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:lying to your tetegram of rovonbor ,..3rd, in
Re
further reference to tho eligibility for rediscount
by a Federal reserve ban: of morber banks' fifteon
day collateral notes, secured by bonds of the .District
of Columbia, due August 1, 1924, issued under an Act
of Congress approved Jane 20, 1074, as amended by an
Act ay:roved Febrnriry 29, 1875, I hand you herewith
copy of a momoronOun from the Board's Counsel in
which ho ties the position that the Bonds In question
are not bonds or notos of the United States ithin
the muoning or Section 13 of the Federal Reserve Let,
and are, thoreforo, not eligible as collateral for
membor banks' fifteen day notos.

2(.i

0
very truly

W. B. Gerry, Deputy Governor,
Federal Rosary° Bank,
ainneapolis,

yours,

1'orni No.

Office Corresp
To

ence

FEDERAL RESERVE
BOARD

41110111
Date_

Nov,24,1920

Subject_District of Columbia bonds as

The Pederul Reserve Board

collateral for member bank
fifteen day notes.

From_Mater S. Logan

2-8495

The telegram dated NoveMber 23, 'from V. B. Gerry, Deputy Governor
of the Federal Reserve Bank of Minneapolis raises the question of the eligibility as collateral for member bank fifteen day notes of the 3.65%
District of Columbia bonds, due August 1, 1924, issued under the Act of
Congress approved June 20, 1874, as aranded by the Act approved February
20, 1875. Member bank fifteen day notes must be secured by "such notes,
drafts, bills of exchange or bankers' acceptances as are eligible for rediscount or for purchase by Federal Reserve Banks under the provisions of this
Act or by the deposit or pledge of bonds or notes of the United States."
District of Columbia bonds are not, of course, eligible for rediscount or
purchase and the question is, therefore, whether they are "bonds or notes
of the United States" within the meaning of this provision of Section 13.
Section 7 of the Act of Congress approved June 20, 1874, as amended
by the Act approved June 20, 1875, provides in part as follows:
"That the sinking-fund commissioners of said District
are hereby continued, and it shall be the duty of said
sinking fund commissioners to cause bonds of the District of Columbia to be prepared * * * to be siigned by
the Cecretar and the Treasurer of said sinking fund
-comptroller of
cora: ssioners and countersigned by tEe
said distsw, and
And the faith of jJited_States is hereby_pledged
,
that the United States v!ilkx.. :biprEber proportional
I
LTIr_np1i4itlons us cont9Lig4ted
causin to be leviqd_aun tha Luserty within said Dis
ct such taii&T_Amill1Lpsovide_ITievAiAlas_neceSiary
.
-nds,e_sa11,:e may become
-I6 TATITEtriterAs:Lgn_qmAd_fo
.gie aeateajnkinr fund'for the payment
dlie iacrilia
-rial
7
* * FT4a171175.76
nal_therepLAI_RMuiii„...___z
- 6f T5 Prinqp
office of
FirfOrtiierconsecutively, and registered in the
the comptroller of said District, and shall also be registered
in the office of the Register of the Treasury of the United
States, for which last named registration the Secretary of
the Treasury shall make such provision as may be necessary.
************ n

90a5

-

I am of the opinion_thathe District of Columbia bonds issued pursuant
to this Act are not bonds or notes of the United States within the meaning of
Section 13 of the Federal Reserve Act. The bonds are called District of Columbia bonds, and are not signed by any officer of the United States. In my
opinion the United States is not in any sense the obligor upon such bonds.
It is true that the faith of the United States is pledged that proper appro-

M isc-37




priations will be made and that taxes will be levied, upon the property within the District to meet the interest and principal of such bonds.
This would not seem, however, to obligate the United States upon the
bonds but merely creates a moral obligation on the part of Congress to
enact the necessary 'legislation to the end that the bonds may be paid.
Furthermore, I believe it is clear from the general purpose
of this particular provision of Section 13 that Congress did not intend
to include District of Columbia bonds within the term "bonds and. notes
of the United States."
Respectfully,

General Counsel.
SL-sad




4pOTELEGRAM

O.

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVri
E4
N 0 V 24 1920

RECEIVED AT WASHINGTON, D C.,

1

364fta
Liino

olis

E
OFFIC. OF

THE(
ADVERNOt?. 1
i

315pm nov 23

Board
'4iDC
Your telegram Nov 23rd bonds

are district columbia funding 3.6b perilent

due Aug first 1924 issued under act congress approved 'June

20th,1874

amednded by act approved 2.eby 20th, 1875 will appreciate ruling as to eligibility

as collateral for member bank lo clay notes




B Gerry, eueputy Governor
625pra

GOO

AM
FEDERA

EI.P.ERVE B0A ER p
- ft;
LEASED

• A41"
octior.".

IRE SERVICE
H 1 N a-ro N

Lovember

192t."
OW,

.,)75 )

7113mealo113.

1

t

Your telegram rovember .r..2,/ Board has never ruled us to ell..
gibility of T'istria 5nTlYfilaii bonds rs collateral for member bnn: 15
-7
day notes, but would not be inclined to consider them '1:ond5 or rotes
of the Zhited Staten" within the meaniTr of section 13 unikss the Lot
of lorgress authori2ing their issue required that construction. If you
7:ish a definite
with reference to particulnr bonds please civtfull desoriptiot of bonds and if )os:31b1c cite Act of Alnp;ress under which
authorized. Your attention is called to the ft thrt even if bonds
should be thaL; elirible as bonds or notes of the United ,Aatesthe meanihr! of "Jeatian 10 !nember brov,c notes secured by such bonds would
not be exemvt from strIpp tax unless the bonds were issued after :)ril
1A7. jee 119 edition Federal Leserve Lot, pare 71.




qnDIES,

dolVEL_EGRAM_
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

T-4711

RECEIVED AT WASHINGTON, D. C.,

B120fot
Linnea-nolis 430P Nov 22
Board
Jshinton
Have you ruled as to eligibility cistrict
Columbia bonds as collter -1 to member
barks bills payable If eligible would not
reouire revenue stams.




B Geery Deputy Governor
L)420

410

FPFRAL RESERVE BOARD FILE

FEDERAL RESERVE BANK OF MINNEAPOLIS
NINTH/ DISTRICT
OF
THEODORE VVOLD,GOVERNOR
R.A.YOUNG,DEPUTY GOVERNOR

S.S.COOK,CAS HIE R
FRANK C. DUNLORAssr.cAsHirrt
GRAY WARREN,ASST. CASHIER
R.E.TOWLE, ASST.CASH.Eg
L.E.RAST, ASST. CASHIER

DIRECTORS

-

JOHN H.R ICH,cHAIR mAna
MINNEAPOLIS, MINN
W.H.LIGHTNER,DEPUTY CHAIRMAN
ST PAUL., MINN
F. R. B IGE LOW,ST PAUL,MINNESOTA

JOHN W.BLACK,HOUGHTON,M ICH

L.B. HANNA. FARGO, N. DAKOTA
F. P. H I XON,LA cRof.sE,wiscoNs irs
N.B.HOLTER, H LE NA, MONTANA
WESLEY C. McDOWELL,mARioN,N D.

CURTIS L.MOSHER,Assr FEDERAL

,
RESERVE AGEI

•

April 2,1019.

Hon. W. P. G. Harding, Governor,
Federal Reserve Board,
7ashington, D.C.
Dear Governor Harding:

- m
APR 5
•

1919
"::.•;%''

The last two or three days you will noto that our collateral
loans have materially increased.

This is due to the fact that there has been

a large do-and for flour and the U. 6. Food Grain Corporation has released
a considerable quantity of wheat for milling purposes, which they wore carrying
for foreign government account.

rnturally all the banks are using Treasury

Certificates .on which to borrow.
The situation may be temporary, hut it is
rossible that
it will continue for a ncriod of sixty 4avs, until
the wheat is ground into
flour, shipped, and collections made.

/
7
Yours very truly,

Governer
-C







11-

- • 4111%.

February 11, 1916.

Ur. ¶heoior uold,
Governor Fed'iral Raserve Eazt,

Boar Governor AoIq:
Referring to your letter of %ranuary
30th, I would st,,to that I am advised by Assistant
becratary

Of

the Traasury Leffingwoll that the

becrotary o: the Tre_tsury has strongly recommined
to thP Ch.Arman of the Finance Committ3e of the
Senate, old to the Chairm:In of the ,,ays and Moans
Committee 01 trio Boas°, tri3 passage of the bill to
eliminate the stamp tax on fiiteen-d-ly Lctes
discounted by member ban, with Federal Ree ,rve banks.
ts
Tre,sur.7 officials uo not uppear, howiver, to be
f,vor of :oing any farther than this,lnd they arc
un.illirr. to ro:o!. end trio Exemrtion from the stamp tax
of all notes (Avon to ban4s for ca.rfying covernmeLt
bonds or *aich arf, secured entirei, by covernment bonus.
)
Very truly yours,

Gov3rnor.

ii(4AhD FILE




/1

Februari 4, 1918.

Mr. Theodore old,
Governor Federal Reserve Bank,
Minnoapolis, !linnesota.
Dear Governor
I have your letter of the 30th ultimo callinE
attention to the fact that extended grants oi credit by Federal
Reeerve banks through purchase and resale agreements of government
bonds mint be embarrassing to the Federal Reserve bank because
agreements of this kind are not available as ii,:curity for Federal
Reserve notes.

This was one of the points to Board). had in

mind when your letter of the 17th was considered, and I note your
suggestion that Conrross enact as early as possible a bill relievit. •
frcm revenue stamps notes given by member bans to Federal Reserve
banks when soeured by government bonds.

The Board has recsived

similar sugcestions from other Feda.al Reserve banks, and somo of
them have gone so far as to ask that the bill provide that no notes
whether made b;i banlis or individuals which. :ire secured eLtirely
by governmelA bonds, 'Jo required to c.Irry rvenu
matter has J4en ri;'err.),1 to Counsel,
taako

3

tFs.

The whole

- the board ..111 doubtless

recommemiation to CongresJ on the subject in the near future'.
Very truly yours.

Goyim:Gr.

4'

4
FEDERAL RESERVE BANK OF MINNEAPOLIS
NINTH

DI STRICT

OFFICERS
THEODORE WOLID,GovERNOR
R.A.YOUNG,ASST.TO THE GOVERNOR
S. S.COOK.CASH I ER
FRANK C.DUNLOF;ASST.CASHIER
GRAY WARREN,ASST.CASHIE R
HOWARD HALL,AuoiTOR

DIRECTORS
JOHN H. RICH,cHAiRMAN
MINNEAPOLIS, MINN.
W.H.LIGHTNER.oEpuTy CHAIRMAN
ST.PAUL,miNN.
J.C.BASSETT,ABERDEEN,S.DAKOTA
F.R.BIGELOW,sT.PAUL.miNNESOTA

JOHN W. BLACK,HOUGHTON,M11 ICH.
E.W.DECKER,MiNNEAROLIS, MINN.
L.B.HANNA, FARGO, NADAKOTA
F.R. HIXON,LACROSSE WISCONSIN
N.B.HOLTER.HELENA,MONTANA

CURTIS L. MOSHER,ASST.FEOERAL RESERVE AGENT

Januar- 30,1918.

Hon. 7. D. G. Hardinf7, Governor,
Federal Reserve Board,
Uashington,D.C.

GOVERNOR'F.; OFFICE

Dear Governor Harding:
Your telegram of the 26th in response to our letter of
the 17th in regard to dealirr:s in repurchase agreement of Government Bonds
as suuested by the Board, for a period exceeding fifteen da-rs, I find
upon iii

return from Helena this morning.
In this connection I beg to call -our attention to the

fact, although I presume it 11-%s been in your mind, that extending credit
by wa-r of purchase and re-sale agreement of Government Bonds rirht be
embarrassing to a Federal eserve Bank, provided thel yeserves were low,
due to the fact that they cannot be

j..- .:4 for Federal Reserv
1

notes.
In view of the probability of Vederal Reserve Banks
being required to e=tencl credit in this -my to a f-,reater or less
extent
from now on, it mould se= of the greatest importance that the bill,
which
I understand is before Congress, eliminating the requirement of
documentary
stamps upon notes given by a member bank to a Federal Reserve
Bank, secured
by Government bonds, be enacted into law at the ear1ie-tib
l

IT-C




overnor

date.

TELEGRIKA

Form 46

FEDERAL RESE

VE1110ARD

WAS H I NGTON

I

2

L
)

Movonber ef e 1.911.
• ".")...,)

A1 Reserve Rank,
Rich, Te4er,
Mintna„?ulls, WARA.
Your *Ira sixth, ri part•paig
invelvas

1 414 1.0.hout further
legal question, on 4hi1lt Bo.irJ :14AidOt ,

111,341,i6a.tian,

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE FEDERAL RESERVE BOARD

2-7729



res)ipts.

AL1L44,1a. 4s4ia4on x:zon

11144m44av/.

Form 1201
CLASS OF SERVIC

- MBOL

Day Message
Day Letter

Blue

Night Message

WE#rkJt4SN

Nile

Night Letter
NL
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.

CLASS OF SERVICE SYMBOL
Day Message

PRESIDENT

GEORGE W. E. ATKINS, FIRST

VICE•PRESIDENT

Blue

Night Message

NE1A'COMB CARLTON,

Day Letter

Nite

N L
Night Letter
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the cheek.

RECEIVED AT WYATT BUILDING, COR. 14TH AND F STS., WASHINGTON, D. C. AlSvg,Ts
(
F6SCH VF 35GuVT.
SU LINNEAPOLI8 MINN NOV 6 1f)17
-

344E„

FEDERAL :-1ESERVE DOARD
-

f?;817

'ASHINGTON

HAS THE :BOARD ;:,ADE ANY RULING FAVORING ACCEPTANCE OF [
);T PAID LIBERTY
LOAN RECEIPTS AS COLLATiRAL FOR FIFTEEN DAY NOTES AND IF NOT DOES
BOARD APPROVE OF SUCH COLLATE: L




RICH AGENT
5PE1

NOVc 19i7
GOVERNOR'S

OFFICE.

.--------.....--

e.6ERAL RESERVE. BOARD

9 TELEGRAM

FEDERAL RESERVE BOARD
i
WASH I N GTON
--,
i

„Ar

--)
-------1
.---L./
fr" •

i917.

Volsral Reserve Dmit,
TOin• tolegr:= '4'4 7e

already ladleateds

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD
2-7729



FILE

on
Tittase of tivett f:Alirrionitififteon Atty aotes apr:ravo& as

x

CLASS OF SERVICE SYMBOL
Day Message
Day Letter

Blue

Night Message

Nite

Night Letter
NL
If none of th'so three symbols
appears after th.; check (number of
words)this isa day message. Otherwise its character is indicated hy the
symbol appearing after the check.

CLASS OF SERVICE SYMBOL

WATE
‘7
'
WESTERN UNION

Day Message
Day Letter

GEORGE W. E. ATKINS,

Nile

Night Letter
N L
If none of these three symbols
appears after the check number of
words)this is aday message. Otherwise its character is indicated by the
symbol appearing after the check.

vt
W
TELl 71
NEWCOMB CARLTON, PRESIDENT

Blue

Night Message

FIRST VICE-PRESIDENT

RECEIVED AT WYATT BUILDING, CUR. 14th AND F STS., WASHINGTON, D. C.

FI

B538NY 30 COLL GOVT NITE
MINNEAPOLIS MINN 7
FEFERAL'RESERVE BOARD
WASHINGTON DC
00 DIRECTORS TODAY FIXED A RATE OF THREE PERCENT UPON FIFTEEN DAY
NOTES SECURED BY GOVERNMENT OBLIGATIONS TO BE EFFECTIVE AT ONCE
WOLD GOVERNOR.




/

--- --RESERVE BOARD FILE
IF_ BM_
s

• "M. EdIAM

FEDERAL RESERVE E39ARD
WASHINGTON

)(
114; 79 1917.

PeJoral Reserve Zunk,
Anuwivile,
bo6ra tTproves r4te of three neraent or member banks fifteen
In
3ircr2rle7A %ond, or certifie!,tee.
uoLoo sourCI
rvto la cAvcii to meet a touport* eita4t1on nnd is :,ubject to
rovision at :tly tine.
diAy

OFFICIAL BUSINESS
GOVERNMENT RATES

 FEDERAL RESERVE BOARD
CHARGE
http://fraser.stlouisfed.org/ 2-7729
Federal Reserve Bank of St. Louis

• TELEGRAM

Form .10

FEDERAL

RESERVE

BOARD

WAS H IN GTON

Draft telegram to

May 7, 1917.

Federal Reserve Bank, Kansas City
Federal Reserve Bank, Minneapolis
Board approves rate of three per cent. for member banks
fifteen day notes secured by Government bonds or certificates.
t
511-#1===

This rata is given to meet a temporary situation
4
tre-funcle_rstood—to. be subject to revision0- „ 04414

OFFICIAL BUSINESS
GOVERNMENT RATES

CHARGE FEDERAL RESERVE BOARD
2-7729


Willis, Secretary.

• TELEGRAM
FEDERAL

RESERVE BOARD
WAS H IN caToN

Mar 5, 1917.
Rich
Federal Reserve Agent,
Linneapolis, Minn.
Board will consider carefully subject of your telegram L'ay third.
Ample time as
bonds will not be ready for delivery until the end of June.
r.eanwhile an adjustment of rate might be useful in facilitating subscriptions to Treasury certificates
Of indebtedness. Will advise you further early next week.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD
2-7729



HARDING.

•

TELEGRAM

FEDERAL RESERVE BOARD
WAS
01110:
)
0

- 0
)0

MO 4, 1917
10:40 AM
John H. Uich,
Federal Reserve Agent,
Minneapolis, Minn.
Governor Harding and Yr. 17arburg are in rev York today
discussing details of the matter.

In all probability the

princirle will be established 4;11Wbanks to rediscount
with the Federal iteserve

fifteen day collateral loans

on basiu of the bonds or notes at rates close to, Eind possibly
even

lower than the rate on the bond:.
Delano.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE FEDERAL RESERVE BOARD

 2-7729


PD

4.,

TAL

'T'E

FGRA.P,H—CABI.

•NIG
104.4,t1

CII

%

T

COMPANY

LETTE

GRA

THE POSTAL TELEGRAPH-.CABLE COMPANY (INCORPORATED) TRANSMITS AND DELIVERS THIS NIGHT
LETTERGRAM SUBJECT TO THE
TERMS AND CONDITIONS PRINTED ON THE PACK OF THIS BLANK.
CLARENCE

H. MA

RECCIVCD AT

TL
INDEPENDENT

KA

P

DEN

DE„LIVE
•

CAt

COMPETITIVE

PROGRESSIVE

4-623

3 is ro

mcimpommw 75 collect la lex

415,m
MB "Inneapolis

in may 3-4 1917

Hon W P G Harding
Gorreftor- 2 edera1 Reserve Board
Waskx DC
I skull auck appreciate information

as early as possible as

to views of board as to what rate should be
established by federal reserve bank
loans made to members for

purpose of enabling then to

carry forthcoming liberty bonds for
especially
payments.




for the discount of collateral

distribution to their custoners

ix cases where customer and
Think suck a rate skould

bank arrange for deferred

be moderate to encourage wide

Form 40

11

7
-4
TELEGRAM

FEDERAL. RESERVE BOARD
WAS HI N GTO N

September 14, 1916.

itedoral Reserve Agent,
Minneapolis, nun.
Board today approved your rate four percent on fifteen day paper.

Governor.

SEP 1 419't6
?Worst tielorge
OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
for FRASER FEDERAL RESERVE BOARD

Digitized


Bawd

0
4•

G

,

FEDERAL RESERVE BANK OF MINNEAPOLIS




NINTH

DISTRICT

OFFICERS
THEODORE WOLD,GovERNoR
S.S.E00 H. CASHIER
DI RECTORS
JOHN H. RICH,CHAIRMAN
ARO FEDERAL RESERVEAOENT

W.H-LiGHTNER,DEPUTY CHAIRMAN
AND DEPUTY FEDERAL RESERVE AGENT

J.C.BASSETT.AisewocEN,s.oAK.
F. R.BIGELOW,ST. PAUL MINNESOTA
'
JOHN W. BLACK, HouGHT0H,micH.

E.W.DECKER.miNNEApoLis.m.NN.
L.B.HAN NA,rAROO, N. DA KOTA
F. P. HIXON,LA CROSS t,WISCOWSIN
N.13.1.10 LTER,HELENAmoN-r.

September 12,1D16.

Federal Reserve Board,
Washington, D.C.
Gentlemen:
I beg to report that the Board of Directors at
their session yesterday approved of a rate of 45 on paper of
fifteen days' maturity, to take effect at once.

I should like

to request the approval of the Board on this rate.
It is the first time we have established a fifteen
day rate, and while there is no particular situation that prompts
us to establish this rate, we have had evidence that leads us to
believe that a short time rate adopted at this time will be used by
our members.

The purpose is, of course, to be in a position to

afford short accommodation to member banks during the crop moving
season, which is now beginning.

Very truly y

Chairman




(- r
FEDERAL RESERVE BANK OF MINNEAPOLIS
NINTH

DISTRICT

OFFICERS
THEODORE WOLD,GovERno

S.S . COO Pt. CASHIER

DIRECTORS
JOHN

H.RICH,CHAIRMAN
AND FEDERAL NESERVEADENT

W.H.LIGHTNER.CPEPUTY CHAIRMAN
AND DEPUTY FEDERAL RESERVE AGENT

J.C.BASSETT.ABEROEEN,S.DA

E.W. DECKER

F. R.BIGELOW,sT.PALILMINNICSOTA

L. El•HA N NA, FANO°, N. DA KOTA

JOHN VV. BLACK, MOUGHTON,MICM.

F. P. NIXON,LA CROSSE,WISCONSIN

m,N NEAPoLus,P4IN N.

N. B.I10 LTER,HELANA,tioNr.

September 12,1916.

Federal Reserve Board,
Washington, 1). C.
Gentlemen:
At a meeting of our Board of Directors held
yesterday, a rate of 4,1 on fifteen day loans made on obligations
of a bank with collateral, as provided for in the amendme,lt to
the Federal Reserve Act, was authorized.
Inasmuch as this is the same rate as ar_plies to
the thirty day rediscount, I assume it will require no confirmation
by the Board.

If it does, I trust you will advise us by wire of

your approval.

TW_C

RECEIVIE0
,E.sE Ft frit
?
t12
13

SF

tRie5




1
,

•

FEDETRAL RESERVE BANK
NttIVER
Bro OF

Z.M I LLER,JR.

OF

DIRECTORS

ANS AS

W. FLEMING

GOVERNOR

CYrY"

J. L.
DEPUTY GOVERNOR

ARCH W. ANDERSON

cHAIRMAN BOARD OF DiRECTORS

•

SECRETARY -CASHIER

-THOMPSON

,ASST.FEDERAL RESERVE AGENT




...W.CLIgatialGTON

cAsHiER
j:‘,124C7,_

SEP 24 1917
OPFTCE
Mk. DELANO

SEPTE'IBER
22nd,
1 9 1 7

Honorable F. A. Delano,
FEDERAL RESERVE BOARD,
Washington, D. C.
Dear Mr. Delano: Our Executive Coniittee yesterday
decided to raise the rate pon member bank
15 day collateral notes rom 4 to 41 per
cent, if approved by your Board.
This action was p ompted by the
fact that there has been a increased demand
of considerable proporti s and several of
our member banks have •een carrying a line of
these short-time notes for the past 60 days.
Uhile different collateral was used for each
note discounted, it was virtually renewal.
We desire to nIke this rate
d would appreciate
effective October 1st
will have time to
approval by wire, so
give reasonable no
Very truly yours,
CMS-4J
Chairman, Board of Directors.

asurg
.1‘

0 31

pepartnxent

FEDERAL RESERVE
BOARD FILE

TELEGRAM

Govt
MY

KANSAS CITY Ho

VTillis Sgcr9tary Fgdgral 7,gsgrv

Hay 19 1917

Board
Washinr,:ton

1'

Your wirg/thg thrgg pgrc9n4 rate for nrfor
banks fifteign
notg sgourgd by 7ovgrnm2pf, nos or bonds
bgcarri




gffgctiv

May
Gov,
!rnor
352pm

Fore

0

TELEGRAM

FEDERAL RESERVE BOARD
WAS

11. rj17•

Pedersi lissom Bank,
Kansas City, :'crie
Please wire date rutc of threc peruent for :asaber bunks
fifteen dby notes **oared by Joverarx.nt bonds or oertifioates
approved iy seventh berowie effeotive•

OFFICIAL BUSINESS
GOVERNMENT RATES

CHARGE FEDERAL RESERVE BOARD
http://fraser.stlouisfed.org/ 2-7729
Federal Reserve Bank of St. Louis

gift

)•

•

FEDERAL RESERVE BANK OF KAI\iik
CE
c5Laitr3 BOARD FILE




TENTH

otsrRic-r

MAY 14th
1 i) 1 7

Honorable W. P. G. Harding, Governor,
FEDERAL RESERVE BOARD,
Washington, D. C.
Dear Mr. Harding: I have your letter of 1 y_llth.i
6f
advisino that the prepondrance- leal
opinion seems to be that fifteen-day promissory
notes of member banks are not elimible as
security for Federal Reserve Notes, but that
the matter is being covered in amendments now
pending before congress.
I sincerely hope these amendments
will be adopted, for we shall doubtless have
considerable demand of this character.
If
favorable action is had, Such advances will
not curtail our ability to use our resources
to the fullest extent.
Very truly yours,
MT-1J
4t.

Federal Reserve Agent.

4




Mr. Charles 2,!. Sawyer,
Fedoral Reserve Agent,
Kansas City, 1:o.
My dear Mr. Sawyer:
Replying to your letter ot kay 3rd, I'
woulu s‘v that the preponder:Ince of legal opinion
seems to be thA iiiteen-uay promissory notes of
member banks are not elifible as security for
FeU,3ral Reserve notes.

However, the amendments to

the Federal Bieerve, Act mach re now being
considered by a Confermce Committee o. the Senate
and House, contltn a irovision which ;;111 m _Ke them
eligible.

As son as the !ending bill becox,es

Law, 111 Federal Reserve Agents will be duly -dyised,
and the Board will issue any regui.tioLs that may be
necessary to carry into eff.Jot the rrovisions 03 the

Fe

40

/0

41,

go

TELEGRAM

•
FEDERAL

• FLO EiAL EE.S EP:I}:" BOARD - 111i
- - - —F

RESERVE

BOARD

3se)

WAS H I NO TO N

':_ky

-2

1V17•

U)

(4'

Moral ,-..oeerve Bank,
City.

n.

fifteen
.
Begird spzin)voe rtutc :three ,4ocert for member b-nke
71d
boroi Or ct rt iris:tate5
nt
thq notcm zietre4:2 by Arrf.
isi4oh‘tiot :.;nd, is subjeot to
ftet r tezapora7
sivt.n to •
reto is ,
rt vision kt 1.*ri

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD
http://fraser.stlouisfed.org/ 2 7729
Federal Reserve Bank of St. Louis

,
tt..AtS OFAILRVICE SYMBOL

N.

_ Day Mgliro
Day Letter
Night Message

L7IEN
WftTEGT

Blue
Nita

N L
Night Letter
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.

WESTERN UNION

TEL
NEWCOMB CARLTON, PRESIDENT

UNfbN
AM

GEORGE W. E. ATKINS,

FIRST VICE-PRESIDENT

CLASS OF SERVICE SYMBOL
Day Message
Day Letter

Blue

Night Message

Nile

N L
Night Letter
If none of these three symbols
appears after the check number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.

RECEIVED AT WYATT BUILDING, COR. 14th AND F STS., WASHINGTON, D. C.
i
IV ftly

A201 NY

12
( GOVT
KANSAS CITY 'MO 940A
ii i 8 9

FEDERAL . RESERVE BOARD

\''

)

WASHINGTON DC

'TELEGRAM REGARDING RATE FIFTEEN DAY PAPER RECEIVED OUR
MOTIVE IN ASKING FOR TWO AND A HALF PER CENT RATE WAS TO FACILITATE
SUBSCRIPTIONS TO SECOND SERIES OF.TREASURY CERTIFICATES AND
WE FEEL THAT FIFTEEN DAY NOTES OF. OUR MEMBER BANKS SECURED BY THESE
CERTIFICATES SHOULD HAVE PREFERNETIAL RATE NOT TO EXCEED
'THREE PERCENT PREFERABLY TWO AND A HALF' MANY UMPORTANT BANKS IN OUR
DISTRICT WOULD BE WILLING TO INCREASE SUBSCRIPTIONS IF. THEY FELT




C ,- SS OF SERVICE SYMBOL
//'
'Day Mage
-Day
Night Message

Clue

W.STE
WESTERN UNION

Nite

N L
Night Letter
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is Indicated by the
symbol appearing afler the check.

TEL
NEWCOM B CARLTON. PRESIDENT

UNION
AM

GEORGE W. E. ATKINS.

FIRST VICE-PRESIDENT

CLASS OF SERVICE

Day Letter

Blue

Night Message

Nile

Night Letter
N L
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.

RECEIVED AT WYATT BUILDING, COR. 14th AND F STS., WASHINGTON, D. C.

201NY SHEET .TWO
A
THEY COULD GET RELIEF , IN USE OF NEED BY HPOTHECATING'THE CERTIFICATES
HOPE YOU WILL WIRE APPROVAL




I
4i
SAW/ERIGENT.

SYMBOL

Day Message

Fo'

•

• TELEGRAM
FEDERAL

RESERVE BOARD
WASH IN GT4ON

May 5, 1917.
Sawyer,
Federal Reserve Agent,
Kansas City, Lo.
Board will consider carefully subject of your telegram May third,
Ample time,
as bonds will not be ready for delivery until the end of June. meanwhile an
adjustment of rate mijit be useful in facilitating subscriptions to Treasury
certificates of indebtedness.
Rate suggested seems too low.
Two districts
no0Vhave four percent rate, two three percent, balance three and one half.
Will advise you further early next week.
HARDINag

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD
2-7729



1 ---.--- ..........•-...............,........,...........-....... ..-........... ri3 3.v.• 4)

410

Form

ALFEDR

i f.:.,..._r„:,L si:.—3'..:,-;VE. E0,43/4F13
-

TE

RESERVE EBOAODP
WASHINGTON

taw 4,1917,

2.

3
11

( Sawyer,
Federal :Reserve Bank,
KAMM. City, No.
Tour telegram this

Goverstz Hmrdim

discussing details of the matter.

aid Mr. Zarburg

are

in Now Tack

In all I probility the principle will be

establibhed autborisirg banks to realsonnt with the Federal reserve banks of
renewable fifteen day collaterul ioans on basis of the bonds or notes at rates
Gloss to,

OFFICIAL BUSINESS
RATES

Mg

possibly eves lower than the rate on

GOVERNMENT
 FEDERAL RESERVE BOARD
CHARGE
http://fraser.stlouisfed.org/ 2-7729
Federal Reserve Bank of St. Louis

tlit

bends,

FILL:

iftEcEivED

0

•

'greasiarg -pepartment

37ru Hg 34 govv

TELEGRAM

yansascity Mu May

w :

4

Fed Res Board
Washn DC
We request your approvai of
rate of two and one
hail percent upon fifteen day
member bank notes secured by
treasury certificates or by US Government bonds
Sawyer Agent
332p
.




4
PEDERAL RESERVE BANK OF KANSAS CITY




TENTH OISTRIC'T

-

MAY 3rd
1 9 1 7

Federal Reserve Board,
7lashina7ton,
D. C.
Gentlemen: There appears to be some
difference of opinion as to whether or not
the fifteen day promissory notes of member
banks, as authorized in the amendment
passed by the last Congress are eligible for
the issuance of Federal Reserve notes, and
since we seem unable to locate any ruling
on this point, would appreciate your advice.
Very truly yours,
MAT-U

Ze

Federal Reserve Agent.
ciP,13
,,- SERv,
,0
---Th'\ sj0
N
17

0: "1,,
,,,, ,
11
4 / •'''
In • 1

.-

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.,

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'
i
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=
:;
4

'-',7
\bi.'..,

..4'
'''s

1/
,---,
1

•
kr),

Form 40

11111

•

TELEGRAMtT
RESERVE

FEDERAL

ID
BOARD

WAS HING TO N

Sectunbor lb. 1916.

Covora or*
tnierta Loservo ,:anKs
}iia CI, ro•
IL.-„otx6 rimd adoral ,eserve As4nt tocity ti--.irovirg rate or four
reant fifteen doy pr.yer rocor-trndedo

Governor•

fr
SEP 1 5 1916
OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE FEDERAL RESERVE BOARD




kiiaiJ

ilimurye

Form 40

TELEGRAM

1111111

•

FEDERAL

RESERVE

BOARD

WAS H I N GTO N

Sentclimber 15, 1916.

Yederal Reserve Agent,
Kansas City, Mo.
Board approves rate four perctent fietoen ‘0.2.1y

off.Eictive

September eighteen reoomonded for :,-crar bamk.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD



Governor*
4A
4
AtS

e.
6\.0
1 41'
it.
/9

‘
4
44
‘

(0
Ayeattill
(

Department

TEL_EGIRAM

5P0 MO 25 Govt
KANSAS CITY Mo

Sept 15 191

Federal Reserve Board

?t__,
- ASsuf
DEPT.
•
SEP
• 15
1916
T
ELEGRAPH
1

Washington BOP.

We request approval of four percent rate on loins paya2sle
or rediscountes up to fifteen days effective Septemleer eighteenth
Sawyer, Chairman




1118am

'greasur13

416

pepartnxtu

TELEGRAM

I
.
/

33 'AJ

.
;
14,- 20

govt

C
Kansascity
OVO Board
Federal ROSOD
ashn (DO)

0

3

15

Our board and executive committee has voted four percent rate
our members please ;:ire approval
on promissory notes offered by
Liller Gcvr




325p




• TELfilAm

Form 40

•

n'

iiVE 63a) FILEi

FEDERAL RESERVE BOAF;r1;3
WASHINGTON

1

June 0, 1913.
Hoopoe,
Federal Reserve Birch:,
Tea.
7.our lire today. ,Forin of borrowing makes no difference period. Amount
of IMMO to meLlber bank depends on 2edera1 Reserve bank and is
tter
of bisalag Zudgment.
17ILLIS, Secretary.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD
1:-771,J



'reasnrg Pepartment
TELEGRAM
)

11F LIT
Dallas Tex

une 6 18

Washington
Your wire fifth/in our telegram yesterday we desired to know if every bank
could give bills payable in excess of amount capital and stock your answer
referred to discounts.




Foopes

Deputy Governor

lo55a

s`,

• TELEGRAM

l'orni 10

FEDERAL RESERVE BOARD

/

WASHINGTON

June 5, 1918.
Federal Reserve Bank,
Texu.s.

,
A9AB
"
spoco,

ilvia‘!"

Your wire tiis date. No lirait to
amount Federal Reserve banks
discount for members.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE FEDERAL RESERVE BOARD

2.-77:23



•

WILLIS, Seers t ary.

•

Treasurg pepartratut
TEL.EORAM

5417
Da1s Tex •Tun' F 1918
Fe(;eral :Reserve Boare
Ilfa,s3-dn 71; on
May National Banks unr section fifty

two nal ,.r,ht two as

amencteel *borrow from PeOeral Reserw: Bank on t7-iier bills
payable in an amount in 9xcc:ss of their capital stock




Ramsey

LT
--12

-----

Arrent
538pm

•
FEDERAL

RESERVE

BANK

OF DALLAS
W.F. Fi'A NiS EY
?

CHAIRMAN OF THE BOARD




")

November 24, 1916.
Hon. Paul Y. 7arburg,
Washington, D. C.
My dear Lir. Warburg:I have yours of the twenty-first instant
which I have carefully noted.
I hope to have an opportunity of conferring
Ath Judge Elliott about the fifteen da7 note matter
when I come to Washington.
I am looking forward with pleasure to a profitable and successful meeting all around.
Very truly yours,




'ESERVE BOARD 1-111

i

-_.tcti
"Th
.
ro
•—poorr,,,

'

November 21, 1910.

Dear Julge Raney:
Thank you for your letter of Novovbr
phi-ch I read r:ith much interest.
You will no doubt have an opportunity to speak
with Judge Elliott 7;hen you

i11 be here in the ben. _-

rang of Dtcember.
Thank you for sendirn- -e the clipping coverinE a
synolyais of your addrer5s at Phoenix, 7:hich I have
read

very ruoll interest.

I am confident that

addresles of th12 Mnd must do a great deal of ,.cod
in your district.
With kindest rrds,
Very : :Incerely your:,
.
,

W. F. Pan3ey, Ez1.,
Fecleral Reeervo Agent,
Dallas, Tenas.

•




AL

„0/ /
Dr RAL

RESERVE BANK

OF DALLAS
77rp.

RECEIVED

NOV 2 3 1916
cswaVbINNON'S OFFICAi

(6

NovembQr

20, 1916.

n. W. P. G. Harding, Governor,
‘. Federal Reserve Boa-rd,
Washington, D. C.
ily dear Lir. Harding:-

i/

I have yours of the sixtee,ntlLaDataatiand note
with pleasure that you still purpose making a visit to
Dallas in the near future. I shall be very glad to talk
with you about your contemplated visit. I am expecting
to be in Washington on the fourth of December.
Governor Van Zandt will attend the Governors'
Conlierence on the eleventh of December. Naturally we
would prefer that you be nere when both clovernor Van
Zandt and myself were here. Whether there will be time
for you to make a visit without interfering 7ith the
Christmas holidays stems a little uncertain. However,
I will be very glad o talk to you about the matter when
-hington.
I come on to Wa:
I have read a cony of the letter of . r. Cotton, Consulting counsel of the Board, which had been senti
me a few days ago by Lr. Warburg. With both Judge Elliott
and Er. Cotton agreeing as to their conclusion, I take it
for granted that the Board will accept this interpretation
of the Act. I have lived long enough to know how often
my own opinions are in error, but neverthless and notwithstanding, I am still unconvinced. However, the matter is
not vital and I assume that there will be little, if any,
difficulty in securing an amendment to the Federal 7eserve Act which will make such notes available as security for Federal Reserve Notes.
Very truly yours,

Federal Reserve

gent.

FEDERAL RESERVE BANK
OF DALLAS
a
...,

V,.

November 18, 1916.
7r. Paul r. Warburg,
743hington, D. C.
Dear r. Jarburg:-

1(1 61 it,

I am in receipt of yours of the nEnth_instlint which
:
came in my absence, inclosing copy of lettel received from Mr. Jos4
eph P. Cotton. I read ;.r. Cotton's letter very c-refully and with
all due respect to him it is not at all convincing to my mind. I
have long since learne not to set too much store by my own cninion about anything and not infrequently found myself in error,
where it seemed to me 'that I was very clearly right. However,
with all due respoct to Judge Elliott, whom I like very much, and
to Mr. Cotton whom I suppose is equally learned and able, I remain
entirely unconvinced.
I take it for granted that the matter having gone
thus far that the Board will be inclined to follow the advice of
its counsel. I wish, however, it had been possible for me to have
personally presented my views to Judge Elliott. There is a vice
and fallacy in Judge Elliott's conclusion that I believe, if the
matter were fully presented to him, he would recognize. Of course,
I have not seen his opinion and do not know exactly the line of
reasoninf, on which he proceeds, but it seems to me thathe overlooks
and ignores some important and controlling considerntionSwhich to
my mind inevitably leads to a different conclusion.
The suLEestions contained in Li.. Cotton's letter
as to how indirectly the same results ought to be ootained, do
not seem very attractive or feasible. If I have occasion, I will
be very glad tc discuss this matter with you when I come up on
the fourth proximo.
In this connection, I beg to advise further that
I have just returned from quite a little trip to Phoenix, Arizona,
and Albuquerque, ITew Mexico, where I attened the State Bankers'
Associations of those two states. I am taking the liberty of inclosing you a brief synopsis of my address at Phoenix. The statement of my views is not exrressea absolutely accurately, but vqrythLIE, considered it is a fair synopsis of my /A444-eiter.




Very truly yours,

FE:DEMI_ RESERVE BOARD HLE

"("(,' 6

November 16, 1916.

W. 2. Eamsey,
Chairman 2e1era1 Reserve Bank,
Dallas, Texas.
Dear Jude Ramsey:
returned yesterday from a trip to Atlanta and New Orleans, uld read
with interest the letters from you AiliCh aame in roci- dbJenco.
was with me on the trip and we were both sorry we could not get over to
Dallas.

I hope to m&ke a speoial visit to your bank before very lonu. I

presume you will be here on December 4th to attend the conference of ?ederal
Reserve 2...e2it3, and I will discuss the date of

Dallas visit with you at

that time.
enclose hervoith copy of a letter from Joseph

Cotton, Esq., our

consultiro counsel in o'clim York, from which you will see that he does not
agree with your views regardin

tle eliibility of member banks' fifteen-

day notes as security for ?ederal Reserve notes.

i think likely that the

Board will reconmend to Conress a sliht ameneirent to the Act to provide
specifically that notes of this kind nay be used with the ?ederel Reserve
.Aents.




Very truly yours,

Governor.

EX•Orricio MEMBERS
WILLIAM G. LicADOO
SECRETARY Or THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDLRAL RESERVE NAL, r.L_E

•

•

33-20 3
FEDERAL RESERVE BOARD
WASHINGTON

CHARLES S. HAMLIN. GOVERNOR
FREDERIC A. DELANO. VICE GOVERNOR
PAUL M. WARBURG
W. P.O. HARDING
ADOLPH C. MILLER
H. PARKER WILLIS. SECRETARY
SHERMAN P. ALLEN. ASST. SECRETARY
ADDRESS REPLY TO
FEDERAL RESERVE BOARD

November 11, 1916.

•

My

dear Mr. Warburg:-

7/

I have your letter of the 9th.

I quite appreci-

ate what you say, but you cannot co directly against the language of the Act.
Very

lly yours

utt--

Paul Y. Warburg, Esq.,
Federal Reserve Board,
Washington, D. C.

JPC..B.




FEr

tkl_ RESERVE BOARD FILE

My dear Judge Ramsey:
I have your letter of Novezberssixth and thank you for
the sarr,e.
!I inclose :e:evith copy of letter\received from Ur.
Cotton.

Both our Counsel and Associate Covnsel, unfortu—

nately, do not agree 'ith your point of view; though they

agree that the oaae TesuIt o •n be reached by indirect methods.







November r,:), 191G

Dear Mr. Cott,on:
have:your letter of November A.:cth, which
have read ,:ith much interest, as also your opinion
conernin: the eliibility as :zollral of fifteen
day notes.
Your conclusion is that, by a rather complicate
proce=:s 0 the same result can be reached and, therefore, it ought to b% done by the complicated procezs
rather than by straining; the law.

The trouble, ho

ever, is that in order to get our syste

workinr and

poTalar with the IT.mb, lr banks we ow-ht to avoid all
:
unnecessary complications, and that 7tas why I was so
:nx1ou3 to cet the rulin: permittin7 the simplest
modus procedendi.
Very truly yours,

(S gn e d) PAUL M

J. P. Cotton, Esq.,
Sixteen gall Street,
New York.

WARBURG




RECEIVED

NOV 8 1916
exlviFRNOR'S OFFICE
FEDERAL RESERVE BOARD

"Jovi-ber 8, 1916.

My dear Governor:

I am handing yo

herewith

I(
Mr. Cotton's opinion On t e - qiI4stion
whether 15-day notes of member banks
are eligible as collateral security
for the issue of Federal reserve
notes.

Hon. T. P. G. Harding,
Governor.

averciaveD
NOV 1 0 1916
GOVERNOR'S OFFICX

•

rib •
£x-Orricio MEMBERS
WILLIAM G. McADOO
SECRETARY OF THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

FEDERAL RESERVE BOARD
WAS

CHARLES S. HAMLIN, GOVERNOR
FREDERIC A. DELANO. VICE GOVERNOR
PAUL M.WARBURG
W. P. G. HARDING
ADOLPH C. MILLER
H. PARKER WILLIS. SECRETARY
SHERMAN P. ALLEN. ASST. SECRETARY
ADDRESS REPLY TO
FEDERAL RESERVE BOARD

November o l 1916.

My

dear Yr. Warburg:I enclose co -y of an opinion I am sending today

..
in answer to your letter.,:of.. NoveMber-11 It is, you will see,
an adaptation of your argument that the
"note made out by ti",e, . . bank is nothing but a binding
agreement of the rediscounting bank to buy back the paper
which it has given as collateral on a date prior to the
maturity of the paper given as collateral".
Mien the fifteen-day advance takes on the form of
such a sale with the agreement to repurchase within fifteen
days, the lawyers' difficulties as to issue of Reserve Notes
vanish.

I have no doubt that the Reserve Bank is empowered

to make the agreement to resell and it can safely do so, as it
has an absolute ricit to redeem its collateral from the Reserve Agent on deposit of lawful money.

And the fact that

the arrendment of the Act permits issue of Reserve -Totes against
paTer purchased does away with the difficulties of machinery
and bookkeeping attendant on the job of discounting a mass of
commercial paper.

Paul M. Warburg, Es q.,
Fedreal Reserve Board,
Washington, D. C.
JPC..B.
Enc.



EX-OFFICIO MEMBERS
WIWAMG.MCADOO
SECRETARY OF THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY

•

CHARLES S. HAMLIN, GOVERNOR
FREDERIC A. DELANO, VICE GOVERNOR
PAUL M. WARBURG
W. P. G. HARDING
ADOLPH C. MILLER

FEDERAL RESERVE BOARD

H. PARKER WILLIS. SECRETARY
SHERMAN P. ALLEN. ASST. SECRETARY
ADDRESS REPLY TO

WAS

,EDERAL RESERVE BOARD
0 I

ITovember

6, 1916.

S i r s:You have asked my opinion in regard to the question
of law stated and discussed in Hr. Elliott's opinion to the
Board dated October 10, 1916.
I am in agreement with the result of 77r. Elliott's
opinion and with the reasons given by him.

C7-

I have also considered the memorandum hpy Yr. Ramsey,
Federal Reserve Agent, on this point which urges a contrary
view--it is in effect an argument that the fifteen-day advances
are just as goodas, andin effect equal to, eligible paper and
that the Reserve Act does not show an intention to put what he
tersely calls "the mark of Cain" on the fifteen-day advances.
It is impossible not to sympathize %Ath his point of view, and
it is, I think, possible for him to accomplish the end he has
in view even if the .7,oard do not accept his legal argument.
The Reserve Act, as amended, sets out in detail and
with precision the terms on which Reserve Notes may be issued-nothing is left to anybody's discretion as to the fulfillment of
the legal prerequisites of such issues.

One of such prerequi-

sites is that the Notes must be issued against eligible commercial paper and nothing .else--a fifteen-day advance may be secured by United States notes or bonds--and in that respect the




fifteen-day advance fails, in a substantial respect, to comply
with the conditions of Reserve 7Tote issue prescribed by tl-.e
Act.

Again the Act by its terms states that notes are issuable

against eligible comercial paper discounted or purchased by the
Reserve Bank--i.e. paper in which the Reserve Bank has complete
legal ownership.

The Reserve Bank does not get such complete

legal ownership of collateral for fifteen-day advances (though
the difference

±s

really one of form)--so in that respect

also the fifteen-day advance fails to comply

Jith the condi-

tions of Reserve 7ote issues prescribed by the Act.

We may

very well grant that the recent amendment of the Reserve Act
might well have permitted Reserve note issues based on advances,
but the language of the Act, as amended, does not carry that
meaning.

Yr, Ramsey's argument says, in effect, I ari offering
something just as good, why be technical about it merely because the transaction takes a slightly different form?

He ar-

gues that the advance is tantamount to a temporary discount of
eligible paper, and, therefore, should be considered such a
temporary discount for purposes of Reserve note issues.
answer to him is I think somewhat as follows:

The

If the fifteen-

day advance note is tantamount to a fifteen-day discount, theJ
if the transaction takes that form (i.e. of a fifteen-day discount), you can have the Reserve note issue.

For example, if

member bank X comes to its Reserve "Bank with paper eligible
for rediscount of an amount equal to the accommodation it de-




sires for a period not longer than fifteen days, then bank X
may, under the Reserve Act, as amended, sell such paper to the
Reserve _Bank for any sum agreed upon, and the Reserve Bank may
validly contract to resell such paper to bank X at the end of
fifteen days (or any less period) for a sum agreed upon--e.g.
for the price paid and fifteen days interest.

The moneys paid

to bank X by the Reserve Bank may be in Reserve 7otes (if the
Reserve Bank have a surplus of them), and the Reserve Bank during the fifteen-day period obtain

more notes from its Reserve

Agent on deposit of the paper in question.

1 1hen bank X is
:

ready to pay up, it may get back its paper (when the Reserve
Dank redeems it from the Reserve Agent).
ence between this transaction which gives

Now the only differRamsey all he

asks for and the issue of notes direct against the fifteen-day
advance is a difference of form.

And if that be so, :"1 :RaLisay
-.

should not object to putting his papers in the form required
by law.

There is one difference in machinery to be noted--

when the paper is thus purchased by the Reserve Bank it must
pass through the books of the Reserve Bank, that

mean sir -

ply the extra bookkeeping of listing the commercial paper in
question (that does not mean that it must be separately valued
item by item or that the discounts be separately figured, neither
:;ould be

ecessary).

The commercial paper would have to be

endorsed by bank X in precisely the same way whether it be thus
purchased or pledged as collateral for a fifteen-day advance.




-4

•

Before the amendment of the Reserve Act the scheme
above outlined could not have been put into effect because
Reserve =Totes were not issuable against paper purchased by a
Reserve 1
-3ank--befor

the amendent each commercial instrument

must have been separately discounted--but that is no longer
required by the Act.
The Board may be of opinion that it does not desire
to encourage such special arrangements between Reserve Banks
and member banks--I have heard that view expressed--but there
is no argument (so far as I can now see) which could be urged
against such a scheme which is not equally an argument against
the issue of Reserve 'Totes against fifteen-day advances.
Therefore, the answer to Yr. Rarsey is that he can
accomplish practically all that he wishes to accomplish by
changing the form of his transaction and that is a much sounder
method of administration than straining the language of the
Act and reading into it something which perhaps ought to be
there but is not.
Respectfully your

The 'ederal Reserve 7oard,
Washington, D. C.

7PC..B.




S
FEDERAL RESERVE BANK
OF DALLAS

,
W.F. RAMSEY,
FEDERAL RESERVE AGENT

W.BMEWSOME,
DEPUTY FEDERAL RESERVE AGENT
CHAS.C. MALL.
AS S'T TO FEDERAL RESERVE AGENT




November 6, 1916.
Hon. Paul ii. Warburg,
Washington, D. C.
14 dear hr. 7
/arburg:I am to-day in receipt of your valued favor of
the third inst. and am naturally gratified at your good
opinion of the memorandum IsaUbgli:b,t,pd in support of the
proposition that fifteen day notes offiSanio are available
and eligible as collateral for thelisuance of Federal
Reserve Notes.
/
r)o .
1 L.,/
The little brief was prepared in great haste
and under considerable pressure. If I had ample leisure
I could have strengthened it very much and believe I
could have demonstrated beyond the possibility of a
doubt that such notes are available.
I sincerely hope that Judge Elliott and our
counsel will so hold. With all due respect to them, it
is absolutely inconceivable how any other conclusion
than one in favor of our position can in fairness to the
Intent of Congress be held.
Very truly yours
RiT

•

November

1916.

My deer Jul:a Ramsey:
:
Just a line to tell you ho- . much I enjoyed reading your

I IL,

brief concerning the power of Federal Reserve Banks to use
fifteen day notes as collateral for the iPeue of Federal Reserve "Totes.
I am delighte:1 to have your convincin

argument all the

more since it is exactly along the lines of reasoning that I,
myself, pursued.

As a matter of plain common sense, there

cn.nnot he any doubt but that you and I are right.

We cannot

deny, ho .ever, the fact that technically, there is a good deal
to be said on the other side, and the qle - tion is simply -Thether
or not in a process in which the Government is concerned, we have
right to let sound caseating prevail ovr strictly technical
interTretation of the law.
Very sincerely yours,

W. F. Ramsey, Esq.,
Federal Reserve A, ent,
Dllas, Texas.




November 1, 1916.
Dear Yr. Cotten:
Ur. Harrison is sending you ivertratittr a memorandum which
Mr. Elliot ha u written and a brief writte; by Judge Ramsey,
,
dealini- with the .luestion whether or not 13 day notes iocueti
by membr banks and 7ecured by eligible paper co‘:l:. oe accepted by the Fe:v3ral Raserve Ajent as collateral to secure
the isaue of Fe,laral rr:serue notes.
I have r.:ad both documents and while I think that both
are right, I agree with Jude aaeasey.

V1eai,1: the i-roblem
::

excluElively from a legal point of view and accenting the
strict lanuaga of the •Act as our basis, I think re cannot,
probably, help but ...each the se cclIcr,Isions rLs7, Mr. Elliott.
The ridiculous part of this would be that this is our 04n
language and we, of course, know what we v:ant, an
talking about the intent

we are

of Congress Te ought to ask our-

selves what was our awn intent

because Congress accepted our

lanf;u_a:e 7:ithout a change.
I ,..ree with Judge Ramsey that there must be some reasonable intor:retation and not one which %.culd leEA to absurlities.
Just to illustrate where ve .
iculd go by legal interpretation, I
ylnt you to bear this in mind: if the Bank of Conerce rtoo'&
a_lvancen against it

15 day note, depositing as collateral

an acceptance of the City Bank running for 90 days, its note -




(a)
according to Mr. Elliott, could not be accepted as collateral.
If the Bank of Commerce rediscounted the acceptance of the
City Bank, deducting, let us say as an illustration, 90 days
at 21i%, and after 15 days the Federal Reserve Bank uould resell 2 *4
2,„ /, /
r. ,s
Ati-d44.,t;
these acceptances made by the City Brik to the Bank of Commerce t7
the acceptance of the City Bank in the interval for these 15
days vould have served as good collateral for the issue of
Fed-ral reserve notes.

Now, if instead of indorsing this ac-

ceptance, the Bank of ConAerce puts its indorse.cient on a sepa-.
rate sheet of paper which is its own notw, we reach a conclueion that the same acceptance of the City Bank could no more
be eligible for collateral for issue of Federal Reserve notes.
In other words, the collateral note taw4e made out by the Bank
te

of Coerce is nothing but a binding agreement of the
bank to buy back the paner which it has given as collateral on
a date prior to the maturity of the paper given as collateral.
A few days ago our Counsel ruled that single name paper,
if otherwise eligible, unendoreed by a member bank could be
accepted as collateral for these 15 day notes, holdini: the single name paper as eliLible even though the Federal Reserve Bank
tct
oculd not consider it eligible for fAaathase unless actually
endorsed by the member bank - the ic'ea being that the 15 day
note of the member bank consittutes the missing indorsement.
I think that this is pr:^ectly sound in laA and in business,




r

but I think in a similar way we ought to take collateral
a.-1and note togetherAin this case and consider them 15 day note
of the member bank ao nothing more than an evidence of an
agreement to repurchase before maturity.
Fro;: the point of view of the Government there is less
risk, of course, in issuing Federal reserve notes against a
collateral maturiLg within 15 days than in issuing the notes
44A.4.4.acs.inst Aco11ateral

having to run 00 days.

Any how, that is

the general business idea that the longer the advance, the
greater the risk.
I shall be very much 244174,41,4X24, in hearing what you are
going to find in the matter.
Very truly yours,

Joseph P. Cotton, Esq.,
14 Well Ttrzet,
New York.
1

,16,

C4,4,1tr.v4t.

,(f-vvi 4




et,4,4a4.4

4
i'f't/A,4
4

,
6 ...
;
1

•

•

27c. 3..fL
)
Date
FEDERAL

2.72.
iluv,,Tiool• 9, 19
16.

RESERVE

BuARD

:47:DRJUVLIIM
For M.

Tardinc

At a meetin
g of the Fe
deral Reserv
e Board on
-aveca4ar 6
, the follow
ing. matter
(as Chairm
was referr
an, Committe
ed to ycu
e =Law:
(a&-irpleni4-er,
u
0
(as
ol.inion of Co
unsel as to
oli!loility
of 15
dy nuton ar
security lor
Federal restIr
ve
,..?aFers in tnc
hatde of r.

f.;(scielt,cf.F
7
DEC

G 1916

ivderal Ketterve titkud
Please return
this memora
documents re
ndum with co
sulting from
py of
action taken,
if any.
Date
Documents
Signature







1
Ur. W. . 7,aLl3oy,
s'hairmar, ."oduaral 1:e3e1'10 DL
Dalian, ?maw.
Dear

;3-aianoy:—
;
ar
Yo- lotter:oncloelmg throo eqpioo of your brief :103.0.44:.

the vlow that Libor bvso fifteen day col2atora2 notes ru
as socuAty
eeivod arra your brief

.7odo1'a1 eserve netos, vfias duly ro
am) been referred to the Board's co

To ru and vou hove nuao a very illconime at,1 co27in3I3c
arCur-Antr but your brior will be reforroa to Counsol La ro:Jular
course .na :Ara will hear s7ron uo farthor rcurain Ita




La) 272.
7c.

D_Ite

FEDERAL

lot. 31

RESERVE

1916.

BOARD

la:ORANLUM
For Mr.

At a meeting of the Federal Reserve Board on
, the following matter
(as Chairman, Comittee on Less
was referred to you (as member,
(as
oat

31

The attached letter, dated Oct. 24, :Acid man.
or,indum, from F.L.A. Rz.imnoy, re the availability
of 15 day notes as necarity for Federal reserve
note*:

v?
si

)0er0Lary•

Please return this memorandum with copy of
documents resulting from action taken, if any.
Date
Documents
Signature

CICARD FiL:: .

FEDERAL RESERVE BANK
OF DALLAS

%,3 y
W F. RAMSEY,
FEDERAL

RESERVE AGENT

,
W. El.1 1 EWSOM E
DEPUTY FEDERAL. RESERVE AGENT

if I L

CHAS.C. HALL.
ASST TO FEDERAL RESERVE AGENT




1

1916
board

October 24, 1916.
Hon. W. P. G. Harding, Governor,
Federal Reserve Board,
Washington, D. C.
My dear Mr. Harding:I am inclosing herewith memorandum with
reference to the availability of fifteen day notes
as security for Federal Reserve Notes. If I had
had more time, I could have made it shorter.
As a matter oc convenience, I am inclosing you three copies of the memorandum- one for
Judge Elliott, one for your consulting counsel, and
one for your own files.
To my mind there is not a shadow of a
doubt that these notes are available.
Very truly yours,
R/T.
Encl.
Federal Reserve Agent.

RTICEIV- 31
LLO

W
ill. 4 fs
:4 .
i1V

01

,
=

LI

1

•
,

E 3)Q

si'fr 4•/1
*\i , „ t11
`
%.".
,,,,,, el/
/
/1'',T 0-r f',I'
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1
4

The question having arisen as to whether or not fifteen day
notes of member banks are eligible and available as security for the issuance of federal Reserve JAtes, the following memorandum is modestly
submitted in the hope t lam it may furnisn some aiu in the correct solution of this question.
It may aid

us,

in unuertaking to correctly solve Unis ques-

tion, to recur to some of the seutle

rules of statutory construction.

It was said many years ago by Chief Justice Hemphill, in the case of
Cannon v. Vaughan, 12 Texas, 399, (quoted with approval in :vulmore v.
Lane, 104 Texas, 525):
"Among the most important of these rules are the maxims that
the intention of the :Legislature is to ue deduceL from the whole and
every part of a statute, when considered aud compared together; that the
real intenLiou, when ascertained, will prevail over the literal import
of tue terws; and that the reason and intent of the legislator will
control the strict letter of the law, when the latter would lead to
palpable injustice, contradiction, and absurdity; tnat when the words
are not explicit the intention is uo be collected from the occasion
and neceseiuy or

he law, and from tne mischief and objects and remedy

in view; and the intention is to be presumed according to what is consonant
to reason and good discretion.

It is another esuablishau rule that all

acts in pani maueria are to be taken togeuner, as if they were one law,
and that if it can be gathered from a subsequent statute, in pani materia,
what meaning the Legislature autached to uhe words of a former scatute,
Uhis will amount to a legislauive declaration of its meaning, and will
govern the construction of the first statute.

These and other rules by

vinicn the sages of the law have been guided in seeking for the intention
of the lawgiver, nave been accumulated by the experience and ratified by
the approbation of ages."
It necessary follows as a corollary that the proper interpretation and meaning of any statute may be aided by a fair consideration
of the purpose and intent of tie lawmaker and I have always understood
nat all rules of construction are valuable only as tney enable one to
correctly ascertain sucn intent.




-2The Federal Reserve Act is bottomed and based on the proposition that member banks might, by deposit and endorsement of eligible obligations due them, receive from the Federal Reserve Bank their notes which
should perform praetieally all the offices of gold and silver.

Such a

construction ought, therefore, if possible, to be adopted as would facilitate and aid in accomplishing this result.

No limitation ought to be

placed on the use obligations tan by the Federal Reserve Bank

which

would limit their ability to accomplish the wise purposes for which they
were designed.
Bearing in mind these views and rules, wnich are believed
to be both intrinsically just and thoroughly well settled by authority,
let us see whether, under the Reserve Law as amended, such fifteen day
notes made directly payable to Federal Reserve Banks are available as
security for Federal Reserve Notes.
The original Act provided(Corporation Trust Company Service,
page 481)

that the collateral security "thus offered shall be notes and

bills accepted for rediscounted under the provisions of Section 13 of
this Act."
It is manifest from this provision that it was the intention
of Con6ress to make all obligations which the uanx was permitted to accept
available as security for Federal Reserve Notes.

At this time no provi-

sion was made for memuer banks to give tneir direct obligations to the
Federal Reserve Banks but it was contemplated thac each eligible piece
of paper would be rediscounted and the indebtedness, botn of the bank's
cutomer and the uank itself, preserved and evidenced in the form of a
note given to the member bank and by the member bank endorsed to the Federal Reserve dank.
When this Act was amended on the 7th of September, 1916,
(page 554, Corporation Llanual), the following provision was inserted in
the Act:
"Any Federal reserve bank may make advances to its monber
banks on their promissory notes for a period not exceeding fifteen days
at razes to be established by such Federal reserve banks, subject to
the review and determination of the Federal Reserve Board, provided such




-3promissory notes are secured by such notes, drafts, bills of exchange,
or bankers' acceptances as are eligible for rediscount or for purchase
by Federal reserve banks under the provisions of this Act, or by the
deposit or pledge of bonds or notes of the -United States."
The effect of this addition merely changes the form in which
the obligation, both of the makers of the notes and the member banks
liability was to be evidenced.

Under the terms of the original Act,

the Federal Reserve lank discounted the notes offered, if eligible,
thereby

assuring to itself, both the obligation of the maker of the

notes, as well as the obligation of the member bank, but treating each
note offered for discount as a separate item, the maturity of widen
was fixed by its own terms.

The amendment quoted above, for obvious

reasons unnecessary nere to state, made provision for a stated maturity for the bank's entire offering , evidenced by its note with provision that same should be secured by notes, drafts etc. eligible for
rediscount or purchase.

iO reserve bank, of course, would be author-

ized under the law to take a fifteen day note unless it were buttressed
and supported by eligible paper.

There was, therefore, a change in the

mere form of the indebtedness and not otherwise.

There was no change in

the eligibility of the security, no lessening of the liability of the
makers of such paper and no diminution of the obligation of the bank.
The mere farm in which the obligation might clotheitself was chaiged.
It will be seen that the provision quoted above does not by its terms
place any limitation upon the availability of such fifteen day notes
as security for the issuance of FederalReserve iiotes.

It simply en-

ables Federal Reserve Banks to grant an accommodation to banks of these
fifteen day notes secured by eligible paper instead of following the
former practice of discounting the notes themselves having varying dates
of maturity.

There is no other difference in the law.

Paragraph 120, Corporation fianual, provides that
"The collateral security thus offered shall be notes, drafts,
bills of exchange, or acceptances rediscounted under the provisions of
Section 13 of this Act or bills of exchange endorsed 'y a member bank




-4of any Federal Reserve district and purchased under the provisions of
Section 14 of this Act."
This broadened tne score of the law as it stood originally
by making drafts, bills of exchange and acceptances available as security for Federal Reserve Notes but does

not, as I conceive, have the ef-

fect to deny such eligibility to fifteen day notes.

If Feaeral Reserve

Agents are pronibiteu from accepting such fifteen day notes as a basis
of security for 'eder. Reserve Notes, such inhibition is to be gathered
by implication and musU depend upon the meaning of the word "rediscounted"
in the sentence lsst quoted.

In the first place, it is not clear that

"rediscounted" was intended to ue applied to notes.

It is easily pos-

sible to reconcile the correct meaning of the word "rediscounted" as here
used with the idea that same was intended to be applied to acceptances
and bills of exchange, though to give it such meaning would contradict
and do violence somewhat to the ordinary sense in which that term is
used as applicable to acceptances and other paper of that sort.

However

this may be, it seems to me clear tnat if it nad ueen the intention of
Congress to deny fifteen day notes availability as collateral for Federal
Reserve irotes, that such denial would nave found expression in definite
and certain language.

Again, if it had been the intention of congress

to have aenied supn notes availability as collateral for Federal Reserve
notes, does it not seem reasonable that wnen the lawmaking body was providing for the grant of credit on fifteen day notes that tney would in
such grant nave limited the use and usefulness of such notes/

Again,

does it not seem strange tnat, while extending eligibility to acceptances and thus broadening and liberalizing the law, Congress would have
Intended to discriminate against fifteen day notes which are in all respects as good as the eligible notes securing them.
If it can be said, however, (and there is mucn strength in
this view) that the word "rediscounted" in the clause last quoted was
intended to have reference to notes, as well as bills of exchange and
acceptances, then it seems to me clear tnat the word "rediscounted",
as here used, is used in the broad, general sense of being "acquired"
by che bank in any way mown to the law and was not intended to be




construed in the highly technical sense, which must be accepted as The
correct construction of the word if fifteen days notes are to be rejected
as security for federal Reserve Notes.

It does not appear to me that we

are to give the word "rediscounted" its purely technical meaning.

Such

bald and shrivelled literalism would, I think, defeat the true intent of
the statute.
It is in most jurisdiction a well settled rule of construction that words are to be construed according to their ordinary significance and not according to their technical sense unless the contrary
distinctly appears.

Now, the purpose of Congress in enacting the Fed-

eral Reserve Law was to permit banks to make use of their eligible
paper with the Federal Reserve _bank of their district.

Ordinarily it

might not be a matter of much concern as to whether fifteen day notes
were eligible and available as security for Federal Reserve Notes.

It

is, however, easily conceivable that in the larger centers oi trade and
3
comuterce an emargenc- might arise in whieh many millions of dollars of
such notes would be taken and, since it would not ordinarily happen that
each particular member bank would want accommodation for the same fifteea days, it might easily occur that through a considerable period of
time

he holdings of a Federal Reserve 3ank would be made up largely of

its fifteen day notes.
usefulness of .Federal

It would or might, therefore, result that the
eserve Lanks waukl be paral#zed and the useful

functions of these notes would be destroyed.
Now, was it the purpose of Congress to put the ban and seal
of condemnation on these fifteen day notes, to ostracise thew, to put
the mark of Cain on taem, and to say thaU, while federal Reserve 3anxs
may take them and while the notes which secure them would be available
for the issuance of Federal Reserve Notes, that these fifteen day noes
themselves can in no emergency and in no storm or stressof danger or
,
weather, be made

available for the issuance of federal Reserve Notesg

It seems to me that to support the conclusion of their unavailability
is to attach undue importance uo mere phraseology and to deny what it
was the obvious intent of the lawmakers




uo grant.

It is an elementary rule that any construction of a s6atute
which leads to absurdity or works great inconvenience ought to be rejected
if any other fair and reasonable interpl-etation of the language
used is
permissible.
It will be observed that the general term "rediscounted" is
used with reference to pracidically all operations of 12ederal Reserve
.6as including what are popularly known as Open i..arIcet 2urchases.
acceTA,ances are uecoming, and will undoubtedly beeome,
dren of commerce.

Bank

ile) favorite chil-

In our own limited autivides, we have them from the

most distant parts of the world.

They are bought in the open markets

and protected by their quality of negotiability.

They are indeed cour-

iers without luggage and are being traded in, bought and sold in every
counting house of the world and yet they are available as security and
while, in the computation of the discount on same in the mere office of
bookkeeping, it may be said they are discounted, they are not discounted
in the sense that either lawyers or cankers understand that term.

True

they are, in a limited sense, rediscounted, and yet in a more accurate
sense

hey are purchased in active seasons with the
-

no more ado than the operations of

Sane

ireedom and with

fle tanner who buys green hides or the

silversmith in Laiden Lnne who buys uncut diamonds.
With all due respect to those wtose opinions are entitled to
greater weight tilsn my own, it seems to me to be a conclusion both obvious and irresistible that tne true meaning of the statute is to make
all paper, included in the paragraph quoted, available as collateral Zor
Federal Reserve lioes.

It seems to me to be utterly inconceivable that

Congress meant, or could be understood to mean, that it would clothe eligible paper, made to the member bank and by it endorsed to the Federal
Reserve Bank, with all the charm and quality of availability but to deny
the direct notes of banks such useful functions, merely because they
wore a different apparel and were clothed in a different garb.

It is

an axiom in mathematics that things that are equal to the same thing are
equal to each other.




Ought a different rule to apply here?




--

October 19, 191640

xi-. W. F. Ranaey,
Federal
Dallas, Texas.
Dear Judo Ranseyshave your letter of the 16th instant
from ithich I understand that you would bo
to submit an opinion as to the availability of menber beaks' fifteen day notes as
security for !eaoral Reserve notes.
The 3oard will be very glad indeed to have
your views on this subject.
Very truly yours,

igned) W.P.0 HARDING

Governer.

S
FEDERAL RESERVE BANK
OF DALLAS

W.F.RAMSEY,
FEDERAL RESERVE AGENT

W. B.NEWSOME ,
DEPUTY FEDERAL RESERVE AGENT

CHAS. C. HALL .

11Mtn.7 J7m
,

ASS T TO FEDERAL RESERVE AGENT




OCT 1 9 19,r

October 16, 1916.
Hon. 7. P. G. Uarding,(governor,
2edera1 Reserve 3oard,
:ashington, O. C.
Lly dear I.r. harding:I have yours of the 13th instiand note
that further investigation ii Eeing riTETTEs -to the availability of fifteen day notes as security for 2ed(Jral
reserve Jotes.
I think I have no pride of opinion about
this matter but in view of my belief t4at a holding that
such notes are not available would be limd for the system
generally, I venture to make the sur estion if Judge Elliott has not finally made up his mind by the time this
reaches you that I will be willing, if desired, to submit
a brief argumept on this question. I am very thoroughly
of the opinion; after some further study on the matter,
that these notes are available as such security.
Very truly vours,

a/
Federal Reserve

-

it0

//

::ii i
i

fl

11)




October 13, 1916.

Mr. We F. Ramsey,

aharman :)adera1 Reserve Bunk
7
o
Dallas, Texas.
dear ;7'1(13? *;.11:-Igy:I have 'our letter of the ith tustant.
Our Consulting Counsel agreon with :Jr.. Elliott rcearding
the

ineligibility of naraicipal warrants as collateral on fifteen dey
notes of member bmks, but there is sore difference of opinio
n as
to the avallt!bility of nu,lh nember banknotes as security
Dor iedoral .7rInove notes,

Ile Board in an=lous to rule that they are

bnt nounool oo rar har not ;leen lugp way to t:Tivo such con,
st"untion to ths lwo•
ilow:r7ors cr!

Ho is stuVitr the rntter vory carefully,
rs rill havn
,

(lefinito oTaniaa from hira

in tt:.; vrzno cf a :T1-0:7117,,rs.
,
Vory trtay mast

Signed'i

1:14.3..DING

GaTerAer.

E DOICitj

1

FEDERAL RESERVE BOARD
WASHINGTON

October 11, 1916.

MI.C.ELLIOTT
COUNSEL

My dear Mr. Warburz;:In accordance with our underJtIdilg I am handing
you draft of opinion on the subject of the right of Federal
reserve agents to accept promissory notes of member banks, .
secured by collateral, as security for Federal reserve notes.
I am fully in accord with your views that the security afforded would be equally as great, if not greater, than

that provided for under the Act and if in the amendment the
word "acquired" had been used instead of the word "rediscount"
we would have been able to reach the other conclusion.

In

construing an act, however, we are bound by the settled rules
of construction az laid down by the courts that language must
be given its usual or ordinary interpretation wherever this is
1,os3ibla ar,d that Congress must be presumed to have meant what
it said.

Any departure from this established rule in making

official rulings will inevitably lead to subsequent colLplica-

tion and while I have every desire to reach a conclusion which
will facilitate in every way the operations of the System, I
have been unable to find any authority to sustain the conclusion which it seems desirabl3 to reach.
I shall be glad to have any suggestions that you cure
to make before filing officially this opinion.
Sincerely,
Hon. Paul M. Warburg,
Vice Governor.



‘IrFFEDLRAL RESERVE BOARD FILE

•

FEDERAL RESERVE BOARD
WASHINGTON

Octobar 10 1916/ --- —
;

MC.ELLIOTT
COUNSEL

„

dear Governor:-




This office has been asked for an opinion on the
question of thether or not a promissory note of a member
bank, secured by collateral and endorsed by a Federal reservo bank, may be deposited with the Feral reserve agent
as security for Federal reserve notes under the provisions
of section 16 of the Federal Reserve Act.
•

Section 16 provides in part

that -

"Any Federal reserve bank may make application
to the local Federal reserve agent for such amount
of the Federal reserve notes hereinbefore provided
for as it may require.
Such application shall be
accompanied with a tender to the local Federal reserve agent of collateral in amount equal to the sum
of the Federal reserve notes thus applied for and issued pursuant to such application.”
This Section further provides

eral security thus offore

that the

„h;...11 be

(a) Notes, drafts,
°ills of cxchaLiLe, or acceptances rediscounted under the provisions of section
13 of this Act, or
(b) Bills of exchange endorsed by a member bank of
any Federal reserve district and purchased under the
provisions of Section 14 of this Act, or
(c) Bankers, acceptances purchased under the provisions of said Section 14.
Section 13 of the Federal Reserve Act as amended
provides that "Any Federal reserve bank may make advances to

•




its member banks on their promissory notes for a
period not exceeding fifteen days * * * provided
such promissory notes are secured by such notes,
drafts, bills of exchange, or bankers' acceptances
as are eligible for rediscount or for purchase by
Federal reserve banks under the provisions of this
Act, or by the deposit or pledge of bonds or notes
of the United States".
The question to be determined, therefore, is
whether or not promissory notes of L.ember banks above referred to L.
-y be s,id to be notes rediscounted under the
provisions of Section 13.
discounted" its

Giving the language "notes re-

usual or ordinary interpretation, an ad-

vance or money loaned to a member bank on its promissory
notes would not be equivalent to a rediscount of notes
owned by the member bank.

In discussing this question in

the case of United States National Bank v. First :-tion,A.
Bunk
V

79 Fad. Rep., 296-98, the ccurt said:
"There is an Ebvious difference between a transaction where a bunk goes into the market as a borrower, giving its own notes, bills, or other obligations for the money borrowed, and a transaction
where it disposes of the notes and bills of third
parties which it has previously discounted. In the
former case it becomes primarily bound; it is the
principal debtor; while in the latter, even if it endorses the paper, it only incurs a contingent liability which may never ripen into an absolute obligation
to pay".
In a later part of the same decision the court

says:
"In Bank v. Armstrong, 152 U. S. 346, 14 Sup.
Ct. 572, it was decided that the borrowing of money
by a national bank is such an unusual proceeding that
when persons or corporations are solicited by 4 bank
president to loan money to his bank they 'must see
to it' that the requisite authority to borrow money
has been conferred by the board of directors. But the
decision referred to did not go beyond that point, and-

3

•




•

e‘s we have already held that the conversion of
bills receivable into cash by rediscounting them
differs essentially from borrowing money, it is
not a controlling authority in the case at bar".
That there is a distinction between the discount of a promissory note of a member bank and the rediscount of notes or bills receivable owned by the member
bank, is reco, nized in the Act of Cuptember 7, 1916, v.hich
amends certain sections of the Federal Reserve Act.

From

a reference to the original Act it will be observed th,..t
Section 13 provided that "The rediscount by any Federal reserve bank of
any bills receivable, and of domestic and foreign
bills of exchange, and of acceptances authorized by
this Act, shall be subject to such restrictions, limitations, and regulations as may be imposed by the
Federal Reserve Board."
As originally enacted this Section did not authorize Federal reserve banks to make loans to member
banks on their promissory notes, and bills receivable or
notes acquired under Section 15 were necessarily acquired
by rediscount.

By the Act of September 7th that part of

Section 13 last above quoted was amended to read "The discount and rediscount, and the purchase
and sale by any Federal reserve bank of any bills receivable, and of domestic and foreign bills of exchange, and of acceptances authorized by this Act,
shall be subject to such restrictions, limitations,
and regulations as may be imposed by the Federal Reserve Board".
This change was obviously made because Section
13 had been caLended

SO 46

to permit Federal reserve banks

to acquire bills receivable of member bunks other than by
rediscount and this amendment

V.c2.6

clearly a recognition of

the distinction between the discount of the note of the




- 4 -

borrower and the rediscount of notes owned by the member
bank.
It is no doubt true that the bill payable or
promiseory note of a member bank secured by collateral consistin,s of notes, drafts, bills of exchange or bankers' acceptances would afford equally as great security for Federal
reserve notes as notes, drafts, bills of exchange or bankers'
acceptances rediscounted by the member bank with the Federal
reserve bank.

This fact, however, could not be taken into

consideration by the Federal reserve agent or by the Federal
Reserve Board in determining whether such promissory notes
secured by collateral may be accepted as collateral for Federal reserve notes.

The Act, as amended, specifies in de-

tail the forms of security which may be deposited as collateral for Federal reeerve notes and the Federal Reserve Board
cannot by re-ul-tion permit the acceptance of any other form
of security even though it may be of value equal to Or Greater
than the securities enumerated in the Act.

Unless, there-

fore, the promissory note of the member bank upon which advances are made by the Federal reserve bank

can be construed

to be a note rediscounted by the Federal reserve bank it cannot be accepted as security for Federal reserve notes.
It has been suggested that the collateral security
hypothecated with the promissory note of the member bank,
when it cbnsiete of notee, drafts, bills of exchange or bankers' acceptances, becomes the property of the Federal reserve
bank to the same extent that it would become if such notes,




drafts, bills of exchange or bankers' acceptances had
been rediscounted with such Federal reserve bunk, and
that the Federal reserve agent would, therefore, be justified in accepting such proiLissory notes with the collateral attached since he would thereby acquire practically the
same title to such securities aa he would acquire if they
had been rediscounted with the Federal reserve bank and
subsequently tendered to him as security for Federal reserve notes.
From a practical standpoint it is true that the
lien of the United Ctates would cover such securities in
either case but the method of enforcin_: this lien .,ould
not be the sae, and even though the same protection
hiitht be afforded this fact would not justify treating the
discount of promissory notes as synonymous ;iith the redis.:
count of bills receivable.
In this connection it will be observed that these
promissory notes may be secured by the deposit or pledge of
bonds or notes of the United States and if v,e view the transaction froh, the standpoint of the collateral security a situation might arise where Federal reserve notes would be issued against the security of United States bonds, a situation which was clearly not centemplated by the Act.
Attention is also called to the fact that the
courts make a distinction between the duty of the lender
when a bank borrows money on its promissory notes and when
a bank rediscounts its bills receivable.




As pointed out in the case of Bank v. Armstron:e
152 U. S., 14 Z.p. Ct. 572, where a national bank borrows
on its promieeory notes the lender "must see to it that
the requisite authority to borrow money has been conferred
by the board of directors", whereas, according to the decision in the case of the United States National Dank v.
First National Bank, supra, there is no such obligation on
the part of the lender where a bank rediscounts its bills
receivable..
It is true that in the later case of Aldrich v.
Chemical National De.nk, 176 U. S., 626, the court held the
bank liable for money borrowed on a promissory note by an
officer ,ithout specific authority from th2 directors on
the ground that the tank had received the benefit.

This

case, however, was distinguished from the case of Testern
National Bank v. Armstrong and the decision in that case
was not reversed.
It is also true that the specific authority
Liven to Federal reserve banks by arednement to Section 1'0
to Luke loans on the promissory notes of member banks might
be held to relieve the Federal reserve bank of the resoneibility of seeing that the officer executing the note had
been specifically authcrized to do so by the directors but
in view of the decieiomreferred to it might be contended
that a Federal reserve ueent

receiving a promiceory note

of a member bank us security for Federal reserve notes
would be charged with the duty of seeing, that such notes

•

•

had been executed under proper authority on the ground
that as chairman of the board of directors of the Federal reserve bank he Aculd be charged with notice of the
circumstances under which the note was discounted..
Tillie this would be a somewhat extreme view, in
the opinion of this office, this phase of the situation
is discus3ed merely to emphasize the fact that there'ia a
distinction between the discount of a promissory note
of a member bank secured by collateral and the rediscount
of notes, drafts, bills of exchange or bankers! acceptances
for a member bank by a Federal reserve bunk.

Since this

distinction does exist and the two transactions cannot be
considered as synonylLous, it is the opinion of this office
that a Federal reserve agent is without authority to accept promissory notes aecured by collateral as security for
Fc:der,t1 reserve notes.
F.esi:ectfully,

Hon. V. P. G. Hardin,
Governor.




Counsel.

FEDERAL RESERVE BANK
OF DALLAS

W.F.RAMSEY,
FEDERAL RESERVE AGENT

W.BMEWSOME,
DEPUTY FEDERAL RESERVE AGENT

CHAS.C. HALL.
ASS'T TO FEDERAL RESERVE AGENT




October 9, ]9l6.
Hon. W. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.
My dear Lir. Harding:-

C711

I am in receipt of your lett‘rp in which you advise that it is the judgment of tr:raliott that municipal warrants are not eligible as collateral on fifteen
day notes and that he will likely rule that these fifteen
day notes are not available for security for Federal Reserve Notes, all of which illustrates what I have long
since known, that lawyers, as well as doctors, will differ.
Of course, I have not investigated either question as carefully as Judge Elliott will, but without any
great investigation I was very clearly of a different
opinion On both propositions. Of course, we will cheerfully conform to any ruling approved by the Board on this
question.
While I folt at the time that there was not much
doubt on either proposition, still it occurred to me that
there might be a difference of opinion on both ciuestions
and my submitting these matters was due to my wish to be
definitely advised of the opinion of the Board on them.
Very truly pours,

;

.4/
FEDERAL RESERVE BANK
OF DALLAS

R. L. VAN ZANDT. GOVERNOR
J. W. HOOPES. VICE-GOVERNOR
LYNN P. TALLEY. CASHIER
SAM R. LAWDER. ASST. CASHIER

4
(0
7:
October 9, 1916.

C.T 1 2 1916
CM

crV:

Hon. W. P. G. Harding,
Governor, Federal Reserve Board,
Washington, D. C.
Ny dear Yr. Harding:
Enclosed I hand you carbon copy of a letter which I
am today addressing to the
tmaster at Dallas, which refers
to your letter of the 3rd i/Cistant, calling my attention tp the
fact that warrants, although eligible for purchase by Federal
Reserve Banks, are not acceptable as collateral to fifteen-day
promissory notes of member banks.
Before discounting the note of the First National Bank
of Weatherford with this collateral, I referred it to our Counsel, who expressed the off-hand opinion that warrants were in
fact the promissory notes of the municipality issuing them and
that it was the intent of the amendment to permit member banks
to use them as collateral to promissory notes given to Federal
Reserve Banks. This was an off-hand opinion, and, although we
discounted this one note with that character of collateral, I
advised the bank that further similar offerings would not be
considered until after we had received a decision from the Federal Reserve Board.on the subject.
The note referred to will mature day after tomorrow,
and, owing to the delay in the receipt of your letter, it will
not be possible for us to get a substitution of the collateral
before that time. We will, however, be governed in future by
your decision.

Yours very truly,

Enc.
VZRS




e iovec„
Govern()

FEDERAL RESERVE BANK
OF DALLAS

R. L. VAN ZANDT. GOVERNOR
J. W. HOOPES. VICE-GOVERNOR
LYNN P. TALLEY. CASHIER
SAM R. LAWDER. ASST. CASHIER

October 9, 1916.

lir. B. '1. Burp)
?oatmaster,
L'ar.as.
11,7 dear

irarghler:

2hin =mine;I had delivaroa toLie a very important
letter, from ion. 17. P. G. Harding, Governor of the Federal
".eserve loara, lhioh letter ma aated and mailed in Washington
on Ootobor




The post marice on the envelope, which is being bandoa
you heroin, ahau that it wan mailed in Washington at 7:30 p.m.
on October 3r1, and that it later appeared in the railroad
postoffico betrnen Tuoulmari, 1. Ti., ana la Paso, To=ils, on
October 6th.
7,11l you kindly have this matter inveatioateA, ana
see if it
not be possible for un to rec-ive a littln better service, particularly on our official mail?
Your

very truly,

Eno.
VZ-110
OJ to VAon. W. P. G. 1144rding,
Governor, Federal :mserve Board,
7;as1tington, D.

Gove:nor.

-n,
-

FEDERAL RESERVE BANK
OF DALLAS

W.F. RAMSEY,
FEDERAL

RESERVE AGENT

W. B.NEWSOME ,
DEPUTY FEDERAL RESERVE AGENT
CHAS.C. HALL.
ASST TO FEDERAL RESERVE AGENT




October 9, 1916.
Hon. W. P. G. Harding,
Govervor, Yederal Reserve Bo:rd,
Washington, D. C.
My dear hr. Harding:,instf. with reference
Your letter of the. ec9nd
to proposed increase iiiiaei- on renewal of fifteen day
paper came in my absence in St. Louis where I was attending
a committee appointed at our last meeting of Federal Reserve Agents.
I am inclined to think that the suggestion of
the Board is right and that we had better wait ultil we
have had some further experience with this class of paper.
I doubt a little the wisdom of making an ironclad rule that under no circumstances would renewals be granted. I can well understand conditions under which such renewals ought to be granted. We have one case to-day where a
renewal As requested of a moderate sum where the bank is unable to pay usI due to its inability to secure cotton exchange
on which it mYght ordinarily have relied with the utmost confidence.
Referring to the last paragraph of your letter,
shall regret exceedingly if Judge Elliott should finally conclude that fifteen day paper is not eligible to secure Federal
Reserve Notes, but am sure if he shall so untiAlately hold,
it will be for good re..:_sons.
Very truly yours,
RiT•
Federal Reserve Agent.

•
FEDERAL RESERVE BANK
OF DALLAS

W.F.RAMSEY,
FEDERAL RESERVE AGENT
W. B.N EWSOM E
DEPUTY FEDERAL RESERVE AGENT
CHAS.C. HALL,
ANSI TO FEDERAL RESERVE AGENT




Octouer 4, 1916.
Federal Reserve Board,
•fasnington, D. C.
Den/. Sirs:...eierring to your weesage oi tne 41iu witn
reierence to tne suggesteu inerease in rates on i'eueweu
notes, I Deg to advise tnnt I reau your letter to our
Board of IiiroctOrs, wnicrl illErG on yebterctay arm, accoruing to your suggestion, action on the matter was postponed.
Very truly yours,

'ETNTEIY'•
11,„

k

14,,
,

19

„
2
3

8
-yollat blot%

061
-

191°.




rc. 3-3
Date
FEDERAL

272
October 2, 1916. .

RESERVE

BOARD

112::ORANLUM
For mr.

iinrd Inc

At a meeting of the
Federal Reserve Board
on
, the following matter
(as Chairman,
was referred to
ce.—&, Executf
you (.4;,43-4-mmitipgr,
It
Committee:
(as
An inquiry of Federal Reserv
e

Agent Ramsey

vdth reference to a pro
cressively increasing rat
e
on renewed notes presented
by member banks.

Secretary.
Letter attached.

Please return this
memorandum with cop
documents resulting
y of
from action taken,
if any.
Date
Documents
Signature

Please return this memorandum with copy of
'
documents resulting from action taken, if any.
Date
Documents
;
Signature




r
tP-t)
272.

ro.

Date

FEDERAL

RESERVE

9

1916

B 'ARD

DRAnum
For mr. _

LL

At a meeting of the Federal Reserve Board on
, the following matter
1.4.1Z—Lbal.=aaw—agzia.a.k.w.e...wa,
was referred to you_laz_lagrab2X,
(asGovernor:
2

The attacneA letter of F. 7. AA Ramsey as to
whotiier coanty warrants may be deposited as security
for member banks' promissory notos, with power to
act.

Soo otfiry.

\
Please retuin this memorandum with copy of
* documents resulting from action taken, if any.
Date
Documents
Signature

October 2, /915.

Mr.

• l•

2* R;Amsey,
nhairman Federal Reserve Bank,
Dallas, Texas.

dear judze :
7=Ansey:On my return this rorningI find your letter of the 26th tliame
, from thich
it anears that we misunderatood your letter ,QtAhe 19th ultimo, as your
board
did fix a rate of :3-1/25 on 15 day notee,
ich was npproved by our Board this
mor:ainc,.. I understand, of ()aurae, thnt
CIA not tstena your letter as a
criticism of Governor Van Zazdt for his view, nor Should my letter
of the 22nd
be construed in that wny. A teler mm will be sent you this afternoon
,,
in time to
reach you before ,7'olir board retin2 tomorrav, stating that we would
sur,;gest that
a sliding schedule of rates on 15 day notes bo not mnde until we
:lave had about
thirty days experience in obsanviug eonaitiono. Ath a basic rate of
3-1A; for
the first 15 days it mijht be well to establish a 4-1/2;; rate for
the first renewal for 15 days, so as to rake the net result a little over the
30 day rate;
and it niht be well to increase the rate 1/?, of 1:J for each
additional renewal
for 15 days.
Some of us feel, however, that it asiat be better to discourty;e
any renewals at all and to lot the lc; elny Illrf?r at s7ocial rnter rexaih
is an e2eri;enc-. ::,att3r, in order to cmable banks to keep their rc.serves intact
,
in case of
sudden demand.
Your letter relatin to the question a7 to whether or not
15 day notes ma0a
by member be.nlm can be deposited with iPederal Reserve !..ents
to secure Federal
Reserve notes, hae been referred to Counsel vilo has boas stu1yi
n3 the subject
for the past two reeks. He tells ue this afternoon that he
will be obliz;ed to
hold that such plper is not available to necure ?ederal Reserv
J notes, as the
language of the recent act amending the orlainal Pedant'
Reserve Act olc:arly
discriminates between discovnts
rcormts. 7!(5 will have his opinion ready
for submission to the Board within tho noxt day or two, and
if it should be
adopted by the Board
will sed yniu a ony of it Dronptly. Of course, if
these
short tine notes made by namber banks are not going to be availa
ble as a basis
for Federal Reserve notes, it is desirable 01.14 '.'ederal
.
.
Reserve Ilanks protect
themselves against an excessive mount of this sort
Of paper. .'hii Will add to
the armment in favor of declining to renco." such
r.




Very tru4
?ftignm) CV. P. G.
Governor.

antbi..,n2f




7.7,-712 :2

7o.

2:72.

S-2.0

Date

FEDERAL

Oct. 2, lc216.

RESERVE

BOARD

:12::ORANTUNI
For mr

11-.`;

At a meeting of the Federal Reserve Board on
Oct, 2

, the following matter
(as Chairman, Comittee on Law:
was referred to ycu (as.moralaov,
(as
A
The attached communication! from F. R. 2. Ramsey
A.

inciuiring whether promissory notes made directly in
favor of a Federal reserve bank and not technically
rediscounted with it by a member bank, could_ be accepted as collateral security to protect issues of Federal
reserve notes.

0 V

t)

Secretary.

• 6 1916
Please return this memorandumwith copy of
document rnAx,knxitiriti: action taken, if any.
,
l
Veaerw
Date
Documents
Signature-




•

FEDERAL RESERVE BOARD
September 30, 1916.

Lemorandum for Governor Harding:-

:L710 attach

_zo
letters, to o_

are

on the docket
addressed to you, will be placed
Yonday.
with
"All you be so good as to take them
::ou to the Board Room?

SEP :3 0 1916

Afon's:

•
FEDERAL RESERVE BANK
OF DALLAS

W.F.RAMSEY,
FEDERAL RESERVE AGENT
W.B.NEWSOME.
DEPUTY FEDERAL RESERVE AGENT
CHAS.C. HALL
A SS'T TO FEDERAL RESERVE AGENT

September 2?, lio.
Hon. W. P. G. Harding, Governor,
Pectoral Reserve Boara,
Washington, D. C.
My dear Yr. Harding:You will remember that tne Feueral Reserve Law
provided, in substance, that "notes rediscounted' by the Bank
,
are available for deposit with me against Feaeral Reserve
notes. At that time the law made no provision for our taking
tne direct obligation of member banks. When the law was
amenaeu recently, pernitting us to aiscount airect notes or
banks aue within fifteen days, there was no change in tne
Act describing the character or paper whicn might De hypotnecated with the Federal Reserve Agent.

Recently the Bank here tenaerea me some of
tneir fifteen day notes for aepesit against Federal Reserve
note liabilities which I have accepted in the belief that
tne term "notes rediscounted" in the law as it originally
read was broad enough to cover a direct note made to tne bank.
However, on reflection it occurrea to me that it might pe well
to submit tne matter to tne Pectoral Reserve Board witn the
request that ir they ueemed it advisable that they refer it
to their counsel for an opinion. Clearly tnere is no reason
why fifteen day notes- the airect obligation el the bank- supportea anu secureu by eligible paper, should not be as available as if the paper itself securing the note naa been aiscountea by us.

;Ito.
ofa.
rt.




My own opinion is, if I may be permitted to express it, that in the law, as it originally stooa, the wora
"rediscount" was not usea in its technical sense out merely
as descriptive or the character of paper which might be (leposited with tne Federal Reserve Agent.
Very truly yours,

Federal Reserve Agent.

•
FEDERAL RESERVE

BANK

OF DALLAS
W.F. RAMSEY
CHAIRMAN OF THE BOARD

...*•-•••••,:':-.•
dr
,

.445.44,0

9
167 tticls4A4N
a'
ci3S
t.

September 26, 1V16.
Hon. W. P. G. Harding, Governor,
Federal Reserve Board,
Washington, D. C.
My dear Mr. Harding:Referring to yours of the 22nd inst. concerning rate on fifteen day notes, I beg to say that evidently I did not express myself as clearly as I intended.
Our Board of Directors did fix a rate of
three and one-half per cent on fifteen day notes.
My letter was not of course, intended as
criticism or Governor Van Zandt's views, out in view of
our action it seemed proper to give briefly the reasons
and grounas on which such action was based.
We are already having some demand for loans
or this character and in the event of a traffic blockaae
will undoubtedly be called on for such accommodations to
a very considerable extent.
Very truly yours,
R/T.




Chairman.

September 22, 1916*

4hairman Peaera Reserve Bunk,
Dalia„ Tezas.
Dear Jadbe .7,aac,4y:
I ikave ;y-our letter of the 1Vth instant referring to tae miliutss
,
of your direatat-2' neetinc of SertImber 15th
i& I 7:1:17.‘
tLo ro
1io4 f overnor 'an Zon.tit that your rate on fifteen
4/7 notes should not be 1owo.7. than ;min. r.2.to on or(11.7.-.4, thi.;:kr
,
1
-)aver.
aeserve Banks except tilat of Dallas imve now esa.
profereertial rate for rxraber ben' collateral net,az :17.rininc
tioos ;Jot understand v4.4 the establiehraetit
,
,r
of a lowt.., rate fOr ou.c..11 1fto: &y notes 4,
"
:ould ncicc.-;sarikr
about ::4.
1ae o to privilc,ze by tie use of ranoads," as stated. by
Governor Van Zzldt in Mr. rvert. The Board' o'bletat in
CoroLp to
the disoeunt of a zosbe:c beak's own note seaored by
other notos not thalselvoe oligiblo for dl.aoo'unt,
trv.m.lactiors.;
ri om
muturitioz, aas to ai'Zord eitl.ei banats
an opportumity of proviclirc for tor..vora-, j cvntiik;encies. It faa.!:; 2LSt
..t1-1 aLw FeEe.',.. -•1 Reserve
=lad. permi-s; a. member bisuak
to abuse a p,rivilege and obtain. these preferential rates over a
of thi, 1...zty, or riliety (.'.i:a.ys
ooLtinued roLowas of their fifteen
dev• notes. It seonri touistlithatfit w.2.0 z:ade clear to tirouber
131..ot t7..1,‘;,. =1st 2.).ot ask for the rerievial of these fifteen deg notes, the
dangler of atm° would be avoided, and. we hope that catt- r turner c.onsiJ
e.or.s.tion the offleorc., , directors oZ iour bank Will feel ji.latified in
,tnd.
carryinc out a rolicz: which .11.33 bocti
.
cod. 7 7jtie 3orlQta
becl &.d.o:pted by all of the ot..1:1;.r
iieserve
tablishod

Copies of :.Zo.e ri3i011 of he Zoo:rats cieular am re -ulations,
eerien of 1915, printed in Damphlot form, ,- 00,A3 miled ou z do.?,7- or two
.
a0. You will notice in Retlatica J,
eok Olearing and. Collection,"
page 20, that a penalty for deficiency' in rezorves has been prescribed
.
Me Federal Reserve Banlait will be ezpectod to enforce this penalty hereafter, and I agree with you that a preferential rate .
,3pon neLtber bnalcs*
fifteen day notes secured by collateral, rorld be of great assistance to
you in keeping the reserves of your member 14111X
and that any
tendency toward abuse can be prevented by proper administrative
measures.




I am writing this mrsonally, but wil
l repeat the letter officially
if you deem it advisabio.




Very truly your,

•

61 •

FEDERAL RESERVE BANK
Or DALLAS

W.F. RAMS EY,
FEDEFtAL RESERVE AGENT

W. B.N EWSOM E
DE PUTV FEDERAL RESERVE AGENT

•

CHAS.C. HALL,
AS S'T TO FEDERAL RESLRVE AGENT




September 19, 1916.
Hon. W. P. G. Harding, Governor,
Federal Reserve Board,
Washington, D. C.
My dear Yr. Harding:In the minutes of our Board of Directors which
I am to-day transmitting to the Federal Reserve Board, it
will be noted that there was strong recommendation urged
by Governor Van Zandt that our rate on fifteen day notes
should not be lower than our rate on ordinary thirty day
raper.
I was inclined to the opinion and so urged
upon our Board that there ought to be a preferential rate
on this class of paper, that it was unusUally liquid, that
it would attract iothe bank some desirable business from
the larger banks of the State who, as a rule, have not
sent us paper for discount, and that it would unquestionably facilitate our labors in keeping the reserves of such
banks intact, and that while liable to abuse such abuse
could be prevented by proper administration of the affairs of the bank.
This for your information.
Very truly yours,

Chairman.

af •

RESERVE
FEDERAL RESERVE BANK
OF DALLAS

k)
W.F.RAMSEY,
FEDERAL RES ERVE AGENT
W. ELN EWSOM E,
DEPUTY FEDERAL RESERVE AGENT
CHAS.C. HALL,
AS S'T TO FEDERAL RESERVE AGENT




September 184 1916.
Hon. W. P. G. Harding, Governor,
Federal Reserve Board,
Washington, D. C.
My dear Mr. Harding:I am in receipt of your telegram,of_this date\
approving rate of three and one-half per cent for fifte6A —
day notes effective September 15th and beg to thank you
for your prompt notification.
We will give an early notice of our willingness and ability to handle this class of paper.
Very truly yours,

Federal Reserve Agent.

0

FEDERAL_

TELEGRAM

/4

RESERVE

( •

BOARD

WAS HINGTON

64aptember 18, 1918.
111J,erta Leuerve ;gent,
Dallas Tex,n
BaLrd fl-pprcrietJ 70-ir r4unnended rat* tftrafe r'rwl 1.4.1f percent for
fifteen dzxy notes effective :3eptorte-

ltarAx

FI 3-)
SEP 1 ?, 1916
; -44.41:1i
1.4.46‘.04: 1
OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE FEDERAL RESERVE BOARD




Form 40

teatuijpepavtinent
TELEGRAM

15711 1,
10

,

80 Collect Govt
FL

DALLAS

Texas 1014am

:t eillt 13 1916
)

7,ardin, Governor, rederal iLeserve Board
—ashington

Our 1;oard of directors on Friday last fixed the rate on fifteen day notes at three and one half percent per annum. I anticipate considerable very desii.alsle IJusiness from our larger
banks on this paper.Cotton is pilinrr up very rapidly. We
desire to rive notice of this rate and would 'ce glad to have
Federal i‘Leserve Board to approve same and wire us theirtir
action as soon as reasona7n1y practicallle




.Lamsey, Chai.L.man
1153am

APR 28 1916

Draft of Amendments to Section 13, Federal Reserve Act, As
Amended by the Act of March 3, 1915, Proposed as an Alternative or Substitute for the Amendment Submitted by the Federal
Reserve Board and Contained in S. 5078.
tPart trueh through is proposed to be omitted. Part In italics Indicates new waiter.]




Be it enacted by the Senate and House of Representatives of the United States of America in Congress rtembled.
That section thirteen of the Act of December twenty-thircL
nineteen hundred and thirteen, known as the Federal reserve Act, as amended by the Act of March third, nineteen
hundred and fifteen, be amended and reenacted to read as
follows CWIT lar14
1111' r7
"SEC. 13. Any Federal reserve bank may receive from
any of its Member banks, and from the United States, deposits of current funds in lawful money, national-bank notes,
Federal reserve notes, or checks, and drafts upon—selveRt
meffther--13tlitk-s, payable upon presentation, and also, for
collection., maturing bills; or solely for pitrposes of exchange
or of collection toff-poses, may receive from Hiller Federal
reserve banks deposits of current funds in lawful money.
national-bank notes, or checks t1+14-drafts upon solvcitmcm
Ittl
f—fif

other Federal reserve hanks, and cheeks and rlralls.

payable upon presentaiimi within u.s dixl?.iet, owl maluong
bills payable within its district.




4g

r

WI
A N" /-7
7
-

wi -21W1vomiTIPMPIM
7r ,

"Upon the indorsement of any of its mem
ber banks;
wi4-1.1 a waiver 4--(1-emai+4;-4if4-infltfetest-431+41-44ftftli:
any Federal reserve bank may discount
notes, drafts, and,
bills of exchange arising out of actu
al commercial transactions; that is, notes, drafts, and bills
of exchange issued or
drawn for agricultural, industrial, or
commercial purposes,
or the proceeds of which have been
used or are to be used
for such purposes, the Federal Rese
rve i3oard to have the
right to determine or define the characte
r of the paper thus
eligible for discount within the meaning of
this Act. Nothing in this Act contained shall be construe
d to prohibit such
_
notes, drafts, and bills of exchange, secured
by staple agricultural products or other goods, wares, or
merehandiw,
from being eligible for such discount; but such
definition
shall not include notes, drafts, or bills covering
merely invesiMents or issued or drawn for the purpose of carr
ying or
trading in stocks, bonds, or other investment securiti
es,
except bonds and notes of the Government of the United
States. Notes, drafts, and bills admitted to discount und.er
the terms of this paragraph must have a maturity at
the
time of discount of not more than ninety days, exclusive
of
gpace: Provided, That notes, drafts, and bills drawn or issu
ed
for agricultural purposes or based on live stock and
4having•
a maturity not exceeding six months, exclusive ofr-ajlI(/1v v
A gracem
be dbeottuted in an amount to be limited to tt peiftutage of

Nrogneiwortaistrairillnimninsom
the capital of the Federal reserve hank, to he ascertained and
fixed by the Federal Reserve Board. --c7
"Any Federal reserve bank may discount acceptances
wlileh are based on the importation or exportation of goods
and which have a maturity at tieoL4isount of not more
than three months, exclusive o

Acce; and indorsed by • at

least one member bank. The amount of acceptances so,
discounted shall at no time exceed one-half the paid-up
and unimpaired capital stock and surplus of the bank for
which the rediscounts are made, except by authority of the
Federal Reserve Board, under such general regulations as /
said board may prescribe, but not to exceed the capital stock7
:
and surplus of such
"The aggregate of such -notes, draft
,.the signature or indorsement of any one

id bills
company,_ •C- °

firm, or corporation, ediscounted for any one bank shall at
no time exceed ten per centum of the unimpaired capital
and surplus of said bank; but t
to—the—discount of bills of ex-chfute—drawn—ifi—good—faitli
agaiast•—aetually—ex-istiug---values: Provided, however, That
this restriction shall not apply to the discount of bills
of
exchange drawn in good faith against actually existing
valu(s.

.11), tYi

data

nor to commercial OP businesR paper which represents
an
actual debt for goods sold and which is owned by the
person,

tql RAD
1004
,

rm or corporation 'discountingit with suck member
bank.
LI

1A,

J

I, .

att




dti(t
ytt/F,
--ttictf

ainitrsti




ircr..1

TP
IWINWIFIIIWIWRIKT41NWI

fts or bills of ex"Any member bank may accept dra
of transactions involvchange drawn upon it and growing mil
ods-having not more
ing the importation or exportation of go
ace; but no bank
than six months' sight to run, exclusive
nt equal at any time in the
shall accept such bills to an amou
paid-up and unimpaired
regate to more than one-half of its
agg
by authority of the Federal
capital stock and surplus, except
ns as said board
rve Board, under such general regulatio
Rese
the capital stock and surmay prescribe, but not to exceed
ulations shall apply to all
plus of such bank, and such reg
ount of capital stock and
.
bf ianks alike regardless of the am
a
o 'discount - captny Federal reserve bank may als
"A
ctions of the kinds hereinafter
ances based on domestic transa
tint of d ,J unit of ndt
bed which have a maturity at the
descri
ive o \greF, /22# which are
more than three months'sight, exclus
A
The amduhtiol acceptbank.
indorsed by at least one member
time exceed one-half the paid-up
ances so discounte'd shaft at no
•,
d surplus of the bank for which
d unimpaired capital stock an
an
authority of the Federal
ounts are made, except by
the redisc
y
regulations as said board ma
rve Board under such
Rese
the capital stock;
not to exceed the amount of
paseribe, but
le.
which the Tediscoun ts are ma

and surplus pf the bank.for




.pro

AI&

TIFORPRIPPIRITINMW7fr
membe- bank may- also 'accept dralts 07-bills-r
4
_
__exchange 'drawn ?tpon rit having ,not more ilial\g,tmontliisight to run, exclusive of

ace---l) w7nch vow out o trans-

actions involving the domestic shipment o'f goods,'provided
siilpping documents are attached at the time of acceptance; 72);
which.are secured at the time of acceptance by a warehousiPi-;
ceipt or other similar document affording security title covering
readily marketable staples, or by the pledge of goods the
sale of which is the basis of the acceptance; but no bank
shall accept such bills to an amount equal at any time in the
„
aggregate to more than one-hall Of its paid-up and unimpaired. cafrital stock and surplus, except by authority of the
Federal Reserve. Board, under such general regulations as
said board may prescribe, but not to -exceed the capital stock

ito-Arl
„` e

A
711 alej/f/
'

d1
.1

and smplus 01 such bank, and such: regulations shall, apply
to all banks alike regardless of the amount of, capital: stock
a 'nd s 4711,4715""
""
1 r)
"Any Federal reserve bank may make advances to '
174
member banks on their promissory notes 'for a priodNot
exceeding fifteen days at rates to be established by such Fed-;
owl reserve banks, subject to the review and 'determination
bY the Federal Reserve Board, provided such promis
sory

notes are secured by such notes, 'drafts, bills of exchange, Or
bankers' acceptances as are eligible 'for rediscount or rfo):
pitrchase by Federal reserve banks udder the provisions oZ

C-virwcr
"AltAzi
,
•i/

h74
/ /44-

fr?

!.rPrT
this Act, or by the deposit or pledge of bonds or notes of tht
E.rizite'd States.'
Section fiffy-two hundred and two of Hie Revised
Statutes of the 'United States is hereby amended so as to
,

read as follows::
"SEC. 5202. No national banking association shall at
any time be indebted or in any way liable to an amount
exceeding the amount of its capital stock at such time
actually paid in and remaining undiminished by losses or,
otherwise except on account of demands of the nature
following:i
First. Notes of eireuTation.
"
"Second. Moneys deposited with or collected by the
•
tion.
associa. ,
"Third, Bills of exchange or 'drafts 'drawn against
money actually on deposit to the credit of the association
or due thereto.
"Fourth. Liabilities to the stockholders of the association for dividends and reserve profits.
"Fifth. Liabilities incurred under the provisions of
4

the Federal reserve Act.
and
The 'discount an'd rediscount and the purchase
receivable
sale by any Federal reserve bank of any bills
e and of acceptmid of 'domestic and foreign bills of exchang




"
4




I NTIFIVIR-7 WIN! W
an WINNE

anees authorized by this
Act shall be subject to
such restric-

tions, limitations, and
regulations as may
be imposed by,

the Federal Reserve Board,

.
filitSiliAtfulliiiit

iltaitini

•
•

64TH CONGRESS,
1sT SESSION.

S. 5078.

IN THE SENATE OF THE UNITED STATES.

4

MARCH 15, 1916.
Mr. OWEN introduced the following bill; which was read twice and referred
to the Committee on Banking and Currency.

ATI ito at
ILL
To amend the Act approved December twenty-third, nineteen
hundred and thirteen, known as the Federal Reserve Act.
Be it enacted by the Senate and House of Representa-

1

2 lives of the United States of America in Congress assembled,
3 That section thirteen of the Act approved December
4 twenty-third, nineteen hundred and thirteen, known as the
5 Federal Rekrve Act, be amended to read as follows:

o

"Any Federal reserve bank may receive from any of

7

its member banks, and from the United States, deposits of

8

current funds in lawful money, national-bank notes, Federal

9 reserve notes, or checks, and drafts payable upon presenta10 don, and also, for collection, maturing bills; or solely for




2
1

purposes of exchange or of collection may receive from

2

other Federal reserve banks •deposits of current funds in

3 lawful money, national-bank notes, or checks upon other
4 Federal reserve banks, and checks and drafts, payable upon
5 presentation within its district, and maturing bills payable
6

within its district.

7

"Upon the indorsement of any of its members banks

8

any Federal reserve bank may discount notes, drafts, and

9

bills of exchange arising out of actual commercial transac-

10

tions; that is, notes, drafts, and bills of exchange issued or

11

drawn for agricultural, industrial, or commercial purposes, or

12

the proceeds of which have been used, or are to be used,

13 for such purposes, the Federal Reserve Board to have the
14

right to determine or define the character of the paper thus

15

eligible for discount, within the meaning of this Act. Noth-

16

ing in this Act contained shall be construed to prohibit such

17

notes, drafts, and bills of exchange, secured by staple agri-

18

cultural products, or other goods, wares, or merchandise,

19 from being eligible for such discount; but such definition
20 shall not include notes, drafts, or bills covering merely in21

vestments or issued or drawn for the purpose of carrying

22

or trading in stocks, bonds, or other investment securities,

23

except bonds and notes of the Government of the United

24

States. Notes, drafts, and bills admitted to discount under




the terms of this paragraph must have a. maturity at the
time of discount of not more than ninety days:
"Provided, That notes, drafts, and bills drawn or issued

in an amount to be limited to a percentage of the capital of
the Federal reserve bank, to be ascertained and fixed by
the Federal Reserve Board.
"The aggregate of such n
the signature or • indorsemen
firm, or corporation,rediscounted for any one bank shall
at no time exceed ten per centum of the unimpaired capital
• •
• and surplus of said bank: litrt—this,
-,./ca ,tel
fai4
ls
a,' --ercXe-.1.
7 --4
x
:
-I Ye/I(elel -- - . -2
..-.,,t,
,
15
stie-o-v .e9:ali .
p
4...4,4AltC-,C2G '-e-.-14-efe16 4,41,
. fi,...)._t/ce: fly Federal reserve sank m y iscoun a. ep a
,
, ft "406 -vos-ie(

of the kinds hereinafter described which have a maturit
of not more than three months' sigh
v at least one member bank.

C.-^-1 •

/. ,7: t.
4e
t
Any member bank may accept drafts of bills of ex x.
change drawn u on it havinff not more than six months

If
...-1 €1..-e4.-41•
-

of transactions involving the
importation or exportation of goods; or which grow out of
transactions involving the domestic shipment of goods, provided .shipping documents are attached at the time of accep


*
1

0•

tance; or which are secure( y a

arehouse receipt or other

2 such document affording security title covering readily mar3 ketable staples, or by the pledge of goods actually sold. No
4

member bank shall accept, whether in a foreign or domestic

5 transaction,for any one person, company,firm,or corporation
6

to an amount equal at any tithe in the aggregate to more than

7

ten per centum of its paid-up and unimpaired capitalAand

8 surplus unless the bank is secured either by attached docu9

ments or by some other actual security growing out of the

10 same transaction as the acceptance,and no bank shall accept
11

such bills to an amount equal at any time in the aggregate to

12

more than one-half of its paid-up and unimpaired capital

13 stock and surplus except by authority of the Federal

VO-

14 serve Board, under such general regulations as said board
• 15

may prescribe, but not to exceed the capital stock and

16

surplus of such bank, and such regulations shall apply

17

to all banks alike regardless of the amount of capital stock

18

and surplus.

19

k,
)

"Any Federal reserve bank may make advances to its

20 member banks on their promissory notes foi a period not
21

exceeding fifteen days at rates to be established by such Fed-

22 eral reserve banks, subject to the revit_v and determination of
,
fv t;c6

23 the Federal Reserve Bofird such promissory notes i:1524P
24 secured by .uch notes, drafts, bills of exchange, or bankers'
s
25 acceptances as are eligible for rediscount or for purchase by




I

5
1

Federal reserve banks under the provisions of this Act, or by

2 the deposit or pledge of bonds or notes of the United States.
3

"Section fifty-two hundred and two of the Revised

4

Statutes of the United States is hereby amended so as to

5 read as follows: No national banking association shall at
6

any time be indebted, or in any way liable, to an amount

7

exceeding the amount of its capital stock at such time

8 actually paid in and remaining undiminished by losses or
9 otherwise, except on account of demands of the nature
10 following:
11

"First. .Notes of circulation.

12

"Second. Moneys deposited with or collected by the

13

association.

14

"Third. Bills of exchange or drafts drawn against

15

money actually on deposit to the credit of the association,

16

or due thereto.

17
18
19

"Fourth. Liabilities to the stockholders of the association for dividends and reserve profit.
"Fifth. Liabilities incurred under the provisions of the

20 Federal Reserve Act.
21

"The discount and rediscount and the purchase and sale

22 by any Federal reserve bank of any bills receivable and of
23

domestic and foreign bills of exchange, and of acceptances

24 authorized by this Act, shall be subject to such restrictions.




6
1

limitations,and regulations as may be imposed by the Federal

2

Reserve Board."

3

That section sixteen, par

aphs two, three, four, five,

4 six, and seven, of the Act appr ved December twenty-third,
5 nineteen hundred and thirte n, known as the Federal
6

Reserve Act, be amended an reenacted so as to read as

7 follows:
8

"Any Federal reserve btu k may make application to the

9

local Federal reserve agent fo • such amount of the Federal

10

reserve notes hereinbefore pr i vided for as it may require.

11

Such application shall be accompanied with a tender to the

12

local Federal reserve agent of collateral in amount equal

/3

to the sum of the Federal I serve notes thus applied for

14

and issued pursuant to suc i application.

The collateral

15 security thus offered shall be i otes, drafts, and bills of ex16

change or bankers' acceptanc s, rediscounted or purchased

17

under the provisions of sectio thirteen or fourteen, respec-

18

tively, or, with the approval o the Federal Reserve Board,

19

may be gold, or gold and such o otes, drafts, bills of exchange

20 or bankers' acceptances. Gol I thus deposited as collateral
21

shall be counted and included s part of the forty per .centum

22 reserve hereinafter required. The Federal reserve agent
23 shall each day notify the Fede -al Reserve Board of all issues
24 and withdrawals of Federal -eserve notes to and by the
25 Federal reserve bank to whic he is accredited. The said




S.
7
1

Federal Reserve Board may at any time call upon a Federal

2

reserve bank for additional ecurity to protect the Federal

3 reserve notes issued to it.
4

"Every Federal reserv bank shall maintain reserves

5

in gold or lawful money of n t less than thirty-five per con-

6
7

turn against its deposits and r serves in gold of not less than
•
forty per centum against its ederal reserve notes in actual

8

circulation, and not offset by old or lawful money deposited

9

by it with the Federal reserve gent for the purpose of reduc-

10 ing its liability on outstandini notes as hereinafter provided.
11

Notes so paid out shall bear upon their faces a distinctive

12

letter and serial number, w ich shall be assigned by the

13

Federal Reserve Board to each Federal reserve bank.

14

Whenever Federal reserve i otes issued through one Fed-

15

eral reserve bank shall be received by another Federal

16

reserve bank they shall be p omptly returned for credit or

17

redemption to the Federal re erve bank through which they

18

were originally issued. No lederal reserve bank shall pay

19

out notes issued through an ther under penalty of a tax of

20

ten per centum upon the f cc value of notes so paid out.

21

Notes presented for redem tion at the Treasury of the

22

United States shall be paid ut of the redemption fund and

23

returned to the Federal reserve banks through which they

24

were originally issued, and Jthereupon such Federal reserve




8
1

bank shall, upon demand of the Secretary of the Treasury,

2

reimburse such redemption ftmd in lawful money, or if

3 such Federal reserve notes have been redeemed by the
4 Treasurer in gold or gold certificates, then such funds shall
5

be reimbursed to the extent deemed necessary by the Sec-

6

retary of the Treasury in gold or gold certificates, and such

7

Federal reserve bank shall, so long as. any of Its Federal

8

reserve notes remain outstanding, maintain with the Treas-

9

urer in gold an amount sufficient in the judgment of the

10

Secretary to provide for all redemptions to be made by the

11

Treasurer. Federal reserve notes received by the Treas-

12

ury, otherwise than for redemption, may be exchanged for

13

gold out of the redemption fund hereinafter provided and

14

returned to the reserve bank through which they were

15

originally issued, or they may be returned to such bank for

U

a

16 the credit of the United States. Federal reserve notes unfit
17 for circulation shall be returned by the Federal reserve
18

agents to the Comptroller of the Currency for cancellation

19 and destruction.
20

"The Federal Reserve Board shall require each Fed-

21

eral reserve bank to maintain on deposit in the Treasury

22

of the United States a sum in gold sufficient, in the judg-

23

ment of the Secretary of the Treasury, for the redemption

24 of the Federal reserve notes issued to such bank, but in no
25 event less than five per centum; but such deposit of gold




4

9
1
2

reserve hereinbefore required. The board shall have the

3

right, acting through the Federal reserve agent, to grant

4

in whole or in part or to reject entirely the application of

5
•

shall be counted and included as part of the forty per centum

any Federal reserve bank for Federal reserve notes; but

6

to the extent that such application may be granted the

7

Federal Reserve Board shall, through its local Federal re-

8

serve agent, supply Federal reserve notes to the bank so

9 applying, and such bank shall be charged with the amount
10

of such notes and shall pay such rate• of interest on said

11

amount as may be established by. the Federal Reserve

12

Board, and the amount of such Federal reserve notes so

13

issued to any such bank shall, upon delivery, together with

14

such notes of such Federal reserve bank as may be issued

15

under section eighteen of this Act upon security of United

16

States two per centum Government bonds. become a first

17

and paramount lien on all the assets of such bank.

18

"Any Federal reserve bank may at any time reduce its

19

liability for outstanding Federal reserve notes by depositing,

20

with the Federal reserve agent, its Federal reserve notes,_

21

gold, gold certificates, or lawful money of the United States

22 in an amount equal to the amount of commercial paper cov23 ering such notes and by authorizing and directing such
24 agent to hold any gold deposited as collateral for such notes




S. 5078-2

•

•

0•
10

1

as if deposited for the purpose of reducing its liability on

2 such notes. Federal reserve notes so deposited shall not
3 be reissued, except upon compliance with the conditions
4 of an original issue.
5

"The Federal reserve agent shall hold such gold, gold

6

certificates, or lawful money available exclusively for ex-

7

change for the outstanding Federal reserve notes when

8

offered by the reserve bank of which he is a director. Upon

9

the request of the Secretary of the Treasury the Federal

10- Reserve Board shall require the Federal reserve agent to
11

transmit so much of said gold to the Treasury of the United

12

States as may be required for the exclusive purpose of

13

the redemption of such notes.

14

"Any Federal reserve bank may at its discretion with-

15

draw collateral deposited with the local Federal reserve

16

agent for the protection of its Federal reserve notes issued

17

to it and shall at the same time substitute therefor other

18

collateral of equal amount with the approval of the Federal

19 reserve agent under regulations to be prescribed by the Fed20 eral Reserve Board."
21

That section twenty-four of the Act approved December

22 twenty-third, nineteen hundred and thirteen, known as the
23 Federal Reserve Act, be amended to read as follows:




•

•

•
•

•1

•0
11
1
2

LOANS ON FARM LANDS.

"Any national banking association not situated in a

3 central reserve- city may make loans secured by improved
4 and unencumbered farm land situated within its Federal
5 reserve district or within a radius of one hundred miles of
6 the place in which such bank is located, irrespective of dis7

trict lines, and may also make loans secured by improved and

8 unencumbered real estate located within one hundred miles
9 of the place in which such bank is located, irrespective of dis10

trict lines; but no loan made upon the security of such

11

farm land shall be made for a longer time than five years,

12

and no loan made upon the security of such real estate as dis-

13

tinguished from farm land shall be made for a longer time

14

than one year, nor shall the amount of any such loan,

15

whether upon such farm land or upon such real estftte,

16

exceed fifty per centum of the actual value of the prop-

17

erty offered as security. Any such bank may make such

18 loans, whether secured by such farm land or such real estate,
19 in an aggregate sum equal to twenty7five per centum of its
20 capital and surplus or'to one-third of its time deposits, and
21

such banks may continue hereafter as heretofore to receive

22

time deposits and to pay interest on the same.

23

"The Federal Reserve Board shall have power from

24 time to time to add to the list of cities in which national
25 banks shall not be permitted to make loans secured upon
26 real estate in the manner described in this section."




12
1

That the Act approved December twenty-third, nineteen

2

hundred and thirteen, known as the Federal Reserve Act,

3 be amended by adding a new section as follows:
4 BANKING CORPORATIONS AUTHORIZED TO DO FOREIGN
5

BANKING BUSINESS.

6

"SEC. 25a. That banking corporations for carrying on

7

the business of banking in foreign countries or de-

6

pendencies of the United States and in aid of the com-

9

merce of the United States with foreign countries and

10

to act when required as fiscal agents of the United States,

11

may be formed by any number of persons, firms, com-

12

panies, or corporations, not less than five in number,

13

which shall enter into articles of association upon such

14

conditions and under such rules and regulations as may be

15

prescribed by the Federal Reserve Board, which articles

16

shall specify, in general terms, the object for which the bank-

17

ing corporation is formed, and may contain any other pro-

18

visions, not inconsistent with the provisions of this Act,

19

which the banking corporation may see fit to adopt for the

20

regulation and conduct of its business and affairs. These

21

articles shall be signed by the organizing persons, firms.

22

companies, or corporations, and shall be forwarded to the

23

Federal Reserve Board to be filed and preserved in its office.

24

"The organizing persons, firms, companies, or corpora-

25

tions shall make an organization certificate which shall

26

specify:




•
13
.1

"First. The name assumed by such banking corpora-

2 tion which shall be subject to the approval of the Federal
3 Reserve Board.
4

"Second. The foreign country or countries or the de-

5 pendencies or colonies of foreign countries, or the depend6

encies of the United States, where its banking operations

7 are to be carried on.
8
9

"Third. The place in the United States where its home
office shall be located.

10
11

"Fourth. The amount of its capital stock and the number of shares into which the same shall be divided.

12

"Fifth. The name and place of business of each person,

13 firm, company, or corporation executing such certificate
14

and the number of shares held by each of them.

15

"Sixth. A declaration that said certificate is made to

16

enable such persons, firms, companies, or corporations, and

17

all other persons, firms, companies, and corporations which

18

may thereafter subscribe to the capital stock of such bank-

19

ing corporation to avail themselves of the advantages of this

20

Act.

21

The said organization certificate shall be acknowledged

22

before a judge of some court of record or notary public, and

23

shall be, together with the acknowledgment thereof, authenti-

24

cated by the seal of such court or notary, transmitted to the

25

Federal Reserve Board, which shall record and carefully




4

14
1

preserve the same in its office. Upon duly making and filing

•2

articles of association and an organization certificate as pro-

3

vided in this Act, the corporation shall become as from

4

the date of the execution of its organization certificate a body
corporate, and as such and in the name designated in the

6

organization certificate it shall have powei::

7

"First. To adopt and use a corporate seal.

8

"Second. To have succession for a period of twenty

9

years from its organization unless sooner dissolved by an Act

10

of Congress, or unless its franchise becomes forfeited by some

11

violation of law.

12

"Third. To make contracts.

13

"Fourth. To sue and be sued, complain and defend in

14 any court of law or equity.
15

"Fifth. To elect or appoint directors, a majority of

16

whom shall be citizens of the United States, and by its board

17

of directors to appoint such officers and employees as they

18

may deem proper, define their duties, require bonds of them

19

and fix the penalty thereof, dismiss such officers or employees

20

or any of them at pleasure, and appoint others to fill their

21

places.

22

"Sixth. To prescribe, by its board of directors, by-laws

23

not inconsistent with law and the regulations of the Federal

24

Reserve Board, regulating the manner in which its stock

25

shall be transferred, its directors elected or appointed, its ,




6

•

•
•

•0

•

15
1

officers and employees appointed, its property transferred,

2

its general business conducted, and the privileges granted to

3 it by law exercised and enjoyed.
4

"Seventh. To purchase and sell or discount and nego-

5

tiate notes, drafts, checks, bills of exchange, acceptances,

6

including bankers' acceptances, or other evidences of debt;

7

to purchase and sell securities, including securities of the

8

United States or any State in the Union; to accept bills or

9

drafts drawn upon it; to purchase and el1 exchange, coin,

10

and bullion; to borrow and to lend money on real or personal

11

security; to receive deposits and generally to exercise such

12

powers as are incidental to the banking business as conducted

13

in the country or countries in whiCh it is doing business.

10,

14

"Eighth. To establish and maintain for the transaction

15

of its business a branch or branches, agency or agencies in

16

foreign countries, their dependencies or the dependencies of

17

the United States at such places and under such rules and

18

regulations as the Federal Reserve Board may prescribe; and

19

to establish and maintain such additional branches or agen-

20

cies as the Federal Reserve Board may from time to time

21

authorize, even in countries or dependencies not specified

22

in the original organization certificate.

23

"Ninth. To purchase and hold stock or other certificates

24

of ownership in any other banking corporation, organized




16
1

under the provisions of this Act or chartered under the laws

2

of any foreign country or of any State in the Union, and not

3 doing any business in the TJnited States, except such business
4 as, in the judgment of the Federal Reserve Board, is neces5 sarily incidental to its foreign business: Provided, however,
6

That it shall not hold stock in any one corporation in excess

7 of
8

per centum of its own capital and surplus. So much

of section seven of the Act approved October fifteenth,

9 nineteen hundrpd and fourteen, entitled 'An Act to supple10

melt existing laws against unlawful restraints and mo-

11

and for other purposes,' as may be in conflict with

12

the provisions of this paragraph is hereby amended

13

accordingly.

14

"Tenth. To exercise by its board of directors or duly

15

authorized officers or agents, subject to law, all such inci-

16

dental powers as shall be necessary to carry on the business

17

of banking authorized by law: Provided, however, That no

18

banking corporation organized under this Act shall carry

19 on any of its business in the United States except such as,
20 in the judgment of the Federal Reserve Board, shall be nee21

essarily incidental to the foreign business of such corporation.

22

"But no such corporation shall transact any business

23

except such as is incidental and necessarily preliminary to

24

its organization until it has been authorized by the Federal




•

•
17

Reserve Board to commence business under the provisions of
2 this Act.
3

"No banking corporation shall be organized under the

4

provisions of this Act with a capital of less than one

5 million dollars, one-fourth of which must be fully paid in
6

before the corporation shall be authorized to do business.

7

The capital stock of any such bank may be increased at

8

any time by a vote of two-thirds of its shareholders, with the

9 approval of the Federal Reserve Board, and may be reduced
10

in the same manner, provided the minimum of one million

11

dollars is maintained.

12

"A majority of the shares of the capital stock of such

13

banking corporation shall be held and owned by citizens

14

of the United States, by corporations chariered under the

15

laws of the United States or of any State of the Union, or

16

by firms Or companies, the controlling interest in which

17

is owned by citizens of the United States.

18

"The provisions of section eight of the Act approved

19

October fifteenth, nineteen hundred and fourteen, entitled

20 'An Act to supplement existing laws against unlawful

21

restraints and monopolies, and for other purposes,' shall

22 not be construed to apply to the directors or other officers
23

of banking corporations organized under the provisions of

24

this Act.




S. 5078-3

18
1

"No national bank or other member of a Federal reserve

2

bank shall subscribe for or hold stock in banking corporations

3 organized under the provisions of this Act aggregating
4

more than ten per centum of the paid-in capital and surplus

5 of the subscribing bank.
6

"Shareholders in such banking corporations shall not be

7

liable for the contracts, debts, and engagements of such cor-

8

porations except to the extent of their unpaid stock subscrip-

9

tions.

10

"Any member bank may act as agent for any corpora-

11

tion organized under the provisions of this Act for the

12

purpose of dealing with any Federal reserve bank. and the

13

Federal Reserve Board shall promulgate rules and regula-

14

tions defining and governing transactions which such cor-

15

porations may have with Federal reserve banks either direct

16

or through the agency of member banks. No such corpora-

17

tion, however, shall become a member of any Federal re-

18

serve bank.

19

"Should any banking corporation organized under the

20

provisions •of this Act fail to comply with any of the pro-

21

visions of the laws of the United States, all of the rights,

22 privileges, and franchises of such corporation granted to it
23

under this Act shall thereby be forfeited. Any noncom-

24

pliance with or violation of such laws shall, however, be de-

25 termined and adjudged by any court of the United States of




•
•

•

•0
19
1

competent jurisdiction in a suit brought for that purpose in

2

the district or territory in which the home office of such

3 corporation is located, by the Federal Reserve Board.
4

before the corporation shall be declared dissolved.

In

5 cases of such noncompliance or violation every director
6

who participated in or assented to the same shall be held

7

liable in his personal or individual capacity for all damages

8

which said bank, its shareholders, or any other person shall

9

have sustained in consequence of such violation. Such dis-

10

solution shall not take away or impair any remedy against

11

such corporation, its stockholders, or officers for any liability

12

or penalty which shall have been previously incurred. Any

13

such banking corporation may go into liquidation or be

14

closed by a vote of its shareholders owning two-thirds of

15

its stock.

16Whenever the Federal Reserve Board shall become
17

satisfied of the insolvency of any such banking corporation

18

it may appoint a receiver, who shall proceed to close

19

up such corporation in the Same manner in which he

20

would close a national bank, the disposition of the assets

21

of the branches to be subject to any special provisions of

22 the laws of the country under whose jurisdiction such assets
23
24

are located.
"The annual meeting of every such banking corporation

25 shall be held at its home office in the United States, and




20
1

every such banking corporation shall keep at its home office

2 books containing the names of all stockholders of such bank3 ing corporation and members of its board of directors, to4

gether with copies of the reports furnished by it to the Fed-

5 eral Reserve Board exhibiting in detail and under appro6

priate heads the resources and liabilities of the banking corporation. Every such banking corporation shall make re-

8 ports to the Federal Reserve Board at such times as it may
9 require, and shall be subject to examinations when deemed
10 necessary by the Federal Reserve Board through examiners
11

appointed by it, the cost of such examination and the corn-

12

pensation of such examiners to be fixed by the Federal Re-

13 serve Board and to be paid by the banking corporation
14 examined."
15

That the Act approved December twenty-third, nine-

16 teen hundred and thirteen, known as the Federal Reserve
17

Act, be amended by adding a new section, as follows:

18

STOCK IN FOREIGN CORPORATIONS.

19

"SEc.25b. That any national bank possessing a capi20 tal and surplus of $1,000,000 or more may purchase and
21 hold stock in foreign or domestic corporations, other than
22 national banks, which Are authorized by their charter to
23 do a banking business in foreign countries: Provided, how24 ever, That the aggregate amount of stock so held by any
25 one national bank shall not exceed tei per centum of the
26 capital and surplus of such bank."




•

•
21
1

That the Act approved December twenty-third, nine-

2

teen hundred and thirteen, known as the Federal Reserve

3

Act, be amended by adding a new section, as follows:

4

DOMESTIC BRANCHES.

5

"SEC. 25c. That any national banking association

6

located in a city or incorporated town or village of more

7

than one hundred thousand inhabitants and possessing a

8

capital and surplus of $1,000,000 or more, may, under

9

such rules and regulations as the Federal Reserve Board

10

may prescribe, establish branches within the corporate limits

11

of the city, town, or village in which it is located.

12

"Any national banking association located in any other

13

place may, with the approval of the Federal Reserve Board,

14

and under such rules and regulations as such board may

15

prescribe, establish branches within the limits of the county

16

in which it is located, provided that no such branch shall

17

be established unless the capital of the parent bank is at

18

least equal to the aggregate of the amounts which would

19

be required of each branch, under the provisions of section

20 fifty-one hundred and thirty-eight, Revised Statutes, if it
21

were organized as an independent association, together with

22

the amount required of the parent bank itself by that section."




64TH CONGRESS,) 1
0
1ST SESSION. j 10
,

07

ti0

ij

J

A BILL
To amend the Act approved December twentythird,nineteen hundred and thirteen,known
as the Federal Reserve Act.
•

•

•

•




B . Mr. OWEN.
111nacn 15, 1916.—Read twice and referred to the
Committee on Banking and Currency.




February 148 1.c16.

Dear lir.
I take ?lure in nanding you herewith draft of
•
amendaellta of StCtiO 1, witt several co ice av5aciled.
Thiu aeltdment covers both the acceptance amenditent
aLd the power -L;o make fifteen day loans to reiber banks.
It .1so includes, in the first paragraph, the elimina—
tion oZ the viords, 'Traits upon insolvnt membr banks"
ancl te elimination of the words, nwith a waiver of

131—

,Le..8 n(Aice and protest."
I l'urthermore append craft of eug.::,ested amendment
to Sotioli 240 Covello:11g

loans on r3a1 estate in cities;

ameadaient to eecond paragraph, Section 16, covering notes
iasued against gola; and furtherore, amendment to Sec—
tion

covering power to organize foreign corporstions.

(Thia is alweaiiy in y,
,Air hands).
ThiE cors practically all the amendments which 77e
have ad.vised Congri3ss that we shP.11 be ready to submit,
accepting the branch banks amendvaent, concerning which I
•
.. A4.. ,
4
1
an soNewhat nuzzled and El1 stbmit several alternative.
Very truly yotrs,
H. Parker Willis, E2Ti.,
- Secretary.
*Inc.

: ,t1
41




-e

; e
fi'

/

,

/-

Draft of Jan. 6, 1916,

t
.

Practical operatiln under the Feteral :escrve Act has
confirmed the :zonrd in the irofound. conviction that the 2edera]. .erierve Act hao been one of the most beneficial pieces
of 11.3iulation ever adopted by Con7ress.

2he principles up-

on which the ;Jet iu based have already teen fully vindicated,
and in almost all its details the .ict has proved itself a
workable and wisely framed instrument.

It is, howvor, natur-

al that actual experience should indicate certain points at
which the Act might be to advante altere.
tiLic to time, au

Lo doubt, from

he country adjusts itoelf to new conditions

crerdted by the Act, it will have to be modified so as to meet
thio cocItinually progresoing development.

(There are a few

parap-raphs where the lfinguafTe is aot quite free from ambiguity
and where a clarification would 'oe of g.:eat a:aviotance to the
Board, such, for instance, as the clause concerninf7 the powers
of the

oar(1 in dealing with the question of redistricting and

chock clearings.)
The following recommendations are recpectfully aubmitted
and pfompt action urrx3d concerninc the

are:

Foreign Branches.
Under the

ct as it now stands only the very strongest

banks are able single-handed to operate a number of branches
in foreim countries.

The Board therefore recommends the

adoption of an amendment permitting member banks to subscribe
for and hold stock in banks organized under Federal charters
for the special purpose of doing business in foreign countries.
This would enable several banks to act together in foreign
fields by joint ownership of such foreign bank.

Note Issue.
It is recommended that the law be amended in such a way
as to permit Federal Reserve notes to be issued by Federal
serve Banks against the deposit of commercial paper, acquired
(24,
Should
under Section 13 Az 14, and gold, - either or both.
this be permitted, the growth of the Federal ..,escrve Banks,
the basis of which is now limited to the deposits made by member hanks, can be increased vorv materially and, with that,
their scope of influence and active operations.

Incidentally,

a further element of safety would be added by such amendment.







Domestic Acceptances.
It is urgeJ that power be L„iven to member banks to
accept for certain domestic operations such as can be
,
clearly rel- tricte

to veil secured comLerci-1 trmsactions

The Board has in mind particularly acceptances drawn
shippinP: documents or
ageinsIiwarehouse receipts covering readily marketable
com,loOities, such as cotton, grains and similar products.
Nothing, in the opinion of the Board, iill help more to
equalize rtes all over the country than the development
of the flee use of bankers' acceptances.
..,
Br..nch Banks
The Board b-tlieves that it will be advisable to amen„;
the Federal Reserve Act so as to permit National banks to
establish branch offices within the limits of the cities
in which they are located.

It may be advisable to extend

this privilege with proper safeguards to the counties in
Alich these banks operate.
power to Make Short Term Loans
It would greatlY increase the scope of usefulness of ).
;
Federal Reserve Banks in dealing vith their flembers if they
1
should be permitted to make loans to member banks, ior a
period not to exceed thirty days, ?zainst deposits of col—

k




(4)
lateral concisting of such notes, drafts, bilie of exch:.,nge
nd bankern .cceptancea ac Feo.erl Reserve 1.1nks

per-

mittecl to lediscount or purchase unaur Sections l:;) cind 14,
or against a co114,teral of Unite: States Government c,cli,n
or ouch warrantn, etc., a
te,c.. to acquire.

rederal nbserve Filnk

are p6rmit-

-liable it:ember L.,:.nks to haxe reThin woulu t

course in an easy manner to the services ol the Feaerz,i Reserve Ba.nke In Cabe their balance

uhould Ge reuuoe6 beiow

;
the iet a1 lithit by unux,p4otoLA atafts .sia6,inct them thzou6h
the check clearinc, or othery:ise,

'Aould enable Federal

Reserve Bmnkci to rLnder those servicen to th(_ir ;Itember
hanks villa the :Ater are now une6 to receiving from their
reoerve correflpenaents.

The rate for such advances coldU

be published from tii4c to time Bimilarly as ia done A.th
the discount rates.
It is confidently believed that the enactment of these
amendments would tend to benefit the Zederal desee Banks
in two ways:

It would strengthen end ealarge the basis of

their own operations and at uhe same time add to the
powers
Of the National 1)anks, so that, ai7 fur au it can
consiotently be done, National Lanka shold enjoy the name advwitaRes
as state banke joining the

p• M. Ws

tem.

Draft of Ajecember 28, 1915. ITW.

Practical operation under the Yedoral :,esf)rve

ct has riv-

en the ')oard the profound conviction that the Feleral ix:serve
,et has been one of the most liencricial pieces of legislation
over placed upon statute books.

he principles upon which

the 2.,ct is based have already been fAlly vindicated, and in almost all its details the :ict has proved itself a workable and
wisely frrImed Instrument.

It tts only natural that actual ex-

perience should develop certain spots in which the _tct might
be widened to advantage as, no doubt, from tiLi( to time, as the
country adjusts itself to new conditions created L, the Act, it
will have to be modified so as to meet this continually progressing development.

There arc a f v oara.
raphs where the

language is not quite free from ambiguity and where a clarification would be of 'reat asiii,tanee to the

oard, such, for in-

stance, ao the clause concerning the powers of the

oard in

dealing with the que, tion of redistricting and cheek clearings.
;
ail° the ?oard deems it advisable to proceed with

rcat

caution in asking for amendments and believes it should askfor
such only as fro::1 actual experience will appear wise and timely,
there are a few amendments which the , oard feels certain might
be adopted to advantage at this time.

The following recommend-

ations are respectfully submitted and prompt action urged concerning the same:




(2)
Poreign Branches.
Under the .Act as now writlen it Is possible only for the
\Tor: strongest hankS single-handed to operate a number of branches in foreign countries, and the Board recommends that a clause
te aed to the 4ct, neillitting member banks to subscribe for and
hold stock in banks orr'anized under ied6
,ral charters for the special purpose of uoing business in foreign countries.

This would

enable several banks to act together in foreign fields by joint
ownership of each foreign bank.

Detailed sugeutions concern-

ing such an amendment are being prepared by the Board and will be
placed at the disposal of Gonpress.
everal banks have urged the Board to use its influence in
securing this amendment, and the Board feels th, such an amendlt
ment would he timely and helpful in the opening of trade relations with foreign countries.
Note Issue.
It is recommended that the law be amended in such a wa. y as to
.
permit ilcdoral ,Aserve notes to be issued against collateral of
comercial paper and gold.

Should this be permitted, the growth

of the Federal 'eserve Banks, the basis of which is now limited
to the deposits mad.

by member banks, can ie increased very mater-

ially and, with. that., their scope of influence and active operations.

Incidentally, a further floment of safety would be added

by such amendment.




Domestic Acceptances.
It is urged that power be i7dven to u:lember banks to accept
for certain domestic operations such as can be clearly rw:tricteL
to well

ecured commercial

-raasactions.

particularly acceptances drawn against

The Board has in mind

arehouse rec;eipts cover-

ing readily clarketable commodities, such as cotton, ‘rains and
similar products.

Autfline:, in the oninion of the Board, will

help more to equalize rates al) over the country twin the development of the free use of bankers' acceptances.

!oreover, it

is important that Aational banks be placed in as advantageous
position no caD be done consistently with banking prudence, with
state banks and trust companies, and inasmuch as in several important ,Aates these latter institutions enjoy the privilege of
accenting fait aomeotic 1,rsactions, it is also from this point
of view desirable to secure this privilege, properly safeguarded,
for our National banks.
Branch

safl.k3.

The Poard believes that it will be atIvisable to amend the
Federal 'Aiserve

so as to permit Ilational banks to have branch

offices within tLe limits of the cities in which they are located.
It uia,

o advisable to extend this privile7e with proper safe-

guards to the counties in which tese
ilege is enjoyed by most of the

flnks operate.

This priv-

tate banks and trust companies

and, as with domestic acceptances, it is important to aiid to the




(4)
powers enjo;
)ed by ;!aLion:A. hanks tLic imnortnnt
“rtieularlx in the rural districts
Moreover, it is thoucht that ,
the customers of the banks will be bettor

Ived

number of

2,18.11 and week bp.nks would ue consolidaed into larger and stronger banks h*vin: branches.

uperatin-r expenses will thereby be

decreased and the iqterest chargea to customt-rs will probably
De

ecreased in the long run.

Proper _e,3t7ictions would have to

be inserted, both as to number of branches and to minimum capi-

taliz&tion.

The ;)Etrd has in preparation for submission to Con
(

cress an amendment on these lines.
Power to ;Lake Short Term Loans.
It would greatl:i increase the scope of usefulness of Federal
leserve ::,anks in dealing with their members if they wouli be permitted to make loans to member bnnks, for 1,1 period not to exceed
thirty ),a*ss, w ninst teeosits of collateral consisting of such
,
notes, drafts, bills of exchange and bankers acceptances as :lederal ..eserve Banks are permitted to rediscount or purchase under
tates
Sections 15 and 11, or against a collateral of Cnitot ,
:.;ove.nment bonds or such warrants, etc.,
are permitted to acquire.

as

federal

eserve

nks

ais would enable member banks to

have recourse in an easy manner to the services of the Federal -eserve 3anks in case their balances should be reduced below the
letral limit by unexpected drafts apainst them thlough the check
clearing or otherwise, and would enable Federal ieserve ,31anks to
render those services to their member banks which the latter are
now used to receiving from their reserve corrP.1:ondents.




he

1
(5)
rate for such advances could be published from time to
time
similarly as is done with the discount rates.
Clayton tct.
It hap been represented to the loard with great force that
-k •
,e;
A•A‘d
iitembcr banks will be severely handictlpped as against non
member
state banks tnd trust companies when the provisions of the Clayton

ct become operative, because it will be more attractive for

desirable directors to ,
, erve with such '
-tate Uanks than with member hank.

any ..tato banks, the

is informed, hesitate

o join the Feloral jeuervo : :stem for fear o, losing valuab
.
le
directors, and it has been stir ested to the , eard that if
the
Cla:,ton ,,ct were amended so as to permit a director, other than
1.n officer of a Lath,, to si-rve upod the hoard of ode National
bank and one :'trite bank (or trust company) provided the two institutions on which he would serve arc. not of a competing character.

chat is now considered by

any as a ri:eut hardship would

thus 1:e removed, at least to a cf,rt in extent.

It has been sup.-

rested that, in the case of Eroch twofold di ectorships the
:eueral ].eserve

should pass upon the qutstion of :hether or not

the two institutions are of a competing character.

P. L. W.
12.28.4.5.




410
Draft of :

1,474
1

/
c7

Practical operation under the Federal Reserve Act has given the

4.27,1

profound conviction that the Federal Reserve Act, e-e-errriebterre, has been
one of the most beneficial pieces of legislation t4.14hcu3 over been
placed upon &Ad statute books.

The principles upon which the Act is

based have already been fully vindicated, and in almost all its detells the Act has proved itself a workable end wisely framed instrument.
It is only natural that actual experience should develop certain spots
- be widened to advantage as, no doubt, from
eieeenuf
time to time, as the country adjusts itself to new conditioniji tite
4--;e-eeelly
-e-yele1
*Tt will heve to be modified so as to meet this
in which the Act

Thera are a few paragraphs where the

eet.eva-telf eroeree:ine: development.

language is nctxfree from ambiguity and where a clarification would be
of great assistance to the Board, such, for ieetence, as the clause
‘ea fmreefeee
Azia9wi
citele-- 7
dealing with the question of redieteictine
Thile the Eoerd deems it advisable to proceed viith great caution
.4 -tee
-Z
and believes,it should aSk for such only as
in askine for amendments
ge,
VetestAa__
oteak(Jet",
from tcee.-tro-time experience will convince , 0 7.:trardeltre wise and time0-4 -""
44 1 )741-44-4-

ly, there are a few -.‘e
tell- t
e -air
-a-ad

at this time

cone.amirce which the Board feels certain

h )oa adopted to advantagel

The following

recommendations are reeeectfully submitted and prompt action urged concerning the same:
Forei7n Branches
Under the Act as now written it is possible only for the trongest
424.
-Adbanks €,..i....4.fteeitelee to operatli branches in foreign countries, and the
Board recommends that a clause be added to the Act, permitting member




•

/./ki-e*
(2)
(6i4 )APArk
01 banks to subscribe 4 banks omanized under F
purpose of doing business in foreign countries

eral charters for the spacial
Detailed suggestions con-

cerning such an amendment are being prepared by the Board and Will be
placed at the disposal of Congress.
Several banks have urge a the Board to use its iAluence in securing
this amendment, and the Board feels that such an amendment would be tir.ely
and hellDful in the opening of trade relations with foreign countries.

Note Issue
It i

recommended that the law be amended in ,:uch a way as to permit

Federal Reserve Notes to be issued against collateral of commercial paper i
..1-84.--Ref.teeilist gold. should this be permitted,
e
ich is now limited to the
the 7rowth of the Federal Reserve Banks

as...ExaacaiaL20_111a—Llia land

t,,,y),•\Ade

deposits made by member banks, cn be sery matariall incr asedfr/and,
OL
ty
with that, their scope of
iALL-144e-e-. Incidentally, 40 (safe- G4.4411,
,
ccAle-tvh
Atret.-4.-n-c-relTereti by such veamendment.

/

Domestic Acceptances.
It is urgea that power be given to member banks to accept for car.
t
,tin domestic 4.2aaiii.Aralas such as can be clearly re2tricted to lat4AL.44;a44
""
A.144 weal secured comY:Iercial transactions.

The Board has in mind particu-

larly accettances drawn agaist warehouse receipts covering readily marketable commodities, such as cotton, grains and similar products.

Nothing,

in tha opinion of the Board, will help more to equalize rates all over the
country than the development of the free use of, acceptances
(
444444-44—t.13.1..s_laad.



,
1
0kA d' 11

ra-rreetc

•

(3)
Clayton Act.

It has been represented to the Board with .ft great aoal of force that member
7244.4
/
-meml
= anks *9-4-r-e-7ttert
as azainke
banks will be severely handicapped
14z-a when the provisions of the nayton Act become operative because it
such
fOrk; directors to serve withIState banks
more attractive for ilt
will be
than with member banks.

Many State banks, the Board is informed, hesi-

tate to join the Faaaral Reserve System for Lear dlocins valuable directors, and it h7ls l_e3n sug3ested to the Board that if the Clayton Act aare
amended so as to permit a director, other than an officer of a bank, to
serve upon the Board of one national bank and one State bank(or trust cam6'7L rtit,4iq wi/Dat-/
rcompeting character-1
..(provided theS6 two institutionsare nz,t of
pany
A
4( 44 4 (1442-L/
It
removed
x
(
1.4hat is now considered by many as a great hardship would be
has bean sugzested that, in e

ea:is of N

wofold directorship4 the

Federal Reserve Board should pass upon the question of whether or not
the two institutions are of a competing character.

4

1 1/,,
„

Arl,,,Ak4

4.
/
I 141i(1

,bniftt,







o

FEDERAL RESERVE BOARD
• December 24th, 1915.

dear 7.r. Warburz:am handing you herewith a
draft of amendment to Section 13,a1ong
the lines indiccued in your letter of
December 22nd

uthorizing any Federal

reserve bank to make loans to its member
banks upon certain securities.
Respectfully,

Hon. Paul Y. Warburg,
Federal Reserve 73oard.

•




SUGGESTED 7ORY, OF A=NDMENT TO SECTION 13
OF THE FEDERAL RESERVE ACT.

Any Federal reserve bank may make loans to any of its
member banks for a period not exceeding thirty days at rates to
be established by such Federal reserve bank, subject to the review and determination of the Federal Reserve 7,oard, upon the
security of oblisations of the kinds and maturities defined in
Section 14 (b) of this Act, or upon the security or othe

drafts, "Ails of exchanse or acceptances elizible for purchase
under Section 14, or elisible for rediscount under Section 13
of this

t441,ft-if-v•3
MO'
Act4/ •

IL

notes, ,




December 2. , 1915.
2

Dear Mr. Harrison:
Will you ple.ee put into legal language an amendment permittin

Federal Reserve Banks to make a:1vanoeF,

for a period not exceedin

thirty days to member banks

at rates to be established and published by ttem pathject to the review and determination of the Board uron
the collateral of
(1) notes, drafts, bills of exchange and acceptances eligible for rediscount or purchase under Sections 13 and 14 of the Act, and
(2) bills, notes, revenue bonds, and warrants
with a maturity from date of purchase of not
exceeding six months, issued in anticipation
of the collection of taxes or in anticipation
of the receipt of assured revenues by any
State, country, ,llstrict, political subdivision, etc. as provided in Section 14 (b)
It does not appear necessary to cover United States Government bonds as the banks already have the power to
make advances against these.
0
Very truly yours,

G. L. Harrison, Esc,.,
As:'istant Counsel.




Form 40 1-

a
TELpRAM 7FEDIAL R SERVE BO RD
WASHINGTON

E BOA) HLFJ

V
--

0
.

4

44"-,
t\t•-1
iall
, VkiC
Am

August _7,

Tqnch — San Francisco

ine.--) - -.I r -

ReplyIng your today `c telegram, amount of collateral notes
held by all federal reuerve banks on July twelfth fq-,11,470,000.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE FEDERAL RESERVE BOARD

a-7729



7e(

411

'p:ercsixr13 Pepartment

8

TELERAM

751' wp
Sanfran

11loa a;42; 7

Reserve Board 1-treasury
.
WaShn
Please send ficures of collateral
notes held by all federal reserv
e banks
at close of business july twelfth as
shown
on form 2: nine fifty one




FEB
Of Sanfran
L2.01a

Form 40

,

itiLEGRAM
RAL. RESERVE

FE

0ERAL RESERVE BOARD FILE

BOARD

WASH I N GTO N

P

••••

19, 191%-

Pozt-in,
Polora neaerve Bonk.
Sin Franca ems, California.
Board in order in fetoilitutts Lrty

Lo

day collateral notes of mambo".

1c:a rilsakais:36
'

Naomi reterve Wilke*

HZU

CiLIOS«iC

f

ge aja;:0nr4.4

riite of throe peroont on fifteen

eippliote.tiolus rocolved from severca.

utreta argi

02.11.-ha1f percoat rata on ninety day

cast were xmLos aaccirga by bevC.4 undtir NZsltiortstiot, but for serer&
reapplies, mons
Vaal Ike

desire to await

aetion o

Coak:teua on pmaditu ealcogienente), Board wiehaa ta aaa-

pond action.

OFFICIAL BUSINESS
GOVERNMENT RATES
 FEDERAL RESERVE BOARD
CHARGE

http://fraser.stlouisfed.org/ 2-7729
Federal Reserve Bank of St. Louis

7•ILLIB




•
No.

412
1 - "

FEDERAL RESERVE BOARD
MEMORANDUM
For Mr.
Under the regulations of the Board the
following matter is referred to you
Chairmani-Cemmittee-en
Membar,
'11A
Cl.ate0.

tt

tele r7r am o

r .•

Jr.1,..th reference to

- .1.. Parks of a rediscount rate not hi --her
tnLn L11)-3rty 73:nd rate :12:11icable to paper se,
c'area by Liberty 7.ond.

Please return this memorand , to the Secr
etary with copy of documents res ltin
g from action
taken, if any, that it may be placed on
the docket.
REYARKS.

Date.

Form 1201

E

CLASS OF SERVICE SYMBOL
Day Message
DAy Letter

Blue

Mef(Message

Nite

NL
Night Letter
If none of these three symbols
appears after the check number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.

pm,

E

UNt
ieN

t

CLASS OF SERVICE

Day Letter

TEL
NEWCOMB CARLTON,

PRESIDENT

as

AM

GEORGE W. E. ATKINS. FIRST

VICE-PRESIDENT

Blue

Night Message

WESTERN UNION
Apqr

Nite

N L
Night Letter
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.

RECEIVED AT WYATT BUILDING, CUR.14TH AND F STS., WASHINGTON, D. C. TpIrr
D89 CH BF

55 COLLECT GOVT
MK SANFRANCISCO CALIF 1208-PM WAY 18 1917

FEDERAL RESERVE BOARD
WASHINGTON
IT IS URGED HERE THAT BOND
IF FE)ERAL RESERVE BANKS

SUBSCRIPTIOIS WOULD BE STIMULATED
WOULD ESTABLISH

REDISCOUNT

RAE NOT HIGHER THAN LIBERTY BOND RATE APPLICABLE TO
PAPER ACCEPTED

BY mE:BER BANKS FROM THEIR CUSTOMERS AND

SECURED BY LIBERTY BONDS STOP WOULD APPRECIATE

EXPRESSION

OF YOUR VIEWS




PERkINE FED_RAL RESERVE

SYMBOL

Day Message

AGENT
437PM

EEDERAL RESERVE BOARD Hil l

FEDERAL RESERVE BANK

sti

OF SAN FRANCISCO
JOHN PERRIN
CHAIRMAN OF THE BOARD




Octobof 4, 1916.

15 Days Rate

Professor A. C. Miller,
Federal aeserve Boara,
Washington, D. 0.
Dear Professor Miller:
I have yours of 30.th ult. I shall bring
your letter to the attention of the directors at
the next meeting, October 17.
It is my conviction that the privilege
will rarely be availed of by our member banks to
borrow for 15 days or less, and that it is consequently of small practical consequence whether we
fix a rate of 3;O or 4.
The desirability of developing eligible
paper and the practice of rediscounting has been
so stressed that it is not surprising that some
of our directors should now be strongly averse to
offering special inducements for borrowing instead.
The vital point, however, appears to me not to be
in whether an advance should be in one form or the
other but that liquid paper should be the basis.
As a practice I should prefer rediscounting. If
borrowing for 15 days were only an occasional incident, it would seem unimportant whether or not the
rate were slightly higher.
There would, I am sure, be no disposition
on the part of our Board as you suggest "to nullify
'by imposing penalties' the effect of an amendment
passed in good faith, etc" nor does it seem that a
higher rate should be considnred in that light, any
more than that a higher rate for six months agricultural paper should be regarded as an el7 rt to
nullify that privilege.
Your
y tr y,

Chairman of the Board.
(
J VK

pp

CIRCULATE ?ROIJIPTLY'

tc
'7ARB IRG

,
MILLERI/pe •
:..

DELANs fel
tI1
IN

((0
(
•
After which return t o the
Secretary's off ice




4-1

•

•.

6ept)rber 30, 1916.

Mr. John 2?errin,
Onairman of the Board and ',Federal lieserve
.ces'.)rve bank of 'an Frahcicco,
3-LiLternia•
Dear .Wrii
TovAr.l.owr of tilelatAtto t,ituPaloral 1.16:wrirc
Lziof1,;

in re aiscseunt rates, is btt bawl, sett1n6
your ca, in r3(.1w.mn4i14 a ra4v

t,) tiroficneU

or.ut. o, a TJL

uot

ber

ra3

a 1142- ,r4e
4

sorve Act, v,)

xsx.-

lUtecL

11.0on 31,10%1 netes3L tIto rate upon ten,awo iriaI

D:. It

is pal.sioulted that the Tim/aware °proziotaleed" that it
Was

"preferale o

the ,Tot.1,11d of ZOL.:=021, so ofler Li.placa.laa;s

for rocl.tineunt w..,t1 to im,osc penaltis:s ier
\s tLero are clay two tulmuere of tilt, Leard IA
ton this rouk, aza ocr.s'.1quent1:1 no -camzieti

i

ui

1.11(1,

consideration of the bath's actioL 4 the ..oard will have to
,ec?_.

over uhtil
ablo to

fx,Ea

IL th

aiti, onever„ I felt it aavis-

-teit a'. interim reply.
1)
;our toloraphic;reca,

rAto on fIft3c;

da

member ban

tion of a four per cent

notes roaorio

.:A)arktil I

ovod

its a7.o.,,A, 17.2.or the inpros:If.on. t.lIat 710 discrhlination 7as to
made in rates




DO

far as ton daj paper and fifteen deal !lotus *Nero

1)3

Mr. John .Perrin

beptembor 3, 1916.

concerned, this boin

in lino with action then or sInoo taken at

the Forloral Reserve Banks of Dew York, :1;iisde1phia, Chicago St.
'
:Louis, Kansas City, and Cleveland. 7ew York, Cleveland, Chico,
and Philadelphia have established a*rate indifferently for
comarcial paper or mabor bank .?:.Qtes with a maturity not
coos of fifteen days,
rate

t. Louis a

or the similar maturities,

rate, and. 1Kansas City a 4:
ho Federal :esorve LanIzs of

iiichmond, Atlxita, Da/las, and Aalneapolia, wnicli had never quoted
a rate for ten da:r paper - triOx ahortost rate being or tnlrty
dny paper wo.ich wal Uxed uniformly in all of tnese banks at 4; udopted rates for fifteen daj member bank 'eves of
ana 4.. rospectivelye
There Is little or sothin(i; thetfte act1

ttvton by these

banks to indicate 4isapprova1 of "erro:.ins by riember balf4s or
their fifteen notes
chan3e

;ccured bj such notes, drafts, bills of ea-

or bankers' aocrIptancect av aro

or for vurohase bj

or reaL3count

ederra Res:rvo iAliksi by discriminations in

rate acninst this type of accommodation.

Tie action tacen by your

bank is, tliorofore, out of lino ult4 Y,klt h

eoelldedite1f thus

far to the Ylosorve Barks in other districts al cood Policy, and 1
am iliclined to Vilna: that it rill not coatenil itself to the Poderal
Resorvo I oard either ell grounds of aaministrative propriet
,
banidng expediency;




or

tho .:'ormsr because it sc;mis to indicate a

..
0

Ur. Johm 2orr1n

di3ncoiti'm on the part of

Iptetftber 30, 1916.

our bank to nullify "by im,osing penal

tiee the effect of an alandmen4 pkweed

r Ooncrees,

upon recommentiation of the Poderal listens l'ourd azad
ooneidoron, Ult lattor becaufw the mienalmelt way wnaotol with a
)
.
vlow of making U4u .;racilt ..uclAtfoo of ;laderal Aeaarvo Dalaz; mora
.
1..q2 airaetl

availaolc to ma.Tt oortaih n3ada ui
,

withaut 1zivitiu3 the tovo

pwn' or auy ILmoticu

Aautber
i0ii0ould

not arleild be controlled tq good ,44nkW . 84mitration, t o4A.a a
1
:
,
tmlercy to abuzo tr

rfltvL1e

ma:L.A its a7ApearAacei

solzr dirootoro wuala ao wii to 141;0 nirtiler
aonGideraticrz to ;;,3iG ipaJtfix,
Vicir

17a rhetier ti'od

-.0eQ cat:look; Jut° lino witA t:fat vthiOiLw.t5 utialeuded

.t.t3,01. to izzaldr43 judwznt in laost tV the other Yederal RuAGrve
iark




Very trul::

0
LEM0RANDUI.1 COITCMITING Nr., 15-DAY RATL.

I.

The following banks have extended their old rate on
10-day maturities to cover all maturities under 15 days, whether
commercial paper or promissory notes of member banks.

(They, of

course, no longer c,uote a 10-day rate.)
fit/11
/
Phuladelhia
‘
31
Cleveland
Chicago
St. Louis
3%
One bank, Kansas City, has abolished its old 10-day
rate of Ekio and substituted a new rate of 4% for all maturities
under 15 days, whether commercial paper or promissory notes of
member banks.
The following banks retained their old 10-day rates
for rediscounts and established a new rate for 15-day member
bank paper, as follows:
10-day rate
for rediscounts.
Boston
New York
San Francisco

7;77

15-day rate
for member
bank -paper
34%

or

4%

The following banks had Ro 10-day rate, (their lowest

IV.

rate being that on 11-30 day paper) and established a 15-day
rate to apply to member bank notes only, as follows:

Richmond
Atlanta
Dallas
Minneapolis

September 26, 1916.



day
rate for
rediscounts.
4%
4%
4%
4%

15-day rate
for member
batik paper.
t
4%
3%
eo

,

Form 40

dp

TELEGRAM

•

FEDERAL RESERVE

BOARD

WAS H I N GTO N

September 20, 1916.

Federal Reserve Agent,
San Francisco, Calif.
Board today approved recomendation your direetors,rate of four
percent on fitteen day member bank paper, effective nineteenth.

OFFICIAL BUSINESS
GOVERNMENT RATES
CHARGE
 FEDERAL RESERVE BOARD



Governor.

5E1; ;si 1916
irttlatabi tf;dal:Yt

Dyad

-

IP

FEDERAL RESERVE BANK
OF SAN FRANCISCO
JOHN PERRIN
CHAIRMAN OF THE BOARD




September 19, 1916.

Discount Rates

Federal Reserve Board,
Washington, D. C.
Sirs :

At a regular directors meeting held today a
resolution was adopted recommending that no change be made
in rediscount rates hitherto established.
Subject to your approval a rate of 4 per cent
was established for 15 days member bank paper.
The matter of this latter rate was considerably
discussed. Views were quite pronounced that it was
preferable on the ground of soundness to offer inducements for rediscounting and impose penalties for borrowing. I urged that this form of borrowing would probably
be little availed of; that few banks would offer U.S.
Bonds as collateral because so few have free bonds, and
that a low rate might induce a greater disposition to
get paper into eligible shape so as to be available as
collateral if required; that,while agreeing in principle
with those expressing preference for rediscounts, it
appeared to me that as a practical test a 3 per cent
rate could have no importantly evil effect and we could
change the rate whenever the results were unsatisfactory.
But opinion was strongly for the other course. Instead
however of a penalty rate higher than any other a middle
course was followed in fixing 1 per cent above the 10
days rate.
Respect

h irman of tne47
( 7i7‘ 1.
,
12
7
:7

to-- -----

v...

JP:FK

°7
1°.•'''
•:

- A- i"-.. I. 0
A

---L.---5
'5 197e

I CLASS OF SERVICE SYMBOL
Dki Message
Do Letter

Blue

Night Message

1

Nite
Night Letter
NL
If none of these three symbols
appears after the check number of
words)this Is a day message. Otherwise Its character Is Indicated by the
symbol appearing after the check.

WighTE4;k7.4; ‘ UNtIN
\
,
TELL
AM

CLASS OF SERVICE SYMBOL
Day Message
Day Letter

Blue

Night Message

WESTERN- 410N
6

Nile

Night Letter
N L
'
If none of these three symbols
appaars after ths check (numnsr of
wordslthis is aday message. Otherwise its character is indicated bythe
symbol appearing after the check.

NE'WCOMB CARLTON, PRESIDENT

RECEIVED AT WYATT BUILDING, COR. 14th AND F STS., WASHINGTON, D. C.
I

'

7'1

1 :.1 CH 27 COLL GOVT
MK SAN FRANCISCO CAGIF.12 ,5P 19
.

FEDERAL RESRVE BOARD

WASt;UNGTON'
-AT'AEGULkR DIRECTORS METING TODAY RATE'OF' FOUR PERCENT WAS
ESTABLISHED FOR El ETEr N DAYS MEMBER BANK PAPER SUBJECT YOUR
'APPROVAL
PERRIN CHAIRMAN.