The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BOARD WASHINGTON address official correspondence t o the federal reserve board X-6746 October 29, 1930, SUBJECT: Bank F a i l u r e s . Dear S i r : R e f e r r i n g to Governor Meyer's telegram of October 18, 1930, there i s a t t a c h e d h e r e t o f o r your i n f o r m a t i o n , copy of a l e t t e r which the Federal Reserve Board has today addressed to Mr. Clement H. Congdon of the P h i l a d e l p h i a Sunday T r a n s c r i p t , on the s u b j e c t of bank f a i l u r e s . Very t r u l y yours, E, M. McClelland, Assistant Secretary. Enclosure. (TO GOVERNORS OF ALL FEDEEAC, RESERVE BAMS) ( 385 X-6746-a COPY October 29, 1930. Mr. Clement H. Congdon Sunday T r a n s c r i p t 329 Heal E s t a t e Trust Building P h i l a d e l p h i a , Pennsylvania Dear Mr. Congdon: A number of the Federal reserve "banks have r e f e r r e d t o the Board your l e t t e r of October t h i r t e e n t h r e l a t i n g to bank f a i l u r e s . In the f i r s t paragraph of your l e t t e r , you s t a t e t h a t "during a l l the p e r i o d of tj.me throughout which the Federal Reserve Bank System was being formed and developed i t was most s p e c i f i c a l l y and most p e r s i s t e n t l y i n s i s t e d t h a t the System would make member banks f a i l u r e p r o o f . " I t has never b e f o r e been brought to my a t t e n t i o n t h a t any one f a m i l i a r with the purposes of the Federal r e s e r v e s y s tem, as l a i d down i n the Federal Reserve Act, has claimed t h a t the system was designed to or could prevent a l l bank f a i l u r e s . The s t a t e m e n t , however, was f r e q u e n t l y made a t the time of the passage of the Federal Reserve Act, t h a t under the system no member bank with an adequate supply of e l i g i b l e paper would be compelled to close i t s doors because of i n a b i l i t y to obtain the necessary cash to meet o v e r - t h e - c o u n t e r withdrawals of i t s customers. Experience has shown t h a t t h i s has proven to be the ease, a s every member bank with an adequate supply of e l i g i b l e paper or of United S t a t e s s e c u r i t i e s i n i t s p o r t f o l i o i s able to borrow promptly from the Fede r a l r e s e r v e bank and obtain a l l the currency i t may r e q u i r e to meet deposit withdrawals. This was not true b e f o r e the e s t a b l i s h ment of the Federal reserve system, when the currency was n o t e l a s t i c and not s u s c e p t i b l e of expansion to take care of emergencies. At t h a t time u n u s u a l l y large demands f o r currency not i n f r e q u e n t l y r e s u l t e d i n currency p a n i c s , but no such panics have occurred or could occur under the Federal reserve system. The Federal Reserve Board has given a good deal of thought and study to the question of the reasons f o r the r e c e n t bank f a i l u r e s , and has d i s c u s s e d t h i s subject from time to time i n i t s annual r e p o r t s . May I p a r t i c u l a r l y r e f e r you t o the s e c t i o n on bank suspensions , beginning on page ten of the annual r e p o r t f o r 1926, of which a copy i s enclosed? Very t r u l y yours, Eugene Meyer Governor
@FedFRASER