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182
KXOII'I'ICIOM•t~~••"•
CARTE!,JLA~I
SICIITAIY Of THI TRIASU RY
"
CHAIRIIA.
JOHN SKELTON WILLIAMS
COMPTROLLER OP THI CURRINCY
FEDERAL RESERVE BOARD
W. P. G. HARDING, GOYIRMOI
ALBIRT STRAUSS. VICI GOYIINOR
ADOLPH C. MILLIR
CHARLII B. HAMLIN
HENRY A. MOEHLINPAH
W. T. CHAPMAN, SICRITARY
R, G. EIIERSON, AISIIIANT SICIIITART
ADORES. REPl-Y TO
FEDERAL RESERVE BOARD
WASHINGTON
W. M.IIILAY, PliCAL AIIMT
February 17,1920.
X-18.)5
Subject~
Gold Settlement Fund ·Daily, Clearing.
Dear Sir:-
.
With reference to the BoEtrd •s letter X-1766 of December 20th,
subJect, "Method of Determining Required Reserves", and the :Board 1s wire
of December 31st, advising that the date of making this plal\ effective
would be March 1. the Eoard has decided that effective March l, ~ha metbod
of settlement bet~en Federal Reserve :Banks through the Gold Settlement
Fund will be changed so that Federal Reserve Banks may set,tle inter-Reserve
:Bank business as of the same date that items are collected rathar than the
day following as is now ·.the plan. The plan of operation is given below•
Commencing with the afternoon of March 1, each Federa~ Reserve
:Bank and direct settling branch should arrange to wire to the Boatd as early
as possible in the afternoon, and il;l no event later than 7:30 P.M., Washington
time • its daily Gold. Settlement 11\and clearing telegram (cOde WEG). giving
credits t~ other Federal Reserve :Banks co·Jering that day•s business, which
now are cr~dited to Gold Settlement Fund Suspense on :&'o:nn 34 anq telegraphed
to the Board the next morning. It will be necessary to ha~re a telegraph
oparator on duty at each Federal Rcse:r'Ve :Bank and direct settllng branch
until these telegrams have been dispatched, received by the Board, verified.,
and release instructions given f~om Washington.
Upon receipt of the daily clearing telegrams the Board will effect
the settlement and the return el.earing telegrams (code BEPEG) wil). be prepared
ready for dispatch to the Re:..;erve :Banks upon the opening of tbe t-el~graph
wires the following morning.
Federal Reserve :Banks should c~lete all their transactions and.
entries in the customary manner now in effect, with the following exceptions;,
First, Federal Reserc1e Banks will no longer carry en account
"Gold Settlement Fund Suspense". Entries in connection with the
daily liOld Settlement Fund clearing affecting the Gold Settlement'
Fund, Tklcollected Items and Deterred A.vailabil:t ty Items accounts
should be made j.nn:ediately upon receipt of the :Board's clearing
wires (code BEPEG) the following morning, and iibe FeC..eral Se:~erve
Banks' books closed for the da.y.
-2-
~83
X-1835
,.
oecond, the paragraph of the Board's letter of August 12, 191B,
reading as follows:
X~ll21,
11 In ord.er to bring about a daily settlement for clearing house
items, it is recomrrended that all Federal Reserve Banks give
inF.nediate credit for clearing house items the day received from
other Federal Reserve Banks, without regard to the tim~ o£ day
received, inasmuch as the balance so created is reported to the
Gold Settlement Fund at the close of business but is really settled
the following day when the checks have been collected,'*
is rescinded; and bbrnmencing March 1, Federal Reserve Banks will give
deferred credit for .one day on all clearing.house items received from
other Federal Reserve Banks after clearing hours.
V~ere a Federal Reserve Bank ha~ direct settling branches~ entries,
of course, will have to be made in connection with the branch office accounts.
•
The Federal Reserve Banks will be expected to anticipate in so far
as pobsible thGir net debit balances or net credit balances in the settlement;
and wherever necessary request the Board to arrange rediscounts with other
Federal Reserve Ban~ in the afternoon as at present, in order to maintain
their reserve position at about 4o% after final closing of the books for .the
day. ~Vhenever a Federal Reserve Bank receives a heavy debit in the settlement
(advice of which will not-be received under the new plan until the following
morning) which was not anticipated and which will reduce its reserve below
the required minimum, notice of this should be promptly communicated to the
Board with the re~est that rediscounts be arranged in sufficient amount to
bring the reserve to the re~ired minimum. Entries of course, in connection
with this transaction will be made on the books of both the rediscounting ani
lending Federal Reserve Banks before the final e losing of books as of the
previous day.
·
Daily TEND wire~ regarding condition, also Friday night Form 34
telegrama shoull be prepared and dispatched to the Board in the manner at
present prevailing; that is, before receipt of the Board's daily code BEPEG
Gold Settlement Fund clearing telegrams. Upon receipt of the daily condition
telegrams (code TEND) and Form 34 wires on Saturday mornings, the Board's
Statistical Division will make the following adJusting entries in connection
with the results of the Gold Settlement Fund clearing:
Debit •.................... Deferred Availability
Credit ••................. Gold Settlement Fund
It~~
Total of amounts each Federal Reserve Bank credits to other
Federal Reserve Banks through the Clearing; also
Debit •.•................. Gold Settlement Fund
Credit •.......•.......••• Uocollected Items
Total of amounts credited to each Federal Reserve Bank by otber
Federal Reserve Banks through the Clearing.
184
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x... 1s35
Saturday mornings after receipt of tae Boara 1 ~ Gold Settlement
Fund clearing telegrmns {code BEPEG), and after closing its books earh
Federal Re:3rcn·ve Bank is requested to wire the Board the balances in the
accounts affected by entries resulting from the Gold Settlement Fund
clearing using the code words as shown against the caption;s of such
accounts on Form 34. The following introductory code word is recommended
for use in order to designate these telegrams:
Code Word
SETL ....... In order to conforn1 to the balances as shovm on
our books after entries we:re made in connection
with the results of the Gold Fund clearing and our
books finally closed for the day, please change
amounts reported against res:pecti ve code words on
our Form 34, Friday night telegram of __ ia§t~)- _- __
to read as follows: BABE_-- ___ l$~_5.~.49_6.L612l,_-_-~tc.
Ever since the inauguration of the daily settlement between the
Federal Reserv~ Banks there has been from time to time, more or less
agitation for a daily settlement between Reserve Banks through the Gold
Settlement Fund as of the same day rather than on the following day as is
now the :practice. The principal difficulty in putting this plan into
effect has been the difference in time between the East and San Francisco.
It is believed that this difficulty will be overcome with the adoption
of the above plan, and inter-Federal Reserve Bank accounting simplified
and inter-Federal Reserve Eank 11 float" eliminated.
Ve:ry truly yours,
Governor.
To Governors and Chairman of all F .R. Bank.
@FedFRASER