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FEDERAL RESERVE BOARD
WASHINGTON
X-4972
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
OctGbcr 15, 1927.
SU'J3JJ:::CT:
Topic for Governors• ConforenccRevision of ~egulation D.
Fro~osed
Dee,r Sir:
The Federal Reserve Board has voted to place on the progra::1 for
discussion at the forthc01:1ing Governors 1 Confcrcnco tho pro·9oscd reviaion of its Rugu.lation D dealing with reserves of r.1.-:.;::.bcr baP..ks.
In this connecticn thoro arc onclosod for your information the
following docur~cnts:
1. A copy of a murr.crandur..1 addressed to tho Board by
it;p General Counsel under dat..; of August 3~ El27 (X-"'.::915) containing his final recommendations r~garding tho regulations.
Regulation_ D is discussed on r,>agos 2 to 10, inclusive, of th.is
Ii1Cr.l.orandwn.
2. Copi-:;s of c-:::rtain letters c:ddrosscd to tht:: Board
by members cf tho Exccuti vo Cor;mi ttco 0f the Federal Aclvi sory
Council expressing their views with regard to tho proposed revision of Section IV of Regulation D dealing with the subject
of penalties for deficiencies in reserves.
Ycu will rcnor.:bcr that, under dat0 ;)f April 23, 1927 (X-4830),
tho Board so;.·"t tJ tho G,~v..:rnor of Dach Fodi.!ral reserve bank a co:w cf
th.:; first tuntati vo dro.ft of the revised regulations a::d, m:.dcr date
cf Ju.::e 21, 1927 thu B.:n.rd se:1t to tho Gov~rn,:r of oach Fodoral reserve
barlk o. revised draft of tho rce;ulaticrls in the fcm in which thoy had
bcGn a-pprov.;;d tentatively by the Bco.rd en that dat..:, togcth..::r 'iii th an
clte;rna.ti vc re:vision of Scctbn IV of Rc.sulation D. Upc.n r~ccipt c,f
this lott.:;r, thcrcfcrc, ycu 'Nill hai!c in ycur poscossion not only the
draft cf Regulation D which is now u:1dcr ccp.sidcrution but also ccpios
~f all tho ~roc0ding drafts.
J5y diroetion ::;f tho Fodoro.l R0sorvc Beard.
~io.l tcr
L. Eddy,
Secretary.
TO GOVERNORS OF .ALL F. R. BA1lKS •
Encl.:,suros.
(COPY)
:::-4S72-a
FEDERAL ADVISORY
COU:~CIL
38 Sot;.t'c. Der:.rborn Street
Chicago,
Dear
lv~r.
October 4, 1S27.
?lat t:
l-iir.
~Vetmore ~1.!:1.s
Executive Comni ttee of the
receiv'3(. from members of the
Fa,~_a:;.~···l
Advisory Cou::.cil
vnricu.'~ co:c:l~l..:.:J.:i.Cl'!. dolls
of which l1e ~1as iils tru.cted !Zle
to send ;vm.c co:)ies.
P-li~
Mr.
:~2t;.e
I
not sending anything from
since !1e C.id :lot. a·-::.d.
. cation to uri
;;·hi~~:
1:.1~"thing
in his communi-
':.c did not send to you under date of
Se;')tember 29.
Very truly yours,
(Signed) Walter Lichto.1stein
S€cretary
Acting Governor Edmund Pla.tt,
Fede::.·al R.::.cervo :Soard,
Washing:.on, D~ C.
(CO"Y)
September 88, 1927.
Dear lv1r. '.tet:nore:
I have reed ved from r•.tr·. Lichtenstein as
Secretary of ~he !ederal AQvisory CotL~cil a draft
of tl:.e propo sud new regt::.lations for figt:;.ring reserves; also a cvpy of his p0rsonal letter of thL24th instant to l1.r. :Ed.ml.:nd Platt, ACting Governcr,
which quotes yoar telegram of the 23rd instant to
Iir. Platt •
.All of the~e '()apers hStve l;t- .:m. ~or.sid·ar~::d by
the Vice Preside11t handling oar :r.eJerv8 ?Osition, who
tells me that he can adjust our o-perations to the new
regul~tions without much difficulty, ~t that he is
not syrr:.yathetic with the cha.nge, a.s the weekly a.ver.?g.:'J
has gen<3rally ....-orked well, and thinln some method
might be devised for dealing with the fc~ banks v;hote
dealings with res~ect to reserves are out of harmo~~
with the spirit of the regulations.
If, as I understand, the Federal Ruserve
Board is all ready to issue these new regulations, I
~arsonally think it might be as well that they be
given a trial.
Sincerely yours,
(Signed) J. S. Alexander.
(cony)
Septe;r,ber 00, 1927.
Dear
~~.
Lichtenstein:
I am in recei-')t of your letter of the 29th with
cmclosur<Js as stated -- copies of recommendations made by
the Federal F.eserve Council. Also acknowledge receipt of
your telegram ycstorday with reference to the proposed
c::,.ange in regulation D, Section Four by the Federal Reserve
Board in connection ~~ith figuring resbrve requir;;;ments. I
have sent a telegram today to lv'.r. Platt, Acting Gov._.:rnor of
thu Federal Reserve Board in ';~ashington, copy of which is
enclosed. I have also had a conforance with Gov. Fancher
on the 3t:.bj<::ct and I get thEo ir:1prossion that some of the
banks in the larger cities are tho chronic offenders and I
have been taking the position that the ?ro,osed changes
aro disturting and should be handled by regulations and
penal ties exacted of the chronic offenders only. I am inclir-ed to the belief, however, that the Federal Resarve
Board at Washington are determined and the governors are
supporting t:tem in the -orouo sed change. I concur in !,,:r.
Wetmore's telegram to Er. Platt.
Very truly yours,
(Signed)
:Iarris
Crco:;c~1.
(CoDy)
X-497;=:-J.
SeptL,mber 30, 1927.
Dco.r
~.~r.
Lichtenstuin:
Referring to your lctt~;r of Sopt.:::mb0r 24th, in r~:;gc.rd to the
proposed draft of no•• r.:.gulations for figuring th0 r-.;scrvt)s.
In going over the situation here in St. Louis I
consider the follov•ing circu.'!lstances.
Dlil
lecd to
As far DS the member-banks in the City of St. Louis are concerned, I believe it ·,-,·ould be contrary to their interest to have the
')r01JO sed regulations requiring a semi-,,·eekly settlement put into effect. ro·:: the banks adjust their bt'la.nces to meet reserve requirements before t1:o o 1 clock eDch da~: and they mny get \·>ire instrudtions
for tro.nsfe:r;s from other ci tics in ver;r l~rge nmounts too late to get
credit for them, cr to adjust thdr bf'll...,nces to fit the situation that
day.
Moreov0r, I understand the Federal Reserve :BD:ik will not give
member b.onks heru credit for c.ir mail remi ttE>.nces except for certain
number of days, for instance, Ne" York - two d.Dys. Yet, if it turns out
that the remittance on tb.c'\ t dLy gets to N..;·,; York, ..-:-_d tha mcmbor b~.nk
gets credit next morning, the Fcdera.l Rosorvo :Bc.nk in St. Louis •:ill adjust this matter and g:.vo tho mombcr br:.ni;;: here crodi t r:s of tho time tho
mono~- was nctually rccwi vod in 1~err York.
Th-~t lc'J.VCS tho me:r::ber b~.r.k
here in tho position Y:hcr0 it cMnot definitely toll just ;·Jhc.t its balance for the dey is, nnd if th0y make t\,o settlarJGnts in a '\"Wok there
is just triicD as much chanco for th<: mcmb~.:.r baf'.k horc to 0i thor h"..VC excess 'iiithout inturest or be pcnalizvd ~.hen thoy did not intend to have
eith-..::r.
If thu mL.:mb..:r bunks heru h.:1d a voice in tho matt·:r I
they v.ould oppose th'- cha:-"g0 nnd at pr-::sor.t tho.t is my view.
&l
sure
I am dictating this lettur to r~ry confid . mtia.l secretary, l1lr.
Duvwnport, and will not r;ai t for it to be Y:ri tten and v;ill leave hirr. to
sign it for Be.
Ver'/ truly yours 1
(Signed)
:Breckinridge Jon0s.
( COFY)
=·~ -4S'72-0
So"'Jt. 27, 1927.
Dear I :r. '.'.' ~ tmore:
I havo a lottor fro·::1 I'r. Lichtenstein dated tho 24th,
onclosin{: ;Jro:Josod draft of rcfula.tions covoring ros..;rvos of merr;bt.::r ba:iks, also co:J~' of his l<.:ttcr to Lr.
Ple.tt, acting Governor, federn1 Reserve Board, beering
same date. I agree ·:;i th your telegrams to !,:r. Platt on
this subject.
There is no "Orovision of the Federal Reserve Act so
un"!JO mlar Yii th the ;:nember banks as the question of
reserves, a:1d I think it unfortunate for the Board to
render it ar..;r :r.:oro ur..:Jo-yulcr by ,"JdO::>ti:.l.g regulations
more dra::otic than those no·;; in forco. Thore may be a
few member banks thn.t are seeking to side sten their
rcs-ponsi bili ties, o.nd they should bo don.l t with individuall~r by the exccuti vc officors of the Fod~;;ral R"~
sorvc Bar.ks ro.th0r than GUbjecting all of the member
bar.Jcs to undue 00nal tics.
va th
bost rcg:ll'ds,
Yours truly,
(Signed)
JFB/P
J. l!'. Bruton.
( COPY )
THE PHI.LA:CELPHIA-GL.'=t.ARD r:A1·ICJRAL E.Al'IT.:.
Office of the
Chairman of the Board
September 29, 1927.
Mr. Edmund Platt, Acting Governor,
Federal Reserve Board,
Washinbton, D.C.
Dear :Jr. Platt:-
Mr. Lichtenstein's letter of September 24th. enclosing
'
proposed draft X:rf. new regulations
for figuring the reserves of member
banks, together with copy of Mr. Lichtenstein's letter to you of the saoe
date, is received. I hava received today Mr. Lichtenstein's wire asking
me to send as soon as possible any suge:estions or comments.
The proposed regulations reclassHy into two divisions,-the
banks in central reserve and reserve cities, and provide that member banks
in cities having a Federal Reserve Bank or a branch of a Federal Reserve 3ank
shall comyute average reserves upon a semi-weekly ·oasis instead of a w-eekly
basis as at present. The basis of penalty for deficient reserves in ell
classes of membe1· banks is :provided also and there are two additional p1~o
visions at the end, which would seem desirable.
It has seemed to me that the present weekly basis of averaging reserves by member blli1ks in the cities having a Federal Reserve ~ank
or a br;:mch of the Federal ~cLorvc :,;a.."lk has worked very satisfactorily and
I believe the change is q:.::.i te unde:;;irable. It is ;?ossiole that bere have
been abuses in some quarters, but my feeling is that the a"Juses should be
controlled a.'ld that all member ba.nks should not be penalized by having greater and inelastic restrictions im::>osed u9on them. The de)osi ts of a ban!.: l;.ave
certain fluctuations and the rise and fall very generally occur on the same
da.ys each week. A ban:-: officer handling a reserve beco::1es accustomed to
these fluctuations a.'1d can a11ticipate them to some extent; not always, of
course. If the reserve pel~iod is divided into S8ii1i-weekly ueriods, tl1e conditions will become quite inelastic, necessitating more freque:1 t borrowings
and payme;.1 ts at Federal Reserve Banks, and t~1ereby multiplying work for all
cone erned. Deposits of a bcu1k must necessarily fluctuate and rlsserve balances
must p1·ovide the payment of the de:osi ts wi t:1drawn. Under tha present s;ystc:-.G,
a deficient reserve may be repaired by collection of maturing bills or cu.lling of demand loans.
If a bru1k is on a weekly reserve basis tl1ere is
greater elasticity in meeting the condition and, as stated previously, a
semi-weekly ~~eserve ;)eriod makes for an inelastic condition.
!vir. Wetmore su.6gests in lieu of the proposed semi-;vee:.d.y
period a penalty when deficie~t reserves exceed 10%. Eis principle is GOllild.
I think, but the pe~"centage of deficiency is too low~ in my opinion.
I should J.l'der to have t1H' :present r$e8ffj /basis continued
and have abuses coutrolled.
The pro·;)osed L:crease in the rate to be charged on deficient
reserves, the right to the Federal Reserve ]oe.rd to waive the penalty
and the :QlD!l of d.ealin;; ·.-rith t.:1e c:rronic offer.ders, I believe, are sound.
Very truly yours,
(Signed) L. L. Ru.e.
C.C.to Mr.F.
0. Wetmore, Co;.'ltinental & Commercial Ha.tional Bank, C:.1icn.go.
( OOPY )
T E
L E
G R
'
!.·
X-4972-;:;
Cleveland, Ohio.
Septer.c.ber 30th, 1927.
Edmm1d Plo.tt, Actbg J.overnor,
Federal :a.eserve Board,
Was~ington,
D.C.
Have 'oee::1 e;ivbz some thought to :pro:;:>osed regulation D Section
Four with refere~.;.ce to change in figuring reserve requirements. Stop.
Proposed change will have an U..."lstable effect on money. requiring bari!cCs
to call loans oftener, require bru1ks in large centers to do o.ddi tional
work a.nd adjust their balances oftener than those in smnller citi~s. Sto;?
Believe chronic offenders can bo hc~dled by regulation exacting penalties
that do not disturb the methods of tho entire membership 0~1 c.ccount of
actions.of a smnll minority.
Harris Creech.
( COPY )
X-4972-h
THE CLEVEL.Al:TD TRUST 00.
Cleveland, Ohio.
HARRIS CREEC3:
}?.:osiden t.
September 30th, 1927.
Dear l,Ir. Platt:As stated in the enclosed copy of telegram,
I have been giving a little thought to tho proDosed change in
fi~1 ing
reserves and unless there is a large number of banks
that arc chronic offenders, it seems to me that regulation by
the Federal Reserve Board would be preferable in exacting
penalties of the chronic offenders than to change the method
of figuring reserves for the entire system.
The changes which
are proposed make it more difficult for those banks that endeavor
to live up to the rules of the Faderal Reserve Board, and I would
not favor the changes unless in your opinion, you feel it is absolutely necessary to maintain required reserves.
Very truly yours,
(Signed) Harris Creech
Edmund Platt, Acting Governor,
Federal Reserve :Soard,
Washin~ton,
D.C.
( COPY )
X-497G-i
Walter Lichtenstein
Executive Secretary.
T~J,E
FIRST NATIONAL BAliK
OF CHICAGO
September 24, 1927.
Dear Mr. Platt:
In J~r. Wetmore's a·csonce, I beg to confirm the following wire
sent to you by ;:r. Wetmo:-e before leaving the office last night.
"Referring proposed regulation D section four in my opinion
a:.1y shortening of present period wi 11 lead to sr...arp expansions
and contractions of loanable and reserve :unds as any two periods in to wh.ich week might be divided a:·e ·quite unlikely to run
uniformly Stop As this is a?rarently a regulatory measure covering practices which are the oxceptian and not the rule additional penalties could be imposed upon offenders in some other way
Stop Sue;gest leaving periods for figuring reserves as they now
txist but issue regulation to the effect that ~~y member bank
short on any day over ten per cent of its balance in Federal
Reserve Bank for that ~ay b~ assessed a penalty for that particular excess shortage the amount of penalty to be fixed by
the Board in its discretion Stop This would not interfere with
' the weekly averaging of the reserves which should continue as
before to be intact for the period with now existing penalties
for deficiencies Stop I submit this fo:r your eonsideration. 11
lvly underGtanding is that Mr. Wetmore feels that any shortening
of the present period fo~ figuring reserves will make it more difficult
for the ban~ to estimate hew much they will require of funds at the end
o! any giTen period. In order, therefore, to be on the safe side banks
will be compell~d at times ~~necessarily to call in their loans.
This
will lead to more violent fluctuations than at :present.
Mr. Wetmore,
of course, realizea that as always some bann have abused their :privilege
by having large shortages at the end of every day except at the close of
the period. Nevertheless, it does not seem fair to penalize unnecessarily
large numbers of banks which have tried their best to live up to tho lJttor
and spirit of the regulations of the Federal Resorve Board. It is with
this situe.tion in mind that Mr. Wctm0re has made the suggestion contained
in his wire •
.A.s I have indicated, Mr. Wetmore is mt in tho office today and,
therefore, this explanation of his views is to be regarded as an entirely
unofficial expression from me.
Sinc:::.rel..y YO'.:cl"'r;,
Mr. Edmund Platt, Actiug Governor,
Federal Reserve Board~
Washin6ton, D.C.
( COPY )
x-4972-j
T E L
~:.'
167 J:TL
Chica~o. Illinois
113 'Y
~
G B.
A M
Sept. 23, 1927.
Edmund Platt,
Acting Gover~or, Federal
~eserve 3oard,
Washbgt:m, D.C.
Referrbg ;~ro)osed reGUlation D section four in my op~nlOn any shortening
of p1·esent period will lead to sharp ex-;;>nnsions a."ld contractions of loa11able
and reserve funds as a:.-.y two pe.dods in to w:1ich Welek might be divided are
quite unlikely to run uniformly Stop
As bis is a.pparen tly a regulatory
measure covering practices which arc the exception and not the rule
additional :penal ties could be i:ir;:;o sed upon offe::::ders in some other way
St0p
SUgbest leaving periods for figuring reserves as they now exist
but issue rcg_._lation to tl1e cff ..;ct that a:..1y m8mbcr bank short on any day
over t(:Jn :.K.rcont of its b;;.la;.lce in Federal Reserve Bank for that day be
asscss:;d a p.:malty for that particular excess shortage the ar.:.:>ur:.t of
penal tJT to b0 fixed by tho Board in its discretion Stop Tnis would not
interfc:.c with the weekly averaging of the r;:;sorvcs which sh:>Uld continuo
as befo:ce to be intact for the period Yii th now existing penalties for
deficiencies Stop
I submit this for your cm1sid.era tion.
F. 0. r:'l'etrnore
@FedFRASER