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e x - o f f i c i o w . P. g . H A R D I N G , g o v e r n o r m e m b e r s ALBERT STRAUSS, v i c e g o v e r n o r ADOLPH C. MILLER CARTER <5LA^3 s e c r e t a r y of t h e t r e a s u r y C H A R L E S S. H A M L I N chairman JOHN SKELTON WILLIAMS C o m p t r o l l e r of t h e C u r r e n c y J. a . BRODER1CK, s e c r e t a r y F E D E R A L R E S E R V E B O A R D W. t . CHAPMAN, a s s i s t a n t s e c r e t a r y W . M. IMLAY, f i s c a l a g e n t a d d r e s s WASHINGTON SUBJECT: r e p l y F E D E R A L t o RESERVE Comments and rulings by the Federal Reserve Board with respect t o recommendations made by Governors of Federal Reserve Banks at conference with Federal Reserve Board, March 2 0 - 2 2 * 1919• X-1463 Dear Sir; A stenographic copy of the minutes of the conference held on March 20th-22nd has been sent to the Governor of each Reserve Bank, and upon request a copy of the minutes of the meetings held on lVkrch 20th was sent to the Advisory Council member f o r each Federal Reserve district. There i s enclosed herewith f o r reference, a l i s t of topics discussed, with the recommendations submitted by the Governors to the Board ( s t e n c i l X-1459)• The Board has c a r e f u l l y considered the recommendations made by the Governors and with respect to certain of the recommendations the Board o f f e r s special comments and in a few instances rulings have been made as hereafter indicated. For convenience, the topics referred to are numbered in same order in which they were discussed at the conference, and are a l s o l i s t e d in the same order in the mimeograph (X~l459) enclosed. TOPIC 2 . BANKERS1 ACCEPTANCES: (d) Sales of acceptances to other Reserve Banks with or without Reserve Bank endorsement. Recommendation: It i s recommended that where voluntary open market purchases are made by one Reserve Bank through another Reserve Bank, no endorsement be expected or required. Where s a l e s of b i l l s by one Reserve Bank to another Reserve Bank are made by mutual arrangement, endorsorient may be required by the purchasing Reserve Bank and sush transactions should promptly be reported t o the Federal BOARD X-I463 - 2 - Reserve Board. That where rediscounts are arranged through the Reserve Board, at rates f i x e d by the Board, endorsements should always be given by the borrowing bank. The Board approves the recommendation with the exception that i t considers i t e s s e n t i a l that a l l i n t e r d i s t r i c t s a l e s of bankarrangement s ers ' acceptances be made through, or under participation/approved by, the Board, in order that i t may be kept f u l l y informed of the loan and reserve conditions of a l l Federal Reserve Banks. This i s the practice at present. Special Recommendation: That the Federal Reserve Banks be permitted, as l o c a l circumstances warrant, to e s t a b l i s h free luncheon f a c i l i t i e s f o r their employees. The Board i s not prepared to approve such expenditures at t h i s time, as i t i s believed that i t has not the power to permit appropriations for this purpose. It i s considered proper, however, that the Federal Reserve Banks be permitted to e s t a b l i s h f a c i l i t i e s and serve luncheons to t h e i r employees at a price s u f f i c i e n t to cover the c o s t . In the new building plans, i f p o s s i b l e , i t w i l l be well to provide f a c i l i t i e s for t h i s purpose. TOPIC 9 . RESERVE BANK BUILDINGS: Need f o r cooperation and interchange of ideas f o r the development of the plans for the erection of new bank buildings, i n s t a l l a t i o n of vaults and other equipment. Recommendation: After f u l l ,discussion i t was the unanimous opinion of the Governors of a l l the Reserve Banks that i t would be desirable to adopt the suggestion of the Federal Reserve Board that an a r c h i t e c t be employed -3- X-I463 to act as a clearing house for information in regard, to building plans between a l l the Reserve Banks and to act as advisor to the Federal Reserve Board in giving approval of certain p l a n s . Comment„by the Board; On April 1st the Board advised the Federal Reserve Banks of the appointment of Mr. Alexander BTrowbridge as Consulting Architect of the Bo&M, and the banks have been furnished with an outline of the work of h i s department (see Stencil X~l453)• TOPIC 10. RESERVE BANK INSURANCE: Mr. Kenzel, of the Federal Reserve Bank of New York, was appointed Chairman of a committee with authori t y to s e l e c t representatives from two other Reserve Banks, to act with him as a committee to draw up recommendations to be submitted to the Reserve Banks with a view to establishing uniform practice in Reserve Bank insurance. The committee was also authorized to make a study of the pension fvad plans. surance", The Board approves the principle of Reserve iBank "self in TOPIC 12, CONCENTRATION OF G L AT FEDERAL RESERVE BANKS OD Recoranendati on: That the Federal Reserve Board send s p e c i f i c d i rections t o each Reserve Bank c a l l i n g a t t e n t i o n to the importance that no obstacle shall be offered at any Reserve Bank or i t s branches to the immediate redemption of Federal Reserve notes in gold. That each Reserve Bank be requested t o keep a careful record of a l l receipts of gold and the sources from which the gold comes, and of a l l payments of gold and the purposes f o r which the payment i s made, whether for redemption, for manufacturing purposes, for export, f o r reserves of banks, or otherwise, that t h i s i n f o r mation be assembled in a report to be rendered monthly t o the Federal Reserve Board in such form that the a c t ual gold movement through the Reserve System can be calculated and made a matter of record. The Board recognizes the f a c t that through the constant ef f o r t s of the o f f i c e r s of the Federal Reserve Banks e x c e l l e n t r e s u l t s have been accomplished in accumulating gold in the Federal Reserve — Banks. X - " X 4:63 According to the figures compiled, by the Division of-Reports and S t a t i s t i c s , the gold holdings of the System have shown a steady increase. However, in the desire to retain the gold, the Reserve Banks must not lose sight of the f a c t that Federal Reserve notes are redeemable in gold or lawful money at Federal Reserve Banks and in gold at the o f f i c e of the Treasurer of the United States at Washington> It i s not expected that, as long as the gold embargo i s in e f f e c t , Federal Reserve notes w i l l be presented f o r redemption in any considerable volume, since the gold so obtained could be exported from the country only under license issued by the Federal Reserve Board. The presumption would, therefore, be that redemption was asked for in order to obtain gold for hoarding. It i s , nevertheless, the opinion of the Board that no obstacles should bB put in the way of immediate redemption in gold of Federal Reserve notes at any Federal Reserve Bank or i t s branches, unless there i s good reason to believe that a use incompatible with the public interest i s to be made of the gold thus obtained. At the present time the Board maintains a weekly record of gold receipts and disbursements of the Federal Reserve Banks on Form X—1053» which data are received Saturday morning by wire as of the close of business Friday. The Board's S t a t i s t i c a l Division i s pre- paring a new blank which w i l l embody the suggestions made by the Governors, TOPIC 13- INTER-DISTRICT COLLECTION SYSTEM: (a) Suggestions as to improvement in present f a c i l i t i e s so that Reserve Banks may render increased or b e t t e r service to member banks. _5- X-1463 Recommendation: The meeting recognized that the principal improvement in present f a c i l i t i e s w i l l consist in an increase in the number of banks remitting at par, and that aggressive steps should be taken a f t e r the next Liberty Loan with the object of putting a l l non-qpembei: banks on the par l i s t . The Board i s desirous of increasing present i n t e r - d i s t r i c t c o l l e c t i o n f a c i l i t i e s at Reserve Banks and urges that an aggressive campaign be waged at Reserve Banks for the addition of new par points up to the time of the opening of the Victory Loan Campaign, when every e f f o r t should be directed to the successful f l o t a t i o n of t h i s Loan., After the completion of the Loan Campaign e f f o r t s should be renewed« The Board i s of the opinion that the best results are obtained in securing new par points in those d i s t r i c t s where the Campaign i s conducted under the leadership of an o f f i c e r of the bank well versed in transit matters. (c) Reduction in f l o a t carried by Reserve Banks. Rdcommendation: It i s recommended that the Federal Reserve Board secure from the Treasury Department such rulings as w i l l reduce the f l o a t now arising by reason of immedi a t e credit f o r the various checks received on deposit in Federal Reserve Banks as the Government 's f i s c a l agents. Representatives of the Board have discussed with the off i c i a l s of the Treasury Department the question of f l o a t carried by the Reserve Banks arising from the f a c t that immediate credit i s given for checks and d r a f t s received in connection with the bond and other f i s c a l agency transactions of the Government, and as soon as d e f i n i t e X-1463 conclusions are reached the Board w i l l advise the Reserve BanksTOPIC 15. PENALTIES FOE DEFICIENCIES IN M M E BANK RESERVES E BR D e s i r a b i l i t y of adopting a uniform method of determining d e f i c i e n c i e s in reserve and assessing penalties. Recommendation: Governor Faneher offered a motion to have a uniform method of calculating reserves, which mot i o n having duly seconded was carried. After the above motion was adopted, i t was found that the practices which vary i n the d i f f e r ent Reserve D i s t r i c t s can not be changed by agreement among the Governors, and if uniformity i s to be obtained i n the method of calculating d e f i c i e n c i e s i n reserves i t w i l l be necessary to have i t adopted by a resolution of the Federal Reserve Board, the alternat i v e being the continuance of methods which are not uniform in the d i f f e r e n t d i s t r i c t s - The discussion developed that there are persistent offenders against the reserve requirements in some d i s t r i c t s , and i t i s suggested that any rule, which may be developed f o r a uniform method of calculating d e f i c i e n c i e s , provide an exception in the case of these i n s t i t u t i o n s , so that they may be more severely dealt with. The Board concurs in the above recommendations and with the view of insuring uniformity in the method of determining def i c i e n c i e s in reserves and assessing p e n a l t i e s , requests that the following rule be adopted, e f f e c t i v e July 1 s t : In the case of member banks in reserve and central reserve c i t i e s , d e f i c i e n c i e s in reserves should be computed on the b a s i s of average d a i l y net deposit balances covering a weekly period, and i n the case of country banks, that d e f i c i e n c i e s in reserves should be computed on the b a s i s of average daily net deposit balances covering a semi-monthly period. In the case of banks in reserve and central reserve c i t i e s , the Reserve Banks have the option of requiring member banks t o render a report weekly showing the d a i l y net deposits against which reserve i s required t o be maintained, or to render weekly a report showing the average X-1463 -7- net deposit balances against which reserve i s required. to be maintained. In the case of the country hanks the Reserve Banks have the option of requiring a report t o be rendered semi-monthly, showing the d a i l y net dep o s i t s against which reserve i s required to be maintained, or a report showing the average net deposit balances against which reserve i s required t o be maintained. If the present practice at any Reserve Bank i s more stringent than that suggested by the Board, i t i s optional with the Reserve Bank whether to continue i t s present rule or adopt the plan suggested by the Board, TOPIC l b , F R OF APPLICATION FOR EMPLOYMENT: OM In connection with the recommendation made by the Governors as to form of application f o r employment of Federal Reserve Banks, i t i s suggested that in the future a l l reference t o r e l i g i o n or country of b i r t h be omitted from the application blank. This i s in accord with the present rules of the Civil Service Commission. The Board would be pleased to be advised of the number of employees at each Federal Reserve Bank who are not c i t i z e n s of the United States or who have not taken out f i r s t c i t i z e n s h i p papers. TOPIC 17- NATIONAL BANK NOTES; Suggestion of Federal Advisory Council that the Reserve Banks receive National Bank notes on deposit and pay out i n place of them clean Federal Reserve n o t e s . Recommendation: Disapproved. The Board considers that i t should be l e f t t o the d i s c r e t i o n of the Reserve Bank whether i t desires t o receive notes of National Banks on deposit and pay out in place of them clean Federal Reserve notes, but suggests that a Reserve Bank should not give immediate credit f o r u n f i t National Bank notes deposited. l e c t i o n items only. Such notes should be received as c o l - X-I463 TOPIC 23- FAILURE TO OBTAIN DUPLICATE CHECKS TO REPLACE CHECKS DEPOSITED BY THE COLLECTOR OF INTERNAL REVENUE AND LOST IN THE MAILS. The conference unanimously recommends t o the Federal Reserve Board that the Board send a c i r c u l a r l e t t e r to a l l Federal Reserve Banks requesting a report as to the extent of the d i f f i c u l t i e s and of poss i b l e l o s s e s which they have encountered by reason of l o s s e s i n the mails of checks deposited by Internal Revenue Collectors, of which duplicates can not be obtained, by reason of the f a i l u r e of the Collectors of Internal Revenue to keep adequate records and descriptions of checks so deposited. It i s further recommended that upon receipt of these report9 the Federal Reserve Board undertake, in behalf of the Federal Reserve Banks, to secure such r e l i e f in t h i s matter as the Treasury Department i s able to a f f o r d . The Federal Reserve Banks are requested to furnish to the Board as soon as convenient a report of l o s s e s which have been sustained by reason of l o s s e s i n the mails of checks deposited by Internal Revenue Collectors which have been sent out f o r c o l l e c t i o n , and of which duplicates could not be obtained by reason of the f a i l ure of the Collectors of Internal Revenue t o keep adequate records and descriptions of checks deposited with Reserve Banks; a l s o , a s t a t e ment as to the extent of d i f f i c u l t i e s in connection with deposits received from Collectors of Internal Revenue in your d i s t r i c t . Upon receipt of t h i s information from the various Banks, the Board w i l l discuss the question with the Treasury Department. TOPIC 35. CALCUIATION OF INTEREST: Treasury Department pays on a 365 day b a s i s , while a l l the Federal Reserve Banks, except those of New York and Boston, calculate i n t e r e s t and discount on a 360 day b a s i s . Can not uniformity be obtained in t h i s regard? -9- X-I4-63 Rec ommendat ion: It i s recommended that discounts with Federal Reserve Banks and between Federal Reserve Banks be calculated on the b a s i s of 3&5 days a year beginning July 1st next. The Board concurs in the recommendation of the Governors and requests that e f f e c t i v e July 1, 1919$ the computations of i n t e r e s t or discount on loans to member banks or Federal Reserve Banks be made on a 365 day b a s i s . It i s believed desirable that t h i s method be con- tinued as long as the b i l l holdings of the Reserve Banks continue to be based l a r g e l y on Government paper, i n t e r e s t on which i s figured on a 365 day b a s i s . TOPIC 36. NECESSITY FOR THE BANKS MAINTAINING AN AGENCY TO C U T AND WITNESS THE DESTRUCTION OF FEDERAL ON RESERVE BANK NOTES. Recommendation: It i s suggested that the Federal Reserve Board asc e r t a i n from each of the Federal Reserve Banks the t o t a l cost and the cost per thousand of present f a c i l i t i e s , and a probable increase i n t h i s cost for witnessing the destruction of Federal Reserve Bank notes at the Treasury Department in Washington. It i s a l s o r e s p e c t f u l l y suggested that the plan recommended by Mr. Emerson to Mr. Broderick be examined with a view of determining whether that or some other plan can not be adopted which w i l l r e l i e v e the banks of t h i s expense, or at l e a s t reduce i t . The Board i s at the present time negotiating with the Treasury Department with a view of eliminating "special count" made by Agents cff the Federal Reserve Banks of mutilated Federal Reserve Bank notes forwarded t o the Treasury Department f o r redemption and d e s t r u c t i o n . X-1463 -*1.0w As soon as s a t i s f a c t o r y arrangements have been completed, the Federal Re serve Banks w i l l be advised. Recommendation by Mr. McDougal: It i s suggested that the Federal Reserve Board give consideration to the adoption of some plan by which Federal Reserve Banks may be permitted to ship reserve notes of other Federal Reserve Banks, u n f i t for circul a t i o n , cancelled and s p l i t , as they do with t h e i r own notes. The above special suggestion by Governor McDougal i s covered by Board's l e t t e r X-1*4-30, dated March l o t h , on the subject of "Cancell a t i o n of Unfit Federal Reserve Notes of Other than Issuing Bank Forwarded for Redemption". The Boaid desires to express i t s appreciation of the consideration given to the topics suggested f o r discussion, as well as the valuable suggestions made at the Conference. Very truly yours, Governor. April 8, 1919.
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