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W. P. G. HARDING, GOYIRHOR PAUL M, WARBURG, VJCI GOYIRNOR EX·OP'P'ICIO MEMBERS FREDERIC A. DELANO ADOLPH C. MILLER WILLIAM G. McADOC SECRETARY OF THE TREASURY CHARJ..ES S. HA)JLIN CHAIRMAN JOHN SKELTON WILLIAMS FEDERAL RESERVE COMPTROLLER OP THE CURRENCY s6A~b AND FISCAL AGENT WASHINGTON ADDRESS REPLY TO FEDERAL. RESERVE BOARD July 40, 1918. Dear Sir: The Board has given ~areful to the various conside~ation topics which were discv.ssed at- the recent confere~ce with the gov- ernors of Federal Reserve banks, and has dir-ected that this letter be sent to inform the governors of the 1. conalus~.ons reached. CUrtailment £! Credits. The Board has decided to send a letter to all national banks, state banks and trust companies, imviting their cooperation in a campaign for a judicious curtailment of non-essential credits, and to address a letter to all Federal Reserve banks asking them to take such steps as may be necessary to arouse the interest of bankers and business men in this movement. Federal Reserve Banks. At the conference the view was generally expressed by the 11. D~scount Rates ~ governors that they could control any excessive redisc~ts by any member bank, by informing the applying bank that it had reached its limit; by requiring additional collateral; or, with respect to fitteen-day borrowings, by availing themselves of the authority given '··~ them by the Board to raise the interest rate in cas~ of renew~ls. These devices have been used in the past, a.nd the Board has reached the conclusion that for the time being, it would be better to adopt this polia.y rather than to insist upon changes in discount rates. The adoption of this policy will give the Federal Reserve banks an opportunity to demonstrate tbat credit may be restricted without re- http://fraser.stlouisfed.org/ sorting Federal Reserve Bank of St. Louis ..,_ H. PARKER WILLI$, S!CRITA2n SHERMAN P. ALLEN. ASST. SECRETARY to higher discount rates as a. means of compulsion. In two X-1952 26 -2- Federal Reserve districts the fifteen-day rate for member secured by Government obligations is now Reserve 4~, b~riks' notes and Should other Federal find it nececsary for their own protection to recommend b~nks that their rates for such inclined to approve. considered by the p~per be advanced to 4~, the Board will be This question cf disc cunt rates will be ag~in in the light of additional experience whenever ~ard conditions warrant i.t. III. Iute:rest Bates Paid by Member Ballka on Bank Balances and Deposits. T.he governors ar~ requested to give this matter especial attention, and to take vigorous steps to 10ft results, beginning with the important reserve cities in the respective districts. IV. Indirect Discounts !.2!:.. Non-Member BankS The Board has decide~ not to issue any regulations at this ttme defining limitations to the accommodations which ~y be granted indirectly to non-member banks through members, but suggests that the officers of the Federal Reserve Banks exercise proper discretion in preventing abuse mf V. redisc~t privileges. Branches a.nd Agencies. The Board believes that by-laws for branches should be as nearly uniform as possible, making due allowance for local conditions in certain districts. It appears to be ndvisable also, as a rulo, that the manager of a branch bank should be one of the three directors appointed by the Federal Reserve .Bank. Tho Board would like to test clearing the plan for establishi~agencies, based upon the active cooperation of local clearing houses. It appears that an agency of X-1052 n!. -3- this kind wculd give the banks in the cities which are local financial centers, but which have no Federal Reserve bank or branch, most l of the benefits Which accrue to banks located in a Federal Reserve city. It will not be the policy of the Board, however, to establish &D¥ branch or agency in any city which is not classified as a reserve city. VI.. Exchange rates In view of the unanimous opinion expressed at the conference, and having in mind the large number of banks which have not yet applied for membership in the Federal Reserve system, the Board has decided that it is not expedient at present to fix the charges which may be made by member banks on checks deposited with them which are cleated thrdugh the Federal Reserve banks.. to defer action on this ~attar The Board is willing urltil such time as the par lists in- elude a much larger number of state banks and trust companies. Vll. The Board does not contemplate making any change in the time allowance for the collection of tnterdistrict items, but has determined that Federal Reserve exchange drafts drawn by a member bank upon its Federal Reserve Bank when promptly advised at the time the drafts are drawn, should be treated as payable upon presentation at any Federal Reserve bank, and cleared through the Gold Settlement Fund. VIII. The Board has addressed a letter to all Federal Be- serve banks statiLlllg that bankers' acceptances should be paid in ac- tually collected funds Oil day of maturity, and that in cases where accepting banks pay by cashier's check or by check on some member 27 X:-1052 28 -4- bank of their 1:-oality, ene day's addit;.onal c.iscount should be figured when the acceptan~e IX. is b~ugr.t~ The Board u:~ges all Federal Reserve banks to oomcine with their efforts for the eale of Treasury certificates of indebt<:ldness, the exertion of every energy fer udding to their etate "Danlr membership, and for tbe fu~ther concentration of gold in the Federal Reserve banks. x. The Board desires all Federal Reserve banks to pa;oti·~ cipate in the benefit and liability of accounts openod with any particular Federal Reserve banks, by foreign governments, or foreign government agencies~ which are predicated upon the obligation given by the Treasur.y or the Federal Reserve Board, or both, to pay the deposits in gold within a certain time after the oouclusion of a treaty of peace. A letter treating this question more in detail will be ad- dressed in due course to all Federal Reserve banks, and will set forth the method of distributing these foreign accounts in the proportions applied in the case of the agreement with the .Bank of England .. X.I. The Boru>d adheres to its view that a distribution of a bonus should, as far as practicable, be undertaken only at the end of the year, and that any ad"j.lll'tment that may benom<1 necessary during the year should be made on the basis of an increa.oe ln salary. In the opinion of the Board, it is not expedient to have the bonus constitute too large a part of the oala:i-ieo paid employa.s of Federal Reserve banks. With respect to topics not t8 th€ program, which were discussed with the governors, the Board holds; XII. That domestic ~coeptances dram1 against a pledge of X.-1052 -5warehouse reoeipte or similar i~struments. should be regarded as eligible by Federal Reserve banks only in oases where the acceptor remains secured; that is to say, in sue~ cases the collateral should not be ~eleased by the acceptor a£ter tbe acceptance has beej made. lt is not practicalbe in every case £or these documents to remain at- tached to the accepta~e. but if no~ attached they should remain in the llaude of the acceptor, or subject to hl& order :J,nd control,. until the acceptance has been paid or other approved collateral has been substi- iu tuted. some oases, documents have been dapo~~ted in trust with the Federal Reserve bank, and this appears to the Board to be an excellent precaution in dealing with weaker acceptors. In all oases the acceptance should contain a reference to the ooilateral bywhioh it is secured, sufficiently clear as to XIII. id~tify and locate it. Trade Acceptauoes; ii.henever deairable trade acceptances are offered with the endorsement of a member bank. the,y should be purchased by Federal Reserve banks iu the same me.nner as it Offered directly by the endorsing bank• When a trade acceptance is offered with the endorsement of a member bank locatei outside of the district in which the acceptance is offered, it is suggested that before purchasing, the Federal Reserve bank should communicate with the Federal Reserve bank of which the endorsing qa:nk is a member. The Boord deems it important that Federal Reserve banks should advise each other as to local conditions and credits affecting trade acceptances and bankers' acceptances. Yours.very truly, Governor. 1
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