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861 W . P . 6 . HARDING, GOVERNOR ALBERT STRAUSS. VICE GOVERNOR EX OFFICIO. MEMBERS ADOLPH C . MILLER CHARLES S . HAMLIN CARTER CLASS SECRETARY OP THE TREASURY CHAIRMAN HENRY A . M O E H L E N P A H FEDERAL RESERVE BOARD JOHN S K E d W f l L L I A M S COMPTROLLER OP THE CURRENCY R. G . EMERSON, ASSISTANT SECRETARY ADDRESS REPLY TO W. M. IMLAY. FISCAL AOENT WASHINGTON FEDERAL, R E S E R V E B O A R D November 7>1919* Subject: W . T . CHAPMAN, SECRETARY 2-1719 Recomr.sndations made at Conference of Federal Reserve Agents, October 22-24, 1919- Dear S i r t The Federal Reserve Board has considered the recommendations of the Federal Reserve Agents 1 Conference, held, i n Washington, Oct. 22— 24, 1919,. copy of which i s attached h e r e t o , and submits the following comment with r e f e r e n c e t o c e r t a i n recommendations made. FEDERAL RESERVE AGE1JTS' SPECIAL FUNCTIONS (a) NOTE ISSUE (3) ( Redemptions, The Federal Reserve Board wishes t o urge upon the Federal Reserve Agents the n e c e s s i t y f o r c l o s e r s o r t i n g of u n f i t Federal Reserve notes forwarded t o Washington f o r redemption, and r e q u e s t s t h a t t h i s matter be brought t o the a t t e n t i o n of the o f f i c e r s of the Federal Reserve Banks. At the p r e s e n t time, about $11,000,000 of Federal Reserve notes are being shipped t o Federal Reserve Agents from Washington d a i l y , while the output of the Bureau of Engraving and P r i n t i n g i s only about $7,000,000. In order to meet the heavy f a l l demand f o r currency, ana f u r t h e r m o r e , in the i n t e r e s t s of economy, i t i s necessary t h a t Federal Reserve Banks s o r t t h e i r notes much c l o s e r and forward to Washington f o r redemption only those n o t e s which a r e u n f i t f o r f u r t h e r c i r c u l a t i o n . In a r e c e n t communication which the Board received frora the Treasurer of the United S t a t e s , the statement was made t h a t i t was estimated the r e m i t t a n c e s received from some of the Federal Reserve Banics contained from 35 to 60$ f i t notes. # (4) Design of Federal Reserve Notes. The Board has under c o n s i d e r a t i o n the recommendation t h a t s t e p s be taken to change the design of Federal Reserve n o t e s i n order to make f r a u d u l e n t use more d i f f i c u l t . The Board d e s i r e s , however, t h a t no p u b l i c i t y be given t o t h i s m a t t e r , f e e l i n g t h a t perhaps more unscrupulous persons might be tempted t o engage i n c o u n t e r f e i t i n g or r a i s i n g Federal Reserve n o t e s . X-1719 ig) RELATIONS WITH MEMBER BANKS. (3) Proper use of system by members - can a program be formulated? The Board i s i n accord with the expression of opinion t h a t personal c o n t a c t w i t h member banks i s very d e s i r a b l e , and f e e l s t h a t each Federal Reserve Bank should Ire jp i n personal touch with as l a r g e a number of i t s member banks a s p o s s i b l e , the method t o be determined by each Federal Reserve Bank to meet i t s own l o c a l c o n d i t i o n s . (h) RELATIONS WITH NON-MEMBER BANKS. (l) iShat can "oe done to i n c r e a s e membership? The Federal Reserve Board approved the recommendation " t h a t an e n e r g e t i c and organized campaign should be immediately inaugurated i n every Federal Reserve D i s t r i c t to secure lumbership In thd Federal Reserve System of e l i g i b l e and d e s i r a b l e s t a t e banks", and b e l i e v e s t h i s to be an opportune time in the m a j o r i t y of d i s t r i c t s to s t a r t such a campaign, i n view of the missionary work which has already be^n done by the o f f i c e r s of Reserve Banks in t h e i r par p o i n t campaigns; and b e l i e v e s t h a t a s t i l l more i n t e n s i v e s t a t e bank membership campaign should be launched immediately f o l l o w i n g the f i r s t of the year; and concurs with the recommendation that the campaign should also embrace educational work among member oanks to acquaint them w i t h the value and the proper use of the f a c i l i t i e s of the Federal Reserve System* FEDERAL RESERVE BANK POLICIES (a) PAR POINT CAMPAIGN. The Board concurs with the recommendation t h a t on January 1, 1920, those s t a t e s in which there are r e l a t i v e l y few non-par r e m i t t i n g banks, be p l a c e d on the par l i s t i n e n t i r e t y , and. t h a t checks of those banks which continue to be u n w i l l i n g to remit a t par, be c o l l e c t e d by agents, express companies or otherwise. (a) 2 . "We de3m i t f e a s i b l e and d e s i r a b l e to obtain cooperation and a c t i o n from the c l e a r i n g houses throughout the country i n modifying schedules wherein the time element a c t s in a d i s c r i m i n a t i n g way a g a i n s t c e r t a i n p o i n t s and s e c t i o n s of the country. * The Board concurs i n the above recommendation and d e s i r e s t h a t Federal Reserve Agents endeavor to obtain cooperation pnn a c t i o n from the c l e a r i n g houses i n t h e i r d i s t r i c t s with a view to modif y i n g schedules wherein the time element a c t s in a d i s c r i m i n a t i n g way against c e r t a i n p o i n t s and s e c t i o n s of the country. 862 -3- (h) x-1719 COMPENSATION OF EMPLOYEES, (l) Wages and Bonuses. The Board has considered the recommendation on the above s u b j e c t , out i n view of the f a c t t h a t the matter w i l l oe discussed f u l l y a t the Conference with the Governors on the 19th i n s t a n t , does not deem i t a d v i s a b l e to make any f u r t h e r c o m a n t s a t t h i s time. Very t r u l y yours, Governor. L e t t e r to Chairmen of a l l F.B. Banks 864 X-1719& There follow the recOi-aaendations oi the Federal Reserve Agents to the Federal Reserve Board, adopted oy the Federal Reserve Agents' Conference h e l d i n Washington October 22 - 24, 1919. FEDERAL RESERVE AGENT'S SPECIAL FUNCTIONS (a) NOTE ISSUE (1) Discussion of expansion and c o n t r a c t i o n . , Expansion ana c o n t r a c t i o n i n Federal Reserve n o t e s i s dependent i n general on the p r i c e l e v e l . While i n a g r i c u l t u r a l d i s t r i c t s there has been expansion ana c o n t r a c t i o n to meet seasonal demands, the e x t e n t of cont r a c t i o n i s s t i l l dependent on the p r i c e l e v e l , f o r the f i g u r e s show as the. l e v e l of p r i c e s i n c r e a s e s Federal Reserve n o t e s in c i r c u l a t i o n revain a f t e r each seasonal f l u c t u a t i o n a t a higher l e v e l . Unless 6owe d i r e c t uethou. can be devised to decrease the p r i c e l e v e l there can be no permanent c o n t r a c t i o n of Federal Reserve n o t e s , except through curt&iluiant of p u b l i c d e ^ n d through econoujr and savings, (2) Suvvly of coin and currency. In those d i s t r i c t s where i t i s g e n e r a l l y known t h a t the Federal Reserve Bank s u p p l i e s currency f r e e of a l l t r a n s p o r t a t i o n c o s t , the Federal Reserve Bank s u p p l i e s i t s d i s t r i c t almost completely. I t i s suggested t h a t i f a compaign of education i s conducted i n a l l d i s t r i c t s so t h a t the member banks know they can get currency without cost from t h e i r Federal Reserve Banks each Federal Reserve Bank w i l l supply i t s d i s t r i c t and add to i t s p o p u l a r i t y , and t h i s service can be used a s an argument f o r enhancing the value of membership. In some of t h e l a r g e c i t i e s correspondent banks a r e shipping out currency to member banks i n other d i s t r i c t s , a p r a c t i c e which t h i s educational work w i l l tend to discourage. (3) Redemption. The volume of shipments f o r redemption by member banks and by Federal Reserve Banks can be reduced by a c l o s e r s o r t i n g of u n f i t Federal Reserve n o t e s i n a l l Federal Reserve Banks and a l s o by demands on the Treasury Department f o r currency in Federal Reserve d i s t r i c t s being supplied by l o c a l . Federal Reserve Banks r a t h e r than by shipments of Federal Reserve n o t e s of other Federal Reserve Banks i n t o a- Federal Reserve d i s t r i c t . - 2 - • ' (4) x-1719ft Design of Federal Reserve n o t e s . I t i s recommended t h a t i m e d i a t e s t e p s be taken to improve the design of Federal Reserve n o t e s i n order to make f r a d u l e n t use more d i f f i c u l t , and to expedite sorting* The conference submitted the f o l l o w i n g r e p o r t f o r the information of the Board, Mr. Chase r e p o r t s as f o l l o w s : From a p r a c t i c a l s t a n d p o i n t , I t h i n k the design on Federal Reserve n o t e s could be improved by adopting two changes which I understand a r e the p a t e n t e d p r o p e r t y of Edward B. Andrus of the Cosmopolitan Trust Company of Boston. He has p e r f e c t e d and p a t e n t e d an improved design f o r currency which embraces among other f e a t u r e s the two following, which are of c o n s i d e r able merit: 1. That the f i g u r e s on the smaller denominations of b i l l s be l a r g e r than the f i g u r e s on the l a r g e r denominations so t h a t genuine f i g u r e s from the • l a r g e r denominations could n o t be torn off and p a s t e d over the f i g u r e s of the smaller denominat i o n s a s has been done throughout the country of l a t e on a l a r g e s c a l e , 2, Mr. Andrus has p e r f e c t e d a design on the diagonal p r i n c i p l e so that however i t may be p l a c e d a note i s always r i g h t side up. This does not improve the a r t i s t i c appearance of the n o t e s but i t would be a tremendous p r a c t i c a l advantage to people who a c t u a l l y handle currency, e s p e c i a l l y f o r banks such a s ours,, in which hours of labor are wasted i n a day merely i n arranging notes r i g h t side up and r i g h t side t o . (s) CLAYTON ACT (l) Should a%istinfr permits be revised? I t i s the judgment of t h i s conference t h a t the p o l i c y of the Federal Re serve Board i n ae termining what i s s u b s t a n t i a l competition unaer the Clayton Act amended has r e s u l t e d , s a t i f a c t o r i l y and t h a t no review of p r e s e n t permits i s necessary except i n those cases where a decided and known change has taken p l a c e i n the n a t u r e of the busine ss of the i n s t i t u t i o n s with interlocking directors. (g) RELATIONS WITH MEMBER BANKS (l) Services, v r e s e n t and p r o s p e c t i v e : and t h e i r c o s t . Th«s s e r v i c e a f f o r d e d by the Federal Reserve Banks i s valuable t o member banks and i s , or should be, an inducement to membership on the p a r t of nonmembers. Dividends are l i m i t e d X-1719a ~ 3 ~ by -law to s i x p a r c e n t , a f a i r r e t u r n oil c a p i t a l investment. I n t e r e s t on b a l a n c e s i s very p r o p e r l y disallowed. Nevertheless the p r e s e n t l a r g e e a r n i n g s and prospective p r o f i t s a r e , to a l a r g e e x t e n t , the r e s u l t of use of the c a p i t a l and r e s e r v e s of member banks, and such member banks should, t h e r e f o r e , be e n t i t l e d to the l a r g e s t p o s s i b l e r e t u r n in the form of service dividends. There seems to be no reason to b e l i e v e t h a t the cos* of operation should i n the f u t u r e advance beyond a normal i n c r e a s e due to n a t u r a l growth, and t h e r e f o r e , there i s nothing to prevent the continuance of such dividends in s e r v i c e , (2) Are any members considering withdrawing? A number of banks have already withdrawn from membership and i t appears t h a t some o t h e r s have f i l e d a p p l i c a t i o n f o r withdrawal. Some banks havihg i n d i c a t e d a d i s p o s i t i o n to withdraw have concluded not t o do so a f t e r a personal v i s i t from an o f f i c e r of the Federal Reserve Ban-s, i t being demonstrated i n these cases that the d i s s a t i s f i e d member had an inadequate conception of the r e a l purpose of the system and a lack of comprehension of b e n e f i t s to be obtained through proper use of the f a c i l i t i e s o f f e r e d . In general, i t appears t h a t withdrawals may be c l a s s i f i e d unaer two groups — l i r g t . those wno wish to make membership merely a source of d i r e c t and increased p r o f i t through excessive use or abuse of the p r i v i l e g e s granted, (which members a r e of no b e n e f i t to the system); and second, such .uamoers a s come in through purely p a t r i o t i c motives, n&ving l i t t l e or no occasion t o use the r e d i s counting p r i v i l e g e ' s , and t h e r e f o r e f i g u r e t h a t continuing membership naans l e s s e n e d p r o f i t s without compensating b e n e f i t s . I t i s t l i k e l y t h a t i n such i n s t a n c e s , or most of them, a personal v i s i t by soma well q u a l i f i e d r e p r e s e n t a t i v e of the Federal Reserve Bank would r e s u l t in the abandonment of i n t e n t i o n t o withdraw. B06 867 - 4 (3) X-1719a Proper use of system by members - - can a program be f o r m u l a t e d ' I t i s i n p r a c t i c a b l e to frame a d e f i n i t e program f o r u n i v e r s a l a p p l i c a t i o n , f o r each d i s t r i c t has i t s own p e c u l i a r c o n d i t i o n s which must be d e a l t w i t h accordingly. However, i n important r e s p e c t s a proper use of the f a c i l i t i e s of the system can-be brought about and should be encouraged on the p a r t of member banks throughout the country without abuse of the p r i v i l e g e # I t i s manifest t h a t many member banks are as y e t without proper imowledge i n these m a t t e r s . I t i s suggested t h a t p e r s o n a l touch and acquaintance p r o p e r l y followed up may open the way f o r c o r r e c t i o n of t h i s s i t u a t i o n . The p a r t i c u l a r method, however, must be worked out i n each d i s t r i c t according t o l o c a l c o n d i t i o n s . (h) RELATIONS WITH NOMMEMBER BANKS. (1) What can be done to increase membership? We are convinced t h a t p e r s o n a l contact and d i s c u s s i o n f u r n i s h e s the most p r a c t i c a l method of i n c r e a s i n g membership. The appeal to p a t r i o t i s m alone i s no longer e f f e c t i v e . Desirable nomneober banks are already l a r g e l y informed, in a general way, a t l e a s t , as t o the system. The b e s t advertisement i s a s a t i s f i e d customer. If our prbsent members r e c e i v e s a t i s f a c t o r y s e r v i c e , they w i l l recommend i t t o o t h e r s . We b e l i e v e t h a t an e n e r g e t i c and organized campaign should be immediately inaugurated i n every Federal Reserve D i s t r i c t t o secure membership i n the Federal Reserve System of e l i g i b l e and d e s i r a b l e s t a t e baa ks and t h a t any proper and l e g i t i m a t e expense necessary t o reasonable success should be i n c u r r e d . Included i n t h i s e f f o r t and as an aid to i t s accomplishment t h e r e should be a general and i n t e n s i v e campaign t o acquaint member banks with the value and proper use of the f a c i l i t i e s of the Federal Reserve System, (i) RELATIONS WITH PUBLIC. ( l - 2) We b e l i e v e i n p u b l i c i t y , but we a l s o b e l i e v e t h a t i t should be s p e c i a l i z e d p u b l i c i t y , and t h a t i t should be d i r e c t e d from time t o time toward the o b j e c t i v e s t h a t we are aaxious to r e a c h . In baa.cs; the d i r e c t o r s as w e l l as the o f f i c e r s , should be l i s t e d and. gone a f t e r . A mailing l i s t of the d i s t r i c t leaders i n t r a d e , i n d u s t r y and a g r i c u l t u r e should be kept and added t o f r o m time to time f o r t h i s purpose. F E D E R A L R E S E R V E BANK P O L I C I E S (a) PAR POINT CAMPAIGN. In p r e p a r i n g t h i s r e p o r t the Committee had b e f o r e i t r e p o r t s made y e s t e r d a y by the s e v e r a l chairmen of the r e s u l t s of the campaign f o r par c o l l e c t i o n s i n t h e i r s e v e r a l d i s t r i c t s . Two things were developed by these r e p o r t s , ( l ) The p r o p o s i t i o n of the Federal Reserve Board t o i n s i s t upon the use of symbols on checks had given an impetus t o the campaign, since r e s e r v e banks as well as other banks foresaw the d i f f i c u l t i e s i n i t s p r a c t i c a l o p e r a t i o n together with the d i s c r i m i n a t i o n a g a i n s t nonr e m i t t i n g banks t h a t the use of the symbols would provoke. http://fraser.stlouisfed.org/ \ Federal Reserve Bank of St. Louis x-1713* - 5 * (2) S a t i s f a c t o r y p r o g r e s s i s being made i n a m a j o r i t y of the d i s t r i c t s , and i t appears t h a t when n o n - r e m i t t i n g banks were n o t i f i e d t h a t on a f i x e d date checks an themselves would be put on the p a r l i s t and c o l l e c t e d by a g e n t s , e x p r e s s companies, or otherwise, over SO per cent of the banks thus n o t i f i e d signed agreements to remit a t p a r . We recommend t h a t i n S t a t e s where there a r e r e l a t i v e l y few n o n - r e m i t t i n g banks* such n o n - r e m i t t i n g banks be n o t i f i e d t h a t not l £ t e r than January 1 s t , t h e i r checks w i l l be put on the par l i s t and c o l l e c t e d i n the manner h e r e t o f o r e mentioned; t h a t i n those S t a t e s that have a l a r g e number of n o n - r e m i t t i n g banks, such banks be n o t i f i e d t h a t not l a t e r than March 1 s t checks on themselves c l e a r e d through the Federal l b serve Banks w i l l be c o l l e c t e d a t par* Such a c t i o n i s j u s t i f i e d since Federal Be serve 'Banks are paying the c o s t of currency shipments* While we do n o t believe the symbol plan i s necessary i n S t a t e s t h a t a r e e n t i r e l y on the par l i s t , we reconznend t h a t the Board do not withdraw a t t h i s time i t s i n t e n t i o n of u s i n g sti£h plan*. In view of the apparent ambiguity of t h a t p a r t of Section 16 of the Federal Reserve Act r e l a t i n g t o the f i x i n g by the Federal Reserve Board of charges to be made on checks c l s a r e d through Federal Reserve Banks, we f u r t h e r recommend t h a t the Board defer promulgating a r e g u l a t i o n of t h i s k i n d u n t i l a t l e a s t a f t e r the completion of the campaign i o r par points* I t i s almost impossible to make a f a i r and uniform charge t h a t w i l l include i n t e r e s t f o r t r a n s i t time as well as compensation f o r r i s k and service * These l a t t e r charges depend upon the v a r i n g c o n d i t i o n s i n the several d i s t r i c t s together w i t h the value of the customers 1 endorsement and account* (Mr* McCprd and Mr- Rich wished to be recorded a s v o t i n g a g a i n s t t h i s paragraph.) We deem i t f e a s i b l e and d e s i r a b l e to o b t a i n cooperation and a c t i o n from the c l e a r i n g houses throughout the country in modifying schedules wherein the time element a c t s i n a d i s c r i m i n a t i n g „ way a g a i n s t c e r t a i n p o i n t s and s e c t i o n s of the country* -6- X-1719 a AMEMDMHMTS> (l) Reserve ana Net D e p o s i t s . There aoes not appear to be any demand a t the p r e s e n t time f o r a r e v i s i o n of the r e s e r v e s i t u a t i o n or the p r a c t i c e of a r r i v i n g a t the n e t d e p o s i t s upon which r e s e r v e s are to be c a l c u l a t e d t h a t would warrant your Committee i n recommending changes without more c a r e f u l study and a n a l y s i s of the s i t u a t i o n than the limited time given the Committee t o d i s c u s s the s u b j e c t would allow. I t would be irapossible, both from the National Ban& and member S t a t e Bank s t a n d p o i n t , to have changes recommended, especially those r e q u i r i n g l e g i s l a t i v e action* without the g r e a t e s t study and care as t o the e f f e c t of those chaiges on the d i f f e r e n t c l a s s e s of banks and commercial, i n d u s t r i a l aid a g r i c u l t u r a l i n t e r e s t s i n d i f f e r e n t s e c t i o n s of the country, BATES Of the t o p i c s assigned t o the Conaoittee there has only been opportunity to consider b r i e f l y the question of the present expansion of c r e d i t and irhat methods of c o n t r o l of c r e d i t may be s u c c e s s f u l l y used by the Federal Reserve Barnes i n view of the Government's p a s t and p r o s p e c t i v e f i n a n c i a l program. The i n c r e a s i n g demands f o r c r e d i t appear t o come (a) from the higher c o s t s of commodities and labor i n the production and d i s t r i b u t i o n of goods, caused by excess of demand over supply, and (b) from the higher p r i c e s of s e c u r i t i e s , land, and other forms of f i x e d p r o p e r t y , as well as of many commodities, caused by active s p e c u l a t i o n a l l over the country. The normal checjs. f o r the Federal Reserve Banks t o use i s a higher discount r a t e . But i n the opinion of your Committee the c o n d i t i o n s p r e v a i l i n g at home and abroad are so abnormal as t o render t h i s method not wholly e f f e c t i v e of i t s e l f . The European c o u n t r i e s are extremely s h o r t of goods, and we ourselves have not yet been able to s a t i s f y the accumulated demand f o r goods r e s u l t i n g from two years of p a t r i o t i c s e l f - d e n i a l on the one hand and a more widely d i f f u s e d spending power on the o t h e r . Furthermore, i n t e r n a t i o n a l t r a d e i s extremely u n s e t t l e d and a l l the important European exchanges are h e a v i l y i n our f a v o r . I t i s evident that the use of c r e d i t f o r producing the goods of which the world i s s h o r t should not be unduly c u r t a i l e d , and i t seems e q u a l l y evident t h a t the immoderate use of c r e d i t by those engaged i n s p e c u l a t i o n i n s e c u r i t i e s , land and commodities to f o r c e p r i c e s higher i s not only u n d e s i r a b l e from i t s e f f e c t on the cost of l i v i n g but i s laying the foundation f o r f u t u r e collapse and d e p r e s s i o n , liome i n c r e a s e i n the bank r a t e , however, seems the necessary f i r s t s t e p i n any program f o r the r e s t r a i n t of u n a e s i r a b l e creo.it expansion, as an i n d i c a t i o n t o tne barucs t h a t , with the war f i n a n c i n g of the government now on a d e c l i n i n g <*1719 a (c) * * (h) RATES 870 (continued.) s c a l e , the F e d e r a l Reserve Banks may be expected h e n c e f o r t h t o f u n c t i o n normally. But such increase?, which need not be l a r g e , or uniform i n a l l d i s t r i c t s , would be i n e f f e c t i v e unless accompanied by a campaign, undertaken g r a d u a l l y and with great d i s c r e t i o n to secure g r e a t e r moderation by banks in the extension of c r e d i t f o r s p e c u l a t i v e and other u n d e s i r a b l e purpose. The f a c t t h a t Government f i n a n c i n g i s on a descending s c a l e no lobger seems to r e q u i r e such a degree of u n i f o r m i t y i n Federal Reserve Bank r a t e s as p r e v a i l e d during the war, when the Liberty bond r a t e n e c e s s a r i l y overshasfeo6ed a l l others and p r a c t i c a l l y d i c t a t e d u n i f o r m i t y , I t i s the b e l i e f of your Committee t h a t r a t e s at the s e v e r a l banks need no longer be e s t a b l i s h e d e i t h e r simultaneously or a t s i m i l a r l e v e l s . Your Committee i s of the opinion t h a t the present p r e f e r e n t i a l r a t e cn government paper has served i t s purpose and may now or s h o r t l y be modified or withdrawn, and that in f u t u r e r a t e s at which government, secured paper i s taken by Federal Reserve B a n k l j ^ e such as not to permit re<j.iscounting a t a p r o f i t over the coupon or i n t e r e s t r a t e . COMPENSATION OF EMPLOYEES (l) Wages and Bonuses, Bonuses, as such, a r e o r d i n a r i l y given by commercial banKS, manufacturing and i n d u s t r i a l i n s t i t u t i o n s , as an a c t #f g r a c e , or as a bounty or in a p p r e c i a t i o n of l o y a l and f a i t h * f u l s e r v i c e . In concerns conducted f o r ^ r e f i t , - when the gams of the business have been large and the p r o f i t s are subject to d i s t r i b u t i o n i n the reasonable d i s r e c t i o n of i t s p r i n c i p a l owners, there can not only be no o b j e c t i o n to the granting of t h i s bonus to employees, but the p r a c t i c e nay o f t e n be commended. I t i s b e l i e v e d , however, t h a t the reasons underlying the granting of bonuses by concerns organized and conducted f o r p r o f i t can have no a p p l i c a t i o n to Federal Reserve Banks whose earnings are s u b j e c t to d e f i n i t e d i s t r i b u t i o n under the law. Bonuses i n Federal Reserve Bamts can only be j u s t i f i e d and upheld as i n the nature of r e a d j u s t ment of s a l a r y i f and when made necessary by unusual conditions, such as now o b t a i n , and which have obtained now f o r a cons i d e r a b l e time. We b e l i e v e that the c o r r e c t r u l e shotild be f o r each Federal Reserve Bank to f i x at s t a t e d aid not too f r e q u e n t i n t e r v a l s the s a l a r y of each employee and t h i s with some r e f e r e n c e to the s c a l e of pay f o r s i m i l a r work p r e v a i l ing i n the s e c t i o n where such bank i s located, but more with e s p e c i a l r e f e r e n c e to the nature of the employee^ work, and the experience, a b i l i t y and f i d e l i t y of tne employee. We t h i n g i t poor economy t o f i x s a l a r i e s a t unreasonably low f i g u r e s and m a n i f e s t l y wrong t p pay a wage unreasonably h i g h . There i s a middle ground where s a l a r i e s would be f i x e d ins.a s p i r i t of c o n s i d e r a t i o n of the value of the s e r v i c e s of the employee and i n a l i k e s p i r i t of exact j u s t i c e t o the bank» Under normal c o n d i t i o n s we b e l i e v e a l l compensations should be f i x e d in d e f i n i t e s a l a r i e s , with no promise, expressed or implied, t h a t a bonus would be p a i d . 871 4 * X-1719 (h) COMPENSATION OF EMPLOYEES (l) Wages and Bonuses, a continued continued. We b e l i e v e , h o w e v e r , t n a t under p r e s e n t c o n d i t i o n s the payment of r e a s o n a b l e and s u b s t a n t i a l bonuses i s r e q u i r e d aid demanded b o t h as an a c t of j u s t i c e to the employees and i n the i n t e r e s t of the ^Federal Reserve Banks, The u n i v e r s a l and r a t h e r unexpected i n c r e a s e i n the c o s t and expense of l i v i n g , i n c l u d i n g an unprecedented i n c r e a s e i n the c o s t of housing, majKes the g r a n t i n g of f a i r bonuses seem an a c t of needed j u s t i c e to the employee. The c o m p e t i t i o n f o r good c l e r i c a l h e l p , n o t only among banics but with r a i l w a y s , manufacturing and i n d u s t r i a l concerns, and the g e n e r a l ^ r a n t i n g by p r a c t i c a l l y a l l such businesses of consider able and sone t i n e s generous bonuses se _-.ms to make i t a l i o s t a matter of n e c e s s i t y f o r Federal Reserve B^nka to f o l l o w a s one what s i m i l a r course i f they are to maintain t h e i r o r g a n i z a t i o n s unimpaired and to r o t a i n t h e i r h e l p w i t h any f e e l i n g of s t a i s f action. Vve do n o t b e l i e v e i t p r a c t i c a b l e t o f i x any s c a l e of bonus payments which s h a l l be uniform among a l l banes4 The s c a l e of.bonuses to be paid should be l e f t to the sound d i s c r e t i o n of the Boards of D i r e c t o r s of the s e v e r a l F e d e r a l Reserve D i s t r i c t s , s u b j e c t , of c o u r s e , t o the c o n t r o l and approval of the F e d e r a l Reserve Board. We- t h i n k t h a t i t could w e l l be s t a t e a i n the l e t t e r accompanying the t r a n s m i s s i o n of such bonus checks t h a t the payment of same under p r e s e n t cond i t i o n s was not to be understood as f u r n i s h i n g any p r e c e d e n t f o r the f u t u r e . (Mr4 Hardy tooted "no" on t h i s r e p o r t . ) t 1/
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