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FEDERAL RESERVE BOARD WASHINGTON X-3582 December 12, 1922·. SUJ3JECT: Econotey and Efficiency in Federal Reserve Banks. Dear Sir: The ~oard 1 s Committee on Economy and Efficiency has forwarded to you, as ~nairman of tne ~oard of Directors of your Bank, regularly each month since July la~t a copy of the exhibit (based on Schedule E) showing costs of operating each function and expense unit at each Federal Reserve Bank and branch, together with the number of officers and employeas in each e~pense unit and the number of units handled wherever i t has been found practica.bla t9 maasure the volume of work. It has also kept the Banks inforrr~d. by letter and otherwise. of the general progress and program of ti1e Corrmittee t s work. In pursuance of this practice 1 this letter is being sent to inform the officers of your Bank of the present status of the Comnittee 1 s work and of the Committee's further plans for prQmOting the development of economical and efficient methods of operating the Federal Reserve l3anks. I. Schedule E was set up as a preliminary fact finding survey of costs of bperation in the different Federal Reserve Banks, and as the surest meth~ of providin~ a secure foundation for such further and detailed studies of oparating effici~ncy as the Committee, in the pursuit of this work, mig..'-lt have to make. It was also the belief of the Comrndttee that Schedule E would aupply the best starting-point for the gradual working out of improved methods of Federal Eeserve Bank organization and operation. It is realized by the Committee that Schedule E does not yet :present figures for the various baru:s on Q.n absolutely comparable basis. This is mainly due to so~e misunderstandings of the Manual of Instructions which are in :process of being cleared up. It is the Committee•s belief that when the Manual of Instructions is revised in accordance with what has been learned in the last five months of the •perating organization and practices of the Reserve Banks, Schedule E Will be so nearly accurate that the figures thenceforth given by the various banks will "be fairly comparable when considered in connection with modifying local factors. and wiU be of the greatest value in assisting the work of t~e Comnittee. -2- X-3552 that The Board's Corrmitt~a understandsjthe Procedure Committees in the s2veral Federal Reserve Banks have been giving careful thought to the operating methods of ea.ch of the departments of the Banks, and judging from reports received from them, the :Banks have been greatly aidad in thair work by the exhibits showing comparative costs; and it appears that considerabl~ economies already have been effected in costs of operation in sorr:e of the 3anr~s. .......,,_, The figures already assewbled under Schedule E indicate differences in the unit cost ( tl1ese differences being considerable in some cases) with which t~e same function is being performed in the different .Banks, The figures do not, however, disclose to what these differences way be due; - whetner to (1) different degrees of operating efflciency, or (2) to differences in the amount and character of services rendered, or (3) to peculiar local conditions. To this aspect of the work the Committee now proposas to direct systeiTatic attention. Il. With a view to further improving the qomparability of the reports novv being receivad, so that each :Ban}: shall be enabled to make more conclusive comparisons betwean operating costs in its Bank and corresr~onding costs in ot~1er l1sserve Eani:~s, and. also for the purpose of otherwise carrying forward the work of econornw and efficiency in the Federal Reserve System, Lee Com-:.ittee nas called a conference of representatives from the Reserve :Banks to be held at the Federal Reserve Bank of Cbicago on December l}t:-:. and the following days. It 1s expected that the representatives of the Banks at this conference will correprepared to givo detailed stat~ffients with regard to the work performed fn each expense unit of their respective 3anks, and that with such data before it, the conference will be in a position to perfect the system of r-:;porting under Schedule E so tta,t in the future the expenses reported in any er_t)ense unit in a e,iven Bank will represent the cost of performing the same character of work ti:-J.at like costs represent in other Banks. The Committee has, however, never expected that Schedule E, even in its perfacted form, would of itself accomplish all that was aimed at in promoting operating organization and economy in the Banks. Schodule E represents only the first step in the Com-:.ittee 1 s program. It i3 therefore intended at the forthcoraing Chicago conference, without waiting until the work of perfecting Schedule E is completed and perfected data have become available, to proceed to the develol:'ment of plans for the detailed and intensive study of the more important functions in the operation of t£-.e Ban:ks, with a view of finding the best methods of performing those functions. It is the belief of the Committee that thero is prob3hly no one n:ethod of performing any one of the major functions of tha :Bar.ks whicr. could in a practicable sense be regarded as 11best 11 for a.ll of the, twalve Banks. The preliminary surveys already made show that opera tin,; organization and rr.ethods must be modified in accordance with the volnrr?· ' X-3582 -3- and character of the business, ·the area and transportation conditions in each District, the number of member and non-member Banks, and other factors. With these considerations in mind, the Committee proposes that the Banks shall be grouped and that in each group shall be placed t:1ose which are most nearly comparable with raspect to each of the major functions performed by the Banks. In order to expedite the solution of this problem of grouping, the Committee has made a tentative plan of grouping the Banks, copy of which is herewith enclosed. The criticisms and suggestions of yourself and of the Governor of your ]ank.~ as to this Il'.atter of grouping are invited, and it is hoped that they rn9¥ be ex~ressed through the representative of your Lank at the forthcoming Chicago conference• III. When the grouping is completed, it is proposed that each group of Danks shall have a committee on each of the four major functions of the Eanks, and that each Eank shall be represented on its respective functional group comrr~ttees. The Committee therefore requests that the representative of your ]ank at the Chicago conference shall be instructed or authorized by the Governor to na.n:e the Npresentative of your :Baru;: on each one of these functional group committees. Prom the membership of each of the committees thus constitutad, the Board's Committee will name a chairman, with whom it will advise and to whom it will look for the prorr;;>t and thorough performance of the work of his committee. In order that such detailed investigaticn as will be necessary for these committees to make may be made promptly and go forward without delay, it is requested that the Chairman of the Procedure or Economy Committee in eaCh Bank keep in close touch with the work of the representative of his Eank on eac:·. . committee. The method of proceeding with the work of econorr.w and efficiency thus outlined has been adopted only after very full consideration and in the belief that everything considered, it will prove a satisfactory method and produce rasults with a minimum of friction and suspicion. ~ne Comrr~ttee gladly acknowledges its indeotedness to the officers of the Baru~s for the cooperation whiCh has been extended, and is glad tr~t a point has been reached vklere the tedious process of assembling figures will soon be translated into important results. Very truly yours 1 (Enclosure) .. Chairman, Committee an Economy and Efficiency. To· Chairmen of all Federal Reserve Banks . Copies to Governors. .. , X- 3532a SUGGESTED Gli.CUPIHGS OF B..UJi\:S FOR DET;\ILED STUDY OF FUNCTIOlT.\L OP~.:<:R:iTIONS r.'I TH .;, VIEi'! TO DEr:L'EK1INING BES'I' !1E1'YIODS OF CONDUCTING S.~T'lE. l. .ACCOUHrHTG FUNCTION. L 2. 3. New Yorl:, Philadalphia, Cleveland. Bo~tcn, Richmond, .Atlanta, St. Louis, Dall~s. Chicac:c, Minneapolis, Kmsas City, San J:<'r::mcisco. The basis for this grouping is prirrarily the number of rr,err.b er banks , 2• CURRENCY x'\ND CO IN • 1. 2. 3· Boston, New York, Philadelphia, Chicago. Cleveland, Richmond, St. Louis, Ivlinneapolis. Atlanta, ~~ansas City, Dallas, San FrancL;co. The basis on ·which t:1e.oe banks are grouped is volume of bills received or deposited. 3· LOANS, REDISCOUl\TTS AND INVEST!·.1ENTS. 1. 2. 3· Boston, NeN York, Philadelphia, Cleveland. Richmond, Atlanta, Dallas, St. Louis. Chicago, Minneapolis, Kansas City, San F'rctncisco. The basis on which these banks are t;rouped is ci:12LlCt::lr and kind of business within district. 4. TRANSIT PJJD COLLECTIONS 1. 2. 3. Boston, New York, Philadelphia, Cleveland. Chicac;o, St. Louis, Minneapolis, "2\:omsas City. Richmond, Atlanta, Dallas, San Francisco • This groupinc:; is based upon the similarity of conditions and the total number of banks in district.
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