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11EMORANDUM TO THE FEDERAL
RESER~OE
SUBJECT: DAILY CLEARINGS THROUGH THE
GOLD
BOARD
SETTLE1~NT
x-988
FUND
The following plan of daily clearings through the Gold Settlement
Fund is submitted for the consideration of the Federal Reserve Board and the
Federal Reserve Banks:
At the close of business each night, each Federal Reserve Bank will
wire to the Federal Reserve Board the aggregate amdunts credited that day to
each other Federal Reserve Bank.
This would amplify the present Wednesday
telegram, in so far as actual dollars and cents would be wired, instead of
even thousands.
Credits nov1 entered by each Federal Reserve Bank to the ac-
count of each of the other eleven Banks, which are grouped at present on Form
No. 34 in "Due to Other Federal Reserve Banks", would be credited to
11
Gold
Settlement Fund, Suspense" instead.
This telegram should be sent as an "oren" message except for the introducters- and final code words.
It should show in numerals, properly punctu-
ated, the exact amounts in dollars and cents credited to each of the other
eleven Reserve Banks at the close of business on the respective day, and give
the same figures as will be shown
i~
the daily statement on Form No. 34 against
new liability items. "Gold Settlement Fund- Suspense Account" (replacing item
"Due to other Federal Reserve Banks").
A sample of the form of telegram with introductory test word and closing A. B. A. code word denoting date of credits would read as follows:
X-988
. -2-
LABEG (X)
10,125, 671 .. 29
New York
5,285,024.74
Philadelphia
388,411.12
612,050.50
Cleveland
78,056.49
Richmond
47 All.99
Atlanta
1,304,856.50
Chicago
708,990.25
St. Louis
98,412.16
Minneapolis
504,411.88
Kansas City
49,560.48
Dallas
San Francisco 1,048,495.18
ESCALOP (XX)
Smith (x)
Cashier.
Charge our account in Gold Settlement Fund total of
~
----- and credit
(xx) A. B. A. code for July 1.
------------ 0
------------
On the morning following, the Board having received twelve telegrams,
will charge each sending bank in the Gold Settlement Fund with the aggregate of
its telegram, distributing the individual
cred~ts
as therein advised.
The Board will then credit each of the twelve Federal Reserve Banks
of
in the Gold Settlement Fund with the aggregate/credits telegraphed by the other
Federal Reserve Banks and send appropriate telegraphic advice to each of the
banks credited.
In these telegrams the Bru-d will continue to show net gain or loss in
the Fund, which would confirm to the Federal Reserve Banks that their respective telegrams of the previous day had been correctly received.
Upon receipt of the Brord 1 5 telegram, each Federal Reserve Bank will
make the following entries:
Debit
Credit
- "Gold Settlement Fi.md, Suspense"
- "Gold Settlement Fund"
(With aggregate of telegram to the Board on the day
previous)
X-988
Debit
Credit
- "Gold Settlement Fund"
- "Collection Items" (Deferred Debits)
{With aggregate of the telegram received that day
from the Board).
The necessity for "Gold Settlement Fund, Suspense" account arises
from the fact that the Federal Reserve Board's published statement must reflect
the figures shown on the books of, and reported to it by, the twelve Federal
Reserve Banks.
This new account will eliminate telegraphic "float" and thus avoid
a situation encountered several times on Friday nights, under which item BABE "Gold Settlement Fund 11 had been credited by one Reserve bank without corresponding debit by another Reserve bank.
The above covers the modus operandi of the suggested plan, in so far
as the Gold Settlement Fund accounts of the Federal Reserve Board and the
twe·lve banks are concerned.
The interior arrangements at the individual Fed-
·eral Reserve Banks may be made as follows:
Everything dispatched from one Federal Reserve Bank to another should
be deferred, and charged to "Collection Items, Debit".
cash letters. whether City or
Count~
This covers not only
items, but. payments on telegraphic trans-
fers ordered by other Federal Reser\e Banks, Federal Reserve notes or currency
'
shipped to other Federal Reserve Banks, miscellaneous charges, expense, service
charges, interest, telegrams, etc •• ..,. in fact, every item heretofore charged
to
11
Due from Federal Reserve Banks" should under the proposed plan becharged
to "Collection Items, Debits" ..
Some banks might prefer to enter these "Collection Items, Debits 11 by
detail in books; while others would prefer to fjle the carbons of their letters
or other dispatches, etc •• under the names of the Federal Reserve Banks affected.
Some banks prefer the latter plan for the reason that_ by intelligent
filing, an automatic tickler of unaccounted for items is thereby
convenient tracing.
sup~lied
for
X-988
-4-
Each Federal Reserve Bank, in ajdition to the daily telegram to the
Board, as outlined above, will prepare, as it now does, statement of the details
with
~oper
description, for the use of each other Federal Reserve Bank whose
account in the Gold Settlement Fund has received credit.
The aggregate of each statement would of course agree exactly with
the aggregate amount of credits wired to the Federal Reserve Board.
This state-
ment should be forw·arded by first mail, carbon to be retained for the files ..
Upon receipt of the Federal Reserve Board's daily wire, it will be
impossible to do other than credit "Collection items" (Deferred Debits) with
the total., one ticket for each Federal Reserve bank.
Upon receipt, however, of the mail advices from other Federal Reserve
banks the carbon copies, or tickets representing previous debits to "Collection Items- Deferred Debits", covered in the mail advices received would be
transferred from the "Collection Items - Deferred Debits" files, as well as
the credit ticket representing the entry made on receipt of the Board's wire.
It would be necessary, of course, to see that the mail advice footed
to the total of the wire, and that the items covered in the mail advice, corresponded to the carbons transferred from the "Collection Debit" file.
Without
a
full understanding of the plan, telegraphic transfers might
at first seem to temporarily prejudice the reserves of the Federal Reserve Bank
which credits its members and charges "Collection Items, Debits".
As a matter
of fa.ct., however, the effect is exactly as at present, where "Due from Other
Federal Reserve Banks" is charged.
Both accounts are deductions from gross
deposits.
The effect of this plan would be to eliminate a great deal of work
at the Federal Reserve Banks, and to provide daily, instead of weekly" the proper
partici~tions
as possible ..
in the Gold Settlement Fund in as nearly an automatic way
X-988
-5-
At the present time, the Reserve banks, in addition to the weekly
settlement, have the privilege of demanding transfers at any time when a net
debit balance is shown in account with other Federal Reserve banks.
It is to
be expected that under the present plan of weekly settlements such transfers
will become more numerous in the future, as the calls upon the Reserve banks
for financial assistance of their members become heavier.
The proposed plan
will do away with the greater part of such transfers, also with the necessity
of rediscounts between Federal Reserve banks when due primarily to the unavailability of "amounts due from other Federal Reserve banks".
The rediscounting
operation, as at present conducted, involves a great deal of work, which, by
some means or other, should be curtailed.
At the present time, practically all the Federal Reserve Banks are
advising each other by mail, under the Dunlop-Anderson plan, their daily credits
of immediately available items.
While good, to a limited extent, the plan
covers but a small proportion of the credits.
The plan suggested above would
reduce the number of telegrams very considerably, and cover every credit.
Washington June 7, 1918.
@FedFRASER