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Reproduced from the Unclassified / Declassified Holdings of the National Archives

Dear Sir:
Beferring to your letter of May 2nd,, there is en­
closed herewith an excerpt from pages 152-154 of the Board* s
Annual Report for fehft year 19.14, dealing with the subject of
•ingle name paper, A i c h is foubtleas the article to
'y & a r T B f i s t .
Dhforfeuaatel:;, the Board has no copies of the
1914 leport available for distribution, as tills particular is­
sue has been out of print for some time,
The Ite&eral Beserve Act “became law December 23, 1913,
and on Monday, ITovember 16, 1914, the date previously fixed by
the Secretary of the treasury, the federal reserve banks opened
for business.
tflie Citizens " B a n k of Horfolk, ?irginia, was adaitted to membership Decesfcer 5» 191? and consolidated with the
Seaboard 'national Bank under the title of Seaboard Citizens
national Bank on June 30, 1928,
Tours very truly,

£. M. MoClollaaa.
E. M. IfcClelland,
Assistant Secretary.

Mr. vtri. H. peters,
43 Court Street,
Portsmouth, Virginia




j

/
/

ESTABLISHED

I8 8 f

Old Dominion Paper Company
W H O L E SALE

O F F IC E R S
R O B ER T JO H N S TO N , C hairman of Board.
C LEV ELA N D MANNING, Pr e s i d e n t .
K.B. W OODHOUSE, V i c e -P r e s i d e n t .
W M . H. P E T E R S , V i c e -P r e s i d e n t .
R O B ER T S. JO H N S T O N , S e c ’y -T r e a s .

T E LE P H O N E

Pa p e r a n d S t a t i o n e r y

ADDRESS YOUR REPLY ATTENTION OF

Mr

N o r f o l k ,V i r g i n i a .

May 2, 1930#

Honorable federal Reserve Board
Y/ashington, D* C.
G e n t le m e n :-

I would appreciate it very muck if you
will kindly advise me at my home address, 43 Court
Street, Portsmouth, Virginia, if I am not correct
in my view that shortly following the enactment into
law of the Federal Reserve AQt, the Federal Reserve
Board encouraged the handling or discounting by
Member Banks of single named paper* I am quite sure
that my memory serves me cqrreotly as to this, but
1
cannot at this time put my hands on the annual
report in which I saw it. I think it was among the
first annual reports issued or submitted to the
House of Representatives.
Will you kindly also advise the date of
the inauguration of the act and the date on which the
Citizens Bank of Norfolk, Virginia, became a member
of the systemf
Your consideration will be appreciated.
3'*

r
Respectfully yours,

m p

/f

Wm. H.

r5F
* J A A?

4

\ .\

ALL CONTRACTS AND ALL AGREEMENTS ARE CONTINGENT UPON STRIKES, ACCIDENTS,DELAYS OF CARRIERS OR OTHER DELAYS UNAVOIDABLE OR BEYONO OUR CONTROL




2+733

Reproduced from the Unclassified I Declassified Holdings of the National Archives




Mr • SoJ,.* ......--.w
/National Boot and Shoe Manufacturers Association
^
Rochester, Hew York*
Ity dear M t TITIIb t '--.- -.. ■.. . -. ...
I have your letter of J § r c h ^ a n d have
read it with interest*

There is, however* no move*

ment so far as we arc advised to prevent or inter­
fere with tha d isooanting-jof suisable ainglo name
paper*

I shall, however, bring your corrrnunication

to the attention of tne Board,
Very truly yours,

Secretary,

Reproduced from the Unclassified I Declassified Holdings of the National Archives

N a t io x a l B o o t a n d S h o e
M a n u fa c t u r e r s A s s o c ia t io n
o r

THE

UNITED STATES

R o c h e s te r ,
OFFICERS AND EXECUTIVE
COMMITTEE

m

t m

N.

Y.

s, m a *

President
J O H N S. K E N T ,

Brockton, Mass.
M . A. Packard Co.

Vice-Presiden ts
FR AN K C . R A N D ,
S t. Louis, Mo.
International Shoe Co.
F R A N K R. B R IG G S ,
Boston, Mass.
Thos. G . Plant Co.
HOVEY E. S LA Y TO N ,
Manchester, N . H .
F . M . Hoyt Shoe Co.
A. J . S W E E T,
Auburn, Me,
Lunn & Sweet Shoe Co.
MARK W . S E L B Y ,
Portsmouth, 0 .
Selby Shoe Co.

Honorary Vice-Presidents
JO H N H . HA NA N ,

Brooklyn, N . Y.

Hanan & Son
H O N . A ARON S . K R E ID E R ,
Annville, Pa.
The A . S . Kreider Co.
ED G AR P. R E E D .
Rochester, N . Y.
E . P. Reed & Co.

Treasurer
H E R B E R T P. G L E A S O N ,
Johnston & Murphy

Newark, N . J .

Secretary
S O L W IL E ,

Rochester, N . Y.

Executive Committee
One Year
F R E D B . R IC E ,
Boston, Mass.
Rice & Hutchins, Inc.
J . FR AN K M cE LW A IN ,
Boston, Mass.
W. H . McElwain Co.
H E N R Y W. C O O K ,
Syracuse, N . Y.
A. E. Nettleton Co.
FR AN K J . B R A D L E Y ,
Haverhill, Mass.
Hazen B . Goodrich & Co.
HERM AN M EYER,
Philadelphia, Pa.
Croxton, Wood & Co
FR A N K S . F A R N U M ,
Brockton, Mass.
Churchill a Alden Co.
IR W IN M. K R 0 H N ,
Cincinnati, 0 .
Krohn, Fechheimer Co.
M IL TO N S . F L O R S H E IM ,
Chicago, III.
Florsheim Shoe Co.

Two Years
J O H N A. B U S H ,
St. Louis, Mo.
The Brown Shoe Co.
G E O R G E R. H A R S H ,
Milwaukee, Wis.
Harsh & Edmonds Shoe Co.
A R TH U R E . S P E N C E R ,
Brockton, Mass.
E. E . Taylor Co.
J . E. T IL T ,
Chicago, III.
J . E . Tilt Shoe Co.
R. P. H A Z ZA R D ,
Gardiner, Me.
R. P. Hazzard & Co.
C . C H E S T E R E A TO N ,
Brockton, Mass.
Chas. A . Eaton Co.
F R ED E M E R S O N ,
Auburn, N .Y .
Dunn & Me Carthy
JO H N W. CRADDO CK,
Lynchburg, Va.
Craddock Terry Shoe Co.

Three Years
CHAR LES H. JO N E S ,
Boston. Mass.
Commonwealth Shoe & Leather Co.
J O H N R. G A R S ID E ,
New York, N . Y .
A . Garside & Sons
E L M E R J . B L IS S ,
Boston, Mass.
Regal Shoe Co.
F R AN K X. K E L L Y ,
Rochester, N . Y .
MJohn Kelly, Inc.
OSC AR C . D A V IS,
Brockton, Mass.
Geo. E . Keith Co.
JO H N C . M c K E O N ,
Philadelphia, Pa.
Laird, Schober & Co.
E. 0 . T E A G U E ,
Dover, N . H .
Farmington Shoe Co.
F. I. S E A R S ,
Webster, Mass.
A . J . Bates Co.

Councillor and Delegate to the N ational
Chamber o f Commerce o f the United
States o f Am erica.
H O N . A. S . K R E ID E R ,
The A . S . Kreider Co.




Annville, P «.

Br* K. Parker W illis ,
Federal Heserve B@ard*

Bear S ir
My atten tion lias be#n c a lle d
to tli® actio n of the Trad® M#ept&nce
Oo&ncil recommending to the Federal
serve Board that no sin g le name paper
"be taken fo r re~dis©otmt% i cannot
"bring myself to oelieve that t h is
actio n has oeen se rio m s^ taken, and
yet aay somre©
infajpastioa i s of sne&
a r e l i a b i l i t y , that i t m j B*
I f tli© Federal Heserv© .■!•**■§
wishes to take a e ti^ n that w i l l
i n f la t io n by putting into Girsmlstiom
'i'rade liie p t a n e e s based npen slow acsounts,
X know ©f no more e ffe o tiv e way of m m m »
p lis h ln g i t than by elim in a tin g sin g le
name pape# fo r re~diso ©mating*
i’he business of the United
States is an open aceoint business* and
the transform ation into a fru te A@@eptane®A
©f ©onrse devotedly t© be wta&ei^mmst be
aoeomplislied thtoiagh the rnnlted a ctio n of
the inlanmfa c t a re r, the r e t a ile r and the
lo c a l Banker; and u n t il the lo c a l Banker
hat been educated to 'fin a n e ® „ the b n sln e si
mm of h is esanmalty, t h is ehanfe cannot
be h e a itjitly & © ew plish«i#
Jl .endes# s o m # replies t* a
f.raie'M e e p t a m e e tuestionnatr#, which I
Issuii and ©all F®t*r attention t@ the
reply of number two (2) at the bottom
Of page one# taring great faith is the

Reproduced from the Unclassified I Declassified Holdings of the National Archives




Dr. n. Parker W illis ,

2.

wisdom and conservatism of the Federal
Reserve Board, I hop® that i t w i l l not
take actio n in Harmony with the recom­
mendation of the Trade Acceptance
C o un cil, i f c o rre c tly reported to me*
lo u rs very s in c e re ly ,

SW

AS
1 H C .(R e p lie s)

mr
Reproduced from the Unclassified I Declassified Holdings of the National Archives

'. " n a .

HOi

1 2 . . #6 ,

2 .7

TRADE ACdBWiftftttBi
Under date of January 7thf 1 issued a letter to the mem­
bers relating to the introduction of Trade Acceptances, and put
the following queries:A - ; What is your attitude towards the (Trade Acceptance
method of handling accounts receivable?
B~
What progress have you made in the introduction of
the Trade Acceptance?
C- What, if any, differentiation might it be advisable
to make 'between/the various classes of accounts to' be handled in
this manner witix particular reference to so-called "chronically”
slow accounts,
D~
Can you give any other information relative to the
practical introduction of Trade Acceptance?

replies have been received, indicating that the mem­
bers are in a receptive mood and are fav®»able to the use of
Acceptances when the Trade has been educated up to it,
1 quote from some of the replies received, as follows;•
1- V ’Very much ia favor of them, and about eight‘months 'ago
"attempted to introduce them among our trade but with very poor
"success; in fact, there was so much complaint from the trade that
"we ceased trying to push them.11
2"(a) We think very favorably of the idea, but so far
"the t'heOry seems to be sounder than the practice in our own
"business.
.
"(b) We have not used it at all, though, we did offer
"seen after the law was effective to do soma experimenting for
"Government agehts. Our offer was not accepted, ^
"fey2 Your question here touches upon one of the problems
"which is worrying us in the complete working-put of the plan,
"(d) lo we cannot give you any first-hand information,
"It may interest you to know that we have already started an in"vestigation-of what kind of results hate thus far been obtained
"by a number of the shoe men who are supposed to have taken it on,
"We got our information as to the list of these people by writing
"the Secretary of the National Credit Men1s Association an& we got
"circular letters away to them a few days ago."

Subsequently, and under date of January 39th, lo* 2
further replied:"Referring again to your circular letter of the 7tE# we
wrote to Mr, Tregoe, Secretary of the national Credit Men1s




Reproduced from the Unclassified I Declassified Holdings of the National Archives

m. mu

12 , #7.

"Association, obtained through Him the Hames of a half dozen or
"moreshoe houses that have shoWh Infinite interest in Trad©
"Acceptances and thereupon wrote for their experience.
"All hut one of the replies are in and w e .cannot find on©
that is doing anything at all with this Acceptance.All thinkit
"sound in theory, but not yet ready for practical use,
"We give you this fact because it happens to be our
"experience and opinion a:lso and for what it is worth, - without
"prejudice."
3"(afb)"From such Investigation as we have made we are led
"to believe that the average retailer looks upon it rather as a
"collection measure for the benefit of the smnufaeturer instead of
"as an improvement toward a financial system. For this reason we
"are afraid that ar*y attempt to introduce it: under present con©
"ditions would react to our disadvantage,
"(c) If we look upon the Trade Acceptance as an aid to
"our financial system, then in our opinion the Trade Acceptance
"should be introduced as widely as possible iso as to create a basis
"for additional currency,if the financial situation requires it.
"Considered as an additional feature in the collection system, no
"doubt the Trade Acceptance would be most beneficial if it could
"be introduced with the chronically slow account®,
"(d) In our opinion the introduction of the Trade Accept­
ances willmot be general, unless it is adopted in good faith by
"at least amajority of the membersof the several trades, for the
"reason explained above."

4~
"(a) We have insisted on alj trade who have not in the
'Ipast been discounters, signing a Trade Acceptance; also some new
ntrade that are not rated high and the ratings would indicate they
"do not discount.
"ffe) We have succeeded in getting about £5$ of the Trade
Acceptances signed from those we have made the request.
"(c) We believe that all manufacturers should insist on
"all slow account signing trade acceptances. We believe, too, that
ifif this was made a little more .general, it would be much easier to
"secure the trade acceptence. We believe in it, because our ex­
perience has been that slow payers are more apt to take care of
"a trade acceptance when it has been signed thafe they are with an
"open account,"
5"(a) (fur attitude on this subject is that we are willing
"£o let it develop© of itself, as from our study of our own business*
"it does not seem to us that it would make any particular difference
"whether trade acceptances are the rule or the exception.
"(b) We have not made the slightest effort to change
"our terms and to get* paper or acceptances for our accounts.



Reproduced from the Unclassified I Declassified Holdings of the National Archives

m.

■izx

#8.

6"(a) V^e thoroughly 'believe in their use and we are
’’pleased to do all in our power in helping introduce them and
"educate the trade to-this end.
"(b) During the last year we have received nearly two
"hundred pieces of this paper, amounting to about $50,000., and so
"far us we know it has worked out to the entire satisfaction of all
"concerned,

11
(c) We have made no attempt to use this kind of settle­
ment, except with customers who have been in the habit of taking •
"the full net time, or in excess of our terms, and we have very
"strongly urged that the slow people cftose their accounts in this
"manner,
"Y/e have made a practice of dividing the accounts up into
"small amounts, making the acceptances due Monday of each week,
"averaging the time of payment, and by this means we have been
"able to get our money quicker and we think it has cause’
d no hard­
ship to our customers,
"(d) We expect to continue and extend their use just as
"rapidly as possible* The National Asso, of Credit Men.has recently
"issued a circular letter designed to be sent forward with the ac­
ceptance and also three forms of acceptance, all of which are very
"good. We propose using these 'as soon as we have exhausted our
"present supply which we had printed up specially for us. We be"lieve that the use of the trade acceptance will have a tendency
"tp reduce Bad Debt losses,"
7"(c) We believe it to be to the advantage of the manuQ
"facturer if so-called "chronically'1 slow accounts gave Trade Ac­
ceptances , It would also be to the advantage of the customer, as
"by giving Trade Acceptances hi® would immediately become a good
"pay account instead of slow pay,"
—

0)

M.

8"(a) . We consider the Trade Acceptance idea absolutely
"impracticable in our own business. We should not wish to sign
".such documents when buying materials, and we know of no customer
"in our entire line who would wish to sign in our favor after
"purchasing our product. We sell the retail trade exclusively,
"and a great many merchants are largely dependent upon current
"receipt for funds with which to pay in turn the manufacturer,
"Weather conditions and other conditions which cannot be foreseen
"affect largely the average dealer1s ability to pay his bills
"promptly, It would appear to us entirely impracticable for the
"average merchant to commit himself rigidly to payment of a bill
"on the exact date specified in a Trade Acceptance, our customers
"are exceedingly conservative, and, as a rule resent evemi being
"asked to sign prders given to our traveling salesmen. We can
"easily imagine their state of mind if asked to sign a Trade Ac­
ceptance after receipt of goods and invoice.
"Furthermore, in the present upset conditions of trans­
portation there is no knowing whether a shipment to a customer



Reproduced from the Unclassified I Declassified Holdings of the National Archives

1

HC. BCh

12. #9.

"may take one week or six in transit, Jfaturally it delays payment
"of the >111 until the .goods ■arrive!,' even though dir count terms are
"limited to 4% off 10 days,'or 3% off 30 days from date ofbill,
"We do not see how a .Trade Acceptance would fit in unless a customer
Tlwere willing to pay for goods not yet received.
9.- "(c) If the chronic slow customer can be induced to
"accept draft, it-would'be a means of getting parent, as it sets a
"definite date, which requires attention, more so than an open &ee
"account. In our Canadian 'business this trade acceptance has been
"a practice and we found it works out very satisfactory,.
"(a)
it is going to take time to get the trade to accept
"drafts, particularly the smaller merchant. It will be a matter of
"educating him.

10"(c) Our opinion would be that chronically slow accounts
"would be averse ta the trade acceptance for the reason that they
"would find it difficult to meet the payment #hen it is due. If they
"would agree to the use of the trade acceptance, it would certainly
"be a great advantage to the manufacturer,
"(d) It would appear to us that the .trade acceptance would
•"have no advantage in connection with accounts that discount their
"bills, The most favorable and desirable opportunity for its use in
"our own business would be with accounts whose orders we fill in ad­
vance of the shipping dates stipulated on tha orders, For example;
tWe^ are shipping many orders now that are wanted for February and
"March delivery and we have to allow dating abcordinglfr. If we could
"have the use of this money in the meantime through the, trade ac­
ceptance, it would be a distinct advantage to us *
11"We are in favor of the adoption of this plan and believe
"that it .will come about gradually.
"We cannot say that we have made any particular progress in
"the matter of trade acceptances so far as our business in the United
"States is concerned, although we do draw on ail Canadian and Austra­
lian customers either on net or on discount basis as agreed with
"customers, and as result we find that our returns average moraprompt
"than in the states where we rely on the open account system,
"We use drafts in the United States on all accounts which
"are not paid promptly at the expiration of the.net period. We find
"that our customers do not object to this method and in many cases
"honor the drafts promptly tpon presentation.11




Very truly yours,
SOI Wile,
Secretary,

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Mortgage Seedrities Company
CAPITAL PAID IN
P. H . S A U f i f J ^ R S , P r e s i d e n t .
L E V E R I N S MOO RE , A c t i v e V i c e P r e s .

C.G. R O B IN S O N , S e c r e t a r y - T r e a s u r e r .




x -r f ?

$ 1 6 0 0 ,0 0 0

WHI TNEY- CENTRAL BUILDING

LOU IS P. R IC E , V ip E P r e s i d e n t .
HERMAN WE I L , V ic e P r e s i d e n t .
H . A. K A H L E R , V i c e P r e s i d e n t .

3

CABLE

ADDRESS

' M O R S E C O - N E W ORLEANS’
CODES
A. B. C. 5 T » E D I T I O N
FIFTH MONTGOMERY

New Orleans

December
6 th
IS

15

Mr. A* C* Miller,

Federal Reserve Board,
Washington, D. C.

Dear Sirs
Please pardon ray neglect in replying to your kind letter
of November l6th* I have been both unwell and out of the
city#
My letter of November 12th was not clear as to the nature
of the paper* 1 corrected this in a later letter addressed
to Mr* Harding* I understand that ve can only buy as open
market transactions Bills of Exchange arising out of commer­
cial transactions and cannot buy ordinary promissory notes*
1 am pleased to receive yoar decision in regard to the pro*
priety of purchasing such bills from member banks* It
does not appear to me advisable to compete with the member
banks by buying direct from their customers at a time like
this when the banks are in good condition to take care of the
needs of these customers*

Tours very sincerely,

f h s /a c

R eproduced from the U nclassified

I D eclassified

H oldings of the N ational A rchives

C?

J t'

\

M g m b ir &l# tflU#

Hr. P. ?U 8au**dter* * Ohttirwist,
Btard of IDteiotori#
tt** Orl^ant Braaoh,

Fodoral K
m
—nm fomkat Atlanta,
Upr Or\a*n<s, t*«

Doar Sfert*
'III tha i ^ m i f of lap* Hsrdi:^» v^c ti twrtng t #im> t aekaowlodgo m*

nmmhvr 12th asldtaf M# opinion as to vhothor
wowWl t>o (xrvptr t*&
&your 'talk to tony fwsa mm&*r banks o— wdlty

ooipt of ys**r lottor t# kin #f
■er not it

loans Tritbourt thoir ondorif > nt> »w3 bata to rtply that tho transaction la
qtostlon would fa ll taxlor th# opan wartast aootlcn ef the Aot (Saotion 14),
aaat m ti ptrtloulirly pirtijrtph C* vhioh ftuthnristi F«d#rtil ft+tTrTt
jxcrohaao ftrn *n®toor bawJcs b illi of iMHiBjf arising out
aotlona*

to

ooftSMrolal tirana***

80 far, tboraforo, a# oflnNm ill* propriety of your bank taping

puptr ft*o* its nsaibor binkf without mdoFMMRti thtrt appoars %n bo m <$&00**
tloa* orcridod tho otoir Is othtrvlM olirlblo*

Tou will nerto. hovmr. that

suoh ptxrahasos mm lixdtod In Paragraph 6 to bills of oxohango, ahllo tho
ocnnodlty loans that you app«or to h*f# in nlnd aro In £ar* ordinary prontoscsrv notea oar ono nano oaoor.

IMmsi therefore* there la two nsane niiiawult I u

naDOT* or moh oasor oan ho Greeted in ftawwil l aw with oowmodltv louts. tha
tranaaotion vottld not oone within tho provisions of tha la*# tha "dlsoowrt of
»otos (pronissory notoa)” bolng llsltod to opsoratlons uz»dor S^rtion
tho andoraonont of a jassftior b®nk 'la a praraqulslta.
Tory truly ycmrst




IS ahoro

Reproduced from the Unclassified I Declassified Holdings of the National Archives




■><

Hov#aber 15f i9IS»

fiour Mr. Saunders:

lastent jh&s been referred

Your letter of the
to a

cof&ttlt-tfMi of which I

m

t* s m

m bv

r,

im d

u,:uin in - tea c o u rs e of a f o « timys,
Yours vary truly,

Mr, F* H, Sauisdo
Hew Q r ie ttr s * La*

I

will.writo you

■

-

Reproduced from the Unclassified I Declassified Holdings of the National Archives

3 3 3 ,

L o u is ia n a S t a t e R ig e M i l l i n g
cable address

y - s

Go .

A m e r i c a ’s L a r g e s t R i c e M i l l e r s

^ L A S T A R M C O ”
C O D ES

USED

A.B.C.5 ™ EDITION
LIEBERS
W E S TE R N UNION
PRIVATE CODE

X E W O l £ L E A X S JJ.S.A . N o v . 1 2 ,1 9 1 5 *

Mr.W*P*G.Harding,
F e d e r a l R e s e r v e B oard,
W a s h i n g t o n , B.C.
D e a r M r.

Harding:

W i s h to w r i t e t h i s p e r s o n a l l e t t e r to y o u in
r e f e r e n c e to the p u r c h a s e of l o a n s b y the N e w O r l e a n s B r a n c h .
O u r c o n d i t i o n s h e r e are s o m e w h a t p e c u l i a r at t h i s time. It
w o u l d be v e r y p l e a s a n t to f e e l t hat t h e y are g o i n g to c o n ­
t i n u e in the f u t u r e , t h o u g h I do n o t b e l i e v e so.
M o n e y is
e x c e e d i n g l y a b u n d a n t i n the l o c a l b a n k s , a n d t h e y h a v e a c ­
c o m o d a t e d f u l l y m e r c h a n t s , p l a n t e r s a n d f a c t o r s w h o in the
c o u r s e of t h e i r b u s i n e s s n e e d m o n e y on c o t t o n , rice, s u g a r
and other commodities.
H a v i n g t h i s a b u n d a n c e of m o n e y ,
the b a n k s are n a t u r a l l y s o m e w h a t r e l u c t a n t to s h o w r e d i s ­
counts.
They, h o w e v e r , are d e e p l y i n t e r e s t e d in the s u c c e s s
a n d the p r o p e r f i n a n c i a l s h o w i n g of the B r a n c h .
I could
b u y f r o m t h e s e b a n k s c h o i c e c o m m o d i t y l o a n s at f r o m t h r e e
to f o u r p e r cent.
This, i n the s t r i c t s e n s e o f t h e w ord,
w o u l d n o t be an o p e n m a r k e t t r a n s a c t i o n , b u t I do n o t feel
t h a t it is p r o p e r f o r u s to s o l i c i t l o a n s f r o m the c u s t o m e r s
of o u r m e m b e r b a n k s , as w e c o u l d o n l y s e c u r e t h e m b y a
m a t e r i a l r e d u c t i o n of the r a t e w h i c h t h e y are p a y i n g to
the m e m b e r b a n k s .
I h a p p e n to k n o w t h a t the a v e r a g e r ate
t h a t t h e s e c o m m o d i t y l o a n s a r e c a r r i e d at b y the l o c a l b a n k s
is p e r h a p s 5$.
S o m e are c a r r i e d at 4, some at 4-J*, some at
5, s o m e at 5-J-, some at 6 .
The N e w Y o r k banks h ave entered
t h i s m a r k e t f o r the p u r c h a s e of l o a n s , a n d I h a v e h e a r d
t h a t o ne b a n k p u t o u t # 5 0 0 , 0 0 0 h e r e on c o m m o d i t y l o a n s at
4 %
t h r o u g h o n e of i t s c o r r e s p o n d e n t s .
I h a v e n o t b e e n a bl e
to c o n f i r m t h i s b u t I a m i n c l i n e d to b e l i e v e t h a t it is true.
I k n o w t h a t s o m e of o u r l o c a l c o t t o n h a n d l e r s a r e g e t t i n g
m o n e y at 3-J- in N e w Yo r k .
The p u r p o s e of w r i t i n g t h i s l e t t e r is to h a v e
y o u r o p i n i o n as to w h e t h e r o r n o t it w o u l d be a s a t i s f a c t o r y
t r a n s a c t i o n f o r o u r C o m m i t t e e to b u y f r o m b a n k s c h o i c e
c o m m o d i t y l o a n s , j u s t as w e w o u l d b u y t h e m f r o m a b r o k e r .
I c a n see n o t h i n g in the t r a n s a c t i o n w h i c h w o u l d be c o n t r a r y
to e i t h e r the l e t t e r o r s p i r i t of the law.
Do n o t w i s h to
m a k e any m i s ta k e .
L o a n s so p u r c h a s e d w o u l d h a v e an e s p e c i a l
s t r e n g t h in t h a t w e w o u l d k n o w t h a t the b a n k of o r i g i n a l
p u r c h a s e w a s s a t i s f i e d w i t h the s e c u r i t y , a n d t hat the
m a k e r of the n o t e w o u l d in all p r o b a b i l i t y h a v e no t r o u b l e ,
e v e n w i t h o u t s e l l i n g the c o m m o d i t y , in r a i s i n g the m o n e y
to p a y h i s n o t e at m a t u r i t y *




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Reproduced from the Unclassified I Declassified Holdings of the National Archives

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T h e r e w a s s o m e c r i t i c i s m in the r e p o r t o n o u r
B r a n c h of o u r p u r c h a s e of c e r t a i n l o a n s w h i c h w e r e d r a w n
on d e m a n d *
T h i s c r i t i c i s m w a s ju s t .
I was responsible
f o r the p u r c h a s e of t h e s e l o a n s , a n d f e l t t h a t t h e y c o m p l i e d
w i t h the s p i r i t of the l a w b e c a u s e it w a s a g r e e d at the
t i me o f p u r c h a s e t hat the l o a n s w o u l d be c a l l e d in n i n e t y
d a ys, a n d t h e y w e r e d i s c o u n t e d f o r the n i n e t y d a y s *
They
t h e r e f o r e c e a s e d to be d e m a n d p a p e r a n d b e c a m e t i m e p a p e r *
We, of cou r s e , w i l l n o t c o n t i n u e t h i s p r a c t i s e .
I d i d it
b e c a u s e the s a m e t h i n g w a s d o n e at A t l a n t a , as I u n d e r s t o o d ,
w i t h the c o n s e n t o f the D e p a r t m e n t .
The D e p a r t m e n t , h o w ­
ever, r u l e d a g a i n s t it, a n d I w a s n o t a w a r e of t h i s rul i n g .
W o u l d be p l e a s e d to h e a r f r o m y o u a t y o u r e a r l i e s t
convenience.
I w i s h y o u to c l e a r l y u n d e r s t a n d t h a t t h e r e
is no d e s i r e on the p a r t of a n y b a n k h e r e to s ell a n y l o a n s *
It is s i m p l y m y i d e a t h a t I can b u y t h e s e c h o i c e l o a n s
in this way, a n d t h u s i n c r e a s e the e a r n i n g s of the B r a n c h ,
a n d h a v e i n o u r f i l e s p a p e r t h a t is as w e l l s e c u r e d as
t h o u g h it b o r e the e n d o r s e m e n t of a m e m b e r b a n k .




Yours very

sincerely,

Reproduced from the Unclassified I Declassified Holdings of the National Archives

FE D E R A L R E S E R V E BOARD
WASHINGTON

^

1

1

.

.,«»*-.-**•**I**"*4* '
379.

*

CM©®

October 8, 1915-

Sir:
The question h«,s been raised whether Federal
Reserve Banks may, under the provisions of Section 14 of the
Federal Reserve Act, pureha.se single name paper in the open
market.
Section 14 provides in part that "Any Federal Reserve Bank may, under rules and
regulations prescribed by the Federal Reserve Board, pur­
chase and sell in the open market, at home or abroad,
either from or to domestic or foreign banks, firms, cor­
porations, or individuals, cable transfers, and bankers’
acceptances and bills of exchange of the kinds and matur­
ities by this Acit made eligible for rediscount, with or
without the indorsement of a member bank'1*
Under the provisions of this Section a Federal
Reserve Bank may purchase bills of exchange (that is, orders
drawn by one person on another to pay on demand, or at a fixed
or determinable future time, a sum certain in money to order
or to bearer), whether before or after acceptance, provided,
they are of the kinds and maturities made eligible for redis­
count under Section 13.
It is clear, however, that promissory notes as
distinguished from bills of exchange are not eligible for pur­
chase under Section 14 irrespective of the number of n^xios
thereonRespectfully,
U.

C- Elliott,
Counsel.

Hon. Charles S. Hamlin,
Governor.



Reproduced from the Unclassified / Declassified Holdings of the National Archives

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paper

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i

The conclusion that seems to be necessarily reached in connection with this
subject, however, is that the Federal reserve act distinctly contemplates end
provides for the use not only of iwo-naiae but also of single^naiae coisjsrcial
paper. Thic is seen in the fact that the act in the sections already referred
to provides for the rediscounting not only of paper whose proceeds have been
used in the particular classes of transactions referred to, "but also of that whose
proceeds are 11 to bo used** in that connection* At one time during the progress
of the bill through Congress the provision was even broadened by the insertion
of words including for rediscount such paper as sight give rise to funds which
“may be used ’1 for the purposes referred to in the act* It is believed, therefor-".-,
that Congress clearly and unequivocally intended to recognize under the provisions of the law both classes of paper* This, however, was upon the distinct
understanding that such paper, whether it bore one or "nor© names, was not to
bo admitted to re is count unless it evidently arose from the classes of trans­
actions referred to or was so clearly for tbs purpose of providing lUnds for
such transaction as to admit of no doubt.
In the second place, however, it is believed that paper carrying two names
bears on the face of it the evidence of a strictly commercial origin which
single-name paper never can, without collateral evidence, supply* fhere is,
therefore, a priiaa facie case in favor of two-name paper which does not exist in
that of single-name, and the question is suggested how single-name paper, when ad­
mitted to rediscount, as it evidently must be under the terms of the law, shall be
prevented from being used as a means to obtain current capital or to furnish the
basis for speculative operations. Various methods have been currently suggested,
among them the plan of requiring each piece of paper thus presented for rediscount
to be accompanied by a certificate on the part of its maker, or of the indorsing
bank, or both, that it has originated in connection with a transaction of the
permitted kind. Another method that has been put forward is to require such a
general certificate on the part of each borrower, insisting that such certificate
be made once and for all, or perhaps at periodical intervals* Still another sug­
gested plan is that of en^loying a for® of note which shall incorporate into its
own text a statement that it represents fUnds whose use is desired for a transaction
of the permitted class. Of these various suggestions the latter is perhaps the
hest, and there -nay be no harm in putting it into effect, but neither it nor any
of its predecessors would be likely to meet the requirements of the case completely.
It is believed that this end can be accomplished only by some process that will
give absolute assurance of the use of the funds advanced by the reserve banks in
the way con tempi ated by the law* Clearly, however, the absolute assurance that the
particular sum of money advanced by tbs banks on rediscounted paper has been used
In the way prescribed can not be obtained in practice, nor is there any use in
obtaining it, if there be certainty that an equal sum drawn from the liquid resources
of the concern receiving the advance is so applied. The purpose of the Federal
reserve act is thus fundamentally satisfied if evidence be given that the advances
made are aaae for a contnercial purpose as shown by the fact that the person or coi>cera in whose favor they are made is engaged in actual business of the kind referred
to and is in a liquid condition. This fact can be ascertained only by a direct audit
of the affairs of the concern, repeated as frequently as circumstances may require,
in order to renew the assurance of liquidity, which is regarded as the fundamental
and essential test of the good faith of the concern in making application for funds,
not to furnish capital for new enterprises or to take the place of capital that has
been sunk, but to carry through short-Peri0^ transactions.



Reproduced from the Unclassified / Declassified Holdings of the National Archives

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A suggestion to which very considerable attention has been granted in
responsible quarters is that of establishing through action on the part of the
Heserve Board a so-called "differential rate* on commercial paper of the classes
referred to, the rate required to be charged by Federal reserve banks for the re­
discount of single-nan* paper being fixed at, say, one-fourth of 1 per cent or
perhaps at one-half per cent higher than that to be charged for two-name paper,
the paper of the two classes being supposed to be of equal safety, and the dif feiv
ence in rate being designed merely to discriminate in favor of two-name paper.
•This would probably be as effective a means as any for accelerating the movement
of the business Goamunity toward the substitution of double-name for single-name
paper* Precisely how great the discrimination in rate would have to be, and
precisely how far it would need to be varied between the several Federal reserve
districts, is a question that can not positively be answered pending the definite
organization of the districts and the creation of the banks as working units in
each of them. The idea is merely suggested here as indicating a feasible and aeoirable mode of bringing about the end in view, assuming of course that the application
of the method is careful so that no injustice may be done through the charging of
the higher rate to the paper whicfo is less favorably regarded.
Still another plan is that of restricting the total amount of single-name paper
admitted to rediscount to a givea percentage of the gross rediscounts of the re­
serve bank in question. This plan has been carefully considered and is believed to
be desirable.
The estimates that have been made by authoritative persons concern*
in* the proper amount of single-name parser in relation to two-name vary consider­
ably, son* taking the gound that not to exceed 25 per cent of the total rediscount*
should consist of single-nan* and others that not less than 50 per cent might
safely be allowed to consist of that kind of paper. It is believed that no definite
percentage of this Idnd applicable to the whole country could be fairly established.
Inquiry has shorn quiet conclusively that in some parts of the country there is much
more two-name paper than elsewhere, business habits having developed somewhat
differently in different communities. The restriction of the relative proportions
of two-name and sirjgle-nan* paner, through rules to be issued by the Federal Heserve
Board and to be applied by the feeards of directors of the several Federal reserve
banks, can be scientifically developed when it is seen through the early experience
of the banks in about what proportions the two classes of paper are presented for
rediscount. It may easily appear that the proportions in which the paper is offered
to the Federal reserve banks will vary quite jaterially from those in which it has
heretofore been offered to individual or member banks. Ho definite relationship
can be laid down with certainty in advance* It can only be stated that whereever
possible the proportion of single-naa* paper allowed to figure in the rediscounts
of a Federal reserve bank should be confined to the lowest basis consistent with
the welfare and convenience of the burin ess cormuaity#
A proposal worthy of mention in this same connection, but requiring care in its
consideration, is that note brokers who sell single-name paper to banks of the Fed­
eral reserve system shall be required personally to indorse the pa er they thus dis­
pose of. In support of this proposition it is urged that the custom prevailed in
2 orope and hes been found effective there.
This is only partially true, conditions
being quite afferent abroad from what they are here, but it is probably the case
that everything possible should be done to stimulate a greater degree of responsibility
on the part of note brokers. At present there are many individuals and concerns in
the note-brokinr business whose financial responsibilities may be a matter of son*
doubt and -Those principal effort is to dispose of as much paper as they can, there­
b y securing for themselves the largest possible amount of commissions. On the other
hand, it seems hardly desirable to take a step that would tend to produce a condition




Reproduced from the Unclassified I Declassified Holdings of the National Archives

of monopoly or seminonopoly In the note business.
vo require indorsements of
the kind referred to would undoubtedly tend to drive the smaller concerns oat of
business and vrould likewise tend to promote the formation of vtry large corporations organised for the purpose of lending their signature© to cosmiercial pap or
thus staking it available for use by reserve banks. In this sap© group of suggestion©
is the recoijnendation that the note uroker whose paper is purchased by tiie reoervo
banks through member banks shall be required to be regularly ©acaialned and auui. tod
b y a satisfactory accountant*
Uhere is no objection to this requirement, provided
that it be properly applied and that the audit or examination be maae under condition©
that will not be unreasonably onerous or of a nature to entail unnecessary or excessive
expense upon the broker*