve Board h a s p r o p o s e d t h a t Congress i n c r e a s e t h e
required

reeerxres t o be m a i n t a i n e d by member banks w i t h t h e F e d e r a l r e -

serve banks.

On September 12, i g i 6 t h e gold h o l d i n g s of a l l member

banks were a b o u t $500,000,000*

Under t h e p r o p o s e d amendment of S e c t i o n

19 $ 3 5 0 , 0 0 0 , 0 0 0 of t h i s amount would be t r a n s f e r r e d t o t h e F e d e r a l r e serve banks.




P r o c e e d i n g upon t h i s t h e o r y , t h e Board b e l i e v e s " t h a t u l t i -

m a t e l y t h e l a w s h o u l d r e q u i r e of member "banks no more t h a n t h a t t h e y
s h o u l d m a i n t a i n a c e r t a i n b a l a n c e w i t h t h e F e d e r a l r e s e r v e b a n k s , and
t h a t t h e F e d e r a l r e s e r v e banks must have s u f f i c i e n t r e s e r v e s of g o l d
w i t h which t o p r o t e c t t h e c o u n t r y 1 s g o l d o b l i g a t i o n s , b u t t h a t t h e r e
s h o u l d be no l e g a l r e q u i r e m e n t » a s t o t h e r e s e r v e s t h a t a member bank
should c a r r y i n i t s own v a u l t , which i s a m a t t e r of b u s i n e s s judgment
t h a t m i g h t w e l l be l e f t t o t h e d i s c r e t i o n of each member b a n k .

It

was t h o u g h t ; however, t h a t if t h i s p r i n c i p l e were c a r r i e d i n t o f u l l
e f f e c t a t t h i s t i m e ^ t h e s t e p m i g h t be t o o e x t r e m e , p a r t i c u l a r l y undet*
p r e s e n t c o n d i t i o n s , and n o t h i n g s h o u l d be done t h a t m i g h t t e n d t o a
f u r t h e r rele-ase of r e s e r v e money*

i t was t h o u g h t a d v i s a b l e , t h e r e f o r e ,

t o p r e s c r i b e a minimum amount of c u r r e n c y t h a t t h e member banks s h o u l d
be r e q u i r e d t o keep i n t h e i r v a u l t s *

The amount s u g g e s t e d i s 5f° of t h e

demand d e p o s i t s , so t h a t t h e p r e s e n t r e s e r v e r e q u i r e m e n t s w i l l remain
p r a c t i c a l l y unchanged.

While t h e e f f e c t of some of t h e c h a n g e s a s

p r o p o s e d , w i l l be t o r e d u c e somewhat t h e r e s e r v e r e q u i r e m e n t s , t h e
r e s e r v e s w i l l be i n c r e a s e d by t h e a b r o g a t i o n of t h e p r i v i l e g e t h a t t h e




- 24 -

member t a n k s have h i t h e r t o had of c o u n t i n g i t e m s i n t r a n s i t o r " f l o a t "
as r e s e r v e .

The p e r m i s s i o n g i v e n member t a n k s t o use t h e i r own d i s -

c r e t i o n a s t o t h e c h a r a c t e r of c u r r e n c y i n t h e i r v a u l t s , w i l l e n a b l e
them t o r e l e a s e t h e g o l d t h e y now h o l d , b u t t h e i m p o r t a n t r e s u l t w i l l
be t h a t t h e s u b s t i t u t i o n of F e d e r a l r e s e r v e

tiotes

f o r g o l d and g o l d

c e r t i f i c a t e s w i l l be f a c i l i t a t e d by t h i s change i n t h e law*

Without

some s u c h change member banks w i l l c o n t i n u e t o a s k f o r g o l d c e r t i f i c a t e s
i n s m a l l d e n o m i n a t i o n s , because a s l o n g a s t h e y must have g o l d o r
l a w f u l money t o count as r e s e r v e i t would be i m p o s s i b l e f o r t h e banks
t o exchange them f o r F e d e r a l r e s e r v e n o t e s .

On November l 6 , l $ l 6 ,

t h e f i n a l i n s t a l l m e n t of member b a n k s ' o b l i g a t o r y r e s e r v e , amounting
t o $ 6 0 , 0 3 0 , 0 0 0 , was p a i d i n t o t h e F e d e r a l r e s e r v e banks by t h e i r members,
Under t h e p r o v i s i o n s of t h e F e d e r a l Reserve Act a b o u t $ 2 6 0 , 0 0 0 , 0 0 0 of
r e s e r v e s were p a i d i n t o t h e F e d e r a l r e s e r v e banks i m m e d i a t e l y upon
their organization.

The Act p r o v i d e s ""that s u b s e q u e n t r e s e r v e p a y m e n t s

s h o u l d be made a t i n t e r v a l s of s i x m o n t h s , and a c c o r d i n g l y on May l 6 ,




1915> November l o ,

May 16, l $ l 6 and November l 6 , 1 9 l 6 , a d d i t i o n a l

p e r c e n t a g e s of r e s e r v e s were t r a n s f e r r e d .

Due p a r t l y t o t h e s e r e g u l a r

t r a n s f e r s of r e s e r v e s a s r e q u i r e d "by t h e law on t h e d a t e s s p e c i f i e d , and
p a r t l y t o t h e change i n v a u l t r e s e r v e r e q u i r e m e n t s p r o v i d e d by t h e

mandatory Act of September

~J1916, t h e money s t o c k of F e d e r a l r e s e r v e

banks has been g r e a t l y s t r e n g t h e n e d , t h e a c t u a l h o l d i n g s on s u c c e s s i v e
d a t e s b e i n g as f o l l o w s :

December 31, I3I&

$255,647,000

June 30, 1;915

300,814,000

December 31,. 1915

357,983,000

June 30, I916

404,206,000

December

19^-6

540,000,000

Ho f u r t h e r payments a r e now compulsory, but from and a f t e r November l b ,
1917, ( o r e a r l i e r i f t h e B o a r d ' s s u g g e s t e d amendment s h o u l d be adopted)
b a l a n c e s w i t h r e s e r v e a g e n t s i n r e s e r v e and c e n t r a l r e s e r v e c i t i e s w i l l
no l o n g e r count as member b a n k s ' r e s e r v e s , and members w i l l be r e q u i r e d
t o b u i l d up e i t h e r t h e i r v a u l t cash or t h e i r b a l a n c e s w i t h F e d e r a l r e s e r v e banks s u f f i c i e n t l y t o c o v e r t h e r e q u i r e d r e s e r v e s h e r e t o f o r e
c a r r i e d as b a l a n c e s w i t h c o r r e s p o n d e n t s .



1853
DEVELOPMENT OF DISOUNT RATES.

Except f o r a s l i g h t s t i f f e n i n g of r a t e s of d i s c o u n t toward
t h e c l o s e of t h e y e a r r e s u l t i n g i n an i n c r e a s e of r a t e s i n some d i s t r i c t s by o n e - h a l f of one p e r c e n t , t h e r a t e s p r e v a i l i n g a t F e d e r a l
r e s e r v e banks have been n e a r l y s t a t i o n a r y t h r o u g h o u t t h e y e a r .

Of

t h e changes made, t h e o n l y one l i k e l y t o be of much i m p o r t a n c e , was
i n t h e r a t e on a c c e p t a n c e s , which was f i r s t . advanced by t h e F e d e r a l
R e s e r v e Bank of New York i n consequence of a f i n n e r t e n d e n c y i n t h e
money m a r k e t .

The i d e a of e s t a b l i s h i n g a d i f f e r e n t i a l r a t e f o r

a c c e p t a n c e s , d e s i g n e d t o f a v o r t h o s e made by member banks of t h e
F e d e r a l r e s e r v e system., h a s a l s o been a d o p t e d \>y some of t h e F e d e r a l
r e s e r v e b a n k s , and i s a d e s i r a b l e i n n o v a t i o n .
There h a s been no o c c a s i o n t o e s t a b l i s h new o r s p e c i a l
r a t e s d e s i g n e d f o r t h e accommodation of p a r t i c u l a r i n d u s t r i e s
sections.

or

The p l a n of a p p l y i n g a low "commodity r a t e " , e s t a b -

l i s h e d by t h e Board i n September 1915, f o r t h e b e n e f i t of p r o d u c e r s
and s h i p p e r s of a g r i c u l t u r a l p r o d u c t s , h a s c o n t i n u e d o p e r a t i v e ,




-27
a l t h o u g h t h e r a t e i t s e l f was r a i s e d t o 3-^1/2 and 4$ a t dome of
t h e b a n k s , b u t t h e need f o r i t s a p p l i c a t i o n h a s b e e n l e s s t h a n i t
was a y e a r a g o .

The h i g h p r i c e s of a l l a g r i c u l t u r a l p r o d u c t s , and

t h e g e n e r a l and s u s t a i n e d demand f o r them, n o t o n l y a t home b u t
t h r o u g h o u t t h e w o r l d , h a s b r o u g h t t o t h e f a r m e r s of t h e c o u n t r y a
d e g r e e of p r o s p e r i t y and a s u p p l y of f l u i d r e s o u r c e s w h o l l y u n precedented.

T h i s h a s , i n b6> s m a l l d e g r e e , d e l i e v e d them of d e -

p e n d e n c e upon banks f o r c u r r e n t accommodation, w h i l e i t h a s a l s o
l e d them t o p l a c e t h e i r p r o d u c t s upon t h e m a r k e t w i t h o u t h o l d i n g
them i n o r d e r t o o b t a i n b e t t e r p r i c e s t h a n c o u l d be had a t t h e
c l o s e of t h e growing s e a s o n .

Not o n l y t h e f a r m e r , b u t p r a c t i c a l l y

e v e r y o t h e r e l e m e n t in t h e commercial community h a s been s t r o n g
and s e l f - d e p e n d e n t , due t o t h e h i g h r e t u r n on l a b o r and c a p i t a l ,
and t h e p r e v a i l i n g e a s e i n t h e money m a r k e t .

The i n f l u e n c e of t h e

F e d e r a l r e s e r v e banks upon r a t e s h a s , t h e r e f o r e , c o n t i n u e d t h r o u g h o u t t h e p r e s e n t y e a r , as i n t h e p a s t , t o be p o t e n t i a l and i n d i r e c t ,
and has n o t b e e n f e l t eiiher as t h e r e s u l t of l a r g e o p e r a t i o n s , o r




1855
-28-

of p o s i t i v e a c t i o n d e s i g n e d t o r e l i e v e banks o r b o r r o w e r s .
A comparison of d i s c o u n t r a t e s p r e v a i l i n g a t F e d e r a l
r e s e r v e banks shows t h a t t h e p r i n c i p a l d i f f e r e n c e between c o n d i t i o n s t h e p a s t y e a r and t h e p r e v i o u s one l i e s

in t h e somewhat

g r e a t e r d i v e r s i f i c a t i o n of r a t e s , t h e new 1 5 - d a y r a t e h a v i n g been
introduced for the greater
i n g t e m p o r a r y accommodations.

convenience

of member banks d e s i r -

P e r h a p s t h e r e i s no b e t t e r com-

m e n t a r y upon some of t h e f a c t o r s t h a t have l e d t o t h e t r a n s f e r
of d i s c o u n t b u s i n e s s t o t h e U n i t e d S t a t e s , t h a n a comparison of
r a t e s p r e v a i l i n g in the p r i n c i p a l foreign markets with those in
New York.

A n o t a b l e d i f f e r e n c e i s shown by t h e f o l l o w i n g f i g u r e s

c o n t r a s t i n g t h e r a n g e of bank r a t e s i n t h e p r i n c i p a l f i n a n c i a l
markets;




963
—29™
Bank r a t e s i n 1916.
London

5 - 6

Paris

5

Berlin

"

5

Rome

5

Petrograd

6

Amsterdam

4-1/2

Stockholm

4-1/2 - 5-1/2

Christiania

4-1/2 - 5

Copenhagen

5

Madrid

4 - 1 /2

New York

2

-

2-3 /4

DEVELOPMENT OF FEDERAL RESERVE
CIRCULATION.

R e f e r e n c e has a l r e a d y been m&de t o t h e ixaintenance and
i n c r e a s e of t h e a c t u a l gold s t o c k of t h e n a t i o n as r e p r e s e n t e d by
t h e r e s e r v e s of t h e F e d e r a l r e s e r v e b a n k s , a s a f u n d a m e n t a l l y
n e c e s s a r y f a c t o r i n t h e s o l u t i o n of e x i s t i n g f i n a n c i a l p r o b l e m s ;
and t h e p l a n s and p o l i c y of t h e F e d e r a l Reserve Board f o r t h e p r o -




Jf'3

185?

-30t e c t i o n and e n l a r g e m e n t of t h i s gold s t o c k , have b e e n o u t l i n e d .
I t s h o u l d f u r t h e r be e x p l a i n e d a t t h i s p o i n t t h a t t h e F e d e r a l
r e s e r v e n o t e h a s p l a y e d an i m p o r t a n t p a r t i n p o t e n t i a l l y a s s i s t *
i n g t h e e n l a r g e m e n t of t h e gold s t o c k a t F e d e r a l r e s e r v e b a n k s ,
and a t t h e same t i m e i n c h e c k i n g an i n f l a t i o n a r y p r o c e s s t h a t
m i g h t o t h e r w i s e have a r i s e n .
United S t a t e s ,

The r a p i d i n f l o w of gold i n t o t h e

if not d i v e r t e d l a r g e l y to Federal r e s e r v e banks,

a s i t could n o t w h o l l y be u n d e r any c o n d i t i o n s , n a t u r a l l y t e n d s
t o promote an i n f l a t i o n a r y t e n d e n c y i n p r i c e s , and an o v e r - e x t e n s i o n of b a n k i n g c r e d i t , an a d m i t t e d e l e m e n t of d a n g e r .

Even i f

t h e new a c c u m u l a t i o n of gold could be s u c c e s s f u l l y d i r e c t e d t o t h e
v a u l t s of t h e r e s e r v e b a n k s , t h e r e would s t i l l e x i s t some t e n d e n c y
t o w a r d i n f l a t i o n a s t h e r e s u l t of g r e a t l y augmented r e s o u r c e s .

But

as a m a t t e r of f a c t as t h e new gold has come i n t o c i r c u l a t i o n a
c o n s i d e r a b l e p o r t i o n of i t has b e e n b r o u g h t t o a t l e a s t one of t h e
r e s e r v e banks f o r t h e p u r p o s e of exchange f o r F e d e r a l r e s e r v e n o t e s .




The F e d e r a l r e s e r v e a g e n t s * h o l d i n g s of gold from -January 1 , 1915,
t o December 30, 1916, i n c r e a s e d $ 2 7 0 , 2 7 0 , 0 0 0 , w h i l e our n e t i m p o r t s
of gold f o r t h a t p e r i o d were $ 9 5 3 , 1 3 0 , 0 0 0 .

The F e d e r a l R e s e r v e

Act nowhere makes p r o v i s i o n f o r any such d i r e c t exchange of n o t e s
f o r g o l d , b u t some of t h e F e d e r a l r e s e r v e b a n k s , w i t h t h e B o a r d ' s
s a n c t i o n , have adopted t h e e x p e d i e n t of o b t a i n i n g n o t e s from t h e
F e d e r a l r e s e r v e a g e n t a g a i n s t a d e p o s i t of e l i g i b l e p a p e r , f o l l o w i n g t h i s o p e r a t i o n by a d e p o s i t of gold and w i t h d r a w a l of t h e c o l l a t e r a l , and t h e n a g a i n d e p o s i t i n g t h e c o l l a t e r a l and o b t a i n i n g
notes.

I t i s e v i d e n t t h a t in t h i s way F e d e r a l r e s e r v e n o t e s could

be o b t a i n e d upon p r a c t i c a l l y t h e same b a s i s as if t h e y had been
d i r e c t l y i s s u e d a g a i n s t a d e p o s i t of gold c o i n ;

and by r e p e a t i n g

t h e t r a n s f e r of c o l l a t e r a l a s u f f i c i e n t number of t i m e s , any amount
of r e s e r v e n o t e s w i t h i n t h e l i m i t of t h e g o l d r e s e r v e r e q u i r e d ,
could be p l a c e d i n c i r c u l a t i o n .

L a r g e l y as t h e r e s u l t of t h i s o p e r

a t i o n t h e r e has been i s s u e d , and was o u t s t a n d i n g on December 30, a




963

1859
-32t o t a l sum of $ 3 1 0 , 1 1 0 , 0 0 0 of F e d e r a l r e s e r v e n o t e s .

The t r u e c h a r -

a c t e r of t h e s e n o t e s i s e v i d e n t when i t i s seen t h a t t h e s e c u r i t y
p r o t e c t i n g them i s s l i g i b i e commercial p a p e r o n l y t o t h e e x t e n t of
$ 1 8 , 5 9 3 , 0 0 0 , w h i l e $ 2 8 2 , 5 2 2 , 0 0 0 of i t c o n s i s t s of a c t u a l g o l d .

The

i s s u e of n o t e s t h u s f a r p u t o u t h a s , i n f a c t , b e e n p r i m a r i l y e f f e c t ed as a d i r e c t exchange of n o t e s f o r g o l d .
CONVERSION

OF

BONDS

and
RETIREMENT OF NATIONAL BANK NOTES.
Under S e c t i o n 16 of t h e F e d e r a l R e s e r v e A c t , F e d e r a l r e s e r v e banks may be r e q u i r e d t o p u r c h a s e $ 2 5 , 0 0 0 , 0 0 0 of United S t a t e s
b o n d s , and a r u l i n g of t h e S e c r e t a r y of t h e T r e a s u r y u n d e r t h a t S e c t i o n p e r m i t s them t o c o n v e r t t h r o u g h t h e T r e a s u r y Department $ 3 0 , 0 0 0 , 000 i n t o t h i r t y - y e a r 3fo U n i t e d S t a t e s bonds and o n e - y e a r 3fo T r e a s u r y
notes.
U n i t e d S t a t e s bonds a c t u a l l y p u r c h a s e d by F e d e r a l r e s e r v e
banks d u r i n g 1916 exceeded $ 2 5 , 0 0 0 , 0 0 0 , t h e amount which F e d e r a l r e -




9 63

i860

-33
s e r v e banks may be r e q u i r e d t o p u r c h a s e d u r i n g any one y e a r , and
a t no q u a r t e r l y p e r i o d was i t n e c e s s a r y f o r t h e F e d e r a l R e s e r v e
Board t o d i r e c t t h e p u r c h a s e of bonds u n d e r S e c t i o n 1 8 of t h e F e d e r a l Reserve Adt*
The f u l l amount of $ 3 0 , 0 0 0 , 0 0 0 i n c o n v e r s i o n bonds and
o n e ^ y e a r n o t e s v^as t a k e n by t h d 12 F e d e r a l r e s e r v e b a n k s , an a l l o t ment b a s e d upon c a p i t a l b e i n g made t o e a c h .

Three b a n k s , t h o s e a t

B o s t o n , P h i l a d e l p h i a and San F r a n c i s c o , did n o t a v a i l t h e m s e l v e s of
the f u l l conversion p r i v i l e g e ;

and t h e d i f f e r e n c e between t h e f u l l

q u o t a of t h e s e banks and t h e amounts a p p l i e d f o r by them, $ 1 , 9 1 8 , 900, was d i s t r i b u t e d among s e v e n o t h e r b a n k s w h i c h had a p p l i e d t o
c o n v e r t more t h a n t h e i r a l l o t m e n t .

C o n v e r s i o n bonds amounting t o

$ 1 5 , 7 6 1 , 0 0 0 , and o n e - y e a r n o t e s amounting t o $ 1 4 , 2 3 9 , 0 0 0 , were i s s u e d f o r t h e y e a r e n d i n g S e p t e m b e r 30, 1 9 1 6 .

For the q u a r t e r end-

i n g December 31, 1916, F e d e r a l r e s e r v e banks c o n v e r t e d $ 1 8 , 5 9 7 , 2 0 0 ,
of which $ 9 , 3 0 1 , 0 0 0 was n o t e s ,




and $ 9 , 3 0 6 , 6 0 0 b o n d s , t h e Board hav~

i n g p r e v i o u s l y announced t h a t i t would approve t h e a p p l i c a t i o n s
of F e d e r a l r e s e r v e banks f o r t h e c o n v e r s i o n of a l l o r any p o r t i o n
of t h e i r f u l l a n n u a l a l l o t m e n t on J a n u a r y 1 , 1917, o r t h e b e g i n n i n g of any o t h e r q u a r t e r l y p e r i o d .
Inasmuch as t h e banks had t h u s a l r e a d y p u r c h a s e d bonds
i 6 an a&ourit e q u a l l i n g more t h a n h a l f t h e i r q u o t a s , t h e y Were a d vised,

i n an announcement made on J a n u a r y 8 , 1917, t h a t t h e Board

would n o t r e q u i r e them t o p u r c h a s e d u r i n g t h e y e a r 1917 more t h a n
$ 1 5 , 0 0 0 , 0 0 0 of U n i t e d S t a t e s bonds o f f e r e d f o r s a l e by member banks
, t h r o u g h t h e T r e a s u r y of t h e U n i t e d S t a t e s , and t h a t i t would r e q u i r e
F e d e r a l r e s e r v e b a n k s t o p u r c h a s e on A p r i l 1 , 1917, t h e f u l l amount
of t h i s $ 1 5 , 0 0 0 , 0 0 0 , o r s o much t h e r e o f as m i g h t b e o f f e r e d f o r s a l e
by member banks p r i o r t o March 21.
The o r i g i n a l p u r p o s e of t h e bond c o n v e r s i o n of t h e F e d e r a l
R e s e r v e Act was t w o - f o l d ~ t h a t of p r o t e c t i n g t h e v a l u e of U n i t e d
S t a t e s bonds d e p o s i t e d t o s e c u r e c i r c u l a t i o n , and t h a t of i n s u r i n g
a g r a d u a l b u t s t e a d y r e t i r e m e n t of n a t i o n a l bank n o t e s , t h e gap




t h u s l e f t , t o be f i l l e d , so f a r as n e c e s s a r y , by F e d e r a l r e s e r v e
currency.

During t h e p a s t y e a r n a t i o n a l banks have w i t h d r a w n

<from d e p o s i t w i t h t h e T r e a s u r e r <j«f t h e U n i t e d S t a t e s bonds d e p o s i t ed t o s e c u r e c i r c u l a t i o n of t h e p a r v a l u e of $

,

They have d e p o s i t e d l a w f u l money t o r e t i r e o u t s t a n d i n g n o t e s i n
t h e sum of $

,

The t o t a l of n a t i o n a l bank n o t e s

o u t s t a n d i n g a t t h e b e g i n n i n g of t h e y e a r 1916 was $

.

w h i l e on December 30, 1916, t h e amount o u t s t a n d i n g was $
a r e d u c t i o n of $

.

F e d e r a l r e s e r v e banks s o l d i n 1916 new bonds and c o n v e r s i o n n o t e s as f o l l o w s :
•

S e c t i o n 16 of t h e F e d e r a l Reserve Act p e r m i t s F e d e r a l
r e s e r v e banks t o i s s u e b o n d - s e c u r e d c u r r e n c y known as F e d e r a l r e s e r v e bank n o t e s , p r o t e s t i n g them by d e p o s i t e d b o n d s , as i n t h e case
of n a t i o n a l bank n o t e s .

Under t h i s p r o v i s i o n of t h e law t h e t o t a l

amount of F e d e r a l r e s e r v e bank n o t e s i s s u e d t o December 31, 1916,
was $ 1 2 , 0 5 4 , 9 8 0 .




There were h e l d a t t h e c l o s e of 1916 by t h e F e d -

; Do
-3 6e r a l Reserve Bank of Kansas C i t y , $ 6 , 0 0 0 , 0 0 0 , and "by t h e F e d e r a l
Reserve Bank of D a l l a s $ 2 , 0 0 0 , 0 0 0 .

The r e m a i n i n g amount i s i n

c i r c u l a t i o n o r in t h e T r e a s u r y of t h e United S t a t e s .

Federal re-

s e r v e banks have e x t i n g u i s h e d t h e i r l i a b i l i t y on a c c o u n t of $ 4 , 0 0 0 ,
fr-*rt> of t h e s e n o t e s t h r o u g h t h e d e p o s i t of l a w f u l money and on ac
c o u n t of $ 5 4 , 9 8 0 t h r o u g h t h e r e t u r n t o t h e C o m p t r o l l e r f o r d e s t r u c t i o n of an e q u a l amount of F e d e r a l r e s e r v e bank n o t e s ,




1864
- 37 CLEARING AND COLLECTION.
As e x p l a i n e d i n t h e r e p o r t of l a s t y e a r , t h e Board f o u n d t h a t
t h e i n t r o d u c t i o n of a g e n e r a l and e f f e c t i v e c l e a r a n c e and c o l l e c t i o n
s y s t e m was a h i g h l y t e c h n i c a l ' m a t t e r , i n v o l v i n g l e g a l q u e s t i o n s and many
c o m p l e x i t i e s of p r a c t i c e .

I t was c a l c u l a t e d t o a r o u s e t h e o p p o s i t i o n

of many t a n k s , due t o t h e l o s e of r e v e n u e from t h e exchange w h i c h t h e y
had been accustomed t o c h a r g e f o r r e m i t t a n c e s .

The Board a t f i r s t

thought best t h e r e f o r e , t o leave the a c t u a l i n i t i a t i v e in the m a t t e r
l a r g e l y t o t h e F e d e r a l r e s e r v e b a n k s , and a t t h e i r i n s t a n c e t o a u t h o r i z e
a v o l u n t a r y s y s t e m of c l e a r a n c e and c o l l e c t i o n i n which member banks might
or might not p a r t i c i p a t e , as they might p r e f e r .

Such a s y s t e m , a s e x -

p l a i n e d i n t h e B o a r d ' s a n n u a l r e p o r t of 1915; w a s , i n f a c t , i n a u g u r a t e d ,
and f o r a t i m e i t was hoped t h a t i t would p r o v e a t l e a s t m o d e r a t e l y
successful.

E x p e r i e n c e , however, soon showed t h a t many f a c t o r s were

m i l i t a t i n g s t r o n g l y a g a i n s t t h i s system.

The number of members d i d n o t

i n c r e a s e m a t e r i a l l y , and i n some d i s t r i c t s d e c l i n e d .

There were c o n -

d i t i o n s which i n d i c a t e d t h a t t h e e x i s t e n c e of t h e s y s t e m i n t h e form




±865

-

t h e n a d o p t e d was a h a r d s h i p t o c e r t a i n c l a s s e s of b a n k s , w h i l e t h e p l a n
d i d n o t a t t a i n , and seemed u n l i k e l y e v e r t o r e a c h , s u c h a p l a n e of e f ~
e i c i e n c y as t o make i t a g e n e r a l f a c t o r i n t h e c l e a r a n c e and c o l l e c t i o n
s y s t e m of t h e c o u n t r y .

F o r t h e s e f e as oils i t was d e c i d e d by t h e Board

d u r i n g t h e month of A p r i l , 1916, t o e s t a b l i s h a more c o m p r e h e n s i v e and
u n i f o r m s y s t e m , and i t c o n s e q u e n t l y a d o p t e d a p l a n of c l e a r i n g and
c o l l e c t i o n , i n f o r m i n g t h e s e v e r a l R e s e r v e Banks t h a t t h e y were e x p e c t e d
to put i t into e f f e c t .

I t was o r i g i n a l l y i n t e n d e d t o b e g i n o p e r a t i o n s

u n d e r t h e new p l a n on June 15, b u t s u b s e q u e n t e v e n t s made i t d e s i r a b l e
t o d e f e r t h i s d a t e f o r a month, so t h a t i t a c t u a l l y became o p e r a t i v e on
t h e f i f t e e n t h of J u l y , .

Under t h e new s y s t e m member b a n k s , a s l o n g a s

t h e y comply w i t h t h e s t a t u t o r y r e q u i r e m e n t s , may c o n t i n u e t o c a r r y
a c c o u n t s w i t h t h e i r p r e s e n t c o r r e s p o n d e n t s and w i t h o t h e r banks t o whom
t h e y may send i t e m s f o r c o l l e c t i o n , and from whom t h e y may r e c e i v e
f o r s i m i l a r p u r p o s e s , checks drawn upon t h e m s e l v e s o r upon o t h e r b a n k s .
They a r e , however, r e q u i r e d t o pay w i t h o u t d e d u c t i o n checks drawn upon
t h e m s e l v e s and p r e s e n t e d a t t h e i r own c o u n t e r s .




R e m i t t a n c e of s u c h

.1866
— jO ...

checks by the Federal reserve "bank of their district through the mail,
is construed as presentation at their own counters, and they must settle
with the Federal reserve bank for such checks, either by acceptable checks
upon other banks, or by remittance of lawful money or Federal reserve
notes at the expense of the Federal reserve bank, in case they are unable
to send in offsetting checks on other banks..

Checks drawn upon a

zpeipber bank which have been received by the Federal reserve bank, ate
not charged against i t s reserve account until sufficient time has
elapsed for the checks to have reached the member bank and for returns
to have been received in due course by the Federal reserve banks.
The Board's clearing plan provided also that a small service
charge (from one to two cents per item) be made at stated intervals
against such banks as send to the Federal reserve bank checks on other
banks for collection and credit; but it follows that no portion of this
charge can be assessed against any bank unless i t shall have elected to
avail itself of the f a c i l i t i e s offered. Federal reserve banks handle,
beside checks drawn on member banks, checks on such State banks as can




"be c o l l e c t e d a t p a r , and. meuber banks d e s i r i n g t o h a n d l e f o r a F e d e r a l
r e s e r v e "bank c h e c k s drawn on S t a t e "bank's, are- g i v e n t h e p r e f e r e n c e .
D u r i n g crop-moving p e r i o d s i t i s t h o u g h t t h a t t h i s w i l l toe a d i s t i n c t
a d v a n t a g e t o member b a n k s .
There i s no d i s p o s i t i o n t o d e p r i v e member banks of any income
t h a t t h e y have b e e n i n t h e h a b i t of r e c e i v i n g from t h e c o l l e c t i o n of
d r a f t s ( o t h e r t h a n bank c h e c k s ) o r from t h e p u r c h a s e o r d i s c o u n t of comm e r c i a l b i l l s of e x c h a n g e , and so t h e r e s h o u l d be no d i m i n u t i o n i n t h e
customary p r o f i t s of member banks from such s o u r c e s .
I t was e s t i m a t e d t h a t a s soon a s t h s new c l e a r i n g system could
be p u t i n t o o p e r a t i o n , checks upon a b o u t 15,000 n a t i o n a l b a n k s , S t a t e
b a n k s , and t r u s t companies t h r o u g h o u t t h e U n i t e d S t a t e s , c o u l d be h a n d l e d
by t h e F e d e r a l r e s e r v e banks a t p a r , s u b j e c t t o t h e s m a l l s e r v i c e chargeabove r e f e r r e d t o ; and a s a m i n o r i t y of t h e banks would f i n d i t d i f f i c u l t
t o r e t a i n much of t h e i r most d e s i r a b l e b u s i n e s s when c h e c k s drawn upon
them a r e a t a d i s c o u n t , w h i l e c h e c k s drawn upon t h e m a j o r i t y of banks
can c i r c u l a t e a t p a r , i t was t h o u g h t t h a t i n t h e n e a r f u t u r e checks upon



p r a c t i c a l l y a l l "banks Throughout the United S t a t e s c o u l d "be h a n d l e d a t
p a r by F e d e r a l r e s e r v e "banks.

Many banks have found i t n e c e s s a r y

h i t h e r t o t o m a i n t a i n "balances w i t h a number of c o r r e s p o n d e n t s f o r e x change p u r p o s e s , t h u s c o m p e l l i n g them t o keep e x c e s s i v e "balances away
f r o m home.

Under t h e new p l a n t h e number of "banks upon which p a r

c o l l e c t i o n s a r e "being made, was on December 15, w a r 1 5 , 0 0 0 ; w h i l e i n
o t h e r r e s p e c t s t h e system i s developing as a n t i c i p a t e d .

The t o t a l

d a i l y c l e a r a n c e s a t a l l F e d e r a l r e s e r v e banks a r e now over $125^000,000*
A f t e r November 17, 1917, or s o o n e r , s h o u l d t h e p r o p o s e d amendment be a d o p t e d , no bank b a l a n c e w i l l be a v a i l a b l e a s r e s e r v e f o r n a t i o n a l
banks e x c e p t b a l a n c e s i n F e d e r a l r e s e r v e banks., a n d , t h e r e f o r e , a f t e r
t h a t t i m e any n e c e s s i t y t o m a i n t a i n n o n - r e s e r v e "balances w i t h c o r r e s p o n d e n t s , e i t h e r f o r exchange p u r p o s e s o r i n o r d e r t o o b t a i n c o l l e c t i o n
f a c i l i t i e s , would be deemed i n many c a s e s a g r e a t h a r d s h i p .

It is

b e l i e v e d t h a t i n numerous i n s t a n c e s banks w i l l f i n d i t e x p e d i e n t t o
c o n c e n t r a t e t h e i r b a l a n c e s and t o c l o s e many a c c o u n t s which t h e y now
c a r r y w i t h o t h e r b a n k s , and t h a t a s y s t e m which w i l l e n a b l e them t o send




a l l of their checks on other "banks to the Federal reserve "banks for ex •
change purposes, or as an offset against checks on themselves forwarded
by the Federal reserve banks, will, in course of time, came to be appreciated as a convenience•
The following table shows briefly the clearing operations of
the Federal reserve system for the monthly period ending December 15j 1916,
with comparative figures for each of the four preceding months:




OPERATIONS OF THE FEDERAL RESERVE INTERDlSTRICT CLEARING SYSTEM
November 16 t o December 1 5 , 1916*

B a. n k .

Average
number
of i t e m s
handled

daily.

Average
Member
amount of banks
daily
in the

clearing

Nonmember
banks from
which checks
are collected

District at par.

Boston

38,479

$13,153,317

402

242

New York

42,551

28,307,438

625

313

Philadelphia

30,081

16,545,77%

632

292

Cleveland

15,873

8,320,355

754

496

Richmond

17,064

8,0o2,500

520

286

Atlanta

13,851

4,689,214

390

440

Chicago

(a)20,452

13,220,268

993

1,269

S t . Louis

10,039

8,402,904

469

881

Minneapolis

15,613

8,828,269

759

1,100

Kansas C i t y

13,782

7,791,296

941

1,412

Dallas

12,734

6,521,235

621

238

5,519

1,761,162

521

1,096

San F r a n c i s c o

Total wov. l6 to Dec. 15

236,038

125,603,732 7,627

8,065

Oct. 16 to Nov. 15

227,489

115,061,224 7,623

8,059

Sept.16 to Oct. 15

204,891

97,666,107 7,618

7,459

Aug. l6 to Sept.•15

177,397

78,559,704 7,618

7,449

July 15 to Aug. 15

133,113

59,301,696 7,624

7,032

( a ) Does n o t i n c l u d e Government checks a v e r a g i n g 2 , 0 6 2 .




1871
.

yi .

With t h e v i e w of. making t h e c l e a r i n g and. c o l l e c t i o n s y s t e m
more e f f e c t i v e and of e n a b l i n g c h e c k s drawn upon nonmember banks and
t r u s t companies t o "be h a n d l e d by F e d e r a l r e s e r v e banks i n t h e same manner
a s checks drawn upon members, t h e Board h a s a s k e d t h a t S e c t i o n 13 of
t h e Act be amended so a s t o a l l o w F e d e r a l r e s e r v e banks t o r e c e i v e
a c c o u n t s f o r c o l l e c t i o n and exchange p u r p o s e s from s u c h nonmember banks
and t r u s t companies a s w i l l a g r e e t o r e m i t t o

F e d e r a l r e s e r v e banks

a t p a r f o r c h e c k s drawn upon t h e m s e l v e s , and which w i l l , i n a d d i t i o n ,
m a i n t a i n a c o m p e n s a t i n g b a l a n c e w i t h t h e F e d e r a l r e s e r v e bank i n
*

an amount t o be d e t e r m i n e d by t h e R e s e r v e bank.

This w i l l g r e a t l y

e x t e n d and improve t h e s e r v i c e and w i l l make t h e c l e a r i n g s y s t e m a
comprehensive and a l l embracing o n e .




1872
BRANCH1*; 4m' A C W l i i S OF W D i M i , R2SE.WE rAUKS.

Of t h e c o n s t r u c t i v e s e c t i o n s of t h e F e d e r a l R e s e r v e Act
S e c t i o n 3, which p r o v i d e s f o r t h e e s t a b l i s h m e n t of b r a n c h b a n k s ,
is the s h o r t e s t .

I t i s as f o l l o w s :

"Each F e d e r a l r e s e r v e bank s h a l l e s t a b l i s h b r a n c h t .
banks w i t h i n t h e F e d e r a l r e s e r v e d i s t r i c t i n which i t
i s l o c a t e d and may do so i n t h e d i s t r i c t of any F e d e r a l
r e s e r v e bank which may have been s u s p e n d e d . Such b r a n c h e s s h a l l be o p e r a t e d by a Board of d i r e c t o r s u n d e r r u l e s
and r e g u l a t i o n s approved by t h e F e d e r a l R e s e r v e B o a r d .
D i r e c t o r s of "branch banks s h a l l p o s s e s s t h e same q u a l i f i c a t i o n s as d i r e c t o r s of F e d e r a l r e s e r v e b a n k s . Four of
s a i d d i r e c t o r s s h a l l be s e l e c t e d by t h e r e s e r v e bank and
t h r e e by t h e F e d e r a l Reserve Board, and t h e y s h a l l h o l d
o f f i c e d u r i n g t h e p l e a s u r e , r e s p e c t i v e l y , of t h e p a r e n t
bank and t h e F e d e r a l Reserve Board. The r e s e r v e bank
s h a l l d e s i g n a t e one of t h e d i r e c t o r s as m a n a g e r , n
In i t s

an n u al r e p o r t f o r 1915 t h e Board s t a t e d t h a t

o n l y i n one i n s t a n c e d i d i t r e c e i v e a d e f i n i t e r e q u e s t from a
F e d e r a l r e s e r v e bank t o e s t a b l i s h a b r a n c h .

This r e f e r s t o t h e

a p p l i c a t i o n of t h e F e d e r a l R e s e r v e Bank of A t l a n t a t o e s t a b l i s h
a b r a n c h i n New O r l e a n s ,

Up t o t h i s time no o t h e r F e d e r a l r e -

s e r v e bank h a s asked t h e s a n c t i o n of t h e Board f o r t h e e s t a b l i s h m e n t of a b r a n c h .

The e x p e n s e i n c i d e n t t o t h e o p e r a t i o n

of a b r a n c h i s no doubt a d e t e r r e n t . , and w h i l e t h e t e r m s of




Section 3 appear to "be mandatory as to the establishment of
branch banks, it will be observed that no time is specified
within which they must be established,

While it has been in-

timated to the Board that there are a few cities in some of
the districts +-hat wculd like to secure a branch of the Federal reserve bank, the only application that has been presented
to the Board has been one from the bankers of the city of
Louisville, asking that a branch of the Federal Reserve Bank of
St, Louis be established there,

A committee representing Louis

v i l l e b a n k e r s A a p p e a r e d b e f o r e t h e Board on December

and

presented arguments to support their application, but so far no
action has been taken by the Federal Reserve Bank of St.Louis,
and the Board has reached no conclusion in the matter.

The New

Orleans branch of the Federal Reserve Bank of Atlanta was estab
lished after a specific request had been made by the board of
directors of the Atlanta bank.




In accordance with this prece-

d e n t , and in view o± tae p r o v i s i o n of law w h i c h r e q u i r e s tn°.
F e d e r a l r e s e r v e banks t o e s t a b l i s h b r a n c h e s , w i t h o u t g i v i n g
t h e F e d e r a l R e s e r v e Board any d i r e c t a u t h o r i t y i n t h e m a t t e r
e x c e p t t o # approv9 n i l en and r e g u l a t i o n s u n d e r which t h e
b r a n c h e s s h a l l be o p e r a t e d , t h e Board has dtiubted t h e p f o j p r i e t y of t a k i n g s t e p s t o e s t a b l i s h b r a n c h e s u n t i l t h e movement had been i n i t i a t e d by t h e F e d e r a l r e s e r v e b a n k s .

When

t h e b r a n c h bank i n New O r l e a n s was e s t a b l i s h e d , member banks
i n L o u i s i a n a , i n M i s s i s s i p p i , and in two c o u n t i e s i n Alabama,
were a d v i s e d t h a t t h e y had b e e n a s s i g n e d t o t h e New O r l e a n s
s u b - d i s t r i c t , and t h a t t h e i r r e s e r v e s s h o u l d be k e p t w i t h t h e
b r a n c h bank a t New O r l e a n s , and t h a t a l l of t h e i r t r a n s a c t i o n s
w i t h t h e r e s e r v e bank should be conducted t h r o u g h i t .

The

amount of t h e c a p i t a l s t o c k in t h e F e d e r a l r e s e r v e bank of A t 1 m t a h e l d by t h e member banks a s s i g n e d t o t h e New O r l e a n s
b r a n c h i s r e g a r d e d f o r b o o k k e e p i n g p u r p o s e s as t h e t h e o r e t i c a l
capital.




The p r o f i t s a r i s i n g from t h e d i s c o u n t of p a p e r f o r

member banks from t h e p u r c h a s e of commercial p a p e r and b i l l s of
exchange and from t r a n s f e r s of f u n d s a r e shown on t h e books of
t h e b r a n c h bank frotn which a r e d e d u c t e d a l l e x p e n s e s bf o p e r a tion.

The income and e x p e n d i t u r e s of t h e b r a n c h bank* however,

a p p e a r each day on t h e b a l a n c e s h e e t of t h e p a r e n t bank*

During

t h e y e a r 1916 t h e g r o s s e a r n i n g s of t h e b r a n c h bank a t New O r l e a n s were $ 6 2 , 0 5 2 , and t h e t o t a l e x p e n s e s of o p e r a t i o n ,

includ-

i n g s a l a r i e s of employes, and d i r e c t o r s 1 f e e s , amounted t o
$ 2 8 , 6 4 5 , l e a v i n g a n e t p r o f i t t o t h e F e d e r a l R e s e r v e Bank of A t l a n t a from t h e o p e r a t i o n s of i t s New O r l e a n s b r a n c h of $ 3 3 , 4 0 7 ,
w h i c h p r o f i t amounts t o 7.5% on t h e t h e o r e t i c a l c a p i t a l of
$445,000 a l l o t t e d t o t h e New O r l e a n s b r a n c h .
I t i s f a i r t o assume t h a t a p o r t i o n a t l e a s t of t h e s e
p r o f i t s would h a v e a c c r u e d t o t h e F e d e r a l R e s e r v e Bank of A t l a n t a
had t h e r e b e e n no b r a n c h a t New O r l e a n s .

In view of e x p e r i e n c e

g a i n e d from t h e o p e r a t i o n of t h e one b r a n c h bank i n t h e e n t i r e s y s tem, i t seems t h a t i t would be w i s e , i n c o n s i d e r i n g t h e e s t a b l i s h -




ment of o t h e r b r a n c h e s , t o t a k e i n t o a c c o u n t w h e t h e r t h e y would
be r e a l l y s e l f - s u s t a i n i n g , i . e . , w h e t h e r t h e n e t p r o f i t s g r o w i n g o u t of t h e i r o p e r a t i o n would exceed t h e r e v e n u e t h a t would
a c c r u e i n any e v e n t t o t h e ' p a r e n t b a n k .
While t h e Board has n o t deemed i t n e c e s s a r y a t t h i s
t i m e t o ask f o r an amendment of S e c t i o n 3, i t w i l l p r o b a b l y be
w e l l , b e f o r e branches a r e e s t a b l i s h e d g e n e r a l l y , to ask f o r l e g i s l a t i o n t o s i m p l i f y t h e i r o p e r a t i o n , and t o r e d u c e t h e c o s t of
m a i n t a i n i n g them.
The Board h a s been i n f o r m e d t h a t many of t h e F e d e r a l
r e s e r v e banks a r e ready t o e s t a b l i s h a g e n c i e s o r o f f i c e s i n such
c i t i e s i n t h e i r d i s t r i c t s as may r e q u i r e s p e c i a l s e r v i c e s , s u c h
a s t h e c o l l e c t i o n of checks o r t h e making of l o a n s on w a r e h o u s e
receipts.

An agency of t h i s k i n d was e s t a b l i s h e d by t h e F e d e r a l

Reserve Bank of S t , L o u i s i n September l a s t ,

a t Memphis, T e n n e s s e e ,

and i t has p r o v e d c o n v e n i e n t t o t h e banks of t h a t c i t y i n t h e
h a n d l i n g of t h e c o t t o n c r o p .




-

±87?

50 -

OPERATIONS ABROAD.
The C l e a r i n g and c o l l e c t i o n system h a s now f a i r l y "begun i t s
p o t e n t i a l a c t i v i t i e s , and i t h a s d e m o n s t r a t e d t h a t t h e p r o v i s i o n s of t h e
F e d e r a l R e s e r v e Act r e l a t i n g t o t h i s f e a t u r e of t h e "business of F e d e r a l
r e s e r v e b a n k s , a r e f e a s i b l e and p r a c t i c a l ; and i t i s c o n f i d e n t l y e x p e c t e d t h e p r e s e n t y e a r w i l l w i t n e s s a g e n e r a l a c q u i e s e n c e i n i t and
i t s u s e by a l l banks *

With t h e c o m p l e t i o n 6f t h e c o l l e c t i o n and c l e a r -

i n g system* a l l t h e d o m e s t i c f u n c t i o n s of F e d e r a l r e s e r v e banks w i l l have
been a t l e a s e t e n t a t i v e l y u n d e r t a k e n , r e q u i r i n g o n l y a r e a s o n a b l e p e r i o d
of development f o r t h e i r complete a p p l i c a t i o n #

With r e g a r d t o t h e p r o -

v i s i o n s of t h e F e d e r a l R e s e r v e Act r e l a t i n g t o f o r e i g n t r a d e , t h e c a s e
is different.

While much h a s been done t o f a c i l i t a t e t h e f i n a n c i n g of

f o r e i g n t r a d e t h r o u g h t h e development of t h e a c c e p t a n c e m a r k e t and by
t h e e s t a b l i s h m e n t a b r o a d of American b a n k s , t h e p r o v i s i o n s of t h e Act
c a l l f o r t h e e s t a b l i s h m e n t of f o r e i g n a g e n c i e s o r b r a n c h e s of F e d e r a l
r e s e r v e banks have n o t a s y e t been p u t . i n t o o p e r a t i o n , n o r have t h e
r e s e r v e banks u n d e r t a k e n t h e d i r e c t p u r c h a s e of f o r e i g n commercial b i l l s ,




3 r- 51 -

or the performance of other functions relating to foreign transactions
authorized in the law*

This dealy has been due partly to the dis-

turbed condition of "business in markets,abroad,

and partly to the be-

lief that a sound and thorough application of the law in i t s domestic
aspects should naturally precede the undertaking of foreign operations
allowed by the Act*

The Board has, however, had under consideration

for some time, the advisability of authorizing Federal reserve banks to
appoint correspondents, and to establish agencies in foreign countries,
and on December 20th formally approved the application of the Federal
Reserve Bank of New York for authority to establish an agency with the
Bank of England.

This authority was granted under the provisions of

Section 14 of the Act which permit any Federal reserve bank "with the
consent of the Federal Reserve Board to open and maintain banking accounts
in foreign countries, appoint correspondents, and establish agencies in
such countries wheresoever it may deem best for the purpose of purchasing, selling and collecting bills of exchange and to buy and sell with
or without its endorsement through such correspondents or agencies




963
-52b i l l s of exchange a r i s i n g out of a c t u a l commercial t r a n s a c tions,
it*

tf

so t h a t a broad f i e l d of o p e r a t i o n s i s opened u n d e r

O t h e r F e d e r a l r e s e r v e banks may p a r t i c i p a t e in t h e

agency r e l a t i o n s h i p w i t h t h e Bank of England upon t h e same
t e r m s and c o n d i t i o n s t h a t w i l l govern t h e F e d e r a l R e s e r v e Bank
of New York, if

t h e y so d e s i r e .

O t h e r c o n n e c t i o n s of t h i s c h a r a c t e r w i l l p r o b a b l y
be a u t h o r i z e d from time t o t i m e as o c c a s i o n r e q u i r e s , t h u s
g i v i n g f u l l e f f e c t t o t h a t s e c t i o n of t h e F e d e r a l Reserve Act
which s e e k s t o r e l i e v e our b a n k i n g system of i t s o l d - t i m e r e s t r i c t i o n s and t o e x t e n d i t s u s e f u l n e s s t o t h e p r o m o t i o n of f
f o r e i g n t r a d e on f a v o r a b l e t e r m s .

Hitherto banking operations

c o n n e c t e d w i t h f o r e i g n t r a d e have been a l m o s t e n t i r e l y i n t h e
h a n d s of t r u s t companies and p r i v a t e b a n k e r s , b u t as f a r as t h e
f u t u r e i s c o n c e r n e d , t h e r e seems t o be no r e a s o n why t h e F e d e r a l
r e s e r v e banks s h o u l d not be p l a c e d upon p r a c t i c a l l y t h e same




963

f o o t i n g as t h e g r e a t Governmental banks of E u r o p e , and g i v e n
wide powers i n t h e m a t t e r of i n t e r n a t i o n a l e x c h a n g e , w i t h t h e
F e d e r a l R e s e r v e Board a c t i n g as t h e c e n t r a l c o n t r o l l i n g f o r c e
i n t h e c o o r d i n a t i o n and d i r e c t i o n of o p e r a t i o n s .

\




ENFORCEMENT OF THE CLAYTON ACT.
I m p o r t a n t d u t i e s r e l a t i v e t o t h e d e t e r m i n a t i o n of t h e
e l i g i b i l i t y of member "bank d i r e c t o r s , w e r e l a i d upon t h e F e d e r a l
R e s e r v e Board by t h e amendment t o t h e C l a y t o n A c t , known as t h e
"Kern amendment 11 , w h i c h became a law on May 15, 1916.

This l e g -

i s l a t i o n was i n t e n d e d t o p r o v i d e f o r an e n l a r g e m e n t of t h e powers
of i n d i v i d u a l s i n a c c e p t i n g and h o l d i n g bank d i r e c t o r a t e s .

It

a u t h o r i z e d s u c h i n d i v i d u a l s , when d i r e c t o r s of member b a n k s , t o
a c t a l s o as o f f i c e r s , d i r e c t o r s o r employes of n o t more t h a n two
e

o t h e r b a n k s , b a n k i n g a s s o c i a t i o n s , o r t r u s t c o m p a n i e s , when o r g a n i z e d u n d e r t h e laws of t h e United S t a t e s o r any S t a t e ,

"if

s u c h o t h e r b a n k , b a n k i n g a s s o c i a t i o n o r t r u s t company i s n o t i n
s u b s t a n t i a l c o m p e t i t i o n w i t h s u c h member b a n k . "

I t was, however,

r e q u i r e d t h a t t h e c o n s e n t of t h e F e d e r a l R e s e r v e Board be o b t a i n e d as a b a s i s f o r t h e c o n t i n u a n c e of such r e l a t i o n s w i t h
other banks.

T h i s t h r e w upon t h e Board as a c o n d i t i o n n e c e s s a r -

i l y p r e c e d e n t t o t h e g r a n t i n g o r w i t h h o l d i n g of i t s c o n s e n t i n




s u c h c a s e s , t h e d u t y of a s c e r t a i n i n g w h e t h e r t h e hanks i n w h i c h
an i n d i v i d u a l m i g h t s e e k t o h o l d d i r e c t o r s h i p s , were o r were n o t
i n s u b s t a n t i a l c o m p e t i t i o n w i t h t h e member bank of which s u c h
i n d i v i d u a l was a l s o a d i r e c t o r .

A s p e c i a l committee of t h e Board

passed in review the various a p p l i c a t i o n s f i l e d w i t h i t ,

this

work o c c u p y i n g a c o n s i d e r a b l e p a r t of t h e t i m e d u r i n g t h e months
of A u g u s t , S e p t e m b e r , and t h e f i r s t h a l f of O c t o b e r ; -

t h e Clay*

tori Act by i t s own terms becoming e f f e c t i v e on O c t o b e r 1 5 .

Dur-

i n g t h e p e r i o d i n q u e s t i o n t h e Board c o n s i d e r e d i n a l l 1335 a p p l i c a t i o n s of which 1195 were g r a n t e d , and 140 r e f u s e d *

In a

l a r g e number of a d d i t i o n a l c a s e s t h e d i r e c t o r s a f f e c t e d undoubtedl y recognized t h a t s u b s t a n t i a l competition did unquestionably
e x i s t and so w i t h d r e w from one o r more d i r e c t o r s h i p s , t h e r e b y
b r i n g i n g t h e m s e l v e s i n compliance w i t h t h e Act w i t h o u t any a p p e a l t o the F e d e r a l Reserve Board,

A d i f f i c u l t e l e m e n t was found

i n t h e p r o v i s i o n s of t h e C l a y t o n Act w h i c h p r o h i b i t a p r i v a t e
b a n k e r from h o l d i n g a d i r e c t o r s h i p in - a member b a n k .




Compliance

w i t h t h i s p r o h i b i t i o n n e c e s s a r i l y i n v o l v e d a d e f i n i t i o n of t h e
t e r m " p r i v a t e banker",, and the Board a c c o r d i n g l y a g r e e d upon such
a d e f i n i t i o n f o r i t s owr. g u i d a n c e i n p a s s i n g upon a p p l i c a t i o n s .
The terra p r i v a t e b x k e " was i n t e r p r e t e d t o i n c l u d e p a r t n e r s h i p s
o r i n d i v i d u a l s engaged, i n t h e b a n k i n g b u s i n e s s ,

as' t h e t e r m i s

generally understood, including thbse partnerships or individuals
who s o l i c i t o r r e c e i v e d e p o s i t s s u b j e c t t o c h e c k , who do a f o r e i g n
e x c h a n g e , a c c e p t a n c e , l o a n o r d i s c o u n t b u s i n e s s , o r who p u r c h a s e
and s e l l o r d i s t r i b u t e i s s u e s of s e c u r i t i e s by which c a p i t a l i s
f u r n i s h e d f o r business or p u b l i c e n t e r p r i s e .

The term was t h u s

i n t e r p r e t e d n o t t o i n c l u d e t h e o r d i n a r y s t o c k , n o t e o r commodity
b r o k e r u n l e s s a s u b s t a n t i a l p r o p o r t i o n of h i s p r o f i t s comes from
banking a c t i v i t i e s , nor did i t include p a r t n e r s h i p s or i n d i v i d u a l s
u s i n g only t h e i r own f u n i s i n making l o a n s o r i n v e s t m e n t s .
In a number of c a s e s d i f f i c u l t y was e n c o u n t e r e d in d e t e r m i n i n g t h e e x a c t s c o p e p r o p e r l y t o be a s s i g n e d t o t h e t e r m
" s u b s t a n t i a l competition", p a r t i c u l a r l y w i t h r e f e r e n c e to t h e




>

q u e s t i o n w h e t h e r such c o m p e t i t i o n must be r e g a r d e d as l i m i t e d
in area.

I t was found t h a t some l a r g e banks competing w i t h

one a n o t h e r o v e r a g i v e n a r e a d i d not compete t h r o u g h o u t t h e

whole f i e l d of t h e i r b u s i n e s s , some of them b e i n g n a t i o n a l i n
s c o p e , w h i l e o t h e r s c o n f i n e d t h e i r a c t i v i t i e s much more n a r r o w ly.

While i n some i n s t a n c e s i t was t h o u g h t b e s t t o g r a n t t h e

a p p l i c a t i o n s of d i r e c t o r s who were d e s i r o u s of s e r v i n g on t h e
b o a r d s of such b a n k s , i t was i n d i c a t e d i n e a c h c a s e t h a t t h e
c o n s e n t a c c o r d e d t o them was t e n t a t i v e o n l y , and t h a t f u r t h e r
i n v e s t i g a t i o n would be u n d e r t a k e n f o r t h e p u r p o s e of a r r i v i n g
at a f i n a l conclusion.

Indeed t h e whole of t h e B o a r d ' s work

w i t h r e f e r e n c e t o t h e a p p l i c a t i o n of t h e Kern amendment must
be r e g a r d e d as u n f i n i s h e d .

New f a c t s o r e v i d e n c e b e a r i n g upon

t h e b u s i n e s s of g i v e n i n s t i t u t i o n s may a t any t i m e d e v e l o p , o r
t h e n a t u r a l growth of the b u s i n e s s of g i v e n i n s t i t u t i o n s may
be such as t o b r i n g them i n t o s u b s t a n t i a l c o m p e t i t i o n , a l t h o u g h




t h e y were n o t p r e v i o u s l y

r e g a r d e d as b e i n g s o .

It w i l l , there -

f o r e , n a t u r a l l y be n e c e s s a r y from t i m e t o time t o r e v i s e t h e d e c i s i o n s a l r e a d y made, or c o n d i t i o n s may d e v e l o p s u c h as t o n e c e s s i t a t e t h e r e v o c a t i o n of t h e p e r m i s s i o n a l r e a d y g r a n t e d i n c e r I .
t a i n c a s e s , i n o r d e r t o d e a l a p p r o p r i a t e l y w i t h new c o n d i t i o n s ,
w i t h o u t , a t t h e same t i m e , s u b j e c t i n g some d i r e c t o r s t o a r u l e
d i f f e r e n t from t h a t a p p l i e d in t h e c a s e of o t h e r s .
new l e g i s l a t i o n ,

As i n a l l

t h e r e i s a c o n s i d e r a b l e zone of u n c e r t a i n t y i n

t h e i n t e r p r e t a t i o n and a p p l i c a t i o n of t h e C l a y t o n A c t .

It will

r e q u i r e e x p e r i e n c e and f u r t h e r a n a l y s i s t o overcome such u n c e r t a i n t i e s and t o a p p l y t h e t e r m s of t h e measure f a i r l y and u n i f o r m l y , w h i l e c a r r y i n g o u t t h e e s s e n t i a l i n t e n t of C o n g r e s s .




1886

- 58 --

ilFTRY OF HEW MEMBERS.

D u r i n g t h e y e a r l $ l 8 , I I 3 banks e n t e r e d t h e kedei*al R e s e r v e
s y s t e m , making a t o t a l of 7 , 6 3 5 members on December 3 I ;

Of t h e s e new

members 60 were newly o r g a n i z e d n a t i o n a l b a n k s , w h i c h , u n d e r e x i s t i n g
law,, a u t o m a t i c a l l y became members and t o o k out s t o c k i n t h e F e d e r a l r e s e r v e bank of t h e d i s t r i c t i n which t h e y were l o c a t e d .

Of t h e r e m a i n i n g

new members, 48 were S t a t e banks which e n t e r e d t h e system t h r o u g h t h e i r
c o n v e r s i o n i n t o n a t i o n a l b a n k s , t h e r e u p o n a u t o m a t i c a l l y becoming members#
S t a t e i n s t i t u t i o n s which a p p l i e d f o r and r e c e i v e d membership, w h i l e r e t a i n i n g t h e i r S t a t e c h a r t e r s , numbered 7•

I t had been supposed t h a t

upon t h e o r g a n i z a t i o n of t h e c l e a r i n g and c o l l e c t i o n s y s t e m , a c o n s i d e r a b l e
number of S t a t e i n s t i t u t i o n s would f i n d i t t o t h e i r a d v a n t a g e t o a p p l y
f o r membership, o r t h a t o t h e r f a c t o r s would t e n d t o b r i n g them i n t o
the system.

So f a r t h i s h a s n o t p r o v e d t o be t h e c a s e , f o r t h e number

of S t a t e i n s t i t u t i o n s which came i n t o t h e s y s t e m d u r i n g 1916 w h i l e r e t a i n i n g t h e i r l o c a l c h a r t e r s , was l e s s t h a n d u r i n g t h e p r e c e d i n g y e a r *
Many c a u s e s have o p e r a t e d t o p r o d u c e t h i s r e s u l t , t h e c h i e f




being those

- 59 -

a l r e a d y o u t l i n e d by t h e Board i n i t s r e p o r t f o r 1915*

Added t o t h e s e

c o n s i d e r a t i o n s h a s been t h e e f f e c t of t h e C l a y t o n A c t , which i s o b j e c t e d
t o by many S t a t e banks a s l i k e l y t o r e s u l t i n i n c o n v e n i e n t o r unde
s i r a b l e c h a n g e s i n t h e i r b o a r d s of d i r e c t o r s s h o u l d t h e y a f f i l i a t e them*s e l v e s w i t h t h e F e d e r a l r e s e r v e s y s t e p ; a n d the, o p e r a t i o n of S e c t i o n 22
of t h e F e d e r a l R e s e r v e A c t , which d e a l s w i t h t h e r e l a t i o n s of d i r e c t o r s
of member banks t o t h e i r i n s t i t u t i o n s *

The Board h a s s u g g e s t e d an

amendment t o t h i s s e c t i o n d e s i g n e d t o c l a r i f y i t and t o remove u n c e r t a i n ^
t i e s , w i t h o u t a f f e c t i n g i n any way i t s p r i n c i p l e *
A p p r e h e n s i o n of s t r i n g e n t c o n d i t i o n s o r t h e development of any
s i t u a t i o n r e q u i r i n g m u t u a l a i d on t h e p a r t of b a n k s , would u n d o u b t e d l y
c a u s e many nonmember banks t o a p p l y f o r membership, b u t i t i s n o t b e l i e v e d
t h a t they w i l l , as a r u l e , e l e c t t o await such c o n d i t i o n s .

There a r e

some i n d i c a t i o n s t h a t s e v e r a l i m p o r t a n t i n s t i t u t i o n s a r e awakening t o a
s e n s e of p u b l i c duty i n t h e m a t t e r , and a r e b e s i d e s , g r a d u a l l y r e a c h i n g
t h e c o n c l u s i o n t h a t t h e i r own b e s t i n t e r e s t s r e q u i r e t h e i r a f f i l i a t i o n
w i t h t h e F e d e r a l r e s e r v e system*



1888
— 6o —

Many a p p r e h e n s i o n s , p r e v i o u s l y e n t e r t a i n e d have b e e n shown t o be
g r o u n d l e s s , and t h e a t t i t u d e of t h e board t o w a r d S t a t e banks a s members

i s b e t t e r understood than formally#
In J u l y l a s t t h a Board a d v i s e d t h e r e p r e s e n t a t i v e s of c e r t a i n
S t a t e banks and t r u s t companies which were a p p r e h e n s i v e t h a t membership
i n t h e s y s t e m m i g h t i n v o l v e an undue r e s t r i c t i o n of t h e i r c o r p o r a t e
a c t i v i t i e s a s a r e s u l t of t h e f u t u r e r e g u l a t i o n s of t h e B o a r d , t h a t i t
d i d n o t u n d e r s t a n d t h a t i t was incumbent upon i t t o u n d e r t a k e t o impose
on t h e a c t i v i t i e s of member banks any r e s t r i c t i o n s t h a t a r e n o t contemp l a t e d by t h e A c t , b u t only t o p r e s c r i b e such r e g u l a t i o n s a s a r e d e s i g n e d
t o c a r r y out t h e p u r p o s e s of t h e Act*

The Board does n o t f e e l t h a t i t

i s one of i t s f u n c t i o n s t o u n d e r t a k e t o r e s t r i c t S t a t e banks o r t r u s t
companies i n t h e e x e r c i s e of b a n k i n g o r t r u s t company powers a s d e f i n e d
by t h e laws of t h e S t a t e i n which t h e y a r e c r e a t e d .

In p a s s i n g upon t h r

a p p l i c a t i o n s of S t a t e banks and t r u s t companies h o w e v e r , t h e Board h o l d s
t h a t i t would be i t s duty t o a d m i t only t h o s e i n s t i t u t i o n s which a r e




- ol -

s o l v e n t and sound and whose membership w i l l n o t c o n s t i t u t e a n e l e m e n t of
weakness i n t h e s y s t e m .

The fto&rd does n o t c o n s i d e r t h a t i t i s a p r e -

r e q u i s i t e t o t h e a d m i s s i o n of any S t a t e t a n k o r t t - u s t company t h a t ' i t
s h o u l d p o s s e s s any c e r t a i n amount of p a p e r e l i g i b l e f o r r e d i s c o u n t w i t h
a F e d e r a l r e s e r v e bank.

The l a w p r o v i d e s t h a t p r i v i l e g e s and a d v a n t a g e s

of membership may be e x t e n d e d t o S t a t e banks and t r u s t c o m p a n i e s , t h u s
c o n t e m p l a t i n g one compact b a n k i n g s y s t e m , w h i l e p r e s e r v i n g t h e i n t e g r i t y
of b o t h t h e S t a t e and t h e N a t i o n a l b a n k i n g s y s t e m s .

The f a c t t h a t a

S t a t e bank has l i t t l e e l i g i b l e p a p e r does n o t of i t s e l f make i t s members h i p a n element of weakness o r d a n g e r , and i t

i s o b v i o u s t h a t a s a member

of t h e s y s t e m i t w i l l be i n a p o s i t i o n t o c o n t r a c t f o r l o a n s and t o
o b t a i n c a s h from o t h e r member banks h a v i n g p a p e r e l i g i b l e f o r r e d i s c o u n t ,
and t h u s i n d i r e c t l y t o o b t a i n d e s i r e d accommodations.

The a b i l i t y t o

a s s i s t member banks d i r e c t l y and i n d i r e c t l y w i l l be i n c r e a s e d a s t h e
s t r e n g t h of t h e s y s t e m and l e n d i n g power of t h e F e d e r a l r e s e r v e banks
are increased.




There i s no r e a s o n why such a s s i s t a n c e s h o u l d n o t be

1890
-

62 -

g i v e n f r e e l y t o a member S t a t e t a n k ; w h i l e i n t i m e of s t r e s s t h e nonmember banks may f i n d t h e member banks n o t l e s s d i s p o s e d b u t l e s s a b l e
t
t o g i v e them t h i s i n d i r e c t a s s i s t a n c e .

The Board of c o u r s e m i g h t

c o n s i d e r t h e e x e r c i s e of e x t r a o r d i n a r y and u n u s u a l powers., s u c h a s
I

make, a n a p p l y i n g S t a t e bank o r t r u s t company an u n d e s i r a b l e member,
a s u f f i c i e n t reason to refuse t o grant the application f o r admission,
b u t a f t e r a S t a t e bank o r t r u s t company h a s a c t u a l l y become a member
bank, t h e Board does n o t e x p e c t t o i n t e r f e r e w i t h t h e e x e r c i s e of t h o s e
b a n k i n g and f i d u c i a r y powers a u t h o r i z e d by i t s c h a r t e r .




-63-

FIDUCIARY

953

1891

POWERS.

Applications f o r permission to e x e r c i s e f i d u c i a r y
powers utider t h e t e r m s of t h e F e d e r a l R e s e r v e Adt have c o n t i n u e d
t o be p r e s e n t e d t o t h e Board d u r i n g t h e p a s t y e a r , and have b e e n
g r a n t e d i n 110 c a s e s ,

a c t i o n on 77 of which c a r r i e d a p p r o v a l of

f u l l f i d u c i a r y p o w e r s , w h i l e i n t h e c a s e of 33 l i m i t e d powers
o n l y were g r a n t e d .

The f a l l i n g o f f in t h e m a t t e r of a p p l i c a -

t i o n s as compared w i t h t h e y e a r 1915, was p r o b a b l y due t o u n c e r t a i n t y as t o tie l e g a l s t a t u s of t h e banks i n e x e r c i s i n g t h i s
f u n c t i o n , t h e d o u b t s r e g a r d i n g i t h a v i n g been i n t e n s i f i e d by t h e
a c t i o n of t h e Supreme Court of t h e S t a t e of Michigan i n h a n d i n g
down,on S e p t e m b e r 26, an o p i n i o n a d v e r s e t o t h e c o n t e n t i o n of
the n a t i o n a l banks.*

I t was t h e view of t h e c o u r t i n t h i s c a s e

* G r a n t F e l l o w s , A t t o r n e y G e n e r a l of t h e S t a t e of M i c h i g a n , on
t h e r e l a t i o n of t h e Union T r u s t Company, D e t r o i t T r u s t Company,
S e c u r i t y T r u s t Company, M i c h i g a n T r u s t Company, and t h e Grand
R a p i d s T r u s t Company, vs t h e F i r s t N a t i o n a l Bank of Bay C i t y .




963

1893

-64t h a t Congress h a d no a u t h o r i t y t o p e r m i t n a t i o n a l i n s t i t u t i o n s
t o e x e r c i s e t h e f i d u c i a r y powers p r o v i d e d f o r i n t h e F e d e r a l Res e r v e A c t , and, i n a c c o r d a n c e w i t h t h e p o l i c y announced i n i t s

r e p o r t f o r 1915, t h e Board t o o k s t e p s t o have t h e c a s e t r a n s f e r r e d
t o t h e Supreme Court of t h e U n i t e d S t a t e s on a w r i t of e r r o r ,

in

o r d e r t h a t an a u t h o r i t a t i v e d e c i s i d i i m i g h t be f i n a l l y r e r i d d r e d i
I n t h e meantime t h e Board i s p u r s u i n g t h e p o l i c y of g r a n t i n g t o
p r o p e r l y q u a l i f i e d and w e l l - m a n a g e d banks t h e a u t h o r i t y t o e x e r c i s e f i d u c i a r y powers i n s o f a r a s p r o v i d e d by t h e F e d e r a l R e serve Act.

As h a s been e x p l a i n e d on f o r m e r o c c a s i o n s , t h e Board

cannot do l e s s t h a n g r a n t s p e c i f i c a l l y t h e powers t h a t h a v e been
bestowed g e n e r a l l y by Congress u n d e r t h e F e d e r a l R e s e r v e A c t ;

and

i n making s u c h g r a n t s , t h e Board m e r e l y c a r r i e s o u t t h e d u t i e s im~
p o s e d upon i t by t h e Act, l e a v i n v i t t o j u d i c i a l i n t e r p r e t a t i o n
how f a r and t o what e x t e n t t h e powers i n q u e s t i o n may l e g a l l y and
c o n s t i t u t i o n a l l y be e x e r c i s e d .

It will,

i n t h e n a t u r a l c o u r s e cf

e v e n t s , b e some t i m e b e f o r e t h i s i s s u e can be f i n a l l y d i s p o s e d of,.
and i n t h e meanwhile t h e Board w i l l c o n t i n u e t o p u r s u e i t s p r e s e n t
c o u r s e of a c t i o n .



j

1893
- 55 -

CHANGES IN DISTRICTS.

I n i t s r e p o r t f o r 1915 t h e Board s e t f o r t h t h e r e a s o n s t h a t
had l e d i t t o make c e r t a i n changes i n t h e b o u n d a r i e s of F e d e r a l r e s e r v e
d i s t r i c t s , and i t was t h e r e s t a t e d t h a t " f u r t h e r c o n s i d e r a t i o n of t h i s
• s u b j e c t was suspended i n v i e w of an o p i n i o n r e n d e r e d by t h e A t t o r n e y
G e n e r a l of t h e U n i t e d S t a t e s *

*

* w h e r e i n i t was h e l d t h a t t h e Board

p o s s e s s e d no power t o r e d u c e t h e number of F e d e r a l r e s e r v e d i s t r i c t s * n
The Board a l s o c a l l e d a t t e n t i o n t o t h e f a c t t h a t

n

a f u r t h e r o p i n i o n has

been a s k e d a s t o w h e t h e r t h e Board has power t o change t h e l o c a t i o n of
a F e d e r a l r e s e r v e bank w i t h i n a d i s t r i c t * 1 1

The o p i n i o n t h u s r e f e r r e d

t o was r e n d e r e d by t h e A t t o r n e y G e n e r a l on A p r i l 4 , l $ l 6 , and c o v e r e d
two p o i n t s ~
(1)

Whether t h e Board c o u l d change t h e p r e s e n t l o c a t i o n of any

F e d e r a l r e s e r v e bank i n c e r t a i n c a s e s , and
(2)

Whether t h e Board i n r e a d j u s t i n g d i s t r i c t l i n e s must p r e s e r v e

t h e $ 4 , 0 0 0 , 0 0 0 minimum c a p i t a l i s a t i o n r e q u i r e d of e a c h F e d e r a l r e s e r v e
bank*



- 66 -

1 8 M

The A t t o r n e y G e n e r a l h e l d t h a t t h e Board h a s no power t o
change t h e l o c a t i o n of a b a n k , i r r e s p e c t i v e of a l t e r a t i o n s o r r e a d j u s t ments i n d i s t r i c t l i n e s , bul t h a i t h e m a i n t e n a n c e of t h e minimum c a p i t a l i z a t i o n of $ 4 , 0 0 0 , 0 0 0 was n o t n e c e s s a r y «
The e f f e c t of t h i s r u l i n g was t o e l i m i n a t e from f u r t h e r c o n s i d e r a t i o n t h e p e n d i n g a p p e a l s which i n v o l v e d c h a n g e s i n t h e l o c a t i o n
of F e d e r a l r e s e r v e banks w i t h i n t h e i r d i s t r i c t s .

I n view of t h e

o p i n i o n of t h e A t t o r n e y G e n e r a l t h e r e remained b u t t h r e e a p p e a l s c a l l i n g
f o r immediate d e c i s i o n -

t h a t f i l e d by c e r t a i n C o n n e c t i c u t banks which

r e q u e s t e d t r a n s f e r from t h e Boston t o t h e New York D i s t r i c t ; t h a t f i l e d
by c e r t a i n banks i n W i s c o n s i n which r e q u e s t e d t r a n s f e r f r o m t h e M i n n e a p o l i s
t o t h e Chicago D i s t r i c t ; and t h a t f i l e d by c e r t a i n banks i n s o u t h e r n
L o u i s i a n a which r e q u e s t e d t r a n s f e r from t h e D a l l a s t o t h e A t l a n t a D i s t r i c t .
The L o u i s i a n a

a p p e a l was g r a n t e d by a r e s o l u t i o n a d o p t e d on F e b r u a r y 25 ti:

t r a n s f e r r i n g c e r t a i n banks a s d e s i r e d ; w h i l e t h e C o n n e c t i c u t a p p e a l
was d e t e r m i n e d by a r e s o l u t i o n on March 6 t h t r a n s f e r r i n g t h e s e banks




1895

u.

67 -

banks s i t u a t e d i n F a i r f i e l d County., C o n n e c t i c u t , t o t h e New York
D i s t r i c t , l e a v i n g t h e r e m a i n d e r of t h e C o n n e c t i c u t "banks a s members
o i y t h e F e d e r a l R e s e r v e Bank of B o s t o n .

The W i s c o n s i n a p p e a l

was s e t t l e d by an o r d e r of O c t o b e r 1 2 t h , t r a n s f e r r i n g t h e a p p l y i n g
"banks i n c e n t r a l and e a s t e r n W i s c o n s i n t o t h e C h i c a g o D i s t r i c t .




C

OPERATION

OF

THE

BOARD.

On August 1 0 / 1916, t h e F e d e r a l R e s e r v e Board had b e e n
i n e x i s t e n c e two y s a r s , and, u n d e r t h e p r o v i s i o n s of t h e Act
c r e a t i n g i t , t h e t e r m of one member came t o a c l o s e two y e a r s aft e r h i s o r i g i n a l appointment.

On J u l y 25 t h e P r e s i d e n t s e n t t o

t h e S e n a t e t h e n o m i n a t i o n of Honorable C h a r l e s S . Hamlin t o s u c ceed h i m s e l f as a member of t h e Board, t h e a p p o i n t m e n t b e i n g f o r
a t e r m of t e n y e a r s .

This n o m i n a t i o n was c o n f i r m e d on August 3 .

Mr. H a m l i n ' s t e r m u n d e r h i s e a r l i e r a p p o i n t m e n t e x p i r e d on Wedn e s d a y , August 9 ,

He q u a l i f i e d by t a k i n g t h e o a t h on August 10

Honorab le W. P . G. H a r d i n g was, on August 10, d e s i g n a t e d by t h e
P r e s i d e n t of t h e U n i t e d S t a t e s as Governor, and H o n o r a b l e P a u l
M. Warburg as V i c e - G o v e r n o r of t h e Board, b o t h " f o r a p e r i o d of
one y e a r , o r u n t i l o t h e r w i s e d i r e c t e d , "
The F e d e r a l Advisory C o u n c i l h a s h e l d i t s f o u r s t a t e d
m e e t i n g s d u r i n g t h e l a s t y e a r , and has d i s c u s s e d t o p i c s s u b m i t tei
t o i t by t h e B o a r d , a s w e l l as q u e s t i o n s r a i s e d by i t s own membe




*-69 *
p r e s e n t i n g r e s u l t s of t h e d i s c u s s i o n s t o t h e Board*

A report

of t h e p r o c e e d i n g s of t h e C o u n c i l i s appended h e r e t o a s E x h i b i t
11

11

.

C o n f e r e n c e s were h e l d a l s o by t h e F e d e r a l r e s e r v e

a g e n t s on May 29 and -pecember 4 , i n W a s h i n g t o n , t h e t i m e a t
t h e s e m e e t i n g s b e i n g d e v o t e d t o t h e c o n s i d e r a t i o n and a n a l y s i s
of q u e s t i o n s of c u r r e n t i n t e r e s t t o t h e F e d e r a l r e s e r v e b a n k s .
The m e e t i n g s of Governors of F e d e r a l r e s e r v e banks w h i c h have
t a k e n p l a c e a t i n t e r v a l s s i n c e t h e o r g a n i z a t i o n of t h e s y s t e m
have c o n t i n u e d , t h r e e s u c h m e e t i n g s h a v i n g been h e l d d u r i n g t h e
year*

The s t a f f and i n t e r n a l o r g a n i z a t i o n of t h e Board have
c o n t i n u e d w i t h o u t i m p o r t a n t m o d i f i c a t i o n , t h e p r i n c i p a l changes
b e i n g t h e b e t t e r development of

i t s o r g a n i z a t i o n , and t h e g r a d u a l

g r o w t h and e n l a r g e m e n t of t h e work*
the s t a f f

The p e r s o n n e l and s i z e of

r e m a i n s e s s e n t i a l l y u n a l t e r e d , and t h e c o s t of c o n d u c t -

i n g t h e B o a r d f s work, i n c l u d i n g members 1 s a l a r i e s and t h e t o t a l
o u t l a y a t t h e o f f i c e s i n W a s h i n g t o n , i n c l u s i v e of t h e c o r p s of




1898

. jj 0'e x a m i n e r s , i s s t i l l about $ 1 8 0 , 0 0 0 p e i annum - t h e e s t i m a t e d
f i g u r e m e n t i o n e d i n t h e r e p o r t f o r 1915.

The Gold S e t t l e m e n t

Fund, t o which r e f e r e n c e has b e e n made e l s e w h e r e i n t h i s r e p o r t ,
h a s g r e a t l y e n l a r g e d t h s volume of i t s c l e a r i n g , b u t w i t h o u t
c o r r e s p o n d i n g i n c r e a s e i n e x p e n s e of o p e r a t i o n , t h e c o s t f o r t h e
y e a r 1916 b e i n g a b o u t $ 2 , 5 0 0 , w h i l e t h e t o t a l volume of b u s i n e s s
c l e a r e d d u r i n g t h e y e a r has b e e n a b o u t $ 8 , 0 0 0 , 0 0 0 , 0 0 0 .

The Gold

S e t t l e m e n t Fund was o r i g i n a l l y c o n d u c t e d m e r e l y as a means of
s e t t l i n g between F e d e r a l r e s e r v e b a n k s , b u t i t s scope of o p e r a t i o n s has been e n l a r g e d by p r o v i d i n g a s i m i l a r f u n d f o r F e d e r a l
reserve agents,
fund i t s e l f .

conducted on t h e same p l a n as t h e Gold S e t t l e m e n t

This r e n d e r s p o s s i b l e t h e making of payments n o t

o n l y between F e d e r a l r e s e r v e b a n k s , b u t a l s o between t h e r e s e r v e
a g e n t s and t h e i r own b a n k s , w i t h o u t t h e n e c e s s i t y of s h i p p i n g
g o l d o r i t s e q u i v a l e n t back and f o r t h *
,

The F e d e r a l R e s e r v e B u l l e t i n h a s b e e n conducted t h r o u g h -

o u t t h e y e a r as d u r i n g t h e y e a r 1915, as a m o n t h l y p u b l i c a t i o n ,




and has b e e n e n l a r g e d i n s i z e ,

and b r o a d e n e d i n s c o p e i n r e s p o n s e

to the increasing public i n t e r e s t .

I t i s d i s t r i b u t e d f r e e of

c h a r g e t o a l l member b a n k s , b u t i t has a l s o a growing l i s t of
p a i d s u b s c r i b e r s among non-members and t h e f i n a n c i a l community
generally.

So f u l l y has t h e B u l l e t i n d e a l t w i t h a l l of t h e d e -

t a i l s of t h e o p e r a t i o n of t h e F e d e r a l r e s e r v e s y s t e m , t h a t i t
i s u n n e c e s s a r y t o r e p e a t them i n t h i s r e p o r t , a complete f i l e
of t h e B u l l e t i n i t s e l f b e i n g t r a n s m i t t e d as s u p p l e m e n t a r y t o t h e
information herein given.
EARNINGS AND EXPENSES.
The p a s t y e a r h a s shown a v e r y d e c i d e d improvement i n
t h e i n c o m e - e a r n i n g power of t h e F e d e r a l r e s e r v e b a n k s .

They have

b e e n a b l e t o p r o v i d e f o r t h e i r e x p e n s e s and t o c a r r y a s u b s t a n t i a l
amount t o d i v i d e n d a c c o u n t .

F o r t h e y e a r 1916, a s w i l l be s e e n i n

g r e a t e r d e t a i l from f i g u r e s f u r n i s h e d i n t h e e x h i b i t s t o t h i s r e p o r t , t h e c u r r e n t expenses of t h e s y s t e m were $




,

-72w h i l e t h e t o t a l n e t e a r n i n g s f o r t h e e n t i r e y e a r were $
The f o l l o w i n g t a b l e shows t h e d i v i d e n d d e c l a r e d by F e d e r a l r e s e r v e banks from t h e d a t e of t j i e i r o r g a n i z a t i o n down t o t h e
present time:
(insert table)
The f i g u r e s f o r t h e whole s y s t e m t o t h e end of 1916
show an a v e r a g e n e t e a r n i n g s i n c e t h e i r o r g a n i z a t i o n of

fo

on the c a p i t a l a c t u a l l y i n v o l v e d , w h i l e f o r t h e y e a r 1916 t h e y
show an a v e r a g e n e t e a r n i n g of

The advance i n e a r n i n g

power t h u s shown i s e s p e c i a l l y g r a t i f y i n g when i t i s remembered
t h a t d i s c o u n t r a t e s have c o n t i n u e d low, b e i n g p r a c t i c a l l y no
h i g h e r t h a n t h e y w e r e in 1915;

w h i l e b o t h y e a r s have been e x -

ceptionally unfavorable for rediscount i n s t i t u t i o n s ,

owing t o

t h e g r e a t p l e t h o r a of f u n d s in t h e v a u l t s of member banks g e n e r ally,

t h e c o n s e q u e n t low r a t e s of i n t e r e s t and t h e l a c k of need

f o r member banks t o o b t a i n accommodation.




The a v e r a g e " r e d i s c o u n t s u of a l l n a t i o n a l banks a s shown
by f i v e a b s t r a c t s i s s u e d by t h e C o m p t r o l l e r of t h e C u r r e n c y i n 1916
were $

.

Of t h i s amount $

,

or

were r e d i s c o u n t s w i t h t h e F e d e r a l r e s e r v e b a n k s .
The F e d e r a l r e s e r v e banks have n o t b e e n o p e r a t e d w i t h a
v i e w t o p r o f i t , b u t t h e y have a l l e a r n e d t h e i r e x p e n s e s , t o g e t h e r
w i t h a s u b s t a n t i a l p a r t of t h e i f d i v i d e n d r e q u i r e m e n t s .

They a p p e a r

t o have g a i n e d s t e a d i l y iti t h e c o n f i d e n c e Of t h e p u b l i c , and t h e
f a c t of t h e i r e x i s t e n c e has e n a b l e d t h e c o u n t r y t o w i t h s t a n d , w i t h out t h e s l i g h t e s t f i n a n c i a l d i s t u r b a n c e and w i t h o u t any marked f l u c t u a t i o n s i n r a t e s f o r commercial p a p e r , many s h o c k s and s e n s a t i o n s
w h i c h * p r o b a b l y would, u n d e r o l d c o n d i t i o n s , have b e e n f o l l o w e d by
unpleasant r e s u l t s .

The F e d e r a l r e s e r v e s y s t e m i s no l o n g e r l o o k e d
\

upon a s a n e p h e m e r a l e x p e r i m e n t .

I t has b e e n e s t a b l i s h e d upon a

f i r m and e n d u r i n g f o u n d a t i o n , and i t has b e e n d e m o n s t r a t e d r e p e a t e d l y
t h a t i t i s n o t b e i n g c o n d u c t e d f o r t h e p a r t i c u l a r b e n e f i t of any




1902
963.
- 73 a -

group or i n t e r e s t , b u t t h a t t h e p o l i c i e s g o v e r n i n g i t s o p e r a t i o n
a r e , and must c o n t i n u e t o b e , "broad enough t o serve., w i t h o u t d i s c r i m i n a t i o n o r f a v o r , t h e banks and t h o s e who d e a l w i t h banks
throughout t h e e n t i r e country.
tive,

While r e g u l a t o r y and c o n s e r v a -

i t i s none t h e l e s s a c o n s t r u c t i v e f o r c e , and when c o n d i -

t i o n s t h r o u g h o u t t h e world become more n o r m a l , t h e Fedeiral r e s e r v e
s y s t e m w i l l be r e c o g n i z e d , n o t o n l y a s a dominant f a c t o r i n our
own f i n a n c i a l a f f a i r s , b u t a s a most i m p o r t a n t i n f l u e n c e i n t h e commerce of t h e w o r l d .




PROPOSED AMENDMENTS.

The most i m p o r t a n t c h a n g e s i n t h e Act t h a t have been s u g g e s t e d
by t h e Board and w h i c h r e l a t e t o n o t e i s s u e s and t o r e s e r v e s * have a l r e a d y been d i s c u s s e d a t an e a r l i e r p o i n t i n t h i s r e p o r t undei - t h e h e a d i n g of c o n s e r v a t i o n of g o l d s u p p l y ; b u t f o r c o n v e n i e n t r e f e r e n c e we
append a complete l i s t of t h e B o a r d ' s . Amendments,, t h e t e x of which has
b e e n s u b m i t t e d t o t h e p r o p e r committees 6f t h e S e n a t e and House.
1.

Amendment t p S e c t i o n 16, p r o v i d i n g
( a ) For t h e i s s u e of F e d e r a l r e s e r v e n o t e s d i r e c t l y
a g a i n s t t h e d e p o s i t of 100$ g o l d o r 100$ of p a p e r ,
o r b o t h , t h e g o l d r e s e r v e i n no e v e n t t o be b e l o w 40$.
( b ) F o r t h e c o u n t i n g of g o l d h e l d by t h e F e d e r a l R e s e r v e
Agents a s s e c u r i t y , f o r n o t e s a s p a r t of t h e g o l d r e s e r v e R e q u i r e d t o be h e l d by t h e banks a g a i n s t s u c h
Federal reserve notes.

1

This amendment was n o t a g r e e d t o u n a n i m o u s l y , b u t was a p p r o v e d

and e n d o r s e d by a maj o r i t y of t h e Board.

I t s p u r p o s e h a s a l r e a d y been

discussed a t length elsewhere i n t h i s r e p o r t .
2.




Amendment of S e c t i o n 19 a b b r e v i a t i n g and s i m p l i f y i n g t h e

1904

c l a u s e s i n S e c t i o n 19 which r e l a t e t o r e s e r v e r e q u i r e m e n t s .

This p r o -

posed amendment p r o v i d e s T,hat a l l member "banks s h a l l m a i n t a i n r e s e r v e s
i n t h e F e d e r a l r e s e r v e banks a s f o l l o w s :
A g a i n s t Deimand A g a i n s t Tizni>
i)ep6gits
. .Deposits
( a ) Country Banks
( b ) R e s e r v e C i t y Banks
( c ) C e n t r a l R e s e r v e C i t y Banks

3$

and i n a d d i t i o n e v e r y member bank i s r e q u i r e d t o keep i n i t s own v a u l t
f o r t i l l money an amount of s p e c i e or c u r r e n c y ( n o t n e c e s s a r i l y g o l d
o r l a w f u l money) e q u a l t o f i v e p e r c e n t of i t s demand d e p o s i t s , l e s s
t h e amount of n e t b a l a n c e s w i t h F e d e r a l r e s e r v e banks i n e x c e s s of t h e
minimum above s t i p u l a t e d .
3*

Amendment, of S e c t i o n 1 1 s o a s t o p e r m i t t h e F e d e r a l R e s e r v e

Board t o r a i s e r e s e r v e r e q u i r e m e n t s i n e m e r g e n c i e s , j u s t a s i t i s now
empowered i n c e r t a i n c o n t i n g e n c i e s of a d i f f e r e n t k i n d




t o lower t h o s e

- 76 -

requirements.
This p r o v i s i o n would, i f a d o p t e d , e n a b l e t h e F e d e r a l Res e r v e Board i n p r o l o n g e d p e r i o d s ©f extreme c a s e i n t h e money m a r k e t
t o check any t e n d e n c y t o w a r d e x c e s s i v e l e a n s of b t h e r f 6Jfais of undue
e x t e n s i o n s of c r e d i t *
4«

Amendment of S e c t i o n 16 t o p e r m i t nonmezaber S t a t e "banks and

t r u s t companies, even though t o o s m a l l t o be e l i g i b l e f o r membership,
i n t h e F e d e r a l r e s e r v e banks, t o a v a i l t h e m s e l v e s of t h e c l e a v i n g and
c o l l e c t i o n f a c i l i t i e s of t h e F e d e r a l r e s e r v e b a n k s , p r o v i d e d t h a t
t h e y c o v e r a t p a r checks cn t h e m s e l v e s s e n t f o r c o l l e c t i o n by t h e
F e d e r a l r e s e r v e b a n k , , and p r o v i d e d f u r t h e r t h a t t h e y keep a compenthe
s a t i n g b a l a n c e w i t h / F e d e r a l r e s e r v e bank i n an amount t o be d e t e r m i n e d
u n d e r r u l e s p r e s c r i b e d by t h e F e d e r a l R e s e r v e Board*

This i s not i n -

t e n d e d t o o p e r a t e a s an e x t e n s i o n of any of t h e p r i v i l e g e s of t h e
F e d e r a l r e s e r v e s y s t e m t o nonmember banks a t t h e e x p e n s e of members




1906
963.

- 77 -

Taut on t h e c o n t r a r y t h e amendrneht i s proposed, p r i m a r i l y f o r t h e c o n v e n i e n c e of t h e p u b l i c and i n c i d e n t a l l y f o r t h e " b e n e f i t of t h e member
banks.

I t i s c o n t e m p l a t e d t h a t t h e c o m p e n s a t i n g b a l a n c e s which n o n -

member banks p a r t i c i p a t i n g i n t h e c l e a r i n g p l a n w i l l be r e q u i r e d t o
keep w i t h F e d e r a l r e s e r v e b a n k s , w i l l be s u f f i c i e n t l y l a r g e t o p r o t e c t
member banks a g a i n s t

d i s c r i m i n a t i o n , and i t i s d e s i g n e d t o e n a b l e

t h e F e d e r a l r e s e r v e banks t o c o l l e c t a l l checks a t p a r , w h e t h e r t h e y
a r e drawn upon member banks o r nonmember b t a t e bangs and t r u s t c o m p a n i e s .
Any c l e a r i n g and c o l l e c t i o n p l a n t o be e f f e c t i v e must be s o comprehens i v e as t o i n c l u d e g,ll checks.

At p r e s e n t t h e p a r l i s t s of t h e

F e d e r a l r e s e r v e banks i n c l u d e p o i n t s t h a t can be c o l l e c t e d i n any
c i r c u m s t a n c e s a t a minimum of t i m e and e x p e n s e , b u t do n o t embrace
a l a r g e number of towns i n e v e r y S t a t e where t h e r e a r e no member
b a n k s ; and i n o r d e r t o make c o l l e c t i o n s on s u c h p o i n t s many banks
are obliged t o maintain accounts in a d d i t i o n t o t h e i r reserve accounts




363.
— 78 *-

w i t h , t h e Federal reserve banks.

A n e c e s s a r y f a c t o r i n any sound c l e a r -

i n g p l a n i s t h e o f f s e t , whereby b a l a n c e s only r e q u i r e s e t t l e m e n t i n s t e a d
of t h e t o t a l volume of t r a n s a c t i o n s .

As l o n g a s t h e c l e a r i n g system

does n o t embrace a l l of t h e banks t h i s o f f s e t i s l o s t i n a c o r r e s p o n d i n g degree and t h e v a l u e of t h e system d i m i n i s h e d i n p r o p o r t i o n *
5«

Amendment of S e c t i o n 22 - t h e p e n a l s t a t u t e ~ so a s t o d e f i n e

more c l e a r l y t h e r i g h t s and l i m i t a t i o n s ^f d i r e c t o r s i n t h e m a t t e r of
a c c e p t i n g f e e s o r compensation o t h e r t h a n t h e o r d i n a r y f e e s p a i d d i r e c t o r s f o r l e g i t i m a t e s e r v i c e s * r e n d e r e d i n t h e r e g u l a r course of b u s i n e s s , t h e p e r f o r m a n c e of which s e r v i c e i s not incumbent upon them i n
t h e i r c a p a c i t y as d i r e c t o r s .
6*

Amendment of S e c t i o n 13 t o r e s t o r e t h e p r o v i s i o n which was by

e r r o r s t r i c k e n from t h e Act i n t h e amendments of September 7., i g i 6 , t h u s
r e s t o r i n g t o n a t i o n a l banks^ w i t h t h e a p p r o v a l of t h e F e d e r a l Reserve
Board, t h e r i g h t t o a c c e p t up t o 100$ of
t r a n s a c t i o n s involving imports or exports,

t h e i r c a p i t a l and s u r p l u s i n
This f n a t u r e was i n t h e law

b u t was i n a d v e r t e n t l y o m i t t e d when t h e Act war amended on September

1916.



7.

Amending nu us "Section 17 t c c a n c e l t h e p r o v i s i o n of

t h e N a t i o n a l Bank Act which r e q u i r e s n a t i o n a l banks t o m a i n t a i n
a minimum d e p o s i t oi; Government bonds w i t h t h e T r e a s u r e r of t h e
United S t a t e s ,

N a t i o n a l banks a r e no l o n g e r r e q u i r e d t o keep

o u t s t a n d i n g a minimum amount of c i r c u l a t i n g n o t e s , and a newly
o r g a n i z e d bank i s not o b l i g e d t o p u r c h a s e o r c a r r y any bonds
of the United S t a t e s ;

b u t t h e r e a r e a number of n a t i o n a l banks

o r g a n i z e d b e f o r e t h e p a s s a g e of t h e FederalrrReserve Act which
have r e t i r e d t h e i r n a t i o n a l bank c i r c u l a t i o n i n f u l l , y e t t h e y
a r e , u n d e r a c o n s t r u c t i o n of t h e old law, r e q u i r e d t o keep on
d e p o s i t w i t h t h e T r e a s u r e r of t h e United S t a t e s , a c e r t a i n m i a imum of United S t a t e s bonds.

The Board f e e l s t h a t i t i s j u s t

t o t h e s e banks t h a t t h e y be r e l i e v e d of t h i s o b l i g a t i o n .
8.

Amendment of S e c t i o n 25 t o a u t h o r i z e member banks

l o c a t e d i n c i t i e s of more t h a n 100,000 p o p u l a t i o n and which have
a c a p i t a l and s u r p l u s of more t h a n $ 1 , 0 0 0 , 0 0 0 t o e s t a b l i s h b r a n c h e s
i n t h e same c i t y , provided t h e S t a t e laws do n o t p r o h i b i t S t a t e




963
-80-

banks and t r u s t cotapariies from e s t a b l i s h i n g b r a n c h e s <
9;

Amendment of S e c t i o n 9 t„o a u t h o r i z e m u t u a l s a v i n g s

banks n o t h a v i n g c a p i t a l d t o c k t o become a s s o c i a t e members of
t h e Federal r e s e r v e system under c e r t a i n p r e s c r i b e d Conditions.
The p r i n c i p a l b e n e f i c i a r i e s of t h i s amendment would be t h e mut u a l s a v i n g s banks of t h e e a s t e r n and New England S t a t e s , which
can n o t become members of t h e F e d e r a l r e s e r v e s y s t e m u n d e r t h e
p r e s e n t law owing t o t h e l a c k of any p r o v i s i o n e n a b l i n g them t o
s u b s c r i b e f o r c a p i t a l s t o c k of a F e d e r a l r e s e r v e b a n k ,

as they

have no c a p i t a l i z a t i o n of t h e i r own upon which a p e r c e n t a g e could
be b a s e d .

They would be r e q u i r e d t o c a r r y a r e s e r v e b a l a n c e w i t h

t h e G e d e r a l r e s e r v e bank a g a i n s t t h e i r t i m e d e p o s i t s i n t h e same
p r o p o r t i o n a s member b a j i k s j

and t h e accommodations p r o p o s e d f o r

m u t u a l s a v i n g s banks a r e l i m i t e d s t r i c t l y t o t h e d i s c o u n t of t h e i r
thirty-day obligations properly secured.
10.




Amendment of S e c t i o n 18 so a s t o g i v e t o United S t a t e s

o n e - y e a r 3% g o l d n o t e s i n t h e hands of F e d e r a l r e s e r v e banks
t h e c i r c u l a t i o n p r i v i l e g e f o r t h e i s s u a n c e of F e d e r a l r e s e r v e
bank n o t e s , s u c h c i r c u l a t i o n t o be t a x e d a t t h e same r a t e as
c i r c u l a t i n g n o t e s , which a r e s e c u r e d by
States.

bonds of t h e U n i t e d

In t h e o p i n i o n of t h e Board i t i s d e s i r a b l e t o e x t e n d

t h i s p r i v i l e g e t o t h e F e d e r a l r e s e r v e banks i n o r d e r t h a t t h e y
may h a v e a d d i t i o n a l means of p r o t e c t i n g t h e m s e l v e s a t t i m e s
when t h e r e i s an u n u s u a l demand f o r c u r r e n c y .
11.

Amendment of S e c t i o n 4 t o a b o l i s h t h e t i t l e and o f -

f i c e of d e p u t y f e d e r a l r e s e r v e a g e n t , t h u s h a v i n g two u n a t t a c h e d
C l a s s "C" d i r e c t o r s i n s t e a d of one as a t p r e s e n t , and t o c r e a t e
t h e p o s i t i o n of a s s i s t a n t f e d e r a l r e s e r v e a g e n t , who s h a l l n o t
be a d i r e c t o r of t h e bank, b u t who s h a l l b e a s a l a r i e d bonded o f f i c e r in the F e d e r a l r e s e r v e a g e n t ' s department, s e r v i n g a t a l l
t i m e s as an a s s i s t a n t t o t h e F e d e r a l r e s e r v e a g e n t and q u a l i f i e d
t o a c t f o r t h e agent in h i s absence.

E x p e r i e n c e h a s shown t h a t

t h e r e i s d i f f i c u l t y i n f i l l i n g t h e o f f i c e of d e p u t y F e d e r a l r e -




963
-82-

serve agent.

This o f f i c e r i s r e q u i r e d t o h a v e t h e same q u a l i f i -

c a t i o n s as t h e F e d e r a l r e s e r v e a g e n t ;

he must have had b a n k i n g

e x p e r i e n c e and he must n o t be an o f f i c e r , d i r e c t o r , o r s t o c k h o l d e r
i n any b a n k .

At t h e same t i m e he i s n o t a s a r u l e , a s a l a r i e d o f -

f i c e r , and r e c e i v e s only t h e customary f e e p a i d d i r e c t o r s f o r a t t e n d a n c e upon m e e t i n g s , and he i s o b l i g e d t o be p r e p a r e d t o assume
t h e d u t i e s of t h e F e d e r a l

r e s e r v e a g e n t i n c a s e of t h e a b s e n c e o r

d i s a b i l i t y of t h a t o f f i c e r , which i n v o l v e s a t r a n s f e r and a u d i t
of s e c u r i t i e s and a c c o u n t s .

I t i s b e l i e v e d t h a t t h e change s u g -

g e s t e d w i l l o p e r a t e t o f i x r e s p o n s i b i l i t y more d e f i n i t e l y and
w i l l g i v e t h e Board more l a t i t u d e in t h e s e l e c t i o n of t h e C l a s s
"C" d i r e c t o r s o t h e r t h a n t h e F e d e r a l r e s e r v e a g e n t .




1912
W . P . G . H A R D I N G , GOVERNOR
P A U L M. W A R B U R G , VICE GOVERNOR
F R E D E R I C A. DELANO
ADOLPH C. MILLER
C H A R L E S S . HAMLIN

EX-OFFICIO MEMBERS
WILLIAM 6 . McADOO
SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N . ASST. SECRETARY
AND FISCAL AGENT
A D D R E S S REPLY TO
FEDERAL

R E S E R ^ ^ O A R D

J a n u a r y 11, 1917 •

F e d e r a l R e s e r v e Bank,

Gentlemen:
We u n d e r s t a n d t h a t t h e w e e k l y r e p o r t s f o r t h e g o l d
s e t t l e m e n t f u n d a s f o r w a r d e d now, r e p r e s e n t t h e c r e d i t s i n a
s i n g l e a c c o u n t which y o u c a r r y w i t h e a c h o t h e r F e d e r a l r e s e r v e
bank.
You h n v s , no d o u b t , c o n s i d e r e d t h e a e s i r a b i l i t y of
r e p o r t i n g , i n s t e a d of t h e c r e d i t amount f o r e a c h a c c o u n t , m e r e l y
t h e n e t amounts i n a c c o u n t s where t h e b a l a n c e i s i n f a v o r of
a n o t h e r F e d e r a l r e s e r v e bank.
The o b s t a c l e zo be e n c o u n t e r e d
i n t h i s c o n n e c t i o n i s , of c o u r s e , t h e d i f f i c u l t y of h a v i n g t h e
time s c h e d u l e s s o o p e r a t e d as t o s e c u r e e x a c t agreement a t any
moment b e t w e e n t h e a c c o u n t s of t h e v a r i o u s b a n k s , b u t t h e b e n e f i t s of r e p o r t i n g t h e s m a l l e r number of i t e m s a r e s o o b v i o u s
t h a t we t h i n k i t d e s i r a b l e t o e n d e a v o r t o a s c e r t a i n how c l o s e l y
t h e v a r i o u s a c c o u n t s would a g r e e .
To t h i s e n d , we r e q u e s t t h a t , i n a d d i t i o n t o s e n d i n g
t h e r e g u l a r weekly t e l e g r a m a s a t p r e s e n t , you f o r w a r d by m a i l
e a c h Wednesday e v e n i n g f o r some l i t t l e t i m e t o come, a memorandum of t h e n e t amount s t a n d i n g t o t h e d e b i t o r c r e d i t of e a c h
of t h e o t h e r F e d e r a l r e s e r v e b a n k s .
I n t h i s way, we can s o o n
d e t e r m i n e w h e t h e r or n o t a r e p o r t b a s e d or. o n l y t h e n e t c r e d i t
b a l a n c e s would be s a t i s f a c t o r y .
Very t r u l y y o u r s ,

Assistant Secretary.

>




3W . P . 6 . H A R D I N G , GOVERNOR
P A U L M. W A R B U R G , VICE GOVERNOR
F R E D E R I C A. DELANO
ADOLPH C. MILLER
C H A R L E S S . HAMLIN

EX-OFFICIO MEMBERS
W I L L I A M G . McADOO
SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S , PEFRETARY
S H E R M A N P . ALLEN V.ALS^F.- SECRETARY
AND FISCAL AGENT
ADDRESS REPLY TO
FEDERAL

J a n u a r y 1 0 , 191%.

Dear S i r :
T h i s w i l l c a l l a t t e n t i o n t o t h e f a c t t h a t copy f o r
b u s i n e s s c o n d i t i o n s t o be u s e d i n t h e F e d e r a l R e s e r v e B u l l e t i n ,
f o r F e b r u a r y s h o u l d be i n t h e o f f i c e s of t h e F e d e r a l R e s e r v e
Board n o t l a t e r t h a n J a n u a r y 2 4 , I 9 I 7 .

With t h i s copy, p l e a s e

s e n d t h e u s u a l i n f o r m a t i o n &s t o c l e a r i n g e p e r a t i o n s on which
t h e summary f o r t h e B u l l e t i n i s made u p , and do n o t f a i l t o
i n c l u d e t h e summary of b u s i n e s s c o n d i t i o n s upon t h e s l i p s f u r n i s h e d you f o r t h e p u r p o s e .
Because of t h e f a c t t h a t p a p e r and o t h e r c o s t s have
i n c r e a s e d , t h e Board d e s i r e s t o r e d u c e t h e s i z e and c o s t of
t h e B u l l e t i n a s much a s p o s s i b l e .

You a r e , t h e r e f o r e , r e q u e s t e d

t o l i m i t y o u r s t a t e m e n t of b u s i n e s s c o n d i t i o n s t o n o t more t h a n
one t h o u s a n d w o r d s , u n l e s s some u n u s u a l c o n d i t i o n h a s a r i s e n i n
your d i s t r i c t which w a r r a n t s




e x t e n s i o n of y o u r d i s c u s s i o n .

Very r e s p e c t f u l l y ,

Secretary.

RESERVE BOARD

TOR RELEASE IN MORNING PAPERS. JANUARY 1 4 , 1 9 1 7 .

PRESS

STATEMENT.
January 13, 1917.

A f t e r h a v i n g g i v e n much a t t e n t i o n t o t h e p r o b l e m of c o n t r o l l i n g and. r e g u l a t i n g t h e gold s u p p l y of t h e U n i t e d S t a t e s and
t o t h e q u e s t i o n of bank r e s e r v e s i n g e n e r a l , t h e F e d e r a l R e s e r v e
Board, h a s p r e p a r e d and t r a n s m i t t e d t o t h e Chairmen of t h e Committees
on Banking and C u r r e n c y of t h e S e n a t e and House of R e p r e s e n t a t i v e s
recommendations f o r t h e amendment of t h e F e d e r a l R e s e r v e A c t . While
i t i s n o t deemed d e s i r a b l e t o g i v e o u t t h e t e x t of t h e amendments
t r a n s m i t t e d j s i n c e t h e y w i l l p r o b a b l y soon be i n t r o d u c e d i n Congress
t h e f o l l o w i n g g e n e r a l s t a t e m e n t c o n c e r n i n g them i s made p u b l i c .
When t h e F e d e r a l R e s e r v e Act was d r a f t e d i t s p r i n c i p a l
o b j e c t was t o d e a l w i t h n a t i o n a l problems of b a n k i n g and c u r r e n c y .
S i n c e i t s e n a c t m e n t f i n a n c i a l and economic c o n d i t i o n s i n t h e U n i t e d
S t a t e s have u n d e r g o n e f a r - r e a c h i n g changes which were n o t f o r e s e e n
t h r e e y e a r s a g o . The United S t a t e s h a s grown t o b e a w o r l d power
i n f i n a n c i a l a f f a i r s and i t seems n e c e s s a r y t h a t t h e A c t , w h i c h h a s
p r o v e d of such g r e a t v a l u e i n t h e t r e a t m e n t of o u r dotiiestic p r o b l e m s
s h o u l d now be amended i n o r d e r t o e n a b l e us t o d e a l e f f e c t i v e l y w i t h
t h e new i n t e r n a t i o n a l problems which seem d e s t i n e d t o p l a y so import
a n t a p a r t i n o u r economic l i f e .
The b a n k i n g s y s t e m of t h e U n i t e d
S t a t e s s h o u l d be p r e p a r e d t o meet e f f e c t i v e l y two c o n d i t i o n s of o p p o s i t e c h a r a c t e r - one, t h e e x c e s s i v e and u n c o n t r o l l e d i n f l o w of
g o l d , t h e o t h e r t h e e x c e s s i v e and u n r e g u l a t e d o u t f l o w of g o l d . The
amendments p r o p o s e d a r e d e s i g n e d t o p r o v i d e means of c o n t r o l l i n g an
o v e r - e x t e n s i o n of l o a n s b a s e d on new a c c r e t i o n s t o o u r g o l d s t o c k
and t o p r o v i d e f o r t h e m o b i l i z a t i o n and c o n c e n t r a t i o n of t h e g o l d
h o l d i n g s of t h e U n i t e d S t a t e s so t h a t t h e f l o w of g o l d b a c k i n t o
E u r o p e , o r t o S o u t h America o r t o t h e O r i e n t , may b e a r r a n g e d w i t h o u t f o r c i n g any v i o l e n t c o n t r a c t i o n of l o a n s o r c a u s i n g undue d i s turbance to legitimate business.
Of a p p r o x i m a t e l y two and t h r e e - q u a r t e r b i l l i o n s of g o l d i n
t h i s c o u n t r y t h e r e a r e h e l d o r c o n t r o l l e d by F e d e r a l r e s e r v e banks
a b o u t $ 7 3 6 , 0 0 0 , 0 0 0 , of which F e d e r a l r e s e r v e a g e n t s h o l d $ 2 8 3 , 0 0 0 , 000 a s 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 o u t s t a n d i n g , and $ 4 5 3 , 0 0 0 , 0 0 0 i s r e s e r v e money and must t h e r e f o r e be u s e d c o n s e r v a t i v e l y .
But e v e n assuming t h a t t h e F e d e r a l r e s e r v e banks w e r e w i l l i n g t o r e duce t h e i r g o l d r e s e r v e s t o 4 0 $ of t h e i r d e p o s i t s and n o t e l i a b i l i t y




967

±915

** 2 *' *
(which would be r e g a r d e d as a minimum and i n normal t i m e s would
be i n a d e q u a t e ) t h e amount of f r e e g o l d , i . e . , t h e amount of
g o l d t h a t t h e F e d e r a l r e s e r v e banks would l o s e b e f o r e r e a c h i n g
t h i s 40fo minimum, would be a l i t t l e more t h a n $ 3 7 5 , 0 0 0 , 0 0 0 .
While t h i s i s a v e r y l a r g e sum i t s s u f f i c i e n c y can n o t s a f e l y b e
assumed when we c o n s i d e r t h e wide scope of o u r t r a n s a c t i o n s i n
w o r l d f i n a n c e and t h e phenomenal growth of our own c r e d i t s t r u c ture .
I t i s e s t i m a t e d t h a t t h e r e a r e now i n t h e hands of t h e
p u b l i c , i* e . , o u t s i d e t h e T r e a s u r y and t h e b a n k s , o v e r e i g h t h u n d r e d m i l l i o n d o l l a r s in gold and gold c e r t i f i c a t e s , and t h a t t h e r e
a r e a t p r e s e n t h e l d in t h e v a u l t s of member banks a b o u t $ 8 1 5 , 0 0 0 , 000 of r e s e r v e money of which $ 5 4 0 , 0 0 0 , 0 0 0 i s g o l d c o i n o r gold
certificates.
There s h o u l d be added t o t h i s e s t i m a t e about $ 6 0 0 , 0 0 0 , 0 0 0 of l a w f u l money i n t h e v a u l t s of nonmember S t a t e banks and
t r u s t companies.
NOTE AMENDMENT.
The F e d e r a l r e s e r v e n o t e , which i s an o b l i g a t i o n of t h e
U n i t e d S t a t e s s e c u r e d by an ample r e s e r v e of g o l d and commercial
p a p e r , i s a c c e p t e d as w i l l i n g l y by t h e p u b l i c as a n a t i o n a l bank
n o t e o r as any o t h e r form of c u r r e n c y , and t h e p u b l i c does n o t
d i s c r i m i n a t e between d i f f e r e n t forms of U n i t e d S t a t e s c u r r e n c y .
F e d e r a l r e s e r v e n o t e c i r c u l a t i o n has been s u b s t i t u t e d f o r gold cer~
t i f i c a t e s t o t h e e x t e n t of about t h r e e hundred m i l l i o n d o l l a r s .
'
Under t h e p r e s e n t law t h i s gold i s d e p o s i t e d w i t h t h e
F e d e r a l r e s e r v e a g e n t s i n r e d e m p t i o n of t h e F e d e r a l r e s e r v e n o t e s
issued against i t .
The n o t e so p r o v i d e d f o r t h e r e b y i n e f f e c t
c e a s e s t o be an o b l i g a t i o n of t h e F e d e r a l r e s e r v e b a n k ; b u t as
t h e gold does n o t f i g u r e as an a s s e t of t h e F e d e r a l r e s e r v e b a n k s ,
t h e F e d e r a l r e s e r v e banks a r e u n a b l e t o show t h e g r e a t e r s t r e n g t h
which might be e v i d e n c e d if t h e law p e r m i t t e d , as p r o p o s e d i n t h e
amendments, t h e i s s u a n c e of F e d e r a l r e s e r v e n o t e s n o t only a g a i n s t
commercial p a p e r , b u t a l s o a g a i n s t gold o r a g a i n s t e i t h e r , p r o v i d e d
always t h a t e v e r y F e d e r a l r e s e r v e n o t e must be covered by a t l e a s t
of commercial paper or g o l d , and t h a t t h e r e must always be
a g o l d r e s e r v e of n o t l e s s t h a n 40% a g a i n s t a l l o u t s t a n d i n g F e d e r a l
reserve notes.

lOOfo

RESERVES.
The c o n t r o l of gold by F e d e r a l r e s e r v e banks i n t i m e s of
abundance such as a t p r e s e n t , w i l l d e c r e a s e t h e d a n g e r of i n f l a t i o n
of d o m e s t i c c r e d i t s and a t t h e same t i m e w i l l e n a b l e t h e c o u n t r y
when t h e t i d e t u r n s t o p a r t w i t h l a r g e sums of g o l d w i t h l e s s i n c o n v e n i e n c e o r s h o c k , t h u s e n a b l i n g us more s a f e l y and e f f e c t i v e l y




967
-3. t o p r o c e e d w i t h t h e development of our f o r e i g n t r a d e and t o
g i v e t h e n e c e s s a r y c r e d i t f a c i l i t i e s f o r i t s e x t e n s i o n . The
U n i t e d S t a t e s s h o u l d be in a p o s i t i o n t o f a c e c o n d i t i o n s which
may c a l l f o r an o u t f l o w of g o l d w i t h o u t any d i s t u r b a n c e s of
o u r own o r t o t h e w o r l d ' s b u s i n e s s , and w i t h o u t making n e c e s s a r y d r a s t i c changes in our i n t e r e s t o r d i s c o u n t r a t e s . The
amendments s u g g e s t e d by t h e Board a r e d e s i g n e d t o e n a b l e t h e
F e d e r a l r e s e r v e banks t o w i t h d r a w gold from a c t u a l c i r c u l a t i o n
w h i l e e n a b l i n g member banks a t t h e same t i m e t o r e l e a s e gold
which a t p r e s e n t i s t i e d up i n t h e i r cwn v a u l t s . The amendments
a r e based upon t h e t h e c r y t h a t a l l of t h e i n d i v i d u a l banks
s h o u l d s t r e n g t h e n t h e gold h o l d i n g s of t h e F e d e r a l r e s e r v e b a n k s .
The c o u n t r y ' s h o l d i n g s of gold a r e n o t used most e f f e c t i v e l y
when t h e y a r e i n t h e v a u l t s of a l a r g e number of banks s c a t t e r e d
a l l o v e r t h e c o u n t r y , b u t i t s g r e a t e s t u s e Would come from c o n c e n t r a t i n g i t t o a g r e a t e r d i g r e e in t h e v a u l t s of t h e F e d e r a l
r e s e r v e b a n k s , where i t can be e f f e c t i v e l y p r o t e c t e d when n o t
r e q u i r e d and effectively ttsdd-when n e e d e d . The member bank
does n o t r e q u i r e gold w i t h which t o s u p p l y t h e o r d i n a r y demands
of i t s d e p o s i t o r s so much as c u r r e n c y .
I t i s f r o m t h i s p o i n t of view t h a t t h e F e d e r a l Reserve
Board h a s p r o p o s e d t h a t Congress i n c r e a s e t h e r e q u i r e d r e s e r v e s
t o be m a i n t a i n e d by member banks w i t h t h e F e d e r a l r e s e r v e b a n k s .
On November 17, 1916, t h e c a s h h o l d i n g s of a l l member banks
were about $ 8 1 5 , 0 0 0 , 0 0 0 . Umder t h e p r o p o s e d amendment of S e c t i o n
1 9 , $ 2 5 0 , 0 0 0 , 0 0 0 of t h i s amount would be t r a n s f e r r e d t o t h e F e d e r a l r e s e r v e b a n k s . Hence t h e Bo a rd b e l i e v e s t h a t u l t i m a t e l y t h e
law s h o u l d r e q u i r e of member banks no more t h a n t h a t t h e y s h o u l d
m a i n t a i n i s p e c i f i e d b a l a n c e s w i t h t h e F e d e r a l r e s e r v e banks i n
amounts a d e q u a t e t o s u p p l y t h e n e c e s s a r y r e s e r v e b a s i s , and t h a t
t h e F e d e r a l r e s e r v e banks must have s u f f i c i e n t r e s e r v e s of g o l d
>vith which t o p r o t e c t a l l o b l i g a t i o n s , b u t t h a t t h e r e s h o u l d ,
however, be no l e g a l r e q u i r e m e n t as t o t h e amount df c u r r e n c y t h a t
a member bank s h o u l d c a r r y i n i t s own v a u l t . This i s a m a t t e r of
b u s i n e s s judgment t h a t might w e l l be l e f t t o t h e d i s c r e t i o n of
e a c h member b a n k . I t was t h o u g h t , however, t h a t i f t h i s p r i n c i p l e
were c a r r i e d i n t o f u l l e f f e c t a t t h i s t i m e , t h e s t e p might be
c o n s i d e r e d t o o e x t r e m e , p a r t i c u l a r l y u n d e r p r e s e n t c o n d i t i o n s , and
n o t h i n g s h o u l d be done t h a t m i g h t t e n d t o a f u r t h e r r e l e a s e of
r e s e r v e money.
A minimum amount of c u r r e n c y t h a t t h e member banks
s h o u l d be r e q u i r e d t o keep in t h e i r v a u l t s i s , t h e r e f o r e , p r e scribed. The amount s u g g e s t e d i s 5$ of t h e demand d e p o s i t s , so !--•
t h a t t h e t o t a l r e q u i r e m e n t s - c a s h and r e s e r v e - w i l l remain p r a c t i c a l l y u n c h a n g e d . While t h e e f f e c t of some of t h e p r o p o s e d




191?
967
-4changes w i l l be t o reduce somewhat t h e r e s e r v e r e q u i r e m e n t s , t h e
r e s e r v e s w i l l he i n c r e a s e d by t h e a b r o g a t i o n of t h e p r a c t i c e
h i t h e r t o o b s e r v e d of c o u n t i n g i t e m s in t r a n s i t o r " f l o a t " as r e s e r v e , The p e r m i s s i o n g i v e n member banks t o u s e t h e i r own d i s c r e t i o n as t o t h e c h a r a c t e r of c u r r e n c y in t h e i r v a u l t s , w i l l e n a b l e
them t o r e l e a s e t h e gold t h e y now h o l d , w i t h t h e i m p o r t a n t r e s u l t
t h a t t h e s u b s t i t u t i o n of F e d e r a l r e s e r v e n o t e s f o r gold and gold
c e r t i f i c a t e s w i l l be f a c i l i t a t e d by t h i s change i n t h e l a w .
W i t h o u t some s u c h change member banks w i l l c o n t i n u e t o ask f o r
g o l d c e r t i f i c a t e s i n s m a l l d e n o m i n a t i o n s , b e c a u s e as l o n g as
t h e y must have g o l d or l a w f u l money t o count as r e s e r v e i t would
be i m p o s s i b l e f o r t h e banks t o exchange them f o r F e d e r a l r e s e r v e
notes.
OTHER PROPOSED AMENDMEKTS.
B e s i d e s t h e proposed changes r e l a t i n g t o n o t e i s s u e s
and t o r e s e r v e s t h e Board h a s s u g g e s t e d a l s o t h e f o l l o w i n g :
Amendment of s e c t i o n 11 so as t o p e r m i t t h e F e d e r a l
R e s e r v e Board t o r a i s e r e s e r v e r e q u i r e m e n t s i n e m e r g e n c i e s , j u s t
as i t i s now empowered i n c e r t a i n c o n t i n g e n c i e s of a d i f f e r e n t
kind to lower t h o s e requirements.
This p r o v i s i o n would., i f a d o p t e d , e n a b l e t h e F e d e r a l
R e s e r v e Board i n p r o l o n g e d p e r i o d s of e x t r e m e e a s e in t h e money
m a r k e t t o check any t e n d e n c y toward e x c e s s i v e l o a n s o r o t h e r
forms of undue e x t e n s i o n s of c r e d i t .
Amendment of S e c t i o n 16 t o p e r m i t nonmember S t a t e banks
and t r u s t companies, even though too s m a l l t o be e l i g i b l e f o r memb e r s h i p i n t h e F e d e r a l r e s e r v e b a n k s , t o a v a i l t h e m s e l v e s of t h e
c l e a r i n g and c o l l e c t i o n f a c i l i t i e s of t h e F e d e r a l r e s e r v e b a n k s ,
p r o v i d e d t h a t t h e y c o v e r a t p a r checks on t h e m s e l v e s s e n t f o r
c o l l e c t i o n by t h e F e d e r a l r e s e r v e bank, and p r o v i d e d f u r t h e r t h a t
t h e y keep a c o m p e n s a t i n g b a l a n c e w i t h t h e F e d e r a l r e s e r v e bank
i n an amount t o be d e t e r m i n e d u n d e r r u l e s p r e s c r i b e d by t h e F e d e r a l Reserve Board, This i s n o t i n t e n d e d t o o p e r a t e as an e x t e n s i o n
of any of t h e p r i v i l e g e s of t h e F e d e r a l r e s e r v e s y s t e m t o nonmember
banks a t t h e e x p e n s e of members, b u t on t h e c o n t r a r y t h e amendment
i s p r o p o s e d p r i m a r i l y f o r t h e c o n v e n i e n c e of t h e p u b l i c and i n c i d e n t a l l y f o r t h e b e n e f i t of t h e member b a n k s .
I t is contemplated
t h a t t h e c o m p e n s a t i n g b a l a n c e s which nonmember banks p a r t i c i p a t i n g
i n t h e c l e a r i n g p l a n w i l l be r e q u i r e d t o keep w i t h F e d e r a l r e s e r v e
b a n k s , w i l l be s u f f i c i e n t l y l a r g e t o p r o t e c t member banks and j u s t i f y F e d e r a l r e s e r v e banks i n u n d e r t a k i n g , t h e s e r v i c e . Any c l e a r -




967
-5m g and c o l l e c t i o n p l a n t o be e f f e c t i v e must be so comprehens i v e as t o i n c l u d e a l l c h e c k s . At p r e s e n t t h e p a r l i s t s of t h e
F e d e r a l r e s e r v e banks i n c l u d e t h e names of banks checks on
which can bo c o l l e c t e d < i n any c i r c u m s t a n c e s a t a minimum of t i m e
and e x p e n s e j b u t do n o t embrace a l a r g e number of towns i n e v e r y
S t a t e where t h e r e a r e no member b a n k s ; and in o r d e r t o make c o l l e c t i o n s on s u c h p o i n t s many banks a r e o b l i g e d t o m a i n t a i n a c counts in a d d i t i o n to t h e i r r e s e r v e accounts w i t h the F e d e r a l
r e s e r v e b a n k s . A n e c e s s a r y f a c t o r i n any s u c c e s s f u l c l e a r i n g
plan is
t h e o f f s e t , whereby b a l a n c e s o n l y r e q u i r e s e t t l e m e n t
i n s t e a d of t h e t o t a l volume of t r a n s a c t i o n s * As l o n g as t h e
c l e a r i n g s y s t e m does n o t embrace a l l of t h e banks t h i s o f f s e t
i s l o s t in a c o r r e s p o n d i n g d e g r e e and t h e v a l u e of t h e s y s t e m
diminished in proportion.
Amendment of S e c t i o n 22
t h e p e n a l s t a t u t e •* so a s t o
d e f i n e more c l e a r l y t h e r i g h t s and l i m i t a t i o n s of d i r e c t o r s i n
t h e m a t t e r of a c c e p t i n g f e e s o r c o m p e n s a t i o n o t h e r t h a n t h e
o r d i n a r y fees paid d i r e c t o r s f o r l e g i t i m a t e s e r v i c e s rendered
i n t h e r e g u l a r c o u r s e of b u s i n e s s , t h e p e r f o r m a n c e of w h i c h
s e r v i c e i s n o t incumbent upon them i n t h e i r c a p a c i t y as d i r e c t ors .
Amendment of S e c t i o n 13 t o r e s t o r e t h e p r o v i s i o n
which was by e r r o r s t r i c k e n from t h e Act i n t h e amendments of
September 7, 1916, t h u s r e s t o r i n g t o n a t i o n a l b a n k s , w i t h t h e
a p p r o v a l of t h e F e d e r a l Reserve B o a r d , t h e r i g h t t o a c c e p t up
t o 100% of t h e i r c a p i t a l and s u r p l u s i n t r a n s a c t i o n s i n v o l v ing imports or e x p o r t s .
Amendment of S e c t i o n 17 t o c a n c e l t h e p r o v i s i o n of
t h e N a t i o n a l Bank Act which r e q u i r e s n a t i o n a l banks t o m a i n t a i n -a minimum d e p o s i t of Government bonds w i t h t h e T r e a s u r e r
of t h e U n i t e d S t a t e s • N a t i o n a l banks a r e no l o n g e r r e q u i r e d
t o keep o u t s t a n d i n g a minimum amount of c i r c u l a t i n g n o t e s , and
a newly o r g a n i z e d bank i s n o t o b l i g e d t o p u r c h a s e o r c a r r y any
bonds of t h e U n i t e d S t a t e s ; b u t t h e r e a r e a number of n a t i o n a l
b a n k s o r g a n i s e d b e f o r e t h e p a s s a g e of t h e F e d e r a l R e s e r v e Act
which have r e t i r e d t h e i r n a t i o n a l bank c i r c u l a t i o n i n f u l l ,
y e t t h e y a r e , u n d e r a c o n s t r u c t i o n of t h e o l d l a w , r e q u i r e d t o
keep on d e p o s i t w i t h t h e T r e a s u r e r of t h e U n i t e d S t a t e s , a c e r t a i n minimum of U n i t e d S t a t e s b o n d s . The Board f e e l s t h a t i t
i s j u s t 1b t h e s e b a n k s t h a t t h e y be r e l i e v e d of t h i s o b l i g a t i o n .
Amendment of s e c t i o n 25 t o a u t h o r i z e member banks l o c a t e d i n c i t i e s of more t h a n 1 0 0 , 0 0 0 p o p u l a t i o n and which h a v e




967
-6-

% c a p i t a l and s u r p l u s cf more t l i s S $ 1 , 0 0 0 , 0 0 0 t o e s t a b l i s h
%#*nches i n t h e same c i t y , p n v U M t h e S t a t e laws do n o t
p r o h i b i t S t a t e banks and t r u s t companies from e s t a b l i s h i n g
branches.
Amendment of S e c t i o n 9 t o a u t h o r i z e m u t u a l s a v i n g s
b a n k s n o t h a v i n g c a p i t a l s t o c k t o become a s s o c i a t e members of
the F e d e r a l r e s e r v e system under c e r t a i n p r e s c r i b e d c o n d i t i o n s .
The p r i n c i p a l b e n e f i c i a r i e s of t h i s amendment would be t h e mut u a l s a v i n g s banks of t h e e a s t e r n and New England S t a t e s , which
can n o t become members of t h e F e d e r a l r e s e r v e s y s t e m u n d e r t h e
p r e s e n t law owing t c t h e l a c k of any p r o v i s i o n e n a b l i n g them
t o s u b s c r i b e f o r c a p i t a l s t o c k of a F e d e r a l r e s e r v e bank, as
t h e y have no c a p i t a l i z a t i o n of t h e i r own upon which a p e r c e n t a g e
c o u l d be b a s e d . They would be r e q u i r e d t o c a r r y a r e s e r v e b a l ance w i t h t h e F e d e r a l r e s e r v e bank a g a i n s t t h e i r time d e p o s i t s
i n t h e same p r o p o s t i o n as member b a n k s ; and t h e accommodations
p r o p o s e d f o r m u t u a l s a v i n g s banks a r e l i m i t e d s t r i c t l y t o t h e
d i s c o u n t of t h e i r t h i r t y - d a y o b l i g a t i o n s p r o p e r l y s e c u r e d .
Amendment of S e c t i o n 18 so as t o g i v e t o U n i t e d
S t a t e s o n e - y e a r 3% gold n o t e s in t h e hands of F e d e r a l r e s e r v e
banks t h e c i r c u l a t i o n p r i v i l e g e f o r t h e i s s u a n c e of F e d e r a l r e s e r v e bank n o t e s , such c i r c u l a t i o n t o be t a x e d a t t h e same r a t e
a s ' . c i r c u l a t i n g n o t e s , which a r e s e c u r e d by 3$ bonds of t h e
United S t a t e s .
In t h e o p i n i o n of t h e Board i t i s d e s i r a b l e t o
e x t e n d t h i s p r i v i l e g e t o t h e F e d e r a l r e s e r v e banks i n o r d e r
t h a t t h e y may have a d d i t i o n a l means of p r o t e c t i n g t h e m s e l v e s
a t t i m e s when t h e r e i s an u n u s u a l demand f o r c u r r e n c y .
Amendment of S e c t i o n 4 t o a b o l i s h t h e t i t l e and o f f i c e of deputy F e d e r a l r e s e r v e a g e n t , t h u s h a v i n g two u n a t t a c h e d
C l a s s "C" d i r e c t o r s i n s t e a d of one as a t p r e s e n t , aid t o c r e a t e
t h e p o s i t i o n of a s s i s t a n t F e d e r a l r e s e r v e a g e n t , who s h a l l n o t
be a d i r e c t o r of t h e bank, b u t who s h a l l be a s a l a r i e d bonded
o f f i c e r i n t h e F e d e r a l r e s e r v e agent; 1 s d e p a r t m e n t , s e r v i n g a t
a l l t i m e s as an a s s i s t a n t t o t h e F e d e r a l r e s e r v e a g e n t and
q u a l i f i e d t o a c t f o r t h e a g e n t i n h i s a b s e n c e . E x p e r i e n c e has
shown t h a t t h e r e i s d i f f i c u l t y in f i l l i n g t h e o f f i c e of d e p u t y
F e d e r a l r e s e r v e a g e n t . This o f f i c e r i s r e q u i r e d t o have t h e
same q u a l i f i c a t i o n s as t h e F e d e r a l r e s e r v e a g e n t ; he must have
had b a n k i n g e x p e r i e n c e and he must n o t be an o f f i c e r , d i r e c t o r ,
o r s t o c k h o l d e r i n any b a n k . At t h e same xime he i s n o t as a
r u l e a s a l a r i e d o f f i c e r , and r e c e i v e s only t h e c u s t o m a r y f e e s
p a i d d i r e c t o r s f o r a t t e n d a n c e upon m e e t i n g s , and he i s o b l i g e d
t o be p r e p a r e d t o assume t h e d u t i e s of t h e F e d e r a l r e s e r v e
a g e n t i n c a s e of t h e absence o r d i s a b i l i t y of t h a t o f f i c e r ,
which i n v o l v e s a t r a n s f e r and a u d i t of s e c u r i t i e s and a c c o u n t s .
I t i s b e l i e v e d t h a t t h e change s u g g e s t e d w i l l o p e r a t e t o f i x r e s p o n s i b i l i t y more d e f i n i t e l y and w i l l g i v e t h e Board more l a t i t u d e in t h e s e l e c t i o n of t h e C l a s s uClf d i r e c t o r s o t h e r t h a n
the Federal reserve agent.



1919

969

BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF
THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED,

That

S e c t i o n 3 of t h e Act approved December 23, 1913, known as
t h e F e d e r a l R e s e r v e Act, be amended and r e e n a c t e d so as t o
r e a d as f o l l o w s :




S e c . 3 . The F e d e r a l R e s e r v e Board may p e r m i t o r r e q u i r e any F e d e r a l r e s e r v e bank t o e s t a b l i s h b r a n c h banks w i t h i n t h e F e d e r a l r e s e r v e d i s t r i c t i n which i t i s l o c a t e d o r w i t h i n t h e d i s t r i c t of any F e d e r a l r e s e r v e bank which may h a v e
been s u s p e n d e d . Such b r a n c h e d , s u b j e c t t o such
r u l e s and r e g u l a t i o n s a s t h e F e d e r a l R e s e r v e Board
may p r e s c r i b e , s h a l l be o p e r a t e d u n d e r t h e s u p e r v i s i o n of a b o a r d of d i r e c t o r s t o c o n s i s t of n o t
more t h a n s e v e n n o r l e s s t h a n t h r e e d i r e c t o r s ,
of whom a m a j o r i t y of one s h a l l b e a p p o i n t e d by
t h e F e d e r a l r e s e r v e bank of t h e d i s t r i c t , and t h e
r e m a i n i n g d i r e c t o r s by t h e F e d e r a l Reserve B o a r d .
D i r e c t o r s of b r a n c h banks s h a l l h o l d o f f i c e d u r i n g
t h e p l e a s u r e of t h e F e d e r a l Reserve B o a r d ,

1/13/17

1 9 & 1

970

BE IT ENACTED 37 THE SENATE AND HOUSE OF REPRESENTATIVES
OF THE UNITED STATES OF AMERICA. I'M CONGRESS ASSEMBLED,

That

S e c t i o n 14, s u b s e c t i o n i e ) , ox t h e Act approved Docember 23,
1913, known a s t h e F e d e r a l Reserve Act, as amended by t h e Act
approved September 7, 1916, be f u r t h e r amended and r e - e n a c t e d
so as t o r e a d as f o l l o w s :
(©) To e s t a b l i s h a c c o u n t s w i t h o t h e r F e d e r a l r e s e r v e
banks f o r exchange p u r p o s e s ana w i t h t h e c o n s e n t OR
UPON THE ORDER AND DIRECTION of t h e F e d e r a l Reserve
Board UPON AN AFFIRMATIVE VOTE OF NOT LESS THAN FIVE
MEMBERS, AND UNDER REGULATIONS TO BE PRESCRIBED BY
SAID BOARD, t o open and m a i n t a i n a c c o u n t s i n f o r e i g n
c o u n t r i e s , a p p o i n t c o r r e s p o n d e n t s , and e s t a b l i s h a g e n c i e s i n such c o u n t r i e s w h e r e s o e v e r i t may BE deenxED
b e s t f o r t h e p u r p o s e of p u r c h a s i n g , s e l l i n g , and c o l l e c t i n g b i l l s of exchange, and t o buy and s e l l , w i t h
o r w i t h o u t i t s i n d o r s e m e n t , t h r o u g h such c o r r e s p o n d e n t s or a g e n c i e s b i l l s of exchange OR ACCEPTANCES aris-*
i n g out of a c t u a l commercial t r a n s a c t i o n s which have
n o t more t h a n n i n e t y days t o r u n , e x c l u s i v e of days
of g r a c e , and which b o a r t h e s i g n a t u r e of two o r more
r e s p o n s i b l e p a r t i e s , and, w i t h t h e c o n s e n t of t h e F e d e r a l Re,serve Board, t o open and m a i n t a i n b a n k i n g a c counts f o r such f o r e i g n correspondents or a g e n c i e s .
WHENEVER ANY SUCH ACCOUNT HAS BEEN OPENED OR AGENCY
OR CORRESPONDENT HAS BEEN APPOINTED BY A FEDERAL RESERVE BANK WITH THE CONSENT OF OR UNDER THE ORDER AND
DIRECTION OF THE FEDERAL RESERVE BOARD, ANY OTHER FEDERAL RESERVE BANK MAY, WITH THE CONSENT AND APPROVAL
OF THE FEDERAL RESERVE BOARD, BE PERMITTED TO CARRY
ON OR CONDUCT THROUGH THE FEDERAL RESERVE BANK OPENING SUCH ACCOUNT, OR APPOINTING SUCH AGENCY OR CORRESPONDENT, ANY TRANSACTION AUTHORIZED BY THIS SECTION
UNDER RULES AND REGULATIONS TO BE PRESCRIBED BY THE
BOARD.
1/13/17




1922
W . P . G . H A R D I N G , GOVERNOR
P A U L M . W A R B U R G , VICE GOVERNOR

EX-OFFICIO MEMBERS

F R E D E R I C A. DELANO
ADOLPH C. MILLER
C H A R L E S S . HAMLIN

WILLIAM G. McADOO
SECRETARY OF THE TREASURY
CHAIRMAN

FEDERAL RESERVE BOARD 974

J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT
A D D R E S S REPLY TO
FEDERAL

RESERVE

J a n u a r y 15, 1917.

Dear S i r :
In r e UNFIT FEDERAL RESERVE NOTES FOFtfARDED TO THE
TREASURER OF THE UNITED STATES FOR REDEMPTION BY A FEDERAL
RESERVE BANK OTHER THAN THE FEDERAL RESERVE BANK OF ISSUE:
In J a n u a r y , 1916, a p l a n was f o r m u l a t e d t o p e r m i t
F e d e r a l r e s e r v e banks t o f o r w a r d t h e i r own u n f i t F e d e r a l r e s e r v e
n o t e s d i r e c t t o t h e T r e a s u r e r of t h e U n i t e d S t a t e s f o r redemption.

That p l a n , however, d i d n o t p e r m i t a F e d e r a l r e s e r v e bank

t o s h i p t o t h e T r e a s u r e r , F e d e r a l r e s e r v e n o t e s i s s u e d by any
o t h e r Federal r e s e r v e bank.
t

S e c t i o n 16 of t h e F e d e r a l R e s e r v e Act p r o v i d e s i n
p a r t t h a t , whenever a F e d e r a l r e s e r v e bank r e c e i v e s F e d e r a l r e s e r v e n o t e s i s s u e d by a n o t h e r F e d e r a l r e s e r v e bank such n o t e
s h a l l be r e t u r n e d t o t h e F e d e r a l r e s e r v e bank of i s s u e f o r
c r e d i t or redemption.

In o r d e r t o avoid a r o u n d - a b o u t s h i p m e n t

of F e d e r a l r e s e r v e n o t e s , f i r s t ,

from a r e c e i v i n g F e d e r a l r e s e r v e

bank t o t h e r e s e r v e bank of i s s u e , and t h e n from t h e bank of i s s u e on t o Washington f o r r e d e m p t i o n , t h e f o l l o w i n g p l a n which perm i t s a r e c e i v i n g F e d e r a l r e s e r v e b a n k , u n d e r power of a t t o r n e y ,
t o f o r w a r d u n f i t F e d e r a l r e s e r v e n o t e s of a n o t h e r F e d e r a l r e s e r v e
bank d i r e c t t o t h e T r e a s u r e r f o r r e d e m p t i o n , h a s been approved by
t h e T r e a s u r y Department and t h e F e d e r a l R e s e r v e Board»




BOARD

198-3

974
—2—
1.
Each F e d e r a l r e s e r v e bank s h a l l g i v e t o e a c h o t h e r F e d e r a l r e s e r v e bank a power of a t t o r n e y a u t h o r i z i n g such o t h e r bank
t o a c t as i t s a g e n t i n f o r w a r d i n g any of i t s u n f i t F e d e r a l r e s e r v e
n o t e s t o t h e T r e a s u r e r of t h e U n i t e d S t a t e s f o r r e d e m p t i o n . This
power of a t t o r n e y may be i n any form a g r e e d upon by t h e r e s p e c t i v e F e d e r a l r e s e r v e banks and may d e f i n e t h e s t a n d a r d t o g u i d e
t h e f o r w a r d i n g bank i n d e t e r m i n i n g what F e d e r a l r e s e r v e n o t e s of
t h e i s s u i n g bank s h a l l be c o n s i d e r e d u n f i t . The f o r w a r d i n g bank
s h a l l , a t t h e time of s h i p m e n t , n o t i f y t h e i s s u i n g bank t h a t t h e
s h i p m e n t has b e e n mad6 f o r and i n i t s name t o t h e T r e a s u r e r , and
s h a l l c h a r g e t h e a c c o u n t of t h e i s s u i n g bank f o r t h e amount of
n o t e s t h u s s h i p p e d . The i s s u i n g bank s h a l l t h e n c r e d i t t h e a c count of t h e f o r w a r d i n g bank, and s h a l l i n c r e a s e on i t s books
t h e i t e m , " M u t i l a t e d Currency f o r w a r d e d f o r r e d e m p t i o n " j u s t as
i f i t , i t s e l f , had s e n t u n f i t n o t e s d i r e c t t o t h e T r e a s u r e r f o r
redemption.
2.
The T r e a s u r e r , on r e c e i v i n g such n o t e s , w i l l a d v i s e t h e
f o r w a r d i n g banks of t h e i r r e c e i p t .
3.
The T r e a s u r e r w i l l t h e n complete t h e t r a n s a c t i o n j u s t as
i f t h e n o t e s had b e e n f o r w a r d e d t o him f o r r e d e m p t i o n d i r e c t by
t h e bank of i s s u e , u n d e r t h e p l a n approved by t h e T r e a s u r y D e p a r t ment and t h e F e d e r a l Reserve Board i n J a n u a r y , 191&. In accord—
anca w i t h t h e p r o v i s i o n s of t h a t p l a n , t h e T r e a s u r e r w i l l iimieS i a t e l y a d v i s e b o t h the F e d e r a l r e s e r v $ b a n k of i s s u e and i t s Fede r a l r e s e r v e a g e n t of t h e r e c e i p t of t h e n o t e s s e n t t o him f o r
r e d e m p t i o n , and w i l l redeem the n o t e s f o r t h e a c c o u n t of t h e bank
of i s s u e , n o t f o r t h e a c c o u n t of t h e f o r w a r d i n g b a n k .
•**»
A f t e r t h e n o t e s have been redeemed t h e T r e a s u r e r , a c t i n g u n d e r t h e powers of a t t o r n e y p r o v i d e d f o r i n t h e plan,, g o v e r n i n g t h e r e d e m p t i o n of u n f i t n o t e s s h i p p e d d i r e c t by t h e F e d e r a l
r e s e r v e bank of i s s u e , w i l l f o r w a r d such n o t e s t o t h e C o m p t r o l l e r
of t h e C u r r e n c y f o r c a n c e l l a t i o n and d e s t r u c t i o n , a d v i s i n g t h e
F e d e r a l r e s e r v e a g e n t of t h i s a c t i o n .
B
By way of i l l u s t r a t i o n , a s p e c i f i c t r a n s a c t i o n would be
conducted as f o l l o w s :
(a)
The F e d e r a l Reserve Bank of Richmond r e c e i v e s from
one of i t s member banks a d e p o s i t of u n f i t n o t e s of t h e F e d e r a l
R e s e r v e Bank of C h i c a g o .
(b)




A c t i n g u n d e r t h e power of a t t o r n e y g i v e n t o i t by t h e

974
-3Chicago bank, t h e Richmond bank forwards t h e s e u n f i t n o t e s t o
t h e T r e a s u r e r f o r redemption f o r and i n b e h a l f of t h e Chicago
bank,
(c)
As soon as t h e Richmond bank makes t h e shipment d e s c r i b e d in p a r a g r a p h (b) f t charges t h e account of t h e F e d e r a l
r e s e r v e bank and so n o t i f i e s Chicago.
(d)
Upon r e c e i p t of t h e n o t i c e forwarded u n d e r p a r a g r a p h
( c ) Chicago c r e d i t s the account of t h e Richmond bank and i n c r e a s e s on i t s books t h e item " M u t i l a t e d c u r r e n c y f o r w a r d e d f o r
redemption".
(e)
The T r e a s u r e r , on r e c e i p t of t h e n o t e s s h i p p e d by
Richmond, w i l l acknowledge r e c e i p t t o Richmond, w i l l a d v i s e b o t h
Chicago and i t s F e d e r a l r e s e r v e a g e n t s i m u l t a n e o u s l j j t h a t t h e
n o t e s have been r e c e i v e d f o r t h e account of t h e Chicago
bank, and w i l l redeem such n o t e s j u s t as i f t h s y had boon s e n t
by t h e F e d e r a l Reserve B^nk of Chicago d i r e c t t o t h e T r e a s u r e r
f o r redemption.
(f)
Upon r e c e i p t of the a d v i c e forwarded by t h e T r e a s u r e r ,
as p r o v i d e d in p a r a g r a p h ( e ) t h e F e d e r a l R e s e r v e Bank of C h i c a g o
and i t s F e d e r a l r e s e r v e agent w i l l r e c o r d t h e t r a n s a c t i o n i n t h e
manner o u t l i n e d i n a c i r c u l a r l e t t e r from t h e Board d a t e d March
24, 1916, h e r e t o a t t a c h e d ,
(g) When the n o t e s have been redeemed t h e T r e a s u r e r w i l l
d e l i v e r them t o t h e C o m p t r o l l e r of the Currency in t h e name of
t h e F e d e r a l r e s e r v e agent a t Chicago and f o r h i s c r e d i t .
(h)
The C o m p t r o l l e r of t h e Currency, upon r e c e i p t of t h e
n o t e s from t h e T r e a s u r e r , w i l l n o t i f y t h e F e d e r a l r e s e r v e a g e n t
t h a t t h e y have been r e c e i v e d f o r d e s t r u c t i o n , w i l l a r r a n g e fox
t h e i r c a n c e l l a t i o n and d e s t r u c t i o n , and w i l l c r e d i t the a c c o u n t
of t h e F e d e r a l r e s e r v e a g e n t of Chicago w i t h t h e amount of t h e
n o t e s when d e s t r o y e d .
Very t r u l y y o u r s ,

Governor-

Inclosure.




W . P . G . H A R D I N G , GOVERNOR
P A U L M. W A R B U R G , VICE GOVERNOR

EX-OFFICIO MEMBERS

F R E D E R I C A. DELANO

W I L L I A M G . MCADOO
SECRETARY OF THE TREASURY

ADOLPH C. MILLER
C H A R L E S S . HAMLIN

CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT
A D D R E S S REPLY TO
FEDERAL

J a n u a r y 15, 1917

Dear S i r :
Your e s p e c i a l a t t e n t i o n i s c a l l e d t o t h e e n c l o s e d
copy of a form and r e s o l u t i o n t o "be Used "by member b a n k s i n
o f f e r i n g f o r s a l e United
of t h e U n i t e d S t a t e s .

S t a t e s bonds t h r o u g h t h e T r e a s u r e r

The form and r e s o l u t i o n a t t a c h e d a r e

t h o s e r e q u i r e d by t h e T r e a s u r e r .
T h i s n o t i c e i s s e n t you b e c a u s e of t h e f a c t t h a t
one F e d e r a l R e s e r v e Bank h a s s e n t o u t a f o r m u n d e r w h i c h t h e
T r e a s u r e r i s u n a b l e t o make t h e s a l e of b o n d s , and t o p r e v e n t
your f a l l i n g i n t o a s i m i l a r e r r o r .
Especial a t t e n t i o n is called to the request t h a t
T r e a s u r y r e c e i p t s accompany bonds o f f e r e d f o r s a l e .
Very t r u l y y o u r s ,

Secretary

Enclosure.




RL

BOARD

REMARKS OF H. P . WILLIS,
At Boston, J a n u a r y l b , 1*317*

Mr* Chairman, and Members of t h e Boston Chapter cf t h e American I n s t i t u t e of Banking:
I have been t h e g u e s t of t h e I n s t i t u t e of Banking a t many of
i t s c h a p t e r s E a s t and West i n t h e U n i t e d S t a t e s . , b u t n e v e r , I t h i n k , i n
Boston.

My e x p e r i e n c e a t t h e s e m e e t i n g s has been so happy, t h a t t o

add a n o t h e r t o t h e l i s t of c h a p t e r s I have known., i s always a t e m p t a tion d i f f i c u l t to r e s i s t .

I n t h i a c a s e yout* i n v i t a t i o n has found me

i n a r e c e p t i v e mood because you have asked me t o t e l l you what I t h i n k
about some m a t t e r s which have long been a f a v o r i t e s u b j e c t of s t u d y
w i t h me, and i n which I have l a t e l y had some d i r e c t e x p e r i e n c e .

In-

t e r e s t i n g as t h e P h i l i p p i n e N a t i o n a l Bank and t h e whole q u e s t i o n of
P h i l i p p i n e t r a d e i s i n and of i t s e l f , i t s l a r g e s t i n t e r e s t i s found i n
t h i s - t h a t i t i s but one phase of a g r e a t problem by which t h e U n i t e d
S t a t e s i s c o n f r o n t e d today*

I s h a l l r e f e r to the Philippine National

Bank and i t s e x p e r i e n c e t h e r e f o r e merely t o a f f o r d p r a c t i c a l i l l u s t r a t i o n of my g e n e r a l t h o u g h t on t h e b r o a d e r q u e s t i o n .
For many y e a r s p a s t American m e r c h a n t s and m a n u f a c t u r e r s have
been t a l k i n g of e x p o r t t r a d e .

A s s o c i a t i o n s have been formed , m e e t i n g s

f r e q u e n t l y h e l d , and v a l u a b l e i d e a s e x p r e s s e d .

Government b u r e a u s

have d i l a t e d a t l e n g t h upon r e a s o n s why American m a n u f a c t u r e r s n e v e r
s e c u r e d s a t i s f a c t o r y c o n t r o l of f o r e i g n m a r k e t s , and Government a g e n t s




I B S ?
-

2

976,

-

have t r a v e l e d a l l over t h e world i n q u i r i n g i n t o t h e r e a s o n s why we d i d
n o t s e l l more

of o u r goods t o t h e n a t i v e s of d i s t a n t r e g i o n s *

There

had been v e r y l i t t l e r e s u l t from a l l t h i s d i s c u s s i o n and i n v e s t i g a t i o n
u n t i l t h e "breaking out of t h e European war, when many consumers t h r o u g h out t h e world who had p r e v i o u s l y gone f o r t h e i r s u p p l i e s t o p r o d u c e r s
who s t u d i e d t h e i r needs and u n d e r t o o k t o s u p p l y them, t u r n e d t o t h e
U n i t e d S t a t e s , n o t because t h e y wanted t o do s o , b u t b e c a u s e t h e r e was
no c h o i c e . •

Now we have b u i l t up a g r e a t f o r e i g n t r a d e , amounting f o r

t h e y e a r which has j u s t ended t o n o t l e s s t h a n $ 5 , 4 0 0 , 0 0 0 , 0 0 0 i n e x p o r t s ,
and more t h a n $ 2 , 3 0 0 , 0 3 0 , 0 0 0 i n i m p o r t s , a n e t b a l a n c e many t i m e s t h a t
e v e r r e a l i z e d i n any p r e c e d i n g y e a r .

This immense e x p o r t t r a d e c o n -

s i s t e d t o t h e e x t e n t of ^0% of o m a n u f a c t u r o i . g o o d s , and w h i l e t h e r e has
been some c o m p l a i n t of t h e q u a l i t y of what we have t u r n e d o u t ,

I think

i t i s s a f e t o say t h a t xhe goods have g i v e n g e n e r a l s a t i s f a c t i o n , n o t
w i t h s t a n d i n g t h a t t h e y have o f t e n been r e g a r d e d a s h i g h — p r i c e d .

Our

t r a d e w i t h t h e P h i l i p p i n e s and t h e F a r E a s t f u r n i s h e s an example of
what has o c c u r r e d t h a t i s v e r y i n t e r e s t i n g , t h e mora so b e c a u s e of t h e
f a c t t h a t we have a s p e c i a l r e l a t i o n t o t h e P h i l i p p i n e I s l a n d s .
a r e b o t h a f o r e i g n c o u n t r y and a p a r t of o u r t e r r i t o r y .
not p a r t i c u l a r l y i n t e r e s t e d in the P h i l i p p i n e I s l a n d s .

P e r h a p s you a r e
You have been

h e a r i n g of them f o r a l o n g t i m e from t h e p o l i t i c a l s t a n d p o i n t «
a s e r i o u s and i m p o r t a n t n a t i o n a l problem i n t h a t c o n n e c t i o n .
h e r e t o d e a l w i t h them i n any s u c h a s p e c t .

They

They a r e
I a# n o t

What I w i s h t o c a l l t o y o u r

a t t e n t i o n i s t h e i r t r a d e and t h e i r r e l a t i o n t o our b u s i n e s s .

The P h i l i p -

p i n e I s l a n d s have t o d a y a b o u t 9 , 0 0 0 , 0 0 0 p e o p l e , and t h e i r t o t a l t r a d e
w i t h o t h e r c o u n t r i e s c o n s i s t e d d u r i n g t h e y e a r 1915 of a b o u t $ 1 0 3 , 0 0 0 , 0 0 0




1.928
976.
- 3 -

of which $ 5 4 , 0 0 0 , 0 0 0 was e x p o r t e d , w h i l e
t h e s e imports about

$ 4 9 , 0 0 0 , 0 0 0 was i m p o r t e d .

Of

came from t h e U n i t e d S t a t e s , w h i l e 44$ of t h e

e x p o r t s were s e n t t o t h e U n i t e d S t a t e s .

Ten y e a r s p r e v i o u s l y > i n 19^5/

t h e t o t a l t r a d e of t h e I s l a n d s was l e s s thari t w o - t h i r d s what i t

i s today ,

t h e e x p o r t s t o a l l c o u n t r i e s amounting t o $ 3 3 , 0 0 0 , 0 0 0 , w h i l e t h e i m p o r t s
from a l l c o u n t r i e s were $30.,000,000, a p p r o x i m a t e l y *

Of t h e $ 3 3 ; 0 0 0 , 0 0 0

of e x p o r t s a t t h a t t i m e , j i l i t t l e more t h a n 40$ was s h i p p e d t o t h e U n i t e d
S t a t e s , w h i l e of t h e i m p o r t s i n t o t h e P h i l i p p i n e I s l a n d s , o n l y a b o u t 18$
came from t h e U n i t e d S t a t e s •

During t h e y e a r 1916 t h e t o t a l v a l u e of

s h i p m e n t s of d o m e s t i c m e r c h a n d i s e t o t h e P h i l i p p i n e s from t h i s c o u n t r y
will, it

i s e s t i m a t e d , aggregate about $22,000,000, while our imports

from t h e I s l a n d s may be e s t i m a t e d a t $ 3 4 , 0 0 0 ^ 0 0 0 .

It i s worthwhile

t o s t u d y w i t h some c a r e and 4 s t a i l t h e c o n d i t i o n s u n d e r which t h i s t r a d e
h a s been d e v e l o p e d -

F u l l j u s t i c e ought t o be done t o t h e e f f o r t s of

m a n u f a c t u r e r s and s h i p p e r s i n m e e t i n g t h e n e e d s of t h e n a t i v e p o p u l a t i o n , p a r t i c u l a r l y a s t h e problem of i n s u l a r t r a d e i s i n p r i n c i p l e t h e
same a s t h e problem of f o r e i g n t r a d e e l s e w h e r e *

T h i s problem i n c l u d e s

the following p r i n c i p a l elements:
D e s i r e on t h e p a r t of American m a n u f a c t u r e r s t o s u p p l y goods
a c c e p t a b l e t o b u y e r s , and t h e making of t r a n s p o r t a t i o n of o t h e r a r r a n g e ments n e e d f u l t o t h e cheap and s a t i s f a c t o r y d e l i v e r y of t h e i r g o o d s .
Development of b u y i n g power and demand f o r American goods among
f o r e i g n consumers.
E s t a b l i s h m e n t of p r o f i t a b l e and m u t u a l t r a d e r e l a t i o n s so t h a t
e x p o r t s go from t h e U n i t e d S t a t e s "by way of payment f o r i m p o r t s .




976.

1929

- 4-

C r e a t i o n of e c o n o m i c a l

banking

connections.

For many y e a r s t h e s e e l e m e n t s i n t h e problem have b e e n n e g l e c t e d i n t h e d i s c u s s i o n of A m e r i c a n - P h i l i p p i n e t r a d e , b u t t o d a y some
of them a r e a c c e p t e d , and e x p o r t and i m p o r t b u s i n e s s i s s t e a d i l y improving.

A g r e a t o b s t a c l e t o t h e f u l l development of b u s i n e s s h a s b e e n found

i n t h e t r a n s p o r t a t i o n s i t u a t i o n , w h i c h , of c o u r s e , has b e e n bad a l l
t h r o u g h t h e European w a r .

I n s p i t e of t h i s h a n d i c a p , t r a d e i s g e n e r a l l y

a d m i t t e d t o be i n a very p r o m i s i n g and s a t i s f a c t o r y s t a t e *

The s u g a r .

i n d u s t r y a t p r e s e n t i s h i g h l y p r o f i t a b l e w h e r e v e r modern m a c h i n e r y h a s
been i n s t a l l e d , a s i t has a t a number of p o i n t s i n t h e I s l a n d s .

Sub-

s t a n t i a l i n t e r e s t i n t h e s u g a r b u s i n e s s i s b e i n g shown by o u t s i d e i n v e s t o r s , and t h e r e i s r e a s o n t o e x p e c t t h a t i n t h e n e a r f u t u r e t h e r e
w i l l be a c o n s i d e r a b l e development of modern s u g a r m i l l s e q u i p p e d w i t h
p r o p e r m a c h i n e r y and a b l e t o p r o d u c e good c e n t r i f u g a l s u g a r f o r e x p o r t .
The cocoanut o i l i n d u s t r y i s a l s o showing marked d e v e l o p m e n t , t h e b u s i « . n e s s of e x t r a c t i n g o i l on t h e s p o t h a v i n g been r e c e n t l y i n t r o d u c e d i n
p l a c e of t h e o l d e r method of s h i p p i n g t h e c o p r a a b r o a d f o r e x t r a c t i o n
of t h e o i l .

The c i g a r b u s i n e s s h a s b e e n g r e a t l y s t i m u l a t e d by t h e h i g h

p r i c e s of t o b a c c o i n Europe and t h e U n i t e d S t a t e s .
p r i c e a n d , as u s u a l , i s i n s t r o n g demand.

Hemp i s h i g h i n

In consequence of t h e good

p r i c e s r e a l i z e d f o r t h e i r p r o d u c t s t h e n a t i v e s have become b e t t e r c u s t o m e r s t h a n i n t h e p a s t , and t h e i r d e s i r e f o r American goods of a l l
k i n d s makes t h e I s l a n d s a d e s i r a b l e m a r k e t f o r t e x t i l e s ,

automobiles,

sewing m a c h i n e s , i r o n and s t e e l p r o d u c t s of &11 k i n d s , v a r i o u s forms
of w e a r i n g a p p a r e l ( p a r t i c u l a r l y s h o e s ) , c a n n e d g o o d s , a n d a g r e a t v a r i e t y
pf m a n u f a c t u r e s , e s p e c i a l l y t h o s e which have a R e l a t i v e l y l a r g e v a l u e i n
s m a l l b u l k , and hence a r e a b l e t o b e a r c o m p a r a t i v e l y h i g h r a t e s of f r e i g h t .



IbLt

Americana i n t r a d i n g w i t h t h e P h i l i p p i n e s have committed
t h e e r r o r of s u p p o s i n g t h a t a l a r g e p a r t of t h e i r m a r k e t would d e pend upon t h e growth o i an American colony i n t h e I s l a n d s .

They

a r e now f i n d i n g i t more p r o f i t a b l e t o a d a p t t h e m s e l v e s t o t h e n a t i v e demands

Our e x p o r t e r s a r e t h u s a t l a s t s e e m i n g l y w o r k i n g

a l o n g somewhat t h e r i g h t l i n e s > a l t h o u g h t h e y a r e t r e a t i n g t h e
s u b j e c t r a t h e r too narrowly,

f a i l i n g t o r e a l i z e t h a t t h e same k i n d

of e n e r g y and e n t e r p r i s e needed t o e x t e n d t h e i r s a l e s i n t h e
United S t a t e s ,

i s needed in t h e P h i l i p p i n e I s l a n d s ;

while they

t o o o f t e n n e g l e c t t h e f a c t t h a t t h e y must do a l l t h e y Can t o s t i m u l a t e i m p o r t a t i o n s from t h e I s l a n d s in o r d e r t o e n l a r g e t h e b u y i n g power of t h e n a t i v e s , and t h e r e b y improve t r a d e w i t h t h e U n i t e d
States.

But t h i s p r o g r e s s may o r may n o t be s t a b l e i n t h e P h i l i p -

pine Islands,

j u s t a s i n t h e case of o t h e r f o r e i g n c o u n t r i e s .

There

i s p r o b a b l y more r e a s o n t o b e l i e v e i n i t s s t a b l i l i t y b e c a u s e of t h e
s t e a d y growth of t h e t r a d e w i t h t h e P h i l i p p i n e s b e f o r e t h e w a r ,
and b e c a u s e of t h e p o l i t i c a l r e l a t i o n s between t h e United S t a t e s
and t h e I s l a n d s .

Nevertheless,

i n t h i s c a s e , as i n so many o t h e r s ,

t h e i n c r e a s e i n b u s i n e s s w i t h t h e United S t a t e s h a s been p a r t l y
t h e r e s u l t pf n e c e s s i t i e s growing o u t of t h e d i s t u r b a n c e of w o r l d
trade,
ers,

and i s n o t s o l e l y due t o e f f o r t s on t h e p a r t of m a n u f a c t u r T h i s t r a d e , m o r e o v e r , h a s been c a r r i e d on u n d e r e x t r e m e l y

d i f f i c u l t conditions in banking,




Financial r e l a t i o n s with the

976
- 6 -

P h i l i p p i n e s have b e e n r u d i m e n t a r y and u n s a t i s f a c t o r y , and t h e
I s l a n d s have had t o depend v e r y l a r g e l y upon t h e a i d of f o r e i g n
banking c a p i t a l .
What i s g o i n g t o 'become of our f o r e i g n t r a d e a f t e r t h e
war i s o v e r , n o t m e r e l y w i t h t h e P h i l i p p i n e I s l a n d s , b u t w i t h
other countries?

This i s a u n i v e r s a l s u b j e c t of d i s c u s s i o n azld

inquiry a t the present time.

Some b e l i e v e t h e o u t l o o k w i l l be

b r i g h t e r and b e t t e r f o r our f o r e i g n b u s i n e s s t h e n t h a n i t i s nowj
o t h e r s seem t o e x p e c t a g e n e r a l r e a c t i o n , w h i l e s t i l l o t h e r s who
want t o be s a f e , p r e d i c t a p e r i o d of " t a p e r i n g o f f , " d u r i n g which
t r a d e w i l l g r a d u a l l y decline to something l i k e i t s old l e v e l .

I

do n o t b e l o n g t o any of t h e s e s c h o o l s of t h o u g h t , b u t am e m p h a t i c a l l y a . b e l i e v e r i n t h e d o c t r i n e t h a t t h e d i r e c t i o n and amount
of b u s i n e s s a f t e r t h e w a r i s o v e r w i l l depend v e r y l a r g e l y upon
ourselves.

If we want t h e b u s i n e s s , we can have i t ;

and we can

h a v e i t i n l a r g e measure b e c a u s e of t h e immense demand t h a t w i l l
e x i s t f o r o u r goods d u r i n g t h e g r e a t p e r i o d of r e c o n s t r u c t i o n
t h a t w i l l s e t i n when t h e war i s o v e r .

Moreover, we can, i f we

w i l l , preempt many u n d e v e l o p e d f i e l d s of f o r e i g n b u s i n e s s w h i c h ,
a t t h e p r e s e n t t i m e , a r e c o m p a r a t i v e l y f r e e from c o m p e t i t i o n , and
w h i c h , a f t e r t h e w a r , w i l l n o t be e x p l o i t e d even to t h e e x t e n t
t h e y have been i n t h e p a s t , b e c a u s e e x p o r t e r s and m a n u f a c t u r e r s i n
f o r e i g n c o u n t r i e s w i l l be u n a b l e t o r e g a i n t h e i r h o l d i m m e d i a t e l y ,
and w i l l o n l y a f t e r c o n s i d e r a b l e t i m e , be i n p o s i t i o n t o d e v o t e




19
976
-7-

t o t h e c u l t i v a t i o n of t h e s e f o r e i g n f i e l d s t h e same e n e r g y t h e y
gave them b e f o r e t h e i n t e r n a t i o n a l c o n v u l s i o n which began i n
August, 1914.

l

7hat i s t h e d u t y of t h e American b a n k i n g

and

b u s i n e s s community i n t h e s e c i r c u m s t a n c e s ?
I do n o t w i s h i n t h e l e a s t t o u n d e r e s t i m a t e what h a s
b e e n done by some e n t e r p r i s i n g and a b l e b u s i n e s s c o n c e r n s i n p r e p a r i n g t h e m s e l v e s f o r t h e c o n t i n u e d development of t h e i r f o r e i g n
markets.

The e f f e c t of t h e g r e a t f o r e i g n t r a d e t h a t h a s b e e n

t h r o w n , one m i g h t s a y f o r c e d , i n t o o u r hands d u r i n g t h e p a s t two
y e a r s , has been t o e d u c a t e many e l e m e n t s of o u r b u s i n e s s p u b l i c
o u t of t h e p a r o c h i a l , a l m o s t i n s u l a r a t t i t u d e on t h i s s u b j e c t t h e y
had e n t e r t a i n e d i n t h e p a s t .

They now r e c o g n i z e t h e i m p o r t a n c e

of f o r e i g n b u s i n e s s as a b a l a n c e w h e e l and r e g u l a t o r of a l l b u s i n e s s , as a d i v e r s i f i e r of p r o d u c t i o n , as a means of e q u . l i z i n g and
stabilizing prices,

and l a s t , b u t n o t l e a s t , a s a s o u r c e of v a l -

u a b l e a d d i t i o n a l p r o f i t , i r r e s p e c t i v e of t h e s t r e n g t h of home d e mands.

But i t must a l s o be a d m i t t e d t h a t t h e r e a r e l a r g e s e c t i o n s

of t h e b u s i n e s s community which a r e i n d i f f e r e n t t o t h i s p o i n t of
View, and which a r e a p p a r e n t l y s i m p l y w a i t i n g f o r s o m e t h i n g t o
t u r n u p , l e a v i n g i t t o P r o v i d e n c e o r some p o l i t i c a l p a r t y t o t a k e
c a r e of t h e i r f u t u r e b u s i n e s s a b r o a d , t r u s t i n g t h a t when t h e war
i s o v e r b u s i n e s s may c o n t i n u e p r e t t y good f o r a t i m e a t l e a s t ,
as Mr. K i p l i n g h a s e x p r e s s e d i t ,
some s a v i n g s i g n . "




" w a i t i n g some

or,

a s y wonder, h o p i n g

For t h e s e , should they continue t h e i r p r e s e n t

1 9 3 3
976

a t t i t u d e , t h e r e i s b u t l i t t l e p r o s p e c t of s u c c e s s , and. t h e y must
e x p e c t t o s e e t h e i r umronted and. u n e x p e c t e d

teusiness

disappear

i n some c a s e s a l m o s t as q u i c k l y as i t came t o them, u n l e s s t h e r e
many
i s d e f i n i t e and f a r s e e i n g a c t i o n on t h e i r p a r t .
There a r e / l i n e s
of work i n t h e way of t h e development of commercial p r e p a r e d n e s s ,
and which must be u n d e r t a k e n i n t h e n e a r f u t u r e ;

b u t of a l l

t h e s e t h e r e i s b u t one t h a t i s germane t o t h e p u r p o s e of t h i s m e e t i n g - t h e development of a b e t t e r c o n t r o l 'of i n t e r n a t i o n a l b a n k i n g
by o u r own b a n k e r s and f i n a n c i e r s .

I t i s t h i s m a t t e r on which I

w i s h t o s p e a k t o you s a r i o u s l y .
For many y e a r s p a s t t h e r e has been an a l m o s t u n l i m i t e d
amount of t a l k a b o u t f o r e i g n b a n k i n g , and y e t t h e number of b a n k i n g e n t e r p r i s e s a c t u a l l y e s t a b l i s h e d abroad by American b a n k e r s
p r i o r t o t h e p a s s a g e of t h e F e d e r a l p e s e r v e A c t , c o u l d be counted
on t h e f i n g e r s of one h a n d .

The F e d e r a l R e s e r v e A c t , a s you

know, p r o v i d e s f o r t h e e s t a b l i s h m e n t of b r a n c h b a n k s , by p r o p e r l y
qualified institutions,

i n f o r e i g n c o u n t r i e s , and i t a l s o a u t h o r -

i z e s t h e F e d e r a l r e s e r v e banks t o e s t a b l i s h a g e n c i e s i n s u c h c o u n tries.

Only two n a t i o n a l b a n k s , so f a r as I am a w a r e , have t a k e n

a d v a n t a g e of t h i s p e r m i s s i o n , and of t h e s e b u t o n e , an e m i n e n t and
a b l y managed i n s t i t u t i o n of g r e a t r e s o u r c e s and f a r - r e a c h i n g v i s i o n ,
h a s e n t e r e d t h e f i e l d on a l a r g e s c a l e .

A few months ago t h e r e was

an o u t c r y among b u s i n e s s m e n ' s a s s o c i a t i o n s f o r an amendment t o t h e
F e d e r a l R e s e r v e Act t h a t would p e r m i t b a n k e r s t o j o i n t o g e t h e r f o r




.

1984

976
—Q«-»

t h e p u r p o s e of o r g a n i z i n g s u c h "branch i n s t i t u t i o n s .

The demand

was h e e d e d , and on September 7, 1916, C o n g r e s s , a t t h e r e q u e s t
of t h e F e d e r a l R e s e r v e Board, so amended t h e F e d e r a l R e s e r v e Act
as t o p e r m i t such j o i n t l y owned banks t o be o r g a n i z e d .

Thus f a r

no such banks have b e e n e s t a b l i s h e d , and I am n o t aware of any
p r o p o s a l s t o c r e a t e them t h a t a r e l i k e l y t o come t o a head i n
the near f u t u r e .

P e r h a p s t h e r e a r e some of which I am not a w a r e ,

b u t c e r t a i n l y t h e movement has n o t gone f a r ,
been s t a r t e d *

if

i n d e e d i t has e v e r

We must c o n c l u d e , t h e r e f o r e , t h a t t h e banks of t h e

c o u n t r y have n o t gone a c t i v e l y i n t o t h e t a s k of p r e p a r i n g t h e m s e l v e s f o r t h e s t r u g g l e t'o r e t a i n our f o r e i g n t r a d e a f t e r t h e change
of c o n d i t i o n s which a l l admit must come when European c o n d i t i o n s
materially alter,

and when c o m p e t i t i o n i s r e s t o r e d t o s o m e t h i n g

l i k e i t s former i n t e n s i t y .

The F e d e r a l r e s e r v e s y s t e m has made a

b e g i n n i n g by u n d e r t a k i n g p r e l i m i n a r y a r r a n g e m e n t s l o o k i n g t o t h e
d e s i g n a t i o n of f o r e i g n a g e n c i e s i n t e n d e d t o a s s i s t i n f u l f i l l i n g
t h e p u r p o s e s of t h e s y s t e m i n so f a r as t h e s e r e l a t e t o f o r e i g n
operations.

I need n o t , however, i n s i s t upon t h e f a c t t h a t t h e

F e d e r a l r e s e r v e s y s t e m has a p u r p o s e which i s e s s e n t i a l l y d i f f e r e n t from t h a t of o r d i n a r y commercial b a n k s , and t h a t w h a t e v e r i t
may do i n p r o m o t i n g our r e l a t i o n s w i t h f o r e i g n c o u n t r i e s and in
a i d i n g i n t h e g e n e r a l p l a n t o promote t h e w e l f a r e of t h e American
discount market,

i t can n o t p e r f o r m t h e t a s k which o n l y s t r o n g com-

m e r c i a l l y o r g a n i z e d i n s t i t u t i o n s can f u l f i l l - t h a t of e x p l o i t i n g




and d e v e l o p i n g t h e f o r e i g n m a r k e t i n t h e i n t e r e s t of our own b u s i n e s s
community.
I t i s t o be f e a r e d t h a t some of our b a n k e r s look a t t h i s
q u e s t i o n as if

i t were a q u e s t i o n of immediate p r o f i t s o l e l y .

They a r e

i n c l i n e d t o i n q u i r e i n t o t h e p o s s i b l e p r o f i t s t o be g a i n e d by t h e e s t a b l i s h m e n t of b r a n c h e s and c o n n e c t i o n s a b r o a d , a s if
and t h e w e l f a r e of t h e i r i n s t i t u t i o n s .

i t a f f e c t e d only them

The q u e s t i o n i s , however, a

good d e a l b r o a d e r t h a n t h i s , s i n c e , as I have j u s t shown, i t i n v o l v e s
t h e whole m a t t e r of r e t a i n i n g o u r t r a d e and d e v e l o p i n g i t i n m a r k e t s
o t h e r t h a n our own d o m e s t i c f i e l d s .

The b u s i n e s s man w i l l n o t be a b l e

u n d e r e x i s t i n g c o n d i t i o n s i n t r a d e and i n d u s t r y , t o c a r r y on t h e campaign alone.

He must have t h a t p o w e r f u l a s s i s t a n c e which only t h e banker

c a n a f f o r d , and t h i s c a n n o t be r e n d e r e d w i t h o u t s p e c i a l o r g a n i z a t i o n
and c o o p e r a t i o n f o r f o r e i g n t r a d e i n t h e way t h a t

I have spoken o f .

There a r e two methods by which<such e f f e c t i v e c o o p e r a t i o n c a n be a c c o m p l i s h e d ; one, t h e a c t u a l e s t a b l i s h m e n t of b r a n c h e s a b r o a d , t h e o t h e r
t h e e s t a b l i s h m e n t of c o n n e c t i o n s w i t h some i n s t i t u t i o n which w i l l f a i t h f u l l y and e a r n e s t l y r e p r e s e n t t h e i n t e r e s t s of o u r own b a n k e r s and b u s i n e s s men i n t h o s e f o r e i g n c o u n t r i e s .

And j u s t h e r e l e t me s p e a k t o

you b r i e f l y of t h e P h i l i p p i n e N a t i o n a l Bank i n i t s r e l a t i o n t o American
t r a d e and b u s i n e s s .
I have a l r e a d y e x p l a i n e d t h a t o u r t r a d e development i n t h e
P h i l i p p i n e I s l a n d s t h u s f a r has b e e n p a r t l y t h e r e s u l t of f o r t u i t o u s
c o n d i t i o n s , a n d p a r t l y t h e r e s u l t of a g r a d u a l c o m p r e h e n s i o n of t h e n e e d s
and c h a r a c t e r i s t i c s of O r i e n t a l b u y e r s .




I have a l s o b r i e f l y s u g g e s t e d

1936
-

976.

11 -

t h a t t h i s development has o c c u r r e d u n d e r v e r y d i f f i c u l t b a n k i n g c o n d i t i o n s »
In China and J a p a n t h e r e a r e a number of n o t a b l e f i n a n c i a l i n s t i t u t i o n s
of l a r g e c a p i t a l i z a t i o n , sound management and b r o a d c o n n e c t i o n s .

Some

of t h e s e i n s t i t u t i o n s have b r a n c h e s i n M a n i l a , and i n t h e p a s t have
do as a l a r g e p a r t of t h e b a n k i n g b u s i n e s s t h e r e .

There has been no p a r -

t i c u l a r r e a s o n why t h e y s h o u l d s e e k t o d e v e l o p t h e r e s o u r c e s of t h e
P h i l i p p i n e s , and t h e y have v e r y A a t u r a l l y c o n f i n e d t h e m s e l v e s q u i t e g e n e r a l l y t o exchange o p e r a t i o n s and a l i m i t e d c l a s s of commercial b u s i n e s s
in the Islands.

The P h i l i p p i n e Government h a s been o b l i g e d a t t i m e s t o

s u p p l e m e n t l o c a l b a n k i n g a c t i v i t i e s by making a d v a n c e s , sometimes t h r o u g h
l o c a l b a n k s , t o a g r i c u l t u r a l and o t h e r e n t e r p r i s e s i n t h e P h i l i p p i n e s .
As i s w e l l known, i t has a l s o e x e r c i s e d t h r o u g h i t s T r e a s u r y Department
t h e f u n c t i o n of m a i n t a i n i n g t h e c u r r e n c y of t h e c o u n t r y a t a p a r i t y
with gold.

I t h a s been f e l t f o r a good w h i l e t h a t s o m e t h i n g more was

n e e d e d , and t h i s w i t h o u t i n t h e s l i g h t e s t d e g r e e r e f l e c t i n g upozl t h e
s e r v i c e a l r e a d y r e n d e r e d by b a n k e r s o r o u t s i d e i n s t i t u t i o n s which have
e s t a b l i s h e d t h e m s e l v e s i n t h e P h i l i p p i n e s , o r by t h e e f f o r t s of s u c h
l o c a l c a p i t a l as i s i n v e s t e d i n the banking b u s i n e s s t h e r e .

The p u r p o s e

t o be a c c o m p l i s h e d was t h a t of f u r t h e r i n g and d e v e l o p i n g l o c a l b u s i n e s s ,
of c o n n e c t i n g i t w i t h t h e t r a d e and b a h k i n g o r g a n i s a t i o n s of t h e U n i t e d
S t a t e s , and of i n j u r i n g a f t e r t h e t e r m i n a t i o n of t h e p r e s e n t s p e c i a l and
p e c u l i a r c o n d i t i o n s , a c o n t i n u a n c e and improvement of t h e t r a d e p r o g r e s s
c h a r a c t e r i s t i c of t h e r e c e n t p a s t .
The P h i l i p p i n e ; N a t i o n a l Bank i s t h u s a n a t u r a l o u t g r o w t h of
c o n d i t i o n s , and a f f o r d s a s u g g e s t i o n of one way i n which d i s t i n c t




and o r g a n i z e d e f f o r t must be made. l o o k i n g t o t h e r e t e n t i o n and improvement
of f o r e i g n t r a d e .

The Bank h&s t a k e n over most of t h e b a n k i n g f u n c t i o n s

h e r e t o f o r e e x e r c i s e d by t h e Government, and i s s u p p l e m e n t i n g e x i s t i n g
b a n k i n g i n s t i t u t i o n s by u n d e r t a k i n g o p e r a t i o n s which t h e y have n o t c a r e d
t o go i n t o , or e l s e were n o i f i t t e d t o t a k e u p .

I t i s t o some e x t e n t

u n a v o i d a b l y o c c u p y i n g t h e same f i e l d a s t h e s e o t h e r i n s t i t u t i o n s , but i t
i n no wise s e e k s t o l i m i t t h e i r b u s i n e s s , but f a t h e r t o f u i ' t h d r i t . Since
i t s o r g a n i z a t i o n i t has s t o o d ready a t a l l t i m e s t o r e d i s c o u n t any p a p e r
t h a t might be p r e s e n t e d t o i t l o c a l l y »

As t i m e goes on, i t may be e x -

p e c t e d t o e s t a b l i s h b r a n c h e s e l s e w h e r e i n t h e O r i e n t , and p a r t i c u l a r l y i n
t h e P h i l i p p i n e s , and t h u s t o become a g e n e r a l O r i e n t a l i n s t i t u t i o n , n o t c
confining itself

e x c l u s i v e l y t o the P h i l i p p i n e s , but endeavoring t o de-

v e l o p t r a d e between t h e P h i l i p p i n e s and o t h e r p a r t s of t h e E a s t .
p r e s e n t i t s work i s n a t u r a l l y c o n f i n e d t o t h e I s l a n d s t h e m s e l v e s .

For t h e
I t has

a l r e a d y e s t a b l i s h e d t w e n t y - s e v e n a g e n c i e s i n as many p r o v i n c i a l c a p i t a l s , ••
where."deposits a r e r e c e i v e d and exchange s o l d , and a t which a p p l i c a t i o n s
f o r l o a n s may be f i l e d f o r t r a n s m i s s i o n t o M a n i l a .

A r e g u l a r l y organized

branch a t I l o i l o h a s been opened, and a b r a n c h f u l l y equipped f o r b u s i n e s s
in
i s s h o r t l y t o b e / o p e r a t i o n i n New Y o r k .
The Bank has e s t a b l i s h e d r e l a t i o n s w i t h c o r r e s p o n d e n t s i n J a p a n and on t h e China C o a s t , and i s s e l l i n g
and buying exchange upon E a s t e r n p o i n t s g e n e r a l l y .
The i n t e r e s t of American b u s i n e s s men i n t h e new i n s t i t u t i o n
s h o u l d be g e n u i n e i f t h e y a r e a t a l l concerned i n E a s t e r n t r a d e .

Inasmuch

as t h e P h i l i p p i n e N a t i o n a l Bank i s e n d e a v o r i n g t o do a s u b s t a n t i a l l o c a l




1 9 3 8
- 13-

b u s i n e s s , d i s c o u n t i n g p a p e r and a s s i s t i n g t h e development of P h i l i p p i n e e n t e r p r i s e s , i t i s i n a p o s i t i o n t o h e l p i n t h e e x p a n s i o n of i n s u l a r
business to a very m a t e r i a l e x t e n t •

One of t h e o b j e c t s of i t s c r e a t i o n

has been t h a t of c a r r y i n g f u r t h e r and r e n d e r i n g more e f f e c t i v e t h e wor£
of t h e f o r m e r A g r i c u l t u r a l Bank7 which had a l r e a d y r e n d e r e d good s e r v i c e
i n h e l p i n g t h e g r o w er s of s u g a r , hemp, t o b a c c o , and o t h e r a g r i c u l t u r a l
At t h e o p e n i n g of t h e Bank 1 s b u s i n e s s , i t , of c o u r s e , u n d e r -

products.

t o o k t h e duty of making a g r i c u l t u r a l l o a n s »

These a r e c a r e f u l l y l i m i t e d

by law t o o n e - h a l f of i t s c a p i t a l and s u r p l u s , p l u s s u c h sums a s may be
r e c e i v e d t h r o u g h t h e s a l e of a g r i c u l t u r a l bonds b a s e d on i t s mortgage
loans.

The new Bank has c a r r i e d t h u s d u r i n g t h e p r e s e n t s e a s o n , l a r g e

l o a n s t o s u g a r g r o w e r s , and has made c o n s i d e r a b l e a d v a n c e s i n c o n n e c t i o n
w i t h t h e m i l l i n g of s u g a r ,
development

American b u s i n e s s men who a r e l o o k i n g t o t h e

of a market i n t h e P h i l i p p i n e I s l a n d s a r e b e i n g accommodated

t h r o u g h t h e u s u a l methods of o p e n i n g c r e d i t s and f i n a n c i n g i m p o r t a t i o n s ;
w h i l e , as already seen, l o c a l e x p o r t e r s are being aided in b r i n g i n g t h e i r
p r o d u c t s t o m a r k e t , a s w e l l as i n m e r e l y a i d i n g t h e shipment of them
abroad.

The Bank has opened c r e d i t s i n t h e U n i t e d S t a t e s f o r some of

t h e p r i n c i p a l i m p o r t e r s i n t h e P h i l i p p i n e I s l a n d s , and h a s a l s o begun
f i n a n c i n g o p e r a t i o n s between M a n i l a and t h e a d j a c e n t c o a s t of China*
a l l t h i s t h e new Bank w i l l be an i m p o r t a n t f a c t o r i n s t i m u l a t i n g and
developing our t r a d e with the P h i l i p p i n e s ,
The Bank had an a u t h o r i z e d c a p i t a l of 2 0 , 0 0 0 , 0 0 0 p e s o s , or
$10,000,000
scribed




by

g o l d , of
the

which

10,100,000

Government

of

p e s o s has
the

been sub -

Philippine

In

976

-14Islands.

The r e m a i n d e r of t h e s t o c k i s o f f e r e d t o p u b l i c s u b s c r i p -

t i o n , and i s b e i n g g r a d u a l l y s o l d and t a k e n u p .

As t h e d e p o s i t i n g

of i n s u l a r , p r o v i n c i a l and m u n i c i p a l f u n d s t h r o u g h o u t ; t h e i s l a n d s
w i t h t h e bank i s made m a n d a t o r y , e x c e p t i n c a s e s where p u b l i c w e l l b e i n g may demand t h e u s e of o t h e r b a n k s , t h e i n s t i t u t i o n a l r e a d y ;;
has c o n t r o l of a l a r g e volume of p u b l i c f u n d s .
proximate

I t s resourties a p -

' 6 6 , 0 0 0 , 0 0 0 p e s o s , o r a b o u t $ 3 3 , 0 0 0 , 0 0 0 i n American c u r -

rency.
The p r e s i d e n t and v i c e p r e s i d e n t a r e a p p o i n t e d by t h e
G o v e r n o r of t h e P h i l i p p i n e I s l a n d s ;

and s i n c e t h e Government con- 1

t r o l s a m a j o r i t y of s h a r e s , i t w i l l always c o n t r o l a m a j o r i t y of
t h e b o a r d of d i r e c t o r s .

The t r a n s a c t i o n of g e n e r a l Government

b u s i n e s s , t h e r e c e i p t of c u r r e n t d e p o s i t s , payment of Government
c h e c k s , making of r e m i t t a n c e s t o f o r e i g n c o u n t r i e s , and t h e l i k e ,
a r e now i n t h e hands of t h e P h i l i p p i n e N a t i o n a l Bank, so t h a t i t s
d u t i e s a r e d i s t i n c t l y of a p u b l i c c h a r a c t e r from many s t a n d p o i n t s .
P e r h a p s t h e r e a r e some of you who a r e i n c l i n e d t o s u g g e s t
t h a t t h e o r g a n i z a t i o n of t h e P h i l i p p i n e N a t i o n a l Bank t r a n s g r e s s e s
v i e w s which you h a v e formed a b o u t t h e i n t e r f e r e n c e of t h e Government
with p r i v a t e e n t e r p r i s e in banking.

And y e t ,

i n one

aspect the

i d e a of t h e P h i l i p p i n e N a t i o n a l Bank i n t h a t r e g a r d i s v e r y s i m i l a r
t o t h e b a s i c c o n c e p t i o n of t h e F e d e r a l r e s e r v e s y s t e m .

I t is not

b a s e d upon t h e i d e a of Government i n t e r f e r e n c e w i t h b a n k i n g , b u t
r a t h e r of Government c o o p e r a t i o n w i t h t h e community i n r e n d e r i n g
b a n k i n g more e f f e c t i v e .




The F e d e r a l R e s e r v e Act was f r a m e d upon t h e

1940
976
-15t h e o r y t h a t by t h e use of t h e b a n k i n g energy of t h e c o u n t r y i n a
combined and u n i t e d form, s u p p o r t e d and s u s t a i n e d by t h e power of
t h e Government, g r e a t

b e n e f i t could be r e n d e r e d t o e v e r y element

i n t h e coraxunify, b o t h a g r i c u l t u r a l , commercial and i n d u s t r i a l .
The c o n c e p t i o n upon which t h e P h i l i p p i n e N a t i o n a l Bank i s founded
i s t h e same, and t h e i d e a s u n d e r l y i n g i t a r e i d e n t i c a l w i t h t h o s e
u n d e r l y i n g t h e F e d e r a l Reserve A c t .

I t p r o c e e d s upon t h e t h e o r y

t h a t p u b l i c o v e r s i g h t and p u b l i c management i n b a n k i n g a r e d e s i r a b l e ,
t h a t t h e p u b l i c i s e n t i t l e d t o r e a l i z e l e g i t i m a t e p r o f i t s upon t h e
f u n d s which i t p l a c e s in a bank, and t h a t p r i v a t e i n i t i a t i v e and
p r i v a t e management i n t h e o p e r a t i o n of b a n k i n g c o n c e r n s a r e l i k e l y
»
•
e
t o b e ' m o r e s u c c e s s f u l and e f f i c i e n t t h a n t h e work of p u b l i c o f f i c e r s ,
however f a i t h f u l and devoted t h e s e may b e .

The P h i l i p p i n e N a t i o n -

a l Bank, e s t a b l i s h e d u n d e r d i f f e r e n t a u s p i c e s and m e e t i n g v e r y d i f f e r e n t l o c a l c o n d i t i o n s , i s t h u s a s p e c i a l a p p l i c a t i o n of t h e
c o n c e p t i o n of t h e F e d e r a l Reserve Act t o t h e b u s i n e s s a f f a i r s of
a f a r d i s t a n t p e o p l e whose development i s a t p r e s e n t much b e h i n d
t h a t of t h e United S t a t e s .

That t h e bank has j u s t i f i e d i t s e l f

may be more f u l l y u n d e r s t o o d when I speak of i t s growth i n r e s o u r c e s from about 9 , 0 0 0 , 0 0 0 p e s o s e a r l y i n May l a s t , t o about
6 6 , 0 0 0 , 0 0 0 a t t h e c l o s e of t h e y e a r .

A p a r t of t h i s growth i s ,

of c o u r s e , due t o t h e g r a d u a l t a k i n g over of p u b l i c d e p o s i t s and
p u b l i c b u s i n e s s , b u t a v e r y l a r g e p a r t of i t i s due a l s o t o t h e i n c r e a s i n g c o n f i d e n c e of t h e b u s i n e s s community
tution,




and

to

the

rapid

growth

of

the

in

the

deposit

instiand l o a n a c -

1941

976
-16-

c o u n t s of t h e b u s i n e s s p u b l i c w h i c h had d e a l i n g s w i t h i t .

The

P h i l i p p i n e N a t i o n a l Bank i s d o i n g i t s p a r t t o a t t a i n t h e end
w h i c h m i g h t from a n o t h e r a n g l e h a v e been a p p r o a c h e d by o u r own
banks had t h e y chosen t o u n d e r t a k e t h e e s t a b l i s h m e n t of b a n k i n g o r g a n i z a t i o n s i n t h e P h i l i p p i n e s f o r t h e p u r p o s e of o b t a i n i n g and d e f i n i t e l y h o l d i n g t h e t r a d e of t h e I s l a n d s , o r e n c o u r a g i n g t h e improvement of a g r i c u l t u r a l and p r o d u c t i v e c o n d i t i o n s ,
and of a s s i s t i n g i n t h e advancement of m a n u f a c t u r i n g e n t e r p r i s e s
there.
D o u b t l e s s i t would n d t be f e a s i b l e f o r American i n s t i t u t i o n s to go so fa 1 " in. t h e d e v o t i o n of r e s o u r c e s t o t h e d e v e l o p ment of b u s i n e s s i n

f o r e i g n c o u n t r i e s as t h e y would be j u s t i f i e d

i n d o i n g i n t h e P h i l i p p i n e s , o r as t h e P h i l i p p i n e N a t i o n a l Bank
i s u n d e r t a k i n g to do.

And y e t t h e e x p e r i e n c e of t h i s bank i s

i n l i n e w i t h t h a t of b a n k i n g i n s t i t u t i o n s o r g a n i z e d by f o r e i g n
c o u n t r i e s f o r t h e p u r p o s e of o p e r a t i n g a b r o a d and p o i n t s o u t t h e
o n l y t r u e way i n which t o f o s t e r and r e t a i n f o r e i g n t r a d e *

This

i s t h r o u g h t h e e x t e n s i o n of accommodation u n d e r w i s e and c o n s e r v a tive conditions,

t o t h o s e b u s i n e s s i n t e r e s t s i n o t h e r c o u n t r i e s which

r e q u i r e t h a t k i n d , of a s s i s t a n c e ,

and which i n r e t u r n f o r i t ,

o r as

a c o n d i t i o n of g e t t i n g i t , w i l l be w i l l i n g and r e a d y t o t u r n t h e i r
p u r c h a s i n g power toward t h e U n i t e d S t a t e s •

We h a v e l o n g known t h a t

E n g l a n d ' s p o w e r f u l h o l d upon t h e t r a d e of S o u t h America and t h e Far
E a s t was n o t due t o any i n n a t e f o n d n e s s on t h e p a r t of t h e p e o p l e of




*»- >* 'A?'." •%</,<

•* RW ' V R«

•

576

1 9 4 2

-17t h o s e r e g i o n s f o r G r e a t B r i t a i n o r h e r a s s i s t a n c e , b u t was due t o
t h e f a c t t h a t B r i t i s h banking i n s t i t u t i o n s stood ready t o f a c i l i t a t e the
stood

movement of goods t o t h o s e c o u n t r i e s > w h i l e t h e y a l s o

s t o o d r e a d y within, r e a s o n a b l e l i m i t s t o a s s i s t i n t h e d e v e l -

opment of t h e r e s o u r c e s oi t h o s e c o u n t r i e s , and i n t h e e x p o r t a t i o n
of t h e i r p r o d u c t s t o G r e a t B r i t a i n .

The p r o g r e s s w h i c h h a s b e e n made

i n r e c e n t y e a r s by German b a n k e r s and b u s i n e s s men i n competing w i t h
G r e a t B r i t a i n and h e r r e p r e s e n t a t i v e s , has been due t o Germany's
r e c o g n i t i o n of t h e e s s e n t i a l b a s i s f o r B r i t i s h t r a d e , ana h e r a d o p t i o n
of s i m i l a r modes of g e t t i n g and c o n t r o l l i n g b u s i n e s s .
t i o n i n t h e whole m a t t e r i s :

The r e a l q u e s -

Do we want t o c o n t i n u e o u r p r e s e n t c o n -

t r o l of f o r e i g n t r a d e , o r a r e we c o n t e n t t o r e t u r n t o t h e f o r e i g n
t r a d e s i t u a t i o n which e x i s t e d b e f o r e t h e E u r o p e a n w a r ?

If we do i n

f a c t b e l i e v e t h a t b e n e f i t comes t o t h e c o u n t r y f r o m t h e m a i n t e n a n c e
of a s t r o n g and w e l l — d i v e r s i f i e d f o r e i g n t r a d e , i t w i l l be n e c e s s a r y
f o r u s as a n a t i o n t o adopt t h o s e m e a s u r e s and methods which e x p e r i e n c e has shown t o be r e q u i s i t e .
As I have a l r e a d y i n t i m a t e d ,

I do n o t b e l i e v e s t r o n g l y i n

t h e e f f e c t of a r t i f i c i a l l e g i s l a t i o n i n s u s t a i n i n g and e x t e n d i n g out*
business.

In o r d e r t o d e a l w i t h f o r e i g n c o u n t r i e s s u c c e s s f u l l y we

must n o t o n l y s e l l b u t b u y ,

We must do more t h a n t h i s .

We must

h o l d o u t t h e h e l p n e c e s s a r y t o e n a b l e o u r own. b u s i n e s s men t o p l a c e
t h e i r goods on f o r e i g n m a r k e t s w i t h s u c c e s s and a t r e a s o n a b l e c o s t ,
and we must e n a b l e s h i p p e r s i n t h i s c o u n t r y t o e x p o r t w i t h o u t u n r e a s o n able s a c r i f i c e .




Indeed we m u s t , i f we w i s h t o c r e a t e a p e r m a n e n t and

*

1943

971,

— 18 —

growing f o r e i g n t r a d e , a i d p r o d u c e r s and s h i p p e r s a b r o a d "by e v e r y l e g i t i mate means i n our power, t o i n c r e a s e t h e i r o u t p u t , and t o m a r k e t i t u n d e r
favorable conditions*

The i d a a t h a t t h i s c a n n o t be done, o r t h a t some

s p e c i a l d i f f i c u l t i e s s t a n d i n t h e way, o r t h a t t h e problem i s b e i n g p r e m a t u r e l y p r e s e n t e d , o r t h a t f o r some r e a s o n we c a n e s c a p e immediate a c t i o n upon i t , has been d i s p e l l e d by t h e e v e n t s of t h e p a s t two y e a r s .
I t must be e v i d e n t t o a l l t h a t t h e p r e s e n t moment i s one which c a l l s f o r
t h e e x e r c i s e of c o n s t r u c t i v e b u s i n e s s a b i l i t y and t h e d i s p l a y of e n t e r p r i s e and i n i t i a t i v e by our p e o p l e a l o n g e v e r y l i n e t h a t e x p e r i e n c e shows
t o be r e q u i r e d i n f a c i l i t a t i n g t h e g r o w t h of b u s i n e s s .

Our r e l a t i o n s w i t h

t h e P h i l i p p i n e s a f f o r d merely an i n t i m a t i o n of what c a n be and i s b e i n g
done i n t u r n i n g t r a d e t o w a r d t h e U n i t e d S t a t e s , i n f i n a n c i n g i t ,

in

e c o n o m i z i n g t h e e x p e n s e s n e c e s s a r i l y i n c u r r e d i n c o n n e c t i o n w i t h i t , and
g e n e r a l l y i n b r i n g i n g t h e f o r e i g n p r o d u c e r and b u y e r c l o s e r t o t h e home
p r o d u c e r and b u y e r .
What I have s a i d t h u s f a r has been e x p r e s s e d i n p u r e l y g e n e r a l
un
t e r m s ; and I a m / w i l l i n g t o l e a v e t h e s u b j e c t t h i s e v e n i n g w i t h o u t p l a c i n g
b e f o r e you a d e f i n i t e problem*
F i r s t of a l l ,

I b e l i e v e i t t o be n e c e s s a r y t h a t o u r b a n k e r s

s h o u l d t o a much g r e a t e r e x t e n t t h a t a t p r e s e n t , make a c t u a l , p r a c t i c a l
connections abroad.
ment of
through




branches
the

This s h o u l d be done e i t h e r t h r o u g h t h e e s t a b l i s h m e n t
of t h e i r

perfecting

of

own

at strategic points,

agency

relations

or
with

other

976

1944

*-i9"
banks which c a n b e r e l i e d upon t o promote t h e i n t e r e s t s of t h e
U n i t e d S t a t e s and i t s b u s i n e s s men.

In a c o n s i d e r a b l e number of

i n s t a n c e s t h e f o r e i g n c o n n e c t i o n s I s p e a k of must be e f f e c t e d by
t h e a c t u a l and d i r e c t e s t a b l i s h m e n t of branches., r a t h e r t h a n t h r o u g h
the agency method.
S e c o n d l y , o u r b a n k e r s g e n e r a l l y must e n d e a v o r , s o f a r as
t h e y can, t o promote t h e p r o g r e s s and a i d i n t h e development of t h e
f o r e i g n b u s i n e s s of banks c h a r t e r e d u n d e r American c o n t r o l , and d i r e c t l y c o n c e r n e d t o promote American i n t e r e s t s .

Our b u s i n e s s men

must c o o p e r a t e i n t h i s r e g a r d by p l a c i n g t h e i r b u s i n e s s w h e r e v e r p o s s i b l e w i t h such b a n k s .

This i s n o t a c o u n s e l of o p p o s i t i o n o r h o s -

t i l i t y t o any f o r e i g n b a n k i n g i n s t i t u t i o n ;

i t i s merely a suggestion

t h a t so f a r as p r a c t i c a b l e , we u n i t e as a b u s i n e s s community i n f o r w a r d i n g by a l l l e g i t i m a t e means o u r own i n t e r e s t s a b r o a d .
Third, t h e Federal r e s e r v e system should,

and w i l l , a s c o n -

d i t i o n s p e r m i t , e s t a b l i s h a b r o a d agency c o n n e c t i o n s which w i l l e n a b l e
t h e F e d e r a l r e s e r v e banks t o a s s i s t i n t h e f o r e i g n o p e r a t i o n of s u c h
o t h e r banks a s a r e formed t o promote t r a d e i n o t h e r c o u n t r i e s , and
w i l l a t t h e same t i m e u n d e r t a k e t h o s e o p e r a t i o n s d e s i g n e d t o m a i n t a i n
t h e s t a b i l i t y of m o n e t a r y and e x c h a n g e r e l a t i o n s h i p s between o u r s e l v e s
and o t h e r

c o u n t r i e s which a r e c a l l e d f o r by t h e Government banks

elsewhere.
F o u r t h l y , o u r b u s i n e s s p u b l i c must u n d e r t a k e t o f u r n i s h a
d i r e c t , p r a c t i c a l s u p p o r t t o t h e s e e f f o r t s on t h e p a r t of our b a n k s ;
looking
and




at

the

recognizing

matter
that

from
while

the
they

long
may

range
have

standpoint,
to

submit

to

1945

976
—20™

some d i f f i c u l t i e s o r even i n c o n v e n i e n c e

w h i l e we a r e e x t e n d i n g

our banking r e l a t i o n s h i p s abroad, t h e s e a r e incurred merely f o r
t h e s a k e of d e v e l o p i n g a s y s t e m which i n i t s t u r n w i l l s a f e g u a r d
t h e i n t e r e s t s of t h e b u s i n e s s p u b l i c when t h e i n t e n s i t y of compet i t i o n i s r e s t o r e d , and when t h e e f f o r t of European c o u n t r i e s t o
o b t a i n a s h a r e of f o r e i g n m a r k e t s a g a i n becomes a c t i v e .
T h i s i s a l a r g e program, b u t t h e same may be s a i d of
e v e r y t h i n g t h a t i s d e s t i n e d t o e x e r t a f a r - r e a c h i n g and p e r m a n e n t
effect.

A g r e a t d e a l of such s u c c e s s as may be a t t a i n e d w i l l b e

s e c u r e d t h r o u g h t h e a c t i v e i n t e r e s t and e n t e r p r i s e of t h e y o u n g e r
b a n k e r s of t h e c o u n t r y ;

upon them w i l l f a l l t h e a c t u a l work of

u n d e r t a k i n g t h e t a s k s i n v o l v e d i n t h e e x t e n s i o n of. o u r b a n k i n g
c o n n e c t i o n s , and t o them u n d o u b t e d l y w i l l b e a s s i g n e d most of t h e
c o n s t r u c t i v e d u t i e s i n v o l v e d i n t h e i n v e s t i g a t i o n and a n a l y s i s of
foreign conditions.

New c o n d i t i o n s must be met, and o l d ones must

be a d a p t e d t o them.

The work i s one which c a l l s f o r v i s i o n and

i m a g i n a t i o n , as w e l l a s f o r t h e t e c h n i c a l knowledge of e x p e r i e n c e d
men who have a d e f i n i t e p u r p o s e t o a c c o m p l i s h , and who a r e a b l e
t o s e p a r a t e what i s p o s s i b l e from what i s v i s i o n a r y and u n a t t a i n a b l e .
This i s why I have b r o u g h t t h e s u b j e c t t o y o u r a t t e n t i o n a s one who
h a s had a s m a l l s h a r e i n t h e w o r k i n g o u t of one p h a s e of t h e p r o b l e m ,
who s e e s t h e f i e l d t h a t i s open, and who r e c o g n i z e s t h a t a l t h o u g h
t h e h a r v e s t i s r i p e , t h e r e a p e r s a r e v e r y few i n d e e d ,

If

T navs a t

a l l c o n t r i b u t e d t o making o u r f o r e i g n p r o b l e m more v i v i d i n y o u r
minds and i n p e r s u a d i n g you t o a more p o i n t e d r e c o g n i t i o n of. t h e
n e e d f o r immediate a c t i o n I s h a l l f e e l t h a t a f u r t h e r s t e p has b e e n
taken towards i t s d e f i n i t e s o l u t i o n .




1946
W . R . G . H A R D I N G , GOVERNOR
P A U L M. W A R B U R G . VICE GOVERNOR

EX-QFFICIO MEMBERS

F R E D E R I C A. DELANO
ADOLPH C. MILLER

WILLIAM G. McADOO
SECRETARY OF THE TREASURY

C H A R L E S S . HAMLIN

CHAIRMAN

FEDERAL RESERVE BOARD

J O H N SKELTON WILLIAMS
COMPTROLLER O F THE CURRENCY

WASHINGTON

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT

977

ADDRESS REPLY TO

J a n u a r y 15, 1917.

Gentlemen:
In a c c o r d a n c e w i t h a r r a n g e m e n t s a l r e a d y
made t h e F e d e r a l p e s e r v e Board, w i l l p u b l i s h a s u p p l e ment t o t h e p a r l i s t as of F e b r u a r y 1, 1 9 1 7 .
W i l l you p l e a s e , t h e r e f o r e , f o r w a r d s u c h
changes as s h o u l d be made f o r y o u r D i s t r i c t t o r e a c h
Washington n o t l a t e r t h a n J a n u a r y 23d?




Very t r u l y y o u r s ,

Secretary.

FEDERAL

RESERVE BOARD

qt

EX-OFFICIO MEMBERS
WILLIAM G . McADOO
SECRETARY OF THE TREASURY

I t H Y

i)
W . P . 6 . H A R D I N G , GOVERNOR
PAUL

CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER O F THE CURRENCY

M . W A R B U R G , VICE GOVERNOR

F R E D E R I C ^ DELANO
ADOLPH C / W L A . « R
C H A R L E S S . HAMLIN

FEDERAL RESERVE BOARD

H . P A R K E R W I L L I S , SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT

WASHINGTON

ADDRESS REPLY TO
FEDERAL

RESERVE BOARD

J a n u a r y 1 7 , 1$17«

Dear S i r :
I n a n s w e r t o i n q u i r i e s d e c e i v e d : f r o m some t a n k s a s t o
proper m e t h o d s ox c l a s s i f y i n g t h e d i s c o u n t m a t e r i a l on h a n d u n d e r
t h e s e v e r a l h e a d s shown i n t h e l o w e r p o r t i o n of Form 3 8 , e s p e c i a l l y u n d e r t h e head of

" A g r i c u l t u r a l and l i v e - s t o c k p a p e r " ,

,

I

would s a y t h a t i t i s t h e d e s i r e of t h e Board t h a t t h e F e d e r a l r e serve tanks a s c e r t a i n i n a l l cases whether t h e o r i g i n a l loan has
b e e n o b t a i n e d f r o m t h e r e d i s c o u n t i n g member bank f o r a g r i c u l t u r a l ,
i n d u s t r i a l o r c o m m e r c i a l p u r p o s e s so t h a t a l l d i s c o u n t i t e m s of
t h e R e s e r v e Bank m i g h t be r e p o r t e d t o t h e Board p r o p e r l y c l a s s i fied.
In c l a s s i f y i n g t h e d i s c o u n t m a t e r i a l t h e r e s e r v e banks
s h o u l d i n t h e f i r s t p l a c e be g u i d e d by t h e s t a t e d p u r p o s e of t h e
o r i g i n a l l o a n , a s r e p o r t e d by t h e r e d i s c o u n t i n g member b a n k ,
case t h i s purpose i s s t a t e d only i n g e n e r a l terms, as e . g.

in
"in

a c c o r d a n c e w i t h S e c t i o n 1 3 " , t h e o c c u p a t i o n of t h e b o r r o w e r s h o u l d
be u s e d a s a g u i d e i n c l a s s i f i c a t i o n .

Thus, if John Smith, a

?

m e r c h a n t , who i s a l s o .engaged i n f a r m i n g , g i v e s a n u n s e c u r e d note,
t o Henry J o n e s ; engaged i n t h e f e r t i l i z e r b u s i n e s s ,
e n t i r e l y proper to report

i t would seem

t h e i t e m as " U n s e c u r e d c o m m e r t i a l and

i n d u s t r i a l p a p e r " , u n l e s s t h e r e i s i n f o r m a t i o n on hand w h i c h makes




1948
980.
-

2"—

i t c l e a r t h a t J o n e s was t o u s e t h e p r o c e e d s of t h e l o a n f o r a g r i c u l t u r a l purposes*

In c a s e t h e n o t e was s e c u r e d "by t w e n t y "bales

of c o t t o n , i t would be p r o p e r t o r e p o r t i t a s "commercial and i n d u s t r i a l p a p e r - s e c u r e d " , u n l e s s t h e p u r p o s e of t h e l o a n was
c l e a r l y s t a t e d t o Tie a g r i c u l t u r a l .

„

Nor would i t make any d i f -

f e r e n c e i n c l a s s i f i c a t i o n were t h e payee of t h e n o t e r e p o r t e d a s
"farmer".
In c a s e Farmer Smith g i v e s t o R i c h a r d J o n e s a n o t e s e c u r e d by a l i e n on 25 s t e e r s (documents a t t a c h e d t o n o t e or n o t )
i t would be p r o p e r t o r e p o r t t h e i t e m a s l i v e - s t o c k p a p e r , u n l e s s
t h e r e i s i n f o r m a t i o n t o t h e e f f e c t t h a t t h e p r o c e e d s of t h e l o a n
have "been o r a r e t o be u s e d f o r a g r i c u l t u r a l p u r p o s e s ,
I t i s c l e a r t h a t a l l s i x - m o n t h p a p e r i s t o be r e p o r t e d
e i t h e r as a g r i c u l t u r a l o r live—stock p a p e r .

Item " T o t a l " b i l l s

d i s c o u n t e d " , shown i n t h e l o w e r h a l f of Form 3 8 , s h o u l d , of c o u r s e ,
e q u a l t o t a l of s u b d i v i s i o n 1 , - ( B i l l s d i s c o u n t e d - Members), i n
t h e u p p e r h a l f <bf t h e f o r m .
I t i s r e a l i z e d t h a t t h e above e x p l a n a t i o n s by no means
exhaust a l l p o s s i b l e combinations, but i t i s thought t h a t they w i l l
p r o v e h e l p f u l t o y o u r d i s c o u n t d e p a r t m e n t i n t h e p r e p a r a t i o n of t h e
weekly s t a t e m e n t on Form 3 8 .




Very t r u l y y o u r s ,

Vice Governor.

%

1949
W . P . G . H A R D I N G , GOVERNOR
P A U L M . W A R B U R G . VICE GOVERNOR

EX-OFFICIO MEMBERS

F R E D E R I C A. DELANO
ADOLPH C. MILLER
CHARLES S . HAMLIN

W I L L I A M 6 . MCADOO
SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H. PARKER WILLIS. S M B T > 8 Y
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT
ADDRESS REPLY TO
FEDERAL

RESERVE BOARD

J a n u a r y 1 9 , 1917*

Dear S i r :
I n v i e w of t h e f a c t t h a t t h e r a t e f o r b a n k e r s *
a c c e p t a n c e s r e c e n t l y m a i n t a i n e d by F e d e r a l r e s e r v e b a n k s
h a s b e e n somewhat h i g h e r t h a n t h e tipen m a r k e t r a t e , t h e
h o l d i n g s of a c c e p t a n c e s by t h e F e d e r a l R e s e r v e b a n k s h a v e
b e e n m a t e r i a l l y r e d u c e d d u r i n g t h e p a s t weeks*
In c o n s e q u e n c e t h e Board h a s r e c e i v e d l e t t e r s f r o m
some of t h e F e d e r a l r e s e r v e b a n k s e x p r e s s i n g a p p r e h e n s i o n
t h a t t h e i r e a r n i n g a s s e t s m i g h t be r e d u c e d t o o d r a s t i c a l l y #
and some of t h e b a n k s h a v e shown some i n c l i n a t i o n t o i n v e s t
i n w a r r a n t s , e v e n a t l o w r a t e s , and f o r t h e f u l l p e r i o d p e r m i t t e d by l a w .
The Board t h e r e f o r e h a s t h o u g h t i t a d v i s a b l e t o
d i r e c t me t o a d d r e s s a l e t t e r t o a l l F e d e r a l r e s e r v e a g e n t s
i n o r d e r t o s e c u r e a b e t t e r u n d e r s t a n d i n g of t h e p o l i c y w h i c h
i n i t s ' o p i n i o n , s h o u l d be p u r s u e d a t t h i s t i m e .
D u r i n g t h e month of December, and up t o J a n u a r y 1 2 ,
t h e n e t g o l d i m p o r t s i n t o t h e U n i t e d S t a t e s amounted t o a b o u t
$ 1 6 9 , 0 0 0 , 0 0 0 . E x c e s s r e s e r v e s have m a t e r i a l l y i n c r e a s e d i n c o n sequence.
I t may be assumed t h a t t h i s p l e t h o r a of g o l d i s n o t
e n t i r e l y a n a t u r a l one and t h a t much of i t vfjrll be a b s o r b e d
by i m p e n d i n g f l o t a t i o n s of new s e c u r i t i e s , a f t e r w h i c h we . s h a l l
p r o b a b l y w i t n e s s a g a i n t h e same d e v e l o p m e n t t h a t h a s b e e n c h a r a c t e r i s t i c of s i m i l a r p e r i o d s i n t h e p a s t - t h a t t h e d e p o s i t
and l o a n s t r u c t u r e w i l l a g a i n expand s o a s t o a b s o r b l a r g e
p o r t i o n s of t h e new g o l d .
T h e r e i s g e n e r a l a g r e e m e n t t h a t t h i s c o n t i n u o u s and
r a p i d g r o w t h of d e p o s i t s and l o a n s i s n o t w i t h o u t d a n g e r . W i t h
t h e p r e s e n t e a s e of money, i t would a p p e a r , t h e r e f o r e , i n t h e
o p i n i o n of t h e B o a r d , t o be a w i s e p o l i c y t o p e r m i t t h e e a r n i n g
a s s e t s of t h e F e d e r a l r e s e r v e b a n k s - w h i c h combined amount t o
a b o u t $ 2 0 6 , 0 0 0 , 0 0 0 - t o be r e d u c e d by from f o r t y t o f i f t y m i l l i o n s ,




982
and thereby to* absorb, temporarily at l e a s t , an e q u i v a l e n t
amount of t h e newly imported g o l d . Of c o u r s e , such a p o l i c y
must "be c a r r i e d out i n a c a r e f u l and t a c t f u l Way, and no
d e f i n i t e amount can be f i x e d at t h i s time to which t h e in*
vestments of t h e Federal reserve batiks should be reduced*
Changed i n c o n d i t i o n s may occur at any moment, which may r e n der i t n e c e s s a r y t o r e v e r s e t h i a p o l i c y , or t o apply i t even
more r a d i c a l l y than i s now contemplated. During the past few
weeks Federal r e s e r v e banks have operated along t h e s e l i n e a
w i t h very good r e s u l t s , and acceptances and r e d i s c o u n t s have
been reduced by about $40,000,000 s i n c e they reached t h e i r
h i g h e s t p o i n t , e a r l y i n December. So long as the p r e s e n t ease
c o n t i n u e s , t h e r e should hot be any d i f f i c u l t y i n c o n t i n u i n g
the p r e s e n t policy* By p e r m i t t i n g t h e open market t o absorb
the bankers' a c c e p t a n c e s , t h e a d d i t i o n a l o b j e c t i s gained of
t r a i n i n g the member banks t o d e a l l a a c c e p t a n c e s and t o become
accustomed t o i n v e s t i n g i n them.
In e x p r e s s i n g t o you t h e s e thoughts the Board wishes
me t o add t h a t i t hopes t h a t t h e banks w i l l not become unduly
r e s t i v e because of a temporary reduction of t h e i r earning a s s e t s . The Board has no doubt t h a t be f a r e the y e a r j u s t begun
i s p a s t , many occasions w i l l a r i s e which w i l l enable t h e FedeiSa l reservebanks t o employ t h e i r funds a c t i v e l y , but the Board
c o n s i d e r s i t the primary duty of the Federal r e s e r v e banks t o
be mindful of t h e i r o b l i g a t i o n t o do t h e i r f u l l part i n p r e v e n t i n g j u s t now a rapid expansion of c r e d i t and i n accumulating
resources to be used when a c t i v e demands are made upon them f o r
ordinary commercial c r e d i t f a c i l i t i e s *




Very t r u l y yours,

Governor

FORM OF RESOLUTION AUTHORIZING A FEDERAL RESERVE BANK
TO SHIP UNFIT FEDERAL RESERVE NOTES OF ANOTHER FEDERAL RESERVE
BANK DIRECT TO THE TREASURER OF THE UNITED STATES FOR REDEMPTION.
At a m e e t i n g of t h e Board of D i r e c t o r s of t h e F e d e r a l
R e s e r v e Bank of

, called pursuant to the pro-

v i s i o n s of t h e b y - l a w s of 3 a i d t a n k and h e l d on t h e

day of

, 191 , t h e f o l l o w i n g r e s o l u t i o n was o f f e r e d ,
seconded and d u l y a d o p t e d :
"BE IT RESOLVED, That t h e F e d e r a l R e s e r v e Bank of
"be and h e r e b y i s a u t h o r i z e d , empowered, and
d i r e c t e d t o f o r w a r d t o t h e T r e a s u r e r of t h e U n i t e d S t a t e s

for re-

demption f o r and i n b e h a l f of t h i s bank a l l u n f i t F e d e r a l r e s e r v e
n o t e s i s s u e d by t h i s bank which t h e F e d e r a l R e s e r v e Bank of
may now o r h e r e a f t e r h o l d , and t o do and t o
perform every l a w f u l a c t necessary t o e f f e c t such redemption i n
t h e manner o u t l i n e d i n t h e c i r c u l a r l e t t e r of t h e F e d e r a l R e s e r v e
Board, d a t e d J a n u a r y 15, 1$17, r e l a t i n g t o u n f i t F e d e r a l r e s e r v e
n o t e s f o r w a r d e d t o t h e T r e a s u r e r of t h e U n i t e d S t a t e s f o r redempt i o n by a F e d e r a l r e s e r v e bank o t h e r t h a n t h e F e d e r a l r e s e r v e bank
of i s s u e . "
I h e r e b y c e r t i f y t h a t t h e f o r e g o i n g i s a t r u e and c o r r e c t copy of a r e s o l u t i o n a d o p t e d and s p r e a d upon t h e m i n u t e s of
t h e Board of D i r e c t o r s of t h i s Bank, h e l d on t h e d a t e s p e c i f i e d .

,

,

1/22/17.




C a s h i e r or S e c r e t a r y ,
F e d e r a l R e s e r v e Bank of

1952
W . P . 6 . H A R D I N G , GOVERNOR
P A U L M . W A R B U R G , VICE GOVERNOR

EX-OFFICIO MEMBERS

F R E D E R I C A. DELANO

WILLIAM G . McADOO
SECRETARY OF THE TREASURY

ADOLPH C. MILLER
CHARLES S . HAMLIN

CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD

H . P A R K E R W I L L I S . SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT

WASHINGTON

IERAL

J a n u a r y 2 3 , 191?

Dear S i r :
The Boafd h a s b e e n r e q u e s t e d by s e v e r a l of t h e
F e d e r a l r e s e r v e banks t o p r e p a r e a form of power of a t t o r ney t b be used i n c o n n e c t i o n w i t h t h e p l a n s e t f o r t h i n i t s
l e t t e r of J a n u a r y 15, 1917> whereby u n f i t F e d e r a l r e s e r v e
n o t e s may be f o r w a r d e d t o t h e T r e a s u r e r of t h e U n i t e d S t a t e s
f o r r e d e m p t i o n by F e d e r a l r e s e r v e banks o t h e r t h a n t h e bank
of i s s u e .
I n c l o s e d h e r e w i t h i s a form of r e s o l u t i o n which
i s s u b m i t t e d m e r e l y a s a s u g g e s t i o n and w h i c h may be a l t e r e d
i n any manner t h e F e d e r a l r e s e r v e banks may deem . a d v i s a b l e .
I t i s r e q u e s t e d , however, t h a t you s e n d t o t h e
T r e a s u r e r of t h e U n i t e d S t a t e s c o p i e s of w h a t e v e r r e s o l u t i o n
you may a d o p t a u t h o r i z i n g any F e d e r a l r e s e r v e bank t o a c t a s
your a g e n t i n f o r w a r d i n g F e d e r a l R e s e r v e n o t e s t o W a s h i n g t o n
f o r redemption.
Respectfully,
Governor

Incloaure.



RESERVE

BOARD

1953
W . P . G . H A R D I N G , GOVERNOR
P A U L M . W A R B U R G , VICE GOVERNOR

EX-OFFICIO MEMBERS

F R E D E R I C A. DELANO
ADOLPH C. MILLER
C H A R L E S S . HAMLIN

WILLIAM G . MCADOO
SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S . SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT
Q A B M E S S REPLY TO
0 0

F E D E R A L

RESERVE BOARD

J a n u a r y 23, 1917.

Dear S i r :

.

A number of l e t t e r s have been a d d r e s s e d t o t h e F e d e r a l R e s e r v e B o ar d , r a i s i n g t h e q u e s t i o n w h e t h e r a t r a d e a c c e p t a n c e , which i s d e f i n e d i n t h e B o a r d ' s r e g u l a t i o n s as "a d r a f t
o r b i l l of exchange drawn b y t h e s e l l e r on t h e p u r c h a s e r of
goods s o l d and a c c e p t e d by such p u r c h a s e r , " i n c l u d e s a d r a f t o r
b i l l of e x c h a n g e b a s e d on t h e p u r c h a s e of a d v e r t i s i n g s p a c e .
*

The t e r m "goods" a s u s e d i n t h e r e g u l a t i o n s of t h e
Board i n c l u d e s w a r e s , merchandise., or a g r i c u l t u r a l p r o d u c t s i n c l u d i n g l i v e s t o c k , and b e c a u s e of t h e d o u b t s r a i s e d a s t o
w h e t h e r t h i s t e r m i s b r o a d enough t o i n c l u d e a d v e r t i s i n g s p a c e ,
t h e Board has r u l e d t h a t a d r a f t o r b i l l of e x c h a n g e drawn by
a p u b l i s h e r , o r o t h e r a d v e r t i s i n g agency, on t h e p u r c h a s e r of
a d v e r t i s i n g s p a c e and a c c e p t e d by s u c h p u r c h a s e r s h a l l be c o n s i d e r e d a t r a d e a c c e p t a n c e , p r o v i d e d t h e a d v e r t i s e m e n t on which
t h e d r a f t o r b i l l i s based i s f o r t h e p u r p o s e of' p r o m o t i n g o r
f a c i l i t a t i n g the production, manufacture, d i s t r i b u t i o n , or sale
of g o o d s , w a r e s , m e r c h a n d i s e , o r a g r i c u l t u r a l p r o d u c t s , i n c l u d i n g l i v e s t o c k ; and p r o v i d e d , f u r t h e r , t h a t s u c h a d v e r t i s e m e n t
i s n o t i l l e g a l , and i s n o t f o r t h e p u r p o s e of p r o m o t i n g o r f a c i l i t a t i n g any t r a n s a c t i o n which i s p r o h i b i t e d by t h e laws of
t h e S t a t e i n which i t i s t o be consummated.
Each F e d e r a l r e s e r v e bank s h o u l d t a k e s u c h s t e p s as
i t deems n e c e s s a r y t o s a t i s f y i t s e l f t h a t a t r a d e a c c e p t a n c e c o v e r i n g t h e s a l e of a d v e r t i s i n g s p a c e i s of t h e c h a r a c t e r d e s c r i b e d
in this l e t t e r .




Respectfully,

Governor.

1954
Division of Audit
and Examination.

FEDERAL RESERVE BOARD

989
, (revised)

Washington.
MEMORANDUM FOR THE AUDITOR:
Kindly furnish to the Federal Reserve Examiner, examining your "bank as of
lose of business

, the following:

1. Statements of account current to be sent to a l l member banks as of
close of business
.
2. Statements to be sent to other Federal reserve banks*
3* Immediately upon receipt of daily statements from other Federal reserve
banks as of close of business
'
reconcile, and tufn
over to Examiner copies of such reconcilements io be retained by him.
4. Daily statement, Form 3^, 3 copies certified to by cashier.
5* Report of earnings and expenses, to be brought up to date, Forms 95 * 9^.
6. Expenses of Transit Department brought up to date, Form 97 •
7• Estimate of accruals:
(a) Loans and discounts
(b) Acceptances (open market purchases)
(c) Warrants
(d) United States Securities
(e)
(f)
Transit service charges collectible
Less amount payable to other F. R. Banks.
8. Estimate expenses unpaid:
(a) Salaries
(b) Rent
(c) Directors fees
(d) Sundry
9« Proof of expenses paid in advance and other deferred accounts.
10. Changes in furniture and equipment account.
11. Changes in cost of Federal reserve notes since l a s t examination.
12.

Inventory of machines and mechanical devices, giving kind, number, etc.
Transit machines, Burroughs
Adding machines,
"
Typewriters,
Underwood.




1955
990
D i v i s i o n of A u d i t
and Examination*

(revised)
FEDERAL RESERVE BOARD
Washington

MEMORANDUM FOR THE CASHIER:
Kindly * f u r n i s h t h e i n f o r m a t i o n r e q u e s t e d below f o r t h e use of t h e F e d e r a l
Reserve E x a m i n e r , e x a m i n i n g y o u r bank a s of c l o s e of b u s i n e s s
1.

L i s t of o f f i c e r s and employee, by d e p a r t m e n t s (Form i s a t t a c h e d , and
p a p e r and c a r b o n w i l l be f u r n i s h e d ) •

2w

Three c o p i e s of e a c h c i r c u l a r o r r e g u l a t i o n i s s u e d by t h e bank s i n c e
the l a s t examination.

3.

Custody of c a s h :
If t h e r e i s any change s i n c e l a s t e x a m i n a t i o n ,
p l e a s e g i v e d e t a i l e d memorandum of vtiiere k e p t , u n d e r whose c o n t r o l ,
p r o t e c t i o n , etc#

4.

L i s t of i n s u r a n c e and f i d e l i t y bonds c a r r i e d - f i d e l i t y , b u r g l a r y ,
r e g i s t e r e d m a i l , f i r e , e t c , - showing e x p i r a t i o n and premium p a i d .




1956
99 1
(revised)

Division of Audit
and Examination,
FEDERAL RESERVE BOARD
Washington
MEMORANDUM FOR MANAGER CF TRANSIT DEPARTMENT:

Kindly furnish the information requested below for the use of the Federal
Reserve Examiner, examining your bank as of close of business
«
1.

Number of member banks:
National
State

2.

Number of non-member banks in d i s t r i c t .

3* Number of non-member banks upon which items are collected.
Through member tanks
Direct
Through other non-members
4. What items are received for immediate availability?
5- Form of settlement accepted from non-members.
6. Daily averages of items handled, for three months period preceding,
by calendar month (either f i r s t to f i r s t or l6th one month to
15th of next), in following form:
Elsewhere
Other
Period covered
Your city within d i s t r i c t F.R.Dist Total
Number

Amount




(even thousands)

1957
Division of Audit
and Examination.

- 2-

. 99 1
(revised)

7- Expenses of Transit Department, such as salaries, rent, telephone
and telegraph, postage, expressage, printing and stationery,
insurance and f i d e l i t y bonds, depreciation, e t c . , for current
or previous month.
8.

Serviqe charges collected over same period.

9.

Service charges c o l l e c t i b l e for same period.

10. Service charges (per item charged)
(a) To member banks
(b) To Federal reserve banks
11. Service charges paid to other Federal reserve banks.
12. Service charges collected since inauguration of system in July 19^6,
actual to last day of previous month and estimated to date of examination, showing from what sources derived, as follows:
Reserve city banks
j
Other member banks
Federal Reserve Banks
Service charges paid to other Federal reserve banks since inauguration
3f system in July 1916; actual to last day of previous month and
estimated to date of examination.
Total cost of transit department; actual expenses to last day of
previous month and estimated expenses since.
lj.

Deficient reserves - how covered?
How have penalties been assessed?
How often i s report of net deposit balances called for?
(a) Reserve city banks
( b ) O t h e r member' banks

l4» Three copies of any changes in the Clearing House rules since the
inauguration of the collection system in July 1916*
15.

Operationsin purchase and sale of bank transfer; schedule of rates,
earnings by months.




1958
W . P . 6 . H A R D I N G . GOVERNOR
P A U L M . W A R B U R G . VICE GOVERNOR

EX-OPFICIO MEMBERS

F R E D E R I C A. DELANO
ADOLPH C. MILLER
CHARLES S . HAMLIN

W I L L I A M G . MCADOO
SECRETARY OF THE TREASURY
CHAIRMAN
J O H N SKELTON WILLIAMS
COMPTROLLER O F THE CURRENCY

FEDERAL RESERVE BOARD
WASHINGTON

H . P A R K E R W I L L I S . SECRETARY
S H E R M A N P . A L L E N , ASST. SECRETARY
AND FISCAL AGENT
ADDRESS

994

FEDERAL

January 26, 1917 •
Dear Sir:

N

On "behalf of the Committee on Clearing of the Federal Reserve Board I beg to state that i t i s the belief of the
Committee that i t is important that we should make ready arid
have our plans formulated as to the next step that should be
taken in advancing the operations of the clearing and c o l l e c tion system. Congress w i l l adjoufn oft March 4th and we w i l l
then know viiat, if any, steps have been taken in respect to
the Kitchin amendment. At the present time it does not look
,as i f there were much likelihood of the Kitchin amendment being adopted* If i t i s not, i t w i l l become the duty of the
Board and the Federal reserve banks to go ahead energetically
and perfect the system, the most serious objection to which
at the present time is the fact that there are s t i l l some
7,000 banks who do not remit at par* In laying our plans for
the future I desire to ask for comments from you upon the
following suggestions and statements:
(1) It would appear that one of the greatest obstacles
to progress i s the attitude of many of the local clearing
houses; for instance, we have a recent case where under the
clearing house rules of Macon, Georgia, the banks impose a
charge of one-eighth of one per cent for a check which would
be given immediate credit a t par at Atlanta, only eighty-eight
miles away; whereas they accept at par checks drawn on Philadelphia or New York. How sTiall we meet t h i s situation, and
has the time come for the Board t o promulgate rules, as contemplated in Section .16, which w i l l specify the maximum, charges
which a member bank Bay make against i t s customers?
(2) As indicating the sort of adjustment which should
be made with clearing houses if they are w i l l i n g to meet the
views of the Federal Reserve Board and the Federal reserve
banks y I would point out that in quite a number of important
clearing houses a d i f f e r e n t i a l in favor of checks of banks
that can be collected through the Federal reserve bank at par
i s made, as compared with cJiecks which cannot be so collected.
Such a d i f f e r e n t i a l operates to a s s i s t the Federal reserve
bank in extending i t s par l i s t . In quite a number of cases,
however, a l l checks of certain areas are taken on the same



RESERVE BOARD
*

1959
9 $k
-2-

basis regardless of how collected. This means that the checks
collectable through the Federal reserve bank have no advantage
bver those not so colletable. This method, while not ideal,
i s , obviously, more advantageous to the Federal reserve bank
thati that described in No. 1, where checks collectable through
the Federal reserve bank are actually discriminated against.
, (3) We are getting ready to o f f e r country banks the
privilege of issuing drafts against Federal reserve banks,
Which w i l l be given immediate credit and availability not only
at the bank upon which drawn, but at one other designated Federal reserve bank. This w i l l be a privilege of considerable
value t o member banks, but i t i s assumed that i t w i l l be accompanied, or followed soon a f t e r , by the granting of the
privilege of collecting for <x>untry banks time items, on terms
at least as favorable as the terms heretofore afforded by city
banks to their country correspondents.
(4) The o f f i c e r s of several of the Federal reserve banks
have expressed themselves as believing that not much more progress can be made in enlarging the volume of transactions off e f b d for clearing and collection until Federal reserve banks
express themselves as willing to collect items on nonassenting
State banks'and trust companies. In a number of the Districts
arrangements are being perfected for the collection of items
bf t h i s character through express companies, but in some Dis*
t r i c t s i t i s impossible to teach a l l of the banks, eVen
through express companies, azid i t may in those cases be necessary to adopt the Post Office method. Collection through
express companies vti.ll, however, enable the collection of a
great many nonassenting member bank; items and i t would appear
as though in the more thickly settled Districts, such as New
York, Pennsylvania, and Cleveland t h i s matter should be immediately taken in hand.
(5) At the l a s t meeting of Governors a plan was submitted
by the writer under which a scale of charges as between Federa l reserve banks and member banks, and as between member banks
and t h e i r customers was proposed. It was the Opinion of the
Governors that the time was not opportune for putting out this
schedule of charges; also that the rates suggested were too
high. Is this s t i l l your view, and i f you Relieve that the
scale of charges i s too high, have you any counter suggestions
to make?




ssk
(6) To vyhat extent can the clearing system be made
more popular with b a n k e r s in reserve c i t i e s - or in other
large c i t i e s with similar banking f a c i l i t i e s - by the adop-tion Of a plan similar to that adopted in Dallas and about
to be adopted in the kansas City district? This plan provides for the direct interchange of items between c i t i e s ,
and drawing on the Federal reserve bank i or items sent direct* This plan has the merit of cutting down f l o a t , of
relieving the federal reserve bank of cost of handling a
good many items, and, l a s t l y , of putting the banks in d i t i e s
thus inter~eotinected on a parity.




Yours very truly,
Chairman,
Committee on Clearing.

1961
997
P R E S S

S T A T E M E N T .

J a n u a r y 29, 1917»

The F e d e r a l R e s e r v e Board t o - d a y made p u b l i c t h e
t e x t of a memorandum t r a n s m i t t e d t o i t "by Mr* James B. F o r g a n ,
P r e s i d e n t of t h e F e d e r a l Advisory C o u n c i l , e x p r e s s i n g t h e
views of t h a t "body w i t h r e f e r e n c e t o t h e p r o p o s e d amendments
t o t h e F e d e r a l R e s e r v e Act r e c e n t l y s u b m i t t e d t o t h e Banking
and Currency Committees of t h e t w o Houses of C o n g r e s s by t h e
F e d e r a l R e s e r v e BoardI t w i l l . b e noted t h a t t h e Council unanimously a p p r o v e d t h e p r o p o s e d n o t e i s s u e amendment which had been s t r i c k e n
o u t by t h e House Committee on Banking and C u r r e n c y , and t h a t
t h e C o u n c i l h a s s u g g e s t e d a m o d i f i c a t i o n of t h e p r o p o s e d r e s e r v e s t o be c a r r i e d by member banks w i t h t h e F e d e r a l r e s e r v e
banks•

I n v i e w of t h e f a c t , however, t h a t t h e House Committee

s t r u c k o u t a l l r e q u i r e m e n t s f o r v a u l t c a s h , t h e Board b e l i e v e s
t h a t t h e s u g g e s t e d r e s e r v e s of s e v e n , t e n ,

and t h i r t e e n p e r

c e n t r e s p e c t i v e l y f o r c o u n t r y b a n k s , r e s e r v e c i t y banks and c e n t r a l r e s e r v e c i t y banks, should be r e t a i n e d .
The A d v i s o r y C o u n c i l ' s memorandum, d a t e d J a n u a r y 2 $ t h ,
i s as f o l l o w s :




1963
v *

997RECOMMENDATIONS BY
THE FEDERAL ADVISORY JGUNCIL IN REGARD TO THE AMENDMENTS
TO THE FEDERAL RESERVE ACT PROPOSED BY
FHE FEDERAL RESERVE BOARD
JANUARY

19 1 7 .

Noi 1 . AMENDMENT TO SECTION l 6 which p r o v i d e s
( a ) f o r t h e i s s u e of F e d e r a l r e s e r v e n o t e s
d i r e c t l y a g a i n s t t h e d e p o s i t of g o l d ; or 100$ of p a p e r , o r b o t h ;
(b) f o r thfe c o u n t i n g of g o l d h e l d by t h e
F e d e r a l r e s e r v e agents as s e c u r i t y f b r
n o t e s , a s p a r t of t h e g o l d r e s e r v e r e q u i r e d t o be h e l d by t h e bank a g a i n s t
such F e d e r a l r e s e r v e n o t e s ;
Meets w i t h t h e a p p r o v a l of t h e F e d e r a l A d v i s o r y C o u n c i l *
No. 2 . IN RE. AMENDMENT OF SECTION 19, a b b r e v i a t i n g and
s i m p l i f y i n g t h e c l a u s e s i n S e c t i o n 29
which r e l a t e t o r e s e r v e r e q u i r e m e n t s •
T h i s p r o v i d e s t h a t a l l member banks s h a l l
- maintain Reserves i n the Federal reserve
bank a s f o l l o w s :
Against
Demand
Deposits
.




( a ) Country banks
( b ) R e s e r v e c i t y banks
( c ) C e n t r a l R e s e r v e c i t y banks

7$
10$
13$

and i n a d d i t i o n e v e r y member bank i s r e q u i r e d t o keep i n i t s own v a u l t f o r t i l l
money an amount of s p e c i e o r c u r r e n c y ( n o t
n e c e s s a r i l y g o l d o r l a w f u l money) e q u a l t o
f i v e p e r c e n t of i t s demand d e p o s i t s , l e s s
t h e amount of n e t b a l a n c e w i t h F e d e r a l r e s e r v e banks i n e x c e s s of t h e minimum above
stipulated.

Against
Time
Deposits
3$
3?
3$

1963
?97-

T h i s amendment i s

2 -

i n h a r n ? . o n y wiiii one of t h e "basic p r i n -

c i p l e s of t h e F e d e r a l R e s e r v e Act t o t h e e f f e c t t h a t t h e "bulk of
t h e g o l d h e l d a s r e s e r v e s f o r "bank d e p o s i t s s h o u l d "be m o b i l i z e d
i n t h e F e d e r a l r e s e r v e "banks•

From t h e s t a n d p o i n t however of a

p r a c t i c a l working b a s i s t h e Council doubts if
of t h e member banks* a v a i l a b l e

so mtich a s i s p r o p o s e d

c a s h s h o u l d be a r b i t r a r i l y t i e d up i n

t h e form of compulsory b a l a n c e s w i t h t h e F e d e r a l Reserve b a n k s •
The C o u n c i l a t i t s m e e t i n g of September l $ t h l a s t ,

drew

t h e B o a r d 1 s a t t e n t i o n t o t h e f a c t t h a t u n t i l t h e S t a t e banks j o i n
t h e s y s t e m and d a i l y c l e a r i n g h o u s e b a l a n c e s c a n be s e t t l e d by
c h e c k s on t h e F e d e r a l r e s e r v e banks t h e member b a n k s , e s p e c i a l l y
i n t h e l a r g e c i t i e s , must keep a s u f f i c i e n t s u p p l y of g o l d or law^
f u l money on hand f o r t h e s e t t l e m e n t of such b a l a n c e s a s w e l l a s f o r
t h e i r counter use.

B e s i d e s t h i s i t would be a c o n s e r v a t i v e p o l i c y

f o r t h e member banks t o keep i n t h e i r own v a u l t s a r e a s o n a b l e amount
of g o l d ©r l a w f u l money p r o p o r t i o n a t e t o t h e i r demand d e p o s i t s *
#

Banks l o c a t e d i n F e d e r a l r e s e r v e c i t i e s ridw r e c e i v e from t h e F e d e r a l
r e s e r v e banks l a t e i n t h e a f t e r n o o n checks on t h e m s e l v e s i n l a r g e
volume and amount which have a c c u m u l a t e d d u r i n g t h e day and have been
c h a r g e d a g a i n s t t h e i r l e g a l r e s e r v e b a l a n c e s i n s u c h l a r g e volume and
amount a s t o hamper t h e n i n m a i n t a i n i n g t h e i r l e g a l r e s e r v e b a l a n c e s *
I n o u r o p i n i o n 5$ c a s h on hand would n o t be s u f f i c i e n t f o r t h e s e
p u r p o s e s and from a p r a c t i c a l s t a n d p o i n t i t would f a c i l i t a t e t h e o p e r -




1964
997

a t i o n s of the member banks i f t h e minimum compulsory balances t o
be kept by them with t h e Federal reserve banks a g a i n s t t h e i r demand d e p o s i t s were at l e a s t reduced

i n each c l a s s and t h e per*,

centage of the t i l l money correspondingly i n c r e a s e d i n t h e case
of the r e s e r v e c i t y and c e n t r a l r e s e r v e c i t y banks., t h e irid re as 6
i n / t i l l money i n t h e casB di the country banks being unnecessary*
. . . . . .

i

*

The C o u n c i l ' s recommendation i s t h e r e f o r e as f a l l o w s ;

.

Deposits in
Federal Res.
Banks a g a i n s t
Demand D e p o s i t s .

Deposits in
F e d e r a l Res.
Till
Banks a g a i n s t
Time D e p o s i t s . Money

Country Banks

6$

3$

Reserve City Banks

9$

3$

Central Reserve City Banks
No. y .

12$

"bi°

5^

6$

AMENDMENT OF SECTION 11, so a s t o p e r m i t t h e F e d e r a l
Reserve Board t o r a i s e r e s e r v e requirements
i n e m e r g e n c i e s , j u s t as i t i s now empowered
i n c e r t a i n c o n t i n g e n c i e s of a d i f f e r e n t kind
t o lower t h o s e requirements.
The Council i s of o p i n i o n t h a t i t would "be u n d e s i r a b l e

and unnecessary t o grant such power t o t h e Federal Reserve Board.
The Board would only take a c t i o n under such power when member
banks are overburdened w i t h s u r p l u s cash r e s e r v e s and i t s a c t i o n
then could o n l y apply t o member banks.

The e f f e c t would t h e r e -

f o r e be t h a t member banks would be compelled t o i n c r e a s e t h e i r
n o n i n t e r e s t - b e a r i n g balances w i t h t h e Federal r e s e r v e banks w h i l e




t

•.

*

-4-

.

99?

,

nonmember banks would have t h e f r e e . u s e of t h e i r f u n d s .

I t would

p l a c e a n o t h e r s t u m b l i n g b l o c k i n t h e way of S t a t e banks j o i n i n g
the system.
No. 4 .

AMENDMENT OF SECTION 13, t o p e r m i t nonmember S t a t e banks
and t r u s t companies, even t h o u g h t o o s m a l l t o
be e l i g i b l e f o r membership i n t h e F e d e r a l r e s e r v e b a n k s , t o a v a i l , t h e m s e l v e s of t h e c l e a r ~
l e g and c o l l e c t i o n f a c i l i t i e s of t h e F e d e r a l
r e s e r v e b a n k s , p r o v i d e d t h a t t h e y ctiver a t p a r
c h e c k s on t h e m s e l v e s s e n t f o r c o l l e c t i o n by
t h e F e d e r a l r e s e r v e bank and p r o v i d e d f u r t h e r
t h a t they keep a compensating b a l a n c e with t h e
F e f e r a l r e s e r v e bank i n an amount t o be d e t e r mined u n d e r r u l e s p r e s c r i b e d by t h e F e d e r a l
Reserve Board.
T h i s m i g h t work t o t h e m u t u a l a d v a n t a g e of t h e member

banks i n c o n n e c t i o n w i t h t h e c h e c k c o l l e c t i o n s y s t e m and of n o n member banks w i l l i n g t o conform t o t h e r u l e s p r e s c r i b e d by t h e
F e d e r a l ' R e s e r v e Board a s w e l l a s t o t h a t of t h e F e d e r a l r e s e r v e
banks t h r o u g h t h e -•compensating b a l a n c e s .

The e x p e r i m e n t m i g h t be

worth t r y i n g .

No* 5 .

AMENDMENT OF SECTION 22 - t h e p e n a l s t a t u t e - so ad t o
d e f i n e more c l e a r l y t h e r i g h t s and l i m i t a t i o n s
of.. d i r e c t o r s i n t h e m a t t e r , of a c c e p t i n g f e e s
or compensation o t h e r t h a n t h e ordinary f e e s
paid directors f o r legitimate services rendered
i n t h e r e g u l a r c o u r s e of b u s i n e s s , t h e p e r f o r mance of which s e r v i c e s i s n o t incumbent upon
them i n t h e i r c a p a c i t y a s d i r e c t o r s .
The C o u n c i l would recommend t h a t t h e p r o p o s e d a d d i t i o n

t o S e c t i o n 22 commencing w i t h "PROVIDED, HOWEVER, THAT NOTHING IN
THIS ACT CONTAINED" s h o u l d be amended a s f o l l o w s :




1965

1966
' '

-5-

997

PROVIDED, HOWEVER, THAT NOTHING IN THIS ACT CONTAINED
SHALL BE CONSTRUED TO PROHIBIT A DIRECTOR, OFFICER, OR EMPLOYEE
FROM RECEIVING THE SAME RATE OF INTEREST PAID TO OTHER DEPOSITORS
FOR SIMILAR DEPOSITS B D E WITH SUCH BANK: OR TO PROHIBIT A DIRECTOR, WHO IS NOT AN OFFICER OR EMPLOYEE FROM RECEIVING, DIRECTLY OR INDIRECTLY, THE USUAL AND CUSTOMARY COMMISSIONS OR FEES FOR
SERVICES RENDERED IN BUYING AND SELLING SECURITIES OR OTHER INVESTMENTS FOR OR ON ACCOUNT OF SUCH BANK, BUT IN THIS LATTER CASE
THE ACTION OF THE BOARD OF BISECTORS, IN DIRECTING EACH PURCHASER
OR SALE OF SUCH SECURITIES OR OTHER INVESTMENTS, MUST BE BY AN
AFFIRMATIVE VOTE OR W T T E # ASSENT OF AT LEAST THREE-FOURTHS OF
THE MEMBERS OF THE BOARD EXCLUSIVE OF THE DIRECTOR INTERESTED.
AND BUT EACH SUCH TRANSACTION MUST BE RECORDED IN THE MINUTES OF
THE MEETING OF SAID BOARD, SUCH MINUTES TO SPECIFY THE NAME; OF
THE DIRECTOR AND THE FIRit OR CORPORATION WITH WHICH HE IS CONNECTED, IF ANY, THROUGH WHICH SUCH ORDER IS TO BE EXECUTED TOGETHER WITH THE AMOUNT OF THE FEE OR COMMISSION TO BE PAID ON
EACH TRANSACTION; AND, PROVIDED FURTHER, THAT NOTES, DRAFTS,
BILLS OF EXCHANGE, OR OTHER EVIDENCES OF DEBT EXECUTED OR INDORSED BY DIRECTORS OF A MEMBER BANK MAY BE DISCOUNTED WITH SUCH
MEMBER BANK ON THE SAME TERMS AND CONDITIONS AS OTHER NOTES,
DRAFTS, BILLS OF EXCHANGE, OR EVIDENCES OF DEBT UPON THE AFFIRMATIVE VOTE OR WRITTEN ASSENT OF AT LEAST THREE-FOtRTHS OF THE MEMBERS OF THE BOARD OF DIRECTORS'. OF SUGH MEMBER BANK.
The C o u n c i l makes t h i s recommendation 'because i n i t s
judgment an a f f i r m a t i v e v o t e o r w r i t t e n a s s e n t of a t l e a s t t h r e e f o u r t h s of t h e members of t h e Board i s a n u n n e c e s s a r y r e s t r i c t i o n
i n c o n n e c t i o n w i t h such s e r v i c e s by a d i r e c t o r a s t h e b u y i n g and
s e l l i n g of s e c u r i t i e s and inasmuch a s n o t e s , d r a f t s , b i l l s of e x change o r o t h e r e v i d e n c e s of d e b t e x e c u t e d or i n d o r s e d by bank d i r e c t o r s a r e a s a r u l e t h e very b e s t of t h e i r c l a s s , t h e p l a c i n g
of s p e c i a l r e s t r i c t i o n s on t h e d i s c o u n t i n g of s u c h i n s t r u m e n t s
f o r d i r e c t o r s would o n l y u n n e c e s s a r i l y and u n w a r r a n t a b l y impede
l e g i t i m a t e business or f o r c e i t i n t o o t h e r banks.




997
-6_
No- 6 .

AMENDMENT OF SECTION l j t o r e s t o r e t h e p r o v i s i o n which

was "by error stricken from the Act in the
amendments of September 7, 19l6> thus restoring to national banks> with the approval of
the Federal Reserve Board, the right to accept
up to 100$ of their capital and surplus in
transactions involving imports and exports.

The C o u n c i l a p p r o v e s t h i s amendment.

No. 7 .

AMENDMENT OF SECTION i f , t o e&tieel t h e p r o v i s i o n of
The N a t i o n a l Bank Act which R e q u i r e s n a t i o n a l
banks t o m a i n t a i n a minimum d e p t i s i t of Government bonds w i t h t h e T r e a s u r e r of t h e U n i t e d
States.

The C o u n c i l a p p r o v e s t h i s amendment.
No. 8 .

AMENDMENT OF SECTION 25 t o a u t h o r i z e member banks l o c a t e d i n c i t i e s of more t h a n 1 0 0 , 0 0 0 p o p u l a t i o n and w h i c h have a c a p i t a l and s u r p l u s of
more t h a n $ 1 , 0 0 0 , 0 0 0 t o e s t a b l i s h b r a n c h e s
i n t h e sane c i t y , p r o v i d e d t h e S t a t e laws do
n o t p r o h i b i t S t a t e banks and t r u s t companies
from e s t a b l i s h i n g b r a n c h e s .
The C o u n c i l h a s a l r e a d y a d v i s e d t h e Board t h a t i t a p -

p r o v e s t h e a u t h o r i z a t i o n of member banks l o c a t e d i n

cities of more

t h a n 100,000 p o p u l a t i o n and which h a v e a c a p i t a l and s u r p l u s of
more t h a n $ 1 , 0 0 0 , 0 0 0 t o e s t a b l i s h b r a n c h e s i n t h e same c i t y , b u t
d i s a p p r o v e s t h e g r a n t i n g of s u c h a p r i v i l e g e t o t h e banks i n some
S t a t e s w h i l e i t i s w i t h h e l d f r o m banks i n o t h e r S t a t e s

irrespective

of S t a t e laws a f f e c t i n g S t a t e banks and t r u s t companies i n r e g a r d
t o t h e e s t a b l i s h m e n t of b r a n c h e s by them.




1967

1968
997
-7—
No. 9 -

AMENDMENT CF SECTION $ ,
a u t h o r i z e m u t u a l s a v i n g s baulks
n o t h a v i n g a c a p i t a l s t o c k t o become a s s o c i a t e
members of t h e F e d e r a l r e s e r v e s y s t e m tinder c e r t a i n prescribed conditions.
The C o u n c i l a p p r o v e s t h i s amendment.

No. 1 0 .

AMENDMENT OF SECTION 18 so a s t o g i v e t o U n i t e d S t a t e s
o n e - y e a r 3$ g o l d n o t e s i n t h e hands of F e d e r a l
r e s e r v e banks t h e c i r c u l a t i o n p r i v i l e g e f o r
t h e i s s u a n c e of F e d e r a l r e s e r v e bank n o t e s .
The C o u n c i l would recommend t h a t i n s t e a d of amending S e c -

t i o n 18 so a s t o g i v e U n i t e d S t a t e s o n e - y e a r 3 $ g o l d n o t e s i n t h e
hands of F e d e r a l r e s e r v e banks t h e c i r c u l a t i o n p r i v i l e g e f o r t h e
i s s u a n c e of F e d e r a l r e s e r v e bank n o t e s t h a t t h e l a w p r o v i d i n g f o r
t h e e x c h a n g e of 2$ g o l d b o n d s b e a r i n g t h e c i r c u l a t i o n p r i v i l e g e ,
b u t a g a i n s t which no c i r c u l a t i o n i s o u t s t a n d i n g , f o r o n e - y e a r
g o l d n o t e s t o a n amount n o t e x c e e d i n g o n e - h a l f of t h e 2$ bonds s o
t e n d e r e d f o r e x c h a n g e , be so amended a s t o do away w i t h t h e oney e a r g o l d n o t e s e n t i r e l y and p r o v i d e t h a t t h e 2$ gold bonds may
be e x c h a n g e d f o r an e q u a l etoount of t h i r t y - y e a r 3$ g o l d bonds
without the c i r c u l a t i o n p r i v i l e g e .

No. 1 1 .




AMENDMENT OF SECTION 4 t o a b o l i s h t h e t i t l e and o f f i c e
of Deputy F e d e r a l R e s e r v e A g e n t , t h u s h a v i n g
two u n a t t a c h e d C l a s s C d i r e c t o r s i n s t e a d of
one a s a t p r e s e n t , and t o c r e a t e t h e p o s i t i o n of A s s i s t a n t F e d e r a l R e s e r v e A g e n t , who
s h a l l n o t be a d i r e c t o r of t h e bank, b u t who
s h a l l be a S a l a r i e d bonded o f f i c e r i n t h e

997
«-8w
F e d e r a l Reserve Agent1s department s e r v i n g
a t a l l t i m e s a s an a s s i s t a n t t o t h e F e d e r a l
R e s e r v e Agent and q u a l i f i e d t o a c t f o r t h e
Agent i n h i s absence#
As member banks and o t h e r s doing b u s i n e s s w i t h t h e F e d e r a l R e s e r v e Agent and h i s a s s i s t a n t would n o t n e c e s s a r i l y be
c h a r g e d w i t h knowledge of the a b s e n c e o r d i s a b i l i t y of t h e F e d e r a l R e s e r v e Agent t h e r e s t r i c t e d power of h i s a s s i s t a n t t o a c t i n
h i s name and s t e a d o n l y d u r i n g h i s a b s e n c e o r d i s a b i l i t y s h o u l d
f o r t h e i r p r o t e c t i o n be removed by s t r i k i n g o u t t h e words " d u r ing h i s absence o r d i s a b i l i t y " o c c u r r i n g in t h e l a s t paragraph
of t h e p r o p o s e d amendment.

If t h e a s s i s t a n t s h o u l d a c t i n any

m a t t e r of i m p o r t a n c e d u r i n g t h e p r e s e n c e or d i s a b i l i t y o'f t h e
Ag6nt t o act f o r h i m s e l f h i s a c t i o n would b e n u l l and v o i d .
w i s e t h e C o u n c i l s e e s no o b j e c t i o n t o the amendment.

1/29/17




Other-

1970
999<
64th

CONGRESS,
,2d S e s s i o n *

H.

R.

205^0•

IS THE HOUSE OF REPRESENTATIVES,
J a n u a r y 26, l $ l 7 •
Mr. ti-lasd I n t r o d u c e d t h e f o l l o w i f t ^ b i l l j which Was r e f e r r e d t o t h e
Committee oh Banking and Currency and o r d e r e d t o "be p r i n t e d *

A

B

I

L

L

To a u t h o r i z e n a t i o n a l t a n k i n g a s s o c i a t i o n s t o e s t a b l i s h b r a n c h e s .




Be i t e n a c t e d by t h e S e n a t e and House of R e p r e s e n t a t i v e s of t h e U n i t e d S t a t e s of America i n Congress a s s e m b l e d ,
That t h e Act a p p r o v e d December t w e n t y - t h i r d , n i n e t e e n
h u n d r e d and t h i r t e e n , k n o w n a s t h e F e d e r a l r e s e r v e A c t , b e ,
and t h e same h e r e b y i s , amended by a d d i n g a new s e c t i o n as
follows:
"Domestic B r a n c h e s .
" S e c . 25a- That any member bank l o c a t e d i n a c i t y o r
i n c o r p o r a t e d town of more t h a n one h u n d r e d t h o u s a n d i n h a b i t a n t s and p o s s e s s i n g a c a p i t a l and s u r p l u s of $ 1 , 0 0 0 , 0 0 0
o r more may, u n d e r s u c h r u l e s and r e g u l a t i o n s a s t h e F e d e r a l
R e s e r v e Board may p r e s c r i b e , e s t a b l i s h b r a n c h e s , n o t t o
e x c e e d t e n i n number, w i t h i n t h e c o r p o r a t e l i m i t s of t h e c i t y
o r town i n which i t i s l o c a t e d :

P r o v i d e d , That no s u c h

b r a n c h s h a l l be e s t a b l i s h e d i n any S t a t e i n which n e i t h e r
S t a t e banks n o r t r u s t companies may l a w f u l l y e s t a b l i s h

*

1971
995-

2 -

b r a n c h e s : And p r o v i d e d f u r t h e r ,

That t h e number of

b r a n c h e s which a member bank may e s t a b l i s h s h a l l n o t
e x c e e d t h e number of b r a n c h e s which t h e laws of t h e
S t a t e i n which s a i d bank i s s i t u a t e d p e r m i t a S t a t e
bank o r t r u s t company t o e s t a b l i s h w i t h i n t h e c o r p o r a t e l i m i t s of s a i d c i t y o r t o w n . "

1/30/17.