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Q* W . P . G . H A R D I N G . GOVERNOR EX OFFICIO MEMBERS ALBERT S T R A U S S , VLCI GOVERNOR ADOLPH C . MI LLER CARTER G L A S S HCFTFTARY OF THE TREASURY CHAIRMAN C H A R L E S S . HAMLIN FEDERAL RESERVE BOARD J O H N SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY W . T. CHAPMAN, SECRETARY R . G . E M E R S O N , ASSISTANT SECRETARY address reply to FEDERAL RESERVE BOARD WASHINGTON W . M. 1MLAY, FISCAL AGENT October l 6 , 1919* X-1701 CONFIDENTIAL Subject: Study of Present Credit Situation with view to devising steps to curtail ejqpansion. Dear Sir: In the opinion of the Board the expansion of credits is fast reaching the danger point, and at its conference with the Governors of the Federal Be serve Banks this question will be given serious consideration. It is evident that some effective steps nmst be devised to regulate the granting of credits, and the Board requests that each Governor, before coming to the conference, look over the discount lines of his bank and bring with him a memorandum showing the names of all banks which habitually rediscount in excessive amounts, as well as the average line carried by each of each institutions since October 1st. The Board has knowledge of cases in several of the Federal Reserve Districts where member banks appear to be carrying Liberty Bonds and Treasury certificates far in excess of their combined capital, surplus and deposits and ure rediscounting the entire amount with their Federal Reserve Bank, the intention being, apparently, to make the profit out of the differential in rate. As an example your attention is invited to the following figures, . which relate to a State member bank in a certain Federal Reserve District: Loans and Discounts $ 173*579Liberty Bonds, 1,658,825*00 United States Victory Notes 200,000.00 Stock of Federal reserve bank. 7,500.00 Other bonds, stocks and securities 117,875-00 Lawful reserve with Federal reserve bank . . 70.5H-00 - 0 - X-1701 C a p i t a l stock Surplus. Undivided P r o f i t s . . . . Total gross deposits. B i l l s Payable w i t h F e d e r a l r e s e r v e b a n k . . . . $ 200,000.00 50,000.00 1,854.00 110,24g.86 1,950,000.00 T h i s bank h a s used a l l i t s Government s e c u r i t i e s a s c o l l a t e r a l t o s e c u r e i t s f o u r p e r c e n t , n o t e s w i t h t h e F e d e r a l fie serve Bank; i t c a r r i e s no v a u l t c a s h and does not do an a c t i v e b u s i n e s s ; i t s minimum annual n e t p r o f i t derived from the r e d i s c o u n t i n g of p a p e r secured by Government o b l i g a t i o n s i s : W on $1,658,825, 3/4# on $ 200,000, $4,147.00 1,500.00 5,647.00 T h i s i s a n e t p r o f i t which does n o t c a l l f o r t h e investment of a n y of t h e b a n k ' s c a p i t a l and s u r p l u s . • Very t r u l y y o u r s , Governor L e t t e r t o each g o v e r n o r . 818
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