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February 19, 1932
Confidential

Honorable T. Hamilton Lewis,
United '.tates :3onate,
.:;ashinfrton, D. C.
Dear ::enator Lewis:
I am returnin7 herewith the letter, and its inclosures,
addressed to you under date of Tanuary 23, 1932, by rr. D. E. Aylward,
President of the First National Bank, Livingston
referred to the Federal Reserve Board.

Illinois, which you

The dorrespondence relates to

a requirement of the Federal Reserve Bank of St. Louis that borrowings by the First National Bank of Livingston from the Federal Reserve
Bank be handled on a collateral note basis.
The oorrespond(mce was brought to thd-attention of the
Federal Reserve Bank of St. Louis and the Board is advised that the
bank has made a careful stuty of the condition of the First National
Bank of Livingston and the situation with respect to the community in
which it is located.

The Federal Reserve Bank has reached the con-

clusion that a review of the situation every fifteen

ays, which

would result from the borrowing of the bank being placed on a collateral note basis, would be helpful to the board of directors of
,
the First National Bank of Livingston as well as to the officers and
directors of the Federal Reserve Bank.

Furthermore, the Bank feels

that under the collateral note procedure it is in a position to
render




ilt facto7vioeCmi

he&IjI3ye case.

Honorable X. Hamilton Lewis - (2)

In this connection it is the practice of Federal reserve
banks to require additional collateral in individual cases where it
seems to be necessary or advisable from a credit standpoint.

This prac-

tice frequently enables them to extend credit accommodations to member
banks which could not be safely or reasonably granted without a margin
of collateral and it appears that the First National Bank of Livingston
has assets with which it can meet the requirements of the Federal Reserve Bank without difficulty.
The Board regrets that nr. Aylward evidently has misunderstood the attitude of the Federal Reserve Bank.

However, it is essential

to the proper administration of the Federal reserve system that the
determination of conditions under which a Federal reserve bank will
extend credit to a particular member bank and the procedure in

onnec- •

tion therewith be left prtlarily to the judgment of the officers and
directors of the Federal reserve bank, within the limitations of the
law and the general regulations and rulings of the Board thereunder,
and it appears that the bank has given the matter sympathetic consideration from the stanboint of a desire to be as helpful as )ossible in
the circumstances.
Very truly yours, ov Meyer
•••

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,
Mr. Hamlin...k,:y
James
Mr.
Mr. Magee
Mr. Miller__ .
3ecretary mr
:
P se initial file crYw
. you approve -nil

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•
,
,
FEDERAL RESERV IolANIV

OF
ST

%

Louis

cr3

Februa/ly
Federal Reserve Board,
Viashington, D. C.
Gentlemen:

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I am returning letter of Mr. D. E. Aylward, dated January 25,\
protesting against our requirement that borrowing by the First National
Bank, Livingston, Illinois, be on a collateral note basis, with attached
enclosures referred to you by Honorable J. Hamilton Lewis, United States
Senator.
The last examination of the First National Bank, Livingston,
Illinois, on March 24, 1951 showed that the bank had a capital of 25,0001
surplus of $10,000 and undivided profits and reserves $8,500. Loans were
$70,000 of which $12,500 were rated slow, 41;1,400 doubtful, and $2,100 loss.
Bonds and securities were 0.12,000, of which r:71(300 were rated slow, $17,000
doubtful and '.'5,000 loss. Other real estate 0,000 was rated slow. The
total doubtful and loss are sufficient to exhaust the surplus, undivided
profits and reserve and impair the capital.
In addition to the condition of the baril: itself, it is situated
in territory where there have been several bank failures in neighboring
towns and where throughout the entire community there is considerable
nervousness among depositors, which could very easily start withdrawals
from the First National Bank of Livingston. One of the banks in that
locality that is closed is the First National Bank, Mt. Olive, Illinois,
of which Mr. Aylward was Cashier until a few weeks prior to its failure.
Under the circumstances we felt that a revie,; of the situation
every fifteen days, as would result from the borrowing being on a collateral
note basis, would be helpful to the board of directors of the First National
Bank of Livingston as well as to our own committee. Furthermore, experience
has shown us that a bank confronted with the circumstances surrounding the
First National of Livingston could very easily develop into a condition
where it is needing the quickest assistance possible in the quickest time.
With the collateral note and additional collateral we are in a position
to give quicker service or, in fact, service that otherwise we would not
be able to give in the event of an emergency.
As the additional collateral may be in the form of ineligible
paper, such as ineligible notes, bonds, real estate or other good securities,
and the bank has bonds and securities to the amount of 0.12,322.50 in addition
to loans and discounts of $69,913.85, such a requirement could not work any
hardship on the bank nor keep it from borrowing from other sources if it so
desired.




9

•
#2.

Some of our officers have discussed this matter personally
with Mr. Aylward and it is unfortunate that he insists on demanding from
us what I am sure he would not ask of his correspondent or anyone else
that he requested to lend him money. It is rather unusual for one of
our hankers not to realize that when we ask for a fifteen day note with
additional collateral that while protecting ourselves we are at the same
time doing our utmost to help him in the situation he has found himself.
I am attaching excerpts from the minutes of our Discount Committee meetings covering the applications for loans of the First National Bank of
Livingston, Illinois.




Yours very truly,
neC
Governor.

•
FIRST NATIONAL BANK, LIVINGSTON, ILLINOIS
From minutes of Discount Committee meeting:
•
December 21, 1931. After considering the application for discount of this bank,
and reviewing the last report of examination, it was agreed that its borrowings
should be on a collateral note basis with a margin of collateral amounting to
The last report of examination showed a very unsatisfactory
not less than 50%.
condition, and the bank will no doubt be affected by the closing of the Gillespie
National Bank.
December 23, 1931. At the meeting on December 21 it was agreed that the borrowings
of this bank should be on a collateral note basis, with a margin of collateral
amounting to not less 50%.
At today's meeting there was submitted a letter from
the bank, dated December 22, stating that it preferred to rediscount, but the
Committee still felt that the bank's borrowings should be on a collateral note
basis with a margin of not less than 50%.
The Committee approved our letter of today's date to this bank,
December 28, 1931.
in answer to its letter of December 26 stating that its Board of Directors had
declined to offer a margin of collateral to secure its indebtedness to us.
January 5, 1932.
On December 21 application for discount covering notes amounting
to 88,121.75 was received from this bank; and an item for 03,500.00 was declined for the reason that we did not have current statement of the maker.
It was decided that the bank's borrowings should be on a collateral note basis
with a margin of collateral amounting to not less than 50%.
We accordingly put
through a collateral note for $4,600.00 secured by the items other than the note
declined, and sent the bank a collateral note and collateral pledges for signature,
asking that it sign these forms and deposit the margin of collateral.
The forms
were not signed and returned, and the bank in its letter of December 28 advised
that its Board of Directors declined to furnish a margin of collateral.
In the meantime, one of the collateral items was returned due to the fact that
certain information asked for was not submitted, and a credit for a like amount
was placed on the note which matured today, leaving a balance due of $3,290.00.
At today's meeting there was submitted a letter from the bank dated January 2,
requesting that its account not be charged covering the note, but that the items
held as collateral be carried as rediscounts, to maturity.
In view of the fact
that the bank did not comply with the conditions under which we made the advance,
it was decided that the note should be charged to its account and that the paper
held as collateral should be returned.
It was suggested, however, that we write
the bank, going over the case in detail, and stating that if it desired to send
a collateral note supported by the same collateral, and by margin of not less
than 50% in acceptable collateni4 it would be given due consideration.
(After the meeting our letter of today's date to the bank, was approved).




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Jan. 25, 1914,
2

cgeOectredi wefrozed to
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Federal Reserve Board,
Washington, D. C.




FIRST NATIONAL BANK
of Livingston
Livingston,
January 23, 1932

Hon. X. Ham Lewis,
U. -. Senator,
Washington, D. C.
Dear sir:
Am writing to call your attention to the fact that The St.
Louis Federal Reserve Bank has discontinued rediscounting for member
banks at least so far as this bank is concerned.
When several banks hereabout closed and when this bank held
60) of our demand deposits in cash we sent in a number of eligible
notes for rediscount.
You will note from enclosed correspondence that they credited
our account with proceeds of certain notes but demanded that we sign a
15 day not with 50% margin of collateral.
This we refused to do and insisted upon our rights to rediseligible paper.
count
We have no other bills payable and refuse to put up 50%
of our depositors assets with the possibility of being sold
margin
out in 15 days.
We instructed them not to impare our reserve account by
charging the notes which they had taken against it but on Tan. 5th
they charged said notes against our reserve which the law requres
us to carry with them. _7,ince that date our reserve has been
defficient and we would violate the law if we should mice a loan.
We have not made any bat cannot operate without doing so at some
time.
I wish you could call to the attention of Senator Glass the
fact that the Federal Reserve Banks as operated today have strayed far
from the intent of the manner in which they were supposed to operate.
We have carried from $10,000.00 to $15,000.00 with them practically since the system was organized but if they cannot extend us
a limited credit under present conditions we see no reason why we
should as member banks furnish them capital to stay in business and
deposits upon which to operate.
Sorry to bother you but this is a serious matter to our little
bank and we think you should know why banks are unable to meet the
needs of customers at the present time.
Very resp. yours,
(s) D.E.Aylward. Pres.
copy,







7

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— l
4ko

Yanuary 23, 2.932.

Vim. Ile C. Llar..tin, Governor,
Federal Reserve Bank,
St. Louis, Eissouri
Dear Governor :'artin:
Honorable J. Hamilton Lewis, United States Senator, has
referred to the Agicral Reserve Board the attached letter,
with enclosures, addressed to him by the President of the
First Eational Bank of Livincston, Illinois, protesting as ainst
,
the requironent of the Federal Reserve Bank of St. Louis that
a rediscount offering nade by the bank in Decenber be handled
on a collateral note basis.
All you please advise the Board fully rr gc,rdin:. the cir,
cunatances involved in this case in order that the Board :lay
be in position to connunicate with Senator Lewis regarding

the natter.

Please return the attached letter and enclosures

with your reply.
Very truly yours
VIE,necl) Vicsles.

Morrill

Chester :;orrill,
Secretary.

IIIM/rkt

C

n7

EXCERPT FROM THE MINUTES OF TEE FEDERAL RESERVE BOARD

6/11 33.
/
There was then called up for consiCeration letter dated Mirch 2nd
from the Federal .Zeserve Agent at Lt. Louis in reply to the letter a.:prav
ed
at the meting of the Board on February 20, 1931, with regard to the policy
of the St. Louis ban , reported by the Board's Examiner, of endeavoring to
put all borrowing member banks in that district on a collateral note basis
and also with regard to the requiring of a margin of collaterl on such
borrowings.
c.overnor 4,:artin stated that the bank does not have any
fired policy
but that each a:plication for credit received from a member Lank is
determined upon its merits, lie staod that the bank has endeavored
in all
instances to be as helpful as possible to borrowing member banks and
that
the use of the 15-day collateral note has enabled the Federa
l Reserve bank
to extend credit in some cases where it would otherwise have
felt unable to
do so. lie stated that it has been the practice of the bank to
permit member
bailks i

good condition to use either the 15-day collateral note or the re-

discount form of borrowing; to permit ether banks which arc

fairly

satisfactory condition. to use the rediscount 2orm of' borrowing if they
17-rfer,
requiring, however, some additional rargill of co4latera1; but in the
case of
banks rhich are in an unsatisfactory co"dition, in order that their
borrowings
may be reviewed every fifteen days, to require the member bank
to borrow on
bills payable, with various margins of collateral, never
in excess of 5O1.
The practice of the St. Louis bank was then discussed
in considerable
detail.

Covern-)r

artin. was advised that while bills payable may
be thc only

safe wayofraking advances to some member banks,
the question was idacther
his bank had une too far in requiring bills
payable and additional collateral
_
in cases whore it was not justified.
He was also advised that while the




z24-.

- 2-

Boa..d. does not vish to dictate the credit policy of any :ederal :eserve bank
,
it feels that the banks should handle applications for credit in such a
nanner as not only to protect the Federal reserve bank, but also retain the
Good vill of the nember banks.




Lo action rat; taken by the Board on the ratter.

4N
1.ot

O. 131

r

fice CorresplAINence

To
From

All members of the Board

FEDERAL. RESERVE
BOARD

March 4, 1931.

Subject:

ir.McCleiland.
ore

2-8495

There is attached hereto for your information, before presentation to
the Board, letter dated March 2nd from the Chairman of the Federal Aeserve
Bank of St. Louis, replying to the Board's letter of February 20th, ti.eg:arding the policy and practice of the Federal Aeserve Bank of St. Louis with
respect to the method of granting credit accommodation to member banks.
Governor lieyer
Mr. Hamlin to
.'"
Mr. Miller
Mr. James
Mr. Pole

AT .BoA.33,D

Please circulate promptly and return to the Jecretary!.s



Jur] 11 1951
office.
41K.

•
a
-14W

On 1??br/7 20, 13/,1„
out) tionilt

1.

hc

ozora

ood tho followinc,

clinefi to rcdiscomt o1i,r7,1.17,10 paper,
hother his
:"1.t,
required mmiblr bz.in% collnterai 110 tfefJob
bit
,113ther aurginza rx.)1.1ater....L.,
vancos vrIfio on such not
.
to the condition of
has been rocuired without
the bomming ‘b..-111c, the ch:!..7,' ctor of the T.Iver offored.,
ALT
the tot.t1 ,;:.Plount borrowed. by th baxk, or other
circax;ti

3.

,ter the st, Loulo Tlank rm,uire z ritrth.iixiy.-ascont..,i7e of
banks outside
rgargina1 r..1olk,...,...fasta from .r..3.1
Yederul re!..QX:VC) ritio, Lthot 4-4)1.11: lir; the sA•fie
of
i
f
iteequirccients to
in Tmele.r11 rPserve ottiou.
IL() lettor con.tinea the oxi,)reion of o n n that the above
if corre.-A,
z9ve:.::r to 130 out of harmonytith
1oder,- Reserve it.
Vie eiArit of the
,1

4.

The 1,:crcontef,.,,, of
roquir,?1 of* Pedera
re3erve city banks, both wir he roviced :)olicky 1. toly
by :'our
e.o.iir; the three, 1q3lit'As
tHo iO.tjon of such 2o1icy.

Cirzn •0041 ro,iliod on
.

arch 2, 1931:

r:Jo1ie7 :opted by our 1)ota'd to'.3cod
only
,,;1the resolution pary.-,-,stle by , te , 4tIQutive ;:o:triittan 7.,:iebra.rj 9, 11t
in




cooper..tign ith uu1>rbc.nIns
s
ttee that in
nt in oeder
borrovine, tv.4b reArLo-7od t,r.o,7-13.Lr
:;ort intervals, It
la be dr:ill:L.:3.'110
011 tervi note in (-Nor! inIA:atee "ft '"
hotz-ver,
1w ,..1,1oved to 1.-q(.1i. oount•
f.efe:irs red.V,couzitinc., it is to

1;0

'aienover La., bank has been a contiztuous borrever, in
is in an utrl tigfca.ctory contlition, or
,
,.nienever for L. .ny ?mean z:orklittwirl collateral i!) requestett,
,
11.5-d4 colLi.teral note will be required*
borroWinc#, exmr.2iVe4,

Mditiona
will only bo asked vihere
ezistinii. conditions su.rrousiding the born
-ming.
The alms resolution was ap:uvved by the Board of Directors
Irebrway 18. 193l.
Ohaircaul.n -ood,
follows;




other thinzr,, stated insat!.

is

WI use both rodk:eounting Laid bills payable. 54 banks
are rediscounting and 90 use bUls :.)t.tya le. 1or past for
7
.
tlle bills p:4able basis Ims inceased. In a !timber of
cases the ntrabor bilniai preferred bille payable.
hatmizn tbod asIct Board ,
,thetlier it rerples riorab- r bank
(ollatert11 notes as less desirable than rodicounting.
stater,
it'tieataenckiont zi,pprovod by the Lcard. in
its 14th Annual Report, pane 9, octencling, the sisturiti of
bills payable secured by eli4ble paper to 90 dare, should
be .'loptecl, he believes most member btalk! rould use bills
vable when borrowing.

t.21%.Z aia=140
.
t

aach caso

acted on an a no.xtr-te ms..:(3 by the DiEttx)ant
t
,
,

Go:.t littee.
ztre not renuired in all cases, either in rediecounting. or borrouing on bills payable.
Depends on gen- rz,11 eondition o r te bank, the diameter
of its wam. .,iNuent. ,21(1 te ty)t of per of7ered.
,
.
,
The banks in 2t. Louis -nd in other cities C here bor-ro-,A1-12:
it', in tic for of bills pvable, re not romiired to pledge




a.

Lny margin of collateral, tIssurain t'nt the -D:_ver offered is
)an
accom. ied. by evidence of eliibi1ity, s oundn ess and proper
liquidity. and I-en:re the banks • re in F:atisfactonj rnn(lition
and satisf ctorily managed.
A few banks in those citief;, however, :.re in such conaition
as to require marginal collateral.
The same a ).)lies to country banks.
In the Fast 9 months, the quality of the loans in many
country banks has greatly deteriorated, and it has became
increasingly difficult for thaa to f-Arnish offerings up to the
01(1 standard of eligibility and acceptability.
In a nudber of cases, it has been necessary to construe
f.t1)er liberally both eligibility and acceptability ,nd to
Jort the existent doubt by a fw.rgin of nom-eli5lb1e collateral,
In addition to the bankF, desit7rited by asterisks on list
enclosed, there are zAleast 38 other banks *hose condition renders
it advisable to request ;A:lciltional collateral.
:
The average o4- the banks no borrowing is bier in merit
than the average of the non-borro,Ing banks.
br,rik to
It has been for several years a rsolicy o this .
banks uhoe 1)orrowrequire marginal collLteral freci
ings have exceeded their capital and surplus, exclusive of loans
secured by Government obligpAions.
.1.1 three of the Branch Nanagers expressed tlie 0: inion
that no restriction of credit has resulted from the ometices,
but all three renort some objections.
S
States some objections okide to the ..3re- iit
the parent bank in t. Louis.

e):rtaent of

••

•

••

FEDERAL RESERVE BANK
OF
ST. Louis
March 2, 1931.

Federal Reserve Board,
Washington, D. C.
Gentlemen:
I
/
I have your letter_dated.February 201in which you requested me to advise you with respect to the rediscounting practices and
policies of the Federal Reserve Bank of St. Louis.
The only definite policy adopted is eypressed in the following resolution passed at a regular meeting held by the Executive Committee February 9,1931:
"Advances to Member Banks
(1) In a spirit of cooperation with member
banks and in order that each borrowing may be reviewed at regular short intervals, it would be desirable to get a fifteen dey collateral note in
every instance and it is believed that if its use
can be fully explained t) the member bank, it will
be perfectly agreeable to most of them and in many
instances will be insisted upon by them as a preferred
method of borrowing. However, if after careful explanation the bank not borrowing under any of the
conditions mentioned in (2) below prefers rediscounting,
then it is to be allowed to rediscount. In other words,
it is to have its choice of the two methods.
(2) 7ihenever a bank has been a continuous borrower, is borrowing excessively, is in an unsatisfactory
condition, or whenever for any reason additional collateral is requested, a fifteen day collateral note will be
required.
(3) Additional collateral will only be asked
where justified by existing conditions surrounding the
borrowing."
This resolution was discussed and approved at the following
meeting of the Board of Directors, February 18,1931.




The inquiries in your letter are directed to the form in which

•
W2
Federal Reserve Board.

credit is advanced to member banks, the margins required
of them, and
the re-action of member banks to said practices. In
this connection
I am submitting a list of all member bank borrowings as of
January 24,
1931, the date on which the examination was begun of the
Federal Reserve
Bank of St. Louis. This list was prepared by the credit
department of
the bank. It shows the form of borrowing, and the
margin pledged - if
any. You will note that some percentages of collateral
as shown in the
seventh column are in excess of the required margins
as shown in the
eighth column. In some cases this is due to the fact that
the member
bank loans have been reduced and no collateral has been taken
dawn. In
other cases eligible paper has been submitted and approved, but
the
members have not yet used all of their approved borrowing
capacities.
In no case has a member bank been required to pledge more than 50%
margin of collateral.
My connection with this bank began June 2,1930. During that time
I think that I have not missed, unless absent from St.Louis, any
meetings
of the Executive Committee, and not more than a half dozen
meetings of the
Discount Committee. Covering that period I feel that I know what
was done
and what was intended by the two committees. Prior to June
2,1930, my
knowledge is based on information acquired from the records of the
bank
and from its officers.

11

As to the form in which credit is advanced, will state that both
rediscounting and bills payable are used. The list shows that 54
banks
are rediscounting and that 90 use bills payable. Since I have
been a member of the bank organization there has been a gradual increase in
the number of banks that have borrowed on a bills payable basis instead of
a rediscount basis. I am advised that this process of change has been
going
on for the past few years. In a number of cases bills payable are used
as a matter of preference by the member banks. I am advised that in
St.
Louis, Louisville, Memphis and Little Rock the member banks borrow
in
this manner because it is a simpler and more convenient form. I am
also
advised that a number of country banks prefer this form for the
same
reasons. In this connection I should like to inquire for my informa
tion
and guidance whether member bank borrowing in the form of bills payable
is
regarded by the Board as less desirable than is the form of redisco
unting.
Not being connected with a Federal Reserve Bank during the formative
period
I missed the discussions as to the relative merits of the two forms of borrowing. Thus far I have not found much record of such discussions. I have
found
in the Third Annual Report of the Federal Reserve Board on page 225, the
following comment relative to the bills payable form of borrowi
ng:




"A recent amendment to the Federal Reserve Act permits a member bank to borrow for not exceeding 15 days
from a Federal Reserve Bank on its awn note secured by
eligible paper or United States bonds. Member banks are
thus enabled to borrow for short periods on the security
of paper having not more than 90 days to run and without
the accounting labor, either to them or to the Reserve
Bank,of recording and computing interest on large numbers
of small notes."

Oe
A
ir
Federal Reserve Board.

•
•

In the Fourteenth Annual Report on Page 49, the following language appears:
An amendment to Section 13 of the Federal Reserve Act increasing from 15 days to 90 days the maximum
maturity of advances made by Federal Reserve Banks to member banks on their promissory notes secured by paper eligible for rediscount by Federal Reserve Banks. Such an
amendment was suggested to the Board under date of October
31,1925, by Hon. L. T. Mc Fadden, chairman of the Banking
and Currency Committee of the House of Representatives,
and was favored by the Board after consultation with the
Federal Reserve Agents and the Governors of the Federal
Reserve Banks. It would save much trouble and expense to
both the member banks and the Federal Reserve Bank, since
it would eliminate the necessity of listing separately the
various pieces of eligible paper offered as collateral and
would at the same time eliminate the necessity of frequent
renewals. It would be especially helpful to country banks
which are now deterred by the necessity of frequent renewals from using this more convenient form of borrowing from
the Federal Reserve Banks."
If this amendment should be passed I believe most member banks would use
bills payable when borrowing from a Federal Reserve Bank.
In respect to additional margins of collateral will state that in
each and every case where this has been required it has been acted
upon as
a separate proposition by the Discount Committee. In each case conditi
ons
have been described to the Committee that seemed to justify the action
taken.
It may be that some errors in judgment have occured, but I think that such
errors have been few in number. Margins are not required in
all cases
either in rediscounting or where the borrowing is in the form of bills
payable. It depends upon the general condition of the bank, the character
of
its management and the type of paper offered. For example, I am advised
that the banks in St. Louis, and in other cities where borrowing is in
the
form of bills payable, are not required to pledge any margin of collate
ral
assuming that the paper offered is accompanied by evidence of eligibility,
soundness and proper liquidity, and where the banks are in satisfactory
condition and satisfactorily managed. However, a few banks in those cities
have gotten into such condition as to require marginal collateral. The
same applies to country banks. In the past nine months the quality of
the
loans in many country banks has greatly deteriorated and in such cases it
has been increasingly difficult for them to furnish offerings that measure
up to the old standard of eligibility and acceptability. In a number of
cases, in order to render the desired service to the member banks, it has
been necessary to construe rather liberally both eligibility and acceptability and to support the existent doubt by a margin of non-eligible collateral.
Referring again to the enclosed list of borrowing banks you will
note that a number of them are marked by asterisks. The banks
so designated



• •

•

44
Federal Reserve Board.

are described in the last report of examination on pages 123 to 148 inclusive under the- caption - "Banks whose condition warrants special attention". 50 of these banks are on the borrowing list.
I have surveyed the list and am of the opinion that, in addition
to the banks designated by asterisks, there are at least 38 other banks
whose condition renders it advisable to request additional collateral to
secure credit advances made to them by the Federal Reserve Bank. In my
judgment the average of the banks now borrowing is lower in merit than
the average of the non-borrowing banks.
It has been for several years a policy of this ben's to require
marginal collateral from all member banks whose borrowings have exceeded
their capital and surplus, exclusive of loans secured by government obligations.
As to the reaction of member banks to the bills payable form of
borrowing and to the pledge of an additional margin of collateral, will
state that I inquired in detail of the three managers of Branch Banks who
were here in conference February 24. The inquiries were directed to ascertain whether the member banks objected to the practices, and whether
the practices "tend to prevent member banks from availing themselves of
the facilities of the Federal Reserve Bank of St.Louis to the extent which
might be justified by conditions in the territory".
- All three of the Branch Managers expressed the opinion that no
restriction of credit has resulted from the practices, but all three
Branch Managers reported some objections to the practices.
Manager Glasgow reported that the First-Columbus National Bank of
Columbus, Mississippi objected to pledging marginal collateral. No objection was made to the bills payable form of borrowing. The same objection
was made by the National Bank of Commerce, Columbus, Mis3issippi. Manager
Glasgow reported that after discussing the matter with the managements of
the two banks, their objections were withdrawn. My survey of the offerings
of the First-Columbus National Bank has convinced me that the objections
made by its management were not well taken. Manager Glasgow reported that
the Citizens National Bank,Trenton,Tennessee objected to renewals every 15
days on the ground that the discount rate might be increased during the
season. Entire willingness Was expressed to the pledge of any amount of
marginal collateral. The objection still stands. In this connection will
state that the operation of the Citizens National Bank,_Trenton,TunAmse
has not been satisfactory. The bank was formerly a State bank and was
converted into the Citizens National Bank, September 19,1923. Since that
time national bank examiners have expressed the opinion that a mistake was
made when the bank was permitted to nationalize. In report of examination
made by National Bank Examiner Russell E. Mooney, Apri1,29,1929 on page 6,
he has set out two large lines, one of President 7. L. Wade and the other
of Cashier Bob Harwood. On page B-1 the examiner comments unfavorably
on the management of the bank. On July 25,1929, Examiner Looney began a
special examination of the bank. On page 11-1 he criticises the large
line of President Wade and criticises certain unethical business actions



•

4
5
Federal Reserve Board
of Cashier Harwood. On page B-1 in the confidential report, the
examiner
has continued his criticism of the business management of the
bank. In
answer to question 4 on page B, "Do you regard the managem
ent as safe?"
the examiner states as follows, "No management can
be regarded as entirely safe where the lack of proper sense of trusteeship is missing
".
Manager Bailey of Little Rock advised that the Farmers
National
Bank of ClarksvilJe,Arkansas objected to the pledge of marginal
collateral.
This bank recently closed and was reopened. Its objecti
on was not well
taken. The Arkansas National Bank of Heber Springs, Arkansas objecte
d to
the bills payable form. This bank recently closed for a few
days and reopened. The First National Bank, Mc Gehee, Arkansas also objected to
the
bills payable form. Manager Bailey reported that after discussing matters
with the managements of the three banks objections were withdrawn. The
Community Bank and Trust Company of Hot Springs, Arkansas regarded both
form and margin as a reflection on its management and objected on that
ground. Manager Bailey advised that after a full discussion of the
matter
with President Ramp Williams he expressed himself as entirely satisfi
ed.
Manager Kincheloe advised that the two National banks at Bowling
Green, Kentucky objected to both form and margin. In this connection
will
state that Vice-President Nahm of the Citizens National Bank, Bowling
Green,
Kentucky, voiced his objections to the officers of this bank and in a meeting of the Board of Directors. The matter was discussed at length in the
Board Meeting after which Mr. Nahm expressed himself as satisfied with the
practice. He has since reported to Governor Martin that the management
of
the Citizens National Bank is nog satisfied. Vice-President Nahm
expressed
the opinion that no objection would have been entertained by the managem
ent
of the member bank if the letter of advice from the Reserve Bark had
been
more carefully phrased. The Citizens National Bank of Bowling Green,K
entucky
is an excellent bank. The other National bank in Bowling Green is not
so
good.
The credit department of the St.Louis Federal Reserve Bank has
advised that the only objections expressed to the parent bank are:
First National Bank,Carmi,Illinois objected to the form of borrowing and to the marginal collateral. President Hall wrote several letters
of
objection to both form and marginal collateral. I have known Mr.
Hall for 15
years. Disputation is the breath of life to him. He formerly operated
a
good bank, but am inclined to believe that its assets have deteriorated
some
in recent years. Am not entirely sure as to the correctness of our judgment
in tiis case, but am inclined to believe it is correct. The type of paper
offered led me to join in the judgment of the Committee.
First National Bank,Dexter,Missouri also objected. It is a badly
managed bank and is in very unsatisfactory condition. Its objections
were
not well taken.
If there is any phase of the loaning policy of this bank that I
have not covered fully, please advise me.




Very truly

urs,

M-0-0(1

Federal Reserve Agent.

FEDERAL RESERVE BANK OF ST.LOU1S
LIABILITY AND COLLATERAL (EXCLUSIVE OF GOVERNMENT'S)
CLOSE OF BUSINESS JANUARY 24, 1931

LOCATION
ARKANSAS
BERRYViLLE
DEQUEEN
FAYETTEVILLE
UNTSVILLE
ARASOULD
*
LOAM SPGS

BA 11K

LIABILITY

FIRST NAT'L BANK

32,551.00
17,000.00

It
If

If

It

90,000.00

ILLINOIS
* ALBION
ALTAMONT
AVA
3ARRY
BELLEVILLE

BROOKPORT
BROWNSTCWN
BUNKER HILL
* -ARBONOALE
n

NEW FIRST NAT'L 6K
HUTCHINGS FIRST

8,000.00

44,931.20
27,000.00

LAWRENCE COUNTY BK

6o,000.00

NAT'L BK OF ALBION
FIRST NAT'L BANK

125,000.00
9,700.00
5,000.00
33,280.00
3,000.00

II

It

It

It

BELLEVILLE

RBONDALE
RLINVILLE
RMI
CENTRALIA

* COBDEN
COLLINSVILLE

DEQjOIN
FAIRFIELD
FLORA
• FLORA'

It




It

CARBONDALE

NAT'L

3K

It

It

NAT'L 3K
tl

FIRST NAT'L BANK
CARLINVILLE NAT TL
FIRST NAT'L BANK
CITY NAT'L BANK
FIRST NAT'L BANK
STATE BANK OF
FIRST NAT'L BANK
11

II

FLORA NAT'L BANK
II

* GILLESPIE
* GOLCONDA
5IINITE CITY

It

BROOKPORT NAT'L BK
FIRST NAT'L BANK

if

*
•

B/P
B/P

I'

PRODUCERS STATE BK
* WALNUT RIDGE

REDIS
OR
B/P

It

GILLESPIE NAT'L
FIRST NAT'L BANK
GRANITE CITY TR &

II

23,000.00
10,000.00
31,261.00
I5,246.05
27,300.00
65,000.00
!; 0010.00

11:8Ra.R0
30, . 0
14.487.00
22,637.00
50,000.00
30,000.00

11,680.00
16,100.00
1,707.94
84,400.00

34,000.00
54,600.00

B/P
B/P
B/P
B/P

B/P
B/P
B/P

B/P
B/P
B/P
R.
B/P
B/P
BP

ELI118LE
COLLATERAL

32,551.00
17,00.16
137,924.3i
17,979.93
io,364.62
44,93i.20
31,889.40
63,372.02
134,120.12
9,700.00
5,082.72
33,280.00
3,000.0C
3,040.00
32,640.54
18,551.50
46,807.05

B/P

37,250.00
69,473.65
29,384.80
39,337.50
14,487.00
26,350.00
52,725.00
35,570.00
11,6so.00
18,657.94

B/P
B/P

84,1130.23
44,525 .00

B/P
B/P
B/P

54,6c0.00

PERCENT OF
REQUIRED %
ADDITIONAL EXCESS COLL. OF ADDtTL
COLLATERAL TO LIAR.
COLLATERAL

ot
53

5,855.47

98
37
41
15

33-1/
/5
33-1/
33-1
33- 2
33- 1/3
33- 1/
3
33- 1/
3

37,102.93

37

33-1/
3

02

33-0
33-1/3

ALL

5,500.00
16,920.00
6,300.00

10,225.42

30

1,853.00

23
85

33- 1/3

14,775.00

33

33- 1/
3

8,800.00

69
45

33- 1/
3
35-0

21

33-1/3

ALL

25,000.00

31
33-1/3
16

17,458.80

40
19

33-0
33- 1/3

4,872.50

32

33-1/3

29,048.50
28,a) 4.74

34
114

33-1/3
50
33-1/3

ST.L. 2

LOCATION
CoNT'o
I1.LI1'J01
* GRAYVILLE
* GRAYVILLE
GREENFIELD
GRIGGSVILLE
HARRISJURG
I-I
* ,,ERRIN
F-.ILLSBORO
HILLSBORO
RVING
I•CHFIELD
*AINVINGSTON
MITADISON
METROPOLIS
METROPOLIS
* MOUND CITY
MOUNDS
* "
..T.CARMEL
* MT•OLIVE
MULBERRY GR.
NAIL STK YDS
NI
* ..EWTON
* NOBLE
* NOKOMIS
OBLONG
* OLNEY
ALEST I NE
Alli
*
LMYRA
*
ymoND
* RI DGWAY
Sr FRANCISVILLE
V
* •IENNA
WAVERLY
*
• WILSONVILLE
WITT
ZIEGLER

*Ili

•

•



LIABILITY

BANK

FARMERS NATtL BANK
FIRST NATtL BANK
it

ii

rv

GRIGGSVILLE NAT 1 L
CITY NAT 1 L BANK
CITY NAT Ii BANK
MONTG .Co. L & TR CO
PEOPLES NATTL BANK
iRVING NAT'L BANK
LITCHFIELD NATIL
FIRST NATtL BANK
UNIDN TRUST CCUPANY
CITY NATIL BANK
NATTL bTATE BANK
FIRST NATTL BANK
ft

AMERICAN NATTL BK
FIRST NATIL BANK
It

NAT L STK YDS N. BK
FIR S T NATtL BANK
ft

ii

ft

NOK OMIS NATTL BANK
S T NATIL BANK
FI
ft

If

ft

If

ft

ft

FIRST ST ATE BANK
ft
if
NA
ft

U

if

PEOPLES NAT'L BANK
FIRST NATTL BANK
FIRST NATTL BANK
ii

If

NATIL BANK OF
NATtL BANK

REDIS
OR
B/P

24,000.00
48,199.60
14,565.00
7,700.00
53,220.00

B/P
B/P

23,000.00
9,700.00
16,000.00
22,675.00
10,674.27
13,800.00
67,000.00
24,000.00
11,224.00
11,000.00
80,000.00
33,368.90
16,846.98

B/P
B/P
9/P
B/P

75,451.50
8,250.00
70,000.00
110,000.00
10,000.00

16,00o.00
19,000.00
7,631.20
10,000.00
36,500.00
70,000.00
4,000.00
4,097.50
19
3,14 to.51

B/P
B/P
B/P
B/P

B/P
B/P
B/P
B/P
B/P
B/P
B/P
B/P
B/P
B/P
6/P

ELIGIBLE
COLLATERAL

35,647.84
148, 199.60
1
i 4,565.00
7,700.00
53,220.00
6,500.00
30,91„5.00
11,500.00
16,599.00
24,572,146
10,674.27
15,830.00
77,16.72
24,000.00
II ,37.00
11,290.00
87,410.00
33,368.90
16,846.98
577,521.37
91,791.50
8,Z 0.00
77,031.30
10,130.00
115,825.00
13,760.00
19,572.00
25,40o.00
7,631.20

REQUIRED %
PERCENT or
S COLL OF ADOtTL
ADDITIONAL EXCES
COLLATERAL
COLLATERAL TO LIAO,

50
33-0
33- 1/3

MI•

i6,(00.00

35
33
04
79

12,100.00

33

3
33- 1/

4,ioo.00

14-1
05
0.9

3
33- 1/
33-1/
3
33- 1/

ALL
78

3
35- 1/

1,400.00

IMP

3
33- 1/

GO

42,660.00
53, 189.00
66,585.00
50,967.00
Oa

86
ALL
52
88
22

34

11•111

71

17,085.00

39,401.39
84,592.79
4,000.00
4,097.50
3,419.51

50
50

ALL

16,275.91

49
314

5,846.18
300.00

24
21

50
33-0
50
3
33- 1/
3
33- 1/
33- 1/3
3
33- 1/
_
33- 1/3
33-0

Oa

33-1/3

ST.L.

LOCATION
INDIANA
* VINCENNES
WASHINGTON
* WINSLOW
MISSOURI
APPLETON CITY
* BODNISVILLE
RAYMER
RUNSWICK
AINESVILLE
* CAPE GIRARDEA
* CHILLICOTHE
CLINTON
* COY/GILL
* DEXTER
* IBERIA
LAPLATA
MAPLEWOOD
* MAPCELINE
MT. GROVE
ROLLA
SALE!!
SEDALIA
AlkEYVOUR
PRINGFIELD
CELEVILLE
OUTLAND
TRENTON
* VERSAILLES
WASHINGTON
WEST PLAINS

"

0
•




BANK

LIABILITY

FIRST NAT'L BANK
PEOPLES NAIL B & T
FIRST NAT'L BANK

FIRST NATIONAL BK
BOONV ILLE NAT'L
FIRST NAT'L BANK
ft

11
It

ft

11

ft

II

ft

ft

CLINTON NAT'L
FIRST NAT'L BANK
FIRST NAT'L BANK
FARMERS & TRACERS Bp:
BANK OF LAPLATA
PEOPLES STATE BANK
FIRST NAT'L BANK
If

II

NAT'L BANK Or
FIRST NAT'L BANK
SEDALIA TRUST CO.
PEOPLES NAT'L 'BANK
MCDANIEL NAT'L
FIRST NAT'L BANK
/f

ft

TRENTON NAT'L
FIRST NAT'L BANK
FRANKLIN CO. BANK
FIRST NAT'L BANK

REM S
OR
B/P

ELIGIBLE
COLLATERAL

B/P
B/P

7,708.10
24,710.75

34,000.00
45,226.00
10,000.00
514,800.00
22,536.53
20,900.00
105,884.10

B/P

e/p
B/P
B/P
B/P
B/P
B/P

54,900.00
56,938.00
43,440.55
55,365.00

B/P
B/P
B/P

IOW

12,000.00
3,900.00
36,198.00
41,
095.89
27,798.00
7,500.00
33,076.80
200,000.00
4,145.24
6,085.00
55,858.10
8,034.00
50,000.00

PERCENT OF
REQUIRED
EXCESS COLL CF ADD'TL
TO Lt*.
COLLATERAL

56,800.00

36,800.00
7,698.47
22,000.00

54,000.00
21,000.00
23,482.57
7,264.80

ADDITIONAL
COLLATERAL

ft
B/P

B/P

B/P

5/P

23,612.53
20,900s00
112,778.10

54,724.90
21,125.00
23,482.57
7,264.80
28,865.76
12,000.00
3,900.00
39,262.60
41,095.89
27,798.00
7,500.00

39,533.37
201,250.00
4,11_5.24
6,035.co
72,942.97
4,360.00
8,034.0o
54,954.05

8,300.00

50

33- 1 /2
35- 1/3

61

33-1/3

25,500.00

82
334

33- 1/3

26,662.00
9,114.16

50
45

36,250.00

41

2,950.00
2,967.50

01
15
13

00

411M

33-1A
50
33- 1/
3
25
33-0
33- 1/3
33- 1/
3

ALL

39

33- 1/
3

1 3,237.00

46

33:1/
3

6,896.22

40
55

33-1/1,
33- 1 /3
33- 1/
3

44

33-1/
/3
33- 1 /3
- ,
33-1/3

10,931.00
00

IC8,280.00
ONO

7,500.00

ALL
14,025.00

3

38

Sr. L.

LO:A

T I Ork.
.

BANK

Lt A! LI TY

MISSOURI (CONTID)
ST. Louis
71(ELI TY BK
TP.
247,605.03
ft
ft
FIRST NATI L BANK
ft
,I1
FR ANKLIN—ANIZR I CAN
Tr
GRANO NAT'L BANK
269,522.75
ft
LAFAYETTE SO. SIDE
If
ft
LI NDELL TRUST CO.
51,000.00
If
Sc RU GGS-V-94RN EY BK
50,000.00
VANDEVE N TER NAT !L. BK 82,500.00
WATER TOWER BANK
1C0,000.00

UNION CITY

THI RD NAT t L BANK

•111

RED! S
OR
B/P

B/P

B/P
B/P

B/P

ELICIE.LE
COLLATERAL

249,176.21
3,700,000.00
L,792,000.00
269,522.75
450,000.00
52,500.00
50,000.00
82,500.00
100,000.00

17,753.00

* INDICATES BANKS WHOSE CONDI T I ON WARRANTS SPECIAL ATTENTION.

•

0




PERCENT OF
REQUIRED %
ADDITIONAL EXCESS COLL OF ADDITL
COLLATERAL TO LI AL,
C 0 LLA TER AL

63,490.00

26
ALL
ALL

33-0
33-I/

01111

ALL
03

=It

ALL

LITTLE RUCK BRANCH
FEDERAL RESERVE BANK OF 6T.Lou1s
LIABILITY AND CCLLATE
7OL (EXCLUSIVE OF GOVERNMENT'S)
CLOSE OF BUSINESS JANUARY 2
14, 1931

LOCATION

BANK

LIA3ILITY

ARKANSAS
MONROE COUNTY BANK
* BRINKLEY
AM DEN
FIRST NAT 'L BANK
FARMERS STATE BANK
4111CNWAY
VII TT
FIRST NAT'L BANK
AltDORA
FIRST NAT'L BANK
HEBER SPR INGS-ARKANSAS NAT'L OK
* HOPE
FIRST NAT'L BANK
ftTI

HOT SPRINGS
* JONESBORO

COMMUNITY B & T 30
BANK OF JONESBORO
!I

LAKE VILLAGE
LITTLE ROOK
II

!I
TI
ft

MCGEHEE
* MALVERN
SPGS
ARK
SSELLVILLE
11
AtERAL

*

It

TEXARKANA
WALDRON

TI

ft

ft

FIRST NAT'L BANK
BANKERS TRUST CO.
FED. BK & TR CO.
PEOPLES TRUST CO.
UNION TRUST Co.
FIRST NAT'L BANK
FIRST NAT'L BANK
FIRST NAT'L BANK
FIRST NAT'L 3ANK
BANK Cr !IUSSELLVILLE
PEOPLES EXCH. BANK
STATE NAT'L BANK
BANK OF 'NALDRON

REDIS
OR
B/p

26,240.00
61,222.90
180,000.00
83,110.23
26,875.75
19,188.05
45,000.00
.
49,396 00
100,000.00
199,600.00
6,126.93
34,000.00
500,000.00
122,186.30
224,500.00
380,000.00
52,990.00
25,000.00
12,166.31

e/p

61,829.54

B/P

ELIGIBLE
COLLATERAL

1




PERCENT OF
REQUIRED %
EXCESS COLL OF ADD'TL
TO LIAB.
COLLATERAL

3
/P

26,A1 0.00
61,222.90
1E1,897.50
84,579.44
28,875.75
19,188.05
98,378.64

B/P
B/P

108,708.74
216,634.56

30,067.75
76,200.00

38
39

25
25

B/P
B/P
B/P
B/P
B/P
B/P
B/P

34,655.00
647,500.00
124,716.08
327,319.26
641,329.19
56,901.00
28,702.55
14,
633.47
12,564.73
9,725.36
98,029.71
212,513.49
8,658.17

12,416.50

38

33-1/
3

B/P
B/P
B/P

BAD

INDICATES BANKS WHOSE CONDITION WARRANTS SPECIAL ATTENTION.

.
I

ADDITIONAL
COLLATERAL

33- 1/3
47,774.55
44,148.89
21,846.08

27
54
88

25
50
50
33-1/
3

4

29
60,250.00

51

!70,000.00
T3,650.00
5,889.00

45
113
42
38
ALL

4,610.98

41

50

33- 1/
3
50
33-1/
3
25

ALL

58
ALL
ALL

33-1/
3

4111

LOUISVILLE
BRANCH
FECCQAL RESERVE BANK OF ST.LOUIS
LIABILITY AND COLLATERAL (EXCLUSIVE OF GOVELM1ENTIS)
7
CLOSE CT BUSINESS JANUARY 2) 0.931

LOCATION
INDIANA
CANNELTON
AMUNTINaSURG
AllIFEw ALBANY
W ALBANY
ELL CITY
TELL CITY

*O

BANK

FIRST NATIL BANK
FIRST NATIL BANK
NEW ALBANY NAT'L BK
SECOND NAT'L BANK
CITIZENS NAT'L BANK
TELL CITY NAT'L BK

LIABILITY

5,510.00
29,719.09
9,875.00
51,500.00
5,500.00
/49,828.08

KENTUCKY
BOWLING GREEN -CITIZENS NAT'L BANK
64,037.10
54,600.00
CARROLLTON NATIL BK
* CARROLLTON
6,193.00
DAWSON SPGS
FIRST NATIL BANK
ELIZABETHTOWN-FIRST-HARCIN NATI!. BK 8,907.50
LINCOLN NATIL BANK
• HODGENVILLE
LI3ERTY BK & TR.CO.
LOUISVILLE
LINCOLN BK & TR CO.
LOUI3VILLE
22,920.00
OWENTON
FARMERS NATIL BANK
iVNTON
FIRST NAT'L BANK
i
24,301.45
i74,000.00
DUCAH
CITY NATIONAL BANK

REDI3
OR
B/P

R
R
R
R
R
R

B/P

ELIGIeLE
COLLATERAL

•••

MO

MIO

IMO

CND

49,823 .08

64,037.10
514,600.00
6,193.0o
8,907.50

ONO

i5,000.uo
17,796.55

22,920.00
24,301./45
174,170.00

6,092.00
8,129.35

* INDICATES BANKS WHOSE CONDITION WARRANT:7, SPECIAL ATTENTION.

27

25

OW

19,976.20
1,248,567.50
745,985.86
B/P

REQUIRED Yu
PERCENT OF
EXCESS COLL Or ADDITL
TO LI AB.
COLLATERAL

5,510.00

29,719.09
9,875.00
51,500.00
5,500.00

•




ADDITIONAL
COLLATERAL

ALL
ALL
ALL
26

33

50
25
25

IP'

MEMPHIS BRANCH
FEDERAL RESERVE BANK OF ST.LOUIS
LIABILITY AND COLLATERAL (EXCLUSIVE OF GOVERNMENTIS)
CLOSE OF BUSINESS JANUARY 24, 1931

LOCATION

ARKANSAS
BLACK ROCK
COTTON PLANT
ARIANNA

4W

REDIS
OR
B/P

BANK

LIABILITY

FIRST NAT'L BANK
FARMERS NAT 1 L SANK
LEE CO. NAT'L BANK

12,500.00
25,476.12
10,978.13
84,500.00

1ST COLUMBJS NAT'L
NAT'L BK OF COM.
FIRST NAT'L BANK

169,/400.00
39,845.50
240,678.149

B/P

68,900.00
FIRST 0 TATE BANK
.
17,750.00
1ST CITIZENS NATI. BK
9,878.60
PEOPLES SAV 3: & TR
27,628.34
FIRST NAT'L BANK
200,000.00
BK OF COM & TR CO.
UNION PLANTS NAIL
BANK & TRUST CO.
21,000.00
FIRST NAT'L BANK
11,282.00
CITIZENS NAT'L BANK
BANK OF HENNING
68,150.00

B/P

ELIGIBLE
COLLATERAL
_

12,500.00
25,476.12
99,733.78

PERCENT OF
REQUIRED % OF
ADDITIONAL EXCESS COLL ADDITIONAL
COLLATERAL TO LIAB.
COLLATERAL

23,924.69

29

33-1/3

7,383.67

04

33-1/
3

1 26,449.87

79

50

68,936.25
17,750.00
15,910.46
27,628.34
1,750,797.41
719,000.00

20,586.71

30

33-1/
3

5,415.15

11 5

21,029.17
1,21 2.00
68,181.81

10,123.60

48

35-1/
3

23,636.73

29

25

AlksissiPrI
COLUMBUS
COLUMBUS
4' CORINTH
TENNESSEE
* BROWNSVILLE
DYERSBURG
HALLS
LEXINGTON
MEMPHIS
MEMPHIS
IIIIPLEY
RF.:TON
*41rNNING

* INDICATES BANKS WHOSE CONDITION




B/P

6/P
B/P

B/P
B/P

1 69,457.E1
39,845.50
304,311.86

WARRANTS SPECIAL ATTENTICN

25

776
ALL

Ft ta No. 131

Office Correspondence
To

Governor Meyer

From

FEDERAL RESERVE
BOARD

Ehae Feb, 20,1931,

Mr, Drinnen and Mr. Wyatt

Subject:___ _

•ro

In accordance with the request which you made of us yesterday
afternoon, we respectfully submit herewith a revised draft of the let/
ter (to the Governor of the Federal Reserve Bank of St. Louis which is
much milder than the letter. submitted to you yestexlaay.

It omits

anything in the nature of a -positive reprimand and merely requests
that Governor Martin address a letter to the Board clearly describ ing the policy and practices of the Federal Reserve Bank of St. Louis
and the reaction of the member banks thereto.
We also respectfully submit herewith a third form of letter,(
which takes a middle ground between the two extremes represented by
the rather severe letter 'submitted to you yesterday and the very mild
letter described above.

This third draft is a modification of the

letter submitted yesterday.

It expresses the Board's views without

the use of severe language and merely requests a letter from Governor
Martin describing and explaining the policy and practices of the Federal Reserve Bank of St. Louis and the reaction of the member banks
thereto, instead of reprimanding the Bank and requesting that the matter be submitted to the Board of Directors.

40 4#k
11

.........
......................
ITTEZ
AT EXECUTIVE COM
MEETING

Respectfully,

Drinneu,Federal Reserve Examiner.

2
FEB 20 19 1
salter Wyatt,
Letters herewith.

sad


eneral Counsel.

2-8495

3
ri

AL

2--

s.

Fabruar; 2 , 1951

Dear Yr. ,;(nod:
Your attentien is invited to the statement ap'earing on page 11
of the report of the examination of the Federal Reserve hark of St.
Louis as )f nnuary 24, 1931, under the caption, 'Collateral :'.equiremente.
Ti t'.,e Pederal ese..ve hank of St. 7ou's has adopted a generel
relicy or eractice of (1) declinine, to rediscount eligible coeeercial
;
end agricultural paper and ernntinE credit accom todations to its memon paper of this character only in the form of advances for
ber hanks
periods no exceeding fifteen days on their eromissory notes secured
b such paper, (2) requiring marginal collateral on advances made by
it to 7-ember banks Athout regard to the condition of each borrone
bank, the character of the paper offered, the total amount borrowed
b-7 such ben': or -Aber similnr facts end cirmeastances affectin, each
individual case, or (3; requiring a certain minimum percentage of
marginal collateral of all borroein4 banks outside of Federal reserve
cities, eithout np lyine the same requirements to ban -s located in
Federal reserve cities, such action would p car to be out of harmony
with the spirit and ; ur.ose of the Federal Reserve Act, if not conthe. Troeisions of the Let itself. It is also believed that
trate: to
the adoption of any such police or practice might add to any feeling
of uneasiness existing in your district and tend to prevent member
banks from availing themselves of the facilities of the Federal Ree
serve Ban of ;t. Louis to the extent which night be justified by
conditions in the territory.
You are requested to address a letter to the Federal Reserve
exlBoard clean:' deecribine, the policy and practice of tee Federal
granting credit
of t. Iouis eith respect to the method of
serve
accoenodntions co uember banks.on eligible comeercial and agricultural
pa er, the requiring of marginal collateral, and the percentages of
marginal colvteral required of Federal reserve city banks and of banks
outside of Federal Reserve cities, both under the revised eolie7 adopted
by your Executive Comeittee during the recent examination of your bank
.and during the three months nreceding the adoption of such revised policy.
by
Please advise the Board whether any general policy or practice adopted
of
your ben' on this subject was authorized or aperoved by your board
also whether you have received any unfavorable reaction
Directors and
from your member banIrs.
by L:rder of the Federal Reserve hoard.

- r. John 3. ood, Chairman,
Federal Reserve Bank,
et. leads, O.




)
. :
Ver- truly yours, 2 .ri ).‘•
'
04i0T1° 1
McClelland,
E.
'ssistant 43cretary

•

Ile

FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD

February 20, 1931.

Federal Reserve Bank of St. L uis,
St. Louis, Missouri,
Dear

Ilhatt.4..
Your attention is inv ted to the statement appearing on

page 11 of the report of the e amination of the Federal Reserve Bank
of St. Louis as of January 24, L931, under the caption, "Collateral
\
1t
1
If the Federal Reserve iBank of St. Louis has adopted a gen-

Requirements."

eral policy or practice of (1) 4c1ining to rediscount eligible commercial and agricultural paper

d granting credit accommodations to

its member banks on paper of thi

character only in the form of ad-

vances for periods not exceeding fifteen days on their promissory
notes secured by such paper, (2) requiring marginal collateral on advances made by it to member banks1 without regard to the condition of
each borrowing bank, the characte

of the paper offered, the total

amount borrowed by such bank or 4her similar facts and circumstances
i
affecting each individual case, o (3) requiring a certain minimum
t
percentage of marginal collaterallof all borrowing banks outside of
Federal reserve cities, without a plying the same requirements to
banks located in Federal reserve cities, such action would appear
to be out of harmony with the spir t and purpose of the Federal Re-




Ile
-2-

serve Act, if not contrary to the provisions of the Act itself. It
is also believed that the adoption of any such policy or practice
might add to any feeling of uneasines
You are requested to addre

existing in your Districtig)
a letter to the Federal Re-

serve Board clearly describing the po icy and practice of the Federal Reserve Bank of St. Louis with r spect to the method of granting credit accommodations to member b

s on eligible commercial and

agricultural paper, the requiring of rrLrginai collateral, and the percentages of marginal collateral requi4d of Federal reserve city banks
and of banks outside of Federal reserv4 cities, both under the revised policy adopted by your ExecutivelCommittee during the recent
examination of your bank and during th
adoption of such revised policy.

Plea

general policy or practice adopted by

three months preceding the
advise the Board whether any
our bank on this subject was au-

thorized or approved by your Board of 'irectors and also whether you
have received any unfavorable reaction from your member banks.
By Order of the Federal Res rve Board.
Very t

ly yours,

E. Y. McClelland,
Assistant Secretary.

aAAS $A.4
,j,
1 4f1VVLA
114/1/li



\ft

o
iloAktm-vt
itt

dr"
'tie/

tAfrIkdotkrA

I.

•

FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE 0
THE FEDERAL RESERVE BOARD

February 20,
1931.

Mr. William McC. artin, Governor,
of St. Louis,
Federal Reserve
St. Louis, Missour
Dear Governor Marti :
Your atte
ing on page 11 of the

ion is invited to the following statement appeareport of the examination of the Federal Reserve

Bank of St. Louis which vas commenced on January 24, 1931 :




"It was note that the Reserve Bank held an unusually
large number of m uber bank collateral notes secured by
customers' notes. Don inquiry, your examiner was advised
that since the latt r Dart of 1930 it had been the practice
of the Reserve Bank o require that borrowings of all member banks, except tho e secured by U. S. Government obligations, be on a member ank collateral note basis with a
margin of collateral a unting to at least 33 1/4'; except
%
that the requirement of 3 1/3 margin did not apply to
Federal eserve cities; and While it might
all banks in the
be desirable in certain c es in those centers, other cases
would be handled individua y, depending upon the amount
of borrowings or other circ stances.
"A number of banks have
some objecting to beilv depriv
term rediscount facilities and
for margin.

ected to the requirements,
of the use of the long
hers to the requirement

untry banks to pledge
"The policy of requiring all
ess of t. ir condition or the
marginal collateral regardl
class of paper offered, •and the appa nt discrimination
was
between Federal reserve city banks an country banks
discussed with the management.
licy was adopted
"During the examination a revised
'tional collateral
by the Executive Committee under which ad
e conditions,
will be requested only where justified by

-21/0

"and b nks whose condition and borrowing record
are sa isfactory will be given the choice of
redisco ting or oorrowing on a member bank collateral ote basis, although the Reserve Bank will
continue to urge that all borrowings be on a member
bank coll teral note basis. "

While the Federal R

erve Act does not require a Federal reserve bank

to accept any particular o
permits the Federal Reserve

ering of eligible paper for rediscount, but
kb, in the exercise of a reasonable banking

discretion, to accept or decl ne eligible paper which is offered for rediscount, the Act contemplates that Federal reserve banks will function
through the rediscount of come

i 1 paper having maturities not in excess

of ninety days and through the re iscount of agricultural paper having
maturities not in excess of nine

nths, as well as by rediscounting paper

secured by Government obligations a

by making advances to member barks

on their own promissory notes secure

by eligible paper or by obligations

of the Government of the United State

It would be contrary to the pur-

pose and intent of the Federal Reserve

t for any Federal reserve bank to

adopt a general practice of not redisco

ting eligible commercial and

agricultural paper and of granting credit

ccommodatinns to its:member

banks on paper of this character only in th

form of advances for periods

not exceeding fifteen days on their promisso

no

While it is believed that Federal r

secured by such paper.

erve banks may require

a margin of collateral on borrowings of member b
in each particular case warrant it, it would seem

when the circumstances
t Federal reserve

banks are not justified in adopting a general practise of requiring marginal collateral on advances made by them to member bar,




without regard

se
-3_

to the condition of each bo rowing bank, the character of paper offered,
and the total amount borrowe
It would also seem t

by such bank.
for any Federal reserve bank to require a

certain minimum percentage of

rginal collateral of all borrowing banks

outside of Federal Reserve cites but not to apply the same
to banks located in. Federal res

requirement

ve cities, would be contrary to that pro-

vision of Section 4 of the Fed.era

Reserve Act which requires the board of

directors of each Federal reserve

ark to "administer the affairs of said

bank fairly and impartially and wit out discrimination in favor of or
against any member bank or banks. "
You are requested to address a letter to the Federal Reserve
Board clearly describing and explainin

the policy and practice of the

Federal Reserve Bank of St. Louis with

espect to the method of granting

credit accommodations to member banks on

ligible commercial

cultural paper, the requiring of marginal
of marginal collateral required. of Federal

and agri-

ollateral, and the percentages
eserve city banks and of

banks outside of Federal reserve cities, bot .under the revised policy
adopted by your Executive Committee during the recent examination of your
bank and during the three months preceding the
policy.

Please also advise the Board Whether sue

option of such revised
policies or practices

were authorized or approved. by your board of direct rs, What the reaction
•of your member banks was to such policies or practice

and Whether the

officers and directors of your bank have carefully con *dere& the question'
Whether any apparent increase in your requirements under present conditions







044ela

might add to any feeli
By Order of the

of uneasiness existing in your district.
ederal Reserve Board.
Very truly yours,

E. M. McClelland
Assistant Secretary

a

Form No. 131

Office Correspondence
TO

Federal Reserve Board

From

Mr.

FEDERAL RESERVE
BOARD

Date

February 19, 4_9314_

Subject:_

F. J. Drinnen and Mr. Walter Wyatt
/
)\
\

•P•
l

The report of examination of the Federal Reserve Bank of
St. Louis, which was commenced on January 24, 1931, was received
in the Board's offices yesterday; and, in accordance with the action
taken at the Board meeting on February 11th, the undersigned respectfully submit herewith a proposed letler addressed to the Governor
of the i''ederal Reserve Bank of St. Louis with respect to the practice
of that bank in endeavoring to put all borrowing member banks in that
district on a collateral note basis, requiring a margin of collateral
on all such borrowings, and discriminating between Federal eserve
city banks and banks outside of I, ederal Reserve cities with respect to
'
the amount of collateral.
There is also submitted herewith a proposed letter to the
Chairman of the Board of Directors of the Federal Reserve Bank of
St. Louis enclosing a copy of the letter to Governor Martin and requesting 1. m to present it to the Board of Directors at its next
1
meeting and advise the Federal Reserve Board of the action taken by the
Board of Directors.
For the Board's further information, there are attached hereto
copies of certain correspondence taken from the files of the Federal
Reserve Bank of St. Louis, which, in the opinion of the undersigned,
fully support the statements of the Examiner on this subject.
R:spectfully,

Drinnen, Fed

alter Wy
Papers attached.




t

1 leserve Examiner

eneral Counsel.

2-8495

FEDERAL RESERVE BOARD

7-Z7

WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD

:February 19,
1 9 3 1.

Mr. Valliam McC. Martin, Governor,
Federal Reserve Bank of St.Louis,
St. Louis, Missouri.

Dear Governor Martin:
Your attention is invited to the ,following statement appearing on page 11 of the ReDort of Examination of the Federal Reserve
Bank of St. Louis which was commenced on January 24, 1931:
"It was noted that the Resexlve Bank held an unusually large number of member bank collateral notes secured by
customers' notes. Upon inquiry, yoUr examiner was advised
that since the latter part of 1930 it had been the practice
of the Reserve Bank to require that borrowings of all member
banks, except those secured by U.S. Government obligations,
be on a member bank collateral note basis with a margin of
collateral amounting to at least 33 1/3::, except that the requirement of 33 1/3% margin did not apply to all banks in
the Federal reserve cities; that while it might be desir able in certain cases in those centers, other cases would
be handled individually, depending upon the amount of borrowings or other circumstances.
"A number of banks have objected to the require meats, some objecting to being depived of the use of the
long term rediscount facilities ancl. others to the requirement for margin.
"The policy of req,liring bjll country banks to
pledge marginal collateral regardl6ss of their condition or
the class of paper offered, and tie apparent discrimination
between Federal reserve city bank and country banks was discussed with the management.




1
"During the examination ' revised policy was adopted by the rxecutive Committee und r which additional collateral will be requested only where j stified by conditions, and
record are satisfactory
banks vihose condition and borrowi
will be given the choice of redis ounting or borrowing on a

-2

"member bank collateral note basis, although the Reserve
Bank will continue to urge that all borrowings be on a member bank collateral note basis."
While the Federal Reserve Act does not require a Federal reserve
bank to accept any particular offering of eligible paper for rediscount,
but permits the Federal reserve banks, in the exercise of a reasonable
banking discretion, to accept or decline eligible paper which is offered
for rediscount; it is also clear that the Act contemplates that Federal
reserve banks will function through the rediscount of commercial paper
having maturities not in excess of ninety, days and through the rediscount
of agricultural paper having maturities not in excess of nine months, as
well as by rediscounting paper secured by Government obligations and by
making advances to member banks on their own promissory notes secured by
eligible paper or by obligations of the Government of the United States.
It is clear, therefore, that it is contrary to the purpose and intent
of the Federal Reserve Act for a Federal reserve bank to adopt a general -Practice of not rediscounting eligible commercial and agricultural
paper and of granting credit acco4,moaations to #.44e4r member banks on
paper of this character only in the form of advances for periods not
exceeding fifteen days on their promissory notes secured by such paper.
While it is believed that Federal reserve banks may require a
margin of collateral on borrowinL s of member banks, when the circum stances in each particular case warrant it, the Federal Reserve Board

41'

in
is also of the opinion that Federal res rve banks are not justified
ad adopting a general practice of requiring marginal collateral on
t
condition of
vances made by it to member banks, withOut regard to the




the borrowing bank, the character of paper offered, and the total amount
borrowed by such bank, as the Federal Reserve Bank of St. Louis is re ported to have done.
Moreover, the Federal Reserve Board is of the opinion that,
for any Federal reserve bank arbitrarily to require a certain minimum
percentage of marginal collateral of all borrowing banks outside of Federal reserve cities but not to apply the same requirement to banks located in Federal reserve cities, is a violation of that provision of Section
4 of the Federal Reserve Act which requires the board of directors of each
Federal reserve bank to "administer the affairs of said bank fairly and impartially and without discrimination in favor of or against any member
bank or banks."

This is exactly the kind; of discrimination Which the

above quoted provision of the Federal Reserve Act was intended to prohibit;
e-cf-111%
4--f-c-c-dr
and the Federal Reserve Board w411-+i,e4-4 ci7e-rortmr,
ttr.
The Board notes that, on February 9, 1931, after this matter was called to your attention by the examiners, the Executive Committee of the .Tederal Reserve Bank of St. Louis adopted a revised policy on
this subject reading as follows:




"(1) In a spirit of cooperation with member banks
and in order that each borrowing may be reviewed at regular
short intervals, it would be desirable to get a fifteen dzy
collateral note in every instance and it is believed that
if its use can be fully explained to the member bank, it will
be perfectly agreeable to most of them and in many instances
will be insisted upon by them as a preferred method of .borrowing. However, if after careful explanation the bank not
borrowing under any of the conditions mentioned in (2) below prefers rediscounting, then it is to be allowed to re discount. In other words, it is to have its choice of the
two methods.
"(2) Wherever a tank has been a continuous borrower,
is borrowing excessively, is in an unsatisfactory condi tion, or whenever for any reason additional collateral is

4

"requested, a fifteen day collateral note will be required.
"(3) Additional collateral wil4 only be asked
where justified by existing conditiOns surrounding the
borrowing,"
The Federal Reserve Board is of the opinion that it is reasonable for a Federal reserve bank to require individual member banks to
place their borrowings on a collateral note basis, in order that borrowings may be reviewed at regular short intervals, when they are continuous borrowers, are borrowing excessively, are in an unsatisfactory
condition, or whenever for any other rlason the circumstances are such
as to justify such action.

For the re sons stated above, however,

the Board is of the opinion that it is not reasonable or proper for a
Federal reserve bank to suggest that 41 borrowing member banks place
their borrowings on a collateral note

asis, without regard to the

circumstances
A copy of this letter is being transmitted to the Chairman
of the Board of Directors of the Federal Reserve Bank of St. Louis
with a request that it be given consideration at the next meeting
of the Board of Directors and that the Federal Reserve hoard be advised of the action taken on this subject.




By Order of the Federal Reserve Board.
Very truly yours,

E. L. McClelland,
Assistant Secretary.

fie

410

FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD

February 19, 1931.

Mr. John S. Wood,
Chairman of the Board of Directors,
Federal Reserve Bank of 6t. Louis,
St. Louis, .lissouri.
Dear Dx. 1%ood:
There s enclosed for your information a copy of a letter
which the Board is addressing to Gov rnor biartin with respect to
the practice instituted by the Fede al Reserve Bank of St. Louis
during the latter part of the Year A930of endeavoring to place
all borrowing member banks in that/district on a collateral note
basis,, requiring a margin of collIhteral on such borrowings, and
discriminating between Federal leerve City Banks and banks outside
of Federal Reserve cities with re4ect to the amount of collateral.
i
You are requested to p4cent this letter to the Board of
Directors of the federal 1‘.serve Bank of St. Louis at its next meeting,
have it -ead, and request the Bard of Directors to give it consideration. Please advise the l'edera Reserve Board of the action taken by
your Board of Directors with rebpect to this matter.

t

By Ord-r of the . edera
f

Reserve Board.
Very truly yours,

E. M. McClelland,
Assistant Secretary.
Enclosure.




EXCE•iiT FROld THE M1
2/20/31

u

DIE FEDERAL RESERVE BONA._

(:xecutive Conmittee

eeting)

Consideration was given to alternative
drafts of letters to the
Federal Reserve Bank of A. Louis, prep
ared by cssrs. .,yatt and Drinnen in
accordance with instructions given at
the meeting of the Board on February
11th, with reference to the alleged poli
cy of the St. Louis ban] in the
,
granting of accommodation to member bank
s, rcported by .r. irinnen at the
meeting of the Board on February 11th and
discussed in the report of the
examination of the Federal Reserve Bank
which was recently completed.
After some discussion, uI)on motion,
it was voted to transmit a letter to the
Chairman of the Board of idrectors of the
St. Louis bank reading as follows:
"Your attention is invited to the stat
ement appearing on age 11
of the report of examination of
the Federal Reserve Dank of St.
Louis as of January 24, 1931, unde
r the caption, 'CoAateral
Requirements.'
"if the—E0deral Reserve Bank of Lt. Loui
s had adopted a General policy or ,practice of (1)
declining to rediscount eligible
commercial.
ankikricultural paper and granting cred
it accommodp.Wnst
65 1Ts member banks or. paper of this
7 —
character only in the form
of advances for periods not exceedin
g fifteen days on their promilaft(5ey note6 Secured b, such pape
r, (2) requiring marginal
Ceillaterni on advances made by it to
member tanks without regard
to the condition of each borrowing
bank, the character of the
paper offered, the total amount borrowed
by such bank or other
similar facts and circumstances affectin
g each individual case,
9
or (3, requiring a certain minimum perc
entage of marginal
6611ateral of all borrowing banks outside
of Federal Reserve
citios, without applying the same requ
irements to banks located
in Federal reserve cities, such action
would appear to be out-of
harmony with the jaltri,t,,azt.,p,wim
s.e_orAir OTOTTITI ierve Act,
-Ri
if not oontraro thcurovisions q_t
.
hit41t itself. It is
EIFFEB1 eved t
e adoption of any such polIZY or prac
tice
right add to any feeling of uneasiness
existing in your District
and tend to prevent member banks from
availing themselves of
the facilities of the Federal eser
ve Bark of St. Louis to the
ex's,ent which might be justified by
conditions in the territory.
"You are requested to address a
letter to the Federal Reserve Board clearly describing the
policy and practice of the
Federal Reserve Bank of zit. Louis
with res:ect to the meth
od of
granting credit accommodations
to member banks on eligible
commercial and agricultural pape
r, the requiring of marg
inal
collateral, and the percentages
of :-arginal co:lateral
required
of Federal reserve city ba:kc
and of banks ortsiue of
Federal
reserve ci:ies, both under the
revised policy adopted by
your




2/20/31

- 2-

"- xecutive Cormittee during the recent examination of your bank
and during the three months preceding the adoption of such revised policy. Please advise the Board whether any general
policy or practice adopted by your bank on this subject was
authorized or approved by your Board of Directors and also
whether you have received any unfavorable reaction fron your
nember banks.
"By Order of the Federal deserve Board."




EXCLIPT F.= THE NE.

i

OF THE PEDEUL RESERVE BOAL.

2/101
-r. Orinnen then reported that during the examination ')f the federal
Reserve Dank of St. Louis,

ow being conducted by the Board's Lxaminers, it

was discovered that a large majority of the borrowing member banks in the
district were borrowing in the form of a member bank note secured by
customer's paper with a substantial margin of collateral, and upon inquiry
it was found that since the fall of last year It has been the nractice, if
not the policy, of the ba k to endeavor to put all borrowing member banks
on a member bank conateral note basis and to require at least 333/3';Iargin
in the case of country banks and of at least 20, in the case of reserve city
banks.
r. l)rinnen stated that he discussed the matter with various officials
of the St. Louis bank and that Governor ,-artin stated to him that he felt
in
view of present conditions the practice of having the rinber banks borrow
on
a member bark collateral note basis with a margin of collateral is a
desirable

One

and should be continued, although, if the Board desires that

it be discontinued and the borrowing banks allowed to elect thc form which
their indebtedness at the federal deserve bank should take, the procedure
now followed by the bark and its branches will be abandoned.
:r. urinnen also stated that advice has today been received from
the examiner in charge of the examin lion of the it. Louis bank that on
February 9, 1:)31 a policy as outlined below was adopted by the
discount
corzaittee of the bank and the branches advised accordingly:
"l. In a spirit of cooperation with member barks and in
order
that each Torrowing may be reviewed at regular short
intervals,
it would be desirable to get a fifteen day collateral
note in
every instance and it is believed that if its use can
be
fully explained to the member bank, it will be
ncrfectly
agreeable to most of them and in many instances will
be insisted upon by them as a preferred method of borrowi
ng. however, if after careful explanation the bank not
borrowThe under
any of the conditions mentioned in (2) below
prefers redisco.nting,
then it is to be allowed to rediscount. In
other words, it




2/1




- 2
"is to have its choice of the two methods.
11 2. therever a bank has been a continuo s borrower, is borrowing
excessively, is in an unsatisfactory condition, or whenever for
any reason additional collateral is requested, a fifteen day
collateral note will be required.
11 3. Additional collateral will only
be asked where justified by
existing conditions surrounding the borrowing."
A discussion ensued as to what action,
if any, shou2d be taken by the Federal teserve Board in regard to tie practice of the
a. Louis ba :7., at the conclusion of v.ilich
the Board's General Counsel and the Txaminer
in Charge were instructed, upon receipt of
the report of examination of the bank, to
study the practice fron the standpoint of
the position of the Zederal 'eserve Board
and to prepare for submission at a later
meeting of the Board draft of a letter to
the Chairman of the ban:: outlining the views
of the Board with regard to the natter.

(copy)
January 16# 1931.

-. H. qlasgow, 'Ittnaging Director,
Memphis Branch,
Federal Reserve 1
3ank of St. Louis,
remphis, Tennessee.
Dear (laarmv:

Our (lommitte at its regulnr meeting today reviewed
the apolicat ion for discount of Citizens 7lational
sank, Trenton, Tennessee, dated January 15.
This is apparently an initial offering which was
brought to your office by one of the officers and
in
such C880C it hasbeer our
or some time to,
suFgest that the borrowings be on a colla
teral note
basis with a marzin of collateral anounting
to not
16777Than 33 1/3"7
.
,
Our committee suggests that the branches follow
t
ATRIFF-Vincy rer the time being, since
it is less
dilliculf to place the borrowings on a colla
teral
note basis at the beginning than to chang
e the method
of borrowing later. Due notice 1.1 the form of
letter should be sent to 12,13 at the time such arran
gements ere male for the completion of our file
.
-ill you please acknowledge receiot of this letter?
Yours

very truly,
Ti'. fITL70'17
Controller

CC:Little Rock Branch
Tmuisville Branch




Memphis Branch
Federal Reserve Bank of St. Louis
Memphis, Tenn.

January 20, 1931.
Mr. S. ?. Gilmore, Controller,
Federal Reserve rank of St. Louis,
St. Louis, Missouri.
Dear Gilmore:
Your letter of January 16, asking us to require
the Citizens Nation:a 2ank of Trenton, Tennessee, to borrow on
its 1:romissory note and to pleoge 33 1/3 additional collateral,
:,
came Saturday.
We do not quite understand ;
our letter.
Has our
-,olicy been changed so we '41_11 require all banks to borrow on a
collaWal note basis indtead of rediscountinG as heretofore?
1 .ill 33 173 collateral be reiired in all cases and if so, does
:
thd- COmmittee moan it should Le eligible and acceptable pal)er or
can the collateral be pledged as collatend to its t;enem.1 line of
credit and li'Llnce need not ue eligible?
We sutzosted that the Citizens N.tional Bank borrow
on its bills paya e a .r. arwood did no
ake
11 y to it.
We see no particular objectic:n nor any scific advantage
in a bank's borrowing on its bills payLle unless it is extended..
but it has Lot been our practice to require a margin of cA.lateral
until the borrowings exceeded, in the old days, about tv,ice its
basic line; or more recently, its ca.Atal and surlus.
:
Please discuss this with the Committee :I/d :;rite
again.




Very truly yours,
(SigneL) . ii. Glasgow
!:lnaging Director.

Us

COPY




january 21, 1931,

Mr. W. H. Glasgov,,
ILIn ging Director, rempliis Branch,
Federal Reserve Lank of St. Louis,
Yemphis, Tennessee.
)1asgow:
Answering your letter of Jr:unary 20 regarding our general
letter of January 16 swgesting that in cases of initial
offerings that lamL441n21MgA_It-DlUcee on a collateral
notess 14 amargin of collateral amaranth* to not
iiira
,
---less than 33 1 %.
/3
As mentioned in our letter, we have followed this policy
at this office for some time and our Committee feels that
the plan is desirable for di,: time bein as it simplifies
matters for UA and eliminates the necessity of changing
the method of borrowint and asking for collateral later on.
Since following this policy the, minimum requirement as a
margin has been 33 1 % and as heretofore the margin need
/3
not necessarily consist of eligible paper.
This, of course, does not apply to all bar4i:Ls in the city
of Vemphis, as they sometimes have cAlateral p1e6ged even
though they are not borrowing againut it. There are cases,
however, where the plan might be desirable, one of vliich
would be where the colleteral offered is dliefly composed
of paper more or less of a border line nature or if the
offering Wink is not in a satisfactory condition. Other
cases can be handled individoally, somele.hat in the same
manner as in the past, depending on the amount of borrowinc;s or other circumstances.
Youl-s very truly.
S. F. Gilmore
Controller




CUPT

January 27, 1931.

Mr. a. P. Minchaloes
ltarr4;ers Lou;.aville Branch,
Federal heserve iittrilc of
Louisville, Kaatucky.
Dz Kinchelok-;
(Jur L:;oillitie at 1.7:3 regalar meeting todAy

reed that th bori.owings of thl Citizens
National Bafiks Bowling Iroen, Xmtuc17,
shoula be p140e1 on a collateral note b7.=.sis lith
a margin of collterA amauntini; to not less
tban 33 1/0.
A
aclosed Is 1 copy of a lattsT whidh we have
written the bank tolv.
Your: vIry truly,
3. Y. Gilmore
tAntroll.a.




January 19i 1931.

Yr. W. E. Yenke, Cashier,
First National Bank,
Huntingburg, Indiana.
Dear 14r. T:.enke:
Our Committee at its regular meeting today reviewed
y-ur application for discount dated January 15, received throu:;h our Louisville Branch.
In consideration of our acceptia; this offerint; it
is su,gested that your borrowings, until further
notice, be on a collateral note basis, with a margin
of collateral amounting to not less than 33 V5'A.
The Louisville Branch will send you the necessary for s
and instructions; and it will be appreciated if you
will give these matters prompt attention.
Very truly yours,
S.F.Gilmore,
Controller.




THE FIRST NATI,11AL BAIT,
Funtingburg, Indiana.

January 27, 1931.

S. F. Gilmore, Controller,
Federal Reserve Bank,
St. Louis, Iiissouri.
Dear Sir:
This will acknowledge receipt of yaur communication
of January 19th together with forms and instructions from the
Louisville Branch, also a letter dat'!d. January 26th from te
jranch.
In response to tIlse communications, beg to state
that we can pay our rediscounts down to t.20,000.00 by February
10th and we are wondering if we can not go along on the old
basis or whether you still desi ,-e to use the new form as prescribed in your late correspondence. ie shall male an earn 'st
attempt to get them all paid within the next 90 to 120 days,
which from the prosent o)tlo)k we be. eve vill be possible.
1",e have been allotted !:i25,000.00 in State funds.
ha e qualifid for 10,000.00 of this, and .e are going to
apply for another surbty co:4)any bond of 7,500.00. This is
the me rehson why we dislike at this time to pledge addit, onal
paper. Haver, if after giving this your considerallon you
state that it shall be done, we will (lo so imredie0.e1y.
Yours verr truly,
L. Kenke
Cashier




••••.,

Jan...ary 28, 1931.

Mr. Y7. E. Menke, Cas ier,
First Eational 3ank,
huntingburg, Indiana.
DeAr Mr. Menke;
Our Committee has given consideration to your letter
of: January 27 indicating that you will be ale to
liquidate your indebtedness to us within the next three
or f )ur months; but still feels that in the alettl<izie your
borrowings should be on a collateral note bas s, with
a oargin of collateral amounting to not less than 33 1/3.
—AJMAILIJIMLAIITI
1111_12_0ur reallEtA
3
Tnere
and we bel!eve that you will find the collateral
note a convenient method of borrowing.
you please send the note and col:Lateral pledges
to the Louisville Branch with the required amount of
iriarin as soon as possble?
Very

2.taly yars,
-

S. F. Gilmc.re
Controller.




January 20, 1931.

Mr. S. F. Gilmore, Controller,
Federal Reserve Bank,
St. Louis, Missouri,
Dear Gilmore:

We are in receipt of yo :r le!.ter dated January 16th,
enclosing copy of letter which you have written to the Memphis
Branch regarding the policy in cases of initial offerings to
place borrowings on a collateral note basis with a margin of
collateral amounting to not less than 33 1,3.
1
Your letter was read nrid discussed at our committee
meeting today and it is not clear to us just what you mean
with reference to "initial offerings". We assume that you
mean that this policy is to be put into effect with banks that
have never borrowed from us. We will thankyou to please ad—
vise us if our assumption is correct.
Yours very truly,

P. Kincheloe,
Manager.

7.

January 21, 1931.

gr. 'r.P.Kinoholoe,
Nanager, Louisville Branch,
Federal eserve Bank of St. Louis,
Louisville, K-ntucky.
Dear Kinci:eloe:
Answering your letter of January 2t) regardin initial
offerings referred to in our letter of January 16, we
had in mind initial offerings from any bank whether it
had borrowed from us before or had borrowed previously
and paid out.
The Committee at this office feels that he plan is desirable for the time being and stmplifiei tho procedure
for us in that it eliminates the neces-zity of changing
the: method of borrowing and asing for collateral later
on.
,
e
To'il'8%7:vIre,°°:113d:le_s n:=sto itlrliclzae5 ::17 ci%
' 1
l
even t auf-;h the/ are not borrowing against it.
here
are eas-s, hoy.ever, whore the plan 7;ould be desirable,
one of which wottld be whore the collateral offered is
( chiefly com7osed of papal
1
more or icss of a border line
nature or if the offe-ing bank is not in a satisfactory
condition. 0 her oasos can be handled individually, some
what in the same manner as in the :last, depondinl. an the
amount of borrowings or otiw,r circumstances.
Yours v(xy truly,
S. F. Gilmore
Controller.

•







COPY

ANCH
LITTLE ROCK
FEWPAL RESERVE BANK
Little .-iock. Ark. January 23, r,31.
!

Mr. S. F. Gilmore, Controller
Federal Reserve Bank
St. Louis, Missouri.
Dear Vr. Gilmore:
Mr. L. B. McClure, President, Peoples acchamge 2alak, Ruesellville.
Arkansas, was in the Lank today and be traneferred the two notes,
which no are holding under rediscount, frac rediscount to collateral
to bills payable today. He stated that the 500 bales cotton collateredieg the $21.250 note of Henry Brothers would be sold .ithin the next
few days and this note retired, also, he thought that the 0..7,000
note would be paid at maturity.
ee osit rear i
He said he felt that the shoul not be re
on these teo .
ar notes as the are secured b
collater
cotton and would $.ortl‘ be retired. It is the ream endation of
our Contttee that we do not require them to deposit marfinal colla.
teral on vilest) two notes with the understandinc that the paper is Ap
to retired at maturity. Februar 5th. If this iflo a.:Tesaffi-with
ea please et us ',wow ana we will vgrite the Peoples
your iomm
Exchange Bank, Russellville, Arkansas and request them to forward us
mareinal collateral on this paper.
At this time it will not be eeceesary for them to put up any collateral to their general line as thy have a large excess Ln collaterto (leal to bills payable. However, it would Le neceseery for
posit marginal collateral in case they borrow on the collateeel to
bills payaLle which we accepted and upon which they are not borrowing at this time.
Please let us know if it will be satisfactory to your Committee for
us to naive marginal collateral on the trio notes secured by cotton
totaling $38,250. with the understanding that these notes will Le
retired upon maturity dates.
Yours very truly,
(Signed)

E. Lon

Cashier.

January

al, 1931.

Mr. ::. R. Long, Cashier,
Little Rock Branch,
?ederal Reserve Bank of Saint Louis
Little Roc, Arkansas
Dear long:
,
Our Committee at its regular meeting today discussed your letter of
reference to our request that the Peoples Exchange
December 23, with
Bank, Russellville, Areausas, maintain a margin of collateral amounting to not less than 33 l/3 of ite indebtedness to us.




Even thou:6_11_1s the intention of the bank to liquidate the ',cites
secured by cotton on February 5. we feel that the man n should be
maintained in the !sauna.. However, inasmuch as your letter in—iias a considerable excess of eligible collateral,
dicates that thiniiia
the amount of ehich you did not stete, and assuming that this ic suf7
ficient to make up the 33 /3'.. margiu; there is no necessity to ask
the bank to send any additional amounts of collateral at this time as the excess of eligible paper may be taken into consideration in
determining whether the margin is sufficient.
In the event that meturing collateral iteee, or an increase in the
bank's borrowings should, in the meantime. reduce the margin to below
the required amount, it is our viee that the Lank should submit additionel acceptable paper; but as long es the excess of eligible collateral ffords sufficient margin, the matter of margin need not be
pureme(1 ferthor with the bank.
te believe thie will meet with your approval, but if not, please write
us further.

Very truly yours,
?.
1 Gilmore
Controller.
OCP:CC

•

(cop!)
Memphis 3ranch
Waderal ,leserve Bank of St. Louis
Memphis, Tenn.

February 6, 1931.

Mr. *,‘. McC. Wartin4Govornor,
Federal Joserve .,:arik of St. Louis,
St. Louis Aasouri.
Dear Mr. Martin :

Since our telephone conversation this morning Hr. Dillard
called up to uay that he had a talk with 1,5% Snowdon and i4r.,
Dillard. understands that our policy is to ask all bankg.__W
banksThi7WrwT1i1viaab1e and to
cludl
the ci
additional oollategalt_W inpresi41posit a !mg n of 33 1
sion wai7that we would do this toThe- country banks but woula
not regilre a margin from the city Vanks. ir. Dillard has asked
5nowden and I will try and do this toraorrow morning.
In the meantime, I thought it best to write you because
Mr. ..Xowden is apparently very much ups*. They have been makin,
i,'
se loans in the deltl.
L_expectIna.to diecount_iiiesilv or pledill
them to us dollar for diarik - and thiik that a ma_Nin would
be a bardshilfi___.
—

Willyou please drop mo a line?
Sincerely yours,
(Signed) 1. H. Glastpw
'Ianaging Director

'Note
11r. Dillard- ':ead office director living in elahis.
3 owden- Branch director; Vice President,
CoriLerce and Trust Co., Memphis.







„

(cop!)
ITMDARAL Ri32!!":11N

0.; ST. LOUR;

February 7, 1931.

H. (lasgow, !Aanazor,
Vomphis Branch,
2ederal Reserve Bank of 3t. Louie,
1.1araphis, Tenn.
1_411c$:

received. your letter of Yebruary
of thum
6 and do not understand that wa have any rule
ts. Duritk; this particular
.
in tlie Grantin6 of credi
period of economic upzet in this district, we believe
that for both the good. of th, member bank and this
y note is weferabla and we prefer to
bark th i
make our advances in this rawftner. s to additional
coliateml, it dep9nas upon t7,1.2 notes offered and
tion
the condition of the bank. There i3 no discrimina
ry bank. 2e.rha9s
rina the cqunt
betvieu the city
arisen becmse as a rule the conimpreasion 1.1
this
aSk
dttion of the country banks he.s reciaired u5 to
bflnks have not
ndditional col_aterAl wt,ereas muy city
hand, mma
made this condition necesary. On the other
that lte have
city banks have been in much condition
vaketa for additiorva collateral.
)e

34ch nitvd1 case is to be conuiaered
tion of the bank .
indiVidnal Case. if the condi
re additional
,a
and it surroturlings are such E- to requi
the conaition of
col .terta„ we should have it, a.nd i
good credit
t;le garraandings are such that
the bank
teral necesmry,
colla
grinciples woad not make additional
its
reason for us to
tam there j_G no
Yours sincerely,
(Sigrod) ,ti. "cc. artin
Governor

CLPY

Feioraary 11,1931.

.
1Cincheloe.
er, Louisville Branch,
Yall,
voderal aeserve Bank of ;A.Louis,
Louisville, KeAucky.
Dear Eincheloo:
the minut.3s of the
:For your information I quote from
Executive Comittee of Yebruary 9:
andum showing
.
"novernor ! .:.rtin presented to followine memor
made to nember banks:
how and under iihat conditions advanc,, are
r bar.i: an in
1(l) In a spirit of cooperation with membe
at regular short intervals,
order that each barrowinE may be reviewed
en dui/ collateral note in eve
it would be desirable to get a fifte
fully explained to
instance arm it iCTElieved that '• its use can
able to most of them and
1f177) 7177aer bank, it will be perfectly agree
oE a prefrred method
in =Ay instances will be insited upon by them
nation the bank not borof borrowing. However, if after careful expla
(0 below prefers
r..A:ing under an;; of the conditions mentioned in
rediscount. In other words,
rediscounting, then it is to be allowed to
It is to have it c'.oice of tho two methods.
II 1(2) Wherev, a baOk hau been a continuous borrower, is
ir
conditionor whenever
ng excessively, is in an unsatisfactory
-cowi
box
requested, a fifteen day colfor any reason additional collateral is
lateral note will bo rtqu red.
be asked where justi"(3) :dditional collateral will only
the borruwing."
fied by existing conditions surrounding
ore's letter of
we will continue, as outlined in Ur Gilla
- est
skit- to you,to
January 16 to Mr.Glasgowoop of wnich waz
a mar n of col,
it
be on a collateral note bashs
all instances wherP tial pfless than 33 1
lateral o not
and we have an opportunity of disferings
borrowing bank presenting
.
cussiiii lhe matter with the officer of the
the 6iferina.




Yours very truly,
Attebery,
Deputy Governor.




(COPY 02 LETTER TO ALL BRANCUS )

MARAL RESEUVB

BANK

-ofST. LOUIS

COPY
ltbruary 17, 19,31,

Mr. W. H. Glasgow, tlanagor,
Memphis Branch,
Federal -eserve 3an1: of St. Louis,
Memphis, Tenn.
Dear Glasgo, :
;
Referring to our letter of February 11; quoting
from the minutes of the Executive Cammittee meeting of
2ebruary 08 it develops that the last paragranh of this
letter has boon construed by some as contradictinc, the
A
action of the - xecutive Committee. It was not so in,
tended and in order to avoid any )ossibility of a misunderstanding we wish to point out that as stated in
the :ixecutive Committee minutes nad41V&nal ggllat_2;g1.
be asked Where _justified by existiwiconditions
will on
the borrowing."
surround
•,

This does not mean, however, that When initial
offerings are brought to your office and you have the
op-portunity to talk tho atter ovJr personally that you
.
are not to vuggest the advisability of using th, collateral
note and at the same time, in your diJcretion, the advisability of starting with a margin of col aterr..l of not
less than 33-1/0. It does mean that in no instance
will the margin of collateral be required unless justified
by exieting conditions surrounding the borrowing.
Yours very truly,
(Signed) U. i. tteberY
Deputy Governor

COPY




_

Yr. Gilmore Controller in charge of Credit - Discount
Department stated that around the fall of the year the
discount committee decided to adopt a general policy of
endeavoring to put all borrowing banks on a member bank
collateral note basis, requiring at least 33 1/3 margin,
the Federal reserve city ban'Ls to be considered on
separate basis with margin ranging lower if condition
warranted. All of the branches were advised of this policy
January 16, 1c:31.
It was definitely stated that a bank's initial offering
would not be rediscounted even if it were a good bank and
the paper offered were acceptable but that the reserve ban:
would insist that the member borrow on a member bank collateral note basis and pledge at least 33 1/3. margin.
The advantages of this plan from the reserve bank's viewpoint
are that:1.

in case of the failure of the borrowing bank
the claim is easier to handle and larger
collections are obt;ained.

2.

The reserve bank can more closely check the
borrowing bark each 15 days, and that with
each offering a condensed reort of condition
is required.

3.

Tate chanes are quickly effective.

..
6.1... 4.41.dia
.....
'LSD
AT SO

.....

NutPTING

Fiit ii 1911

•
(COPY)
January 15, 1931.

Yr. W. H. Glasgow, Lanaging Director,
7.Temphis Branch,
Federal Reserve Bank of St. Louis,
7emphis, Tennessee
Dear Glasgow:

Our Committee at its regular meeting today reviewed
the application for discount of Citizens "Jational
Bank, Trenton, Tennessee, dated January 15.
This is apparently an initial offering which was
brought to your office by one of the officers and in
such cases it has been our policy for some time to
suggest that the borrowings be on a collateral note
basis with a margin of collateral amounting to not
less than 33
Our committee suggests that the branches follow a
similar policy for the time being, since it is less
difficult to place the borrowings on a collateral
note basis at the beginning than to change the' method
of borrowing later. Due notice in the form of a
letter should be sent to us at the time such arrangements are made for the completion of our files.
Will you please acknowledge receipt of this letter?
Yours very truly,

3. F. GILMORE
Controller

CC:Little Rock Brandh
Louisville Branch




(COPY)




January 27, 1901.

Citizens National Bank,
Bowling (lreen,
Kentucky.
Gentlemen:
Our Committee at its regular meeting today
reviewed your application for discount dated
January 24 and in consideration of our accepting this offering suggests that your borrowings until further notice be on a collateral
note basis with a margin of collateral amounting
to not less than 33 1/
3%
Our Louisville Branch will send you the necessary
forms and instructions and it will be appreciated
if you will give the matter prompt attention.
Yours very truly,

S. v. (=ORE

Cnntroller.

C,




The policy of the reserve bank is to require the borrowings
of all member banks to be on a member bank collateral note
basis with a margin of collateral of at least 33 1/3% except
that in the case of Federal reserve city banks the minimum
margin of collateral renuirefl is reduced to 20.

Borrowings

secured by United States Covernment obligations are expected
from this requirement.




February 9, 1931.

F. J. Drinnen,
Federal Reserve Board,
Washington, D. C.

Instructions issued to Head Office and all branches today
eliminating fixed requirement each party to be considered
on its merits and party to have option as to method.

R. H. BRETT.




(1)

In a spirit of cooperation with member banks

and in order that each borrowing may be reviewed at regular
short intervals, it would be desirable to get a fifteen day
collateral note in every instance and it is believed that if
its use can be fully exrdained to the member bank, it will be
nrefectly agreeable to most of them and in many instances
will be insisted upon by them as a preferred method of borrowing.

7owever, if after careful oxplanation the bank not

borrowing under any of the conditions mentioned in (2) below
prefers rediscounting, them it is to be allowed to rediscount.
In other words, it is to have its Choice of the two methods.
(2)

Wherever a bank has been a continuous borrower,

Is borrowing excessively, is in an unsatisfactory condition, or
whenever for any reason additional collateral is requested, a
fifteen day collateral note wi_l be required.
(.5)

Additional collateral will only be asked where

justified by existing conditions surrounding the borrowing.4