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Report to the Fc::d :;r<;Jl I.-3serve Board by the Ldvisory Comrdtt;;,-, of Governors of FedGrDl Heservo Banl:s, on th~: soca.l.led 11 Claiborne-l,darns Chock Collection Plan" X-3800 .Aug. 1, 1923 • Gentlemen: In compliance with :-,.our requ0st that we should rreke a statement of our views on the three subjects discuss~d ot todDy's conference, we be~:S to advise you as follows: .Amended he§,-ulati.on "J" suggested by !,1essrs. Claioorne and Adams on J~halt of the Ccmrdttee of Five on Exchange of the American B..mkers• Association. ***** **~ ** ** ''-* We are entirely and unanimously opposed to this plan for the folloi.ing res.sons: (1) It '.vould reinstate and perpetuate one of the most glarin 6 faults of the old banking system - the creation of a. ficticicus reserve. (2) It would b~ a substantial abandonment of the pa.r collaction system :md ·.vould pave the way for tl~e :rr,position upon the'- comm~rce ond business of tl18 country of an annualcharg~ of over $100,000,CU). (3) If immediate av::Jila.c.ility ·.vere to be given ·oy -:ach bank on all items in its district there ·.vould probably be a.dded to the float over $300,000,000, calcula.ting simply on th8 basis of the present .;~eekly cor.sol ieioted stD.terr.ent of the System. In :pra.ctice this float would u:; enormously increasea. Human nature being what it is, it is inconceivabls that bsru:s ·.vould not take advanta.ge of the unusua.l opportunity afforded thc;m. Inst~ao of forivarding to their own Federal reserve banL checks psya ble in other Federal reserve districts, thay would naturally send such :.. tsr.~s to cor :•espondents in other Federsl Reserve bank citi.::s, which correspono<:>nts could deposit them in their o.vn Federa.l reserve banks and receive irr,;-:Jediat:; credit :Jr.d ::;va.ila.bility without being :oubject to the exchan[s2 charge. This vtould result in giving irr,rr.ediats crcdi t and ava.ilabili ty for practically all checks, as received at each Federal reserve bank or branch. It is also evident that it would make possible unlimited "ki t·ing"- · (4) .As these addi tiona,l credits would be either checked out or used to reduce loans; there vvould not only be a. reduction in the re::;..:rve ratio of the Federal reserve system but ther.; vould be a still further very large l";3auction in thr;; actU<:Jl Nserves of the merr,ber b'-'nks which were pre.ctically cut in half uhen the Federal reserve system was established. These obj7ictions might L>e elaborated and various other;;; might be cited, but the mere -enumeration of ~ho;:;e stated above seems sufficient wholly to condenri tha pLm. In vievv of these; considerc;tions and of the f\:crther facta wr.ich vere orought out at the he9ring todsy, this Comrittee r~s_r.,actfully and earnestly r::comr:-:::nds that tha Board prom_;,tly announce its rejection of the l).roposed plan. X-3800 -2- ,- ;"'' .,/ I Effectiva d.s.te of J,rnan.ded 1\Ggula.tion .11 J 11 • *~'************* In view of the fa.ct tha.t a. revision cf the phra.seology of amended Regula.tion J seems desira.ble, it is recornrr:end:;d that t.~e postponemerJ.t of the effactive date for this 1\egula.tion be continued until further notic~. cr.~.a.ne;es in pra.ctice of making collections on ba.r.ik:s. not willing to remit a.t pa.r. *****'~********* In order to conform to the :fullest pos.sibla e.xtont to the spirit, a.s well a.s the letter, of the recent decision~ of the Supr-1me Co·~ut of th:J United States in tha par clearance ca.ses, it is rdcmnr:euded that thd use of a.gents other than banks for the pur.~:~ose of ro.aking collections a.t par of items upon non pa.r-remitting banks be discontinued in any district .11.here a.ny such pra.ctice IDEI.Y novr exist. Hespectfully, (Signed) Geo. W. Norris, (Signed) J. H. Ca.se, (Signed) . J. B. McDot'.ga1, (Signed) E.~· Fancher, (Signed) w. P. G. Harding, (Signed) Chas . .A. Peple . .Advisory Comrnitte.3 of Governors. The Federal Reserve Boa.rd, Washington, D. C.
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