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BEFORT
COM~iiiTTEE
X-3890
OF
ON ECOltOMY .ft..ND EFFICIENCY
TO THE
FEDERAL P.ESERVE BOARD
This Committee was appointed by the Federal
Reserve Board on September 20th, 1921, for the purpose of
initiating a program :1t,)r greater econorey and efficiency in
the operation of the Federal Reserve System.
During the two years of its existence muCh
information has bee.n gathered and a number of definite objectives accomplished.
In this, the first formal report of the Committee, there is presented a history of the work up to this
time, together with a number of conclusions that have been
reached, and a statement of the problem as it now exists.
R~spectfully
submitted.
A. C. MILLER
Chairman.
November 12, 1923.
,,,..
I
,II'
'·1:.:
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PE.BS0l\"}TEL OF COMMITTEES:
The original Committee as appointed by the Board consisted of:
Mr. A. c. Miller, Chairman
Mr. J. R. Mitchell
.,.
There was subsequently appointed on November ~r. 1921, an Auxiliary Committee representing the banks, as follows:
Mr. D. c. VTills, Chairrran, Federal Reserve Bank of Cleveland.
11
11
Mr. G. W. Norris, Governor,
"
Philadelphia.
11
11
11
Mr. J. U. Calkins,
"
San Francisco.
Still later an Advisory Committee was named consisting of the
following:
Mr. J. F. Herson, Chief,Federal Reserve Examiner.
Mr. ~r. 7T. Paddock, Deputy Governor, Federal Reserve Bank of
Boston.
Mr. E. L. Smead, Chief, Division of Bank Operations, Federal
. Reserve Board.
Q.Ip~.:t-TGES
U1 PERS01T1TEL OF COMMITTEES:
Mr. J. R. Mitchell resigned as a member of the Federal Reserve
Board in May, 1923. He was succeeded by Mr. G. R. James who was appointed to this Committee in June;. 1923.
Mr. J. U. Calkins resigned as a member of the Auxiliary Committee early in 1922 as he felt it was not practicable for him to
attend weetings of the Committee from so great a distance. He was
succeeded by Mr. S. B. Cramer, Deputy Governor, Federal Reserve Bank
of Chicago, who was subsequently elected Secretary of the Board's Committee and served in this capacity until March 1, 1923, When he resigned
as Deputy Governor of the Chicago Bank.
Mr. }. H. Vogt, Controller of Accounting, Federal Reser.ve Bank
of Chicago succeeded Mr. Cramer on the Auxiliary Committee and also
as Secretary on March 1, 1923, resigning one month later.
In January, 1923, Mr. L. R. Rounds, Controller of Accounts,
Federal Reserve Bank of New York, was added to the Advisory Co~ittee,
and in April, 1923, he was elected Secretary of the Board's Committee and a member of the Auxiliary Committee.
PRESENT PERS01T1mt OF COMt1ITTEES:
The Committees at this time consist of the following:
s
X-3!390&
-2-
-.., ....... '.·':""
r
Board's Committee:
Mr. A. C. Miller, Chairman
h1r, G. R. James
Auxiliary Committee:
Mr. D. C. V!ills, Chairman, Federal Reserve Be.nk of Cleveland.
11 ::
Mr. G. vr. Norris, Governor,
II
II
Philadelphia.
Mr. L. R. Rounds, Acting General Auditor, Federal Reserve
·
Bank of l!ew Yor:Y.
Advisory Committee:
Mr. J. F. Herson, Chief Federal Reserve Examiner.
Mr. 'JJ. rr. Paddock, Deputy Governor, Federal Reserve Bank of
Boston
Mr. E. 1. Smead, Chief, Division of Operations, Federal Reserve Board.
THE EXPENSES OF THE
~FEDE'RllL
RESERVE SYS'IEM:
The operating expenses of the twelve banks for each full year
since their organization have been as follows;
1915
1916
1917
1913
1919
1920
1921
1922
$1,961,732.
2, 459' 439.
5,465,656.
12,177,938.
20,341,798.
29,SS9,307.
36, o66, 065.
30,347,587.
The expenses increased rapidly from 1915 to and including 1921,
when the expenses of the twelve banks had reached a total of more than
$36,000,000. per annum, the providing of which, together with the amount
required for dividends and other necessary charges, compelled the constant
investment of more than $1,000,000,000., regardless of credit conditions or
other considerations, this amount being approxiiTately one-third of the
greatest amount of credit the Federal Reserve System has ever been called
upon to provide at one time.
It is at once appP.rent that a fixed charge of so huge a sum might
'~
-3easily be a serious handicap to the exercise of the real functions of a
reser~e
banking system.
The Committee has considered itself charged with a responsibility,
not only with respect to the economical and efficient operation of the
System, but also to study the
.{
expen~s
·of the System to determine to what
extent they are increased because of policies and the carrying on of work
which, while desirable, may not be absolutely necessary.
There is attached a statement (Exhibit C) Showing theexpenses of
the twelve banks classified according to functions, a summary of which is
as follows:
(These figures are on an annual basis coruerted from the actual
expenses for the first quarter of 1923 and include a pro rata distribution
of overhead.)
PRESENT
f}'1\1UAL
E\'"PE:t-JSE
---
E!Penses of Functions essential
to the operation of the System
under the Federal Reserve Act.
~17, 757,904.
PER CE1TT
OF
TOI'.At
53-30
(This total includes cost of the
following functions:
Loans, Rediscounts and Investments
Currency and Coin
Check Collection
Federal Reserve Agent
and the expenses of the
Federal Reserve Board.)
Expenses incurred as Fiscal Agent
of the U. S. GoverTh~ent.
24.07
EA~enses
incurred as a Depository
of the U. S. Government.
(This represents the cost of
handling Government checks and
coupons.)
624,276.
01.87
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X-3890a
PRESEL\T
PER CENI'
.AN1lU.AL
OF
TOTAL
EXPDTSE_
Expenses incurred as a Matter of
Policy in Connection with Services
Rendered to Member Banks.
$ 4,426,468.
13.28
(This represents the cost of
the following services:
Securities for safe-keeping.
Non-cash Eollections.
~ransfers of Funds.·
Currency and Coin Shipments.
Shipping Charges on Securities.
Purchase & Sale of Securities, etc.)
Expenses of Activities Carried on as a
Matter of Policy.
2, 492,688.
07.413
$33.320,012.
100.00
(This includes the cost of the
following:
Bank Relations.
Bank Examinations.
Statistical & Analytical.
Publications.
.
Employees Group Life Insurance.
GRJI.ND TOTAL
The above figures, which were not available.at the time this Committee began its work, are presented at this point as being of special
interest.
METHOD OF
PROCEDUR~ :_
Following its appointment, the Committee gave serious consideration to the choice of a method of procedure for the accomplishment
of its task.
While several methods were considered; the final choice rested
between the two following:
(a)
The establishment possibly-with assistance from without the
System, of a standard and uniform practice in all banks with
respect to each and every operation, thus permitting of an
arbitrary determination of costs more or less in line with
commercial practice.
-?(b)
-\
The assignment to each bank of the task of dealing with its
own problem, the Committee giving assistance in the wqy of
providing comparisons of costs of one bank with another and
in so far as practicable securing the adoption in all banks
of those methods which had proven merit and in generally coordinating the effort of all the banks to as nearly as
possible the same degree of efficiency in all operations .
•
After careful consideration it was felt there were objections to
the adoption of the first method, among others the following:
(a)
The considerable difference in the size of the bank organizations ranging from about 350 to nearly 3,000 clerks, making
it unwise to adopt uniform methods in all banks.
(b)
The probability that in many cases the banks were already·
followingthe procedure best 'suited to their conditions with
respect to many operationa, although such procedure in the
different banks might vary greatly.
(c)
The fact that nothing would be accomplished by insisting upon
a change for the sake of uniformity in cases where different
bank~, although following quite different methods with respect to a given operation, were accomplishing the task with
equal efficiency.
It was therefore decided to follow the second plan for the following reasons:
(a)
The belief of the Committee that the real responsibility for
the efficient and economical operation of each bank must,,
in the final analylis, rest upon the Directors of the· several
banks.
(b)
The opinion of the Committee that it could best accomplish
its objective by acting as a clearing house of information,
both of methods and costs, of similar operations in the
several banks, so t J:a t every bank would ha. ve an opportunity
of comparing its methods and costs with those of the other
banks.
(c)
The belief of the Committee that there probably would be
found already in operation in one o r more of the banks the
procedure which would prove most efficient'in a majority of
the banks with respect to most, if not all, of the functions
performed, and that the securing of comparative cost figures
would automatically compel the adoption of the most efficient
methods in a~ case where less efficient methods were in use.
(d)
The securing of the competitive effort and cooperation
of the officers and department heads in all banks and
the utilization of the experience and ability whiCh
the Committee believed existed within the organizations
of the several banks •
.
HISTORY OF THE COMMITTEE'S VTORK:
Very shortly after its organization the Committee requested the Governor
of each bank to designate a local committee for the purpose of making a survey
of each department of the respective banks with a view to increasing the efficienqy and reducing the expense of operation.
It was requested that the Chairmen of these Committees report to this
Committee from time to time with respect to the progress of the work and the
results_ accomplished.
REPORTS:
The Committee was faced at the beginning with a problem in securing what
it has considered from the first to be essential, a comparative statement ot
the expenses of all Reserve Eanks and EranChes.
Without such figures it would
be impossible to draw conclushms. as to the comparative efficiency of the opera· tion of the several banks.
Pr·ior to the appointment of this Committee, the Federal Reserve Board had
received monthly reports in detail of the current expenses of each bank arranged
according to the object of expenditure, (Form 96).
This report permitted ot
comparisons between banks only in the most general way, as there was no relation
of the expenditures to the work of the bankJ and no attempt
~ad
been made to
secure from the banks reports of expenses along either organization or functional
lines ..
It was apparent that any figures obtained to be of value would have to refleet the cost in each bank and branCh of eaCh of the major operations or
functions.
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The first attempt to secure any such figures was made in December, 1921,
when all banks were requested to report on forms provided for the purpose,
the expenses for the year 1921 classified according to certain prescribed
operations and departments.
Prior to this time a few of the banks had prepared for their own use
departmental classifications of expenses, but in most of the banks this had
not been attempted.
A study of the reports received for the year 1921 indicated such
apparently wide variations in the expenses of the several banks as to make
the reports of very little value.
Upon investigation these variations were
found to be due very largely to differences in the organizations of the banks,
the allocation of the work and also wide differences in the interpretation of
the work intended to be covered under the several headings or departments.
There was then appointed in March, 1922 a Sub-Committee consisting of
Messrs. Wills and Cramer, with Messrs. PaddoCk and Herson acting in an advisory capacity, to prepare a uniform form of report for the use of all banks and
also to
prep~re
a manual defining the expenses to be included under each head.
SCHEDULE "E":
In the preparation of the new report, known as Schedule E, it was
decided to disregard entirely the departmental organizations of the banks and
to secure, if possible, accurate cost figures for each complete operation of
the system, regardless of whether or not performed in corresponding departments in all banks.
A
meeting of the representatives of all banks was called for the purpose
of discussing the proposed report and manual.
This meeting was held in Chicago,
April 24 and 25, 1922, and was attended by Messrs. Miller and Mitchell of the
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X-3890a
Board t s Committee, Messrs. 1!Tills and. Cramer of the Auxiliary Comnittee ,Messrs.
Herson and Paddock of the Advisory Committee and also by one representative
from each Reserve Bank.
At this meeting the proposed form of report and manual
was thoroughly discussed and finally adopted, with the understanding that the
first report would be prepared by all banks for the month of July, 1922.
Reports were subsequently received on this form from all banks for each
month from July to December, 1922, inclusive.
In December, 1922 a second conference of the rspresentatives of the banks
with the Boardfs Committee was held at which a revised form of repmrt and manual
was approved which has been in use since
Jan~ry,
1923.
CO:NIPARIS01T OF M8THODS IN PRIFCIPAL Ft.WCTI OriS:
At the December, 1922, conference with the representatives of the banks,
there was also discussed and approved a proposed plan for a study and
co~
parison of methods and expenses in the four principal functions of the banks,
namely:
Currency and Co in
Check and Collections
Loans, Red is counts and Investments
Accounting
This plan provided for a stydy of each
fu.~ction
separately through refre-
sentatives to be designated by each bank for each of the four functions.
For
the study of eaCh function it was proposed to divide the banks into three
groups, each group to include the banks doing most nearly the same volume of
business and under most similar conditions.
Each bank through its representative was requested to rrepare a statement
in detail of its procedure, together with a set of the forms used. and a flow
chart of the work.
One representative in each group was d.esigreted as chairman of the group
for the purpose of collecting the data and reporting the progress of the work.
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X-3890"'
A conference of the Group Chairn.on with the Committee was held in
ryashington, January
29 and 30,
19~3,
at which a definite
progr~m
for the work
was approved.
Following the preparation of the data by each bank, there were held between April 5 and 17, 1923, twelve group meetings at which the representatives
of each of the four banks in each group met for a study and comparison of
detailed methods and expenses.
The chairman of each group was requested to
prepare a report of his group meeting, to include such
reco~mendations
as the
group might have agreed upon and to prepare himself generally for a meeting of
the group chairmen with the Board's Committee for a discussion of the work of
each function separately.
During the weeks of May
7 and 14 the Board's Committee held a series of
conferences with the three group chairmen for each of the four functions, at
which time the
repo~ts
of the chairmen were gone over in detail, the problems
were discussed and a number of recommendations made which have since been
transmitted to the banks for their information and attention.
CO:t-,lTACT l!TITH THE BAl\iKS :
The Committee has endeavored to
~aintain
a close contact with the banks
through the officer designated by each bank as Chairman of its local Committee
on Economy or Procedure.
Several communications have also been addressed to
the Chairmen and Governers informing them of the progress of the work.
Copies
of the Comparative Exhibit of the Functional Expenses have been furnished
regularly for the information of all banks.
All the banks have manifested interest in the work of the Committee and
c
the promotion of economy within their own organization, and it is apparent that
by bringing together in conferences the representatives of the banks, and also
by making available the comparative exhibits of the expense figures of all
•
X-3890a
- 10 -
banks, a great deal has been accomplished in the way of economy.
It is
believed also that there has been a considerable improvement in methods and
in the efficiency of certain operations entirely apart from the economies
.
that have been effected •
RESULTS:
It is difficult to state in .figures with an,y degree of accuracy just
what results have been obtained from the Committee's work.
Prior to February, 1923 when the Committee initiated the study and comparison of the work of the four principal functions already referred to, its
influence on the expenses of the banks . iliad been almost entirely such as
resulted from the distribution of the comparative exhibit of expenses in
creating among the officers of the several
ba.nl~s
a spirit of competition,
As a result of the study and camparison of the four principal functions
of the banks, a number of important changes in pro cedu·re have taken place
which will result in considerable economy.
It was found that several banks
were carrying on expensive operations which other
eliminate.
ban1~s
had beBn able to
The economies resulting from voluntary changes in procedure during
the course of this study and later will amount to a considerable sum.
There is attached a statement (Exhibit A) showing in comparative form the
expenses of all banks combined for the year 1921 and 1922, from which it will
be noted that the total current expenses of the banks were reduced from
$36,066,065 in 1921- to $30,347,587 in 1922 (the last figure including the item
of furniture and equipment in order that it may be comparable with 1921), a
I
decrease of $5, 718.,4713, which is equivalent to 15.13t;%.
More than half of this
saving appears in the items representing the cost of currency, but a very
over
substantial amount, $2,210,674, appears in those items of expense / which the
system has direct control.
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X-3S90a
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There is attached another statement (Exhibit B) in which the total
expenses of each bank are shown for the yeevr
year 1921.
19~2
in comparison with the
This statement shows that every one of the twelve banks succeeded
in reducing its expenses very materially.
This decrease in expenses
~as
no doubt in part resulted from the
more steady volume of work being performed.
It is also in no small measure
due to the effort which has been made in all of the banks to bring about
greater economy in operation.
This result was accomplished in the face of a constantJ..y increasing volume of business, for while the total volume of work at the banks
has not increased in the last two years, at anywhere nearly so rapid a rate
as the increase which occurred up to about two years ago, there has nevertheless been, and there still continues to be a steady increase in the total
work of the banks as represented by volume of currency, cashand collection
and other items handled.
The decrease in work in the Loan and Fiscal Agency
departments is considerably more than offset by the increase in other departments.
During the year beginning with July 1922 the Committee bas received regular reports of the expenses of all banks classified along
functional lines as
alrea~
described.
This method of classification was an
experiment, and, while it is still far from satisfactory as giving a true
picture of expenses, it has nevertheless very largely accomplished the results for which it was designed.
Large variations in expense and numerous
apparent inconsistencies continue to appear for the following reasons:
(a)
Marked differences in the departrrental organization of the
banks due to the difference in their size, and resulting
differences in the allocating of ope rat ions.
X-3Sj0a
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(b)
The difficulty of securing a comparable unit of measurement
as to the volu.'Tie of actual work performed.
T~ere
are
~arked
differences in the departmental organization of
the several banks and as a result of this, in the allocation of work to '. he
departrr,ents.
These differences are
;10
greater than might be reasonabJ y ax-
pecteJ. in organizations which vary in size from a staff of 350 to a staff
of nearly 3,000, for it is at once obvious that methods of doing work in
the srr.aller organization will not prove to be efficient or economical in the
larger organization, or vice versa.
':'hile it is po3si"!::lle to measure witb. reasonable accuracy a consi:lerable pro:rortion of the 1Nork in any reserve bank, it is not possible, except in a very few instances, to secure a measure which will be exactly
in all banks.
co~~arable
To illustrate it might be assumed that the cost
of handling 10,000 checks should be substantially the same in all banks, but
it is
foun~
that there ar::; a number of fo.ctors affecting the cost, such
(a)
(b)
(c)
(d)
(e)
as~
The number of tanks that have derosited the items.
The time the items are received on deposit. (which i-n many
cases is a rratter of local custom).
The time items are cleared at the local clearing house.
The number of banks in the local clearing house.
The extent of the sort required for branches, etc.
and in the case of country checks, the cost is very greatly affected by (f)
(g)
The number of banks to which items are routed.
The proportion of items sent to banks in the same district
in comparison with the it ems sent to the other reserve banks,
the items sent to other reserve banks requiring considerably
more labor in the listir~ than those sent to banks in the
same dis-trict.
There are similar conditions affecting practically all of the operations
of the
banl·~s,
an1 it is differences of this character which account for rrany
of the apparent inc.onsistencies in the reported cost figures.
It is necessary to remember, therefore, that the exhibit of the
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X-3S90a
expenses of all banks as compiled is not an entirely true comparison of
the relative efficiency of the several banks.
ANALYSIS OF EXPENSES:
By the use of the functional expense reports, to vmich reference
has already been
~ade,
it is now possible for the
firs~
time to secure
reasonably accurate costs of the several operations carried on by the
banks.
There is attached a statement (Exhibit C) showing the functional
expenses for all twelve banks for the three months ending MarCh 31, 1923.
Assuming that the figures for the balance of the year 1923 will be approximately in the same proportion. there have been extended on this statement the annual expenses as
esti~ated
for the year 1923 for each fundion
and operation of the banks.
The expenses of the several functions of the banks have been
grouped under five heads, after the distribution on a pro rata basis of
the "Administrative and General Expenses", as shown in the following
summary:
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X-3S90a
SUMM./RY
Direct Expenses Before DisAfter distribution of
trioution of Administrative
Administrative and
and General Expenses
General Expenses
Per Cent
Per Cent
Annual Expense of Total
Annual Expense of Total
Administrative & General
Including Expenses incident
to Provision of Space,
Personnel, Service and
Overhead
$11,352,7SG.
0
0
$17,757,904.
53·30
Expenses of Functions essential to the operation of
the Federal Reserve System
under the Federal Reserve
Act
11,640,463.
Expenses Incurred as Fiscal
Agen~ of the United States
Government
4,686,240.
14.06
8,013,676.
24.07
364,900.
01.10
624,276-
01.87
Expenses Incurred as a ~atter
££ Policy in co~nection with
Services rendered to M3mber
Banks.
3,173,316.
09-53
4,426,468.
13.28
Expenses of Activities carried
on as a ~atter of Policy
1,501,800.
Expenses Incurred as a Depository of the United
States Government
$33,320,012.
07.48
100.
$33,320,012.
100.
From the above it will be noted that 53~ of the present expenses
of the System represents the cost of those functions or duties imposed upon
the banks by law.
Approx~ately
performed for the United States
pository.
The
26% represents the expense of the work
Govern~ent
either as fiscal agent or as de-
remainder of the expenses, nearly 21~, is controlled almost
entirely by policy representing the cost of those services for member banks
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.)
~-15-
X- 3890a
which have been voluntarily assumed, and the cost of various activities
which have been asswmed as a matter of policy.
The expenses grouped together as representing the cost of services performed for member bar$s amount to a little wDre than
total and it is an item which is steadily increasing,
13% of the
It has been observed
that certain of these free services have been made available to the member
banks in some districts to a much greater extent than in others.
This ap-
plies particularly to "securities for safekeeping," the handling of
11
non-
cash collections", the furnishing of "wrapped coin 11 and the "purchase and
sale of securities".
The use of the transfer privilege and the absorption
of the cost of currency and coin shipments appear to be reasonably uniform
throughout the System.
It is apparent, however, that should all of the
banks in the System perform all of these services to the extent that they
are now performed in a few of the districts, this e:xpense would be very
~aterially
increased.
Particular attention is called to the detailed statements com-
prising Exhibit C showing an analysis of these expenses; also to Exhibit D
showing the expenses of each bank for each of the free services rendered
to member banks and for each of the activities carried on as a matter of
policy.
PROGRAM
The Committee has referred to the Governors and Agents several
watters which in its judgment require their consideration as follows:
1.
Recommendation for an operating committee to standardize
supplies used and to arrange for joint purchasing where
economies can be effected by so doing.
2.
Recommendations concerning Employees Group Life Insurance
and Automobile. Insurance.
-
3.
Recommendation for an investigation of the cost of
securing Credit Information.
4.
Recommendation concerning cost of free services and
other activities carried on as a ITatter of policy.
5.
Recommendation for a survey by the local Committees
on Economy and Efficiency of the Agents Departments
at each Bank.
The Committee has secured data concerning the cost of express
shipments of currency and coin and is petitioning the Interstate Comrrerce
Commission for a reduction in the rates being charged.
The express charges on money shipments were increased throughout the country a year ago by
50~
and the System is now paying the Ex-
press Companies approximately $300,000. - per annum.
The Committee believes
the banks have a good case and hope that a very substantial reduction
~ay
be obtained.
The Committee has not as yet wade any survey with respect to
cost of providing - Space, Personnel, or General Service believing consideration of these functions should be deferred until the banks have moved
into their new buildingsafter which conditions should be reasonably comparable.
The functions which the Committee is proposing to next consider
are:
Fiscal Agency
Agents Departments
Auditing
Custody of Securities
The last mentioned the Committee considers of especial importance
as it is apparent that the activities of the banks in this respect are likely
to increase greatly as they move into new quarters with ample vault facilities.
It is important that this work be done not only economically but
efficiently and with safety to the banks.
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X-3830a
BRANCH BANKS
The question of the operation of branch banks is an important
one and has a very material effect upon the expenses of the System.
There
are now being operated 23 branches and one agen"''Y at a cost of approximately
$6,000,000. per year, which is about 181. of the total cost of operating the
System.
The prirr.ary object in the opening of branches has been to extend
the service of the Federal Reserve System and there can be no question but
that the operation of the branches brings this service much closer to a
number of member banks, undoubtedly resulting in advantage to them.
There is a considerable variation in the functions performed by
the different branches, some branches performing practically every function
that is performed by the parent bank, while in others the operations are
restricted to the handling of currency, and Checks and in some cases the
making of loans.
Some branches maintain the accounts of the members in
their immediate districts while others do not.
t
It is apparent that in cases where the branch territory is within approximately 15 hours' mail time from the parent bank, the benefits of
the branch bank are practically restricted to those banks located in the
same city with it, for i f the ·country banks can reach the parent bank with
overnight mail service they can do no betterwith the branch.
branch territory is more than
Where the
15 hours' mail service from the parent bank
there are also some additional benefits to those member banks located outside
the branch city.
The benefits derived by the member banks through the establishment of branches may be stated briefly as follows:
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X-3390a
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(a)
The banks in the same city with the branch can very
materially reduce the amount of their vault cash and
in cases where the branch territory is more than overnight mail service from the parent bank, the outside
banks can also benefit to a lesser extent in the same way.
(b)
The banks located in the same city with the branch will
save a day's time in the handling of transit items on
a11 country points within the same reserve district.
This advantage would also be shared by the co1L~tr.y banks
in the branch territory provided they are more than overnight roail service from the parent bank.
(c)
Such benefits as will result from the closer contact
that the member bank can have with the branch bank, and
in the case of those branches operating a loan department,
some saving in time in the roaking of loans.
In the operation of branches there is a certain amount of duplication of expense with the rarent bank.
In roany instances probably the entire
overhead expenses of the branch including the provision of space and general
service, represent an additional cost.
A study of the expenses of the
branches would seem to indicate that if the work now being done at the
branches was performed at the main banks, it could be done at a cost not
exceeding two-thirds the cost of operating the branches and possibly for as
little as one-half the present branch expense.
The geographic extent of a number of the districts roakes the
operation of branches a practical necessity.
There can be no que'stion,how-
ever, but that the total cost of operating the System is very materially affected by the number of branches operated, and that serious consideration
should be given to this problem before additional branches are authorized.
This Committee intends to make a study of the cost of branch bank operations
and will later submit additional data on this subject.
FUTUF.E COURSEOF EXPEl'JSES
~bile
the Committee believes there are further substantial
893
X-3890a
-19economies that can be effected, it is ver,y much
d~bted
if the total ex-
pense accounts of the banks will again show a decrease from a preceding
year if. the banks continue to perfor.m the same functions, for the following
reasons:
1.
The economies already effected have removed the opportunity
for further large savings.
2.
The work of the banks is continuing to increase in most departments, which increase will be sufficient to take up whatever economies can be effected in operation.
3· Within another year practically all of the banks will be occupying their own buildings and it is pro l::able that in every
case the actual expense of operation will be increased thereby:
the items of taxes, building upkeep and operation being considerably in excess of the rent previously paid.
It is of in\erest to note in this connection that the two banks
showing the smallest percentage of reduction in expenses in 1922, as
co~
pared with 1921 (EXhibit B), are the two (Boston and Chicago) which moved
into new buildings during 1922.
In going into these new buildings the banks will secure maqy advantages which cannot be measured in dollars, the principal one of which is
greatly increased safety of operation and there will probably be obtained
some econorru in departmental operations, but the total expenses of the banks
will be considerably increased.
There will probable be a gradual decrease for some time in the
expenses incurred as Fiscal Agent which now amount to about 241b of the total.
There is slight possibility of a decrease in any other item, but on the
other hand there is bound to be a substantial increase under the present
policy in the expenses representing services to member banks, which now amount
to about 13~ of the total.
.~
-20-
X-3890a
RECOMME1lDAT IONS:
The expenses included under the two heads:
Expenses Incurred as a Matter of Policy in Connet,tion
with Services Rendered to Member Banks.
Expenses of Activities Carried on as a Matter of Policy
amounting in the aggregate to nearly
21~
of the total expenses of the
System, are the only expenses susceptible of any considerable reduction.
The policies of the several banks differ greatly with respect to
the
expense~
coming under both of these heads.
It is therefore RECOMM:E1lDED that consideration be given to the
several items of expense included under these heads for the purpose of (a)
formulating a definite policy for all banks with respect
to those ·items of service now being performed free of
charge for member banks
(b)
determining the value of the activities included under
the second head in relation to their cost and establishing
a definite policy for all banks with respect thereto.
..
...
..
,,.
··!
,., •
X'-339o .. a.gg5
COMPARATIVE EXHIBIT 01? CURR11:HT EXPENSES
TNELVE FF.:DERAL T...ESERVE B.AiJKS COMBIJ:JED
1921 .AlJD 1922
Sala.~ies
Bank Office:rs
Clarical sta.ff
Spocial officers and wa.tchmen
All othel"
1921
~.·.:
$2,383,994.
15 ,201 ,393.
789,879·
l ,102, 984.
$2,461,323·
14,222,02J.,
818,772.
1,310,524.
7,~1·
EXHIBIT ...J..
Inc:rea.se
5, 515·
4,029.
9,063.
146,084.
Goval"no:rs' Confe:rences
Fed. Res. Agents• Confe:t'ences
Fede:ra.l Advisory Council
Directo:rst ~atings
Tl'a.veling Expenses
Assessment fo:r F.R. Boa~d Expenses
Laga.l Feas
4,
3.
10,522·
168 .556·
Dec:t'ea.se
$77,329.
$979,372.
- 28,893·
207,54o·
2,236.
414.
1,459·
22,472·
~~:J9£:
1~1:~~6:
1~~:~~:
Insu:rance (Life, fide1ity,ca.sualty,
wo:rkmen' s compansa.tion and genaJ."al
liability)
532,307.
433,273·
Banking House
Taxes
Fi:re Insu:rance
Light, hea.t a.nd powel"
Repa.i:rs and al te:t."ations
All Othel"
178,178.
20,073·
119,408.
163 ,655·
70,231·
270,915·
9,238•
175,908·
89,638·
33,122·
1,508,923.
788,244.
720,679·
1,312,799·
Rent
17,492·
Fire. Ins. • Fum. & Equip.
593,742.
Office and Othe:r Supplies
1,022,540.
P:t'in ting and Sta.tione:ry
201,997·
Telephone
. Teleg,.-a.ph
610. 763·
Posta.ge (OthaJ." than on money and
1,085,206.
secu.~ity shipments)
Ex:p:r.essa.ge (Othe:t' than on money and
46,024.
s.ecu:r.i ty shipmants)
118,592·
Secu:rity Shipments
Cu:r.~ency and Coin Sh1pm;nts
928,387·
8~2t826.
All Other Expenses
1,040,949.
11,099·
443,193·
739, 715·
203 ,023·
573,858·
271,850·
6,393·
150,549.
282,825·
Fu.:mi tul'e and Equipment
TOTAL
4g ,166.
15,156·
99,034·
92,737·
10,835·
56,5()0.
74,017.
37 ,109·
1,026.
36,90:>·
l ,118 ,151·
32,945·
49,084.
139.392·
1,078,518·
1161801·
3,06o.
20,800·
150,131·
$30,241,229· $28,030,555·
Fede:t'a.l Rese:t'Ve Cu.,.:r.ency:
O:riginal cost, including shipping
che.:r.ges
·
4,208 ,211.
Cost of :r.edemption,including
924,286.
shipping cha~ges
,
~·a.x on Fade:t."a.l Re 5 e:rve :Sa.nk Hote
Ci:r.cula.tion
L
63,322.
111.02~·
$2,210,674.
1 .578,?92·
434 ,179·
304,261.
3,507 ,8~
,- ·~J··
X-3390-a.;
E..iliibit - B.
CO~IlPARATIVE
·· '-
EXHIEIT
CURRENT EXPENSES OF TWELVE FEDERAL RESERVE BM1\:S
l 921 AND 1922 •
1921
1922
D.;c:rca.se
of Dac:rea.sa
$2,239,007.
$2,155.506.
$83 ,501·
.0373
Naw Yo:rk
g ,1671 7o0o
6,826,702.
1 ,341,078·
.1642
Phi1a.d elphia.
2,766,443.
2,096. 850·
669,593·
.2420
Clavela.nd
2,956,302.
2 '504,045.
452,757·
ol53l
Richn:ond
2,127,174.
1,696,066.
431,103.
.2027
Atlanta.
1 ,530,585·
1,310,440.
270,145.
·1709
Chicago
4,852,256·
4,3131980 •
533,273.
.1099
St. Louis
1,961,250·
1,667,977
f
·293 ,273.
.1495
Minnaa.pol is
1,325,867.
1,109,582.
216,2S5·
.1631
Kansas City
2,411,079·
2,070,943.
34o ,131·
.1411
Da.llas
1,360,356·
1,543,101.
312,755·
.16;n
San F:rancisco
3,816,964.
3,042,390·
774,574.
.2029
$30,347,587. $5,71S,47S•
.1568
Boston
$36,066,065·
X-3390-a. .
Exhibit - C.
(' :~·7
EXHIBIT OF CURRElJI.J.l E.xPENS~;s
Cla.ssificd a.cco:rding to Fu.nctions
TWELVE FEDERAL RESERVE BANKS CONIBINED
Actua.l Figu:res fo:r Qua.r te:r Ending Ma.:rch 31, 1923.
(From Schedule E)
.Annual Figu:r.es Estima.tad in Proportion
Di:t'act Expdnsas Befo.ra Dist:r.i bution of kministra.Uv.:>
and General E~panses
Pa:r Cent
.Annual Exp~~
of Total
.Adm, & Gen 1 1 Expanses
Inc. Expenses incident to
Pr.ovis ion of Spa.ca, Pe :rsonnel, Service & Ova:rh'd
Expenses of Functions
essential to the opa:r.a.tion of the F,R. System
under the F.R • .Act.
Exp.Incu:r.r.ed as Fiscal_!g!
of the U.S.Gove:rnment
Exp. Incu:t"red a.s a. Depositary
~f the U.S,Governmant
Exp. Incu:r:r.ed a.s a. ma.t ter of
Policy in conn~ction with
Sa:r.vices :r.ende:r.ad to Member.
Banks
$11,952,768.
After Distribution of
Administ:ra.tiva and
Gena:r.a.l Expenses
Pa:r Cant
.Annual Expense
of IJ:'ota1
0
11,640,468.
0
$17.757,904.
4,636,240.
14.o6
g ,018,676.
364,9QO.
01.10
624,276.
3,173,316.
09·53
4,426,468.
01.87
Expenses of Activities ca.:r:ried
on as a. matte:r of Policy
__;1=.1~..o5!..::0:=1...L,6::::.:0::.:0::.:•:.....___0::...4;...;. .e.5. ::.l_ _ _ _--=2:..t.,....:4~9.::;.2,L.;,6::.;:g::..:g~,---=O;.J..7..:...•..:...48~
•
GRAND TOTAL
----- -----
$33,320,012.
100.
$33,320 ,012·
100.
X-3890•a.
Exhibit C-l·
1:
898
ADMINISTRATIVE AND GEN'.!l:RAL EXPENSES
Including Expanses incident to P~ovision of
Spa.c<il, Pal"sonn~l, Service & Ova.T.'hda.d.
Actual Expenses
Fi:rst Qua.~tar
1923
Gene~a.l
Annual Ba.sis
P;;r C~nt of
Total xpenses
·0528
Ovex-head
$4~9,813·
~11 72~,222·
.Administration
435,144.
497·
4,1721
1,740,~76.
755,2J6.
),020,944.
16,735·
455,603·
· 2s2 ,s4s.
67,140.
1,622,412.
1,131,392·
131 ,6s2.
526,726.
16,042.
43,899·
23,531·
32,619·
10,591·
64,168.
175,596·
114,124.
130,476·
42,364.
695,921.
2,]3),684.
1S,JOl.
24,710.
24,974·
55,004.
10,695·
23,147.
82,546.
49,003·
24 .150·
225,334·
31 ,119·
10 ,849·
40,186.
73,204.
98 ,840.
99,396.
220,016.
42,780·
92,583.
330,134.
196,012.
303s612.
96,6oo.
901,336·
124,476.
43,396·
160,744.
. 228,697.
914,783·
.Q2i5
282zll6.
.oos6
410.:22~·
1 1641 1 280.
.0492
35,099·
70,850·
14S 1 224.
140 ,396·
2S3,400•
?92,396·
36,166.
49,366.
344,664.
197,464.
30,153·
120,612.
,oo
224.~11·
3~~.¢¢4.
.0270
39,G73·
1S2 1 0~o·
1;9,492.
740,}92·
$2 t 988,197'
$11,952,733.
Governo~s' & F.i.Agt\.confer~nces
Feder.al Advisory Conferences
frovision of Spa.c@.:,
Administ~ation
Banking House
Rented Px-ope:rty
ProVision of Personnel
Administ:ra.tion
Hiring Emp. & Emp, Records
Edu ca.tion and Training
Welfa.:r~ and Medical
Ca.fetel'ia.
General Servic§!
Administration
Purcha.s ing
Stock Room
Telephone
Tal. e gt' a.ph
Coding
Ma.il
Registex-ed Mail & Exp:ress
Filing & Old Re co ,.d s
Dupl ica.ting
Protection
Office boys a.nd pa.ges
Automobile
Equipment a.nd Rapa.irs
Insut'ance
71!~2~·-
Accountins
Administ:r.a.tion
Gene:tal Books
'Member Bank Accounts
(Including Resel"Ve Deficiencies)
Federal Reserve Bank Accounts
Expend i tul'es
Planning
I
I
Auditins
Administra.tion
.All Othe1"
l.I!AN!!' XQ!AIL
.o9:)6
.0158
·0835
<
75,90~.
Posta.git
~
1, 33·
16,6ss.
52,760.
20,~.
::
..: ::2 F
11! ~· ';ll'i"f' ..(
'"'~
,
t~536
,~~MI->
...... .,
x... 3390-a..•
Exhibit C-2 .~
. 1*""•1"'
'.. ' ..__.}
.
EXPENSES OF 'FU&T:JTIONS ESSEHTIJI.L TO TE:8 CPERATION
OF THE FEDERAL RESERVE SYS 1:PEM UNDER THE ~'EDE1<AL DESERVE ACT •
Actua.l Expenses
Fi.rst Qua:r.ts:r
1923
Loans, Rediscounts & Inv.
Annual Be.si s
Pa.r Cent of
Total Expenses
-~353,501._
$1,4141004.
.0424
Ad minis t:ra.t ion
Ma.int;dning.Cr. Info:rma.tion
Racording Loa.ns & Rediscounts
Recording Invastmants (Proportion Custody of Disc. Colla.tara.l
(Including pro 1 tion of Admn)
55, 76L
168,816.
31.311.
125,244.
:Fa.iled Banks
237,3684
Currency & Coin
4,732,100.
Administration
Currency-Reo. & Sorting
11
. -All Other
Coin
Cost of Cu:r.rency (Incl. a.l1 Transporta.tion chgs, a.xcept to and fl'om
member and non-rr.embe:t' banks.)
33,982.
359,495·
120,820.
71,775·
36,746".
323,110.
92,653·
32,427.
531,786.
80,734.
Fadera.l Reserve Agent
Assessment fo:r F.R. Boa.rd Expenses
~lRECT
EXPENSES
Add a proportion of Adm. and
Genera.1 Expenses
.1420.
135,923.
1,437,980483,230.
2Z7 ,100.
146t934.
1,312,440.
370,612.
129,708.
2,127,144.
322,936·
146,0£54.
.oo44
26,533.
9,938·
162, 772·
651,083·
2,910,117•
ll,64o,46s.
1,529,359·
$4,439t476.
.oos6
4,409,824.
Administration (P:ropo:r.ation)
Receiving & Proving Checks
City Checks (Claa.rings)
11
11
(Othel' than Claa.:rings)
Country Checks
Retu:r.n Items
Administration
Fade:ral Reserve Note Issues
{.0090)
2,367,812.
Check Collection
TOTAL
235,044.
293,216.
5C6,6s4.
74,554
146,671.
42,204.
$17.757,904.
·5330
X-3890-a.
Exlli bit C- 3
EXPENSES INCULRED AS A !.LATTER OF POL! CY
IH COUHECTION 1~fiTH SEEVICES RENDERED TO MET,JBEH DANKS •
.Ac tua.l Expcinsa s
First Quart2r
1923
Sacur.itL::s fOT' Safabaping
(Incl. proportion of Adrrn)
$60,377.
!Jon-Cash Collection
Annua.l
~
246,643.
Administration (P.ropO'~" .tion)
Non-Cash City Coll:sction
11
11
11
Country
Coupon Collactions (Except Govt.)
Transfars of Funds
"l"Incl uding pl'oportion of Admn.)
111 9o9•
?5 ,955·
133,034.
42,665·
4 7,956.
235,320.
432,136.
17o,66o.
.0131
1,224,244.
23,996._
Cost of Wrapping Coin
45,62.§.:__
.0072
.0296
105,021.
Cost of Currancy & Coin Shipmanti?_
to and from Mamba.r and lJon-lvkmba.r :Jks 306,061.
Shipping chg3. on Sacuritias
?41x- ' 50'~ •
c
6
Total Expenses
132,204.
.0367
.0007
.0055
.0002
Gold Abrasion
1,459·_
Supplies
5,417.
~1,66s.
.0007
Purcha.se & Sale of Securities and COriliDs?X'cial Pa.pe:r
13,051.
52,204.
.ool6
793,454.
3,175,.:a6.
.0953
313,163·
1 ,252,652~------
fu.rnishad to Member Banks
TOTAL DIRECT EXPENSES
Add a. pro 1pn of Admn. and
Gane:ra.l Expense: s
G R AN D
-----
TQO T A L
-----
$1 ,106',617'
X-- 33~;0a
~
Exhibit C-4
EXPENSES OF ACT IiTITIES CA ~lUED
Jct1::..e.:L
},ir~;t
Ol!
AS A MATTER OF POLICY
F~xpenses
~)u.aJ.··ter
1923
-
Ban¥ Relations
Administration
Office Expense
Road Men & Traveling Expenses
Eank
$6h.Qll_.____
,0079
·Publications
Insuranc~
TOTAL DIRECT EXPENSES
,
Add a proportion of Administrative
General Expenses
83,956.
28,488.
155,680.
r)30.040.
73,868,
456,172.
140,581.
C)62.32l+.
52,088.
325,638.
8~_139.
Administration
Statistical
Monthly Letter
Library
20,989.
7,122.
38,920.
13,022.
31,422,
22,613.
23,524.
Stat is tical and Analytical
)2,')56.
.0010
27,139.
108.756,
,0033
375,4)0.
.0159
,0169
90~452.
94,095.
1,501,300,
.0451
247~~2~2~·------9~3~0~·~8~8~8~·-----------------
$623,172.
$268,124.
Per'Cent of
Total Expenses
18,467.
114,043.
Administration
All Other
GrouE Life
Annual Basis
132.5.10.
ExaminatioR~
~~loyees
C; ~ -,«
.1'..
''-'r •
$2,492,683,
~·
)
X- 3890a
f.
Exhibit C-5
902
EXPENSES UTCURRED AS FISCAL AGENT OF THE UNITED STATES GOVERNMENT •
.Actual Expenses
First Q~arter
Per Cent of
Annual Basis Total Expenses,
1923
Administration
$43,197·
$172,788.
Government Issues
335,214.
1,340,856.
Accounting
50,405~
201,620,
Tiar Finance Corporation
63,278.
253,112.
Custody of Securities
28,140.
112,560.
587,342.
2,349.368.
63,984.
255.936.
$1,171,560.
$4,686,240.
833.109.
3.33:Z,436.
$2,004,669.
$8,018,676.
·Treasury Savings Securities
Go~ernment
Sales Organiza ion
TOTAL DIRECT EXPENSES
Add a proportion of Administrative
and General Expenses
~lit!!!
1:9.!!.1
.1406
EXPENSES I:NCURRED .AS A DEPOSITORY OF 'IHE UNI'I'ED STATES GOirERNMDTT
Government Checks
(Including proportion of Administr&tive)
$ 37.453·
Government Coupons
(Including proportion of Administrative)
53 772,
TOTAL DIRECT EXPENSES
Add a proportion of Administrative
and General Expenses
~g!_t{!?_
!9.!!.1
I
$ 91,225.
$
64,844.
$156,069.
149,812.
.0045
215,088.
$
,0065
364.900,
.OllO
259 I 376 •
$
624,276.
,0187
EXPENSES INCURRE.J AS A MAl'TER O"F· POLICY IN CONNECTION. WI'IR SERVICES
RENDERED TO MEMBER BANKS - FIRST THREE MONTHS OF 1923 ONLY
TOTAL
FOR
SYSTEM
BOSTON
NEW YORK
PHILADEL- CLEVE RICHPHIA
LAND MOND ATLANTA
$29,365
!~NNE-
APOLIS
KANSAS
CITY
SAN FRA.L"{•
$9.276
CHICAGO
SAINT
LOUIS
X-3890a
Exhibit D
DALLAS
crsco
e~rities
for Safekee in
Including pl:'oportion of Adm)
Non..;.Cash Collaction
$60,377 $2,64g
2k§ ,643 20 ,661
Administ:ra.tion (Proportion)
·. 11,989
Non-Cash City Collection
53,955
" · " Country
,.
133,034
·~on Collec 1 ns (Except Govt) 42,665
$2,207
13.507
1,005
2,909
12,123
4,624
3.935
10,367
43 ,6oo
23,04o
103,821
1,965
41,334
61,189
5.999
1,135
6,600
30,950
657
3.6o3
3,534
713
1,261
439
5,915 1,980
15,014 6,984
621
3.748
194
1,692
1,946
168
. 1.505
12,233
13,049
4,163
524
3.713
4,964
1.572
7.355
22,302
357
2,472
4,520
6
1,108
7,129
10,6o6
3.959
7.174
14,649
8,566
13,419
16,070
4,114
346
5,164
122
536
10,773
4,814
4,094
4,000
18,253
Cost of Curren & Coin Shi ts.
to and from Banks
306,061
25,938 10,074
T::·ansfel's of !Unds
Including proportion of Adm)
Cost of Wl'apping Coin
on Sacurities
98
369
2,934.
4,257
45
585
4,008
7,437
6
6,997
44,232
33,446 19,573 13,472
37,405
11,987
2,44o
2,022
305
10 ,}41
3,464
30
44
70 -.
1,400
1
625
c.:rchase & Sale Tr:msactions
TOTAL DIRECT
EXPE~SES
275
$793,454$73,484 $210,137
672
190
250
306
9g
2,04o
90
389
663
149
50
$77,230
$74,433 $39,054$27.897 $t02,314 $37,176 $20,o53 $38,619 $30,891
$61,516 .
.....
•
•
E%PENSES OF ACTIVITiES CARRIED ON AS A MATTER OF POLICY.
FIRST THREE MONTHS OF 1923 ~y
TOTAL
FOR
SYSTEM BOSTON
NEW YORK
PHIL.ADEL• CLEVE- RICH.LAND MOND ATLANTA
PBIA
CHICAGO
LOUIS
APOLIS
KANSAS
CITY
DALLAS
$67,031 $1,135
$15,434
$1.,366
$16,756
$7,213 $1,492
$ 639
$5,624 $ 274
20,989
7,122
35
33,920 1,100
3,399
1,634
5,401
225
384
757
1,753
25
5,812
3~0}.)
Bank Examina.tions
132,510 3,071
17,086
17 756
9,218
E,7}9
Administra.tion
All Othar
16,467 .. 633
114,043 7,433
1,345
15,241
2,627
15,129
1,ij07
7,711
~g
Analytical 140,581 13.445
36,6o6
19,432
5,292
2},719
179
12,535
3,044
3,624
Bank
Ra1a.tions
Administration
Of fica Ex:pclns a
Roa.d Man & Traveling
Sta.ti-atical.
&
Administ:ra.tion
Sta.t is tical
Monthly Latter
Libra.:ry
Pub1i mtion
EXP~mES
*Credit
~.636
4,909
2,459
27,.189 2,101
8,337
~75,450$27,211
$78 '794
·MINNE-
~ANFRAN
J:rsco
37*
$38,517
J,166
2,105
11,435
1,394
885
4,934
1,193
294
5
639
6,265
16,682
6,164
6,416
8,730
8,337 19.~
7,331
1,623
4,642 .
3,455
1},227
526
5,633
1,095
5.321
756
7,974
6o5 2,a~n
7,732 16,159
10,790
4,032
3.546
21,951
4,727
3,411
5,022
5,149 12,470
1,135
3,761
2,829
3,065
217
2,}92
740
683
413
2,078
391
164
2,046
12,975
2,538
4,392
350
2,153
1,423
796
461
1,466
727
757
559
1,809
1,450
1,204
483
3,081
678
902
1,206
6,913.
3,2ll
1,142
259
j
1,231
~·139
Employees Group Life Ins.
TOTAL DIRECT
13,022
676
81,422 3~437
22,613 2,396
23,524 1,366 .
$7.590 $9,453 $
SAINT
x-3309-a
Exhibit D-1
281
1,929
699
167
1,114
2,552
1,948
1,131* 1,523
1,395
1,357
3,430
933
5.512
1,597
3,567
$30,409 $21+,458 $11 ,4Qg
$60,835
1,343
777
3,004
3
271
$17,622 $1},009 $17,4oo $20,467 $35,270
-=-·,::-~
0
~
... ,
@FedFRASER