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Denver, Colorado,
January 4, 1917.

AMIXD/Li:NT RESPXT1.NG I:ER204AT OF GlikalBAC4S.
FMMILL RESZWE BOARD ilkali3BAIWILE NO

09

DECEMBER 22, 1916, AS REVISLI.

The plan for retirement of greenbacks out

ad in this

lowing general

memorandum suggests that the Board h
scheme of currency reform:

ad and replaced by

That National Bank N
issues of Federal Reserve

nd replaced by issues of

That greenbacks be re

Federal Reserve Bank
certificates, I assure

No refe

no change

tus, except possibly as to do-

is cont

nominations.

4
vided

t in the currency is already pro-

t the o

Federal Reserve notes.
is meahs if on

volume

Reserve

t there wil

urrency is not reduced from its present
timately be about 41,000,000,000 of Federal

circulation, the principal part, if not all, of

which would require the maintenance of
tion rand.

MD

reserve beyond the 5,, redemp-

The scheme does not impress me as being sourd, nor in the

direction of a simplification of our complicated currency.
it would be vastly better to retire the greenbacks

I believe

by issuing Federal

Reserve notes instead of Federal Reserve banK notes, giving each Reserve

Bank the right to use the proportion of government bonds received in the
transaction and no more as security for Federal Reserve notes.

2.

Retirement of Greenbacks.

January 4, 1917.

Other comments on this matter are contained in my former
memorandum.

The changes between the first

are not of great importance except in

plah

and the second plan

two resnects. The new plan

will give the Reserve 3anks long time 3, bonds of the government
only .

This has the advantage that all the

character that can be sold without any obl
in the case of the one year notes), but

11 be of a
tion to re-p

ase (as

interest being

ad at

may result in losses to the Reserve Banks and I am cony
have no right to accumulate such

vl fate

government bonds at this time
them.

of being able to resell

The other iiortant

This is a serious injus

t of tax to be paid.

ce in

Reserve

stitutes an evasion of th

serve Banks, Which I do not think

the government has an:; r

on them.

and from the government

issue, on whi

long ago been

to the Reserve B

and Which

its legal tender qualities.
ad and

a note

out borrowed $346,000,000 by
erest

ret

It is bad business

bad morals.

ited States go

reason

Banks - con-

tion or, worse than that,

a forcible transfer of it to

value

ad they

funded.

had ficticious
The

currency

notes should

have

This plan to transfer the obligation

by requiring them to purchase a bond carrying

interest and then taking 2-1/2,: interest

3;1>

back in the form of a tax per-

petuates an unsound financial expedient of the Civil ,ar period, and
allows to the Reserve Banks a revenue of one-half of one per

cent

for

all the risks and expenses imposed UDOU them by the assumption of this
great government debt.




An honest retirement of the greenbacks would

3 .

Jarelary 4, 1917.

Retirement of Greenbacks.

necessitate the government's selling bonds to the public at whatever
rate Di' interest was necessary and using the proceeds to pay off the

greenbacks, which would cost the government not less

upon the bonds to be issued. Paying the Reserv
of one per

only be justified upon

cent could

th

than 3,

interest

Banks only one-half
theory that the right

.r)f note issue which is coupled with this plan wi

produce a revenue

to the Reserve Banks and is a valuabl

That is not the case.

The Reserve .Banks cannot possibly gain one dollar of

reason of the right

revenue by

Bank notes, secured by these

to issue F

been made simultaneously with

government bonds, the issue

the acquisition of

a

the profits being confiscated by

the bonds an

the government thro
by i

cks are reti

If the gre

, the status of the note issue at

instead of Pede
the present time
Gel
A

es of Federal Reserve notes

follows:

1

keder

-rvE;

.rust fund -

nts -

152,977,000
195,958,000

United States bonds -

Total sent note iss
or United

A

;631,458,000
,g82,523,000
346,661,000

say -

tea notes -

21.254,000

notes -

Add

631,458,000

Total
Taking the note issue alone without regard

to

the general reserves

of the Reserve Banks, this statement shows a gold reserve of
If we consider

that immediately upon the assumption of the liability

for the greenbacks that

Reserve notes,




exactly 69%.

they are at once converted in fact into Federal

the subsequent problem of handling the 'United States bonds

January 4, 1917.

Retirement of Greenbacks.

The Reserve Banks each year

it seems to me is greatly simplified.

will acquire, say, not less than

for the purpose of retiring

25,000,000 of United States bonds
EacT1 year there-

National Ban,z notes.

fore arrangements should be made for the Rose

e Banks to make a sale

dings of government

of say ;;50,000,000, or possibly more, of their
bonds.

wired as the result of purchases of

21s, say 45,

reserves for

erve notes.

oral contraction of

on.

The

This will cause a gen,

y secured by United States

bonds.substitutin

,and creating a vacuum which can be
'MA) 4.1.11 11,#) kiLmuo
tificates the denominations of which

7

partly filled by

C0173M

id say

ring the 2's, and as to ,)%55,000,000

Reserve Banks for the _old

should be

bonds ac-

15 000,000 to reimburse the

proceeds of the sale would

as additional

000

eenback trans

4%35,000,000 of the 3's acquired

der

ersion

This sale would include all of the 3t co

taut

course to some extent, as seasonal

equired, by i

ederal

Reserve

notes, secured by bills and

'al paper.
140A44,

akness in the proposed

The seadAmembei

in the

plan Beene to be first

eserve Bank notes, jftich I

second in the ar itrary rate of

reatly deplore, and,

34 to be allowed on the United States

bonds.

The bond holdings

of the Reserve Banks will

become so enormous,

if freedom of sale is not preserved, as to jeopardize their liquid conditionhnd to risc shrinkages

in

values which banks of this character cannot

afford to risk.




Has the Board observed one effect of the

use of Federal Reserve

5.

Jannary 4, 1917.

Retirement of Greenbacks.

Bank notes?

In the first instance, the Reserve Banes will receive

353,000,000 gold and el96,000,400 United States bonds. As greenbaeks
are cancelled presumably Federal Reserve Beek n es will be used in

place thereof. The account, therefore, viaich a
gold reserve would gradually be converted into a..
5% gold reserve. There would be U96

he outset had a

44%

count havine onle
ral Reserve Bane

th only a. 5,
notes outstanding entirely secured by government bond
id originally n the account
redemption fund, and the 453,0
would simply be paid oet in

to

handed both in this plan and in

States notes. Difficulties can

the ease of the issue o
ing, owing to the
and the new notes

vision of the Rese




the balance of the United

'0

notes by the plan I am suggest-

a.or and reserve qualities,

, rate so long as tee note pro-

,.

Moe:able

Et-Art.147r,

feezaavealsitax.

TVaittlzw. t1a4 wt may 404es hee
tk,*

'esq eeva

ple

ard aeptee ef Met cerveoperidellee or other -January 6, 1917, haa

'ee!

dweit'e fte

- erre

esteuotttieft t

Dear Governor Harding:

I acknowledge receipt of your letter of January

4th suggest-

ing that this bank should consider the further development of its
foreign
and

operations, asking me to discuss the matter with our

requesting that I give

board,

you my own views in this connection.

I will take pleasure in peoaenting your letter to our board

at its next meetine and will write you my own views in a few days, just
as soon fee I have had an opportunity of coeferring with my associates.

In the meantime I may

ay

that I believe you have been ad-

vised of the preliminary communications which Governor

the

with the governor of

been delayed until

Bank of France, more

active

Strong has

had

diecussion having

a decision had been reached by the Board with regard

to the Bank of England matter.

You have also been advised that we have

been acting for the Nederlandsche Bank in earmarking gold, although we
have refrained from makiiig any 1Jublic announcement of our acting for

this bank or of the nature of the transactions.

'ee have also had let-

ters from one or more other government banks during the past year to
hich we have replied but have not heard fanther from them.

I note that it has been indicated to the Board from several

quarters that a connection with the ederal Reserve Bank of New York
would be desirable

and we should be very glad to have the :persons mak-

ing each inquiries referred by the Board directly to this bank in order
that we may discuss with them the possibility of establishing



the desired

Honorable d. P. G. Harding,

1/6/17.

connections.

Trusting that we may soon have the pleaaare of receiving from
t',3e Board copies of such correspondence or other data as the Soard has

received indicating a desire for a connection with the Federal Reserve
Bank of Hew York, I f11-1,

Res, tactfully yours,

an.

G. Harding,
Honorable 7.
Governor, Federal Ileserve Board,
:.1..shiugt...m, D. 3.
VRAH




kr* t

Denver, Colorado,
January 19, 1917.

Ay dear Governor Harding:
I am most grateful to you for your courtesy in sending me

printed copy of the bill proposing cert

to the Federal

Reserve Act and the Board's statement

These are all, in my opinion, ithe right direct
as i wrote Mr. Warburg some weeks aeo

in

certain pa

hoped to see the details wo

t,

although,

ul"rs I had

tly in some of

the amendments.

I am frank to say t
if it proves to b

retirement of United
as a modification of t
of gold certificates
to

,j14:

go than I am as

t disappointment to me
slation in regard to the
s session of Congress, as well
currency laws in respect to denominations

the Board is in much better position
ssibilities of legislation of that charac-

ter.

I hop

tings with the New York bankers will result

in their sup o t and cooperation in this movement to perfect the Federal
Reserve Act.

With ki

est regards and wishing you every success, I am,
Very truly yours,

Hon.

Federal ,aserve Board,
fashington, D. C.

BS/CC






Ddnver, Colorado,
January 26, 1917.

1.ileeset ter

order

t the

loft

My dear

kvold

rioz!rlo2:21,2!T9,....__

It has not been my practice to write any official letters from
w to supnlement a

Denver during now absence and I am only wri

bank, to am-

former letter which 1 judge will short

rly date

at

phasize the urgency for the making of

deal with

which will enable the Federal Reserve Bank of liew York

the question of gold bars wti
esired from the "treasury

ioor the nresent, the

being the most

important

at the moment.

co to make a malting charge
rs which are turned in at the Assay

of $1.00 per 1000 ounces
-rice for conversion

o gold

or gold certificates.

I have recome

that we should at once commence the

:nded to the Federal F serve
ace

on of gold bar

.uring if

possible the total value of
r

50,000,00

shsve with ys\ii making similar

might easily

argea

other Reserve Banks may feel willing to

accumulations, in which

increased to 4100,000,000, or more.

ease the total

If we can arrange
norzry

with the Assay

ice to have the privilege of

oars without any melting

turning in these gold

charge,- or other charge, it might be possible

a
for us to arrange to accumulate United States standard mint bars, resulting from present imports from Europe, and hold them under an obligation
T

by which they would not go out of our possession in case at any time it
should become necessary to surrender them for coin or certificates.

1




2.

'

To - Governor Harding.

January 26, 1917.

course, in order to be fortified against a possible demand for jold
certificates from member banks, it would be highly desirable that the
Sub-Treasury in New York should

carry on hand a 4ock

cates sufficient to maae a large issue on comma

and we could arrange to furnish suggestions as

of gold certifi-

t vely short notice,
e

denominatious of

such certificates.

The object of this as.xestion is to enable us at
to accumulate ,aold bars of a elle-. =r a

curring possibly heavy charge

case e

These are the bars Which WO

rt should be unnecessary.

predate froa the above state-

ment, if the arran

ed,

reasury, but wil

the Mint from consi

it will impose not only

in fact relieve the Treasury and
coinage and issues of

tificates.

sold wr-

it would be necessary for us to

ask our

to assume charges in connection with our relations,

which
are not

ble for export without La-

e/y expect to ear-mark for

foreign correspondents,

no expense upon the

present time

on our part woul
,

osed or'cont

,.;4111

4..4

t be asked to assume by them as similar charges
ted in the arrangement under discussion.

y relates to the present practice by, ahich immediate

payment of 99:4 of the assumed value of imported gold is made by the Treasury

in the form of Assay Office checks.

If this practice were discontinued

and depositors of gold were required to await returns from the Assay, we
could at once notify all of our member banks, as well as domestic pro-ducers of gold, that we stood ready to buy gold at a fixed price for cash,

allowing to them a percentage of the total value, pending returns from the
assay office.

This would direct a stream of gold to the Reserve eanas




z.
Januar/ 26, 1917.

.2 Harding.

)1A

somewhat similar fashion to that which now prevails in EaglarIld.

I fully appreciate how busy you and your a ocLates, and particu-

larly the Secretary of the Treasury, must be at
to me that the

ttar Is of importance to warran

tine, but it seems
kediate considera,-

tion.

If details respecting the bearing of this parti
our foreign relations are roquir
send you a statement.,,
I beg to remain,

W. P. G.,Hardi
ornor, Federal R

.shington, D C.

..:11.3

1 ittia
.01 44ps vas

matter upon

be very glad to prepare and

February 2nd, 1917.
Dear Governor nardinge

htve your favor of January 31st asking for copies
of the correspondence by cable between the Federal Reso ve Bank
of New 'fork and the Bank or England which followed the announce-

ment by the Reserve Boerd on December 25th, 1916, I be to ad..

vise thet the only direct cable between the Federal Reserve Bank
of New York and the Bank of England which has passed in conne

tion with the announcement by the Revorve Board was asfollows:
December 29, 1916.

"Cunliffe, governor, Bank of England, London.

retreag instructs us to express his deee regret at

premature announcement.

by mail.

Will continue negotiations

(ligned) Treman, Deputy Governor."

Ie addition to this direct cable, I would site that
after the announcement of the Reserve Board on December 26th, we
P. Morgan, the New York member
sent through the courtesy of Mr.
of the Federel Reeerve Advisory Council, an informal inquiry which

wee forwarded to the Bank of England reading as follows:




December 27, 1916.

"You will have seen that the Federal Rezerve noard
yesterday published the authority for the Federal Re-

serve Bank of New York to make an arrangement with the
Bak of England. This is simply the formal otatfment

of authority granted and has nothing to do with the
terms or conditions of the arrangerJent, but both strong,
who is away ill, and the officers of the Federal Reeerve
Bank of New York ask if you will be kind enough to expreso to the (lovernor their chagrin and regret at the
premature publication by the Federal Recerve Board,

.2-

To

Kr. narding.

"which wee made without their knowledge

2/2/17.

and

which is,

of ecurse, contrary to the spirit of the last clause in
the agreement between Strongemd the rjovernor.
The
Federal Reserve Bank officials have issued no statement as yet and before making one would like to learn
the Governor's wishes in this connection, since they .oeteel
desire greatly to do nothing ehich could in any-embarrass the Governor of the Bank.
They earnestly hope
that no inconvenience has resulted from the Board's action which vas made without consultation with them.
They would not for the world have had this happen in
this way, and want the Governer to know it."

70 this cable we

received a reply through the name source,

dated December 26th, as follows:
"The Governor surmised exactly what had happened
and wan in no way put out by the premature announcement,
nor doev he coneider that it need interfere nith the
continuance of discussion an to the terms eventually
to be submitted to the respective Boards, but he thinks
would now be best beither to contradict the announcement nor to confirm or explain it, but to let the matter
rest exactly es it is for the present."

it

Regretting the delay in forwarding the above cables in
accordance with the agreement made by the committee when in Wavhington, I am,

Very truly yours,

:JapuTy Governor.

Bon. W. P. G. 4ALAing,
Federal Reserve Board,
V,alehington, D. C.

RHT/VCM







.i.IRVICE DESIRED

ast Day Mr

io

Day Letter
Check

Night Mess,
Night Let',

Patrons should mark an X opposite the class of service desired;
OTHERWISE THE TELEGRAM
WILL BE TRANSMITTED AS A
FAST DAY MESSAGE.

AM

TEL

Time Filed

NEWCOMB CARLTON, PRESIDENT
GEORGE W. E. ATKINS, VICE-PRESIDENT
BELVIDERE BROOKS, VICE-PRESIDENT

end the following telegram, subject to the terms
on back hereof, which are hereby agreed to

Denver, Colorado,
February 2, 1B17.

..,P,LALLIarling,..Vederal Deserve Beard,

7ashiniten, D. C.

Confidential. If you have any reason to thin: it viould be desirable
please do not hesitate to teleLTaph su6.,;osting mu return to Bew York as I

could return for a short Tvried Athout

:Illy

injury to health.

Benjamin Strew,.

Chg. Benj. Streiv,

4100 Montvlou Blv.

-




ILL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING

"RIMS:

To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for
arison. Fm
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in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
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ond the am
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In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, of this telegram, whe
caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value is state,
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contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such m,
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Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in addition to
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THE WESTERN UN ION TELEG RAPH COMP/0
INCORPORATED

NEWCOMB CARLTON. PRESIDENT

CLASSES OF SERVICE
Letter shall be delivered on the day of its date absolutely and at
events; but that the Company's obligation in this respect is subj,
to the condition that there -shall remain sufficient time for the trai

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Accepted up to 2.00 AM. at reduced rates to be sent during the night
and delivered not earlier than the morning of the ensuing business day.
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A deferred day service at rates lower than the standard day message rates as follows: One and one-half times the standard Night
-,etter rate for the transmission of 50 words or less and one-fifth of

the initial rate for each additional 10 words or less.

SPECIAL TERMS APPLYING TO DAY LETTERS:

In further consideration of the reduced rate for this special "Day
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merated above are hereby agreed to:
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deferred service and the transmission and delivery of such Day Letters

in all respects, subordinate to the priority of transmission and
Day Letters shall be written in plain English. Code language
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c. This Day Letter may be delivered by the Telegraph Company
by telephoning the same to the addressee, and such delivery shall be a
complete discharge of the obligation of the Telegraph Company to
is,

delivery of regular telegrams.

deliver.

This Day Letter is received subject to the express understanding and agreement that the Company does not undertake that a Day
IL

mission and delivery of such Day Letter on the day of its date duni
regular office hours, subject to the priority of the transmission of r,
ular telegrams under the conditions named above.
No employee of the Company is authorized to vary the foregoing.

NIGHT LETTERS

Accepted up to midnight for delivery on the morning of the m
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for the transmission of 50 words or less, and one-fifth of such standa
day rate for 10 words shall be charged for each additional 10 words
less.

SPECIAL TERMS APPLYING TO NIGHT LETTERS:

In further consideration of the reduced rate for this special "Nig
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enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Comps
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No employee of the Company is authorized to vary the foregoing.

bruary 5, 1917.
y dear GovIrnor

It J:::11 rost Jiscouragi% to le-Irn of the adverse
ytion by the Nouse Corlittc on the sHendment to the no'.;o
revisions of the Federal Reserve Act. Of all the
oposed Changes in the law, none are re:7,xly as important

the country at this tilts, as this one, which would give
the Reserve, Banks a real and effective control of our
ld. 0oule not Yr. Glass now be -,:rsuaded that as a
er of national preparedness, CIeross should at once
t the arendrent nrerared by the Poard?
There are oQrtain to be many attonpts by Congress

e all enrts of changes in OUT curranoy laws, suoh as
csal of nenator Thomas of Oolorado, and, no.doubt,
9
oat innortant,financial legislation will Lloon be
necessary. 7311 it not be possible for you and your
addociatcs t advise in all these matters, or still better,
yourselves nrepare a c-Trorehennive financial ',7aan of
proceedure in which the Reservo Banks iiiht be cloyed
r.11

real fiscal agents of the Treasury.

hope you will
the above suEcostions,
pror,,tod only by ry interest in your work, and which

take the liberty of sending to you personally.



Thank you for

your kind tolc..

I an now
no well, stronger no doubt than for some years past,
that a tiit, of work might ho a good thing
if I an flooded
at home.

Hoping that you arc much bettor, and with
kindest regards, in which Mr, Curtis joins,
I am

Faithfully yours,
To

Ron. 1% P, G. 1Dzding)
Federal Reserve Board,




qhington, D. 0,

Form 1207

WESTE

ED

.

UNION

Receiver's No.

WESTERN UNION

Night L .

Za..7:0V
TELVyWW1"

Patrons should mark an X opposite the class of service desired;
OTHERWISE THE TELEGRAM
WILL BE TRANSMITTED AS A
FAST DAY MESSAGE.

Check

AM

Time Filed

N EWCOM B CARLTON, PRESIDENT

Send the following telegram, subject to the terms
on back hereof, which are hereby agreed to

4re

To

/0 t

otitairdurtr
araight;ilq

"

5e,e4frox;.

"

./octittee/ni

5w o-aaf.47
lat1em4-1_
ifC4A7 /71

4i/to

_ft LI J

'q;t'S ADDRESS

ANSWER




Aef_6

airrato

&mi.&

1914

qutrre-

ot qJtJLte/ict

dkaw-rty -ivett

a/;-)

i

Alinctvr

kopoo-ed

SENDER'S TELEPHONE NUMBER

ALL TELEGRAMS TAK..,. ay THIS COMPANY ARE SUBJECT TO THE FOLLOWIK
To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office fa.
one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND :
SUCH
in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any IJNREPEATED telegrarril
e 811101.11
received for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fife'wn rceivi
for sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its lines; nor for
or obscu
telegrams.

In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, of this telegram, whethe.
caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value is stated in
writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-tenth of
one per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reach its
destination.
Telegrams will be delivered free within one-half mile of the Corepany's office in towns of 5,000 population or less, and within one mile of such office in other cities or
towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor te
contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such offict
by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegram is
Sled with the Company for transmission.
Special terms governing the transmission of messages under the classes f messages enumerated below shall apply to messages in each of such respective classes in addition to al;
the foregoing terms.
No employee of the Company is authorized to vary the foregoing.

THE WESTERN UNION TELEGRAPH COMPANY
INCORPORATED

NEWCOMB CARLTON. PRESIDENT

CLASSES OF SERVICE
FAST DAY MESSAGES
A full-rate expedited service.

NIGHT MESSAGES
Accepted up to 2.00 A.M. at reduced rates to be sent during the night
and delivered not earlier than the morning of the ensuing business day.
DAY LETTERS

A deferred day service at rates lower than the standard day mes-sage rates as follows: One and one-half times the standard Night
Letter rate for the transmission of 50 words or less and one-fifth of
the initial rate for each additional 10 words or less.

SPECIAL TERMS APPLYING TO DAY LETTERS:

In further consideration of the reduced rate for this special "Day
Letter" service, the following special terms in addition to those enu-

merated above are hereby agreed to:
Day Letters may be forwarded by the Telegraph Company as a
deferred service and the transmission and delivery of such Day Letters
is, in all respects, subordinate to the priority of transmission and
delivery of regular telegrams.
Day Letters shall be written in plain English. Code language
is not permissible.
c. This Day Letter may be delivered by the Telegraph Company
by telephoning the same to the addressee, and such delivery shall be a

complete discharge of the obligation of the Telegraph Company to
deliver.

This Day Letter is received subject to the express understanding and agreement that the Company does not undertake that a Day
IL




Letter shall be delivered on the day of its date absolutely and at all
events; but that the Company's obligation in this respect is subject
to the condition that there shall remain sufficient timelor the transmission and delivery of such Day Letter on the day of its date du
regular office hours, subject to the priority of the transmission of r
ular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.

NIGHT LETTERS
Accepted up to 2.00 A.M. for delivery on the mcrning.-of the ensuing
business day, at rates still lower than standard night mossage rates, as
follows: The standard day rate for 10 words shall be charged for the transmission of 50 words or less, and one-fifth of such standard day rate for 1C,
words shall be charged for each additional 10 words or less.
SPECIAL TERMS APPLYING TO NIGHT LETT7RS,

In further consideration of the reduced rate for this aspecial "Night
Letter" service, the following special terms in addition to those
enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Company
be mailed at destination to the addressees, and the Company s
be deemed to have discharged its obligation in such cases with respect
to delivery by mailing such Night Letters at destination, postage
prepaid.

Night Letters shall be written in plain English. Code language

is not permissible.

No employee of the Company is authorized to vary the for

Larch 16, 1917.

dederal Reserve Board,
Wadhington, D. J.

re
I beg to report on the business of the bank for the month
of 40ebruary, 1917, as follows;

3eposits at the end of January
tt
" febraary
Increase

- - - -

-

- -

-

4240,806,752.65
242,771.814.61
1,965,061.96

Govt. deposits at the and of January If
If
II
" " february Increase -

2,648,063.95
2,743,232.25
95,168.30

DE2OSITS.

t

Sixteen member banks submitted thirty-one applications
for rediscount aggregating 41,961,001.05, an increase over the preeding month of four

in number

and 41,384,060.61 in Amount.

- -

4

1,592,466.45
1.872.693.29

-

#

280,::26.84

iediscounts maturing within 10 days
n
30
"
1$
60
"
"
90
"
Total - - -

4

.71ediscouuto at the end of January
"

" Oebraary
Inorease

Jr0JOUNTB.




No changes were made in the discount
lb days,
3 1/2%.

0

1,381,005.77
115,993.42
213,190.77
162,503.33
77-17872,693.29

rates; viz., 3.;:. ; for

15 to 90 days, 5% over 90 days, and trade aooeptances

Federal Reserve Board.

2.

3/16/17.

The bank purchased for Its own account bankers acceptances

for 020,228,314.18, and for other Federal reserve banks 021,619,726.70.
The high rate was 3 3/4. low 2 7/8%, and average 3.125844

Aooeptanoes eased at the end of January - 4 25,297,805.58
32.046.833.36
"
" February"
*
"
6,749,-027.78
InoreaseAOCEPTANOES.

8,466,241,67
6,424,974.46
10.103,961.94
7.051.655.30
$2,046,833.36

Aoceptanees maturing within 10 days - - If

11

"

.

Pt

.

30
60
90

"

OM

"

OW a. NW

via

.. - -

"

Total - -

The bank purchased for its own account warrants amounting

to 42,175,000., and for the account of other Pederal reserve banks,
03,225000.
The high rate was 3 1/4%, law 2 5/8%, and average 3.02299%
Warrants owned at the end of January February Increase
WARRANT'S.

Warrants maturing within 10 days
lt

ft

Pt

Pt

PP

over

30 "
60 I'
90
90 "

Total

-

-

$

SO OP OPP a
.1.11r

OW
MP.

NO

ow

--

MI,
MIN

P.1

Averaze -number of items daily
Amount sent to 01earing Rouse -

" Transit Dept.

5,534,104.09
1,840,296.31

4

No. of items sent to Transit Dept. in Oeb.
" nearing House
30LIEOTI0E SYSTEM.

0 3,693,807.78

--

-

am.

106,162.21
228,781.25
145,338.92
75,233.15
4,978,618.56
5,534,104.09

865,394
82,533
43.087
$348,895,349.43

276,546,957.76

The daily average in January was 42,2152; the total sent to
the jlearing house was 383,380,298.70, and to the Transit Department, #013,108,880.65.

Federal reserve notes amounting. to 4201,880,000. were de..

in. RES.
NOTES.




livered to the bank by the Federal reserve agent up to aarah 1, 1917,
when notes outstanding were 4140,161,215.

The decrease of

2ederal Reserve Board.

3/16/17.

061,718,785. in gross amount represents the notes sent
troller of the Ourrency for destruction.

to the :lamp-

There were paid out to

sixty-two member banks 040,294,000., and to fifteen nonnamber banks
43,914,500.
FED. RES.
NOTE*.

Of these, $83,942,500. were in new bills and

0,0,266,000. sorted bills.

New York Oity banks deposited

44,000,300., notes of this bank, and out-of-town banks sent in
41,290,675.

The Treasurer of the United 3tates sent in 0620,300.

Notes of other Federal reserve 'winks, amounting to $1,328,900.,
were also received.

M0N11iLY STATMENT 0? INJOLB EARNED AND EXPENSES PAID FOR FEBRUARY.

Income from bills discounted - members - -

Anoeptances bought in open narket

--

4

U. S. Bonds and Treas. notes Municipal wan.ants
Profits realized on U. B. securities - - - Deficient reserve penalties (inc. int.)
Jommissions received
Total

4,741.19
78,270.62
1,082.84
12,103.18
1,505.02
4,658.09
5,882.49

- - - 4109,043.43

Current ExPenss:

Assessment ?ederal Reserve Board
!BOWE AND
EXPENSE.




Governors' conferences
eeaeral Advisory Jouncil
F. R. Agents' conferences
Salaries
Directors' fees
Per diem allowanoe
Traveling expenses

-

#

-

Officers' and clerks' traveling expenses - Rent
Telephone
Telegraph
Postage
Expressage
Insurance and premiums on fidelity bonds - Printing and stationery
All other expenses, n. s.
Joe t

of ?. F4 notes issued to the bank

--

Total -

Income over expense
As compared with income over expense in Jan.

5,930.04
19.94
25.00
05.96
21,254.60
520.00
140.00
170.00
305.81
3,758.34
43.49
40.65
426.71
26.84
315.06
784.86
2,324.77
25,800.00

4 61,972.06
47,071.37
67,328.15

4.

Federal Reserve Board.

In the absence of any definite movement in speculative stock;
the call money marIcet was dull throughout the month of eebruary, with

rates slightly firmer then in the preceding month.

The prevailing

range was 2 1/4% to 2 1/4, with renewals being generally quoted within
the eamelLmits.

Rates for time money on collateral were also slightly

firmer, quotations for 60 days to four months ranging from 2 3/44 to
MONEY RATES.-

4 1/2, and for six months to twelve months 3% to 04

Rates for

eligible bankers accoeptances remained steady in February, ninety-day
bills being ouoted from 3% to

5/8%.

Early in Aarch, however, an

easier tendency was noticeable with slight aeolines in rates.
in commeroial paper was quiet.

Trading

an February 1st quotatione were 3% to

3 1/4 but gradually strengthened, and on garch 5th were 4 1/2% to 5.

In sterling exchange circles at closing rates demand bills
exhibited slight weakness towards the close of February, and on Larch
1st were quoted at 4.75. Exchange on Paris also showed an easier

tendency, franc checks selling at 6.84 7/16 at the beginning of February and gradually declining to 5.85 5/8 in the first week in March.
IOREIGN
P.X4HANGE.




2ark cheeks ranged from 65.3/4 to 70 1/4.

The striking feature in

the Jontinental exchanges was furnished by the steady decline in lire.
eemand bills on Italy dropped frem 7.12 on February 7th to a new low

record 7.77 on March 2nd, and at the latter figure were at a discount
of 50%.

Guilders recorded slight declines, and at the close of the

month were selling at 40.31 1/4 for Cheeks, a premium

of .4.

Roubles closed the month at 28.25 against 28.35 on the last day of
klanuary, but declined early in ;larch to 27.70.

Business in this district continues on a large scale for
this period of the year, and there is every indication of a very




active spring trade.

3/16/17.

?ederal Reserve board.

5.

The restraining influence exerted by the break

of diplomatio relations with Germany and the imminence Of war, is

gradually lessening..

The serious congestion on the railroads, which

hampers nearly every branch of industry, has been improved to same

extent and decided progress is looked for in the near future.

Ac-

cording to figures compiled by the ComMission on Carervice of the
Amerioan Railway Association, the railroads on ?ebruary 24th were
holding 138,679 oars which could not be loved, as compared with

172,207 care on iebruary 17th, a redeetion of 19% in one week.
An improvement in manufeoturing conditions has been ef-

fected in the iron and steel trade. Production in both pig iron
and finished steel has increased in the past week. The output of
pig iron in iebruary, however, showed a marked falling-off due ,to a

great extent, to the serious shortage in coke.

The total production.

which was the lowest since July, 1916, amounted to 2,637,042 tons,

a decrease of 450,170 tons from iebruary, 1916.
tinue to advance.

Steel prices con-

The average price of eight leading steel products,

according to a compilation made by one of the leading trade journals,

is now 481.05 a ton, which represents the highest price over reached.

It is reported that the recent advance is based on the prospect of
large Government orders,.

Inquiries for finished steel, both foreign

and domestic, continue in large volume.

The steel plate mills are

overWhelmed with orders from shipbuilding interests.
lEanufaoturere of machinery report a very heavy domestic

business but a decrease in foreign orders, buyers for foreign account

being unwilling to place orders until ahirping facilities are improved.
In meroantelle lines there has been a slight lull during the

.

iederal .eserve Board.

6.

3/16/17.

7.he

past month, due to the fact that the trade is between seasons.

volume of business, however, is very large for this season of the
year.

In some cases buyers have shown hesitancy in making forward

commitments, owing to the uncertainty of our international relations.
11ost manufacturers and merchants in lines whore delivery is prompt
are

aot deterred by the prospect of war.

report that business is excellent.

Una

Wholesale drygoods houses

firm states that the

market is sold out and expects this condition to prevail for some
another large house, however, finds a tendency on

time to come.

the part of buyers to await lower prices.

In the retail trade, sales

are running ahead of the corresponding period last year and collections are good.

he silk trade has experienced a slight falling-off in

A large, wholesale concern finds a desire on the part of

business.

'manufacturers who were well stocked at the beginning of the year, to
GalF.RAL.




cancel orders wherever possible.
The textile industries are very busy.

woolen goods has

The market for

been disturbed by the prospect of orders for uni-

forms from the United States Government, in ease of war.

Business in the cloak and suit trade has been very active.
Come difficulty has been experienced in Obtaining certain fabrics

and labor conditions have caused considerable trouble, but in spite
of these the trade has been very prosperous and looks forward to a
record spring season.
There has been no Change in the past few months in the large
volume of business in heavy Chemicals.

Railroad congestion has

hampered manufacturers to some extent but has not been a very serious

difficulty.

Although sales in the drag trade are also very large,




led eral Reserve Soard.

3/16/17.

manufacturers are suffering from an insufficient aupply of raw materials.
A

shortage in the supply of refined sugar in this market

was caused reoently by strikes in refineries at New York and Philadelphia.

These dieputes have now been adjusted and the situation

at preaent

ie

mach improved.

Business in the eardware trade is very active and collec.iriees of raw materials continue to advance, with

tions are good.

no immediate prospect of relief.
In the hide and leather trade the outlook for a heavy
spring business in the niddle Weet and lest is very bright.

In the

4ast, conditions are more uncertain as buyers are apparently nervous
concerning our foreign affairs.

It is generally felt that the recent

British embargo on importations of oboes and loather

Jill

serieus handioap to exporters.

not prove a

The ooncensun of o

that these articles will be clareled as necessities and admitted under
licenses.

The statement of the Nee York nearing 'louse Association,
dated ;,,faroia

n,

1917, shows loans, etc., ;:nn,532,495,000., deposits

43,780,867,0n0., 'and excess reserve 164,427,270.

n,

1917, loane in

nice nebruary

cased ,120,956,000., denosite increased Zt6,405,000.

and exeeze reeervee decreased n1,042,270.

is in nebruary totaled

Anw York City bank clear-

12,794,037,245., an increase of n1,687,549,968.

over 2ebruary 1916.

:104 incorporations in nustern States for iebruary, involving

concerns capitalized at 0,00J,00Q. and over, amoented to 4263,815,000.,
a decrease of',02,130,Z0n. compared with February 1916.
atoak transaatione an the ,Aew York Stock nedhange during the month of

S.

iederal Reserve Board.

3/16/17.

February, amounted to 13,668,769 shares, an increase of 1,588,6$3

over the same month last year.

were on a restricted Beale.

Transactions in bonds in February
There were few offerings of new

municipal issues and in corporation financing the only important offerings were 450,000,000. Bethlehem Steel Company 5% secured notes

due February lb, 1919, and 425,000,000. Southern Railway 5% secured

-gold notes maturing laareh 2, 1919.

The par value of bonds sold on

the 3tock latohange during the mouth amounted to 475,971,000., a de-

'areas° of akt,419,Oaa. over the same month last year.
Failures in New York State during February numbered 189

-

with liabilities of 13,301,400., a decrease from February 1916, of
71 in number and a251,400. in liabilities.
Building permits in New York Oity during February aggreGENERAL.




gated 410,852,177., an increase of 11,734,057. from Februara 1916.

Foreign trade at the Pert of New York in the four weeks
ended February 24th, summered with the corresponding period a year

earlier, abeam exports 4224,896,767., an inerease of 12,712,948.,
and imports 07,527,148., an increase of 4949,526.
:Postal receipts at New York last month were -;.2,697,455.,

a gain of 447,754. over the same month last year.
Sales of the F. W. Woolworth Company for February, were

45,643,719. compared with 45,347,262. in February 1916, a gain of
5.54%.

Trade between the United States and Latin-america for the
seven months' period ending with January, amounted to ?56, 403,000.,
a gain of 4191,441,000., or approximately 34% as compared with the

same period of the previous year.

Exports to these countries for

the seven months showed a gain of 47%, and imports a gain of 26%.




3/16/17.

tederal Reserve Board.

9.

Since my last report, the changes in statements of the Bank
of England, the Bank of trance and the Imperial Sank of Germany, are
as follows:

BANK

0 F'

gNGLAND

Date

Gold

Reserves

Deposits

1, 1917
Jan. 31, 1917

t 54,296,090
56664.712

£34,161,000
35,513,000

e215,838,000

Liar.

g 2,368,622
Decrease

Other

1, 1917

Jan. 31, 1917

Ratio of
Reserve

C117,383000
35 727 000
81,656,000

15.83%

16.63(
.80A

Increase
A.

Date
Mar'.

Decrease
0

F

4 11

Gold

1, 1917

Jan. 31, 1917

Silver

Gireulation

F5,148,681,450
5.131,163.150
F
17,716,300

F270,512,000
279.288.000

118,097,436,000
17 514,325.000
i 583,110,000

Increase

Deposits
Mar.

2,297,000
Increase

Decrease

Securities
Mar.

213,541,00U

t 1,352,000

1, 1917

Jan. 31, 1917

12,548,247,000
2,392,654,000
155,593,000

Increase

I 6,776,000
Decrease

Increase

Bills Discounted
and Advanees

?1,804,166,000
1.978,446,000
10
174,282,000
Decrease

1 LIP'BRIAL BARK OF GERMANY
Date

Gold

Feb. 23, 1917
Jan. 15, 1917

N2,526,081,000
2.522,260.100
M
3,821,000

Increase

Circulation
27,847,641,000
7,826,954,000
II
20,687,000

Increase

Reports on conditions in this district have been received
from bankers as follows;




10.

elederal Reserve Board.

3/16/17.

/RUH liERBURGE

There is no change of importance in business conditions in our

vity.

Our industries continue to be worked to capacity; our

merchants are having fine trade, some of them say better than last year,
and altogether things are not very different from what they were a

month ago or at this time last year.
,e sea frequent evidence of additional capital required because
of the high cost of materials and mercnandise both on the part of the
mannfacturer and merchant.

3ales that represent the normal volume of

business total one-third more in aotual results.
We find our business men disposed to be cautious about making

commitments for the futuao, although there is no evidence of uneasiness

on account of the international political situation.
nom BIHGRAMTON

...he only change that I find in conditiona from those reported

as of debruary 1st, is a slight tendency toward hesitation or halting in
business, which would be quite natural, as well as wise, under present
conditions.
!ROI: aUIR4

The situation in this vicinity continues with vary little
change,

However, there has boon one small strike which has failed of

its purpose.

:lost of the business men fool that whatever may be the

outcome of the international complications, there will be but little
lot-up in business.

There is a good demand for money,
FROM SYRAJUSE

Business conditions have not changed materially since last
month.

Ilanufacturers of agricultural implements report business




11.

3/16/17.

lederal Revery° eoard.

quiet; sales about as a year ago.

The embstrgo on the railroads

hampers then; in shipueete, while the hieh cost of labor and metertale does not give much encouragement for the coming year.

e!anufeaturers of automobiles and parts of same report
business very good.

The embargo on the railroads is easing up, and

they hope within a short time to make their shipments in regular order.
Building Trades:

Show an improvement, an increase of 34

ever the same reriod a year ago.
arming Industry:

the farmer.

Jonditions continue most prosperous for

Pr:ess ore abnormally high.

With the exception of hay

everything raised this last year will be cleaned up.

There will be

a surplus of hay carried over, owing to the large crop the past year.
It ie eetimated that thore will be a m eh larger production the coming
season and nuch more land cultivated.

It is stated that one-third of

the farming land of the State in at present idle and uncultivated.
Manufacturers of Hosiery and Underaear: Report an excellent

basiness.

Orders are now in for all they can rnnufacture until No-

vember.

Manufaeturers of Olothinge

sales larger than a year ago.

Business conditions are good;

The difficulty of getting raw material

may, hoeever, reduce future business.

Uercantile houses, both jobbers and retailers, report collections good. end a continual increase in sales over a year ago.
Shoe Manuraotnrers:

Retort business quiet, not much new

business coming in, owing to the feat that many of the buyers have
overbought, and are becoming more conservative.




12.

3/16.17.

Federal Reserve Board.

Steel Manufacturers; Report business as last month.

Owing

to the embargo on the railroads they have greater difficulty in getting
coal and raw materials'.
BOK CLEARINGS:

2ebruary, 1916
.

13,376,798.51
14,678,224.24

.Sbruary, 1917 - 2201.1 UTICA

Can see no material change in conditions in this vicinity
since my last letter to you, except some sleekening in the munition

factories.

The demand for money is about normal for this season of

the year, except that it of course takes more to supily the various
manufaotories than usual, because of the higher prices of raw mater-

ials,

.deposits in the various institutions continue to increase,

although I think as I reported before, that the savinLs of all

classes are not in proportion to the increased income.
'ROM WATSRTOWN

There is still an abundance of money here in Watertown,

and on the other hand our loans have not been as large in a number of

years as they are to-day.

The merchants are all having a rood trade,

and the manufacturers are all behind on their orders.
iiiOU JAIETOWN

The month of February this year in Astern New York will be
long remembered on account of the severity of the weather.

Three full

months of continuous sleighing this winter; many days -ellen thermometers

registered below zero.

cities end a number of villages in this region

use natural gas for fuel; during the coldest weather in iebruary the




-5

federal Reserve Board.

13.

3/16/17.

demand for gas exoeeded the suuply and to aggravate the situation sufficient Mal was not to be had even though the mayor of Jamestown com-

mandeered carloads of coal in transit.

There was much real suffering,

and economic loss also because industrial institutions were compelled
temporarily to close and decreased production ensued.

nank funds in this section of the state are well loaned at

legal rates, and with spring activity in near prospect there is no

likelihood af idle dollars.
Aanufacturers are optimistic.

They not only bad unprece-

dented prosperity in 1916 but are now working on orders that will keep
them busy for weeks.

jollections are reported easy.

?armors feel the high prices of grain even though their prod-

ucts sell at figures not known iace the Jivil War.

They will be handi-

capped for seed, oseecially potatoes, because last year's crops were short
and the prices were so tempting they were unable to withstand the pressure
to sell more than they ehould have done.

Then, too, thousands of bushels

of potatoes were frozen during the zero periods of february.
The outlook for building operations as soon as moderate weather
is assured, was never more promising and demands for labor will give work

to all available forces.
BUsiness conditions in Newark show little Change during the

past month except for sommehat greater difficulty in doing business, due

to suah thisgs as the railroad congestion, the demands of labor, the
high prices of raw material and the general business uncertainty as to

the future.

The statements received since the first of the year show

almost without exception very satisfactory profits for last year, and in
some eases extraordinarily heavy profits. There have been comparatively




3/16 117.

Yederal Reserve Board.

14.

few labor troubles In Newark but many increases of wages have taken

place without a (mutest.

In the building trades notice has been

served on the bosses that demands will be wade for a number of further

increases an the first of May.

Retail trade keeps good, as there is

no leak of employment at high wages.
?ROM PATER0014, Ns J.

Oenditions are about the same as they were a month ago,

savings banks and other banks having large lines of deposits.
however, seems to have lost its buoyance.

Trade,

noth manufacturers and con-

sumers complain of the high cost of everything and this, we think, has
.a

had somewhat of a reaction upon trade in general.
tROM NEW BRUN3WIA N. J.

Business aoroitione in ',New Brunswick and vicinity have main-

tained unusual activity for this time of the year.
All of our manufacturing industries are producing to the

limit of their capacity and under a little better labor conditions than
prevailed before the cold leather Walt pen operations in open air work.
They are, however, looking forward to the spring time with considerable

concern, believing that labor will be Shorter in this vicinity than it
was last year.
Building operations promise to be exceedingly aotive, not-

withstanding the high cost of construction.

The farmers in this vicinity report that last year they had
the lost profitable year in the memory of the present generation, and
they are looking forward to more intensive cultivation for the coming
year.

Bank deposits maintain their high average with, however, a

more satisfactory demand for money.




dederal Reserve Board.
"yto:t prmat=war.

15.

3/16/17.

3usinese conditions in Monmouth Jounty are probably more

satisfactory for this season of the year than usual.

Deposits in

all of our banks are far in excess of a year ago.
In the interior sections the farmers are somewhat handi-

capped by the high price they are required to pay for their seed po-

tatoes and the things necessary to the planting of crops; fortunately,
a good many purchased their seed last fall and saved considerable on

the cost.

In view of these high prices, it is doubtful if the

acreage for potatoes will be as great as in past seasons.
Respectfully,

chairman.

eili2/hA3

Staitifr,

.

or Ir. Strong.

March 21, 1917.
erl!

Dear Governor ;larding:

We have been discussing among ourselves in the bank to-day
the matter of the prospective 70-day loan Of the United States Govern-

ment, of which you advised us yesterday, and we all feel very glad of
your assurance that the System will have some official connection with
the

plaoins

of the loan.

,s to whether we should serve merely as the (vent of the governnent in disposing of the loan or should i.e. actual purchasers of it

with or without the Idea of possibly redistributing it, which you will
remember we discussed at lunch yesterday, we have looked at the matter
from vnrious angles and feel that it woul..J

ns zient rather than as purchaser.

We

would be about the sare in either case.

be preferable for us to act

think

the effect on the public

Th6 public would understand

that the Federal reserve banks were, very properly, assisting the gov,rnment.

But it is our feeling that the excellent efYect

bankers and thoughtful

produced on

ion generally by our recent investment policy

which, as you stated in your address last night, has brought our reserves up from 68

to 80, and has

ut us in a strong position to as-

sist our meLer banks when necessary, would be dispelled if the governfirst

ment, withouygoing to

the general money market, should draft us direct-

ly to its assistance by borrovAng a

round sum of money from us.

We

believe it would be a bettor and sounder policy for the government to
regard us not as a -,..-rimary but rather as a secondary source of borrowing,

to be availed of temporarily z,nd within reason when the outside market



3/21/17.

Honorable W. P. G. Harding,

4t2

To elaoe a laree loan with us at

is not so available as at present.

a time when market funds are so abundant would seem to jut the Reserve
system in the primary position of a bank of discount rather than in the

secondary position of a bank of rediscount, which we have always considered it was intended to be.

To secure the money

perhaes a shade cheaper from the Federal

Reserve System than in the open market Ooee not seem to us a compensating advantage for the unfavorable impression we believe would be created

by the government's direct use of our funds.

While the eecretary may

feel that weyhould lend at a low rate because we have government balances

without interest eoeeibly he will recognize, on the other hand, that we do
considerable eovernelent work without comeensatian.

But the views which we have formed are based, not on the rate,
but on the principle abeve outlined.
should be extremely
feel that we must

clad

ehile as officers of the bank we

of the added income the loan would bring, we

consider the subject from the broader

a sound relationship eetween the

point of view of

Treasury and the System.

From that

Point of view e are convinced that it would be wiser for us to act, eer-

haps without any compensation, as agents for the Overnment in placing
the loan rather than to beneme purchasers or even underwriters of it.

We believe that 2 1/2% would be a fai- rate for the loan. Possibly it might be taken at a fraction lower, but it should be remembered

that the extent of the market for money at ?el, the rate you thought the

Secretary had in mind, is Taite limited.
Very truly years,
. G. Harding,
Governor, Federal Reserve Beard
Iashinçton i. O.

Honorable

http://fraser.stlouisfed.org/ .74/RAII
Federal Reserve Bank of St. Louis

Chairman.

eeeer.Goee_eor strong:

lany thanks for

_erch 12th written

your letter of

from the Blackstone.

Form 1217

-,-OF

DESIRED

Receiver's No.

SERI/IC

Fast r-,

k.z.-ssay

v

Night

_-

Check

-

ions should mark
X Mesite the class of service desired:
OTHERWISE THE TELEGRAM
WILL BE TRANSMITTED AS A
FAST DAY MESSAGE.

Send the following telegram, subject to the terms
on back hereof, which are hereby agreed to

Time Filed

NEWCOMB CARLTON. PRESIDENT

Denver, Colorado, March 23, 1917.

W. P. G. Harding,
Federal eserve Board,
Washinoton, D. C.

II

I congratulate you heartily on your exprension of views in New York in
regard to position we should assumo toward Allies in financial matters.
Benjamin Strong.

Chg. Be0j. Strong,
4100 Montviow Blv.




Form 1217
VICE DESIRED
j Message

a.

VVESTE

Message

alit Letter
AmuId mark an X opposite the class of service desired;
OTHERWISE THE TELEGRAM
WILL BE TRANSMITTED AS A
FAST DAY MESSAGE.
PairL

h7

L\;4

1111
tr..,

UNION

WESTERN UNION

TEL

Send the following telegram, subject to the terms
on back hereof, which are hereby agreed to

Receiver's No.

Check

AM

Time Filed

NEWCOMB CARLTON, PRESIDENT

Denver, Colorado,
April 39 1917.

W.-).G. Harding,

Federal Reserve Board,
Washington, D. C.

It is becoming increasingly difficult for me to remain here with any
comfort in view of developments stop. Feel very strongly that it is each a
serious deprivation for me to be away at a time when 1 night be of some service
that even considerations of health would not influence me any way stop. Could
you telegraph ma just Ism you and your associates feel in regard to financial
plans in which I mijit be interested or of some service so that I can judge
of the wisdom of returning now.

Benjamin Strong.
Chg. Benj. Strong,
4100 Montview Blv.




ALL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TERh
To guard against mistakes or delays, the sender of a telegram should order it REPEATEp, that is, telegraphed back to the originating office for comparison.
his,
one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on ite face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR
in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyond th
count
received for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any RLPEATED telegram, beyond fifty times the sun. ..ceived
for sending the same, unless specially valued; nor in any ease for delays arising from unavoidable interruption in the working of its lines; nor for errors to cipher or obscure
telegrams.

In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, of Ole telegram, whether
caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value is stated in
writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-tenth of
one per cent. thereof,
The Company- is hereby made tho agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reach its
destination.
Telegrams will be delivered free within one-half mile of the Compel/Ps office in towns of 5,000 population or less, and within one mile of such office in other cities or
towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor to
contract for him for such delivery at a reasonable price.
I. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such office
by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegram is
filed with the Company for transmission.
Special terms governing the transmission of messages under the classes of
the foregoing terms.
No employee the Company is authorized to vary the foregoing.
of

messages enumerated below shall apply to messages in each of such respective classes in addition t,o all

THE WESTERN UN ION TELEGRAPH COMPANY
INCORPORATED

NEWCOMB CARLTON, PRESIDENT

CLASSES OF SERVICE
FAST DAY MESSAGES
A full-rate expedited service.
NIGHT MESSAGES
Accepted up to 2.00 A.M. at reduced rates to be sent during the night

and delivered not earlier than the morning of the ensuing business day.
DAY LETTERS

A deferred day service at rates lower than the standard day message rates as follows: One and one-half times the standard Night
Letter rate for the transmission of 50 words or less and one-fifth of
the initial rate for each additional 10 words or less.

SPECIAL TERMS APPLYING TO DAY LETTERS:

In further consideration of tie reduced rate for this special "Day
Letter" service, the following special terms in addition to those enumerated above are hereby agreed to:
Day Letters may be forwarded by the Telegraph Company as a
deferred service and the transmission and delivery of such Day Letters
is, in all respects, subordinate to the priority of transmission and
delivery of regular telegrams
Day Letters shall be written in plain English. Code kinguage
is not permissible.

c. This Day Letter may be delivered by the Telegraph Company
by telephoning the same to the addressee, and such delivery shall be a

complete discharge of the obligation of the Telegraph Company to
deliver.

This Day Letter is received subject to the express understanding and agreement that the Company does not undertake that a Day
D.




Letter shall be delivered on the day of its date absolutely and at all
events; but that the Company's obligation in this respect is subject
to the condition that there shall remain sufficient time for the transmission and delivery of such Day Letter on the day of its date during
regular office hours, subject to the priority of the transmission of regular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.

NIGHT LETTERS
Accepted up to 2.00 A.M. for delivery on the morning of the ensuing
business day, at rates still lower than standard night message rates, as
follows: The standard day rate for 10 words shall be charged for the transmission of 50 words or less, and one-fifth of such standard day rate for 10
words. shall be charged for each additional 10 words or less.
SPECIAL TERMS APPLYING TO NIGHT LETTERS:

In further consideration of the reduced rate for this special "Night
Letter" service, the following special terms in addition to thosc
enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Company
be mailed at destination to the addressees, and the Company shal
be deemed to have discharged its obligation in such cases with respee

to delivery by mailing such Night Letters at destination, postag
prepaid.

Night Letters shall be written in plain English. Code langtuu

is not permissible.
No employee of

the Company is authorized to vary the foregoing.

'411111

THE ASSOCIATION OF THE BAR
OF THE CITY OF NEW YORK

42 WEST 44T1' STREET

New York, April 19, 1917.
Dear Governor Harding:

We have just added up the various lists of subsoriptions to the 2-1/2% $200,000,000. loan and find that we have
slightly over $9.3,000,000 subscribed.

We have heard from all

but a few of the smaller banks in tsis city and Fshall probably
hear in the morning from some of our member banks in the other
cities of over 25,000 inhabitants with whom ,;:e have communicated.

It is probable that from banks and bankers we shall be able to
bring the amount up to 4100,000,000.

Included in this amount is

$5,000,000 subscribed by the United States Steel Corporation, and

it is possible that we may be able to get a few subscriptions tomorrow from other industrial concerns and from individuals of
large means.

Mr. Treman and I have called on most of the important

institutions personally and have communicated with the rest over
the telephone.

Without exception AC have found the attitude

of the bankers to be that the loan was not attractive on a business basis. They expressed themselves as desirous of cooperating
in every way with the Government in the present loan and in the

large financing plans which are coming, but they feel that bank


eon. W.P.G.Harding---2----4/19/17.

ing transactions with the Government should be at a fair market
rate, a rate which would make Government paper as attractive as
ether paper of the highest grade and not an unwelcome addition

to their portfolios. On the authority of your statement to me
this morning we athieed in each case that the rate had been fixed
by the Secretery. Their unanimous reply 448, "As a bueineee

propceition we do not care for any of this loan but ee agree with
you that under the circumetenoes it enould be taken end we will

aubscribt to whatever you tell us i our fair proportion." In
other words, the Federal reserve bank hab been put in the position of offering a piece of financing to its member banks and to
other institutions and houeee on terms which made it burdensome.

The impression created by the initial transaction of the larger
volume to °ow, later has been diatinctly and unanimously unfavorable. The subscriptions made by some of the banks already
well loaned up have somewhat extended them.

One of the large

institutions has already asked us to take over an equal amount

of their acceptances and another has spoken of tee probability
of borrowing on the notes at our fifteen day rate; namely, 3%.

At 2-1/2%, these certificates will be frozen loans in the portfolios of the banks, which they cannot dispose of or turn without
loss.



Hon. W. P. G. Harding---3---4/19/17.
At 3% the borrowing would have been very cordially

received and the subscriptions would have been both voluntary
and larger.

It is our conviction that Government short timc financing would be much facilitated by the development of an open

market for the certificates similar to that for bankers' acceptances, and they ehould be placed at rates which will enable

them to be dealt in in the open market without loes to the banks

making the initial subsoriptione.
I am writing yoU thee frankly concerning the day's

eork becauee I feel it my duty to tell you exactly the situation
and because I am convinced that today's work has been very

detrimental to future treasury financing.

I recognize that this

was a madden and perhaps uuexpected piece of boeroeinG, and to

bankers as well as oureelvez have felt that the Secretaryte requirements in this firet and perhaps emergency call should be
met if possible. But I should be negligent if I did not report
to you that unless money conditions should become much more

favorable, Ahich seems unlikely in the near future, our work of

today could not be repeated; and if I did not exprese to you the
conviction of all our officers that it is of the utmost importance thet a comprehensive plan for the management of short time
Government financing should be developed in oonjunction with



Hon. W. P. G. Fhirding---4---4/19/17.

those who will b:3 responsible for carrying It out in the important centres.
Very truly yours,
ev
,4-

CHAIRMAN.

Honorable W. P. G. Harding,
overnor, Federal Reserve Poard,
Washington, D. C.







May 1, 1917.

Dear Governor Harding:

Your kind note of April 27th was awaiting mw
arrival when I reached the bnnir yesterday and was indeed a most welcome greeting.

Possibly I will see you before this acknowledgment reaches you, as I am expecting to take tonight's train to Washington; but I do want to write at
once and tell you what has been much in my mind for the

past year; that is, the extent of my appreciation of the
consideration which you and your associates have shown
me during my illness.
'

You do not need my assurance that every possible

service that I can perform to facilitate your work during
these difficult times, will be always at your command and
most cheerfully so.

With warmest regards, believe me
Sincerely yours,

Honorable W. P. G. Harding,
Federal Reserve Board,
ashington, D. C.

BS/HAB




12

ear Governor

1917.

Harding:

Further referring to the savings bank !:atter

on which subject

have your letter of May 11th, I believe an amendment to the Federal
eserve Act should

e considered which would permit savings banks and

Associations of that character not to become mebbers of the system to
he complete extent now provided by law, but to

1p

take

a special member-

which will permit us to carry their cash reserves to some extent

nd which will permit us to protect them, if necessary, in the matter of
furnishing currency.

Therc

may be considerable uneasiness

developing

among these institutions and, possibly, their depositors, as the volume

Of Govrnment loans increases.
The president of the

largest savings bank in New York told me

t night that he thought it was indispensable,

for

their protection

lug the period of the war, that they be permitted to become members

0 the Federal Resrve System.

This is the third statement of that

haracter that has been made to me by men of importance in New York and
believe the matter should receive carPful consideration.
Very truly yours,

Governor.

onwrnble W. P. G. Harding,

Governor, Federal Reserve Board,
ashington, D. G.

ted by Mr. Strong
t signed In his absence.

June 19th, 1917.
P7RSONAL-CONFIDE1TIAL.

Dear Governor Harding:

The enclosed letters explain themselves.
Won't you be good enough to return them to me after
readigg and, if you please, show them to no one. I

thought you would be interested in this little epio
sode.

My heartiest congratulations upon the outcome of the struggle over the Federal Reserve Act

,

11111111111




-

,

amendments.

It has lifted an immense load from my

mind and 1 feel sure now that we can be ready for any-

thing.
I am writing you separately about gold car-

tificatee.
Very truly yours,

Honorable W. P. G. Harding,
Governor, Federal Reserve Board,
Vtashington, D. G.
BS/VCM

Ene e.

ABOL

CLASS OF SERVICE SYMBOL
Day Message

Blue

Day Lette.

Blue

Nile

ssage

Night Message

Nite

Night Letter

NL

NL
of these three symbols
:er the check number of
...etter

If none of

three symbols
appears after the check number of

As is a day message. Othet.s character is indicated by the

.:DOI appearing after the check.

these

words )this is aday message. Otherwise its character Is Indicated by the

NEWCOM B CARLTON. PRESIDENT

GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT

symbol appearing after the check.

/

.1rIVED AT

1161

.:17 AUG 7

9.17

MC WASHINGTON DC 1205P 7

-

HARDING

-

1881

FEDERAL RESERVE BANK NEWYORK

:;ANT CLEMENTS AVIATION CORPS OFPERS THIRTY SIX HUNDRED SIXTY
XII HOUSE ETEVEN MONTHS OCTOBER FIRST ONE CHILD FIFTELL MONTHS.

,3SID17 WIRE DEt-iISION TODAY
IPPO




STORY AND COBB.

PiA

03




August 8th, 1917.

Dear Governor Harding:

The enclosed letter was opened through error by
my secretary who assumed that it was for me.

The contents

have not teen read and I greatly regret the mistake.
Very truly yours,

Governor.

Honorable W. P. G. Harding,
Governor, Federal Reserve Bonrd,
Washington, D. C.
VCAT

PERSONAL

PRAM Da%
110 2.9 NV
I

Row km

August 24th, 1917.

Dear Governor Harding:

4111Mar.




This letter is quite personal, and once more I must explain that I am going entirely out of my province in writing on

this subject.
You have been informed of Mr. Jay's illness.

I think

sometimes he gets a bit discouraged about his progrese in the bank.
In all of my experience I have never been asseciated with a man who

sacrifices and subordinates himself so completely as he does. Thera

is not a grain of selfishness in his disposition.

This impresses

e personally very much because I feel that, unfortunately, credit
is given to me for much of the mork in the bank during the past three

years, to which he is really entitled. His ability and intellectual
attaimnerts are of Such a high order that I am frank to say that without his partnership and friendship the task would at times have been
almost impossible.

The object of this letter is to urge most strongly that the
Reserve Board consider a substantial revision of his salary. I did
not myself raise this question with the directors at their meeting on
Wednesday, but they brought it up voluntarily and asked me if I could
not find some ray of impressing the Reserve Board with the imnortance

of doing sonething about it.

Possibly you were not informed of the

tact that during the past year, while r was away, he had an opportunity




-111111111
To

Governor Harding.

to accept a position at a considerably higher salary
both because of

his

his

8/24/17.

and declined it

interest and loyalty to the .work of the bank and

unwillingness to leave during my absence.
Yrs. Jay is on her way to join him in New 5exiso and I fear

4

his

illnese is someWhat more serious than our advices indicate.
This letter is not intended to express any official atti-

tude or action by the bank, but the personal views of the writer which

are

endorsed by

all

of his associates.
Cordially yours,

Honorable W. P. G. Harding,
Care Federal Reserve Board,

Washington, D. C.
BS/RAH

Dictated by Mr. Strong but
signed in his absence.

November 7, 1917.

Sirs:
At a meeting of the board of directors of the bank held to-day
the chairman stated that the officers of the bank had been advised by cer-

tain bankers in New York of the proposed financing of large corporations
for approximately two years by means of ninety-day notes with the necessary number of renewals, and added that there are evidences in this and
other Federal reserve districts that the proposed method of financing will

be undertaken in very lar7e amounts and for many companies.. After a thorough discussion, th- directors viewedthe matter with considerable apprehension and referred the subject of financing of this character to the executive committee for immediate consideration, and directed that the matter be
brought to the attention of the Federal Reserve Board ia an appropriate
manner.

At a meeting of the executive committee of the bank held later in
the day I was directed to forward to you the views of the committee in this
re;'ard substantially as follows;




"This 'committee recognizes that the industrial
and commercial needs of the country are creating a problem
with respect to the financing of many large corporations,
eppecially those doing war work for the Government, which
requires prompt solution.
The plan for financing large
corporations for approximatuly two years by means of ninetyday notes, with the necessary number of renewals, in such
manner as to be eligible in form for rediscount at Federal
reserve banks, alread being undertaken in certain instances,
is being put forward as a partial solution of the problem.

"Financing of the character suggested would obviously be violative of the fundamental principles of the
Federal Reserve Act, and, conseouently, in normal times
should not be permitted.
However, this committee conceives
that the proposed plan may possibly be justified by e:Asting
war conditions;
but if so, the committee is clearly of -tie

2

Feden.,1 Reserve Board.

11/7/17.

opinion that such operations should be
permitted only
as an essential Tart of a comprehensive Ilan
for the
financing of the 7ommerce and industry of the
country
during the War, which plan itself should be
determined
upon and placed in operation at the earliest possible
moment."
Respectfully,

Secretary.

Federal Reserve Board,
JashingPon, D. C.
OTC/ RAH




CONFIDMITIAL

Unrch 3), 1918.
Dear Governor Harding:

I wish to confirm my telephone conversation with you yesterday

afternoon in which I advised you that we were on the point of taking some

conclusive steps towards acquiring property for a bank site for which we
had been negotiating, and ask you if you would be so good as to ascertain

whether there .:as any likelihood that we should be able in the near future

to obtain the Snn-treaauny site, the unoccupied site of the Assay office,
and the Assay Office itself.

The ground now occupied by these buildings,

if supplemented. by a small building on Fine Street, isuld give a plot roughly

150 x 180 feat, which would seem to be a feasible plot for us to use, and
we should appreciate your advising vim as to whether there is any likelihood

of our being able to Ontain this site from the Government in the near future.
If so, we might wish to consider abandoning our present efforts to secure

the other site; but if not, it is our feeling that we should proceed with
our present negotiations.

Trusting that' you will let us have your views on this point as
soon as convenient, I am,

Very truly yours,

Chairman.

Honorable V!. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.
VRAH




February 28, 1918.
Dear Mr. Harding:

The telegram from your Board, suggesting an increase in rate:by

tOe Fed-

eral Reserve Bank of New York, was received too late to submit to our directors at
their meeting held last week, but has been considered at a meeting of our executive
committee held since then, and was yesterday submitted tor discussion tut our board
at its regular meeting.

After full discussion our directors have decided that it would be unwise
to make any change in the rate at the present time and are of

the

opinion that when

any change is made all of our rates should be reviewed and brought into ccnformity
and that this should be done in concert with the other Federal reserve banks, so
that 4 uniform policy may be established in general harmonc, with the financial pol-

icy of the Treasury Department.
Our present rates are:
4 1/2% for the discount of ninety-day paper;

for the discount of ninety-day notes secured by Liberty Loan
bonds;

0 for the purchase of indorsed member banks' bills of first grade,
which is shaded 1/8 in the case of very short maturities;

3 1/4 for fifteen-day .collateral loans which with the addition
of the stamp tax, makes the cost to the borrower about 4;
and as a substitute for the fifteen,dp..y transactions we are pursuing the policy of

purchasing United States Treasury certificates of indebtedness under contract

re-

sale at the rate which the certificates bear.
In order that the action of our board may be understood, I beg to submit

herewith the general statement which I have made to the board on the subject of our
rates, which no doubt led,to the board's taking the action above




re,jorted.

Honorable W. D. G. Harding

Our policy

2/26/18.

should be considered with regard to the banks in this city

as repreeenting one situation and the banks in the district, outside of New York
City, where the situation is somewhat different.

As to New York City member banks, reports received this week disclose

111111

that sixty-five of the largest banks and trust companies, out of one hundred and
thirty-seven institutions in the greater city of New York, hold a total of
0752,500,000 of Treasury certificates of indebtedness in addition to those which
they have

already

distributed to customers, and the total of all the banks in the

city doubtless exceed34800,000,000.

This naturally presents a situation somewhat

different than any prevailing in other financial centers, such as Chicago where, I
understand, the banks hold but 440,000,000 of these certificates.

made by the

Government since our entrance into

61 per cent., excepting the last one

Of all the issues

the war, this district has purchased

sold, of which

theypurchased nearly 50

The present offering allots ,494,000,000 to this district.

per

cent.

' The program calls for

four more issues within the next eight or nine weeks, and if the 2 per cent. distrib-

ution

suggested by Secretary Madoo is maintained on future issues, the banks in this

city will be called upon to take about 4140,000,000 additional every two weeks hereafter, making in fact a further commitment by the baliks in this city aggregating
about 4750,000,000.
Subscriptions to the pending issues not total 4175,000,000 by 679 subscribers.
Naturally, with the rate now -established at 4

1/4,,

the present *. certificates can be sold without loss

it may be assumed that none of

by the

New York City banks, and

although a considerable portion of the new issues can be distributed to customers,

nevertheless those which they now hold, bearing 4% interest, must be

employed to

some extent, and possibly to a large extent, for credit at the Reserve bank.

About two weeks ago the surplus reserve of the clearing house banks was
only 429,000,000 and last week it was 456,000,000.

serve held by

This is the lowest surplus re-

the banks of the city since, I believe, last September.

To ,urchase

AUft certificates of indebtedness aggregating 4750,000,000 will necessitate large



Honorable W. g,

3

borrowings at the Reserve bank as rapidly as the
from these borrowings,

time an issue

. Harding

2/28/18.

Government deposits, resulting

are withdrawn and disbursed.

In addition

to that every

of certificates is made, the interior banks withdraw money from

New York in order to pay for their subscriptions, thereby increasing the burden

of the New York City banks. When the last sale was made, .3252,000,000 was withdrawn in four days.
To meet this situation an arrangeeent has
seven banks

and

trust

companies of

been effected by which sixty-

the city act in concert

through the

direction

of a committee, of which I am chairman, and these banks in the past six

months have

or seven

placed at our disposal from 050,000,000 to 4400,000,000, which has

been used to
transactions.

effect the readjustment of loans

resulting from these Government

We are now in course of concluding a similar arrangement with the

same banks for a

credit of about 4200,000,000.

Therefore, the banks of this city

are in fact facing demands, which will almost certainly be made

the next Liberty Loan, aggregating not far

from

upon trim prior to

one billion dollars.

tions have resulted in a quite general curtailment of credit in other

These opera-

directions,

banks withdrawing loans and reducing purchases of commercial paper, and particularly reducing loans which are ineligible,
ernment

with money as required.

terest level so that to-day

order that they may furnish

-.;he

Gov_

This operation has a tendency to increase the in-

collateral loans

and commerial paper are pretty gener-

ally on a EIL: basis.

I think it is safe to conclude from the above statement that an increase
in our rates will mean a general increase in interest rates and may result in a
situation making
at 4 1/2%.

it increasingly difficult for

In fact,

in mu opinion

the Government to borrow money even

the increase made last December was one of the

contributing causes - and possibly an important one - to
ent increase in the Government rate to 4 1/2,




I have discussed the New

the necessityfor

the pres-

.

York position at great

length with members of

4.

HOnorable W. P. G. Harding

2/26/18.

Of the subcommittee of the Liberty Loan Committee, who have raneged the money

transactions above referred to, and they are unanimous in their views that an
increase in our rate will have serious consequences to the Goverement's borrow-

Unforturatele, it was necessary practically to require the New
York banks to take a total o. 241eare0,000 of the last issue of 4. certificates.
Lag program.

L day or two following peymeet fo:these certificates, announcement was mule that

hereafter they would bear 4 Oa' interest. While I had exolained to the Liberty
Loan committee that this was likely to occur and gave reasons which were convincing

and satisfactory to them, it was ieposaible to make the situation clear to all of
the New York banks, and a eroat many of them feel thatothew have taken a large

share of the certificates, which should have been taken in other parts of the coun-

tey,at the lower rate. They were now, in fact, "hung up" with these certificates
and the banks of the country which had held back are in a position to get 4 02',
on the bulk of their loans to the Government. Under these circumstauces an in-.

crease in our fifteen-day rate to 4, making the coat to the borrowing bank 4 lig:,
and a corresponding increase in our purchase rate to 4 05, would have the effect
Of penalizing the New York city beret's by 112 of 1% on all of their borrowings on

the outstanding certificates. Their recoeuendation, in fact, has been very strongly that ow rate should be 3 liZe to the member banks for these transactions, and
they stated very positively that there is no tendency oboorvable on the part of

the banks in this eistriet to abuse the facilities of the Federal Reserve Bank
sipple, for the purpose of making money on the differential.

In general, I

think this is true,
th resume the situation in New York City is such that an increase in
Our rates, which would make borrowings at the Reserve.Baak on Goverreamt certifi-

oaten of indebtedness cost 4 1/2e, mule create an exceedingly unfavorable sentiment, would interfere with the Goverment's program, and might involve an increase

in its rate to



as to the situation outside oe New York City, the rate

now

charged

J

Honorable

G. Harding

2/28/18

for advances upon certificates of indebtedness has not been as important a Laotor because the certificates have not been so largely purchased outside of the
city and because a fifteen-day loan is for too short a period for ma;41y country

banks to avail themielves of.

We now have an

organization

created under a plan which has been put

into operation for effecting a wide oistribution of certificates throughout the

district and for
member

banke.

conducting certain

This

;akin

othar4operations with both member and non-

is succeeding beyond our expectations and is resulting

in very large subscriptions compared with these fonmerly made by country banks.

These banks are not in position

curtailing loans

to readjust their affairs by

in other directions as rapidly as are the banes of New York City;

they have

not the benefit of the operations of the money arrangement above referred to;
they are very largely loaned to their legal limit, and with the slower process

of readjustment it is inevitable that they must resort to the Reserve ban:s
for accommodation if they are to subscribe for the pro_)ortion of certificates

now being allotted

te

then.

I am told by Mr. Gregory, President of the Central

Bank of Rochester, who has been in Charge of this orgaaization,that if we should
increase our rate it would make it Absolutely impossible for

him to carry out

the program laid out for this organization, and he would feel obliged to resign
the underteking.

It must be borne

tificates of indebtedness

in mind

that payment by credit for these cer-

by country banks cannot be employed with any profit to

the country banks as in the case of the city bank.

Their loans are not as liquid,

and they cannot readjust their reserve when the Government withdraws the deposit

as rapidly as the city banks, and their only

recourse is to borrow from the Re-

serve Bank.

When the Federal Reserve

ber, it led to

Bank of New York increased its rate last Decem-

a feeling of uncertainty and distrust

throughout -the district

because many commitments had been made for loans on Government bonds at

and the



member

banks beca le uncertain

at once as to whether our rate policy

Honorable

'a.

P. G. Harding

2/28/18.

might not forte them into 4 position where their loans on Government securities
would cause them a direct loss in addition to the reduced return on such loan
below the rate at which they would othnrwise employ their funds.

To summarize the situation as to rates, Pthink we must recognize that
to place the 4750,000,000 of certificates of

indebtedness in this district in ad-

dition to those now held, will necessitate borrowings by the banks in order
np reserves as the Government deposits are withdrawn to

or 4150,000,000. Beyond this they would

to set

a total of 400,000,000

undoubtedly find it necessary' to borrow

from us to make good reserve in vault as a result of withdrawals from the interior, and I would not be surprised to see our loansaccount increase from 4200,000,000
to 4250,000,000 within the next two months.

that an

increase in our

And I cannot help believe in general

rates, at a time when this 'expansion is really Imposed upon

the banks, is an unwise policy;

that it will not only cause dissatisfaction, but

necessitate an increase in the Government rates, and will cause a genera/ increase
in all rates, which will embarrass the Government in placing its short loans and
selling its long bonds.

We are lacing an important readjustment of credit involving curtailment
of unnecessary loans in order that the Government borrowings may be effected without unnecessary expansion of bank loans -and deposits.

The necessary eregram for

Government borrowings from banks in the interval between its bond sales, must, of

course, bring about an expension of bank loans and deposits for a huge amount.
The expansion can only be reduced, as we view it, by three methods:




One is to educate the banks as to what loans they should curtail.

Our organization above referred to has been instructed on this
point, and its influence, I think, will gradually be felt, but
large results cannot be expected until some months have elapsed.
The second method which -later become necessary, Might be by
a direct control of banK credits. If that does become necessary, we have an organization already established which could
be used no doubt with success.

we would, of course, expect to employ
in time of peace - mould be a general increase in the interest rate.

The third method - which

2/28/18.

Honorable W. P. G. Harding
7

4111111

cannot believe that it is wise to employ this third method and ignore

the consequences.

There would be no reasonable limits to the level of rates which

might result from the policy of successively increasing the rate of the Reserve
banks, then the rate paid by the Government, 'and so on indefinitely, until money

conditions became intolerable.

It is the feeling of our board that the establishment of a uniform
nsistent policy as to rates in the ,interval between sales of Crovernzent bonds and

for a similar uniform policy for loans upon Government long-tine bonds at the time
of sale,

i6 imperative in the Government's interest, and that the

decision as to

the rate policy of the Federal Reserve Bank of New York is of more importance to.

the Government than that of any other reserve bank.
Ay object in writing this long deseriptionof the position in this district, is to ask- that the board

may consider the desirability of expressions of

views from this district before any definite policy is adopted and that we may
have an opportunity to discus the whole subject with the board and with representatives of the Treasury Department before

any change is undertaken, either in this

or other districts.
Respectfully,

Governor.

Honorable W. P. G. Harding,

vernor, Federal Reserve Board,
ington, D. C.

;lea.

(SPEC /AL DELIVERY)






BIZARY
APR

7 1919

BANK
FEDERAL RESERVE

P

4,

xlpt,

",
,.,

70, ,
,,,9

Washington,

March 26,1919.

-.."-'-=Z !.? rr

--...,.:Ay.,..

Dear Governer Harding:

The stenogrlphio report of the proceedings at t e
Gcvernors cenfsrenle is about completed and at your
cenynnience I would be glad of an opportunity to discus
Two topics en the program were reflrred
it with you.
to ra5 for special verbal report to you.
The other point not included in the program was
briefly dtscused at the meeting and Governor McIhugal
new asks me to make a special report u on that subject.

It relates to the present form of statements of Federal

other
Reserve Bans whilh are now dicounting paper
It was the feeling of those who
discussed the matter that it would be detireble to have
the fact co" such redif-:cennt plainly shown in the statents
of the individual res.rve banks and indicated in SOB form
in -the c-nselidated st tement.

Federal Reserve Badxs.

Very truly yours,

Hen. w.P.G. Harding, Governor,
Federal Reosrve-Bca-d.

Novenber 22, 1918.

PleltiONAL:

Dear Governor Harling:

I have just finished reading your circular letter of November
19th, X-1274, in regard to conservation of credit.

Of course this is a

matter which has had very constant and urgent attention in this district
on account of the enormous size of the transactions oonducted here and

the necessity for what would appear in ordinary times to be excessive and
unusual borrowings by certain of the member banks.

,n are, as you realize,

confronted with the necessity on the one hand of urging, in fact almost
requiring, member banks to subscribe to the Government oertificates of indebtedness with full knowledge that, in order to take them, they must borrow
to some extent, and, at the same time, carrying out a policy whiesh we have

right along, of urging th4 conservation of redit,

Te are running the risk

of appearing to take an ineoneletent and conflicting position with regard to

their transactions at the reserve bank:
I am glad, however, to find that the 3oard, by the terms of this
letter, does not consider it necessary to exerciee restraint so much upon
the amount of member banks' borrowings as to exert an influence upon the

character of the loans which they make.

The distinction is an important

one because if we approach the banks to restrict their borrowings from the

reserve banks, we are, necessarily, causing some timidity in dealing with
the Government's financial program.

The particular point in your letter which impresses me as con-

taining possibilities of difficulty is in regard to direct or indirect ace



11/22/18.

'Governor Harding

2

dation to nonmember banks.

Your letter definitely states that non-

member banks should not be permitted to use a member bank as a medium

or agency for the purpose of procuring accommodations

from Federal re-

serve banks unless the facts are submitted to the Reserve Board and
!Jost of the nonmember banks of the country

approved.

carry accounts with

member banks in New York City and at seasons of the year are borrowers from
In fact, in the case of some of our largest member banks, this is

them.

a

very important, and, possibly, the largest department of their business,
and where these Lew York

city

member banks borrow from us at the same time

that they are lending to their nonmember correspondents, We are indirectly
extending accommodation to nonmember banks and I really see no way to avoid
it.

Technically, a. strict uompliance with this paragraph of your letter

would involve our requiring every member bnrik which borrows from us disclosing
by a ,statement on

bits

banks or not, and if

applications whethex

it is

to our member bank exoept

it

lending to nonmember

is

lending to nonmember banks, denying accommodation

the eircumstanees were submitted to the Federal Re-

serve Board.

From time to time paper may be offared to us for discount which has
reached New York benMs as the result of discounts for their nonmember cerrespondents.

This can only be disclosed by indorsements, and even though we

discriminated against paper indorsed by nenmember banks, the object of the

Board's suggestion would not be acoomplieued as it would simply result in the
member banks' submitting paper which did not bear such indorsements.

Frankly I see no way out of this difficulty.

It might be held that

a nonmember bank in some cases effected a specific arrangement for employing
a member bank as an intermediary for discounts with the Federal reserve bank.
It would make little difference whether that transaction was brought about

by the direct discount of paper belonging to the nonmember bank and indorsed
by the member bank, or whether it was



brought about

indirectly by the Us-

AL

Governor Harding

11/22/18.

3

Count of the nonmember bank's paper with the member bank and the latter again
ft

discounting its paper with us, so long as our member bank gets the indorsement

of its correspondent and we, in turn, get the indorsement of our member bank.

It makes no difference whether it is on one or another piece of paper, the

effect is identical and the legal responsibilities are the same.
yit has always seemed to me that the danger of abuse of the facilities
of the eederal reserve banks lies in deliberate, persistent, and intentional
discounting by member banks for the purpose of making a profit between the

rate at which they lend money and the rate at which they borrow from us.)Re-

straint upon those transactions under present conditions is, and will be, very
difficult so long as the Government is a huge borrower on short parer.

borrowing bank will always select the paper whieh

The

it can discount at the

lowest rate, and one can not well identify the proceeds and so restrict its
use in

the

hen:is of

the member banks as to insure that it is not simply

a profiteering transactione

'hen the Government retires from

the money market,

I apprehend that our "rates can be employed to deal with that situation effectively, but just now we seem to be between the upper and the nether mill stones, and

will probably continue there for

some months longer.

May it not be possible, either formally or informally, to somewhat
modify the requirements contained in the paragraph of your letter to which.

I refer.
Very truly yours,

Honorable W, P. G. Harding,
Governor, tederai Reserve Board,
Washington, e. ee

B3/11ZB




wember 25,_1918.

Dear Governor Harding:

am_grateful to you for your letter of November 23rd

in regard to bank expansion. My difficulties I think you fully

realize and your assistance in meeting them is greatly appreciated.
Very truly yours,

Governor.

Honorable W. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.

B3/11313







LI IrSkit, F,S
AP R 7 7

:,.(:;19

FEDERAL RESERVE BANK

riashington, March 31,1919.

D
Dr Governor Harding:
Heplyg.ng to your

noof

'1/
this date I am exrecting

to be in New 'fork for our Directors meeting on Wednesday

of this we when the Board will take action in regard
to the arrangement with Mr. Trowbridge.

?curs very truly,

Hon. W.P.O.Harding, Governor,
Fads -al Reeem? Board.

THE SECRETARY OF THE TREASURY
WASHINGTON

COPY

November

5, 1919.

X-1718 a

Dear Governor Harding:
I hope that the Federal Reserve Board will not allow the Governors of

the Federal Reserve Banks to rely wholly or too heavily, for the prevention

of

the abuse

of the facilities of the Federal Reserve Sy4em, upon the

in rates nuw establishea with

the

approval

increase

of the Buara, myself included.

The experience of all Europeon countries (and Japan), including those

countries which have been neutral in the war and those which have maintained
a high central bank rate, supports the view that discount rates will nut
'suffice in these extraordinary times.
The Reserve Banks
commercial rate and no

rates should, of course, scientifically be above the
below it. That canaot happen until the independent

resources of the banks suffice for the normal requirements of their customers for commercial, industrial and Government purposes. Banks cannot be

expected to meet those requirements habitually at a loss. Their dependence
upon the Federal Reserve System snould be seasonal or occasional and not
habitual. Until that condition comes,

out as a result of tne production and

saving of wealth the tendency will be, as Reserve Bank rates are increasea,

for the rates to the Government and rates to the commercial burrower to be
increased in turn, The world has been for five years consuming or destroying
more than it nas produced. My own belief has been and is that with the curtail-,

ment of export demand consequent upon the curtailment of foreign credits and
with industrial proauction proceeding full steam ahead we shoula soon have
reached an equilibrium in this country at least. In the meantime, however,, the



-2-

.4-1718 a

abor situation has become so acute as gravely to threaten production and the
lpeculative mania has developed co such an extent as gravely to threaten our
credit structure.

The conditions under which changes in the Reserve Banks

rates

of

discount

would operate effectively do not exist here today. An increase in the discount
rate will not result in the importation, nor curtail the exportation, of gold
to any material amount. It will not result in a curtailment of the importation
of goods nor in increasing our exports materially. In the present position
of the international balances and of the foreign exchanges and because of gola
embargoes the Federal Reserve Bank rates cannot function internationally, and

.

will operate solely upon the domestic situation. In that condition an important
further increase in Federal Reserve Bank rates might have the effect of penalizing and discouraging the borrower for commercial aid- industrial purposes,

thus curtailing production aad distribution and increasing the shortage of
goods,and consequently the price of them, and thus:, in turn, stimulating
Speculation..

( An increase in rates (Der cent, per annum) falls very lightly

upon the borrower for speculative purposes, who figures a very large profit
on the turnover in a day, a week, a month or some other short period.). It
might have also a very grave effect upon the Government's finances.
In consequence of the war the Government has issued some $25,000,000,000
of interest bearing securities which are of prime eligibility. Before the wax)

when the Government's debt was only $1,000,0L0,000 and that all stored away
in strong boxes, the possession of eligible paper was very strung presumptive
evidence of the right of a member basik.z, to borrow. Na,waad for the life of this

great war debt the possession of eligible per will be no evidence at all.

Thereforeb believe it to be of prime importance that the Federal Reserve
Board should insist upon and that the Governors of the banks should exercise
a firm discrimination in making loans to prevent abuse of the facilities of the



-3-

17 13 a

Federal Reserve System in support of the reckless speculation in stocks, land,

0

cotton, clothing, fooastuffs and commodities generally.

We cannot trust to the copybook texts. Making credit more expensive will
not suffice. There is no precedent in history for the great war which we have

been through nor for the conditions now existing. The Reserve Bank Governor
must raise his mina above the language of the textbooks and face the situation
which exists. He must have courage to act promptly and with confluence in his

own integrity to prevent abuse of the facilities of the Feaeral Reserve System
by the customers of the Federal Reserve Banks, however powerful or
influential]Speculation
in stoci:s on the New York Stock Exchange is no more viciou8--

in its effect upon the welfare of the -oeople and upon our creait structure
Caen speculation in cotton or in land or in coMthodities generally. But the

New York Stock Exchange is the greatest single organized user of credit for
speculative purposes. It is the organized instrument of a countrywide speculation.

I believe that the practice of financing speculative transactions in stocks

by loans on call, with daily settlements, is unsound ma dangerous to the general
welfare. Call money loaned, to carry speculative transactions in stocks is only

liquid when there is no need. The paper is not cclf-liquiaating ma, in the case
of an emergency, as, fer example, upon the outbreak of the European war, and
throughout the period of our participation in the war, such loans are in the

mass uncollectible. The use of Liberty Bonds, Victory Notes and Treasury
Certificates as collateral for borrowings made by member banks from tne Feaeral
Reserve Banks for the

purpose of carrying speculative transactions in stocks

makes it the right as well as the duty of the Feaeral Reserve authorities to see
to it that the methods of financing such transactions are reformed aria ref ormea
immediately.

Open and notorious manipulation of stocks has been taXing place auring
the period of, say, nine months, since the removal of the control of the
Sub-committee



on Money of the Liberty Loan Committee. This manipulation, which

Z.

X-1718

-4-

a.

takes the form of putting up the price first of one stock and then of another,
no matter what may be the conditions,,for the purpose of stimulating interest
on the part of the uninitiated public, is,

I imagine, contrary to the law Of

the State of New York and the rules of the New Yon, StocE. Exchange. In any

event,

it neeas only vigorous action to put an end to it.[The Federal Reserve Bank
of New York in its relation to the Subconaldttea on Marley of the Liberty Loan

Coludttee, Ainich Committee was at all times in touch with the officers of the

Stock Exchange, naturally sought the views of the Treasury by reason of the
fact that its prime

duty

concerned the sale of Liberty Bonds.

4

control now

put into effect will be priMariay for the conservation of the general credit
situation and should therefore be initiated and supervised, not by the Treasury,
but by the Federal Reserve Board.
'I need not say that such steps should be taken not only firmly but with
discretion and in such a way as not to involve grave hardship to individuals

or injury to the general welfare.]
I have written this letter believing that you and the other members of
the Board are in general accord with the principles aaa views expressed in it
and that

it might

be of some assistance to you in dealing with the problem

with the Governors of the Banks to have this written expression of the views
of one of the members of the Board whose other official duties prevent his
frequent attendance at your meetings.
I need scarcely aid that this letter is written in no spirit of criticism.
The Governors of the Federal Reserve Banks have served their country with de-

votion, courage and wisdom during the trying period that is past. It would be
difficult for me. to give adequate praise to the patriotic spirit of self-sacrific..

which has actuated them ot adequate appreciation to the skill and sagacity with
(

which they have performed their duties.

During

ft. att.,--wKers)

the war they have naturally turned

for leadership to tne Treasury since its operations were the dominating factor



L

X- 17 18 a

)-

in the financial situation. It would, however, be a great misfortune if, now
that the Treasury operations are on a diminishing scale, the Governors of the

Federal Reserve Banks are allowed to feel that the problems of the future

were for them to solve each according to his on best judgment.

The need of

leadership is no less great, the need of examining the situation from a broad
national

aria international point of view is no less imiJerative. I look to

see the Federal Reserve Board, not critically nor aggressively out patiently
and persistently, provide

this

leadersnip.

Very truly yours,

CARTER GLASS.

Hon. W.F.G. Harding,
Governor, Federal Reserve Board.







November e, 1411_9.

De-r Governor HardinL:

1 am in recei,t of your taiecrs,,m of the 6th in tHr,t in

to the t.clicy of the banks in thb diLtrict In r j jthe
intero,U crgod for loan:, ilf011 Government securitiez.

I :houid

j tt the rates h','re are fair to tn

recent qu

tionnuire dic1o. l thA,

ossibly it

o made

torroxere.,

66-

ni it :.ny ohtioiem should

r0 chHd 'in view of

thut too low,

money conjitions. in cerLia ei,olui

One diffieuity in thi,. diAriot iies in the fuet that loune
ilon Government bond? aro now fqr frcir talk: confin_d to or.idnal
scr1Lare.
ton

The banks entered into an obligation a yc,,.r.

of the Fourth loon for

of the Victor,- io

for ,d), month.

to Garry
'L. curry Londe

month

Thaee undertik,s no

1.1ving been

'?!0 4ou1d to Ooin

hri r:ther

oomiiloted, I um r_t,.r of the onion
than goor..:. Ly u,:.tematio,aiy introdociAL,

views int.() the fti.n:6er,t

The exoivert

thut 1 he
heard being charEA Kre 1,rgoiy in otnr;):.
of L uzit,d
r,ther than in this dietriet, wher,,, it 1,,ny mit74e h,
an mude t all,
of all the Linke in tiiie diLtriet.

mit Le said to bE.- on the ,Ade of literl.ilty than oLhared:e.
hoi,e the Lo-.rd wis1.1 not uneart,.nd ny I

k Of ym.," Lly on

the ettortwhich thy. -re m,,tkin,4, which. ,11-1

r

needed in

-111




11.6.10

Governor kilirding

2

soma section:,, of the country, but hien

tel

e

not

here.
Very truly your

Governor.

nortle i.-2. G. Hara
e'nor, 'Federal her
ington,.D. C.

rd,

(

k

.Ci)

e
441

Dear Governor

/cu
in Now fork

rdingt

4q

November 6, 19.1_9.

44
4g

ve herd me reiterAe my belief that the control of credit
remarily, rest upoh rata adjtmente, Leld theA effective

control cancot to exorcised through arbitrary curtaeiment O loan to

specific inotitutions :eyond a very moderete degree.
Ie discuasine, the situation with - tanker in New York, he made
Kis in:titution, during the period of the
the following statement:
operetions of the Money Committee, was lending ato,.,et ,.4.3,.,7,G,07.,()

tot'el

on stock exchange co.Leteral, that being ite proportion or the.
took exchaaLe loan accoant. When the money committee diesolved,

eo that eow it is carryin6 conuiderMely!e
On the other hend, while it had formor4'
lee that one-half of that ,..raount.
been lendinE .A)r out-of-town corresi4ndeots oo etock exoharige collateral

it reduced it etock exchenge

or z25,3e0,030 at the normal hmount, it

how lendinL,

bout

had the report6 of all of these inetitutiono examined and finds that in no single case do they report eills
discounted with the Federal Reeerva Lank of their reepectiv9 dictrict,.
),00;,C00 ror-correspondents but-h

trut cceni.nies
Ae you know, the reportelof our member bankeanu

indicAe th,t the total fund lout-:d on the etock exclinge by out-of-town
developinetitutions is -pretty nearly $700,030,03. This i n inevitable
thation as now exits - and, to me, afford convinoing evidence

&lone arq Le
that ratee of d.i.count by the heserve
of the necessity
ie reguired
relied upon to ecure ultimately the charecter of control that
if we are to have an orderly reetoretion of normal credit conditions.




.

Line, feeling

obligation of meati

th- views of como

of our aesociates in W,Jrlington, we are tlicing F.teys to develop a little
worL: 7ggrestively our o1icy of scrutdnizing the borrowinge of member

banks dth

tri6* to grAdual curtailment of borrowings in tilir district.
Very trul.y your;,,,

L,3. ::TRONG,
Governor.

rable
P, G. H
ernor, Federal he
ineton, D. G.

43B

1--




(D R A F T )

Dear Governor Harding:

I have just received your letter of November 8th, enclosing copy of a

letter from Secretary Glass, dated November 5th, for which I am greatly obliged.

Inasmuch as the letter outlines a fairly definite policy for adoption

by the Federal reserve banks, it mould seem to me desirable that this letter should

be placed in the hands of the Governors of all the reserve banks so that it maybe

understood that the policy of the System shall be in conformity with this request,

which I assume meets with the approval of the Federal Reserve Board and that the

Board is willing to assume the responsibility for the program outlined.

As you

say, however, there are references in the letter to the policy of this bank, and

I would, therefore, vpreciate the Board's considering whether a copy of this let-

ter should not also be furnished to the governors.

It is, I am sure, quite unnecessary to assure either you or Secretary

Glass of the desire and intention of this bank to cooperate to the fullest extent

in all proper methods to check the speculative mania,to which his letter refers,

which has now extended its unwholesome influence into almost every field of busi-

ness

activity.

Our recent conferences have shown, indeed, that we are entirely

in agreement as to the Causes which underlie this development.

speculation may be more largely evidenced in the security markets,

http://fraser.stlouisfed.org/
promotions and
Federal Reserve Bank of St. Louis

In this district

in

corporation

the like, whereas elsewhere it may take the form of speculative

aotton, oil, metals, food stuffs and other comoditle6

purchase

of

real esate,

but, whatever be its form, it is based upon the use of credit to buy things in the

expectation of selling at higher prices.

The control of such a tendency, common

enough in the past and only accentuated in extent at the present time, therefore,

seems to depend upon the control of credit.

I am also in hearty accord with Secretary Glass when he states that re-

liance. for the control of credit and for a check upon speculation cannot be wholly

left to interebt rates if results are to be-immediately attained, although in the

long run, I believe it will be found that the old rules still work and that a

higher cost for credit, and only that, will provide the necessary check.

It seems, therefore, that I should frankly state to the Federal Reserve

Board the views which are held by my associates and myself as, in some particulars,

I fear that the policy which we would now recommend might not exactly meet the

expectations implied from Secretary Glass's letter.

Since the outbreak of the war, the loans of the banks and trust companies

of New Iork City have increased from $

to $

Of the

amount of this increase somewhat less than one-quarter is shown to be made up by

increased loans to stock exchange houses, and more than one-half of the increase

in loans to member of the exchange is known to be caused by loans made by banks

located in other Federal reserve districts.




In fact, this great loan expansion is

common to

Federal reserve districts and appears to be based upon

if not,

,n fact, to have been a cause in part for the general expansion of values of all

kinds, - securities, commodities and real estate, - which has occurred in all

parts of the country, indeed throughout the world, as a consequence of the war.

The credit expansion which has caused, or resulted from, higher prices is, in fact,

widespread.

This volume of new credit was first permitted by a great addition to

our gold reserve coming from abroad, and, later, by loans of reserve banks to their

members to enable them, directly or indirectly, to make advances to the Government.

So long as the Treasury WaS increasing its volume of loans, some expansion of bank

credit was inevitable, but once the volume no longer increased, or, in fact, was

reduced, as in last September, it became necessary to stimulate, if not to enforce,

a process of reduction of bank loans and deposits.

Our problem now is to determine

and adopt a method or methods to achieve this which will prove helpful, or at least

as little harmful as possible , to the business of the country and yet be effective

in checking a further expansion of loans and increasing -prices.

There seem to be three courses open to the management of the reserve

banks:

1.

We may exert our influence with individual institution

which bor-

row heavily from us, seeking thereby to curtail their borrowings, or even appeal

directly to certain classes of their customers, such as the stock exchange houses

 the case
in


of this district.

4.

We may actually limit the amount

of

advances to each borrowing

bank, in other words, reduce our loans to a rationing basis and establish a

line of credit for each borrower.

3.

We may further increase our rates.

As to the first, undoubtedly a wholesome influence can be exerted upon

the officers of a limited number of member banks which seek accommodation from the

reserve banks and appear to be abusing this privilege.

For a year or more it has

been our rolicy to employ this method where we believelthat the borrowings of any

specific institution justified our doing so.

objections in the present conditions.

But such methods are open to various

It may be, and often is the case, that in-

stitutions which borrow the largest amounts, actually and relatively, are, in fact,

employing little or no credit in furtherance of speculative operations, whereas

-

other institutions which borrow the least, sometimes not at all, are furnishing

large amounts of credit for such ,purposes.

The president of one New York bank

informs me that his institution is now lending on the stock exchange for its out-

of-town correspondents three times as such as it was a year ago, the total equal-

ling probably 5% of the entire stock exchange loan account.

But he also says

that an examination of the statements of these correspondents disclosed that not

one of them is a borrower from the reserve bank of Its district.

Again, it must

be realized that borrowings from the reserve banks, except possibly in connection



5.

with the Government's loans, are rarely for specific purposes determined in ad-

vance, but generally to restore depleted reserves which become reduced below the

legal minimum from a variety of causes.

To identify the purpose of such borrow-

ings and restrain the member bank in advance of the demand upon us would involve

a scrutiny and understanding of all the causes and purposes which influence each

borrowing bank to use our facilities.

banks, as in our district, or for

This becomes quite impossible with 750

000 member banks in all reserve districts.

At best, such direct influence can only apply to member banks, and usually only to

those that borrow.

A judicial and just administration of the system, where

restraint is made to apv, y fairly and equally to all, seems to UE to be well nigh

impossible by such direct methods.

It certainly would result in reducing borrow-

ings by some banks, but probably, and I believe certainly, such borrowings would

soon be transferred to other banks, thus driving the infection from one place to

anotaer without eradicating it

You will realize how serious a condition might

arise if all reserve banks exerted influence upon members to reduce loans upon the

New York Stock Exchange and thereby caused the withdrawal of a considerable part

of the$700,000,000 now loaned the stock exchange houses by out-of-town institutions.

The gravity of the consequences involved by such a course must le carefully con-

sidered before it is adopted in any unregulated or haphazard fashion.
which
We do believe, however, that this first method/Will gradually educate the



6.

member banks to the real purpose of the System, and which we have employed for

some time past, should be discreetly continued;

sary in certain specific instances;

complishing

a

that it is wholesome and neces-

but that it will not be effective in ac-

broad result such as we seek.

The second method is the logical outcome of the application of the

first method carried to a uniform conclusion.

It means setting a fixed limit upon

the borrowing of each member Lank based upon some formula relating to resources.

It would render the Reserve System as inelastic as was the old system and we be-

lieve the sentimental influence of such a policy, even if it were not publicly

announced, might be disastrous to the business of the country and to the Federal

Reserve System.

In fact, as to both the first and second plans, the chief im-

mediate result of private remonstrance with those banks which borrow from Lis,

or in limiting the amount of their borrowings, will be a calling of loans and

curtailment of credit which will reAllt in a disorderly money market with high

rates being bid for accommodation by borrowers who have existing obligations

and

who may develop panickyfeelings by the creation of a sentiment that the Federal

Reserve System has reachtd the end of its resources.

In fact

either the first

or second method, if producing any result at all, I believe will do so by the creation

of a much higher level of interest rates, and even a panicky condftion in the

money market, such as would be avoided by the third method.



7.

As to the third method, we regret very much to differ so considerably

from t1

views expressed by Secretary Glass on the general subject of interest

rates.

It is our understanding that the experience of the European countries

to which he refers has been that the central bank has completely lost control of

the money market in almost every instance because of heavy Government borrowing

and the creation of artificial rates for money due to special rates made at the

central bank for loans upon Government securities id One form or another.

This

has been the experience of the Eank of England, and I believe it to be the view

of the management of that bank.

We are, in fact, dealing with two separate and

distinct influences as to money rates:

one is the influence of the special rate

made for the benefit of the Treasury, which has been the controlling rate so long

as it was below, the bank. rate,

I cannot believe that every economic law, not

only those with which we are familiar in the text books

but those which we

under-

stand through our personal experience, has been suspended, or must be ignored.

The speculation which is now taking place throughout the country is

leading to the accumulation of an undue volume of goodE and securities by those

who buy them for profit and carry them with loans.

Such a speculation constitutes

an interruption in the flow of goods from producer to consumer, and an interruption

in the transfer of securities from investor to investor without employment of credit.



And such a. speculative movement invariably reaches is crisis when supplies of

credit become either too expensive or absolutely exhausted.

A

To attempt to in-

fluence 25,000 or 30,000 banks, or, in fact, the vast number of people who are

directly or indirectly contributing to this movement in one form or another, except

by the wholesome, uniform and just plan which can be adopted by the reserve banks, -

namely increased discount rates, - seems to me to be courting failure either by

attempting something which will be ineffective, or, on the other hand, if adopted
A

so vigorously as to be effective, to be dangerous as leading to panic and disasters.




Pr-,
4 4, 4

tt,10

CL^):iFIDLT,NTIAL.

Novthtber 284 Lalg

de r Governor iirain,0

Your fuvor of the 26th inLtant it receivd, flci the ,ction ten
Ly:the Foderftl Aeserve JioLrd u,on ettee submitted .in my letter of November
L..- duly noted.

t,11

-

Our directors inlve inAructed me. to submit the followin,. rtro,.ritu-

tion, to theTeuen,..i Reserve i::uard, which ,,aem to be made-aeoeeos.ry in vi, of

it

determinitiOn in the stAter of rites:
Thodirectoro of the Federal Rewerve Bank of New York, in my letter

of November )24th, bye submitted their views t,, to the action fich. they be-

ii6ve i. re uirod in this 6i_trict, nc .e no,, understand th t it iL the de..:

clion of the

th!tt further more

in r tef- shsil not be

for Lilo

xurci:dn,. the cent,roi f-Atietedd in my _et:ter but th t, aeverthei

etter of Novomber 26th, "direct .rstriotiOn u cr: the u.

t. c

urodit ty the borrowin6.banke ia easentL,1 to any effective control."

o f.r, the icii effort of this bank ikve. been Oirected tz:wfl,rd
rostricti
the e,..-:.ouLtive enitJoyment of credit in stock excin.nt,
onsconductJd u on the
.H.ch h y

iofi litock exchan.6.

tht

ut-ofl-town t

nci to some extent in

en'w.ide to member t,arkL., in thi

rt. of 11-, Attrict,
of

The recuit of reresenta-

lo neJ

to,en to effeL
t,ocs&

roductiofl in the tot .1

(both t,

exci.1,11,;

J.41c-

the uliount

nin, institution:. hs in:hit ie deveiorm.nt v,hich we re

tAchz..ht, Ly out-of-town
Ci

Icr.

,a66,275,0 beween hove&t..r.i.tI .nd Nover

rio.Novr ist L RoveAer 25th,



y

to 7,N,2641.

ft

Governor Harding

2

powerless to control by any,otion underteken in

thie dietrict, and the

of the bank iretrtict reeto oint out to the Feder .1 heserve ,ceerd the

directors

_difficUlties inherent in euch a situ,

on

..nd the isoEsibil ties of Leaner Which

result from attempts to restrict loans on the etock

exchenne throunh the

uncoordinated effort of the managements of the other eleven Reserve benke.
Should representatione be, mode

to member banks of other

hatit of lending on the stock exchange and who,

fro

their reeerie

it might result

in a

ow York in such .ronortions.as to precipit te
con eeuent dieordere in the security m

.t

tee

districts who ere in th.

same time, are borrowinn

sudden withdrawal of creceit from

aic in moy

1t.

rkets, with cert in injury to

flounced program of the Trfe. urn, Aac likely heavy selling of.bond

Ste7te...

741

Yor.Stock

di of the
the eau.

of the United

the other hand, if efforts to curteil the loan account on the New

Lxchanne

Hre confined to tho e. ottemietud. by this tank, it i

to result in a continuence

of the. develonment noted above

by our member bnke with a ccrres,ondinn

li ely

a reduction ofloans

incrceee of loan. Ly

outoftown leenke.

Thie is one of the sot serious as,ecte of the speculntive'loan

account. further

mere, even a very moderate and ceutioue renresentAice to banks of oteer reserve

dictrot

in regnrd

to

tock Eiohane

.their h w York

oan acceunt minet result

York, r ,ulLine in

in :e.inginn great nreeeu're u ce the credit situntion in

lerge incr ese in our lon, in order to
inn either

1-otect the Nee York

im,airment in cur roF rve, or, in orcer to

Eituetion,

void- an impairment,

nerne a ount of.rediscounte and .orrewings from other ras rite bangs.
It nu-.t not

be overlooked

ich now leed mon s on the i)iew

received, ,re not
t.

L9L,

Reerv-

e

eteck

'norrowers from their

outoftown ton-

Exchange, according to re erts we h-ve

'tool Ree_rve bunks., and it is

ho4. coetree of their loans of th t

cheracter cen Le

diffeult

effect6e. Lao

the

anke.
You and


ve


or

that a 1. rge number of the

.

Ltrau,e Le,ve had o. ortunity to examine the

lareued in deeling with theee eetters and re.

lize

tinet

o far

oh

the

Governor Harding

CK oxch,,nge Loa.

occount le zone rneo

it

hae

11.28.19

been careful,y

atched

or a long iriod and evry reasonable effort has teen made to contro
ithout employing methods which, in the ocin_oo of the manag..ent of

it

this Lon ,-

ould be disastroue in their results.
Variou:

Lotod to list

urthi methods of deoling with the titu,tion h ve

one i. the

_ro

osal-thot we ,should undertoke, either ddr_ctly

or throu,..h the 1Naw lork Clearitv

iouoAF80C

atiOn, to induce t nk

to reouire largor mrgins ui:on stock exchange loan:.

The socalled -Cney Com-

mittoe did impzee such reArietions in the latter .,.art of 1918.
ia

of the city

They resulted

ETiOUE comJaint and the committee finally -became convinced that it was a

discrimination of a character

hich th::y

felt unwiiiing 10-riser

to be resi:oaFdble

for, ond, as you kno4 atondoned the re, uirement N_ftor some months of experience

wit it6

oier t.on.

The defect in th t Jon is thA, it fail. to.re..ch the

real offender, who is the mNrgin speoultor, and

eikly

imposes u on the stock

exchange houses of larger capital the necessity of fornishng out of their

rosourc

the added margin reuired by the lending

ban:Ks, .and, of coors

,twn

oriven

the stook exchAne reculAive .ileiness more largely into the hands of houss. of
jorg'. o co ital.

Another

thot, either through the New York Cle-xing-Houee

ksocizAion or by direct representation, ttli

bank should undertake to influence

the msnagement of the stock exchan:.e to reuire its membors to ex et, larger
seculative ,:.ocounts.

productive o

courv,e of procedure ild6nt, indeed, be

lych

_

restrictioa

-

on the emloymont of credit Yor sozulotion, but we

are strongly of the o inioo thot it is not the function of the Hee-rve b_nk to

desA directy

ith the .stoz

exchange, nor desirable for

the reoonsibilit;i for briaiog obout Loch
custom in NO* York really rests_u.on
stook exchcnge meoaters.
 bers of


t:k:

to do. so, ond tt

a radical chrige in stock excoohke

lending lank&

ho dl

the

'ome such course Ne h-ve already sugg:ted to the mem-

the nearing House Committee of the New York Clearing Hou6e and abked them,

Governor Harding

4

ui.oe Leeir own initiative, to discuss thie.

11.2 .19

with the

menagement

f the New York

And we understand th-A they airs dy heve had at

'tock ?:!xchange.

meeting.witn the officers ef the Exchange for that oultoee.

least one

It ie, however, the

writer's peronal opireoe that urging eny effort in that direction at the pre nt
moment nit result in great di,orter in both the money and eecurity markets, as
bad, if not worse than that which
upon the Treasur)

occurred

quite recently, and that the reflex

/..ogram, as well ae the merket for Government boncie, would be

more serioun than would likely arise from an incest:lee
A further suegetion ha

thet

been made

in

our rates,.

we should endeavor to influence

the management .of the Aew York Stock Exchange to_introduce a

yeLem of fortniehtle;i

settlements,

Exchenge.

similar to tnet in operation by the London stock

I wouid

respectfuLy submit that no such system at a fortniehtle; settlement is essible
under the oresent organization

of the stock exchange ano the methods of tr.,ding

which 'prevail in this city.

The fortnightly eettleeent in London, I under-

Iessible by the develolmient of two classes of brokers, one the

-and, is made

bi.er and the other the commieec,ion broker, whereey each unmereind account is-

und.iftwritten by the jobber during the intervening period before the fortnightly
settlement,

And, in order to .adapt a syLtem

of fortnightly

settee.ent to our

own cuetom of trading, it would be neceseary either to develop a newt.ye of
stock exchange h.u-ei which .le regarded

after long

years of exoeriencei or

uite impossible, at any

rite:

until

to reouire margins in the firet instance, as

at _resent, on all tr nsections, which would, in fact, be no chenge free the
at system

of

tr dine.

On the other hand, cur director: desire me to draw the o-rd'
tion

to

in the

what ia regerded'as

the

now t6kin,

:If: the

thnt the

L;iO4

CC, when 14.resented in art by tr ay-ctions dooe

?took

It is their o_inioe
is only

exceselges, is orincipally occurring in many for
 great ee e,nteof


the oreeent Eeltuetion
great ex_

matter of credit coetrol.

of credit

most inortant feeture of

atten-

agricultural, induetri

Jf credit, arising eue o

tee

commereel 1AL:...4a6'66 of the

11.e4.'9

Governor Herding

5

country at the present high level of 1-.ices, and which is bound to continue

unlese meane are fun e to effect a general control in e

1

line of busineee

activity which are ovrextended.

Neediese to e,e, the .,Joblee is no less that of prod;ction,
deeu, as Ole, e it is one of weeteful end extravagant coneumption of geode,
due, we feel. in pert, to the greet

leion of ell forms of credit.

Figures teke from bank reortse, which ere in the hemde of your

Beere, incicete thet while there has been some Elignt increase in ce1ter,1
bane u, on stock exchange securities during the o et few mohthe, the gret
bulk of the increase in the loan account of ra,orting benke he, actually been
in kecellaneoUs loans other then etock ezchenge loene, noteiteeterding the reduction in loans u oe Government eecuritie and investmente iE .certificate of
indebtedness.

It is our belief that all the Indic tione oint to k contine.ece

ef this exieneion le the generel loan account of the country unless it c-n
curt' iled by dee more general meeeure of control than can possibly re exercised
by the direct influence of the Reserve bank u.on a limited number of sorrowing
\* To eumaerize, it 1.6 the oi.inion of our directors thet th, control of
banke.

creit, an. threuefa the control of credit the corret,oneing conee,uent influence
ujeon the

rice level, can only-Le juetly and offectully exercised throLgh the

rate of eiecount of the central tank, which has b. n the ex,erience in tanking
ever since central banks have been establiehed and which ieenot altered by

ree on of the nusu.i conditions ;f the vier, except where the operatione of the

Tre euri e of belligerent cOuntri

heve Lieced the centrel banks in potitione

where they cannot, exercise that control.

It is our intaation to c=y out the eelic outlined by the Federal
Reserve hoard end

exercise

are large borrowers from ue

our eersonal, direct infauenoe u oe those eehke whim
ti

the end th-t they shall us

ou

fecilitlee ceueeous-

ly and A..o erly sad to refreie from borrowile from Ldie tank die,ly for the

poet of lealizing a rofit.



4110166.gork

V

To execute such a poi -0y fairly and iavertiL

,

it

governor firding

6

11.E8.10

shoaid La necessr.i for uf, to submit a statement of olicy to all th.member

'tanks of the district.

Und:,r ,;resent conditions, we re-.rd that course oc-

fr,o,at with the .utmost &,.nger, ae liable to creAe a serious miSunderstanding

as to the position and security of this tank, and one which we woui be un.411
n_ to adoi.t excett A. the direction of the Feder-.1 nossrve Eo_rdi and .then

reloctantly.

therefore, tat we should

4fe

k the Federal R,..serv.

Yre.'
to deine

s

yootry as ,ossible the extent and nature sf the reAxiction. which

they ':,elieve k_houid Le enjoyed by Federal reserve banks la order LG contro4
k,

\

credit, and, if they will, to advise whether the roard contemplates any ac*on

in other Federal reserve diAricts where the f.cilitie6 of the Federal Rqer*A:

.1,//

,

System may. be abusd by banks which 1,.re borrowin8 from toe Rem,rve banks 41 *4.r

diArf,cts and, A t4e same time,

mentioned ,ibove,

re lemiiaL, funds on tiff:0e*

\
!Ttock Exchange, on the otLeretock exchaneLos of the country, or otherwiSe,.

m,loying funds o borrowed simply for rof it.

'ble hazards of euct a ,olicy.

'1,9 repeat our ,o, .estion of \40:5 ,

4

i believe it is opl,i rli,,nt that I::hould subit to the i:Joard the folacfjctr Wa,on influenced our oirectore in "arrivinb
new

clfedule of r te

this fw ttt.r

.

were 5dvieedL

cieciolon to submit,

r. ha,burn, Lt the moetin,..;

submitted, that ever; member of the Federal Advitory Council

favoreda. further adve.nce in the discount ratee, but reoomanded that rt.e, shoul&

not be *hanged at the preElmt time bee u. of their understanding that it would

a detriments1 to the ,rogram of the Tresury Dnrtt.

e have oatoulted a

.re number of N',w York tpuker-, gaiferally in rag.ni to the ituaion, and I

believe without exception every one of them A-.J.c1 th,t thy t.elleved




d

and, if aecessari, th t the Government should ,ay higher

coommoo ton

;

t our rJ,ef, hhould he advanced.

Governor ;larding

n impression, fro

11.28.1;)

scuosiont . .t.our Governors C,mference,

indicated th0, most of the govrnor, of the is.erve tnks held

in Washing

the same view.

At the time of the conference of J:overnors of the Fpderj r_L rife
in Washington, I had in lily

o. session, but odd not reid, e letter sijied

y by every ,arge de,der in b,..nicars acceptance in Neu York City, 14ging

we advance our r,tei. in order to cor:ect the ;resent situ.. tion.,

th

In n,ct, I think it may be generally raid that it is almost-the
unanimcus judiment of exoerianced 1..ankera and tho. conversant wit, the ,re4ent

situation th'-:t rates enoa,,d be advenood and that SUch rate advances only will

prove adeu,te in meeting a situation which containt many elements

danger,

although tna diract Olfluence we are exerting u,on certain borrow ers

lil

e

rt - or wholly effective inmany individual cases..
I do not need to aasure you and your asbociates that it is the inlair utmost to give

tention of the directors and officers of this bank to do

effect to the ,olicy outlined in your letter of November 26th, tut I must ou4,it
the views of our diroctors that the laLt

c)

your letter Jug,ets tO,t

some method other than rte advalica he iMmediately.zi1j,ed to effectin a con-

trol of ordit, without, however, inoicatin how thi:. should be done.
at a loss to dLcov,r any method which will be effective,ane which

to the general sitution, :xe weil

time. ,.,void 0

Te are

at the

to the Government

ket and it- _rogrl,Lm, which we belisve 4r,;1ikoiy to be far more srioue
would reso:

from a moderate incre,,oe in r,Aes, anu even furtner lucre ees

if they seem to :J necessary.

VTr, truiy ,ouro,
.

or:ie,,,. P. G. Harding,
ernor, Federal P:,,,trve
bon, D. C.


http://fraser.stlouisfed.org/
ra
Federal Reserve Bank of St. Louis

PeAlAW4T,

LENJ.

,rd,'

Joverncr.

Governor hording

11.28.1;

'

8

P.

L..

A.nce dictating. the fersoing, I am in receit of the telegram

orgin, tOat we make every effort to make a success of the currant ioosue of

Treasury Certificotes, which conooides with the statement that the boord .00s

not look with favor upon a pol dy of forced liquidation of Gover merit securities

nor any denial of credit to institut,on_ which re holders Of such :securities

which might result in their liuli tion, the Eoard, as 1 uoderstono it, con-

oldering th.t such a Lroorom will do much tiarki and can do no good.
Oo courSe the Loard muot understand thoo r °Leo:1y every bonkino

inLtitotion in. this city, and particularly the jAl.y ones, or: considerable
holders of the Government's war bonds of the various i000ues;

ond I believe
e-do not believe

much more of the Victory notes thon of the ooriier isue.

toot tney are generally selling, these tondo, but we do believe that the seloin,_:;
comes from a 1 rge number of institutions and indiviouaIs

thot

are no* borrowing

money from the banks and trust com,anios, which tA)1116 time ego started to mork

u, the rates at which they were being curr ad uron the ex,Oirotion of the agreements for one year, in the cH. , of the Fourth Loan, na 6 months, io the c o of
-

the Fifth .-n, entered into

the time th000 loonL were ,loced.

Frankly, your telegram has VA-own us into some confooion ao to the

o1icyIthich this t nk Lhouid

no emi.hasizes the nacesol,ty for a better

understandin of policy than now exists.

inoicated by the f et

thot

The nscessity for this to,:eme to

our lonno today increasod by about

o,,O:ip to the

highost figure which they have so far reoched.




\M-ry trui

our,

a

Baij.
G,;vernor.

November 28, 1919..
4

DOti.r Governor Harding:

Your telegram of the 28th ilitant,
hi :

voted to

L t the Fedev!.1 Re-

,:rove the rates of icount ;J:,,tliblishad by our

:in November 24thW,,L.6 duly received, and we will, of cour,e, be

:uoi

governed accordingly.

The suggestion in regLrd to r te6 A. which acceitances re iur-

resents considerable difficulty.
.eei:tances is now 4-1/2%;
J

being, mde

The diLcount rate for bnkers end

are ,urch.i.,ee is

t,:ne rte t which

4enurally

minimum of 4%, nith no maximum, :,,nd

round the level of the r te establishE,d for discounte of bilis.
Should ,a mrike '4_ny mYteril adv nca in the rate of di count for

acce.tces, it would ut th,t r,te ybove the ?resent 4-3/4% rite for com -

merci,dr, hich, of cour., ic not to t:e thought of.
r,.t; for commerciol

:hd, should the

er te ,ndv,nced, hsty to 5% or Luve, it would neoessi-

litawise, an incree in the r t for 6 months' agricuiLur

In

,

other worth>, no ch,,nge Oita very well be a de in the rate for discounting bills

uniees corresohding oli,hges-are IvAiEl in the r te for.diocuntinL 90

.ne

3 month' comk,erciA.

We *re proroAn6 to _clitnce, the rte s at whioh b1i

re purch-A:ed

Ln the int% m,rket, if necsst:ry above th.- rAe of diecount, which m14, indeed, force u: to Oicount ior.
somewhat less from the OE,-

4ou1e te better to work alor:.



ili th-n tt i.nt

t 4-1/2% and i.urch_e

ni rAe, ir. Jay anb I
_t we ceLn with .1-toas as the,

thA, it

re now rther.

Governor Hrdin6.

.

to.
th%n to submit a new schedule of chmiges in discount rtes which I

from your

telegrA41

t.2'.ther

would not be likely to receive the
Very truly your:,

JRONG,

Guverhor.

Honorable W,

G. Harding,.

ernor, Fedeml Reserve Bord,
inEton, r. C.




FEDERki. RESERVE LANK OF NEV YORK

PRIVATE 1IRE - OUTGOING

recember 10, 1919
HARDING - RESERVE bi,:-ARD - 'iASHINGTON

Your telegram of this date is received and has been E,ubmittod
to our Elecutive Committee stop I am authorized to report establihmeut

of the folloi,in, rates which are no submitted for review and determin,tion
by the Federal Reserve Foard

For advandos not sxceding 15 days to member banks
on their ,:romiascry notes secured by

(a) United Statet, Certificates of Indebtedness (C) Liberty Bonds, Victory Notes and customers

notes secured by either of the foregoing - 4-3/4%

(c) Eligible Commercial

per

4-3/4%

For notes, drafts and Lille of exchano n.,ving a
m,turiy at time of rediscount of not.mere
than 90.days

(includin rsocunt6, for periods not exceed-

ing 15 day:4 of eligible paper ha,ving i av.turity
at time of tediscount of more than 15 cb.ye.)

For not, drAq, %nd bills of exchnee having

arkturity of not in excess of 90 dnle eecur,.0,
by Liberty boric: or Victory roteL

For tr,de ocet nee, mnd bankers accei:t noes havir,
a maturity at time of rediscount of not more
til&n 90 days

'For agricultund paper tovink

4-75/4%

4-1/2%

maturity'at time of

redlEcount of more thnn DO days. but not
more than 8 month::

Members of our Executive Committee ,Atoning the meztin.

5%
.

althorize me to

saj tht in vi i of this further devaloAont along the genet,' line of rate
recomvndutions which have heretofore been discussed with the Federal Reserve

Lo.r.6 they feel it is not now urgent to hold the conference rrangeafor.next
Tednesc: j




.top

The;

therefore if it meets Att. the vies of the

7ourd either deferritv the meeting until a it r dAe or :A rem

i,

4/
1
,Qe'itle-

e

,K4//

IY/

(",:v

qX,

.

"V

v/i, tvr

k,

,

rf

.ix'"
kr

v

x,

),-,''

x

December 17, ia9.

dear Governor Herding:

You aeked me for a etatement of the policy of the Reserve Fank in making purchaoes of Lille in the open market, the effect of which fhio, been to very

largely increase the Reserve Banket holdings of bills during the last eix montilame time, ho4ever, thet the amount of loanrJ made by Reserve Peaks, secured

at th
Al
y'

lo:

vernment obli

tione, have been eomewhat reduced

or, at least, have net in-

c%reaNd in &mount.

OA

The explanation lies entirely in the relation between our irrious rates

NA.

of discount.

From the very beginning of

the

Federal Reserve System, when bankere

acceptancee began to weer in the market, it was deemed neceeeery to estatlish a
more favorable rate eiteer for the discount of theee bine by memb r benks or for

their purchase in the on market than was established for the diecount of commercial
paper.

The reeeon

were, partly to stimulate the develoement of the new tueinese

with which our tankere w re unfamili:r and which wa

reg,rded as essential to the

Federal Reserve System and, -particularly, to the financinç of the foreign commerce
of the United State::: by American Lanke im:teed of,

But this preferential rate w

Ltii

h.retofore, Ly foreign

banks.

alto estaeliehed in recognition of the fact that a

bill drawn againet an actual shipment of commodities and accepted by the lerest
and richest tanks and bankers of the country Was a credit inaLrument of
vnlue commanding a lower rate than the average of the commercial paper

reeeh ue from the bank:. of the dietrict in the ordinar, course of
operatione.

greater

would

their discount

In other word:, a preferential discount and buying rte wee establisheo

in order to stimulate a neceesary teenking

develo. meet in the countr,

in recogni-

tion th t thie perticular type of paper wae a better aeset than any other line of




Governor Harding

2

12.17.19

commercial paper.
So long. as our rate of discount for commercial paper and for bankers

bills was at or above the rates at which this paper sold in the market, it became
nece..,s!-Lry for us to purchase bills in the open mrkst

counL riAe.

at

lower

than our dis-

You will recall that we did this, not only for our ORD account but

for all of the bankb of the SyLtem, for the first to or three years.

Gradually,

ho ever, during the period of the war, as money r,tes advnced our on rate for the
diEcount

or

dilv. (of Lan err: bills, particui rly, and for the various other paper

that we discounted) became increasingly below the market rate.

The

-destion there-

fore arch.e as to this del.,artment of our businese, "Shall ,e advance our discount
rate and with it, our buying rate?"

The anewr was, inevitably, that we could only Oo so if we advanced our
other rates.

Were we to advance our other rates, including our rate for commercial

paper, leaving the rate for Government securities as than ost_bli:hed, the Federal
Reserve E::.nkel

.Aould have been out of the market entirely for Lankr, acce0nces,

d the succe,.2sful mrketinL; by our merchants and bankers of this most important

credit in-trument, just being (level() A for the aid of our forei,h commerce, wold
depended entirely upon the wil in-nee_ of the bankers of the counLry to buy
them.

They undoubtedly would have had ft market, but I have no doubt that the rate

woulo have advnced so consrderatly that it would have deferred for a long period
the development of our foreign banking.
The reason why SO large a proportion of these

market

Lirchases, rather than as discounts, 1- because we

believe properly, maintained the rate at which
We

discount them, in order

merket in *hien
ldin

th.t

'405

bills

reached us as open

have consistently, and I

buy bills below the rate at Alich

the dealer, in bills may have the teneTit of a

Lille can ctually be sold and, at

the same time, in order that banks

portfolios of these bills may convert them at fvorable rates when they

to build up their reserves.
 I believe,


been succes,,ful in develcOng

need

The ref.p ut of the Re
policy h-,

this field of bankin in the short perioa

Governor Harding

12.17.19

i a few year4 whereas h-d we not stimulated the business, it would have had only
a negligibls development.

It must be borne in mind thcA 60 long as the rat established by the Re-

serve B4nks ie below, the general level of interest rates our discounts, in one form
or another, are bound to increase unless we adopt the ;clicy of absolutely denying

credit without regard to rates.
for

o

The moEt favorAis

hss bten th7,t established.

u,on Goverinient securitiec, therefore, the 1%rgest amount of our discounts

have boon of that charcter.

Tne next most favorable rates live been the buying

-nd discount rates for bankers tills, therefore, quite naturally, the largest percentago of our discounts and purchases, other than Government-securod paper, has been

of this charicter.

The hignest rate 6as been that for comitercial paper, end, there-

fore, the smallest amount of OUT discounts has teen of tnA character.
Yo t will recall that I advised you when we adv.:need cur rate for Govern.mantsecured paper that we ware uitM iiely to' be forced to buy large amounts of bankers

bills in the open m, rket or else to abandon that maxitet and put our bank at a great
dicadvantake in competin, with f'oraign banks and develo?i2v thl important business.

The :,resent large holoings of bilis by the neserve banks are no less than I anticipated
and they 4re liabl to increase until our whole level of rates is advanced and until
our rated are made uniform.
After he past five
Banko, Iam. now

experience wito. the rate ,olicy of the Re. sive

repared to recommend without qualification that tho time has arrived,

-All shortly arrive, when the Reserve Eanks should have one rate of discount; --

certainly the Federal iLeserve ii.nk of Now York should -- that rate applyin, to all

kinds of paper and for all periods of time, with the tole exception of the rate at
which 4e buy- hil

in the open adrket.

That r.

,

if our discount rates are about

at the market, can well be somewhat under our discount rate, but, as the purchases
are made voluntarily, we would then be in pos1tion to go into the market and buy, or,

if we preforr,




d,:cqns to uy, and, in the latter case, bills -kqould come to us for

Governor Harding

12.17.19

With one rate for discounts, there might, however, develop the tendency

to abuse the privilege of borrowing ui.on eligible collateral for ,.eriods of fifteen
dayh or less.

Should such a develoimont aries, it might be necessary to adopt

a

policy of making the fifteen dal rate very slightly highor than the ninety
say 1/4 of 1%.

This would have a tendency to check borrowin. by eonat renewals

and, I nculd hope, would gradually educate our bankers to the idea that the us of
the Reserve Bank is, primarily, for eeasorial demands rather than for constant borrowin

in order to make profits.
At no time dince the Reserve Bank Was established have I felt mere con-

fident of the possibility of our developing a workable rate policy
since we have somewhat increased our rtes.

a

I nave recently,

A few wore chances will put us in con-

trol of the filrket in the same fashion a.6 the Bank of England controls the london
market in normal times.

;Iieri that time arrives., I believe we can confidently asssrt

that the fieserve yetem has huccesefUlly established itself in the Avierict4n money
m,rket!

Faithfully yours,

Honorable W. P. G._Harding,
Governor, Federal ikeserve

lashinijon, D. O.

EZ.MSE




December 25

1919.

Dear Governor Harding:

As you know, we have made repreeentationt to the New York Clearing
houee Committee as to the methoc which now prevails for d:t:3;inin
of intereet allowed upon out-of-town bank balance

members of the Clearing House Aseciation.

the rate

by New York banks which are

It has seemed to us thet the

provision for an automatic increase in the raLe when our 90 day discount rate

advances is an unwise one.

A general

increase in rates alloeed on out-of-town

bank ba ances by the New fork banks is liable to start competition for de-oalts
between low York and other centers, - an unwholesome banking development at
any- time, and, I believe, particularly so at this time.

I have been sounding

the

sentiment of the Clearing Houee a little bit

on this matter and find that they have the feeling that having ,ut, through the

,resenteplan upon our urgency and yours, the position of the New York banks

will

be a wet difficult and unsatisfactory one Under any otner arrangement than

the pre:L.-

uniese eimilar undereLandinge are arrived at with the cleering

hou,:ee in the other

tankini

centers of the country, princi'eliy

Boston, Phila-

delphia, Chicago, Et. Louis, and possibly Clevalann and Pidttsburgh.

The feelin,

660MZ3

to prevail in Ne.,; York

that the cieerin6

houee tanks

are the only onee that heve an interest underetanding on out-of-town te.nk

dances and that no

furthr

change should be made in the arrangement until they

can heve some ae, urence thet other banking centers will be subjected to the same
disciplinary rule.

110Q you think it would be pot, ible to meke some generd pro-

gre,e in the other roeerve district?

Of-ceuree I would Le moet reluctant to

attempt any move in this direction from New York as we feel here that develo 


d-

Governor Harding

2

12.23.1g

ments in other re,erve districts in thea..e maters should proceed upon recom.mendations made by the Board r.:.-tner than as the result of

any influence which

we can exert.
Mr. J y and I both- feel that

the

present situation in this rag .td is

an unfortunate one because while our rate in a measure controls the rates allowed

by clearing houee banks, it is likewise true

that our acion in the matter of

rates is somewhat influenced by the fct tht

it brings atout a.general change

in the interest situation.

Mr. Kenzel
tation in my

just

draws my attention to an inaccuracy due to faulty dic-

letter of -December

17th in reg.rd to the Lill market.

I

sCted

that

it had been our policy to buy bills at rates below our miscount rates.

That was

true during the period when we were developing this busine;es, and I wa.

refefring

to the policy of
in

the

past.

For some time now Ae have, as you know

tills in the open market at rate.:. somewh-t above our discount rate, notwith-

standing which they keep piling

a further letter on

in on us.

Honorable A. F; G. Hhxdin6,
Governor, Federal Reserve Board,
Washington, D. C.

BE. MBE




Mr. Kenzel has written

Mr.

trauss

this subject which I hope you willbe good enough to re-d.

Faithfully your,

-

been buy-

Honcifet e W. P. U. Harding,

Governor, Federal heserve Eoard,
Washing ton, D. O.

December 24, i919.

CONFIDENTIAL
OE*

DE C 6 194

r Governor Harding:
AL you know,
'

.

Ae watch the .;itock

the most scrutinizing care, getting

IIIIIIIIIr men
...

ir

4'1'41712:

daily

Loan account

Mrjr

r_ports and endevorind by

ther

.

in our ,rower to exerciee s reasonable reLtraint tiec,

:,btLAned from this bark 1,-here we
on the Uock Exchande in
formed of recent

ths u

believe it is indirectly in

seeculative loans.

In order

of 'credit

ndeo for use

you may be in-

dovoloements, I am enclosing a emorandum from Mr. 0e

_el gives a little elcture of the situation-

This is sent in confidence,

, are furniehed to us in confidence.

e has seemed to be a tendency for out-of-town institutions
to

ithdraw balances from New York ju t

now and two days this week it has

loozed al., though we miht have a real money situation on the board as the reult.

lation.

-Of course thee money flurries are now the

dreat restraint

on n-ccu-

The fever di 2pEculation has .ubsided, and I corsider that the

ket, if controlled with reasonable care, is no real menace
On the other hand, there is aL ys the dander ofdieturbances
situation all over the

country

if rates be

Money hPE loaned this week as hiji as 18%
of' the ye:ix it will

't. ck

to our position.

to

the money

-permitted to soar without limit.
and it may be that before the end

go considerably- higher than this.

I am

)motimes

ful that it may hsve a serfbus effett u on the Treasuryte proram of financin6.

Put you can be sure that we are

everything in our poer to

watchin, it witn the dreatest"care and doing

prevent anything in the nature of a money panic

before the year closes.



FF,ithfUlly yours.,




AFTER 5 DAYS. RETURN TO

FEDERAL RESERVE BANK OF NEW YORK
CORNER PINE AND NASSAU STREET
NEW YORK CITY




Pi:RSONAL AND CONFIDENrAL:

File

Fs is in Mr. Stroneepereonal file
Letter to Governor Harding re 1920 leave of
absence grantel'Ii. 1.) Q.{. NJ-116 4.,74Iftst,
Letter dated December 29, 1919.




-

PERSONAL-C,ND-CONFIDENTIAL:
F,1e4

December 29, 191V.

Dear Governor Harding:
It

a. a great satisfaction to spend the evening with you at your

house, and I only

d

could have done more of it during the last few

years.

I hope you realize the extent to which I have become

e1 .endent

upon your suort in the various matters of policy affectin.. the Federal Reserve Bani of hew lork.
others may not

I think I should

say frankly what possibly some

rwdize, - that I nave not the slightest desire in the world

to dominate anything in the Reserve System or

the Treat ury Department out-

side of the Federal Reserve Dank of New York and the Nem York tanking situation generally.

Such a bank as ours, and such a situation as exists in

Iew York, cannot be managed unless some one man has strong enough views to
take

the leadershi-p, and enough courage to inist upon leading.

I suppose

this applies to any business;
My fears about the Federal Reserve System are

to two or three important

c,A6tions of policy:

ual process the Federal Reserve

than a supervising body.

ford will

practically confined

The first is that by a gr4d-

become an oper-ting body, rather

When that happens, as it well may in future ye.,

the initiative of the local banks is goie, and the temptation to make political
use of the system will become almost irresistible.

Your own attitude in this

matter has, in my o-inion, done more to safeguard the system than any

other

thing, and I only hope that you continue in office long enough so that
tion and a




ound public opinion will

tradi-

,rotect the system against any such un-

Governor Harding

2

12..29.19

fortunate development.

My second_ fear has teen that having no function of

rather of

management, but

eupervision, positions on the Reserve Eoard eill not 1.rove attr-ctive

to able men and the Reserve ,54etem will, in time, become subject to the whims

of an incompetent board, and

ment.

have its

policy_ ee,inated

Thie calamity would be equally

eerioue with

by Lhe Treasury Depart-

the first.

There is, how-

I see every evidence thet you appreoiate all of these

ever, a middle ground.

matters and realize that a combination of a strong board, supervising

hexing strong local

banks

menagemeate, is the one desirable development, and I hope

th,.t. you stay in your present position indefinitely and

find

it, pobeitie to

carry out such a policy.
My third feer for the system has been the
unusual period of the ear

might lead

ex eriencee during the

to a tendency to amend the Act in a

radical way, so that the solid, eound structure on which

no

being built will be weakened.

greeter powers to the
Deeartment

the Reserve Syetom is

Such amendments, for inetance, as givin,

board in fixing, rates, or

greater

poeere to the Treasury

in using the Reserve Banks, or, on the other hand, circumscribing the

autonomy of the banks, - all of these things I believe would eeeken wb,t is

now a sound,

balanced division of

functions and authority.

This is simply pr'eliminery to e]elaining my attitude
leave of absence granted

to me by our directors.

in regard te the

My first desire as to re-

sign actually and finally, but I felt obliged, s I stated to you the other

night, to let the director have some voice in this decision. They were
unanimous in their desire, es I understand it, that I should take a leave of
absence rather than resign, and they seem to nave their own good reasons for
having passed the resolution

that they did.

I

have condidered matters and have

decided, of oouree subject to the decision of the Reserve Board, that it is
wieer and




better

for me

to accept their decision, and, selfishly, I am led to do

Governor Harding

3.

12.29.10

it somewhat by my desire not to sever finally my connection with the Eank
until more develoement work is finished, and until the system has had experience in adjusting to new conditions following the war, - in other words,
more of our bridges.

until we crose

If you think it is unwiee for me to

take this position,. I want you to let me know.

It is perfectly obvious that some members of the Board are opposed
to the plan.

Possibly some of them think it would be better for me to resign.

I cannot help but feel

that

the decision as to that lies between the Federal Re-

serve Board and our directors, because, after all, it is the directors of the
bank who must in the first instance determine what is best for the bank, and
their opinion in that matter was

As

expressed in

the reeolution they passed.

also explained to you, I would be

disappointed if I felt that

the terms of my leave of absence might establish a precedent which might pos-

sibly in the future

be to the greet detriment of others who

suffered bad

If the Board feels that ,.ome special ruling on that matter should ue

he,eith.

a,de with

relation to me, in regard to my present circumstances, which would not apely to
others, of course they will

see that this is

done.

I have written this letter for your eye enly, so feei willing to say
le ueeelusion that I took up the ,vork of the bank to make a succe,e of the bank

and not for any personal .rofit or advantage, and if

Rill

the success of the

bank

be promoted by appointing some one in my place, 1 hope the Federal Reserve

Board and our directors will promtely agree upon doing so.
I wish you the greatest poseible success in what you are
splendid in every way and will bring its own reward.
Faithfully yours,

Honorable W. P. G. Hardin,

1366 - 19th Street, N.
Washington, D. C.

bS.MSB




doing, which

ti)

Memorandum for Governor Harding on the effect upon American business and
American industry of prevailing discounts in foreign exchanges.

In ordinary times and under nermal conditions of trade, the fundamental
.principle holds that a fall in the exchanges operates to retard exports and
to encourage imports.

A fall in the exchanges tends to close the door through

which exports flow out, and to open the door through which imports flow in.
Rising exchanges work in the opposite way and open the door for exports and
close the door for imports.

It might be deduced from this that the present

heavy discounts in foreign exchanges would have the effect of accelerating imports and retarding exports, with the result that a period of readjustment
would set in, not only in prices but in wages.

The production in American in-

dustries making goods of the sort that come in from abroad would be curtailed,
as wOuld also the production in American industries now engaged largely or in
part in making such goods for export.
But present times are not ordinary, nor have conditions in trade been
normal.

The primary and most important variation from normal conditions is

that the former European belligerents are off the gold basis.

The old exchange

rates, which we know as "parity," were stated in terms of gold - or with respect
to countries which were not entirely on the gold basis upon a fairly fixed and
standarized basis of currency.

With the inflation of the foreign currencies the

old parity rates do not apply, and they are at a discount which approximates the
discount of those currencies from gold.

We

have in fact a new parity, not fixed

but fluctuating in much the same way as the value of the foreign currencies fluctuate in relation with ours.




This principle was cited as long ago as 1861 in

Goschents Theory of the Foreign Exchanges, in which he speaks of this new parity
as"a new standard."

Speaking of it he says:

"We have thus discovered an influence which apparently affects the

fluctuations in the Foreign Exchanges far more powerfully than any
)reviously discussed;-interest of money, a balance of debts over
claims, panic, distance, and so forth, practically cause the exchanges to vary within a few per cents.; a variation of ten per cent.,

owing to all these circumstances combined, is considered something
extraordinary, and only occurs under rare combinations.

But, as soon

as the element of currency is introduced, we have had at once an instance before us in the Vienna exchange of a variation of fifty per
cent.

So in the Russian exchanges, owing to the enormous amount of

paper money afloat, which is practically inconvertible, the most
violent fluctuations are constantly occurring."
This new parity, fluctuating in accordance with the buying power of the
currencies of the nations in relation to our own, bears a close resemblance to
the rise or fall of the price indices of foreign nations in relation to our own.

The intimate bearing of commodity prices upon foreign exchange rates is seen on
the attached chart, in which the movement of commodity prices is compared with
that of foreign exchange rates from January of 1919 up to the most recent dates
for which figures are available.
to a common base, that of 1913.

The commodity price indices have been reduced
It will be seen that when the price increases

in the United States are offset against the price increases in other countries,
the movement of exchanges is very closely the same.




6/0

540

C-1 ti OD/Ty PR/ CE6
'/70

I.

J,00

=

/ ....'
//a:4 C

1-... 4 0

Se...

It.....%
)(.....-r1 748..1-..V..
j"....
.../.

.......

330 ---- A .-- It ----

lit..--* ...
......... ..

/

A 7..
.... re.

tk.

45

e6o

igs

30

' Ce`

<)1;>"1.

ExcHil
Pfi TED.
:(Dcc L //v in, 7o
GOLO 12,9R/7y)
60

if


CoJiVN
/18R


ri a y

FR 01?

44

V

The operation of trade under this new parity is simple and dependsAupon the
common rules of commerce.

Whether a British merchant, for instance, will con-

tinue to buy in the New York market when sterling has declined 30 per cent. from

its old parity dependskm his chances of profit--that is, whether he can
pay for New York goods in sterling converted into dollars and secure in his own
market a price in sterling above that paid, plus the costs of transportation and
handling.

-Lii-etriiwii4460.4Q the important factor of currency AgiWinflation abroad, as relating to the course of American foreign trade, is
American goods.

that of

European necessity for

It is obvious that during the war and for some time after it the

European nations were willing to pay any price (or to commit themselves to the
future payment lit any price) for American goods.

With the passing

of

the emer-

gency of war and the conditions which immediately succeeded it, this factor is
likely to give way before the normal demands of trade, and Europe will look to us
for goods and materials which it cannot secure elsewhere

at

better prices.

A third

and less importantAsiomeni has been the prohibition on the part of certain European
countries against the importation of luxuries from the United States; and finally,
the embargoes upon the exportation of gold.

The highly important results to be

anticipated from this policy and from the fact, also, that foreign gold supplies are
limited,

will

be spoken of below.

All of the factors mentioned above have worked to prevent the operation of the
fundamental principle governing the movement of exchanges and trade.

Otherwise the

readjustment of trade would have been violently initiated in March of 1919, when the
exchanges were

unpegged.

On the

contrary the volume of exports rose to unprecedented

heights and continued so for some months.




The rise in prices since the

-4beginning or the war has been so violent that ail oongarisons in money values

t wort Ind export

have lad to distorted oonelusi. Autual cou,pitttn

tonnnre rr-tdeby the United Itatos Shippinti Eoard furnichoi the ',"als for
h!, the fitrvrd Nrequ of Root:ogle rie,Av,rch, tnd these agree

eativotav

()lovely with estimIteEmndo inlo,oneptly oy tho Pederal teeerve filmic of Nftw
York.

4-,coe latter computstions, artiw eliminating pricc distortion Ind

tele:mal v-/rittiont shcA, ttet, OA tho ,v*reto exports for thy year 1919 were

*tout 5 per cent. ra-ove those of 1;17, aud for the firet zewm acntba of the
prw,lent yeqr tro pra,,tiotl:y the
11! ,,er cont. below the first r.oven

tInd aro elout

tx: the aveTage for
ntl-,s et' 1919,

n wor the exi rt4 vere

nderntly hemyy for thlt yr. In te 6Ke wny, te.eing the imports of the
calendar yr *f 1'717 as
E

batty, thy nottml volume cf imi rta in 1919 w-a Nout

per oent. tbeve, tnd fer the savor. .,Tcnths of 1920 were about bb pox' cent. kbr:vt)

thi

f*,.'r,

the wrarvo fr,r 1017.
The fc1L-w1ne

alaki prepred by the Padorai awierve E-nk Qf Nes York.

eivt.o tte ind9x ftoron ne exportl to-A ixpcxti,, ainoe the krrIstioe, sitt 1917 :a a

corre.-tsd for prise di4t4rtIn

leDorte

Exp(xtra
,

1018 -

Nevemter

IQ.

1019 -

7,0c4wher
Jar.1%ry

71.7




Fet,ruiiry

.96.1
1.06.4

NAroh

101.2

Aril
ay

%in,-,

July
Auguat

r1 varitil.n.

1$.T.4

115a

67.5
71.6
72.0

5!.3

E5.5
.ft
111d'.5

lEt.

1C4.:J

114.1
114.

Yt).1

119.8

5

imports

Exports

1919 -

1920 -

September
October
November
December
January
2ebruary

91.5
75.3

148.1
128.1

86.9

133.1

74.4

111.4

88.2
91.6

131.0

March

110.3

133.7
133.3

April

95.1
107.4

129.1
115.4

June

97.3

151.1

July

109.2

155.8

May

An examination of the progress of the foreign trade of the United States
since 1880 suggests that while exports and imports varied greatly from normal
during the war period, nevertheless they are now reverting to the normal line
of increase carried through the forty years.

The accompanying chart, which is

drawn in units of one hundred million dollars and from which price distortion
has been eliminated, shows the course taken by our foreign trade since 1880, and
while exports increased in great volume during the war and imports declined they
are now nearly at the normal 11124 wit.i6-1084.70...imioomkial...maa...14014x4e-elightly below

-sar.
Naturally the greatest change in our foreign trade during the war years
was in our !.:;uropean commerce.

Taking 1917 as a base, the volumP of imports

from

:lurope in 1918 decreased nearly 50 per cant., whereas in 1919 they were about
8 per cent. above 4iiiwees4101106v 1917, and for the seven months of 1920

116.01q, 60 per cent. above the

tlIcy

,iaru

imperilm-for-Cope-eiiikvaspeimliaby-ail 1917. Simi-

larly the volume of our exports to Europe in 1918 fell about 14 per cent. from
the

1917 base while in 1919 they were about 8 per cent. above, and for the seven




'

or
O'Nir

z

fib/FE-4:w TRfiz_DE
/86o- /9zo
PAArcz .1)/.57-oRriom ELim//y/77rt)
40-

444-11""

200
04

40otiEsric &Pc R r.5-

9*

8o
To
&




/

41

/,vcirs

,

-6-,LA/Lpe..

months of 1920 they were nearly 20 per cent. below -6400m-#er-tire-eerrirrpermel.i.mg
In other words, Europe has been buying less of us and had been

wimAirr-tre 1917.

^

selling us more as she has gained relief from war conditions.

Her necessitous

buying has been much reduced, she has been able with the restoration of sea trade
to tap the stocks of foods and materials in distant countries like Argentina,
Australia,: India. and China, and at the same time has been able to ship goods to
this country.

The following table shows index figures since the Armistice for

exports from the United States to Europe and.p.a- imports from Europe to the

United States, on the basis of the average for 1917.

Seasonal variation and

price distortion have been eliminated in both cases:

Exports

1918 - November
December
January
1919
February
March
April
May
June

July
August
September
October
November
December
1920 - January
February
March
April
May
June
July
* High

** LOA




61.0 **
70.2
84.6
103.0
99.9
139.6
113.6
200.7 *
124.5
112.7
85.1
74.3
89.7
72.2
87.5
83.5
95.8
77.2
85.1
70.1
87.1

Imports

38.0 **
46.4
39.3
57.9
71.2
77.3
88.2
100.7
108.5
115.3
162.5
153;1

172.8
151.2
164.6
162.2
169.6
154.0
130.7
172.1
183.2 *

-7-

That a reversion to normal implies a great increase in our imports from
Europe appears from the fact that in 1914, 48 per cent. of our imports came from
Europe, whereas in 1919 our imports from Europe were scarcely 20 per cant.

On

the other hand, 60 per cent. of our exports in 1914 went to Europe as against 63
per cant. in 1919--almost no change. pa proportion of our exports taimilme40...

remained almost static--14 per cent. in 1914 and 13 per cent. in 19197 41'.-/

Our imports, 4wil;

increased in greater degree---from 19 per cent. in 1914 to

24 per cent. in 1919.

The variation in the classification of our exports timmtrag=testit:=
in recent

montht7

*

-iur

shows striking changes.

Exports of food-

stuffs, including both raw foods and food animals and foods partly or wholly
manufactured, have declined.

Crude materials for use in manufacturing have as a rule

been much more heavily exported since the Armistice than during the war.

Exports of

semi-manufactured articles for further use in manufacturing have been somewhat lower
than in the war period.

Exports of manufactured articles declined in the latter part

of 1919, and since then have risen again.

In these figures are reflected the growing

independence of Europe from America as a source of food, her greater demands for crude
materials with which to rehabilitate her manufacturing enterprises, and the continued
and latterly growing demand for manufactured articles, among which are machinery and
labor-saving devices.

41e*r four groups.

In the following table the exports are classified according to

The figures given are index figures on a base of 1917

distortion and seasonal variation eliminated.




CLASSIFICATION OF EXPORTS.

INDEX FIREIS (base 1917)
(Price distortion and Seasonal Variation Eliminated)

Jate

Lanufactured
Articles

1917
Jan,
Feb.
Leh.
Apr.
1..ay
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1918
Jan,
Feb.
Lai%
Apr.
,Jay

June
July
Aug.
Sept.
Oct,
Nov.
Dec.
1919
Jail.

Feb.
Lar.

Apr.
Lay
June
July
Aug.
Sept.
Oct.
Blov.

Dec,
1920
Jan.
Feb.

iar
Apr.
Lay
June
July




Semi-thnufactured
Articles

Crude 1.aterial

for use in
Nanufacturing

127.19
122,88
130.39
121.28
118.04
127.01
87.93
93.70
82.57
76.94
65.45
73.23

111,68
94.10
115.27
112.65
121.63
128.31
87.55
110.26
88.68
79,20
76.68
94.48

119.09
81.46
80.18
66.83
90.82
85.49
93.05
147.04
114.28
111.81
94.80
107.72

70.91
58.95
70.05
70.64
86.02
80.82
90.08
84.35
71.89
51.29
57.18

85.52
79.02
74.40
78.44
96.77
88.76
92.90
83.03
72.28
45.35
54.89
41.68

112.25
109.62
96.47
82.00
120.96
125.94
109.40
126.89
125.67
98.41
87.93
143.56

64108
63.32
50.95

61.44
60.77
51.87
63.97
53.80
93.58
64.16
73.36
68.00
44.19
42.13
35.96

165.97
148.44
137.66
139.16
148.93
260.50
208.93
185.05
111.01
112.42
222.20
194.44

61.36
75.53
89.33
84.49
103.18
95.35
101.08

46.15
52.45
64.06
57.29
66.47
60.48
62.54

233.75
200.08
244.00
195.74
154.80
133.77
162.73

Food Stuffs..

46.48
66.65
84.98
75.25
91.11
91.36
134.04

its:m3

i7 4

85.56

itEtas

'i -) Tg

.

.

123.18
96.87
107.65
127.01
134.50
154.51
84.85
102.40
67.61
68.37
76.11
87.08
83.06
99.24
164.94
177.39
187.45
152.68
179.52
153.05
125.51
94.80
100.60
122.70
135.99

165.00
184.94
253.32
206.08
338.62
186.29
171.83
140.54
107.71
110.62
89.37
105.17
98.12
118.85
95.29
129.90
114.76

-9-

It may be deduced from the foregoing that other forces have upset in a
very large degree the normal working of the fundamental principle of foreign
exchange given at the beginning of this memorandum.

The rule, however, as

modified by Viscount Goschen, apparently does apply and may be expected to
apply in future, namely, that in so far as the exchanges are concerned our
exports are accelerated or retarded according to the degree that the rates are
above or below the "new standard."

They may be expected to operate, however,

within narrow limits, because a variation, as Goschen says, "within a few per
cents." from the new parity will, of course, affect very seriously the profits
of the foreign buyer.

Further, it will be difficult at any time to determine

precisely what the new parity in any of the exchanges is,Abec'alie of the varying factor of currency inflation abroad.

Possibly the most practical ind

it will be found to be the price movements as shown in the foreign commodity
price indices as compared with our own.
It may well be expected that a far more dominant factor than exchange
rates, fts determining the course of our foreign trade, will be the amount of

capital which the United States may be able to export, either in the form of
credits for foreign purchases here or in American investments made abroad.

In-

creased imports of goods may also be a means of maintaining our export trade.

We have become a creditor nation, and when foreign countries find themselves
able to pay interest and amortization charges on their debts held by us, an adverse trade balance may develop.

Clearly it will be in goods and not to a pre-

ponderant extent in gold that foreign nations will settle their balances with us.
But it will be largely for these reasons and not to any great degree because of
a decline in exchanges from the old parity, based as it was upon the gold standard,
that a readjustment of our foreign trade may be expected.




M.sc. 4

Offic

Correspondence

To

FEDERAL RFSERNT,

BANK OF NEW YOF,6:.

ccuut

Date_

24

171/ttli

-C4P-A/1/4C




2 3 - )-o

usied

From

eLAA_Altvpv 40L6

-

ti 49-ck

0--un.

9*-

c_liuthar

ecember 1, 1920.

4

dear Govtrnor Harding;

I take pleasure in enclosing a letter, addressed
to you, together with a

copy which Ur. Strong would appreoi to

to have you pass on to senator Pittmann.
The pair of silver

anklets will be forwarded to

Senator 2ittmann as soon as they ure
received at this end.
Yours respectfully,

&els. (2)

seerethry to Mr. strong.

Hon. W. 2, G. Harding',




Treasury Department.
.-ashington, D. 0.

Wihrhor 64rdisi4

;11AxIt owpp000 Lhat

bat. it..410054,werrhs.14;on
PERSONAL:

within rs,,i4t, sal 5$ two pil4ria
a

landuly ire'luehatia b

IT.1,(1347

't,e

teal V....A Wit: AM

114ence,

I think I

,

January 20, 1g21.

a, oeialoo, when therits la h4L an 0

tie

,,,ttary

Wait),

,0 t4to the lemlot

Dear Governor Harding:

-

Yesterday, quite late, just as I was leaving the office to attend a
meeting, I learned that you were to be offered the presidency of the new Edge Eili

corporation, and this morning's papers eeem to confirm the fact that this offer
aoul

has been or will be made.

Of course it is attractive, not only in money, in association, and,

evun

more, in the opportunity to take part in a constructive work of tremendous, value

to the world.

Without having the slightest intimation from you of what your

attitude may be toward this propoeition, I feel that I must, nevertheless, write
you at once to express my alarm and concern at the mere suggestion that yeu may
be willing to accept the offer.

The Federal Reserve System eeeme to have suecessfully met the test of

e4,

war finance, and at least of the first phese of post-war liquidation.

It has not

yet, however, passed through the trying and possibly bitter experience of political

attack and eAtempts which might wellnow arise to make fundamental ohanes in the
law.

Frankly I regard this coming period of the next year or two as most critical

in the history of the System, and you are needed more than any
right there in Washington.

I tremble to think of the consequences of your leaving.

More than that, - and I hope the argument wii
is nothing which

an in the System

appeal to you personally, - there

would be so discouraging to your assooiates in all the reserve

banks as to have you leave the Eoard.

One cannot lay out very well in a dictation

of words anything satisfactory in the way of a description of ones feelings of discouragement in the face of such an occurrence.
ting the job myself just




6.6

I would, personally, feel like quit-

soon as I could do so with decency.

Governor Raroine,

1.20.21

shouldn't suppose that you would ever be unduly influenced by monetary

considerations, but if you should happen to feel that this is an opportunity which

will not be within reach, say a fe* years hence, I think I c.,In aesure you that there
will never te a time, in my opinion, when there is not an opportunity equally favor..
able with thie one, to come to Mb* York and take the leadership in come big institu-

tion or in large affairs, but, in the meantime, this country needs you in hashin6ton,
your associates need you there, and 1 knew that I am expressing gist inadequately
both my own feelings and those of all of the officers of the bank in New Turk, and

of the other reserve banks, when I say that we would regard it as a calamity of the
first magnitude to have the head of the ystem resin just now.

't

Sincerely youraot,
vflinz

CEOMirg'

ali&ht.est

frc

feel

Honorable A. P. C. Rardin6,
Governor, Federal Reserve Poard,
Washingto,n, D. C.

4,

I must, aev,

.t t4

,

re s4gevotio

have su,asewfully wet taw

fire,

;oat-war

teve

titter

ad -

V

to maks fha4ameottal

"ran
.

BS.

you are, wvAded acre than any 81%4 in the

tremble t4 taiak.of

(Dictated but not read)
t,1




(4,0,11.5

14,

periw; et the heat year or t*o 1,6 so$J,
OA"

:14

ewer:lance nf

414.#1 ooneeiaaaove

Sys44fie

of 'our loaT1(

ar4onent *Ili apiesal to you persrAnaiiy, Lhere
diseouragtng to your associ,ates in all the reerve
.4*
az-AN

tO.

One usenet lay nut vtry 'van in a dintatl.on
way of

4e4s4

ion arl

;

rwA.,Lnea et /!sp..

ree.i ,iks quit-

August 11, 1922.
Dear Harding:

Your telegram

came at the same time

that I learned that you were coming

to New York, so I have deferred writing you an acknowledgement until after we
had our

chat

yesterday.

First, let me assure you that I have a great deal of confidence
within

a short time

that

your nomination will go to the Senate, and I have equal

confidence that your appointment will be confirmed; so I am hoping very earnestly

that you will sit quietly by and await

this

outcome with assurance that ,ve all

realize the trial you have been through and that it

continue until the

will

matter of your appointment is definitely settled.

Looking back over the past eight years, I feel that no one realizes
quite so fully as I do what an earnest and successful effort you have made during those years to build uT. a real system.
The Governors of the Reserve banks have great confidence in you,

have always relied urIon you as their

friend and confidant

sympathetic point of view, and we shall all feel deeply
you are not reappointed and if our association
therefore, accept from me
you

from the entire

because of

shculd terminate.

a great many thanks and good wishes.

Yours very sincerely,




your

grieved and shocked if

country.

N. P. G. Harding, Esq.,
1336 - 19th Street,
lashington, D. C.

they

Please,
They are due

-

August '3, 19?.?

-.70NFIDEN.TIAL

Dear Governor Harding:

I have to a.cknotledge and thank you or yc.)ur favor of August 1.,

advising of the vies of the Federal Recerve Foard respecting my attendinq the conference o.f' representatives of' banlAa of issue to be held in
London probably in October.

ahile I believe our directors assume that I should attend the
meeting, they thought it W5F a little wiser to defer formal action until
later, and of course the Federal Reserve Foard till be promptly advised.
Yours very truly,

Benj. Strong,
Governor.

P. G. Harding,
Governor, Federal Reserve Board,
Vashington, D. C.
Honorable

136. MM




Pt/41

July ?7, 19?1.
CONFIDENTIAL

My dear G,-.vernor Harding:

During my visit in lasnington this and last veek, I had
opportuaity for a snort talk 4th tett) Secretary hughes and Secretary
ellcn in regard to the proposal that I should attend a conference
of representatives of banks of issue to be held in London probably
ie Oct ter. Neither Secretary Hughes nor Secretary Mellon could see
any objection to my doing so.
They have both read the tentative
draft of the Agenda for the meeting.

I gather that Secretary Hughes felt that there ' ight be
eome advantages in my attending the meetiae, eepeciery in view of

the declaration at the end el: fart of the prepoeed Agenda, which
obviously made the calling of a Monetary Convention an Impoesibility,
or at least very unlikely under present oenditicne.

He seemed to think that thet declaration wes an advantage
rather than ctherwise, and he agreed with me that it would be quite
unlikely at the preeent time that our Government would be willing to
call a Monetary Convention - or even possibly to participete in one
were it called.

He indicated thet purely financial queetiens ehould be passed
upon by Secretary v.ellon, but from the point o view of the Deearteent
ef Stete he eaw no diffinulties in the Agenda, and no objection to my
attending the meeting.
He did, however, ,ask thet I make errangeeents to keep him
Cully informed by cable upOn arrival in London.

This is in order that you may be fully informed of what has
transpired. I repeated this verbally to Dr. 1iller, tut vas unable
to do so with you owing be lack of time.
'Tours very truly,

Benj. Strong,
Honorable fl. P. G. Herding,
Governor, Federal Reserve Board,

4eshington, D. C.
BS.MM



Governor.

v

PERSONAL

November 9, 1921..

Dear Governor Harding:

was very much interested indeed by your personal letter of November
8th received this morning, commenting upon the description of the new Federal

reserve

bank building at Richmond.

Your letter came just after i had been

examining a plaster model of

a section of our new building as It will appear from the west end of Liberty

Street.

My particular impression of the building was its

general air of

restraint with which the architects have dealt
I
course we will

of the building.

tion of the

simplicity and the

with

the designing

sort of a

suppose in due
issue some

descrip-

building, but it will be no "Temple of Banking," and I am inclined

to think on the whole if

we are criticised for adopting a building of this

character and design, it will be because the building is too simple, has too
little ornamentation, and is not sufficiently impressive and distinctive for
the home of an

institution of

the

importance of this one.

It is amusing to speculate as to the

picking on the New York building as the

reasons

for the Ex-Comptroller's

object of his abuse when he

might so

well have turned his attention to a subject much nearer home.
Did you over hear of his opposing the

at Richmond, and especially opposing

in fact a

construction of

the erection of a. building which will be

marble templei
Yours very truly,

Honorable W. P. G. Harding,
Reserve Board,

Governor, Federal
Washington, D. C.

http://fraser.stlouisfed.org/
BS:MM
Federal Reserve Bank of St. Louis

the building

October 51, 1921.

Dear Governor Harding:
With this I am enclosing a copy of a letter of
intraduction which I have just seat to my friend, Mr. Eigo
Fukai, which will explain

itself.

His quarters while

in

Washington will be with the Japanese Delegation to the Conference on Limitation of Armament.

Mr. Fukai was one of the financial advisers to the
Japanese

Delegation to

the Peace

Conference in Paris.

At

one time he represented the Bank of japan in London, and when
a young man was private secretary to Marquis Matzukata.

Mr. Fukai speaks English fluently and is one of

the

best informed meathat I met in Japan.

I shall greatly

appreciate any courtesies that you

are able to show him, and especially any assistance which you
are able

to

render him during his stay in

Thanking you in anticipation,

Washington.

and with cordial re-

gards, believe me,

Yours very truly,

Honorable W. P. G. Harding,
Governor, Federal Reserve Board,
Washingten, D. C.
BS:MM

Enc.


October 31, 1921.

My dear

Governor Harding:
This letter will be presented to you by my friend,

Mr. Eigo Fukai, Deputy Governor of the Bank of Japan, who is
visiting this country as financial adviser to the Japanese
Delegation attending the Conference on Limitation of Armament.
Mr. Fukai is a warm personal friend with whom I
have had many most

enjoyable visits while in Japan, and from

whom I received many courtesies while there.

I am

anxious

that he should become acquainted with you and with the members
of the

Federal Reserve Board.
Anything that you are able to du to make his visit in

Washington an enjoyable and profitable one will be greatly
appreciated by
Yours faithfully,

Honorable W. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.
BS: MM







October 22, 1921.

My dear Sir:

am directed by Mr. Strong to send you the

enclosed letter (with our translation) for such attention
as you may wish to give. it.
Yours very truly,

Secretary to Governor Strong.

Honorable W. P. G. Harding,

Governot, Federal WiiVe Board,
Washington, D. C.
En c.
GB: MM

Enc.

(

Letter written in French received from "Crab, Hotel Clarij,
Paris" translated. Of no interest)

DeLd Covc;rnor

you know, is 21:nnini; to re n name :bout c,-.etober

It eeeme very dosin,ble, in view of tae m4Atere ve raLlie been
j.seueLin with Governor NorI,n, ta:_t he anb .;4t. j'i :,1(11U hsve onrLuniLi fOr

iittie vieit A:-Ler Governor horm:cak,e return to Lonuon,

i know that Mr jLy ie enxious tue-?ond 6, few (Ly:. in :.laiteraem 60 s to
become ,,,equinti.a with Lr. Viescring.
I ;,111 writib now to

you tht our executive eo;;Imittee

a.azked air. Joy, zubjaet to your .p2rov&I, to 6.rraigt to tzy on for
fel* weeko lon6r than orlintliy
Out we heve aavie d hifa of
.

the d4te of tae Joint Gonft:rnee of Feder:,1 Beserve 1ents end Governors
,..nd he eaolee tht,t 46 exptlets to be beck in makdc timc to rittenu the
meeting. I
ther tt-:..t he will bt hero L4b,:iut tht middle of Octobcr.
V;ouln you mind
your.

on vie, 4n4

dvibio me if tale Is .;t1i.te in :.:.coordanoe with
ti,, obiige,

Youre very truly,

Benj. Ztrong
Govrnor.

ILT6in

Honorbia

Govrnor, Poderid Eseerve bord,
WAniagton,
5.4/Rikh




C.

July 14, 1921.

of this bank to determine what are proper salaries, and what eaiaries must be paid
order to maintain an efficient organization.
Broadly epeaking, I think our officers receive probably not more than

half of what aen in similar positions are receiving in the large banking institutions in how York and other citiee.

this matter.

There is no Alestion of economy involeed in

Tile best economy ia always dependent upon efficient supervieion,

and that cannot be had except by the employment of efficient men.

I am now writing in pureuance of the desire of the directors of the bank
that we should have a definite reply from the Federal Reserve Board.

I beg to remain,
Yours very truly,

Benj. Strong,
Governor.

Honorable V. F. G. Harding,
Governor, Federal Reserve Board,
Itsehington, D. C.




July 14, 1021.

PERSDNAL

Dear Governor Harding:

e.

The director

of this bank submitted certain recommendations for changee

in the salaries of officers at the beginning of the year, many of ehich were
approved, but some of the more important were neither approvednor disapproved, but
held in abeyance pending further consideration.

Shortly

Werch, those salary changes whicn had not been approved were again recommended by
our directors, and I was informally advised that they would not be approved by the
board, and that it would be desirable to subwit each case for approval, or die-

approval, by

the Beard on the anniversery ef the employment of each officer by

the beak.

Since then no word has been received from the Board in regard to these
changes, and I am in receipt of inquiriee from the directors from time to time as
to whet

is

being doce in the matter.

Permit me, most respectfully, to eu&eet that the morale of our organization will suffer if recommendations of this character
or the other.

are not acted upon one

way

In both caees now pending before the Beard, offers of much higher

salaries have been made, and are likely to be renewed at any time to these men by
other institutions.

I am in a

position, and have been for some time past, of

indicating to theee gentlemen that they have a future with the Federal Reserve Bank

which would justify their remaining, notwithstanding these offers.

Naturally,

I am unwilling to continue any such policy to their detriment.
Is it not reaeonable that cur directors should aek that the Federal
Reserve Board should trust the judgment of the Chairman, Governor, and directors



July 8, 1921

:tfil
Dear Governor

HardAW

4111
c

I have concluded re6144014rthe synopsis of youriftstern

addresses with greatea-poesible interest, and'I do not need to
tell you I am in hearty accord with everything you said.

Various

reports indicate how much this has helped us, and while I know

the trip was an exceedingly tiring one, you must feel repaid by

the splendid results.
Yours very truly,

Benj. Strong,
Governor.

Honorable W. F. G. Harding,
Governor, Federal FegirrVe Board,
Washington, D. C.
BS:MM







March 17, 1921.

PERSCAAL

Dear Governor Harding:

I hoie you don't, mind my writing to Elliot Goodwin ouch a

letter as I have, a copy of which i6 enclosed.
What has always offended me about the criticiems emanating
from the Chamber of Commerce, an well as from some other eoonomic

organizations, is the lmck of intelligent inquiry upon which conclusions etated by these gentlemen are arrived at.

They are mis-

leading and do harm.

we are just now greatly concerned with these discussions of

our policy and I firmly believe that good attil be done by anticipating
such discussions; and harm will result if these gentlemen will make
charges %.gainst the System which are unfounded or unenlightened.

Yours very truly,

Benj. strong,
Governor.

Honorable 4. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.
BS:MM

Enc.

Warch 14, 1921.

Dear Governor Harding:

Your for of the 12th inetant, advising of the approval
__iven by the Federal Reserve Eourd of the proposed establishment of

a fund of 410,000, outlined in our letter of March 10, has been
received.

I am asked by the officers of the bank to express the

satisfaction ohich ,se all feel in having this matter arranged. It
A.11 be a most useful arrangement, and be a protection of the

interests of the bsnit.
Yours very truly,

Benj. Strong,
Governor.

Honorable W. P. G. Harding,
Governor, Federal Reserve Board,
Tiashington, D. C.
B:AMM




Governor Harding

3.10.21

In the opinion of our counsel, the payment of $10,000 into the fund in suestion
may proserly be made, subject to the approval of the
terms of those

Federal heserva Boaro,

under tne

provisions of Section 4 of the Federal heserve Act shics authorize each

Federal Reserve Bank "to exercise, by its Board of Directors or duly authorized officers
or agents, all powers specifically

granted by the provisions of this Act and such incidental

posers as shall be necessary to carry on the business of banking within the limitations
prescribed by this Act,"

and which specify that "any com.ensation

that may be provided by

boards of directors of Federal Reserve Banks for directors, officers, or employes shall be
subject to the approval of the Federal Reserve Boars."

In Viti4i of the importance of this fund to the proper ans safe administration of

the Bank, it is respectfully rnested that the payment of the sum of $10,000 recommended
by our Bosrd of Directors for the establishment of

a special and confaSential fund to be

administrated by the Bank's officers solely for the purpose of makiug loans to needy emm

employes in LL16 t4ner described be apsroved by tho Fadarui Reserve Board.

am enclosing for your isformation and consideration a copy of the report of

the special committee a, ointad to consieer tliti general susject of loans to emploies,
upon which is based the action of our ganaging Committee and Board of Directors.

will note that the committee is unanimously of the opinion that
fund described 1.

better

the establishment of the

calculated to promote the efficiency f the Bank's employes than

other means which have been tried by

other

corporations, such as the prepayment of salaries,

loans through savings and loan associations, loans through credit unions, etc.
Very truly yours,

BENJ. STRONG,

Governor.
Honorable
P. G. harding,
Governor, Federal Reserve Board,
Washihgton, D. O.

Soli. St,



You

PERSONAL AND CONFIDENTIAL:
garch 10,
Beer Governor Herding:

At A meeting of our Board of Directors yesterday sorninz It was voted to
prove a plen recoemended by tne Ssnaging Coasiitt,ea for tae eutabeiehment of A ceeh fund

to be cunfidentially &dsinistered by the Personnel Deeartmenk. of the feen%, under the

joint control of a de-uty governor, a controlier, end the menage' of the Personnel Department (who shall report direetly to the Governor) for the sole purpose of making advancee or leans to needy empluyee of the Lank.

e' reCaiving limitad selaries have fund themselves teseorarily preeeed for funs, either
c.,%(7

etany instance have been celled to the attentina of Ula officere *here employee

beeause of sickness or eeath in their families, or becauee of the accumulation of other
necessery expenses.

In the past whenever 3t,E16E4

the attention of the officers, they have eitner aueistee in eroourin6 loane for the
employe in ,iuestion, or have directly sada the loane themealves.

it ha e been felt, hoe-

ever, that eecictance of thie eherater is only a makeshift and that in order suitably to
protect our employes from the dietreee and temptations iaoident to tesperary neede of this

character, and to relieve the beni from the reeultene riaa, a fund of the kind referred
to should he eetaLliehed.
ehile the Managing Committee reuemmended that the fund ebouId be fixed in the

sum of 4,00°, the Director are strongly of the o-inion that that &mount ie too small to
provide for th

roper easinietretion of emeronoy relief of thin charecter, and it wae,

acoordin6ly, voted by the Directors to set %side out of current eerain, subject to the
approval of the Federal ileseeve Eoard, t,ua of 40,000 to Le eOsinietered confidentially
by the officers of the tank upen such ter mE end conditions aE may i2eer to them to be
warranted in aech individual caee.



February 2, 1921-

Ph1VATE AND GOAF1LEhrIh :

\`XV

ear Governor Harding:

You may have seen the enclosure, and 1 am bringing it to your atten-

tion because you should sea it if it does not reach you in the usual course.
do not know to what extent this dienussion is taking place, nor
have 1 made incuiry last it be enlarged upon or given undue prominence.

One

or two bankers have said something of that kind to inc and in each inst,mace I

have said that so far as 1 was are you had made no answer, no commitment,

and I waL srtiefisd you had taten an absolutely correct attitude.'
Information no re%ching me from two or three officers indicate that

subscrijions for the stock in this city will Le very slow in cumin,: in, and
it is thought -that the amount actually received, in some OttL.,6 at least, will
be vary much less than the quota which purxorte to be assigned to each bank.
Very truly yours,

Honorable fi. P. G.
Governor, Federal
Washinelton, D. C.

SL




rdino

erve board,

January 24, 1921.

PERSONAL:

My dear Hardino

Your personal note of the twenty-second is just received, and
am really much disturbed by what you write, and not alone because of

my great interest in the Federal Reserve SyLtemi

I am wondering

whether in the long run the work that you are proposing to twiertake

if the organization materializes will be just whit you yourself would
like, and on that point / hope to have opportunity soon, in Washington,

to have a little chat with you.
What you write ie greatly appreciated indeed.

I shall

feel very badly if our assoolation for any reason should be broken.
Sincerely yours,

Honorable W. P. G. Harding,
Federal Reserve Board,
Washington, D. O.

ES.M.SE







WARREN G. HARDING
1865-1923

A Orief Oiography
FOR THE INFORMATION OF
SPEAKERS AND WORKERS
IN THE

MEMORIAL CAMPAIGN

ISSUED BY THE

HARDING MEMORIAL ASSOCIATION
1414 F STREET NORTHWEST
WASHINGTON, D. C.

ARREN GAMALIEL HARDING,

twenty-ninth President of the
United States, was born November 2, 1865. He was ushered into

world that was just catching its
breath after a long and bitter war.
Fifty-five years later, on November 2,

1920, he was elected President at a
time when his country was staggering

Born at Blooming Grove, Ohio, November 2, 1865.

Newspaper publisher, November 26,
1884.

under the burdens of another great
conflict in which it had played no
small part.
He came to the office of Chief Exec-

Elected Lieut. Governor of Ohio, November 3, 1903.

utive of more than one hundred million people at a time when they were
weary of the distractions of the world
conflict, torn by the inevitable dissensions of post-war reaction, eager for a
return to the ways of peace, yet distrustful of the efficacy of almost any

Elected United States Senator, No-

plan proposed.

Married, July 8, 1891.
Elected Ohio State Senator, November 6, 1898.

vember 3, 1914.

Nominated for President, June 12,
1920.

Elected President, November '2, 1920.
Inaugurated President, March 4, 1921.
Died at San Francisco, August 2, 1923.




As a nominee for the Presidency,
Mr. Harding had promised his utmost

effort toward a return to normalcy.
While generally unknown to the people at large when named for the office,
the unprecedented plurality with
which he was elected stands as a sig-

nal tribute to the immediate conAdence which the character and person-

ality of the man, as disclosed in his
campaign utterances and appearances,
engendered in the electorate. This

recognition of qualities that won for
him the confidence and affection of all
men later on, was no surprise to those

who had known him in the intimacy
of his home life in Ohio and in the
United States Senate. But the steadiness of his temperament, the fine bal-

ance of his judgment, the justness of
his purposes and the simple, wholesome, lovable qualities of his nature
had already made impress on the public mind before election day, and tin,
judgment of the people expressed at
the polls was abundantly justified in

the quality of service Mr. Harding
gave as President.
The career of Warren G. Harding

is an inspiring romancenot of the
sensational and meteoric flight of a
barefoot boy to the Presidency ; but
of the typical American boy of good
stock and parentage, who obtained an
education not without labor and struggle, made his way steadily, and

through his own sterling character
and efforts, filled the offices to which
he was elected creditably and honorably, and through a logical course of

hard work, just thinking and loyal
serving achieved the Presidency.
There can be no more inspiring example to the young men of the country
than a career so conceived and so admirably followed.
Warren G. Harding was born on his
grandfather's farm in
Grove, Ohio. His father, George T.
Harding, was the village physician and
at that time, and for some years afterward, was in moderate circumstances.

planting corn, cultivating crops--and
he learned not only to do his work well

and thoroughly, but gained in bodily
vigor.

ot At the age of fourteen he was enered at Ohio Central College. He did
not show any special aptitude for political life during the early years, his
only office on record seeming to have
been the editorship of a college paper.
But it was a very significant period.

From time to time he had to stop
school to earn money. An untrained
boy had to accept the work he could
get; and he must have laid the foundation at this time of that characteristic of his public career which enabled
him to make enduring friendships and
lead others without antagonizing them

a gift that is best described in the
homely phrase, "getting along with
people." In these intervals of schooling he cut corn, drove a team for a
contractor grading the roadbed of the

Toledo and Ohio Central Railway,
raised wheat on a half acre of ground

his father had given him, and for a
short time taught a district school.
He came to know people and to be
Blooming
fond of them.

The doctor's son played an alto
born in the Iberia brass band for a
time; but never for a moment did he

Warren attended the village school,
and, like the other boys of the town,

lose the inherent dignity of person
and character on which no one ever

had his chores to do before school and

sought to presume.

had to help with the farm work during vacations. It was not play-farm-

1834.

ing, either.

The boy's labor was

needed in those days, in clearing land,



Dr. Harding moved to Marion in
Marion then had a population
of about 4,000, and supported three
newspapers. Warren got a job in the

office of the Marion Mirror, a weekly.

Like Benjamin Franklin, his first
contact with journalism was through

the medium of printing. He had
learned to set type at the village print
ing office, but at the Marion Mirror he
was required at times to take in hand
any sort of work that the day brought

forth, from setting type or soliciting
subscriptions to writing editorials.
There is an amusing anecdote of
the uncompromising though youthful

Republican, who joined the local
James G. Blaine club and insisted on
wearing to the office of the Democratic

Mirror a high and shiny Blaine hat.
Harding left the Mirror, not as was
rumored, because of the practice, but
only after his employer suggested that
he purchase the nearly expiring
Marion Star.

"I've nothing to buy it with,"

Harding told him.

"You go over and do what I tell
you; it will work out all right," he
was advised.
And on the following day this sim-

ple announcement appeared in the
Star : "We have purchased the Star,
and will stay."
Harding had become the owner of
a newspaper at the age of nineteen.
The immediately ensuing years
were full of difficulties. Until the
newspaper itself began to bring in re-

turns its youthful owner sold insurance on the side to meet his obligations. He had to fight competition
and the bitter attacks of his rival editors. Yet through it all he kept the




loyalty and respect of his staff and
of a growing circle of friends. The
men on the Star always referred to
him affectionately as "W. G." Dur;77g these years of effort, Mrs. Har-

uing, to whom he was married in
1891, worked with him. Her sympathy with all that he undertook, her
advice and her practical help in taking charge of the management of the
circulation and the newsboys remains
an inspiring chapter in the life of this
man who set the influence of women
and the home foremost among the inspirations of America's life. The
paper came to have the largest circulation of any paper in a city of thirty
thousand in the Middle West; it came
to be very prosperous, but it remained

to the last true to the creed formulated by its owner:
"Be truthful. Get the facts. Be
decent. Be fair. Be generous."
Newspaper work is not directly connected with public life, but it enabled

the young Harding to make many
friends, and it was possible, through
the vehicle of his newspaper, for the
people of his county and its vicinity
to learn of his views and the manner
of man who was its editor. In addition, he had attracted the attention of
the Republican leaders by his fine abil-

ity as an orator and was asked to
speak with such men as McKinley and
Foraker.
In 1898 he was elected to the State
Senate by the voters of Hardin, Logan,
Marion and Union Counties. This was

his first public office.

He served a

second term in the Senate, rather
against precedent, and was elected
Lieutenant Governor in 1903 on a
ticket headed by Myron T. Herrick.
It is a significant comment on his

vice in the capacity of Lieutenairi
Governor that Herrick was one of his

chief supporters in the Presidential
campaign of 1920. Mr. Harding declined renomination for the office of
Lieutenant Governor and returned to
his newspaper.

In 1914 he was elected United
States Senator from Ohio, and so
made his entrance into National politics. Visitors to the Senate were always impressed by his commanding
presence and pleasing bearing and by
his speeches, but even during the six
years that followed he did not really
become known to the country at large,
because he never sought public attention or indulged in spectacular efforts
that attracted it. But always he continued to widen the circle of his friend-

ships, for his personality was attractive and admirable to all men.
He was nominated for President on
June 12, 1920, and elected in the fol-

lowing November by an unprecedented plurality, after a campaign in
which he announced from the porch
of his home at Marion his views on
the Nation's needs and his promise of
a sane and business-like administration that should restore the country
to a state of normalcy.
When President Harding took up
his duties as Chief Executive he expressed plainly his purpose to keep



Government expenditures within the
limits of the National income and to
lift the burdens of war taxation from
the American people. He spoke of
nese things in his first address to the
congress which met on April 11, 1921.
The Budget Bureau of the Treasury

was an outgrowth of this determination and to its adoption he gave unflagging support when the measure
came up in Congress.
He sponsored the Washington Con-

ference on the Limitation of Armaments, attended by the representatives of nine Powers, which resulted
in an agreement for limiting the number of capital ships and in a series of

treaties designed to prevent trouble
in the Far East. Another great
achievement of his administration was
the refunding of the National debt on

a basis which insured substantial re-

duction in the taxpayers' burdens,
and again a notable service was the
readjustment of the British debt.
There were many other achievements in the short time that was given

him: The Four-Power Treaty, revision of the tariff, settlement of the
coal and railroad strikes, comprehensive planning for the rehabilitation
of the Merchant Marine, abolition of
the Excess Profits Tax, and advocacy
of America's participation in the socalled World Court.

These mark but the beginning of
the things he planned to do in the
vision of a service he had set himself
to give to his country and to humanity.

Each thought and purpose grew out

of his love of his fellowman, out of
his desire for peace, out of the gentleness and goodness of his nature.
His sudden death at San Francisco
on August 2, 1923, two years and fir
months after his inauguration, brougfii
home to the Nation not only realization of the part he had already played

in getting his country "back to normalcy" and in restoring peace and
goodwill among men, but of a sense of

personal loss that reached deep into
the hearts of the people. He had been
their friend understanding, fair,
sympathetic, human. The tribute
they paid on that last journey was to
one they had learned not only to trust
but to love.
The purpose is to perpetuate such a
memory as a treasured possession of

the people
First, by providing a fitting resting
place for his remains at Marion, Ohio ;

Second, by making of the home
which he so long loved and 'occupied
an enduring shrine for the preservation of his books and personal belong-

The Harding Memorial Association
has been incorporated under the laws
of Ohio to carry out these purposes as
trustees of the people.
eosThe week of December 9 to 16, 1923,

ti-As been set aside for public observance and the securing of contributions to the fund. These may be made

through local representatives of the
Memorial Association, through religious, educational, civic or fraternal
organizations and banks throughout

the country, or
They may be sent direct to the Trea-

surer of the Association, the Honorable Andrew W. Mellon.

Each contribution of one dollar or
more will entitle the giver to an associate membership in the Association
and will be acknowledged with an ap-

propriate and attractive certificate
bearing an engraved portrait of President Harding.
Contributions will be free from tax-

ation under the general ruling that
gifts of this nature are exempt up to

ings and the mementos of affection

fifteen per cent. of one's income.
Checks should be made payable to

bestowed upon him;
Third, by establishing in some ap-

HARDING MEMORIAL ASSOCIATION,

proved University a department of
instruction that shall fit men and women for intelligent, efficient business
and diplomatic government service ;

Fourth, by providing a fund sufficient to maintain these several memorials adequately and in perpetuity.

It is estimated that the sum of
$3,000,000 will be sufficient to meet
these purposes.



THE

1414 F St., N.W., Washington, D. C.




HARDING MEMORIAL ASSOCIATION d
HEADQUARTERS: 1414 F ST. N. W.
WASHINGTON, D. C.

Honorary President
Acting President
First Vice-President
Second Vice-President
Third Vice-President
Secretary
Treasurer

CALVIN COOLIDGE

Jos S FRELINGITUYSEN
JOHN HAYS HAMMOND
JOHN BARTON PAYNE
ALBERT D. LASKER

GEO. B. CHRISTIAN, JR.
ANDREW W MELLON

BOARD OF TRUSTEES
PRESIDENT CALVIN COOLIDGE

Hon. CHARLES E HUGHES
Hon. ANDREW W. MELLON

Hon. JOHN W. WEEKS
Hon. HARRY M. DAUGHERTY

Hon. HARRY S. NEW
Hon. EDWIN DENBY
Hon. HITBERT WORK

Hon. HENRY C. WALLACE
Hon HERBERT HOOVER

Hon. JAMES J. DAVIS
Jos. S. FRELINGHUYSEN
CHARLES E. SAWYER

D. R. CRISSINGER
CHARLES G. DAWES
EDWARD B. MCLEAN

JOHN BARTON PAYNE

FRED W. UPHAM
JOHN HAYS HAMMOND

GEORGE B. CHRISTIAN, JR.
HOKE DONITHEN
JAMES F. PRENDERGAST

EXECUTIVE COMMITTEE
CHARLES E SAWYER, Chain-man
JOHN W. WEEKS

JOHN BARTON PAYNE

CHARLES G. DAWES

II

FRED W. UPFIAM

D. R.CRISSINGKR

EDWARD B. MCLEAN

(

C 0

Y

)

FEDERAL RESERVE BOARD

WASHINGTON
January 4, 1917.

Mr. Pierre Jay,
Chairman, Federal Reserve Bank,
New York.
Dear Mr. Jay:

Since authority has been given your bank to open an account and to
establish an agency with the Bank of England, it seems proper to suggest.
that your bank consider the further development of its foreign operations.

While it will be difficult, under existing conditions, to establish active
business relations in belligerent countries, it appears that there are no
great obstacles in the way of forming connections in some of the neutral
nations, 'and I write to ask whether your Board will not consider favorably
opening negotiations with some of the Government banks in such countries.

It has been indicated to the Board from several quarters that a connection
with the Federal Reserve Bank of New York would be desirable, particularly
for the purpose of enabling foreign banks to have gold earmarked in New York
with the Federal reserve ban'k.

For example, we have been informed that in

the olive oil business it might,be convenient for the Bank of Spain to have
gold ear marked in New York - gold that would be paid in on this side by some
imoorters - while the Bank of Spain would make advances in pesetas on the
other side.

As you are no doubt aware, a representative of the Norwegian government has been here recently to look into the same question of having gold ear
marked and kept in custody for that nationality.




It has been guested further that in view of the difficulties ex-

-2-

perienced in Argentina in arranging for shipments of gold to that country,
the Banco de la Nacion of Buenos Aires might entertain the suggestiort that
Incidentally,

it have gold earmarked with the Federal Reserve Banc_ of New York.

it seems to us that it might be well to write such government banks that you
are in a position to arrange for them forward discount rates for any bankers
acceptances that they might wish to send you for discount.

The Board believes

that it will be desirable to open correspondence with some of these government
banks, informing them that the Federal Reserve Bank of New York is ready to
consider reciprocal relations, making the foreign banks agents of the Federal
Reserve Bank of New York and to serve in a similar capacity for them here.
correspondence will soon bring out what the possibilities are for the development
of such ,business that may be properly engaged in by the Federal reserve ban.:,,m

with their foreign agencies.
I will be glad if you would discuss this matter with your board, and
request that you give me the benefit of yaur views




in

this connection.

Very truly yours,

(Signed) W. P. G. Harding,
Governor.




967

FOR RELEASE IN MORNING PAPERS, JANUARY 14

PRESS

1917.

STATE1ENT

January 13, 1917.

After having given much attention to the problem of controlling and regulating the gold supply of the United States and
to the question of bank reserves in general, the Federal Reserve
Board has prepared and transmitted to the Chairmen of the Committees
on Banking and Currency of the Senate and House of Representatives
recommendations for the amendment of the Federal Reserve Act. While
it is not deemed desirable to give out the text of the amendments
transmitted, since they will probably soon be introduced in Congress,
the following general statement concerning them is made public.
When the Federal Reserve Act was drafted its principal
object was to deal with national problems of banking and currency.
Since its enactment financial and economic conditions in the United
States have undergone far-reaching changes which were not foreseen
three years ago. The United States has grown to be a world power
in financial affairs and it seems necessary that the Act,which has
proved of such great value in the treatment of our domestic problems,
should now be amended in order to enable us to deal effectively with
the new international problems which seem destined to play so important a part in our economic life.
The banking system of the United
States should be prepared to meet effectively two conditions of opposite character - one, the excessive and uncontrolled inflow of
gold, the other the excessive and unregulated outflow of gold.
The
amendments proposed are designed to provide means of controlling an
over-extension of,loans based on new accretions to our gold stock
and to provide for the mobilization and concentration of the gold
holdings of the United States so that the flow of gold back into
Europe, or to South America or to the Orient, may be arranged without forcing any violent contraction of loans or causing undue disturbance to legitimate business.
Of approximately two and three-quarter billions of gold in
this country there are held or controlled by Federal reserve banks
about $736,000,000, of which Federal reserve agents hold $283,000,-..
000 as security for Federal reserve notes outstanding, and $453,000,000 is reserve money and must therefore be used conservatively.
But even assuming that the Federal reserve banks were willing to reduce their gold reserves to 40% of their deposits and note liability




967

-2-

(which would be regarded as a minimum and in normal times would
be inadequate) the amount of free gold, i. e., the amount of
gold that the Federal reserve banks would lose before reaching
this 40% minimum, would be a little more than $375,000,000.
While this is a very large sum its sufficiency can not safely be
assumed when we consider the wide scope of our transactions in
world finance and the phenomenal growth of our own credit structure.

It is estimated that there are now in the hands of the
public, i. e., outside the Treasury and the banks, over eight hundred million dollars in gold and gold certificates, and that there
are at present held in the vaults of member banks about $815,030,000 of reserve money of which $540,000,000 is gold coin or gold
There should be added to this estimate about $600,certificates.
003,000 of lawful money in the vaults of nonmember State banks and
trust companies.
NOTE AMENDMENT.

The Federal reserve note, which is an obligation of the
United States secured by an ample reserve of gold and commercial
paper, is accepted as willingly by the public as a national bank
note
or as any other form of currency, and the public does not
discriminate between different forms of United States currency.
Federal reserve note circulation has been substituted for gold certificates to the extent of about three hundred million dollars.
Under the present law this gold is deposited with the
Federal reserve agents in redemption of the Federal reserve notes
The note so provided for thereby in effect
issued against it.
ceases to be an obligation of the Federal reserve bank; but as
the gold does not figure as an asset of the Federal reserve banks,
the Federal reterve banks are unable to show the greater strength
which might be evddenced if the law permitted, as proposed in the
amendments, the issuance of Federal reserve notes not only against
commercial paper, but also against gold or against either, provided
always that every Federal reserve note must be covered by at least
100% of commercial paper or gold, and that there must always be
a gold reserve of not less than 40% against all outstanding Federal
reserve notes.
RESERVES.

The control of gold by Federal reserve banks in times of
abundance such as at present, will decrease the danger of inflation
of domestic credits and at the same time will enable the country
when the tide turns to part with large sums of gold with less inconvenience or shock, thus enabling us more safely and effectively




967

-3-

to proceed with the development of our foreign trade and to
The
give the necessary credit facilities for its extension.
United States should be in a positten to face conditions which
may call for an outflow )f gold without any disturbances of
our own or to the world's business, and without making necessary drastic changes in our intereet or disecunt rates. The
amendments suggested by the Board are designed to enate the
Federal reserve banks to withdraw gold from actual cireulation
While enabling member banks at the same time to release gold
The amendments
which at present is tied up in their own vaults.
are based upon the theory that all of the individual banks
should strengthen the gold holdings of the Federal reserve banks.
The country's holdings ol gold are not used most effectively
when they are in the vault's of a large number of barks scattered
all over the country, but its greatest use would come from cencentrating it to a greater degree in the vaults of the Federal
reserve banks, where it can be effectively protected when not
required and effectively used when needed. The member bank
does not require gold with which to supply the ordinary demands
of its depositors so much as currency.
It is from this point of view that the Federal Reserve
Board has propoeed that Congress increase the required reserves
to be maintained by member banks with the Federal rar.erve banks.
On November 17, 1916, the cash holdings of all member banks
were about $815,000,000
UMcier the proposed amendment of Section
19,$250,000,000 of this amount would be transferred to the Federal reserve banks.
Hence the Board believes that ultimately the
law should rcquire of member banks no more than that they should
maintain
specified balances with the rederal reserve banks in
amounts adequate to supply the necessary reserve baois, and that
the Federal reserve banks must have sufficient reserves of Fold
with which to protect a13 obligations, but that there should,
however, be no legal requirement as to the amount 6f curreney that
a member bank should carry in
own vault.
This is a matter of
business judgment that might well be left to the diecreticn of
each member bank.
It was thought, however, that if this principle
were carried into full effect at this time, the step migh.,: be
considered too extreme, particularly under present conditions, and
nothing should be done that might tend to a further release of
reserve money.

its

A minimum amount of currency that the member banks
should be required to keep in their vaults is, therefore, prescribed.
The amount suggested is 5% of the demand. deposits, so
that the total requirements - cash and reserve - 0711 remain practically unchanged. While the effect of some of the 2rcposed




967
-4--

changes will be to reduce somewhat the reserve requirements, the
reserves will be increased by the abrogation of the practice
hitherto observed. of counting items in transit or "float" as reThe permission given member banks to use their own discreserve.
enable
tion as to the character of currency in their vaults,

will

them to release the gold they now hold, with the important result
that the substitution of Federal reserve notes for gold and gold
certificates will be facilitated by this change in the law.
Without some such change member banks will continue to ask for
gold certificates in small denominations, because as long as
they must have gold or lawful money to count as reserve it aoUld
be impossible for the banks to exchange them for Federal reserve
notes.

OTHER PROPOSED AMENDNENTS.

Besides the proposed changes relating to note issues
and to reserves the Board has suggested also the following:
Amendment of section 11 so as to permit the Federal
Reserve Board to raise reserve requirements in emergencies, just
as it is now empowered in certain contingencies of a different
kind to lower those requirements.
This provision would, if adopted, enable the Federal
Reserve Board in prolonged periods of extreme ease in the money
market to check any tendency toward excessive loans or other
forms of undue extensions of credit.

Amendment of Section 16 to permit nonmember State banks
and trust companies, even though too small to be eligible for membership in the Federal reserve banks, to avail themselves of the
clearing and collection facilities of the Federal reserve banks,
provided that they cover at par checks on themselves sent for
collection by the .Federal reserve bank, and provided further that
they keep a compensating balance with the Federal reserve bank
in an amount to be determined under rules prescribed by the Federal Reserve Board.
This is not intended to operate as an extension
of any of the privileges of the Federal reserve system to nonmember
banks at the expense of members, but on the contrary the amendment
is proposed primarily for the convenience of the public and inciIt is contemplated
dentally for the benefit of the member banks.
that the compensating balances which nonmember banks participating
in the clearing plan will be required to keep with Federal reserve
banks, will be sufficiently large to protect member banks and jusAny cleartify Federal reserve banks in undertaking the service.

967

-5-

ing and collection plan to be effective must be so comprehensive as to include all checks. At present the par lists of the
Federal reserve banks include the names of banks checks on
which can be collected in any circumstances at a minimum of time
and expense, but do not embrace a large rumber of towns in every
State where there are no member banks; and in order to make collections on such points many banks are obliged to maintain accounts in addition to their reserve accounts with the Federal
A necessary factor in any successful clearing
reserve banks.
the offset, whereby balances only require settlement
plan is
instead of the total volume of transactions. As long as the
clearing system does not embrace all of the banks this offset
is lost in a corresponding degree and the value of the system
diminished in proportion.
Amendment of Section 22 - the penal statute - so as to
define more clearly the rights and limitations of directors in
the matter of accepting fees or compensation other than the
ordinary fees paid directors for legitimate services renetered
in the regular course of business, the performance of which
service is not incumbent upon them in their capacity as directors.

Amendment of Section 13 to restore the provision
which was by error stricken from the Act in the amendments of
September 7, 1916, thus restoring to national brnks, with the
approval of the Federal Reserve Board, the right to accept up
to 100% of their capital and surplus in transactions involving imports or exports.
Amendment of Section 17 to cancel the provision of
the National Bank Act which requires national banks to maintain a minimum deposit of Government bonde with the Treasurer
of the United States. National banks are no longer required
to keep outstanding a minimum amount of circulating notes, and
a newly organized bank is not obliged to purchase or carry any
bonds of the United States;
but there are a number of national
banks organized before the passage of the Federal Reserve Act
which have retired their national bank circulation in full,
yet they are, under a construction of the old law, required to
keep on deposit with the Treasurer of the United States, a certain minimum of United-States bonds. The Board feels that it
is just to these banks that they be relieved of this obligation.
Amendment of section 25 to authorize member banks located in cities of more than 100,000 population and which have







967
-6-

a capital and surplus of more than $1,000,000 to establish
branches in the same city, provided the State laws do not
prohibit State banks and trust companies from establishing
branches.
Amendment of Section 9 to authorize mutual savings
banks not having capital Stock to become associate members of
the Federal reserve system under certain prescribed conditions.'
The principal beneficiaries of this amendment would be the mutual savings banks of the eastern and New England States, which
can not become members of the Federal reserve system under the
present law owing to the lack of any provision enabling them
to subscribe for capital stock of a Federal reserve bank, as
they have no capitalization of their own upon which a percentage
They would be required to carry a reserve balcould be based.
ance with the Federal reserve bank against their time deposits
and the accommodations
in the same propostion as member banks;
proposed for mutual savings banks are limited strictly to the
discount of their thirty,-day obligations properly secured.
Amendment of Section 18 so as to give to United
States one-year 3% gold notes in the hands of Federal reserve
banks the circulation privilege for the issuance of Federal reserve bank notes, such circulation to be taxed at the same rate
ascirculating notes, which are secured by 3% bonds of the
United States. In the opinion of the Board it is desirable to
extend this privilege to the Federal reserve banks in order
that they may have additional means of protecting themselves
at times when there is an unusual demand for currency.
Amendment of Section 4 to abolish the title and office of deputy Federal reserve agent, thus having two unattached
Class "C" directors. instead of one as at present, aid to create
the position of assistant Federal reserve agent, who shall not
be a director of the bank, but who shall be a salaried bonded
officer in the Federal reserve agent's department, serving at
all times as an assistant to the Federal reserve agent and
qualified to act for the agent in his absence. Experience has
shown that there is difficulty in filling the office of deputy
Federal reserve agent. This officer is required to have the
same qualifications as the Federal reserve agent; he must have
had banking experience and he must not be an officer, director,
or stockholder in any bank. At the same time he is not as a
rule a salaried officer, and receives only the customary fees
paid directors for attendance upon meetings, and he is obliged
to be prepared to assume the duties of the Federal reserve
agent in case of the absence or disability of that officer,
which involves a transfer and aucat of securities and accounts.
It is believed that the change suggested will operate to fix responsibility more definitely and will give the Board more latitude in the selection of the Class ."C" directors other than
the Federal reserve agent.

Ft- TAAL RESF,VE BANK
t.c.v. YORK
a

FEDERAL RESERVE BOARD
WASHINGTON

January 19, 1917.
Dear Sir:

In view of the fact that the rate for bankers' acceptances recently
maintained by Federal reserve banks has been somewhat higher than the open
market rate, the holdings of acceptances by the Federal reserve banks have
been materially reduced during the past weeks.
In consequence the Board has received letters from some of the Federal reserve banks expressing apprehension that their earning assets might be
reduced too drastically, and some of the banks have shown some inclination to
invest in warrants, evQn at low rates, and for the full period permitted by
law.

The Board therefore has thought it advisable to direct me to address
a letter to all Federal reserve agents in order to secure a better understanding of the policy which in its opinion, should be pursued at this time.
During the month of December, and up to January 12, the net gold imExcess reserves
ports Into the United States amounted to about $169,000,000.
It may be assumed that this plethora
have materially increased in consequence.
of gold is not entirely a natural one and that much of it will be absorbed by
impending flotations of new securities, after which we shall probably witness
again the same development that has been characteristic of similar periods in
the past - that the deposit and loan structure will again expand so as to absorb large portions of the new gold.

There is general agreement that this continuous and rapid growth of
With the present ease of money,
deposits and loans is not without danger.
it would appear, therefore, in the opinion of the Board, to be a wise policy
to permit the earning assets of the Federal reserve banks - which combined
amounts to about $206,000,000 - to be reduced by from forty to fifty millions,
and thereby to absorb, temporarily at least, an equivalent amount of the newOf course, such a policy must be carried out in a careful
ly imported gold.
and tactful way, and no definite amount can be fixed at this time to which
Changes in
the investments of the Federal reserve banks should be reduced.
conditions may occur at any moment, which may render it necessary to reverse
this policy, or to apply it even more radically than is now contemplated.
During the past few weeks Federal reserve banks have operated along these
lines with very good results, and acceptances and rediscounts have been reduced by about $40,000,000 since they reached their highest point, early in
So long as the present ease continues, there should not be any
December.
By permitting the open markdifficulty in continuing the present policy.
et to absorb the bankers' acceptances, the additional object is gained of
training the member banks to deal in acceptances and to become accustomed to
investing in them.




'RAL RESERVE BANK
.)F NEW YORK

-2-

In expressing to you these thoughts the Board wishes me to acid that
it hopes that the banks will not become unduly restive because of a temporary
reduction of their earning assets.
The Board has no doubt that before the
year just begun is past, many occasions will arise which will enable the Federal reserve banks to employ their funds actively, but the Board considers it
the primary duty of the Federal reserve banks to be mindful of their obligation to do their-full part in preventing just now a rapid expansion of credit'
and in accumulating resources to be used when active demands are made upon
them for ordinary commercial credit facilities.




Very truly yours,

Governor.

-RAL RESERVE BANK
'A NEW YORK

FEDERAL RESERVE BOARD

WASHINGTON

January 25, 1917.

Mr. R. H. Treman,
Deputy Governor, Federal,Reserve Bank,
New York, N. Y.
Dear Sir:

The Federal Reserve Board this afternoon approved and adopted the report of the Committee of Governors in the matter of making immediately available
at par drafts drawn by member banks against Federal Reserve Banks, with one modification, to wit:
that all member banks and not merely those which are country
banks, may be allowed to participate in the arrangement, the limitation however,
in all cases to remain at ten thousand dollars per day as the total that may be
drawn by any one bank.

k

The Board regards the plan suggested by the Governors' Committee as
the first and essential step that must be taken, and suggests that the circular
which you propose to send out state clearly that it is proposed to develop the
plan and that the limitation adopted is not intended to be permanent, but only
a temporary safeguard.
It might be well to point out also that as the limitation to ten thousand dollars per day would to a great extent prevent the largdr
banks in the cities from making use of the new facilities, the conntry banks
will be the immediate beneficiaries.
The Board would suggest that the circular,
which should contain a facsimile of the proposed form of draft, be issued as soon
as it can be prepared, and that the plan be made effective as early as possible,
and not later than April first.
The Board feels it is important that Federal
Reserve Banks should get themselves in readiness to extend to their members more
of the facilities which have hiunerto been given by city banks to their country
correspondents, such as the collection of drafts and maturing paper; and the
Board believes that it would be well for a statement regarding this to be made
in the circular.
It is understood that the circular will be prepared and signed by the Committee of Governors who made the report, and that copies of it Will
be sent by the Committee to each of the Federal Reserve Banks for distribution.
The Board will be obliged if you would kindly have a draft of the circular sent to it for its information before it is made public or distributed.




Very truly yours,
(Signed)

W. P. G. Harding,
Governor.




A meeting cf the committee for discussion of tho
plan to make _drafts upon Federal reserve banks accept-

ible for immediate availability at par
reserve banks.

i4

all Federal

Meeting held Monday, January 22nd,

1917, at the Shoreham Hotel, Washington, D.C.,

at

10.25 olclock a.m.
Present:

Messrs. Treman (Chairman), McDougal,

Seay, Rhoads, Fancher, McKay and Hendricks.

Mr. Hen-

dricks was appointed secretary to the meeting.

At the last Conference of Governors there was a
joint session with members of the Federal Reserve

Board at which the above mentioned topic was discussed, and at that time the following vote was
adopted:
VOTED:

That the chairman be authoriz-

ed to appoint a committee of five to confer
with the Federal Reserve Board and assist

in

preparing a plan in connection with the immediate availability of drafts on Federal
reserve banks.

After informal discussion of the plan, as outlined by Governor Seay, it was the unanimous opinion
of this committee that when the final transfer of reserves becomes effective, in accordance with the amendment which is now before Congress, some machinery
should be in readiness to provide for the transfer of
funds for such banks as have been in the habit of

using drafts on central reserve cities, and in con-




-2
formity with this view, the committee unarimously agreed
upon the following plan:
That the privelege of drawing "Federal

exchange" drafts should be limited to the country
banks, or, in otherwords, to those banks carrying a
twelve percent reserve,

That the drafts should be limited, as to

the amount drawn in any one day by a member bank, to
ten thousand dollars,

That the drafts should be drawn by member

banks upon their own Federal reserve bank and made receivable for immediate availability at par at any one
Federal reserve bank specified in the draft,
That a special uniform form of draft be
adopted by all the Federal reserve banks, such drafts

when drawn upon this form to be the only ones which
are receivable for immediate credit at par,
That the drawing bank be required to give
immediate advice to its Federal reserve bank of all
"Federal exchange" drafts drawn, and that such drafts

be immediately charged to the member bankls account
on receipt of advice,

That this plan become operatiVe when the
final transfer of reserves has become effective, and
be made available to such member banks as may agree
to terms formulated by the Federal reserve bank.




-3-

The committee thea discussed whether it would be
necessary to immediately inaugurate daily settlements
in the gold settlement fund and, on motion by Governor
Seay, it was moved and carried that, in the opinion of
the committee, under the existing conditions and the
terms above recited, there would be no necessity for
daily settlements through the gold settlement fund at
the present time

The committee next considered the advisability of
putting into operation at this time the Gidney plan of
a silver and legal fund.

After discussion, on motion

by Governor Seay, it was moved and carried that, under
existing conditions, there is no necessity for establishing such a fund at this time.

January 31, 1917.

Mr. R. H.&riliFan,

Deputy Governor, Federal Reserve Bank,
New York.
Dear Governor Treman:

I dislike to refer to this matter again, but the point
has been raised by some members of the Board that, in order to
complete our files, we should have copies of your correspondence
by cable with the Bank of England which followed the Board's announcement on the morning of December 26th.
I trust that you can, without inconvenience, send us
these cories, which our stenographic record shows the committee
of 'your directors agreed would be furnished.




Very truly yours,
(Signed)

W. P. G. Harding,
Governor.




FEDERAL RESERVE BOARD
WASHINGTON
February 3, 1917.

My dear Governor Strong:Referring to our exchange of telegrams yesterday afternoon,
I wish to say that your offer to return to New York at the risk
of a set-back to your health was most patriotic and is Characteristic of you, but the Board would not for a minute think of your
doing so.
There would be too much risk involved and you might
lose in a few days all of the good results of your sojourn in
We are all keeping in close touch with the officials
Colorado.
of the New York Bank and we feel assured that the bank has taken
all the necessary steps to protect its member banks and the public in any situation that is likely to arise.
As you know, the earning assets of the Federal Reserve
BPrace were reduced from the middle of December to the last of
January by about $44,000,000, but Germany's note of January 31st
caused a stiffening in the rate for acceptances and the bank has
resured its purchases at market rates, which are from 3 to 3-1/4%.
The Bank has on hand in Washington 3245,000,000 of Federal Reserve notes and has entered an order this afternoon for the
printing of $75,000,000 additional notes.
We will send the
bank from here next week a total of $35,000,000 in daily installments.
'Because of the break with Germany we feel that Congress will
be more disposed to give us the amendments we desire, some of
which have already been reported favorably by the House committee
and on the return of Senator Owen next
on Banking and Currency;
week we will press for action by the Senate Committee.

Your associates in New York are no doubt keeping you fully
advised of matters at their and of the line and my colleagues.here
join me in kindest regards and in the positive injunction that
you must under no circumstances consider returning to New York at
this time.
With best wishes, believe me,
Sincerely yours,

Mr. Benjamin Strong,
410 Montview Boulevard,
Denver, Colo.




FEDERAL RESERVE BOARD
WASHINGTON
February 3, 1917.

My dear Governor Strong:Your letter of the 26th ultimo was received a few days

ago, and owing to unusual pressure of official duties I have
overlooked an earlier reply.
I will take advantage of the first favorable opportunity

of bringing your letter to the attention of the Secretaby of
the Treasury and have no

dotibt

that he will be favorably im-

pressed with your suggestions regarding the purchase and accunmlation of gold bars./
critical

state of our

In

view, however, of the

very

international affairs, it will be use-

less, for a few days, to ask him to give this matter any
attention.

Sincerely yours,

Er. Benjamin Strong,
4100 Mont

Boulevard,
Denver, Colorado.
Denver,

Form 1204
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SITUATION WELL IN HANP

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HARDING

'BOARD




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ENJAMIN STRONG

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ERAL RESERVE BANK
OF NEW YORK

TELEGRAM

Washington, April 19, 1917.

Federal Reserve Bank,
Hew' York.

Secretary of Treasury offers $200,000,000 Treasury certificates payable July 1st bearing 2 1/27 interest.

Should payment for Government

war bonds be called prior to that date, these certificates plus accrued interest can be used if desired in that way.payment for certificates to be made Monday in New York or by transfer through Gold Settlement Fund if preferred.

You are authorized to receive subscriptions

in your district reserving participation for your bank if desired.

Please wire during day impression created and probable amount of subscription through your bank.




Harding.

FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR




April 27, 1917.

Mr. Benjamin Strong,
Federal Reserve Bank,
New York.
Dear Mr. Strong:

I have learned from soma of the
members of the Board that you expect to be back
in New York on Monday morning, and I take this
occasion to add my welcome to that which you will
receive from the officers, directors, and employeas
of the Federal Reserve Bank of New York.
I sincerely hope that your health has
improved sufficiently to justify any risk that you
are taking in coming back, and to express the hope
that I may soon have the pleasure of greeting you
personally.

With kindest regards, I am,
Sincerely yours,

FEDERAL RESERVE BOARD
OFFICE OF THE GOVERNOR




WASHINGTON

May IL, 1917.

ReeelvED.
Rum L "rt. MAY 14 1917,
AIM sa

ten

Mr. Benjamin Strong, A !III11111 11111r
Governor Federal Reserve Bank,

7°,04.05

FEDERAL RESERVE BANir

New 'York.

of New York

Dear Governor Strong:
I have your letter of the 11th instant,

and have already discussed with the Secretary of the
Treasury the question that you bring up relating to
the policy which he will adopt in redepositing funds

with banks and trust companies through which subscriptiuns
for Government bonds were received.

He has in vi,gw a

(
statement which I think will be entirely satisictory,
and I understand it is his intention to make it public
in the course' of a day or two.

Very truly yours,

Governor.

FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR




-

JUN 2`.; 1917

rum

June 21, 1917.

Mr. Benj. Strong, Jr.,
Governor Federal Reserve Bank,
New
-

Dear Governor Strong:

I have your letter of the
instant with enclosures, which I have rea

191
with great

interest and now return in accordance wfth your request.
The members of the

good over the amendments to the

card are all feeling

deral Reserve Act which

I understand will be signed by the President late this
afternoon or tonight.

The/help rendered by your friends

was very effective, and was, in fact, essential.




t.:1

f

f

A, awl_

yfreal




FEDERAL RESERVE BOARD
WAS H IN OT 0 N

June 26, 1917

PERSONAL.

lir'. Benjamin Strous, Jr.,

Governor Federal Reserve Bank,
New York.

Dear Governor Strong:I have your letter of the 27th instant in reference to
the Board's press statement of June 23rd.
I au ,;oin-,-; to
be perfectly frank 'with you, in order that you may have a
clear understandinL: of my views, which I am sure will be
concurred in by at least a majority of my colleajues.
The consolidated statement of Juno 23rd showed, for the
first time, the item, "Gold with Forei,sn Ageacies,
52,600,000," and the Board very properly lade an eplanatory
reference to this, and, in order to forestall misleading
conjectures, added that 'it was ear-marked gold in the Bank
of 2/11and.
I will never be a party to a policy which would
withhold_ from the public information to which it is entitled,
and, it seems to re that if you are at any time embarrassed in
any of your dealings with the Ban:it of Eitaana or other foreicp
corresponaents because of any action or statement made by the
Board, you could very easily advise them that the responsibility in these matters rests with the Federal Reserve Board.
It seems to me, however, that you lay too much stress
on the sensitiveness of our friends on the other side.
I
have had the pleasure, with my collea'ues, of meeting Lord
Cunliffe on several occasions, and he impressed me as being 4
very sensible anl matter-of-fact kind of man.
while I
strongly believe in ordinary business courtesy, I do not like
the idea of being hampered in the dischart-,e of public duty because of the alleged sensitiveness of those with \hem we deal.
Just at this j-Incture, the 2njlish mi-ht very well constler
American feelir,;s, and adapt themselves to ,,,nerican ways of




doing buciness, and the Bank of Ensland should understand,
if it does not already do so, that the Federal Reserve
Board cannot undertake to threw a.veil of secrecy or mystery
'around its transactions with Federal Reserve Banks.

Should you write to Lord Cunliffe on this subject,
would saL;sest, in order that he misht have a clear understandins of the limitations imposed upon Federal Reserve

Banks, that you call his attention to parasraph (e) section
14, as a-ended by the Act of June 21, 1917.
He will then
3et an idea of the scope of the Board's authority and re-

sponsibility with respect to foroisn acancies.

3Oths:191?..

°

Go,

for your ft-..

iottcr o

2F.',th

vIth

te

a view

-7n regard to

-L.-

1r tr.oui3haye s-Eatod th

iJirtiourea5olqs

for it 1.
A too'd

bs':yaaen the

ly

-;;)

LL1k of

of Zr,-2..Lee and we natv:...1-

7..;

7..th the ultilino:: of
1. .irve to forthat the exchanges

to avoid dIeeuazions

.atocnolaion. of a trian7u1...;
.the

7.-!%L,,s1,nd

TOIT

tify tl:is country liter on ,jhen it
turn

now in cur fb.vc,:,

da7.::_%oped Lt

cth51-

,

.otc16r

bean the our/co1.1 of thc.
te r,-.32ort
count 7.--1




part o:

ree-rva ia

-

Zu

.

to

'gold

.

to

'

I

aLl

VLew,

barnent

.1 1,3 avoi1

Zorn

hale. abrca,.,1
aco.

1:arious inves-

ou

could re2cri,

of c61:1

oul* various

th:v,dsvslo-:, as ".7oraizn lialaLces,"
Ilto held abroad as "70r.:Azn Long nillo."

:ach a subdivisior4 cf these accounts on our-bc,oks tIo1;1:1 indicate

ft.t each azanoy, hov cuch is in current acdount

how Lluch

and how.Lluch in bills, concistin of sterlinE, frand, or L;uild..
,

etc., otc.
1,t no tiy1:e have we. had an[i ::,1;::posiiion to quotAio:zi the

thority of thn :3oard in tilese nf!..tters and oertcirily Lord Cun-

liffe vrould be the last person in tl-:e ,.:;orld to do

C.

1.Ty

oug,-

si2ly by the desire to confor:J so frau

go:ition
pos.:;ible %.7:th

c.u.c.toc; and traditions. ,:lhich secm to be uzli-

aroad, and
U1c have a tendency to avoid e:baront

fornly.c.dopted.by ban1)::: tAmilar to cur

icy in

opinion

Z.or us.

Certainly,* inforLlaticniie the 'oublid is entit1r4 to
hftve or t CiI our :sr-)mbe:;' banks arc ntitiod to have woulA be ar:.s-

quately l'urniulled to then by rorts of t12'cliaradte7 t7,t I ia7e
su,:y:cstod and I since.,-ely trust thnt ti '111 most vith..tha,vis




you.rscif dnd your

.

your,

FEDERAL RESERVE BOARD
WAS HINGTON

OFFICE OF THE GOVERNOR




f

July 3, 1917.

Mr. Benjamin Strong, Jr.,
Governor Federal Reserve

Bank,

New York.

Dear Governor Strong:
I have your letter of June 30th teaching
further upon the matter referred to in your letter of
the 27th. As a general rule I do not think there would

be any difficulty in reporting "Gold with Foreign Agencies"
or "Foreign Balances" as you suggest, but occasions are
likely to arise, as was the case the other day, When
may be necessary to make a brief explanation in order

it

to forestall conjectures or guesses.

All matters pertaining to Federal Reserve banks
are of interest to the public now more than ever, are. I
think we should be careful to avoid a course which might be
concealment or evasion.
think if
our friends on the other side , - both LI England and France
understand that the position of the Federal Reserve bank is
not entirely analogous to their own, and that in the matter
of the consolidated statements the Board has responsibility
to Congress and to the public, they will readily adapt
themselves, especially under present conditions, to our
methods.

I really

criticised as

Very truly yours,




z51

Or, ict/7 Oelfq/y

9Aie e

,fit-1

1

August 9th, 1917.

PERSOnT,

Dear Governer Harding:

The enclosed is a memorandyn bearing on the subject
we discussed Tuesday morning and is soyi:ehat longer than nec-

essary but I am not taking time to reduce it as I know the

matter is pressing.

1 hope it may be el some service.
Very truly yours,

P. G. Harding,
Federal Reserve Board,
Vashington, D. C.
Honort'ole

BS/Ve7"

The consequences of a colleI)se of .sterling exchange should
be viewed from t.a,-)

standpoints; one Dolitical or military, - and the

other econ.:_ic.

The political or military effect is all comprehended in the
statement that it woAd be reiLarded in rermarv as equal in value to a

great military victory.
Germany's credit ath neutral countries has been gradually
drying up, the most recent e:flonces of this de-,-elopment being the en-

forced export of gold by the :sischank.

On the other hand, the credit

of ti^e Allies in n.::Itral ra_.hets and ns,rtic-1-,,-ly

in

thin cou-ltry, hal

been t,aint-ained largely because of the skill tith which the international
finances of Great Dri:-;ain ha-:e been manaed, but still more because of

world-vide confidence in the wealth of Great Britain and the stability of

its fiv,ance.
A trecildo.:,n in sterlin,, in the various markets of the world

could be in%epreted as a failure of 1:ritich crsdit and as evides,co that
the allied poters had reached the end of their economic resour:es.
extent of the ensourags_cflt to the enemy can hardly be measured:.

Tiaci

It

would reach all classes:, would ho:m a corresnondingly depressing effect
upon home poulations

cal attitude of net;:,rals.

d no doubt considerable effect upon the politi-

hin last consideration is not to be i;nored

'-et the p-I-es-t
central -so ere, by _

our exnorts to adjacent n=;,1--La.



scc=-Ile .ores.vIre l_ust le onerted upon

enfo.l.ce:_ent of the tolioy of controlling

-2The economic conseqllences'of;a 0:11apse of sterling would be

identical -1:ith the effect of a coPletp sus.oansion of iviternational

specie payant by Great Britain.

It would for a tie reduce the trade of
the tend to a barter basis and disorganize coLmerce to suc1 a degree
as to seriously han:'?er the succse5ful proiseutiol of the var.
In detail, the following de7e10:=ents night be exPected:
Trade throughout the tend, Which is largely corducted

at prices based upon the rata at which local currencies nay be converted
into sterling, would halt until other roans of settlement were provided

in place of the sterling bill.
Interruption to co=erce would res1t in goods piling up

at

aports, causing congeytion of transportation both by rail and rater.

c.
the market

The citiza of neutral countries would direct goods to
iere cash settleTent could be effected, naLely, this country,

thereby hr)mporing our allies in purchasing supplies which they are now

receiving from various parts of the world and forcing then to make all
of tilair pure:..asas in this coun-try.

It is quite possible that sufficient distrust of the stability of tend finance would dovelo,, to lead timid People to ho-Ird gold
with the inevitable consezuence of a quoted gold prel-Jiul.

All ex,-,orts by this country to allied countries would increase in cost to the consuz..er broad in proportion to the discount on

sterling (:r praniul on dollars) and such restricted trade as continued
could probably only be conducted by the use of cur govern:_e,-It's credit.
In

it wcnIcl mean a period of disordo,' in the world's

ccr-srce c-ad finaAce . .hich could only be gradually resrad by the subst!tut5_on of cti:Dr means of sattieLent, doubtless American bills, which



de7el.

Lould be slew bec,..ur;e of the lack of adequate ,fmerican br-nking

maad:.ery in foreign col.ntries.

The rr:...-lifice.tiol,s of the disorder resulting from E7ny such calamity need not be enlarged upon Ps they are only

too ap;arent.
In view of the existing situation, tt-o possible courses seem to
be feasible. Thr,. simplest and most effectil,e would be for the Government
of the United ;;tatos to malze sifficient advances to the 7.3ritish Government
to enable it to continue its ipolioy of purchasing exchange throur;h the ex-

isting taachinery, so that no disturbance whatever would arise, nor would
any publicity deve10p YILich night be interpreted by enery gcvernmente as
evidence of grovinz,; t:cakness.

The ether alternative, vilich seems less desirable, would be for
the Dr:Ush Covera,lent to taLo over control of the purchase of practically
all co,,,:Aodition riw being furnished by this country, making all contracti

payable in dollars.

This might not be feasible in every detail; but as
to the principal .exports, such as cotton, tobacco and other comrodities
at present tacon',ro:led, it doubtless could ba done with a rininum of publicity ad wi;Alout necessarly giving evidence of financial or economic
weakness.

If that were done, it might be coupled with some arrbngement
with 7rglish banks, particularly the 'foreign trade" barks, under govern-

ment initiative, by Oicl, long bills, say of sixty or ninety days usanca,
would be dra%a on Americanhanks under credits guaranteed and reimbursed

by the 13ritish aad Aaerican Coverments.

The effect of this arr,-,:ge:flent

would be to poe',pone be settle,:ent of ex ort accounts to an arount equal

to tl-c clue o: bills

added to the 1,c.2r5can bank portfolio.

It t:11 be ob-enied Lht by the first rrograri this
)1d

go,:er=e_i:,

adv--,Icilig to the. nritish Go-.-eri.ment all the noliz,y re:

quired to cncblo not only the British GovernL,=.1.t, but all Lritish citizens
and import,era to make .oay,..:ent for the net imports of Great Brit.-,in f-om



this country.

It would be a direct transaction involving no publicity

and if fA; is to be controlled as to aAount, reliance Lust be had upon
the succezsful operation of the British e7bargo on inrort of unnecessary articie6 or an Anerican eLlbargo on sinilqr exports.
The second proposal woulrl involve the r-7.1r,oththg exactly, but

by other methods.

Our govermaent vould be called upon to advance to

Great "rritain the entire amount needed to liquidate our favorable :British

trade balance, less only that sun ,dlich ,-:ould be represented as stated
above, by the Permanent increase in the Ar:.eric:',n bank portfoldo of long

bills dra,y1 in dollars.

The second plan, however, would involve creating

macilinery not now in existence.

IT guarantees of theso payments are to

be nnda by the resnective govern-aents, to be liquidated out of our advances to Great Britain, the credits under which the e;:ports are arranged
must necessarily be handled threvgh sone central orr.nization and kept un-

der ocLuol.

This .,ould be a direct control applied to each transaction

instead of an indirect control exercised throu31 a general enbargo.
Another consequence of the second plan and one which would re-

quire equally skillful control, would be the introduction into our market

of large credits to corer transactions botween the
tral countries and bet-,-een neutral countries;

that the :nglish bill

po-ers and neu-

':Ihenevor, or tr, the extent

extiPgulahl, finance and trade bills now

drawn on London for the purpose of finncing neutral commerce must gradually

be diverted to this country.

It would.be an indirect draft upon our bank-

ing credit thich might develop to a large vo-lu!.:o and ultiaately result in
son ex:ort of ,,old in excess of what is already moving tO neutral countries

as c_-,e cf the inevitnlo results of

being nadB in those countries

1;y t-L-1:-.'re ci dollar credits for that pur,,oLe.

Cur ability to car.--y

this load Lill dei,:s7,d u:,on the duration of the var.




-5Lhile the first plan of direct advances would seem to be the

simplest and most feasible, if for political or ot:Icr reasons it cannot
be brought about, the management of this matter should at once be taken

Over in behalf of the United States and British Governments in such a

ray as to avoid publicity on the one hand and to avoid on the other hand,

the irritation that will be felt by London bankers.
Possibly a wise proceedure would ho to adopt temporarily the

plan of having the British Gwernment take control of all purchases in
this country for which nachinery can be prom,Dtly provided and for our

government to supplement this relief by a fixed weekly advance to Great

Britain for the purpo:-:o of supporting sterling and after a few /1;onths ex-

perience with that plan it nay be found possible to bring about a change
of custom hich v,ould greatly facilitate the drawing of long bills in

dollar,

11,1,dical measures in which publicity could not be avoided would

be alnost as great an evidence of weakness as could be a collapse of exchange.

Vey York City, AuL;ust, 8, 101




.

't:.IDE:kAL RESERVE BANK
OF NEW YORK




P.M1DIrG'S LTE7? TOIGOV=OR iTRG 0? 2..11,1UST 10, 1917.
1_,

"In regard to

I,

sterling exchange; I would say

that I doubt more than ever, since my return to 7iashington,

the feasibility of an extension of creditby the United
States to Great Britain in an amount sufficient to insure

the supsort of storlirc, under present trade arrangements.

It seems to me that in order to

secure

the

necessary legis-

lation to make available the large credits which will be
required, British purchases

against

in this

very largely in dollars."

country should be drawn

TELEGRAM
CONFIDXFITLAL:

8:015 p. m.

Washington, D. 0.,
February 20, 1

Governor, Federal Reserve Bank,
Kew York, N. T.

Secretary McAdoo will

announce offers of certificates of

indebtedness

,t four and one half percent., Which sbould greatly
facilitate their being placed.

It is feared, however, that in view of

the keen

competition between banks for

deposits Which has recently developed, this increase of

certificates will

higher rates
eposits. Suggest that you call your clearing
house banks together for conference and impress upon them the unwiedom of wash
lead banks to offer

prosednro.
It appears to us here, that banks are holding too nervously to deposits

instead of encouraging sale ofeertifloates to their depositors, which
would hal,

effeet or releasing reserves.
110 most unfortunate

This scramble for deposits if unchecked will lead

conditions.

Beard suggests consideration by leading banks of European method;'n4m0
that Interest rate allowed

shauld be based upon the discount

rates fixed by Gave

ment banks.

Suggest that you discuss with your clearing house banks allewancer,on
demand deposits interest not in excess of one and one half to two percent

below

the fifteen day rate for commercial paper established from time to time Ay their
Federal Reserve Bank.

A similar differential en ninety day rate
posits.

tight

be adopted

fer

tin

Any marked general increase in rates on deposits likely to force T17,-

46 demand higher rata. on eovernment balances. rn this connection it rdy be



afton

set .11,

to consider adjustment of discount rates to harmonize with new certificate rater
I hope you will call conference and let us knowr °sults:
This telegram sent lIew York, Boston, Philadelphia, Cleve/and, Chicago and

at.

Louie.




HARDING,

March 6th, 1918.

Jeer Sir:

At the regular weekly meeting of our directors held to-day,
further consideration was given to the suggestion contained in your

recent telegramas to.an increase in the rates of discount by this
bank.

Our directors are unanimous in feeling that it would be un-

wise to make any increase at this time with the possible exception of
a slight change in the basis upon which we purchase bankers acceptances.
They do, however, feel strangly.the need for a uniform policy
in the establishment of rates by all the reserve banks in connection

with the financial operations of the Government and particularly in confaction with the placing of the next issue of Government bonds.
They have asked me to make the following suggestion on this matter:

If a meeting of Governors of all the reserve banks could be held

in Washington on or about the 25th of this month, views could be freely
exchanged on this subject and the benefit of theviews of members of the
Federal Reserve Board as well as the Secretary of the Treasury could no
doubt be obtained at such a meeting.
It was thought that if the Governors were asked to meet in Wash-,
ington at about that date, arrangements could likewise be made for a special meeting of the directors of the Federal reserve banks to be held, say,




Governor t

ding.

March 6, 1918

on the 26th or 27th for the purpose of initiating rates based upon the
recommendations of such a conference.

These recommendations could be

conveyed by telegraph and doubtless a uniform policy could be adopted
as to. the whole system in conformity with the needs of the Government.
Personally, I would consider it a, great advantage at this time

LJ exchange views with the officers of the other reserve banks, partly
to get the benefit of their experience in these matters and partly to
explain the situation in New York to them.

The latter is not clearly

understood and I fear at t imes has been the cause of some little friction.

The establishment of a uniform policy as suggested would by this
method overcome all difficulties which developed in the last loan due to
the disparity in rates in the different banks.
We hope that the suggestion made by our Board will receive your
earnest consideration.
I beg to renain,
Very truly yours,

Governor.

Honorable W. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.
B8*VOM




ANSWERED
APR X- 1918

FEDERAL RESERVE BOARD p,
OFFICE OF THE GOVERNOR

WASHINGTON
Vvti

ch 2'4_1913.

mAiiikAZIP
R

Tear Governor Strong:-

2

DEP.
1918

,

I have received your letter ofFfiliPaltbRibi-eciiiitafosing
regarding interest rates paid by banks in the State of New York.
preliminaryreport
It seems to me that many of the banks are paying excessive rates for deposits, and I agree with you that a determined and systematic effort should
be made throughout the entire country to reform the pernicious practice of
paying excessive interest on deposits.
I have already taken the matter up with eleven' Federal Reserve banks,
and if you will kindly let me have an outline of the methods which you
propose to adopt in your own district, I will write the other Federal Reserve banks again, making a more definite suggestion as to methods of proOur situation here is complicated somecedure than I have hitherto done.
what because members of the Board are not unanimous as to the merits of the
Some of them feel that it
plan adopted by the New York Clearing House.
is unfortunate that the differential should be as against the ninety daq
rate instead of the fifteen day rate, and call attention to the fact that
in three of the districts, including Chicago, the ninety day rate is already
so that the adoption of the New York plan by the Chicago Clearing House
Unless the ninety day rate
would mean a 212-% rate, - an increase of -1-%.
in New York should be raised to 5%, this might mean a flow of bank balances
out of New York into Chicago, so it is evident that there is a new factor to
be considered in fixing rates, and some members of the Board regard this as
In this connection, I would invite your attention to a
unfortunate.
memorandum which was submitted to the Board this morning by Mr. Warburg. I
would very much appreciate an expression of your views regarding it.
From my understanding of the situation in New York, I hardly think that
the trust companies and some of the banks could be induced to agree that
the Federal Reserve bank rate on ninety day paper should be in excess of 5%,
I an afraid, if
before a 2i% rate should go into effect on bank balances.
the matter is reopened, that it might result in the abrogation of the present
But you of course, are in
agreement, without reaching a new working basis.
a much better position to judge this than I an.
You will note that Mr. Warburg favors increasing the ninety day rate to
It was suggested this morning that I send a copy of Mr. Warburg's
5%.
mcmorandum to all Federal Reserve banks, but I am not doing so as I think it
would be better to reach a definite agreement as to the New York rates before
discussing changes with the interior banks.
Very truly yours,

Mr. Benjamin Strong,
Governor Federal Reserve Bank,
New York.




FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR




"60EAILO

AU

FEDERAL

8 1918
RE.SERVE

BANK

Augukt 6, 1918.
!

Dear Mr. Jays

I wired you today as follows, which
I now confirm:

"Adelson's letter was written under
misapprehension. Board's letter July twentysecond was not a regulation. Board has under
a)nsideration your letter explaining views of
your directors and will reply definitely Thursday
or Friday."
Very truly yours,

Mr. Pierre Jay,
Chairman Federal Reserve Bank,
New York.

1/3
,I14BENS

W. P. G. HARDING. GOVERNOR
ALBERT STRAUSS. VICE GOVERNOR

-

JO

ADOLPH C. MILLER
CHARLES S. HAMLIN

THE TREASURY
AIRMAN

ON WILLIAMS
.ROLLER OF THE CURRENCY

RAL RESERVE BOARD

It Pr j.E9DERICK. SECRErARY

-'

4.'1'

4L. CvADELSOM., ASSISTANT SECRETARY

W.1-SI15TANT SECRETARY
W

WASHINGTON

I. AAET

I L

ADDRESS REPLY TO

Er% rEPIKRAL RESERVE BOARD

1,9 18

17

November

7!"),J
19,191

AuWpRigikilk,

SUBJECT: EXCESSIVE REDIS2OUNT2 BY MEEBER EaNKS.

Dear Sir:

The attention of the Federal Reserve Board has been
fact that in some instances member banks

called to the

have applied for

and obtained

rediscounts which appear to be largely in excess of their actual needs
or the requirements of the community served, and that they have used the

proceeds of those rediscounts to purchase paper in the open market or to
make loans to non-member banks at a substantial profit to themselves.
The Board does not, of course, desire in any way to discourage the

proper commercial activities of member banks nor to

criticise the very

natural desire of bank officers to increase the normal profits and business
of their institutions.

The Board deems it its duty, however, to caution

the bankers, who have rendered and are rendering such efficient service

to the

Government in the present circumstances, that profit making and

business expansion mast, for some time to
to the general welfare.

come, continue

to be subordinated

There is no assurance that the cessation of hostil-

ities in Europe will be followed by a reduction in demands made upon our
banking resources.




- 2 -

/

credit resources mr.st, therefore, be conserved and used to meet the

Ac:.::lai requirements of the hountry at large, and when the needs of a

.

given community have been supplied, there should be no diversion of re-

/////

acuroes from other sections merely to increase the profits or the business
of the banks in that commUnity.

Rediscounting operations between Federal reserve banks are essential
in many cases and are being freely engaged in.

They are made necessary by

the Government's operations and by the seasonal requirements of the various
Federal reserve districts* but they ought not to be engaged in merely for
the benefit of member banks of any particular Federal reserve district as a
means of enabling them to g

.otAide of their natural field of activity to

attract business or to make profits.

A member baAk

14,foil has

received from

its Federal reserve bank accommodations sufficient for meeting its legitimate

local demands should not be permitted to secure additional accommodation
merely for the purpose of increasing its profits or expanding its business
beyond reasonable limits.

A non-member bank Which has contributed none of its resources to the
Federal reserve system ought not to be permitted to use a member bank as a
medium or agency for the purpose of procuring accommodations from Federal.

reserve banks, unless upon presentation of the facts to the Federal Reserve
Board such a. course is found to be necessary or advisable in the public
interest.

The duty is expressly imposed upon the directors of Federal reserve
banks in extending accommodations to member banks to consider at all times
the possible actual needs of all their member banks.

Section 4 of the Fed-

eral Reserve Act contains a specific provision that the directors of the Federal reserve bank 'shall administer the affairs of said bank fairly



and

-3impartially and without discrimination

f2;

in favor of

or

against any member bank

or banks and shall, subject to the provisions of law and the orders of the
Federal Reserve Board, extend to each member bank such discounts, advancements and accommodations as may be safely and reasonably made with due re-

for

the claims and demands of other member banks".

Raving knowledge of the fact that abnormal demands must be expected to
continue, the directors of the Federal reserVe banks should exercise a reasonable prudence in extending accommodatiOns to any member bank, and should be
satisfied,

by proper inquiry or investigation, that the accommodation sought

is for legitimate local requirementsand not applied for merely for the purpose of indrea8ing the profits or expanding the business of the borrowing
bark.

While the directors, with the approval of the Federal Reserve Board,

might, by advarcing the discount rates, curtail the credits extended to banks
seeking rediscounts for the sole purpose of profit-making, szch a course might
work a hardship upon other member banks seeking rediscounts for their actual
needs and might result in an enforced and premature liquidation of legitimate
credits.

Section 21 of the Federal Reserve Act provides in part that:
"Every Federal reserve bank may, with the approval of the Federal
reserve agent or the Federal Reserve Board, provide for special examination of member banks within its dietrict. The expense of such examinations shall be borne_by the bank examined. Such examinations shall be so
conducted as to inform the Federal reserve bank of the condition of its
member barks and of the lines of credit which are being extended by them".

While it is not desired that member banks should be required to incur any
unnecessary expense in the matter of examinations, the Board suggests that in
those cases in which member basks are borrowing greater amounts than appear
to be justified by the actual needs of the bank, before such lines are further




2V4

- 4 -

extended the member bank should be required to make a f1111 disclosure of the
lines of credit which it is extending,

obtained from

Whether or not it is using the funds

the Federal reserve bank to purchase paper in the open market

merely to increase the profits of the bank, and particularly
being used by non-member

Board, as

a medium or

banks, without the permission

agency for

whether

it is

of the Federal Reserve

obtaining adcommodations from the Federal

reserve bank._

When deemed necessary an assistant Federal reserve agent or a
tive of the Federal reserve bank might call personally Upon the
the member banks whose rediscounts

proportion

fully
refuse

its

to

their

discussed and

capital

with the Federal

representa-

officers of

reserve bank are out of

and surplus in order that the situation may be

understood.

In

case any member bank should fail or

to furnish the Federal reserve bank with full information regarding

lines of credit, an examination should be

made by the Federal reserve

batik of its affairs and the facts reported to the Federal

for such action as may be found to be necessary.
Very truly yours,

Mr. Pierre Jay, Chairman,
Federal Reserve Bank,
New York, N. Y.




Reserve

Board

FEDERAL RESERVE BOARD
r FICE OF THE GOVERNOR




WASHINGTON
November 23, 1918.

NOV 2,

398

Dear Governor Strong:-

I have your letter of the 22nd inst. ancvre your comments
th (X1274) regarding
upon the Board's circalar letter of November
This letter was sent out
conservation of credit by member banks.
after discussion with Mr. Jay, Mr. Wills, and a few other Federal
reserve agents who happened to be here, and I explained to Mr. Jay
that while it was deemed best to send it to all Federal reserve banks,
the Board recognized the fact that Conditions in the 11erav York District,

particularly as to rediscounts for non-member banks, are essentially
different from those which prevail in many of the other districts.
For fifty years or more the banks in New York City have made a specialty
of country-bank business and have made it a practice to accommodate
these institutions in very large sums. It was explained to all the
Federal reserve agents that the letter was not to be circulated
generally but that it should be used only in those exceptional cases
where there was reason to believe that member banks were inclined to
take advantage of the spread between the Federal reserve bank rediscount
rate and the current rate for the purpose of buying outside paper or
of building up their business abnormally by taking over bank accounts
which are normally carried with institutions in other districts.
Complaints have been made by the Federal reserve banks of San
Francisco, Kansas City and St. Louis that some of their member banks
are habitually using them to an extent which does not seem to be warranted, and the Directors of the Kansas City bank have asked the Board
to approve a resolution providing for a normal line of credit equal to
the capita]. and surplus of the discounting bank and allowing an excess
charge of one-half of one per cent, to be made upon any discount line
in excess of the normal line, the differential to apply to each 25%
increase in the normal line. The Board is reluctant to approve a
plan of this kind. Its object in sending out the letter was to call
attention of the Federal reserve banks to their right to obtain accurate information as to the credit lines of member banks and to have
them point out this to any banks which habitually carry rediscount
lines which appear to be unwarranted by local conditions or by the
actual needs of the bank.
I think that distinction should be based upon normal business and
seasonal requ.irements.
Some of the Kansas City banks, for instance,
have a normal line of country-bank accounts which constitute
a legitimate
part 01 their business and th.ere ill, of
course, no objection to their

discounting in order to take care of the proper requirements of these
country correspondents, but if a bank in Kansas City, or in any other
interior reserve city, should show a disposition to extend its business
by making special inducements to banks which have been in the habit of
dealing with Chicago or New York, it seams that it would be a perverted
use of the rediscounting facilities of the Federal reserve banks to allow
such a bank to extend its business in this way, getting the additional
facilities needed from its Federal reserve bank which in turn might have
to call upon blew York or Chicago for rediscounts which would not otherwise be needed.
expect by Monday or Tuesday to receive letters from all of the
banks on this subject, and will be glad to act upon your suggestion that
the intent of the Board be explained to them more definitely.
Very truly yours,

Mr. Benjamin Strong, Governor,
Federal Reserve Bank,




riew York City.

FEDERAL RESERVE BOARD
WASHINGTON
OFFICE OF THE GOVERNOR




maYEIBI

ARY

2 9 1919
71AY
FED
Dear Governor

RAL RjV

Strong:
Your personal

letter to Goiernor

Harding -under

d confidential
date of May

6th

has been received during his a sence from the city,
and will be brought to his at/ention upon his return

Saturday of

this week.

Rasp

tfully y

a45-7

ret.4ry to

Mr. Benjamin S

g ,

ove,r,
nor,

Federal 'Reserve pank,
New York. /

BA),

FERAL RESERVE
OF NEW YOE

C91)3'

tanslation

No. A _14;1;4_4

TELEGRAM
19

Prepared by

Departments
Interested

Checked by
Code used

To




CI

FEDERAL RESERVE BANK OF NEW YORK
PRIVATE WIREINCOMING

,

NewYork,

Please telephone governor Harding at three

today .

Harding
f,

o

o 03' r

1133p

Oc

r

T.'

FEDERAL RESERVE BOARD
WASH I NGTON

Th, telegram given below is hereby confirmed.--

dIssistant Secretary.

_-7729

(644.1eve
Ofri

,

4'44.

Novembef` 611919.
X-1717

Niorss

VStrong
Passmore

Boston
New York:

Philadelphia

Fancher

Cleveland

Seay

Richmond

Wellborn

Atlanta

McDougal

ChicnE0

Biggs

St.Louis

Yom-16

Minneapolis
Kansas City

Miller
Van Zandt
Ccaxins




Dallas
San Francisco

Board hopes you will do what you can

to discourage member

baaxs from using advance in Federal Reserve Bangs

rates as excuse

for increasing interest charge to thuse burrowers on 4uvernment
securities who are

dui%

way of 'liquidation. Xn

with

what may be reasonably expected in the

such cases member banitz should be

satisfied

moderate difference in their favor. Board does not mean to

suggest

reduction. in rates heretofore charged customers on such

transactions 1/41- to advocate any policy which would result in delay

of orderly liquidation of bond secured loans.

HARDING.

FEDERAL RFESENAlt;,E_B 0.ARD
WASHINGTON

REC.:1E4,1E0
NOV 1 ,0 1919

CONFIRMATION OF TELEGRAM

d.
November

6,1y19.
X-1717

Morss

Boston

Strong

New Yor.i.

Passmore
Fancher

Cleveland

Seay

Richmond

Wellborn
McDougal

Atlanta
Chicago

Biggs

St.Louis

Young

Minneapolis
Kansas City

Miller

Van Zandt

Dallas
San Francisco
Board hopes you will do what you

bens from

using advance in Federal

can to discourage member

Reserve Bens rates as excuse

borrowers on 4overm,ont

for increasing

interest charge to those

securities who

are dui% what may be reasonably expected in

way of liquidation. in:
with

banxs should be satisfied

moderate difference in their favor. Board does not mean to

suggest




such cases member

the

reduction in rates heretofore charged

transactions or

to

advocnte any

policy

uf orderly liquidation of bond secured

customers on such

which would result in aelay

loans.

HARDING.

FEDERAL RESERVE BOARD
°MICE OF THE GOVERNOR




WASHINGTON
November 8, 1919.

Dear Governor Strong:-

I am enclosing for your information cer of a
letter which was sent by the Secretary of the Treasury
to the Board while it was in session yesterday.
The
suggestion was made that mimeographed copies of the letter
be made and a copy be mailed to the governor of each Fedreference
eral reserve bank, but, in view of the am4emeed
made in the letter to the operations of the Federal Reserve Bank of New York, it is the Board's view that no
copies be sent out until yo ,1 have had an opportunity of
No action will be taken until my
reading the letter.
return here on Wednesday, and T. would like to have you
tell me frankly when I see you on Tuesday if you have any
objection to the letter being sent out in its present form,
or Whether you would prefer to have merely the substance
of it communicated to the other Federal reserve barks with
reference to your bank omitted.
Sincerely yours

Mr. Benjamin Strong,
960 Park Avenue,
New York City.

0

FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR
e,

L.,-.cember 2, 1919.
(",0%4

e-.




Dear Governor Strong:The Board ha a given careful consideration to your letter of
the 28th ultimo, in which you submit certain representations on
to be necessary in view of
behalf of your directors which Jeam
the Board's recent determination in the matter of rates.
The Board appreciates-Pally the fact that the situation is
a difficult one and requires most careful handling. 'The view of
the Board is, or at least that of a majority of the Board, that
an advance in rates at a Federal reserve bank cannot alone be an
R
affective corrective of the present situation. It is inclined to
agree with the position taken by the "London Statist" in the leading editorial in its issue of November 15, 1919, from which I quote:
"If there was any doubt as to what was the dominant
factor controlling the Money market today, that doubt
should be sat at reat in the light of the events of last
In pre*War days movements of the Bank rate were
week.
eagerly followed by the market, which was quick to respond to the danger signal contained in any advance.
Generally speaking, the Bank rate was effective in normal
Today it is openly admitted that an increase in
times.
the Bank rate could not of itself,unless it assumed
abnormal dimensions, exercise its old predominating innuance over the max17.et. The reins of power have now been
transferred, ,at least in part, to Treasury bill rates.
Witness the rapidity with which the one rise followed the
And lest one should be inclined to regard the
other.
latter increase as due mainly to the adVance in the Bank
rate,read the admission of the Chancellor of the Exchequer
in the House of Commons on November 10; 'Let me add,' he
declares, 'that, owing to the immense amount of short term
borrowing by the Government, no rise in the Bank rata can
be affective for the purpose for which such rises took
place before the War unless corresponding action is taken
by the Government in respect of Treasury bills'."
"rhe Treasury is still the predominant factor in our financial situation.
Notes and bonds of the United States are specifically exempted

to
in Section L3 from the investment securities, transactions in which are
excluded from the dealings of Federal reserve banks. The Treasury officials have taken a definite :stand that no change can be made at present
in the Treasury policy of issuing certificates at a low rate and making
them attractive by the means of the deposit feature.
The Treasuryls
policy having been definitely announced, the Board has felt it to be
its duty to do what it could to cooperate, even though the result has been
an unsatisfactory banking situation.
It is probable, however, that the
situation would not have been altogether satisfactory in any event, for
as long as consumption exceeds production and as long as people generally
maintain the extravagant mood ahich has been very much in evidence for
several months past, little if any headway can be made in genuine liquidation, which is absolutely easential for the restoration of more normal
conditions:
The Board has noted your views as to the problem of credit control,
and recognizes the fact that the great bulk of the increase in the loan
account of reporting banks has been in miscellaneous loans other than
stock Exchange loans notwithstanding the reduction of loans upon Government securities.
It woald be exceedingly difficult for the Federal Reserve
Board to undertake to suggest a policy at this time for the restriction
of .general credit which would not conflict with the vary firm conviction
of the Treasury authorities as to the effect upon the Liberty Bond market,
in which, as you know, the Treasury feels much interested. I believe that
I am expressing the general opinion of the Board fairly when I say that
no drastic steps should be taken at this time even though the reserves
of the Federal reserve banks should continue to decline.
We may expect rather stringent money conditions between now and the end
of the year, but it seems highly important to prevent anything like panicky
conditions, and we may reasonably expect a. considerable easing in the
The Treasury officials have already
situation after the first of January.
*stated that it is their opinion that Treasury requirements need not be
given so much consideration in determining the bank rates after the middle
of January, and it seats that the time will be more opportune for getting
4 better grasp on the situation after there has been an easing up rather
than to attempt to enforce liquidation at the present time when there are
so many disturbing factors to be considered. It is the Board's view that
for the next two or three weeks at least the managements of the Federal
reserve banks ahould deal with the situation in detail, treating each case
on its merits rather than by the application of a general 4nd'inflexible
rule.

Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
N3W York City.



'Strong

believes that in order to discourage speculation and check
NewyorkBoard

loan

to use discrimating judwge:lent in making discounts

expansion it is necessary

and advancenente as provided in section four , and to have member banks under
*--stand that resources of system are not unlimited

.

Board realizes , howTver

that advances in rates constitute an important element in making meber banks
and their customers understand need of such discrimination and limitation.
Treasury position at present is sufficiently 'favorable as to warrant abolition

of preferential rates in favor of Paper secured

by liberty bonds and victory

notes. Maintenance of-four and one half percent rate on treasury certificates
seems necessary to insure success of future

certificate issues but main-ten

ance of this rate involves no treat danger of expansion

as that rate affords

no profit to banks carrying certificates but on the contrary offers inducement
to distribute certificates

among taxpayers and other private investors

Treasury does not ask continuance of four and one quarter percent rate on
four and one quarter percent certificates

In bringing these fects to your

11. ....
10/
9F

attention board desires to say that if conditions in your district are such
as to render desirable four and one half percent rate on all certificates
and abolition of the one quarter percent differential in favor of rediscounits

and advances secured by liberty bonds
approve such changes .




Harding
1230p

and victory notes

.

Board. is prepared to

C

FEDERAL RESERVE HOARD

0OFFICE OF THE GOVERNOR

WASHINGTON
December 10, 1919.

PERSOITAL Mr) (7()^,71DEWNt:

&IL
DEC93109*-'

Dear Governor Strong:I have your letter of the 8th instant enclosing copy of a very
confidential letter dated November 19th, which I have read with much
interest.
I shall, of course, respect your injunction that it be
treated strictly as a private communication to you.
I received late this afternoon your telegram regarding rates,
which will be brought to the attention of the Board at the meeting
tomorrow, and you will be advised by wire as soon as action is taken.
I note your suggestion that the visit of your directors to Wash-.
ington, which had been arranged for next Wednesday, be indefinitely postponed.
my personal opinion is that it would be wise to call off the
meeting.
The Board will, of course, be glad to see your directors
or aly of them whenlver they wish to come to Washington, but, in view
of the developments along the line of rate advances, it seems to me
that there is no prceent need from your standroint of an early conference.
Very truly yours,

Mr. Benj. Strong, Governor,
Federal Reserve Bank,
New York City.







FEDERAL RESERVE BOARD
WAS H IN GTO N

January 2, 1920

My dear Strong:-

This is just a line to wish you a happy new
year and to express the hope and belief that you will
devote your thoughts and energies during the year entirely to the restoration of your health. When a man
of your strength of will power undertakes to do anything
he accomplishes the desired result , and I feel sure that
if you will concentrate your thoughts on yourself you
will overcome entirely your physical ailment.
With assurances of my warmest personal regards
and best wishes, I am
Sincerely, your frI

Mr. Benjamin Strong,
Federal Reserve Bank,
New York City.

FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR




August 2, 1920.

My dear Strong:I am greatly obliged to you for your letter of Jvly 4th enclosing picture cards from Japan, and I was especially pleased to learn
of the continued improvement in your health.
I have been to New York several times since you left, generally
on days when the directors were in session, and I have enjoyed my conferences with them very much indeed.
I 4M very much impressed with
the efficiency and earnestness of your board, and the cordiality with
which they always receive me is most gratifying.
The movement of crops has begun, and while the railroad situation
is pretty bad the service is gradually becoming more efficient, and
all in all I think general conditions are better than we had anticipated
a few months ago. As fax as crop movements are concerned I have no
fears, for the movement of crops means norm=0 business activity, liquida,
tion - digestion. But prices of staple commodities are falling and
owing to the reluctance of producers to sell at lower prices as well
as to the inability of the railroads to furnish adequate transportation
facilities, I am more concerned about the holding of crops. This is
a process which means renewals of loans, increased indebtedness - congestion. However, I do not want to talk too much shop in this letter.
Your associates in New York are no doubt keeping you fully advised as
to general conditions, and we will pull things through some way or another.
Of this I entertain no doubt.
You will be interested and gratified to know that Mr. Jay could have
been Mr. Strauss' successor on the Federal Reserve Board had he been disposed to accept the position. Upon his declination Mr. Platt, Chairman
of the House Committee on Banking and Currency, was aprointed and was
duly confirmed by the Senate. Mr. Platt has recently been designated
Vice Governor of the Board for the period ending August 10, 1922. He is
thoroughly familiar with the legislative history of the Federal Reserve
Act and has taken a great deal of interest in the work of the Board; he
i3 proving himself to be a most useful member and is in all respects a
most agreeable man to work with.
Hoping that you will let me hear from you whenever you feel disposed
to write, I am, with warm regards,
Sincerely yours,
Mr. Benjamin Strong,

c/o Javasche Bank,

Batavia, Java.

X OFFICIO MEMBERS

W. P. G. HARDING, GOVERNOR
EDMUND PLATT,VICE GOVERNOR

'SION

AVID
SECRE1

OF THE TREASURY
.AIRMAN

FEDERAL RESERVE BOARD

JOHN SKELTON WILLIAMS

--

COMPTROLLER OF THE CURRENCY

R. G. EMERSON, ASS/STANT TO GOVERNOR

W. W. HOXTON. SECRETARY

ADDRESS REPLY TO

WASHINGTON

FEDERAL RESERVE BOARD




ADOLFH C. MILLER
CHARLES S. HAMLIN
D. C. WILLS

W. L. EDDY, ASSISTANT SECRETARY

W. M. INLAY, FISCAL AGENT

December 2, 1920

Dear Sir:

I acknowledge receipt of your letter of the 1st
instant to Governor Harding, forwarding letter addressed

to him by Governor Strong, from Darjeeling, India, and
also copy of same letter, which I have forwarded to
Senator Pittman.
Very truly yours,

\

4(

Assistant Secr tary.

2±.

George Beyer,
Secretary to Governor,
Federal Reserve Bank,
New York, N. Y.

FEDERAL RESERVE BANK
OF NEW YORK

TELEGRAM

WIRE TRANSFER
DIVISION

PRIVATE WIREINCOMING

394bd pf Washington Dec 23-20 437p
CA SE

-'tR 3910trzi"

NEW YORK,

Please cable Strong Boards Greetings and best wishes for 4rry Christmas
-

and prosperous NewYear.




r.rt

433p Harding

0

C
iNa

c=.

FEDERAL RESERVE BOARD
OFFICE OF THE GOVERNOR




WAS
January 22, 1921

PERSOMI

JAN 24
1921

By dear Strong:

I acknowledge receipt of your letter of the 20th instant,
which affects me greatly. For reasons which I Shall be glad
to explain to you when I see you again, I felt that I should
not decline the tender which was made me "if and when organized", and I have signified to the Chairman of the Organization
Committee my intention of accepting, subject to that condition.
Naturally, I am most reluctant to leave the Federal Reserve Board at this particular time, but after the closest consideration of the entire matter, both by day and by night, I
reached the conclusion that I am not so badly needed here as you
seem to think. Very often a man overstays his time. I am going
to do all I can to further the appointment of the right man to
succeed me and I am sure that you will agree with me as to who
that man should be. The legislative end is already well provided
for and if the man to whom I refer is available, I am hopeful
that it will be practical to secure his appointment. In that
case, the executive management of the Board would be better than
ever.

I suppose that I will know in the course of the next two
or three weeks something definite as to the prospects of completing the organization of the proposed corporation and in the
meanwhile will not abate in the slightest degree my interest in
the Federal reserve system nor Shall I neglect its work in any
way. I want you to know how deeply touched I am at your evident
appreciation of what I have been trying to do.
With warm regards, I am
Sincerely yours,

lir. Benjamin Strong,
15 Nassau Street,
New York, N. Y.

0

a
FEDERAL RESERVE BOARD

OFFICE OF THE GOVERNOR




Pe-,

WASHINGTON
February 5, 1921

PERSONAL AND CONFIDENTILL

Dear Governor Strong:

I acknowledge receipt of piur priviate and confi-

dential letter of the 2nd inant, enclosing Dow, Jones
and Company's Bulletin of iebruary 1st, which contains

a statement identical w h one which I had seen in the

Wall Street Journal seral days ago.
I note what y

have to say in your letter and am

obliged to you £0 /the information.

Sincerely yours,

Ar551111"
dP'

Mr. Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.

'qv AO

ir

FEDERAL RESERVE BOARD
OFFICE OF THE GOVERNOR




WAS
Lurch 16, 1921

MAR 1 7

'1921

Pia1.30NLI

Dear Governor Strong:

I acknowledge receipt of your letter of the 15th instant, calling
attention to the preliminary outline of subjects to be discussed at
the meeting of the Chamber of Commerce of the United States at Atlantic
City, April 27th-29th.
I do not know whether or not I have told you that sometime during
last October or November the Board received a letter from Mr. Defrees,
President of the Chamber, asking for comments on a very critical memorandum or report which had been submitted to the Chamber regarding the
responsibility of the Federal reserve system for the tremendous slump
in values which had taken place.
I believe the memorandum or report
was supposed to be a confidential one.
Shortly after this, Harry
Wheeler made a speech in Chicago in which the criticisms were repeated
and which indicated that he was the author or, at least, was connected
Sometimm when you
with the authorship of the report to the Chamber.
are down here I will show you a copy of mw reply to Lt. Defrees. Since
Mr. Wheeler's speech I have heard nothing more of any tendency on the
part of the ChaMber of Commerce to be critical.
I would prefer not to initiate any new correspondence, but in case
I can meet casually some officer of the Chamber I will ask some questions
as to the scope pf the discussion of discount rates. I think it would
be a good idea, if you are in position to do so, if you would institute
some inquiries on your own account. Let us each keep the other advised
of any information received and we can then consider steps for having
some friendsof the system take part in the discussion.

Very truly yours,

Mr. Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.

4

,

54- G' C;;T:
II

ti7 11!

I.

:TS:
\II

4' 3

1




FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR




:.:arch 18, 1921

PERSONAL

Dear Governor Strong:

I have your letter of the 17th instant, enclosing
copy of your letter to Elliot Goodwin of the Chamber
of Commerce of the United states. I am very glad that
you wrote lir. Goodwin and hope that your suggestions
can be carried out.
I spoke to Ia.. Llilier this morning about the ap-

proaching meeting of the Chamber of Commerce andhe told
re he had given some attention to the matter a month
or so ago and had been informed at the time that a
report had been virtually agreed upon which would be
entirely satisfactory to the friends of the federal
reserve system. He said, however, that his more recent
information is to the effect that the report had been
amended in some respects and that the final draft had
not yet been made.

Very truly your

Mr. Benjamin Strong, Governor,
federal Reserve Bank,
New York, N. Y.




oa10lt21

FEDERAL RESERVE BOARD
WASHINGTON

OFFICE OF THE GOVERNOR




READ AND NOTED,

November 4, 1921

Dear Governor Strong:

I acknowledge receipt/of your letter of October
31st, enclosing copy of letter of introduction which
you have just sent to Mr. Eigo_Fukai, who, I understand,
will be with the Japanese Delegation to the Conference
on Limitation of Armament. I shall be very pleased
indeed to meet Mr.,Fakai and will take pleasure in
extending him anyAourtesies that I can.

Very truly yours

///e
iff

Mr. Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.

B.




.-

ke:7-141,

74,804,- pb.

sec%

I
to

r

.

FEDERAL RESERVE BOARD
OFFICE OF THE GOVERNOR

WASHINGTON
November 8, 1921

ACT4'NO'NV,
NOV 9

1921

Dear Governor Strong:

I received this morning from Richmond a booklet entitled "History
and Description of the New Building of the Federal Reserve Bank of
Richmond".
I am quite sure that this will not be criticized by the late Comptroller, but I cannnot help thinking that if a similar booklet should be
issued after the building of the Federal Reserve Bank of New York is
completed the late Comptroller would be greatly shocked and would give
voice to his criticisms in the Manufacturers' Record and in prepared
speeches for certain Senators. I have no doubt that Governor Seay sent
you a copy of the book and would call your attention to the following
extracts from the text:
"The main building is of a monumental and dignified character in
keeping with the great institution it was designed to house.
The exterior
is a
free adaptation of Greek precedent, more suggestive perhaps of
the great Mausoleum at Halicarnassus than of any other single building".
"Two carved marble pedestals will later be placed on either side of the
" ... the clere-story walls being supported by massive
main entrance".
Doric columns of Pink Tennessee, which in their proportion and detail
suggest those used in the temple of Eleusis. Great care has been taken
in selecting the marble used in this room to secure a uniform color."
"Above the main entablature are terms surmounted with female heads which
support the slender clere-story cornice directly under ceiling. These
heads were carved after a model made by Hans Schuler, the Sculptor, being
a free copy of an archaic Greek head found at Athens."
Of course, anything of this sort in New York would be outrageous
but I have no doubt that the late Comptroller thinks it is emminently
appropriate in Richmond. Perhaps this building put in his head the term
"temple of banking", Which he applied to the Federal Reserve Bank of
New York.
Very truly yours,

Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
New York, N. Y.




6

7

17.1

cZl






FELLBAL hEbEhVE BOARD

A-6517
February 2, 1922.

SUBJECT:

Temporary Aavances to Dealers Against Victory
Notes.

Dear Sir:

lou are requested to advise your Executive Committee
that until further notice the Feaerai Reserve board will
not object to any arrangements which your Bank may aesire to
make for temporary aavances to dealers against Victory
Notes on the same basis as acvances have he.etofole been
maoe against Treasury Notes aria Certificates. Victory Notes
are now so near their maturity that they may be treated as
shot-time obligations.'lour Bank cannot, of course, make
loans airect to aeaiers on the security of Victory Notes, but
uncer its open market powers may purchase them or carry them
for aealers unaer agreements by them to repurchase at statea
times.

Very truly yours,

(Sienea) W. P. G. Harding
Uovernor.

-.r.erre Jay,

Chairman, Feaerai Reserve Bank,
New iork, h. I.




FEDERAL RESERVE BOARD
WAS*)1/4?iTt(031 1
m4T-91%

of IF,

A CI:

O'19129222

MAR 3 1 1922

-'41fliAl

Dear Governor Strong:
Governor

I acknowledge receipt of your letter of the 28th
instant, in which you outline the present practice of
the Federal Reserve Bank of New York in making payments
of all kinds for account of the Treasury. The attitude
of the Treasury, as recently announced, raises, as you
say, a very important question. Any principle or precedent
which might result in the tItimate surrender by the
Federal Reserve banks of the control of their reserves
to the Secretary of the Treasury is dangerous, and I
agree with you that it would be highly desirable for you
to discuss the matter in person with members of the Board
and also with Treasury officials. I note with pleasure
that you expect to be able to come to Washington some time
next week.
At the group meeting in Richmond the other day, the
sentiment was unanimous against the Treasury's position
as understood by the members of that conference.

Very truly yours,

overno r.

Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
New York, N. Y.




all naz
MAR

GOVONOR'S SEC'Y.

?mts'llrYiet'rr=30
.




FEDERAL RESERVE BOARD

AuG 2

1922

WASHINGTON
Augast 1, 1922

CONFIDENTIAL

Dear Governor Strong:

Your confidential letter of July 27th was duly received
and was brou8ht to the attention of the Board in executive
session today. Assuming that the directors of your bank will
give you the necessary leave of absence, the Board, in view
of your statements regarding the attitude of the Secretary of
State and of the Secretary of the Treasury, sees 310 objection
to your participating in the conference of representatives of
banks of issue to be held in London in October.

Very truly yours,

overno r.

Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
New York, N. Y.

4/0

FEDERAL RESERVE BANK
OF BOSTON

ACK NO
NOV 2,!: 1924
ti1




November 20, 1924.

t"--4>

NOV 2Atv

Dear Governor Strong:
Iiffish to thag you foy'your letter of
the 17th inst. ith Aich you enclosed
copy of your letter/to Governor Crissinger.

Iwish also to add a line to express my
appreciation of the fine work you are
doing in behalf of the System with the
authorities at Washington.
It seems to
me that your influence, just now particularly,
is of inestimable value.
Very truly yours

e7-12c

. .G. Harding,
Governor.

Mr. Benj. Strong, Governor.
Federal Reserve Bank of New York,
New York City.

`,..,... ^---.^ ,

-

FEDERAL RESERVE BANK
OF BOSTON
CD

40$$

c,

0
L

:::- CY
Dear Governor Strong:

N-

la
1.2

Lit4.
0

SI

am glai to know that
I have received your letter of the 17th inst.
you and Warburg are in agreement that the most important matter now to
be considered by the Federal Reserve Systeme is the whole subject of the
amendments to the Federal Reserve Actend the Revised Statutes of the
Unites States which are comprehended in the two McFadden Bills.
It is
I cannot see any merit whatever in the latest McFadden Bill.
banks by
especially dangerous for it invites the support of member
reducing the percentage of reserve which they must carry with the Federal
This reduction of 40% would seriously weaken the
Reserve Banks.
Federal Reserve Banks and if at the same time the banks are prohibited
from issuing notes in exchange for gold or upon security of paper acquired
In view
under Section 14, their strength will be seriously impaired.
of the probability that coming years will witness a continuation of
redistribution of our gold supply, I think it very important that the war
amendments which McFadden seeks to repeal should be retained.

Our statistical division has furnished me with a statement showing the
effect of the new McFadden Bill upon the Federal Reserve System and upon
You will notice that had this
the Federal Reserve Bank of Boston.
bill beeneffective in 1920, the reserve percentage of the twelve banks
combined on November 12 of that year would have been 23.6; while the
reserve of the Federal Reserve Bank of Boston would have been 20.5%.
On December 31, 1924 our position here would have been still worse for
we would have had a reserve of only .9 of 1%, had we conformed to the
requirements of the new McFadden Bill.

I have been amusing myself by framing a substitute for the original
which takes- as a basis that part of the bill which passed
the House and was approved by the Senate Committee on Banking and
I have indicated by a penvil mark on the margin the new
Currency.
Mile there may be a question as
matter which I have incorporated.
to the wisdom of these suggestions, I think they are at least logical.

McFadden Bill,

In the McFadden Bill as it passed the House, provision was made that
national banks be given no privileges which were not accorded to State
Conversely the new bill should take equal care that national
banks.
banks, with the approval of the Federal Reserve Board, be given equal
With respect to this your attention
privileges with the State banks.
The McFadden bill both as
is invited especially to Pages 3 and 6.
as it passed the House, and approved by the Senate Committee, provided
(Page 6 of my draft) for indeterminate charters for national banks.
You will see that I have added a new section which would in the same
way extend the charters of Federal Reserve Banks, by proposing that that
part of Section 4 of the Federal Reserve Act which relates to the
powers of Federal Reserve Banks be amended to read as follows:



1

LL,

w

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)

-

ow

0

30VERNOR'S OFFICE

RECEIVED

EDER"



CY

"Second.
To have succession until its franchise becomes forfeited by
reason of violation of law or until terminated by either a general or
.special Act of Congress, or until placed in liquidation by the Federal
Reserve Board under authority of Paragraph (h) of Section 11 of the

Federal Reserve Act."

(

////////////
The caption or short title of the Federal Reserve Act givi as one of its
purposes the establishment of "a more effective supervision of banking in the
United States".
Section 10 of the Act provides that the Comptroller of the
Currency shall be a member of the Federal Reserve Board, but the Act is deficient
in coordinating 1-he powers of examination possessed by the Comptroller of the
Currency and by the respective Federal Reserve Banks.
You will remember that
some years ago we discussed the advisability of s.ttempting-to secure legislation
which would abolish the office of the Comptroller of the Currency.
Probably
our views as to this have changed, and in any event I think we agree that it is
impracticable to get any such legislation.
It seems, however, that it would be
logical to link more closely the powers of the Federal Reserve Agent and of the
Comptroller of the Currency.
I have, therefore, added, mainly as a suggestion,
and not being prepared to advocate it very strongly, (Pages 11 and 12) a section
which requires the Comptroller of the Currency to designate each Federal Reserve
Agent as District Deputy Comptroller of the Currency for his district.
(See Postscript)
The McFadden Bill as it passed the House and as approved by the Senate Committee
added four new paragraphs to Section 5209 of the Revised Statutes of the United
States.
Two of these paragraphs provide penalties for conspiracies to injure
national banks by circulating false reports in order to cause withdrawal of deposits,
etc.; while two of them provide penalties for assaults on persons having lawful
charge or custody of securities, funds or other property of national banks and
for breaking into and entering any banking house of any national bank with intent
to commit a felony therein.
In each of these paragraphs after the words "any
national banking association", I have added the words "or Federal Reserve Bank".
It seems to me that the Federal Reserve Banks should be given the same protection
against assault and robbery as it is contemplated to give national banks.
I understand from your letter that you are having studies made of both the
McFadden Bills and that you propose going over them with Warburg before the conference.
If you wish I think I can arrange to be in New York on Saturday, April 4, for the
purpose of joining in the discussion.
I think it of first importance that in
any bill which may be agreed upon provision should be made for indeterminate
charters for Federal Reserve Banks.
The action which was taken by the House, and
by the Senate Committee, as to national bank charters, makes it perfectly
logical that similar action should be taken with respect to Federal Reserve
Banks.
With such a provision incorporated in a new bill we would have the
advantage at least of testing out Congressional sentiment on the subject without
making the extension of charters a burning issue.
The Federal Reserve System
is a natural outgrowth or concomitant of the national banking system, and there
certainly seems to be no reason, if national banks are to be given perpetual
charters, why Federal Reserve Banks should not have them also.

Very truly yours,

Mr. Benj. Strong, Governor,

Federal Reserve Bank of New

York,

New York.
P.S. My experience in dealing with Congressional Committees has convinced me that in
framing a bill to present to a committee, it is a good plan to incorporate in it something apparently important which the committee can strike out without interfering with
the main purpose of the bill.
This relieves the committee of the impression that it
is a rubber stamp.






GOVERNOR'S OFFICE

RECEIVED

ttiR 2-6 125 5 45

:EDERAt.

November 12, 1920
McFadden Bill
Present Law

December 31,1924
McFadden Bill
Present Law

FEDERAL RESERVE SYSTEM:
Discounts for Member Banks

Total Cash Reserves

F. R. Notes in

circulation

Total Deposits
Reserve Ratio

$2,784,750,000 $2,784,750,000
926,230,000
2,180,011,000
3,328,985,000 2,784,750,000
1,845,417,000 1,135,872,000
23.6%
42.1%

$314,128,000
3,047,054,000
1,862,062,000
2,310,668,000
73.0%

$

314,128,000
634,978,000
314,128,000
1,446,526,000

364%

FEDERAL RESERVE BANX OF BOSTON:
Discounts for Member Banks
Total Cash Reserves

F. R. Notes in circulation
Total Deposits
Reserve Ratio




183,157,000
264,048,000
289,041,000
122,301,000

49.6%

183,157,000
53,341,000
183,157,000
76,478,000
20.5%

28,994,000
233,840,000
207,390,000
144,042,000
66.5%

28,994,000
1,078,000
28,994,000
89,676,000
.9%

FEDERAL RESERVE BANK
O F BOSTON
NOWLEMED
<

4.4

MAR 1 1 1925
March IO, 1925.
V1

g4

Dear Governor Strong:

I have received your letter of the 9th inst. and note your
request that I submit to Mr. Harrison any topics which I wish
to have placed upon the program for consideration at the
Spring Conference of Governors which has been fixed for April 6.
It seems that the Federal Reserve Board has now taken a
position satisfactory to the banks on various questions which
it had raised and I do not at the moment think of any routine
matters to suggest.
It seems to me, however, that it is important that some consideration be given in advance to some legislative measures which
Perhaps it is
are coming up at the next session of Congress.
become involved in
not the functions of the Governors to
such matters but in view of the laissez faire attitude of the
Federal Reserve Board during the past year or two regarding legislation, it seems to me that it would not be inappropriate for
the Governors to call the attention of the Board to the importance
of its consideration of these matters with the view of taking if
possible a determined stand.

You will recall that the so-called McFadden Bill was framed
without consultatiaawith theBoard, merely with the Comptroller
of the Currency, and that the Board was not asked for its
opinion until just before the bill passed the House when
I
Mr.McFadden wrote requesting a statement of its attitude.
that no action would be construed as
am informed that he said
opposition by the Board, and that the Board informed him that
This bill did
it stood four to three in favor of the bill.
be little doubt that it
not pass the Senate and there can
The
will come up again at the next session of Congress.
in framing the bill
American Bankers Association figured
which passed the House and I assume that the question of a
new bill will come up for consideration at the spring meeting
I think it might be helpful for
of the Executive Council.
the Governors of the Federal Reserve Banks to discuss this
question among themselves and if there is any approach to
uniformity of views as to basic principles, the Federal Reserve
Board should be given the benefit of those views.
I think also that it is very important that consideration be
given to the new bill which McFadden introduced in the House
shortly before the expiration of the recent session of Congress.







30VERNOR'S OFFICE

RECEIVED

1

5 4: 51
!Imp .14 1325
.

That bill as you know seeks to repeal the war-time legislation as to
note issues and reserves.
In my opinion should that bill be enacted
into law, the Federal Reserve Banks would be weakened to an alarming
extent.
As drawn the bill will receive the support of people who
think like the Editor of the Financial Chronicle does, and it is likely
to receive the support of a large part of the membership of the
American Bankers Association.
It reduces the amount of reserve
which must be carried with the Federal Reserve Banks and permits
vault cash to be counted as part of the required reserve.
You
remember of course how effective these war-time amendments were in
1918, 1919 and 1920.
While there may be no occasion at the present
time to issue Federal Reserve notes against gold or to use paper
secured by Government obligations or bills purchased in the open
market as collateral for Federal Reserve notes, I can see no reason
why the power to use them in the case of an unexpected emergency should
be taken away.
I understand that McFadden expects to make many
addresses during the summer in favor of hi b new bill and it may be
that the ground could be cut from under his feet if the Federal
Reserve Banks should agree as a matter of usual practice to discontinue exchanging Federal Reserve notes for gold and to use only
rediscounted commercial paper as collateral for them.
If after full
discussion of the matter it seems advisable to adopt such a policy
the Governors could then request the Federal Reserve Board to issue
the necessary regulation, which could in the absence of legislation
be rescinded by the Board at any time when there might be occasion
to do so.
As the Federal Reserve Board has the right under the law
to refuse in whole or in part any application for Federal Reserve
notes, the operation of this plan need not be uniform in all districts.
If you think that these are subjects which may properly be considered
at the next conference of Governors, I shall be glad to ask
Mr. Harrison to put them on the program, and if fairly uniform
views should be developed, I think it would be desirable also that
arrangements be made for you to be invited to attend the spring meeting
of the Executive Council of the A.B.A., for I am quite sure that
these matters will come up for consideration at that meeting.
Very truly y

.
P. G. Harding,
Governor.

V,/

Mr. Benjamin Strong, Chairman,
Governors Conference,
Federal Reserve Bank of New York,
New York.
P.S. Would you mind discussing this with Warburg2
I have already
written him suggesting that he bring these matters up for consideration at the next meeting of the Advisory Council.




GOVERNOR'S OFFtCE

1925

ri

cr.

RECEIVED

5 11

9

A

t',4040,0
r->





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102