The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
William McChesney Martin, Jr., Papers
Box 27/Folder 5
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Federal Reserve Bank of St. Louis
COMMENTS BY BOARD OF GOVERNORS ON REPRESENTATIVE PATMAN'S
TESTIMONY OF FEBRUARY 7, 1958 BEFORE HOUSE BANKING & CURRENCY COMMITTEE
Section ij. of the Act provides that "every Federal reserve bank
shall be conducted under the supervision and control of a board of directors," and sets forth both the composition and manner of election or appointment of such boards.
It further specifies that "the board of direc-
tors shall perform the duties usually appertaining to the office of
directors of banking associations and all such duties as are prescribed
by law."
Section 11 authorizes the Board to exercise general supervision
over the Federal Reserve Banks; other fundamental powers which the Act
confers on the Board include the authority to liquidate or reorganize a
Federal Reserve Bank (Section 11), and to readjust or create new districtsnot to exceed twelve in all (Section 2).
Congress provided for an accounting by the Board of Governors of
its stewardship over the Federal Reserve System by requiring (Section 10)
that the Board "shall annually make a full report of its operations to the
Speaker of the House of Representatives, who shall cause the same to be
printed for the information of the Congress."
The responsibilities placed upon the Boards of Directors of the
individual Reserve Banks, and the Board of Governors, must be taken into
account uhen considering expenditures and practices upon uhich Mr. Patman
has commented.
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Federal Reserve Bank of St. Louis
r
-2~
Section 21 of the Federal Reserve Act provides that the Board
shall at least once a year order an examination of each Federal Reserve
Bank. With regard to the scope of the examinations, the Boardfs instructions to its examiners contain the following general provisions:
"The examination of a Federal Reserve Bank shall determine
(a) its financial condition through appraisal of its assets
and verification of its assets and liabilities, including
liabilities as custodian, without undue duplication of
effective and acceptable verifications made through the
Reserve Bank's own audit procedure; (b) proper discharge
of its responsibilities as Fiscal Agent of the United
States; and (c) compliance by the management with applicable provisions of law, regulations of the Board of
Governors, and any other applicable requirements. Also
the Board's examiners shall develop pertinent facts and
opinions which will enable the Board of Governors to appraise the condition, operations, and administration of
each Reserve Bank,"
Pursuant to these instructions, the examination reports containalong with detailed schedules of assets, liabilities, and reserves—a
wide variety of information and comments. Some of these comments are of
a critical nature; others are in the form of suggestions as to operating
procedures; and still others pertain to matters which the examiners feel
may be of interest to the Board or should be made a matter of record.
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Federal Reserve Bank of St. Louis
-3Upon the conclusion of each examination, the examiner presents
his report to the President, and the Chairman of the Board of Directors
of the Reserve Bank, at which time the examiner1s suggestions and
criticisms are fully discussed. The report is then reviewed by the
Board of Governors, and advice is requested from the Bank concerning
matters that seem to warrant further attention. Copies of these reports
covering years as far back as 1949 have on previous occasions been furnished to the House Banking and Currency Committee.
Last August Mr. Patman requested copies of the reports of examinations made by the Board's examiners during the five-year period 1952-1956.
That portion of Mr, Patman's statement of February 7 which concerns expenditures and operations of the Federal Reserve Banks was based on
these reports.
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Federal Reserve Bank of St. Louis
-uInsurance
On Page 15U9 Mr. Patman stated that during the year 1956 the
Federal Reserve Banks spent $1,821,1*29 for insurance (as shown on Page 1666,
this total should be $>1,128,^29), and asked: "Why should the Federal Reserve
banks buy insurance?" His statement continued:
"This insurance is unneeded
» • o with all the money and resources of the Federal Reserve System, if it
can not carry the risk of its own insurance, then certainly there is no
private insurance company that can carry this risk,"
The Federal Reserve Banks have discontinued purchasing substantial
amounts of insurance. About 15 years ago the Banks, with the encouragement
of the Board, entercc, into a loss-sharing agreement under which they discontinued the purchase of registered mail insurance for their own account
and reduced the Bankers' Blanket Bond coverage at each Bank to $500,000.
Each year the Reserve Banks set aside a portion of their earnings (at the
rate of two cents per thousand dollars of value of shipments covered) as a
reserve for registered mail losses. At the end of 1956 this reserve totaled
approximately $10 million.
The question of purchased insurance has been considered from time
to time, particularly the possible desirability of extending the coverage
of the loss-sharing program of the Reserve Banks. For various reasons, extensions of this program to risks other than mentioned above were considered
undesirable or impracticable. For example, a program of loss-sharing in
lieu of Turkmen's Compensation insurance would necessarily have to comply with
the laws of each of the States in which the Federal Reserve Banks have employees. Administration of such a program would require expert technical
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Federal Reserve Bank of St. Louis
knowledge on personal injury and insurance matters, such as investigation
and settlement of claims, with respect to which Federal Reserve personnel
have had little or no experience.
A breakdown of the $1,128,U29 which the Federal Reserve Banks
spent for insurance in 195>6 is shown in the table on Pages 1665-1666. As
this table indicates, about $750,OCO of the total represented the Banks1
portion of premiums paid for hospital and medical service insurance, and
about ^1^0,000 was for Workmen's Compensation insurance,
"Unusual Expenses"
Mr. Patman s statement mentioned (pages 15>62-15>81|) numerous items
under the heading "Unusual Expenses." These items include expenditures for
the following purposes:
Personnel activities including training, recrea-
tion, loan funds, and employee insurance; Membership dues; Charitable activities; Meetings and entertainment; and Buildings and land.
Except for the "Buildings and land" category, all of the above
reflect operating policy decisions at the individual Reserve Banks. The
Board has taken the position that the responsibility for determining whether
expenditures of this nature are necessary expenses within the meaning of
Section 7 of the Federal Reserve Act rests primarily with the officers and
directors of the individual Banks.
This position is consistent with the
provisions in Section k of the Federal Reserve Act that "every Federal
reserve bank shall be conducted under the supervision and control of a
board of directors" and that the"directors shall perform the duties usually
appertaining to the office of directors of banking associations."
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Federal Reserve Bank of St. Louis
-6The Board of Governors relies upon its examiners to
review all such expenditures and brint those about which there
may be any question to the attention of the Bank1s management
and to the attention of the Board.
More specific comments with regard to these matters
are given below:
Personnel activities
The fact that employees of the Federal Reserve Banks
are not Government employees is particularly important when considering personnel programs.
The Reserve Banks must compete in
the local labor market and, if they are to compete successfully,
their personnel programs must be in line with those of the community.
The Federal Reserve Clubs, which Mr, Patman referred to
on several occasions, are employee organizations which sponsor social,
recreational, and educational programs.
Allotments to them are part
of the per capita cost which the Reserve Banks budget for their personnel activities.
To a large extent the efficiency of the operations of a
Reserve Bank depends upon the experience and stability of its staff.
In this light, the real measure of personnel activities is their
effect on reduced turnover and greater efficiency, rather than
the direct cost of the various activities.
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Federal Reserve Bank of St. Louis
-7-
Membership dues
Mr. Patman commented (page l%6h) that the Federal Reserve Banks
"pay dues and assessments to the American Bankers Association, the
American Institute of Banking, the private clearing houses, the chambers
of commerce, and others, and pay officers1 and employees' fees and expenses for attending meetings of such organizations,"
Among the organizations mentioned were, "private clearing houses."
Memberships in local Clearing House Associations greatly expedite the
presentation by the Federal Reserve Banks of checks drawn on local banks.
Membership dues are levied by these associations to pay their operating
and administrative expenses.
In some cases, the Reserve Banks pay such
dues; in other cases they provide the Clearing House with operating space
in the Reserve Bank building and are accordingly relieved from the payment
of dues. One advantage of the latter arrangement is that it eliminates
the need to transport through the streets each day the great volume of
local checks received by the Reserve Banks.
Memberships in such organizations as the American Bankers Association, chambers of commerce, etc., reflect—like personnel activitiesoperating policy decisions at the individual Reserve Banks. The over-all
guiding principle in connection with such memberships is that they should
be confined to organizations falling within one or more of the following
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Federal Reserve Bank of St. Louis
-8-
categories:
1. Organizations whose activities are directly
related to the work of the Reserve Bank, such as
national and State bankers' associations.
2. Organizations in which the Reserve Bank feels
it should be represented, such as chambers of commerce
and appropriate financial and agricultural associations,
3. Organizations in which membership is desirable in
order to obtain publications and other services, such
as economic and other professional associations.
Memberships in the first two categories permit regional soundings
and a blending of views that constitute one of the most important strengths of
the Federal Reserve System. They form a means of economic intelligence that
enables the Reserve Banks to obtain and transmit to appropriate authorities
in the System information concerning rapidly occurring changes in our economy,
and are directly relevant to the timely formulation of credit policy.
Although it feels that individual decisions with respect to memberships should be determined at the local level, the Board has devoted
considerable attention over the years to the general question of expenditures
for membership dues. The most recent review of this matter, begun in the
latter part of 1956, resulted in discontinuance of certain memberships carried at Bank expense.
Meetings and entertainment
In this category Kr, Patman cited from the examination reports comments concerning the following matters:
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Federal Reserve Bank of St. Louis
Cleveland 1952
Expenditures
of <?295 for stateroom for two officers in
connection with annual lake cruise sponsored by the
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Federal Reserve Bank of St. Louis
-9Cleveland Chamber of Commerce.
Expenses of ;^5>417 for joint meeting of Boards of
Directors of the main office and the Pittsburgh and
Cincinnati Branches at Cincinnati, including $165 for
favors, $184 for a river trip, and $190 for entertainers.
Boston 1953
Reimbursement of expenses ($158) incurred by officers
as a result of attendance of their wives at meetings of
State bankers associations.
Minneapolis 1953
Entertainment expenses of ^50 in connection with Annual
Conference of Personnel Officers of Federal Reserve Banks;
and entertainment expenses of $150 in connection with a
conference of Ninth District Bank Examiners.
Kansas City 1953
Expenses totaling $1,773*70 incurred in connection with
a Conference of Bank Supervisors and Examiners, including ^325 for entertainers.
St. Louis 1954
Expenditure of C419.68 for 86 theater tickets purchased
for entertainment in connection ivith November 12, 1953
joint meeting of Boards of Directors of the head office
and the three branches.
Expenditures of $157.25 for 85 baseball tickets; and of
C>99«75 for 57 theater tickets purchased for entertainment in connection with June 10, 1954 joint meetings of
Boards of Directors of the head office and the three
branches,
-10These tickets were for the use of the directors and officers
of the Reserve Bank and their wives,
Minneapolis 1955
Expenses of (a) ^100 for entertainers in connection with an
Examiners1 Conference; (b) ^62,40 for basketball tickets
and 4J>60 for Ice Follies tickets purchased for entertainment
in connection with various sessions of the "Short Course in
Central Banking" during the period January 1 - July 1, 1955;
(c) $72 for dinner music entertainment for April 1955
"Directors and Officers Assembly"; and (d) 4>76,40 for 21
football tickets in connection with the October 1955
Directors1 meeting.
Dallas 1956
Expenditure of &100 for entertainment during dinner
given to delegates from all Federal Preserve Banks
attending National Convention of American Institute
of Banking.
The above expenditures were in connection with business meetings
of direct interest or benefit to the Reserve Banks.
They were considered
by the management of the individual Bank concerned to be reasonable and
appropriate for the occasion.
In each case, however, after the matter
was made a subject of comment in the examination report, the Bank reviewed
its policy and subsequently discontinued incurring expenses of the type
questioned.
Buildings and land
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Federal Reserve Bank of St. Louis
On page 1571 the following statement by Mr. Patman appears:
"These banks (the Reserve Banks) are supposed to be
limited by law in their spending for bank premises. They
-11are expressly forbidden to build or enter into any contract
to erect any building to cost in excess of ^250,000 without
coining to Congress for the authorization."
This statement is incorrect in two respects. First, the limitation
in the law applies to branch buildings, not to head office buildings.
Secondly, the limitation cited is that originally enacted June 3, 1922,
and ignores subsequent amendments.
The full text of the limitation is found in paragraph 9 cf Section
10 of the Federal Reserve Act, which reads as follows:
"Mo Federal reserve bank shall have authority hereafter to enter into any contract or contracts for the
erection of any branch bank building of any kind or
character, or to authorize the erection of any such building, if the cost of the building proper, exclusive of the
cost of the vaults, permanent equipment, furnishings, and
fixtures, is in excess of ^250,000: Provided, That nothing
herein shall apply to any building under construction prior
to June *. 1922: Provided further, That the cost as above
specified shall net be so limited as long as the aggregate
of such'costs which are incurred by all Federal Reserve banks
for branch bank buildings with the approval of the Board of
Governors after the date of enactment of this proviso does
not exceed $30,000,000."
Mr. Patman's statement continued:
"But the Federal Reserve
System has invented a new accounting system which seems to eliminate much
of the normal inconvenience of any restraint on capital outlays.
By this
new system, they simply charge capital outlays to current expense."
The examples cited with respect to the charge of construction
costs to current expense (page 1575) refer to repairs and alterations at
head office buildings.
The basic principle followed in such charges is
to capitalize those which add to the intrinsic value of the property, and
to charge to expenses the costs of repairs and alterations which keep
the properties in repair and make for efficient utilization of space and
operations but do not add new intrinsic values to the building. This is
in accordance with standard accounting practice.
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Federal Reserve Bank of St. Louis
-12Much of the material concerning Bank premises which is contained
in Mr. Patman's statement represents merely comments by the Board's examiners with respect to the progress of building projects at various Federal
Reserve Banks and branches. Mr. Patman cited several instances of parking
arrangements provided for Bank employees.
These arrangements are similar
to those provided here in Washington for employees of Government departments
Losses and Discrepancies
On page 1575, Mr. Patman stated:
"Some of the losses and the discrepancies in the accounts
of the Federal Reserve Banks are truly amazing. All of
these banks experience tremendous losses of registered
mail containing deposits, securities and other things
of value. They charge off or set up reserves amounting
to millions of dollars for such losses.11
The implied criticism of the practice of setting up reserves
against possible registered mail losses seems to conflict with the earlier
assertion (page 1549) that the Federal Reserve System should carry its own
insurance. As mentioned previously, the Federal Reserve Banks do have a
registered mail loss-sharing agreement, and—as part of this program—set
aside a portion of their earnings each year as a reserve against possible
losses.
The record does not support the assertion regarding losses and
discrepancies at the Reserve Banks.
In the light of the tremendous volume
of money, checks and securities handled by the Reserve Banks—losses and
discrepancies have been exceedingly small and infrequent.
The following data indicating the volume of currency, checks and
securities which the Federal Reserve Banks handle in one year were taken
from the table on page 79 of the Board1s 1956 Annual Report.
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Federal Reserve Bank of St. Louis
c
-13Millions
of pieces
Billions
of dollars
1956 volume of—
T /
Currency received and counted —'
Checks handled—
Government
All other
Issues, redemptions and exchanges
of U. S. Government securities
4,467
29
539
2,822
114
1,005
199
422
I/ Does not include new money received from Washington.
In contrast to the above amounts which are in billions of dollars,
the following figures showing net losses at all Reserve Banks due to differences and registered mail losses, during the years covered by Mr. Patman1s
statement, are in actual dollars.
Wet Loi3ses charged to
Profit and Loss — Reserve for registered
mail losses
Difference account
1952
#16,239
1953
1954
7
1955
1956
11,907
9,325
9,097
7,112
^1,150
1,140
150
965
100
Note—The total of about ^3,500 charged to the
Reserve for Registered Kail Losses during the five
years 1952-56 resulted from the loss-sharing agreement of the Federal Reserve Banks. It may be of
interest to mention that during the same period this
agreement also resulted in a savings of more than &2
million in premiums that the Reserve Banks would have
paid if, in lieu of the loss-sharing program, they
had purchased insurance to cover their shipments of
currency, coin and securities.
In several cases, the losses which Mr, Patman cited were beyond
the responsibility of the Reserve Banks and were included in the examination report only as a matter of information. For instance, on page 1578,
Mr. Patman commented on an ^85,000 currency shipment by the Federal Reserve Bank of New York which was embezzled by a Post Office employee.
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Federal Reserve Bank of St. Louis
-IkThe quotation from the examination report clearly indicates that the
embezzler was an employee of the Post Office Department, and that most
of the money was recovered. In the light of these facts it is obvious
that there was no negligence or culpability on the part of the Reserve
Bank in connection with the incident.
Moreover, certain of the larger items which Mr. Patman listed
under the general heading "Losses and Discrepancies" do not belong in such
a category. They pertain to Deferred Accounts, Reserves for Contingencies,
and other such schedules which are necessary in the examination report
to show the detail of the Bank's assets, liabilities and reserves. They
do not represent, or indicate, losses or discrepancies.
For example, on page 15>76 there is listed from the 195?U Examination Report of the Federal Reserve Bank of San Francisco an amount of
$51,883,221.62 which is shown under Deferred Accounts as "Uncollected cash
items—Due from member and nonmember banks." This amount, of course,
represents checks and other cash items which the Reserve Bank forwarded for
collection and for which, in the normal course of business, payment had not
yet been received as of the date of the examination. It is in no sense a
loss or a discrepancy.
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Federal Reserve Bank of St. Louis
Cafeteria Subsidy
On page 15>8U, Mr. Patman1 s statement includes the following remarks:
"They make generous subsidies to the employees'
cafeterias and dining rooms. The Board has authorized the
banks to pay up to one-half of the costs. As previously
pointed out, the total cost of all the cafeterias
in 1956, according to the bank's method of computing
these costs, came to $2,5U9,099, and of this amount
the banks paid $l,196,8lU, while the cafeterias receipts took care of $1.3 million. (See pt. I, p. f>69,
of the hearings.)
-1511
1 do not object to a fair subsidy for restaurants
and cafeterias in connection with a business. I think
it is pretty well accepted practice. But I think it
is very unusual for the Government to have to pay 50
per cent of such expenses, and even more. Furthermore, these audit reports disclose that even the
theoretical maximum of 50 per cent is an understatement ."
He adds (on page 1585) that "it would appear that the cost of
overhead—bank space, lights, water, all the expensive equipment and the
dining room furnishings and perhaps even the personnel—are furnished
free by the banks and are not counted against the 50 per cent subsidy
which the banks have been authorized to make to the cafeterias."
In most of the cities in which the Reserve Banks or branches are
locc ted, it is well-established practice for business and industrial firms
to provide low-cost meal service.
In some areas, many of the large banks
and insurance companies provide free meals to employees. This is a competitive factor in local labor markets where the Reserve Banks must recruit
their employees. A first-class cafeteria serving low-cost, balanced meals
is an internal economy factor as it minimizes absenteeism, increases productivity, and reduces turnover.
The Reserve Banks' average cost of ^6?
per employee during the year 1957 for the subsidized food service is small
in comparison to the advantages derived.
The Board has authorized the absorption by a Reserve Bank of
up to one-half of the cost of operating its cafeteria, based upon the
following expense items:
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Federal Reserve Bank of St. Louis
-16Salaries and retirement contributions of
employees assigned to the cafeteria operation.
Cost of food, and cafeteria supplies (including
ordinary day-to-day replacements of small utensils,
dishes, glassware, etc.)
Cost of licenses, permits, and outside laundry
and cleaning..
As Mr. Patman notes, the cost of operating Federal Reserve Bank
cafeterias does not include allocations of overhead and space charges,
Exclusion of these items from cafeteria and dining room costs is in line
with commercial accounting practices.
Retirement System
On page 1585, Mr. Patman states: "... the Retirement System
of the Federal Reserve is clear out of line with that of other Government
employees.
I believe in a good liberal retirement system, but I don't
believe they should have a better system than the other Government employees
because they work for the Government."
This statement with regard to the Federal Reserve Retirement
System has been reviewed by the actuarial firm of George B. Buck.
Mr,
Buck is the Actuary of the Retirement System of the Federal Reserve Banks
and is also Chairman of the Board of Actuaries of the Civil Service Retirement
System,
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Federal Reserve Bank of St. Louis
jifr. Buck1 s firm noted that—
1, Benefits to which employees of the Board of
Governors are entitled under the Federal Reserve Retirement System are identical to those provided for
Civil Service employees other than Members of Congress.
-172. Under the Federal Reserve Retirement System,
a Federal Reserve Bank employee is not eligible for full
service retirement benefits until he has attained age 65
regardless of the number of years of his service; whereas,
under the Civil Service System an employee may become
eligible for full benefits at age 60 after 30 years of
service or at age 62 after 5 years of service.
3«
The cost to the employer of the total benefits
(including Social Security) provided for Bank employees
versus Civil Service employees is quite close to being
the same.
The following figures compare the total service retirement benefits under the Bank Plan and Civil Service Plan for employees having a
"final average salary" of $3,000 and $25,000 with 30 years of future service
rendered after the effective date of the changes in the Bank Plan on
September 1, 1957.
Retirement benefits as
a per cent of salary
Bank plan
Civil Service
(including Social Security)
Plan
30 years service and "final
average salary" of $3,000
55.8
58.3
30 years service and "final
average salary" of $25,000
56.3
56.25
While some benefits of the Bank Plan, when compared with the Civil
Service Plan, would be more favorable in certain cases and less favorable in
others, the figures given above as well as those that apply at other salary
levels show on the average closely comparable benefits between the plans.
On
the twenty-two salaries that exceed $25,000, the maximum retirement benefits
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Federal Reserve Bank of St. Louis
-18for 30 years' service would amount to 5>7.0 per cent of final average salary.
In this latter group there are only two salaries that exceed $35>000—one at
$50,000 and one at $60,000.
Deficiencies in Reserves
Mr. Patman stated (pages l$86-l£87) that "there are all kinds of
irregularities about the use of bank reserves," and that "they assess or
waive penalties for deficiencies in member bank reserves on the basis of
erroneous computations, or without authority."
All member banks are required to submit reports of deposits for
reserve purposes—central reserve and reserve city banks on a weekly basis,
and country banks on a semi-monthly basis. These reports, numbering over
162,000 a year, are compared at the Reserve Bank offices with the member
banks' reserve accounts.
The Board delegates to the Reserve Banks discretion as to whether
penalties are assessed or not in specified types of cases—for example, when
the penalty is less than a certain amount, and when the deficiency is less
than a stated percentage of required reserves and is offset by excess reserves
during the immediately following reserve computation period. In all other
cases, penalties incurred shall be assessed unless the Board, after a review
of the facts of the case and the recommendation of the Federal Reserve Bank,
authorizes the Reserve Bank not to make the assessment. Detailed instructions
regarding these waivers were furnished to Mr. Patman, at his request, with the
Board's letter of September h, 1957From October 10, 19U9 through August 15, 19^7, during which about
1.3 million reports were reviewed for reserve purposes, only 76 cases were
referred by the Reserve Banks to the Board, and in these cases the Banks were
authorized not to make the assessment.
Experience in this matter indicates
that member banks conscientiously attempt to maintain adequate reserves, and
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Federal Reserve Bank of St. Louis
-19that deficiencies arise largely through inadvertence, clerical error, delay
in mail, and absence of key employees of the member banks.
The Board believes there is no justification for the charge that
there are all kinds of irregularities about the use of bank reserves*
Examination Procedures
In connection with the examinations of Federal Reserve Banks, which
are conducted by the Board's examiners pursuant to the requirement of Section
21 of the Federal Reserve Act, Mr. Patman made the following comments
(page 1588):
"The Federal Reserve System, as I have pointed out,
has never had a Government audit. It has never had any
audit by independent auditors from outside the system itself. There are internal audits, made by personnel of the
system, and even these audits—taking them for what they
are, internal audits—show on their face to be subject to
serious inadequacies and limitations* The audit teams
are supposed to be made up so that the employees of one
bank audit another bank, but even this principle is rarely
followed 100 per cent. In practice the employees of a
particular bank are on the team to help audit their own
banks."
Since 1952 the Board has employed public accounting firms to audit
its accounts* The certifications submitted in connection with these audits
have been included in the Board's Annual Reports to Congress.
Beginning in 1953 the Board has also engaged the same public
accountants to accompany the Board's examiners on one examination of a Reserve
Bank each year for the purpose of obtaining an independent judgment as to the
adequacy of the examination procedures and as to whether the procedures are being carried out properly. The reports submitted to the Board in this connection by the public accountants have consistently indicated the effectiveness of
examinations made by the Board's examiners5 for example, in a report dated
June 13, 1957, the public accountants made the following statement:
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Federal Reserve Bank of St. Louis
-20-
iive believe that the examination conducted at the Federal
Reserve Bank of San Francisco, including its four branches,
conformed to the standards expected from an examination conducted by independent public accountants. The detailed audit
procedures manuals set forth clearly an adequate examination
procedure related specifically to the operations of the Banks.
The audit assignments were carried out by the examiners in
accordance with such audit procedures."
The Board's field staff of examiners comprises a group of approximately 35 examiners and assistant examiners who are employees of the Board,
They work throughout the year under the active direction of the Chief
Federal Reserve Examiner, who is an officer of the Board's Division of
Examinations, responsible to the Director of that Division and through hjjn
to the Board of Governors*
Within each Federal Reserve Bank there is a General Auditor who
has a staff which is engaged throughout the year in conducting internal
audits of the affairs of the Bank and any branches of that Bank. The
General Auditor and his staff are independent of the operating management
and operating staff of the Bank and do not participate in operations. The
General Auditor is responsible directly to the Board of Directors of the
Bank, and he reports the results of the internal audits to the Directors.
During the first part of each examination of a Federal Reserve
Bank conducted by the Board's field staff, there is necessity for verification of a very substantial volume of currency and securities which
must be accomplished quickly in order not to interfere unduly with the
Bank in the conduct of its day-to-day business.
Moreover, in making
simultaneous entry into all offices of a Bank which has several Branches,
there is a temporary need for additional personnel to provide adequate
coverage.
It would be wasteful for the Board to maintain a field staff
of examiners of sufficient size in itself to perform expeditiously all
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Federal Reserve Bank of St. Louis
-21the detailed work concerned with the opening phases of these examinations.
Therefore, the Board's field staff utilizes the temporary assistance of
men (a) from other Federal Reserve Banks—chiefly from the internal audit
staffs of the other Banks; and (b) from the internal audit staff of the
Bank under examination.
The men borrowed temporarily from other Banks
and from the Bank under examination are not conducting the examination;
rathjr, they are assisting the Board's examiners and in so doing they are
at all times under the active supervision of members of the Board's field
examining staff.
The temporary assistance received from within the Bank
under examination is restricted entirely to members of the internal audit
staff of the Bank who, as stated above, are independent of the operating
personnel of the Bank.
Member-bank examinations
Mr. Patman cited on Pages 1603-1608 a number of factual reports
by Board's examiners concerning the frequency of member-bank examinations
made by the examining staffs of the Reserve Banks.
He prefaced these
citations by stating:
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Federal Reserve Bank of St. Louis
"The Federal Reserve banks have set certain policies
with respect to member-bank examinations, However, they
make frequent exceptions to these policies throughout the
Federal Reserve System.
"As an example, at the San Francisco Bank it was the
policy to examine h of the 5 holding company affiliates
within the district biennially, and the fifth, Transamerica Corp., on a triennial basis. However, the bank
failed to make examinations of this holding company for
6 years. They make frequent exceptions to the policy
of examining banks once a year and to their policy of
making examinations jointly with State examiners.
"They do not always examine branches simultaneously
with head offices, nor do they examine the commercial
departments of banks concurrently with trust departments.
-2211
On many occasions they defer examinations when
mergers are pending, when banks are making alterations
on the premises, and when examining personnel is not
available, and fail to examine new banks."
State member banks are subject to examinations made by direction
of the Board of Governors or of the Federal Reserve Banks by examiners
selected or approved by the Board, The established policy is to conduct
at least one regular examination of each State member bank, including its
trust department, during each calendar year, ty examiners from the Federal
Reserve Bank of the district in which the member bank is situated, with
additional examinations if considered desirable.
In carrying out this policy, the Board has not required that all
examinations of trust departments or all examinations of branches of State
member banks be made simultaneously or concurrently with examinations of
their head offices, nor has the Board required that all examinations of
the commercial or trust departments of State member banks be made jointly
with State examiners.
The programs for examination of State member banks have been
substantially completed in all recent years.
Deviations from the general
policy have been largely due to a shortage of qualified examiners, and
almost without exception have involved State member banks in sound condition and under capable management. A large majority of the banks not
examined in a specific calendar year were examined during the latter part
of the previous year and, as a general rule, during the early months of
the following year. In no case was there a deferment involving a bank
considered to be in unsatisfactory condition.
During the period 1952-195>6,
all newly organised banks were examined within one year by either the
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Federal Reserve Bank of St. Louis
-23State banking department or the Federal Reserve Bank, and in a majority of
cases by both authorities.
The approach to the examination of branches of State member banks
is governed almost without exception by the aggregate number, size and
location of the branches of the institution under examination. At banks
with a small or medium number of branches, it is customary to examine all
offices simultaneously with the head office, but it is not possible to
follow this policy consistently when a large number of branches is involved.
However, in every case, statements of all branches are obtained as of the
date of examination of the head office and are reconciled to the books of
the head office as of that date,
Due to the specialized character of fiduciary activities and the
required separation from commercial banking activities of fiduciary responsibilities and related functions, records and assets, it is the judgment of
supervisory authorities that the examination of the commercial and trust
departments of State member banks other than on a simultaneous basis does
not represent a departure from sound examination principles.
The examination of Transamerica Corporation which would ordinarily
have been made on a triennial basis in 19U9 was omitted because of the
Clayton Act proceedings with respect to the Corporation which were in
process at that time. The Board1s order in these proceedings was issued
March 27, 19^2 and an examination of the Corporation was commenced on
April 21, 1952.
Verification and Destruction of Currency
With regard to the work which the Federal Reserve Banks are
performing in connection with the verification and destruction of unfit
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Federal Reserve Bank of St. Louis
-24Treasury currency, Mr. Patman suggested (page 1591) that it is a disgrace
for Congress to permit "people to have complete control of United States
currency who do not consider themselves obligated to the Government. . ."
His statement continued:
"They have charge of destroying the worn and mutilated
currency. And, of all the irregularities and seemingly
dishonest dealings in connection vdth it, you will find
plenty of eye openers in these reports that even their own
auditors made about the irregularities in handling the
tremendous amount of money that is destroyed every year,
and the loose fashion in which it is handled.
"Up at Pittsburgh, a cyclone or a heavy wind hit the
City while currency was being destroyed in the Municipal
incinerator and scattered money all over Pittsburgh, Pa.
The only reason we found out about it through the newspapers and they had to redeem a lot of that currency because it wasn't burned and under certain conditions it is
redeemable."
Mr. Patman's statement then quoted certain criticisms and other
comments concerning individual Reserve Banks, as shown in the reports of
examinations made by the Board's examiners.
Under date of June 24, 1953, the Secretary of the Treasury
directed the Federal Reserve Banks and branches as fiscal agents of the
United States, under the provisions of Section 15 of the Federal Reserve
Act, to verify and destroy unfit United States paper currency. The proposed change in procedure was discussed by Treasury representatives with
appropriate Congressional committees during the hearings on the Treasury
appropriation for the fiscal year 1954. In this connection Secretary
Humphrey's letter of May 22, 1953 to Chairman Canfield of the TreasuryPost Office Subcommittee of the Hous^e Committee on Appropriations concluded:
"Since the net savings resulting from this change of procedure will be
substantial, it is assumed that your Committee would concur in the
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Federal Reserve Bank of St. Louis
-25Department's proposal to proceed along the lines indicated."
From the time the Reserve Banks began this work on July 1, 1953>
it has been performed under regulations issued by the Treasury Department.
A copy of these regulations was forwarded to the House Banking and Currency
Committee with the Board's letter of December 16, 1957. As stated on
page 1801, the Treasury Department has advised the Board that it is their
practice to visit the Reserve Banks which destroy currency at least once a
year for the purpose of observing the verification and destruction operations. One purpose of these visits is to ascertain that the operation is
being conducted in a manner satisfactory to the Treasury.
Certain safeguards and other controls covering this operation are
described on pages 1742-1750 and 1780-1792. In many respects the safeguards
in effect at the Reserve Banks go beyond Treasury regulations.
In some
cases the additional safeguards were the result of suggestions by the
Board's examiners, such as shown on pages 1592-1595 of Mr. Patman's statement. However, in considering the matter of suggested additional precautions
over and above the requirements of the Treasury regulations, the Reserve
Banks must balance the added protection against its cost, and in this light
some of the examiners' suggestions were not deemed feasible.
The Pittsburgh incident mentioned by Mr, Patman on page 1591 occurred when an unknown quantity of cancelled currency escaped incineration
because of completely unforeseeable malfunctioning of the incineration
facility of the City of Pittsburgh. The City incinerator was used in July
of 1953 to destroy the first batch of currency at the Pittsburgh Branch because
at that time the Branch had no facility of its own. This incinerator was
then also used by local offices of the United States District Court, the
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Federal Reserve Bank of St. Louis
(
-26Federal Bureau of Investigation, the Internal Revenue and other departments
of the Federal Government to destroy confidential records. Before its use
for the destruction of currency, the facility was thoroughly tested, and its
use was approved by the Treasury Department,
Nevertheless, before the can-
celled currency was completely destroyed an unknown amount passed through
the grates into the water tanks provided for receiving the ashes. A complete account of this incident appears on pages 179U-1799.
When it occurred, the matter was reported immediately to the
Secret Service, the Federal Bireau of Investigation, the Pittsburgh Police
Department, the Treasury Department, and the Board, Contrary to the statement on page 15>91 that "they had to redeem a lot of that currency," all of
the money was cancelled and valueless before it was taken to the incinerator.
There has been no loss to the Treasury as a result of this incident or of any
of the others which have occurred (described on pages 1793-1791; and 1799-1800.)
All of the cancelled money which has been presented to the Federal Reserve
Banks for redemption has been confiscated, and in all but a very few cases
the Reserve Banks have refused to give credit or value for it.
The exceptions to this last statement constitute three $5 bills
and five $1 bills which were accepted at face value and charged to profit
and loss by the Reserve Banks because of operating circumstances, such as
the fact that the notes were partially burned and discovered to have been
cancelled too late in the sorting process at the Reserve Bank to permit identifying the bank which deposited them.
From the time the Reserve Banks under-
took the currency destruction work on July 1, 1953 to the present time, their
loss as a result of this operation has totaled $20.
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Federal Reserve Bank of St. Louis
#
B O A R D OF G O V E R N O R S
OF THE
FEDERAL RESERVE
SYSTEM
WASHINGTON 25, D. C.
ADDRESS
OFFICIAL C O R R E S P O N D E N C E
TO
THE
BOARD
***«<£»*"
February 25, 1958.
Dear Sir:
Enclosed is a preliminary copy (page proof) of Representative Patman' s statement during the hearings before the House Banking
and Currency Committee on the pending Financial Institutions bills
(H.R, 7026 and S. 1451). Also enclosed is an outline, rather hastily
put together by the Board's staff, of the general nature of the contents of Kr, Patman1 s statement.
The Board has advised Chairman Spence of the House Banking
and Currency Committee that it would like to furnish to the Committee
in writing such information and comments as may be necessary to prevent any misunderstanding with regard to the various items on which
Mr. Patman has commented. Accordingly,
after there has been an opportunity to study Mr. Patman1 s criticisms of Federal Reserve expenditures in the light of the records at your Bank, we would like to have
such comments as you may consider appropriate for the purpose of making clear to the House Banking and Currency Committee the reasons for
the expenditures cited by Mr. Patman,
A copy of this letter, and additional copies of its enclosures,
are being furnished the President of your Bank,
Sincerely,
Enclosures
C. Canby Balderston.
TO THE CHAIRMEN OF AIL FEDERAL RESERVE BANKS
(COPY TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS)
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Federal Reserve Bank of St. Louis
OUTLINE OP' SUBJECT MATTER CONTENT OF REPRESENTATI^fi PATMAN'S
STATEMENT OF FEBRUARY 7 BEFORE HOUSS BACKING AND CURRENCY COMMITTEE
(Prepared by Division of Bank Operations)
Pasre Number
General remarks on pending bill
Ownership of Federal Reserve Banks
Open Market procedure
Discount rates
Small Business Bank
MJ 2-5
MJ 6
MJ 6-10
MJ 10-11
MJ 11-12
Federal Reserve insurance
Federal Reserve audits
Open Market Committee procedures and
implications
MJ 12
MJ 12
Audit of Office of Comptroller of Currency
Interest on demand deposits
Federal usury law
MJ 16-19
MJ 20
MJ 20-22
General criticism of Federal Reserve
Unusual Federal Reserve expenditures
Outlays for Federal Reserve Bank premises
Federal Reserve Bank losses and discrepancies
Cafeteria subsidy and Retirement System
MJ 23-2lj
MJ 2$ - FBO 3
FBO 3-7
FBO 7-lk
FBO lU-15
Member bank reserve deficiencies
Federal Reserve Bank examination and audit
procedures
FBO 15-16
MJ 13-15
FBO 16 - XQ 2
<
Currency verification and destruction, including
examiners1 criticism of other matters
Fiscal Ageroy procedures
XQ 2-9
XQ 9-13
Member bank examination procedures
New York's foreign operations
XQ 13-19
XQ 19-22
Open Market account dealers
Business affiliations of Federal Reserve Bank
Directors, Members of Federal Advisory Committee,
and others
FDIC reserves
XQ 22-kh
General remarks and colloquy
Questions previously submitted to Board
Breakdown of Federal Reserve Bank expenses
for 1956
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Federal Reserve Bank of St. Louis
XQ Wt-fD
XQ 5b-5l
XQ 51-5k
XQ 5h-62
XQ 63-72
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Federal Reserve Bank of St. Louis
3
MONO. SECTION
STATEMENT OF WRIGHT PATMAN, REPRESENTATIVE IN CONGRESS
FROM THE STATE OF TEXAS
Mr. PATMAN. Mr. Chairman, I realize- this is a day of very unfavorable circumstances, but probably I could not hope for any
better, and I am not complaining. I just want time to go into this
bill and explain some amendments I want to offer.
Of course., it is traditional in the Congress that during the week of
Lincoln's Birthday no business is transacted in the House and the
Members feel privileged to go home or any place they want to go.
That announcement was made a couple of-days ago, and therefore
most of the Members are going, including the members of this
conlmitteo.
.
They have.gone to 'their homes or elsewhere and they are not here
in Washington now, or in their offices, and certainly they are not
attending committee meetings. But I am not complaining about
that. .
The CHAIRMAN.'I suppose they have all been notified.,
Mr. PATMAN. I ask permission, Mr. Chairman, to revise and extend
the remarks I intend to make and include therein statements and
excerpts and related matter in connection with my testimony.
The CHAIRMAN. Anything that is pertinent and relevant. I do
not,,want, to encumber tlfe record with a great mass of stuff, buft
anything that is pertinent and relevant,
Mr. PATMAN. That is right, anything that is relevant and pcftim nt
in connection with the statements I make and that are in connection
with this bill or related to it. .
The CHAIRMAN. That will be allowed.
Mr. PATMAN. All right.
Mr..Chairman, these bills, S. 1451 and H. It. 7026, are each approximately 250 pages. They were presented originally as rectification '
bills.
What arouses my curiosity and makes me wonder is why it is the
bankers should be allowed the. privilege of coming to Congress "and
saying, "Now, we want our laws recodified, and we will write the
bill," and then we stop everything else and take up the bankers'
recodification of laws, when ( the laws they have selected for re-codification amount to only a small percentage of the financial institutions.
The bill purports to be a complete "Financial Institutions Act."
I have a statement here prepared by the Library of Congress
containing a list of the principal financial institxitions; there are about
15 or 20 financial institutions not included in the bill, such as the
Export-Import Bank, Small Business Administration, Veterans' Administratioai,*Housing and Hojrne finance,vAgricuJture Department,
Commerce Department, Defence Department, Interior Department,
International Cooperation Administration, and many others.
In other words, it looks as though the bankers selected the laws
that are of particular concern to them, which they want changed,
and have taken those up and said, "We want these laws recodified,"
(The document referred to is as follows:)
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Federal Reserve Bank of St. Louis
3
MONO. SECTION
Type of function
Institution
N
Charter Super- Owns or N
or
vise or operates N
register examine
NT
N
N
List of principal financial institutions
Type of function
Institution
Charter
or
register
Super- Owns or
vise or operates
examine j»
A. Financial institUfions included in II. R. 7086
1. National banks -.
._
.
.
.2. Federal Reserve banks and member banks, national and State banks... .
3. Federal' Deposit Insurance Corporation members (includes national,
State banks, members of Federal Reserve System, other State and
Territorial banks, and mutual savings banks)
4 Federal home loan banks .
5. Federal savings and loan associations.
6 Federal credit unions
7. Federal intermediate credit banks. ._
X
(')
X
X
(')
X
X
X
X
X
X
X
X
N
N
B. Financial institutions not included in II. R. 70$6
X
X
X
Export-Import Bank of Washington
'_.
Small Business Administration
Veterans' Administration
Housing and Home Finance Agency (Includes FNMA, FHA,, PHA,
Office of Administrator)
.
Agriculture Department: CCC, Farmers' Home Administration. REA
Commerce Department: Inland Waterways Corporation; maritime activities
_
Defense Department: Defense production loan guarantees ..... .
Interior Department: Bureau of Indian Atfuirs, Bureau of Commercial
Fisheries Oflico of Territories, expansion of defense production
Treasury Department: RFC in liquidation, SWPC in liquidation, civil
defense loans, expansion of defense production, loan to U. K
International Cooperation Administration
General Services Administration: 1'WA in liquidation
HEW, Office of Kdueatiop
Farm Credit^Administration: Banks for cooperatives, Federal Intermediate credit banks, Federal land banks, national farm loan associations,
and production credit associations
.
Federal Deposit Insurance Corporation
Justice Department: Federal Prison System
Investment companies, advisers, bankers
Over-the-counter securities markets..
—•.
Organized securities exchanges..
.
X
X
—
....
X
X
X
X
X
...
X
,
X
X
-.
X
X
X
'
•
_-
-
>
,
--
.-
-
X»
X
X
K
K
C~. Financial institutions not included in 11. R. 7026 and not regulated by
Federal Government
Commercial-paper houses
Factors
Finance companies
Small-loan companies
Development credit corporations
Insurance companies
Investment clubs..
Mortgage houses
Trade creditors
Pension funds
X
X
N
N
N
N
N
N
N
N
N
N
N
N
N
K
K
K.
K
K
K
K.
K
K
K
K
K
\
K
K
K
K.
K
K.
Is.
K
K
K
K
K
i National.
In part.
1
Prepared by: Library of Congress, Legislative Reference Service.
Mr. PATMAN. Another reason I think this is unusual, is that we
have an official recodi.ficat.ion committee that works all the time.
Mr. Zinn who was here with Mr/Celler yesterday, works full-time
at codifying the laws. He is on the staff of the Subcommittee on
Revision and Codification of the Statutes of the United States.
Under the Reorganization Act of 1946, that subcommittee was set
up to take the place of a division known as "Revision of Laws."
That subcommittee is set up with a staff, provided with money
and the best experts to work at this job full time, to codify the laws
passed by Congress. Why should we allow the bankers or anybody
else—and I say that respectfully, because I know there is no intent
on the part of any Member just to serve the bankers—but why
should we let the bankers come in here and convince us that we
should take the recodifieation away from the committee established
for this purpose and which is now functioning?
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Federal Reserve Bank of St. Louis
MONO. SECTION
Why should wo take this job away from thorn and attempt to do
the job ourselves, when we are not equipped to do it.
Our staff is not able to do it. We do not have the staff to do it.
The staff has all that they can do.
I am not complaining about anything that our staff has failed to do.
I am simply pointing out that we do not have a sufficient staff to
recodify even the. ,6 or 7 laws covered by these bills. Yet these laws
repirestmt but a few of the financial institutions of the United States.
As evidence of that fact, take the section about the bank selling
insurance. I know this staff woidd not have put that in the bill.
The staff on tin-Senate Committee would not have put that in. The
bankers put that, in, because they wanted it in. And this staff took
their word for it that it was already in the law.
I cannot believe that our staff would agree to put that in when, it
was not a part of the organic law of the United States. This bill to
that extent is sailing'\Ynder—
The CHAIRMAN. Mr. Patman, I might say they did not take their
word for it at all. The staff made an independent investigation and
came to the conclusion the law was still in effect.
Mr. PATMAN. They could not have done that, Mr. Chairman, whe.ii
the code itself shows it is not.
The CHAIRMAN. It would bo presumed to be repealed, you say 40
years ago
Mr. PATMAN. That is'right.
The CHAIRMAN: But for 40 years, all the agencies have recognized
that it was in effect. Seven administrations, national administrations havtMollowed that same procedure, and there have been courtsit hasn't anything to do with the ultimate result whether we have
insurance hi the banks or not, but there have been courts that have
upheld that after it was appealed. It was in the Supreme Court of
Virginia.
Mr. PATMAN. I would like to see that case, Mr. Chairman. You
are mistaken about that.
The CHAIRMAN. What?
Mr. PATMAN. You are mistaken about that.
The CHAIRMAN. It went to the Supreme Court of Virginia, and
they said that was still in effect.
Mr. PATMAN. I know 'tfiat the bankers, the Cravens committee,
said that, but,they are not giving us the truth on that. It is not the
truth, Mr. Chairman. I say that .respectfully.
No one can make me believe that our staff knew that this was not
in the code of 1952 and did not call it to our attention. I know they
would have called it to our attention if they had known it was not
in the code.
If they were going to take issue with the code and say that the
code is wrong, they would have called it to'our attention when they
got up the statement for us to consider in connection with this bill.
The CHAIRMAN Is that a matter of any importance?
Mr. PATMAN. It certainly is a matter of importance.
The CHAIRMAN. We have the authority to pass upon that question
.as we please. We can repeal it if it is in, we can treat it as not being
in.
Mr. PATMAN. The bill is sailing^mder false colors^
The CHAIRMAN. It does notj shackle anybody.
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Federal Reserve Bank of St. Louis
5 MJ
MONO. SECTION
•
Mr. PATMAN. Yes, it docs. We are told by tins bill that a certain
thing is the law when it is not the law. That is a bill sailing under
false eolors. We are not given the correct information about it.
I am not going to say this staff or any stall' knew it and did not
call it to our attention.
The CHAIRMAN. The staff satys they knewfthat was not in the code.
Mr. PATMAN. And did not call it to our attention?
The CHAIRMAN. They still thought it was in effect. Is it a material
point?
Mr. PATMAN. To try to put something into the law that lias been
repealed for 40 years?
The CHAIRMAN. In the consideration of this bill it does not limit
our action at all. We can consider that matter imy\\ ay we please.
Mr. PATMAN. I will put that in the record. I have said all about
that that I want to, and I will extend my remarks on it.
This whole bill goes toward concentration of banking, fewer banks,
and giving fewer-people a grip upon the banking system of our country. 'Absentee ownership. 1 think it is wrong, and 1 t h i n k that we
should encourage the establishment of new banks where they are
needed, in the towns and local communities.
Mr. BETTS. I do not wont to keep harping on this insurance section, but did I u n d e r s t a n d you to say I h u t you drilled what the
Chairman said that the Supreme Court of Virginia held?
Mr. PATMAN. I deny t h a t the Supreme Court held that the s t a t u t e
was valid. That is the point involved here: is it, a valid statute?
I respectfully state to the gentleman t h a t he cannot show me a decision, notwithstanding what the Chairman and others have said,
nobody can show me a decision—
Tire C H A I R M A N . The decision itself will decide that question. I
will refer you to Ihe decision. I will get you that decision.
Mr. PATMAN. The point was not raised.
The CHAIRMAN. I am not making any argument.
Mr. PATMAN. There is no decision holding t h a t the-, statute was
valid.
The CHAIRMAN. I want you to understand I am not making any
arguments that the banks should go i n t o the insurance business.
That has nothing to do with it.
Mr. P A T M A N . You are supporting this bill; that insurance section
is not in the law, and you are trying to put it in. You are trying to
put the banks in the insurance business, Mr. Chairman. You cannot
get around that.
The C H A I R M A N . I am only t h i n k i n g about what, considered to what,
was in the law. It only applied to towns of less t h a n 5,000 people.
Mr. PATMAN.* My time is limited and I do not care to go into that
point any further. The Chairman will never_he able, to show a decision
where the courts have passed upon the veiiflitjt/iie statute.
That question has not been raised. The conrtTs-rmt going to raise,
it if the litigants do not raise it. The case the gentleman talks about
is one where the question was not raised at all.
The court had no reason to pass on it, as it was not an issue before
the court.
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Federal Reserve Bank of St. Louis
PUUL1C INTEREST AMENDMENTS SHOULD HE CONSIDERED
Mr. Chairman, these so-called modification bills contain a great
many substantive changes in law. Some of these changes would have
tremendous practical effects on all segments of our economic system
and an all groups of people. Many of these proposed changes i« tbe
law are bad, and I will object to them at the proper time.
While we are considering substantive changes in the 6 or 7 laws
covered by these bills, we should, however, consider several other
changes in the. public interest that are badly needed. In other words,
we should not confine our consideration to those changes which the
bankers have said they want, but we should consider also changes
that are clearly needed to improve these laws. My purpose today i£
to call the attention of the committee to several amendments which
we should consider,.
Now as to the Federal Reserve System:
PAY OFF THE SO-CALLED STOCIC-OF THE YEDERA-L HESEKVE BANKS
Now some of the bankers who have appeared before our committee
here revealed that they have been under an impression that the
Federal Reserve banks are owned by the commercial banks, the member banks.
Yesterday, I made a speech on the floor, in which I referred to this
erroneous impression, and in which I showed conclusively that the
Federal Reserve banks are owned by the Government of the United
States. Tliere is no valid, legal stock held'by commercial banks in the
Federal Reserve banks. That so-called stock that the member banks
own is not stock at all; "stock" is a misnomer. It has no stock value;
it cannot be voted as stock; it cannot be sold; it cannot be hypothecated; it is just held as an investment or a loan upon which they draw
6 percent. The banks do not own the Federal Reserve System.
This 6 percent interest—which amounts to about $20 million a
year—should certainly be saved by the Government, by canceling
that stock and paying it off. It could easily be paid out of the Federal
Reserve surplus funds, now, without any inconvenience.
MAKE THE^FEDEIIAL IfKSK'HVE "B'OARD! (THE OPEN MAUKET
,
COMMITTEE
I am going to offer an amendment, Mr. Chairman, to increase the
Federal Reserve Board to 12 members, and make it the Open Market
Committee.
I have had a bill of this kind pending for a number of years. We
have never had.a hearing on the bill, but I am going to offer it as an
amendment to these bills.
We..know that operations of the Open Market Committee are in the
New York bank alone. The Open Market Committee delegates
to one man, who is in charge of the open market account, responsibility for carrying on trading with private brokers, amounting to tens
of billions of dollars worth of securities. There are dozens of people
who,know about the operations of .this important comrrittec. With
knowledge of what their account is going to do, a person can make
millions overnight. We ought to look into that and find out what, is
going on.
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Federal Reserve Bank of St. Louis
7 MJ
MONO. SECTION
I asked the gentleman who was president of the New York Reserve Bank just before Mr. Hayes, Mr. Sproul if it had any rules
against bank officials or employees playing the market. He said no,
except they couldn't buy on margin.
Now, imagine that. Here is a bank that is run bv private bankers
in New York, handling Government bonds and other securities aggregating tens of billions of dollars a year, and we have never inquired
into the procedures that they use. We have never atterrpted to
determine whether or not it was being honestly conducted. Although
I am not charging corruption because I don't know, there are oppor^
tunities for corruption there. And ordinary, normal human brings
sometimes cannot resist temptation. There is certainly an opportunity there for man}', many people to enrich themselves every day
with inside knowledge and information.
There are 17 dealers lha.t trade w i t h the open market account. ., I
wouldn't say that they are handpicke'd but there are very feu, usually
about 12. In 1956, only 5 of these accounted for over 50 percent
of all the transactions of the open market account.
To show you something about 'the size of the operations, in 195f>
the open market a.ccount purchased $11.9 billion worth of Government
securities and sold $9-.3 billion worth. Total transactions, $21.2
billion during that 1 year alone. So jt is not a small matter; this is
not small potatoes. Twenty-two billion dollars worth of securities
bought and sold in 1 year, j wouldu t consider that an extraordinary
year; they do about that much almost every year. And yet we have
never looked into their operations; they have never been audited by
the General Accounting Office; ana we know almost nothing about
them.
v
But I can tell you this mueh,fbceause I have made inquiries; this
so-called Open Market Committee operat.es the biggest market in the
world; and while it is called an "open market/' it is the most closed market that was ever invented. The people who operate this account
do the buying t -and'selling of Government securities, using Government money, and decide for themselves what price they will take or
pay, in each trade; they decide which one of their little select group of
dealers they will sell to pi- buy from; and there is never any public
announcement of the prices this account pays or receives; there is
never\ any public record of how much securities they sell to or buy
from any one of their select group of dealers; and the people who carry
on this under-the-counter trading in tens of billions of dollars each
year of Government-owned securities are not even Government
employees.
More than that, Chairman Martin refuses to tell the public, or even
to tell this committee in confidence, anything about these dealers who
are privileged to carry on this fabulous and hidden trading with the
open market account. Chairman Martin has told us their names,
and that is about all. He has refused to tell us what their net worth
is and what percentage of the Government securities they hold at any
one time, and he has refused any information about how much trading
in Government securities these dealers do with their customers.
I will insert a table showing the monthly volume of purchases and
sales in 1954, which was a $11.6 billion year. This table shows that
the open market account outright sales of securities amounts to $.3.3
billion. We can assume that most of these outright sales were made
to dealers, as contrasted to foreign control banks. At the same time
the open market account made loans, that is, repurchase agreements,
with the dealers amounting to $2.4 billion.
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Federal Reserve Bank of St. Louis
B MJ
SECTION
Gross transactions in Government securities by the Federal Open Market Committee,
January-December 1954
[In millions of dollars]
Market transactions (gross)
•
Net
change
in
Federal
Reserve
holdings
To tal
Purchases
1954
January
February
March
April
May
June
July
August
September .
October November
December
-1,276.2
-130.2
+ 123. 2
+ 180.0
•
. .' . ..
Total (JanuaryDecember) —
1
+225. 1
-712.3
-302.0
+247. 5
+ 110.7
+507. 0
+44.0
Sales
271.0 1, 547. 2
516. 2
386. 0
428.2
305.0
50.0
50.0
147.0
327.0
952. 6
727. 5
782.3
70.0
961. 6
650. 6
402.5
CftO.'O438:2
327.5
251. 5
758. 5
281.5
325.5
Outright transactions i
Purchases
172.1
228.2
180.
Purchases
Sales
271, 0
678. 3
302. 3 ' 213. 9
105. 0 j 200.0
868.9
213.9
200.0
50.0
147.0
448.7
70.0
371.0
128. 6
128.2
59 5
281.5
Sales
0:
503. 9
160.0
650.0
310.0
699. 0
Repurchase
agreements
with dealers
278.8
712.3
590. 6
273. 9
199. 3
192. 0
50.0
147.0
448.7
70.0
499.6
128.2
59.5
325. 5
-983.2 5, 316. 6 6, 299. 8 2, 903. 2 3, 332. 5 2, 413. 4 2, 967. 3
Special
certifiExcates
change
purof machased
turing
directly
certififrom
cates,
Treas- and notes,
ury
and maturing
(largest
amount
and
outstand- called
ing In
bonds
month)
424. 0 -
3,922.2
WO. 0
1, 686. 4
991.2
7,"2S2. ft
13, 882. 4
Includes runoff of-Treasury bills at maturity, but excludes exchanges of maturing bills for new^btlls.
You see, the Open Market Committee conceives of this little group
of dealers as being "the makers of primary markets" for Government
securities. In plain words, the open market account conceives of
itself as adjusting from day to day the amount of money in the private
banking system of the country. When there is too much money,
according to the account's opinion, they buy some money in from these
dealers arid pay the dealers a profit on it; and -when they .think there
is too little money, they sell some to these dealers and, of course, the
dealers get their wholesaler's margin on this as they resell the securities
to the banks, the corporations, or anyone else who may want to buy
them.
Hundreds of member banks all over the. country buv and sell
Government securities, but they must go to the dealers for these. For
mysterious reasons which have never been explained, they never
trade directly with the open market,account.
.
The open market account does, trade with foreign central banks,
they buy and sell billions of dollars worth of United States Government
securities, all over Europe, all over South America, and everywhere
else that there is a foreign bank that ,wants to trade with the open
market account.
In contrast, however, the Federal Reserve banks themselves cannot
trade with the open market account. These banks act as agents for
the member banks and others \\\ buying and selling billions of dollars
worth of Government securities but the Federal Reserve banks must
also go to the dealers to trade, or go to some subsidiary dealers who
in turn trade with the top dealers that the open market account
trades with. Considering the vast amount of trading that is going
on at almost all times, it is inevitable that there are many times when
the Federal Reserve banks are in the market buying securities from
private dealers at the very moment the open market account is
selling those same securities to private dealers. And of course the
sale by the open market account is on behalf of the Federal Reserve
banks.
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Federal Reserve Bank of St. Louis
ff.
**•*• mtF*
MONO SECTION
Under I he 191.'] act, each Federal Reserve Bank had its own open*
market committee, but the 1935 act completely changed t h e Federal
Reserve System. There is now only one Open Market Committee,
and the Federal Reserve Bank of New York is the sole agent of that
committee. This bank handles the entire account', and although it
is supposed to operate according to policy guides laid down by the
Open Market Committee, if you will read these policy guides—which
are published in the Annual Report of the Board—you will find that
they are vague statements which leave the actual decisions up to the
New York bank.
If you turn to the Annual Report of the Board of Governors, for
instance—say 1956—you will see that the Dallas bank 1 happen
to be in the Dallas district—that the Dallas bank earned from
discounts and advances only $830,142. That is all that whole bank
earned. Of course, it has earnings in its statement of $23 million.
Where did the other come from? It comes directly from New York.
None of these other 11 banks touches those Government securities
in the open market. They are all right there in the city of New York
in the Federal Reserve Bank Building. The coupons are clipped
there, the interest is collected there, the taxpayers pay it into the
treasury and the treasury sends it up to the Federal Reserve Bank
of New York, to pay interest on over $23 billion of government bonds
that have been bought by that open market account and which they
now hold. The New York bank then sends to Dallas, Texas, $22
million, as the Dallas bank's part of the earnings. Did they earn
that? They didn't turn their hands to get itJ
The open market account bought these bonds on the credit of the
Nation, using Federal Reserve notes which are' also Government
obligations; then the [New York bank sends the money to Dallas,
to San Francisco, Kansas City, Minneapolis, Chicago, Atlanta, Richmond, Cleveland, Philadelphia, New York, and Boston. Each one
their proportionate share*, but the, banks don't touch these bonds.
They render no service for this income, and the bonds were purchased
on Government credit.
The Dallas bank, although it only earned $830,000, it spent more
than $6 million—-$0,680,000.
Now this operation in 1935, on the Federal Reserve banking
system, changed it completely, from an autonomous regional system
to a central banking system.
We now have a central bank in the United States, and u n d e r this
central banking system, there is no important power left in the
regional banks. There is no important power left; It is all done by
the Federal Reserve Board here in Washington or by t h e Open Market
Committee composed of 12 members, 5 of whom are selected by
representatives of private banks.
When the Open Market Committee meets, there are 12 members
of private banks there at the meeting, presidents of the Reserve
banks. Only five of these can vote but the others are there to participate in the meetings and to help e v a l u a t e the problems and to
help come to decisions. Those 7 public members t h e Board members are surrounded not only by these 12 representatives of the
private banks but they have 12 other people w i t h whom they must
deal who directly represent the banks, too. These are known as
the Federal Advisory Council. So we have our 7 public members
surrounded by 24 bankers' to help them perform their public services
and public duty.
I say that alone should arouse our thinking. We should look into
this carefully and make sure that it is being done in the public interest,
.and in the meantime ; we. know that we should take the bankers o/T
of the Open 'Market Committee.
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Federal Reserve Bank of St. Louis
10 MI
,
MONO SECTION
PROHIBIT REPURCHASE AGREEMENTS
The Open Market Committee is right now doing something which
I do not consider to be legal at all. They are permitting dealers in
•Government securities to borrow money directly from the Ne\v York
Federal Reserve bank.
Now, I thought Federal Reserve banks were set up to accominodatp
member banks. But here we find a half dozen dealers—not over 15—
in the city of New York who get their money directly from the Federal Reserve to speculate in Government securities. Do you think
they don't know anything about what the Government is going
to do? They use the Government's money for the purpose of buying and selling Government securities all the time. There is nothing
in the Federal Reserve Act, if I read it correctly, that permits them
to borrow money from the Federal Reserve for that purpose.
You see, on the repurchase agreements, every Monday the dealers,
bid on bills that are offered by the Treasury. They bid in a certain
amount and they don't have to pay for those bills until Thursday
afternoon. During that time they usually have been able to sell
them at a profit. They don't have any on hand. They are passing
them on to the U"ade, to people who want them. But when they have
bills left over they can carry them thuough what is known as a repurchase agreement. AS I said awhile ago, 1 don't see anything in the law
authorizing this.
Under tins practice that has been built up, because nobody has been
looking over their shoulder or auditing their books, tlhese Federal, Reserve people have been going foot-loose and fancy-free. That practice
of lending the dealers money to carry Government securities is one'
that certainly should receive some attention.
THE DISCOUNT RATE SHOULD BE FIXED BY THE BOARD—NOT PRIVATE,
BANKERS
I am also going to offer an amendment-to require that the Board of
Governors and the Board alone fix the discount rates. As we know,
when a change in the Federal Reserve discount rate is announced,
securities markets shoot up or down, just in a matter of minutes.
Values of stocks, Government bonds, and all other securities change
by billions of dollars.
Now, Mr. Chairman, we have in our own Federal Reserve System
the same procedure for changing the discount rate that they have in the
Bank of England. The boards of directors of the Federal Reserve
banks recommend a change and'these boards are made up of private
bankers and men who are also on the boards of the big corporations.
This procedure is open to exactly the same problem that has recently
come up in connection with the Bank of England. There they have
some of the directors of the Bank of England, their central bank, who
are also bankers; and they have some who are on the boards of
industrial corporations.
They are very quick to point out that not one of the six largest
banks in England is allowed to have r< presentation on the board of the
Bank of England. None of the big banks is allowed representation on
that board. But some of the smaller banks are.
Recently it was shown that when the Batik of England was going to
raise the discount rate from 5 to 7 percent, one of the bank's directors
who had recommended the change advised his corporation to unload
its holdings of "guilt edge" bonds—which the corporation did to
the extent of $2.8 million worth—the day before the change in discount rate was publicly announced. Later, when this matter came to
light during an investigation, the director in question, a Mr. Keswick,
testified quite frankly that he felt he owed equal loyalties to the bank
and to his corporation. A Renter's dispatch of December 6 reported:
"William J. Keswick said that as a director of the bank, he could not
betray secrets, and yet he was fyouwl to protect the business interests
he legally .represented."
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Federal Reserve Bank of St. Louis
11 MJ
MONO SECTION
Now, that sonio thing can happen right hero in our country. We*
don't know but what it is going- on right now. Wo don't know. Hus
it happened in the past? I don't know; but if the bankers 1 ere
feel that they should be loyal to their own institutions like the banks
in England felt like they were justified in being loyal to their own
institutions and using that inside knowledge and information for
their own personal, private, selfish benefit, it could be going on right
here now, andjl think this committee could very well afford to look
info that question.
When we change these boards we should have no bankers on them
at all. At least we should have representatives from other groups like
agriculture, labor, consumers and the whole population represented on
these boards that have to do with the supply of money, and whether
the interest rate will be high or low. We should only have public
representatives and should not have people in a position to influence
monetary policy, who are directly and selfishly interested rn high
interest, for instance, because the bankers will make more money
that way.
I don't think this committee should let go unnoticed this matter
that fhe people who have advance information on changes in interest
rates are in a position to make huge profits from the information, and
there seems to be no regulation against it. This should be investi?
gated and proper disclosures made of things that actually exist, and
we should make sure that corrections are made.
SET
UP
A SMALL
BUSINESS CAPITAL
HAN T K
SYSTEM
Another amendment I shall offer is in connection with Section
13 (b). The Federal Reserve is proposing that the Federal Reserve
Banks be relieved of the responsibility of making loans to small
business under 13 (b); and these Financial Institutions bills, S. 1451
and H. R. 7026, contain amendments which would repeal the present.
13 (b) program.
I am going to offer an amendment to thai. 1 am not going to
resist the Federal Reserve's trying to throw the small businessman o u t ;
but I am going to offer this bill I have introduced, I I . R. 10345 [would
you give each member a copy of it, please, sir] as an a m e n d m e n t or. as a
substitute to that provision which calls for the Federal Reserve banks.
to turn that section 13 (b) money over to the Treasury.
I am going to offer this, which will intercept that money and let
it be used as operating expenses for these new small-business capitalbanks.
I propose that the capital stock of each one of the 12 small business
capital banks be $10 million. The money will not have to be bor-r
rowed, and the Government will not have to pay interest on it. It
will be gotten from the Federal Reserve banks, out of their surplus
funds. Money—remember this. Mr. Chairman—money that is now
idle and unused. We would be taking idle money and putting it to.
use for n good purpose. It wouldn't affect the national debt limit; it
wouldn't cost any extra interest, it wouldn't cause the Government to.
have'to borrow any money. It is. already there and should be used.
I am not going to resist Reserve banks, efforts to be relieved of the
section 13 (b) program, because I know that they are not in sympathy
with making loans to small concerns, and there is no use keeping this
program in nn organization where there is no sympathy for the work
that is supposed to be administered; so I will offer nn amendment to
establish small-business capital banks.
We must have someplace for these little fellows to go. We are
kicking them out of the Federal Reserve. We are p u t t i n g them out
in the cold, and they .do not have adequate opportunities to gob
capital.
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Federal Reserve Bank of St. Louis
We had a hearing before the House Small Business Committee
in November, and we. had four presidents of Federal Reserve banks
at this hearing. They were interrogated about this, and not one of
them could give a good reason why this should not be done. Not
one of them said it would inconvenience the Reserve banks to do it.
And, of course, we know it wouldn't, because in the surplus funds of
the banks now they have $800 millioji, and more; and that money
is idle and unused. Part of it should be put to use in this way.
THE FEDERAL RESERVE SYSTEM SHOULD CARRY ITS OWN INSURANCE
Now, the Federal Reserve banks are buying insurance of all kinds.
They are spending over $1 million a year; $1,821,429 during the year
1956 for insurance.'
Why should the Federal Reserve banks buy insurance? Whom do
they buy it from? Who gets the commissions? Are they connected
with the banks? We don't know. This insurance is unneeded, it is
.unnecessary. These Reserve banks are part of the Government just
as much so as the Capitol. And with all the money and resources of
the Federal Reserve System, if it cannot carry the risk of its own
insurance, then certainly there is no private insurance company that
can carry this risk.
Suppose someone suggested that the Congress should take insurance
on the Capitol—storm insurance, hail insurance, rain insurance,
cyclone insurance—for which the Government would be charged a fee.
We would certainly not.like that.
Well, this is a comparable situation. The Federal Reserve banks
are doing just that. Why are they allowed to do it? It is because
they have never been looked into. Their books are never audited.
They are never audited and never have any supervision. That
matter should certainly receive the attention of this committee.
THE FEDERAL RESERVE SYSTEM" MUST BE SUBJECT TO AUDIT
Another amendment I will offer to the Federal Reserve Act portion
of these bills will require that the Federal Reserve Board, the Federal
Reserve, banks, and the Open Market Committee be audited by the
General Accounting Office.
Since its organization in 1913, there lias never been an outside audit
of the System or any part of it. Nowr this is shocking, Mr. Chairman.
It is bound to be shocking to all American citizens that we would let
the Federal Reserve System handle hundreds of billions of dollars
of the Government's money—and two-thirds of every board of
directors of each Federal Reserve bank is composed of private bankers
or people selected by the private, bankers—and never have any audit.
The only audit Federal Reserve banks have ever had is an internal
audit, where they select the auditors, give the auditors their instructions, and report back to themselves. It is bordering on a disgrace
for Congress to permit that situation to continue. It just doesn't
make sense, either common, book or horse. There is just no sense
to it.
x
I will come back to this point later, and give the committee some
illustrations taken from their own internal audit reports which will,
I think, give convincing proof of the need for having the. Reserve
banks audited.
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Federal Reserve Bank of St. Louis
Now one of the provisions (see. ;W of title II) of those hills would
pern)it the Board of Governors of the Federal Keserve System to
make decisions on the basis of a sin)pie majority vote of the members
"in office." This is in contrast to the present law which requires an
affirmative vote of five members. The result would be that the
Board could function with several offices left vacant. And with 3
offices left vacant, the banker members of the Open Market Committee could outvote the Board members. The implications are
set out in the following letter I wrote to President Eisenhower in
May of 1954.
CoNCiUESS OF THE UNITED STATES,
HOUSE OP REPRESENTATIVES,
Washintjton., D. C., May 17, 1954.
Hon. DWKJHT D. EISENHOWER.
President of (lie United Slates,
The White House,
Washirujton So, D. C.
MY DEAR Mil. PHESIUEXT: This letter is written to you in the belief'that the
questions raised are in the public interest and consideration of them at this time
is of paramount importance. I refer to the Federal Reserve System and to the
vacancies on the Board of Governors, also the Open Market C-ommittee.
There are 2 vacancies on the 7-n>ember Board of Governors. One vacancy
occurred during the term of your predecessor. It was not filled when it occurred,
although the law says, '"whenever a vacancy shall occur * * * a successor shall
be appointed by the President, by and with the advice and consent of the Senate,
to fill such vacancy." The other vacancy occurred January 31, 195-1; but the
same obligation on the President to fill it does not exist, as it was by an expiration
of a term, and the above-quoted law referring to the tilling of a vacancy says,
"other than by expiration of term."
The Open Market Committee is composed of the 7 members of the Board of
Governors and 5 Presidents'of Federal Reserve banks. The former are the public
members and the latter were selected by the private commercial banks. This
committee, exercising the powers delegated to it by the Congress, has complete
control over the volume of money and credit; it also controls interest rates, including the carrying charges on the national debt; and otherwise determines
whether our country enjoys prosperity or suffers from a devastating depression-.
These 5 members of the Board and the one whose term has expired, in protecting the public interest on these important questions, are forced to deal with and
give consideration to the views and suggestions of t h e 12 presidents of the Federal Reserve banks, who were selected by the private batiks, and the 12 members
of the Federal Advisory Council, who were also selected by the private bunks.
It is, therefore, very important that the Board composing the public members be
fully filled.
1
It" is my suggestion t h a t before recommendations for t h e f i l l i n g of these two
vacancies on the Board are submitted to the Senate for approval careful consideration be given to the selection of a member who is familar with the problems
of the farmer and one who is familiar with the problems of labor.
It was never intended that, the banks should have control of the Federal Reserve System or any controlling influence over it. President Woodrow Wilson,
who signed the bill i n t o lav.- on December 2f>. 191'i, and Senator Carter Class, coauthor of the law, often pointed out that such influence would be just as destructive to the public interest as permitting the railroad owners to control or influence
the Intel State Commerce Commission i?i the m a k i n g of railroad freight rates.
Banker-control of the Federal Reserve System is r u i n i n g t h e solid foundation
of a privately owned and profitable commercial b a n k i n g system of our country.
Under such policies, the big banks can doubtless survive and a few of t h e middlesize banks, but the smaller banks will be doomed. While this is going on, such
policies and practices will be ruinous to a prosperous economy.
Under our capitalistic system, which is HIP best i?i the world, our money is
based on debt. No debt—no money. The 1.5,000 commercial banks are obligated to serve the public interest by making local loans. They have the power
to create and extinguish money. They are manufacturers of money. In the
exercise of this privilege, they have the backing and support of the Federal Government and the privilege of using, without charge, the credit of the Nation.
They can, with the cooperation of the Board of Governors, create moi"*y and
make loans up to 14 times the amount of reserves held by t h e m . Such a privilege
should only be controlled by a board composed of members selected by the
President to serve the people and not one of them selected by those s"lPshly interested in using the system in a way .to make profits—and bigger profits—(or
themselves.
;
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Federal Reserve Bank of St. Louis
Tlie present abuse of our h a n k i n g system is forcing (lie hanks—or at least
flit icing them—out of the real h a n k i n g business formerly performed by them in
the rendering of local service. They are more and more becoming holders of
Government bonds, bond brokers, and commercial bookkeepers.
Many banks are so filled up w i t h Government securities, Reconstruction Finance
Corporation and Commodity Credit Corporation certificates of interest and obligations issued by the Federal Housing Administration, t h a t they are "loaned up1*
and cannot take care of local credit needs.
I believe in a privately owned commercial bunking system. We must allow it
to be profitable or it cannot continue. However, there is no reason to allow a
commercial bank to buy Government bonds with created money, except to give
them more income in order that they may be induced to render public service in
other ways. The banks are so loaded down with riskless securities purchased
with created money that they do not have the urge to spend their valuable time
discussing the loan application of a small businessman or a farmer. A boy knows
better than to feed his h u n t i n g dogs before he starts out. Their profits lust
year—1953—were the highest iii history.
This trend in banking poses a serious question in another respect. Our total
debts, including both public and private, aggregate about $(540 billion. In order
to properly expand our economy to take care of the 1 million new workers and
the 1 million displaced by machinery each year, more debts must be created. So
we are facing a larger, not a smaller debt burden. •
If the debts are not created by local banks to provide for local needs, they must
be created elsewhere. If the States, counties, cities, and political subdivisions
create them, another problem will be presented, since these debts will be in the
form of tax-exempt securities. They could be issued in sufficient q u a n t i t y to
allow the big wealth of the country to escape any tax burden whatsoever. Right
now, we need additional school buildings and facilities that will cost $10 billion.
If we require this money to hi; raised locally, it will enable the investors of $10
billion to enter a tax storm cellar and pay no income tax whatever to our Government for any purpose—even to defend it in time of war.
If the Federal Government, is compelled to create the debts in order to expand
our economy, we will certainly have a "new look" in deficit financing.
Decisions of great importance are in the making right now concerning the
support of the Government bond market. This is another good reason why the
two vacancies on the Board should be filled without further delay. These
decisions will be made soon-by the Open Market Committee, now top heavy with
representatives of the private commercial bunks.
Assuring you, Mr. President, t h a t my sole desire in bringing these matters to
your attention is to try to be helpful and cooperative, and trusting that they
will be given consideration, I am
Sincerely yours,
WRIGHT P ATM AM.
CONGRESS OF THK X T N I T K O STATES,
HOUSE OF REFRKHKNTATIVBS,
Washington, D. C., December 9, 1954Hon. BRENT SI-ENCE,
House, of Representatiws,
Washington 25, D. C.
DEAR MR. C H A I R M A N : Hearings recently concluded by the Joint Economic
Committee have disclosed certain aspects of Federal Reserve operations that
appear to require remedial legislation. Since Banking and Currency is the
appropriate Committee to consider such action, I am setting forth the following
facts for your consideration.
As you know, Federal Reserve open market policy since the "accord'' of 1951
has evolved to the point where today open market transactions in Government
bonds cannot be undertaken unless specifically authorized by a majority of the
full Open Market Committee. This is a logical result of the decision taken in
1951 to free the Board from responsibility to support the market for Government
bonds at their par value.
As a result of the operations of the Board under the new policy, it is generally
conceded that Government bonds have diminished in attractiveness and their
marketability has been impaired. Long-term Treasury bonds can still be marketed, but only at excessively high interest rates. This is necessary to compensate
for the new element of risk'that attaches to the ownership of such bonds under
the policy of nonsupport.
Apart from the increased cost of marketing long-term bonds, the Secretary of
the Treasury has testified that the solvency of trust f u n d s of the Government,
which are invested in special issues, may be threatened under conditions requiring
emergency withdrawals. Secretary Humphrey testified before the Joint Economic Committee (see attached) that under emergency withdrawal conditions
special issues in the trust fund may have to be converted into cash. To convert
these issues into cash, the Treasury would have to market them. There is no
assurance that in a "free market" the Government, bonds in the unemployment
trust f u n d s would sell for 100 cents on the dollar. Billions of dollars of the savings
of American wnrkingmen and w>meu are being needlessly jeopardized by the
present policy of le-ivinq; the, 'Ir-t-M-'ninatiou of the price of Government securities
to the private uuregulatH farces of the money market.
,•
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Federal Reserve Bank of St. Louis
Iii view of Secretary Humphrey's affirmative reply to my suggestion that this
was "a pretty good reason to consider some support for Government bonds under
certain conditions,'' I believe that this has given us the basis for reopening the
question of the responsibility of the Federal Reserve to support the price of Government bonds at their face value.
Apart from this, however, it is essential t h a t solvency of the unemployment
and other Government trust funds be guaranteed by enacting legislation requiring
the Federal Reserve System to redeem the special issues or any bonds t h a t may
be substituted for them at their face value, in the event they have to be converted
into cash to meet emergency withdrawal conditions.
Another area that may require remedial legislation relates to the composition
of the Board of Governors and the Federal Open Market Committee. During
the recent hearings of the joint committee, I again raised the question of the
tremendous power that the Open Market Committee has in shaping the course
of our entire economy. I did this for the purpose of indicating that while this body
vitally influenced the well-being of all groups in the economy, these groups; were
not all represented in the decisions made by the Open Market Committee.
Prof. Edward Shaw, of Stanford University, now preparing a history of the
Federal Reserve for the Brooking* Institution, testified briefly on this point and
indicated the need for considering changes in the regulations governing representation in the System, in view of the radical change! in the concept of the System's
functions and responsibilities since its inception 41 years ago. (See attachment.)
I. believe that these two areas of weakness in the Federal Reserve System,,
namely, the lack of assurance that special Government issues in the trust funds
can be marketed at 100 cents on the dollar if emergency withdrawal conditions
necessitate their conversion into cash, and the failure to change the regulations
regarding representation in the System to parallel the radical change in the System's functions and responsibilities merit attention by the Banking and Cuiv
rency Committee.
Sincerely yours.
WUIGHT PAT/HAN.
ATTACHMENT A
Excerpt from Secretary Humphrey's testimony before the Joint Economic
Committee, December 7, 1954:
«* * * we should never fail to keep in our minds this thought, and that is that
the practice (of investing our trust funds in Government bonds) * * * does hold
this fear that we might just as well recogni/.e, and that is that if—and this applies
particularly to unemployment funds or funds that, may not have a regular withdrawal but that may have an emergency withdrawal—in the event of an emergency
withdrawal an emergency need for funds, not only private funds will be wanting
to sell their bonds in order to turn them into cash to use the cash currently, but
the Government funds for the same purposes required for an emergency purpose,
would do the same thing. So that we might run into a period where you would
have private funds and the Government funds and a-number of other people all
trying to reali/c, and private individual holders as well who have laid aside their
bands for their protection, you might have an emergency in which you would have
an excess of Government bonds offered on the. market which would be—which
might present a serious problem for the time being."
ATTACHMENT B
Excerpt from testimony of Edward Shaw, Brookings Institution, before the
Joint Economic Committee, December 0, 1954:
"I think it is known in the historical context originally the Federal Reserve was
not known at all as we regard it now. In fact, a comparison of the present hearings with the hearings of 1912, 1913, 1914, would indicate very great advances in
our understanding of how central banks operate.
"At that time the central bank was supposed to be essentially a passive instrument in the money market, giving accommodation to legitimate business, commerce, and agriculture when it should need it. It was not supposed to be, it was
not intended to be, an aggressive agent increasing or decreasing the supply of
money for some such goal as stabilizing price levels.
"Since it was felt the central bank was set up to insure there would be adequate
credit accommodation for major economic interests in the country, those interests
were represented, and since it was a mechanism for bringing the commercial
banks together into a tightly knit organisation no longer suicidally inclined, it
was felt the commercial banks should be represented, all this quite validly, I
think, under that original conception of central banking.
"This is no longer the conception of central banking that it should feed credit
to certain specific interests, so I t h i n k the Congress might well consider sol'ne of
the stipulations in the Federal Keserve Act regarding the representation of certain
specific groups from which are omitted, let's say, labor unions. * * *
"I should review these regulations to see whether something more relevant to
the general interest might not be substituted."
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MONO SECTION
1 have, now, several proposals for amending title I, which is the
National Banking- Act.
THE OFFICE OF THE COMPTROLLER"OF THE CURRENCY SHOULD HE
BROUGHT INTO THE GOVERNMENT AND HE MADE SUHJECT'TO AUDIT
Another operation which is not subject to an independent audit,
and apparently no audit at all, is the handling of Federal Reserve
currency by the Office of the Comptroller of the Currency.
It was brought out at the hearings last summer that the Comptroller of the Currency had, through May 31, 1957, handled more
than $154 billion worth of this currency. (See p. 478 of part I'of
hearings.) The Comptroller had received that much from the
Bureau of Printing and Engraving. And, according to a letter to
me from Chairman Martin, slightly more than $147 billion of this
had been issued to the Federal Reserve banks by the. Comptroller of
the Currency; and a little more than $107 billion in worn and damaged currency had been delivered back to the Comptroller of the
Currency for destruction. • (See p. 484, part I, of hearings.)
I have looked into the question whether the currency handling in
the Comptroller's office is audited twice, as has been said, and it appears not to be audited twice, nor audited even once.
None of the functions of the Office of the Comptroller of the Currency is subject to a u d i t by the General A c c o u n t i n g Office. This is
because the Comptroller's Office does not operate on appropriated
funds, but operates on fees collected from, the banks, and so the Office
of the Comptroller of the Currency is considered in the category of
those governmental supervisory agencies which go on the theory
that they are owned by the banks. Furthermore, to make this
theory doubly clear and to cement it into the law, this bill contains a
new provision (in sec. 49 (c) of title 1) which says t h a t the funds
on which the Office of the Comptroller of the Currency operat.es—
which come from assessments on (lie banks for examinations—"shall
not be construed to be Government funds or appropriated moneys."
I arranged to have assigned to me an auditor from the General
Accounting Office, and to have this man investigate and review the
auditing which is done of the Office of the Comptroller of the Currency. This man, Mr. Edward W. Stopniek, who is an auditor on
the staff of the Civil A u d i t and Accounting Division of the GAO
and a licensed CPA in the State of Illinois, has prepared an expert
memorandum for me in which ho points out some remarkable things.
He points out that the Bureau of Accounts of the Treasury Department makes once a year a partial audit of the Comptroller's Office,
but this partial audit is not mandatory; it is made only at the request
of the Comptroller of the Currency. Furthermore, t h e Comptroller of
the Currency proscribes what parts of his Office are to be audited, and
what the scope of the audits shall be.
This memorandum states flatly that "currency functions performed
by the Comptroller for account of the Federal Reserve Board relating
to the issuance and redemption of currency" are not audited even by
the Treasury's own internal auditors. In other words, the handling
of billions of dollars in Federal Reserve currency is not subject to an
independent audit by the General Accounting Office or by any other
independent auditor; it is not even audited by the Treasury's own
internal auditors. ,
Mr. Stepnick's memorandum is as follows:
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liONO. SECTION
COMMKXTS ON I { K \ I E \ V OK RE TOUT* I { K I . A T I \ < ; TO A U D I T S OK THE OFFICE OF THE
COMTTKOI.I.IOK OK T11K Cl KKEN'CY
O K N E K A I . COMMENTS A M ) CONCLUSIONS
A review was made of selected audit reports on the Office of the Comptroller of
the Currency prepared by auditors of the Division of Internal A u d i t s , Bureau of
Accounts, Treasury Department. A review was made also of various financial
and audit reports prepared by the internal auditor of the Office of the Comptroller
of the Currency.
|i. These reviews strongly indicate t h a t a u d i t s of the Office of t h e Comptroller of
the Currency are not satisfactory, largely because they do not cover all the major
functions of the Office. Moreover, under existing audit arrangements between.
the Comptroller and the Bureau of Accounts, it appears t h a t the auditors of the
Bureau of Accounts are not in a position to independently determine the scope of
their audits. Also, there are indications that the Office of t h e Comptroller of the
Currency has net been receptive in adopting what appear to be sensible recommendations made by the auditors of the Bureau of Accounts to improve accounting
operations in the Office. Further comments on these matters follow.
AUDITS O F TIIF; C O M T T K O L l . K R O F T H E C C H U K X C V »Y T I I K H U H K A U O K ACCOUNTS
Audits of the Office of the Comptroller of fche (Currency are made a n n u a l l y by
the Division of I n t e r n a l Audits, Bureau of Accounts, Treasury Department.
The animal audits appear adequate from a technical s t a n d p o i n t in the areas
covered, and the auditors prepare good reports which carefully explain the scope
of the audit and which include opinions and recommendations. However, the
annual audits are only partial audits in relation to the t o t a l oneiations of the
Comptroller of the Currency because important areas are o m i t t e d from the scope
of the examination.
The annual audits by the Bureau of A c c o u n t s an" l i m i t s to the accounts and
records p e r t a i n i n g to the income and a d m i n i s t r a t i v e expenses of t h e Office of
the Comptroller of the Currency and to residual funds i n v o l v i g t h e liquidation
of insolvent, national banks. Because of t h i s limited sco;>e, ; he a u d i t s do not
cover several important m a t t e r s such as (1) currency f u n c t i o n s performed by
the Comptroller for account of the Federal Reserve Hoard r e l a t i n g to t h e issuance
and redemption of currency, except the verification of expenses and assessments
relating thereto; and (2) fiscal activities under the control of t h e chief examiners
in district field offices. Also, the audits do not include (1) a review of financial
transactions from the standpoint of compliance, w i t h legal requirements specifically applicable to the functions of the Comptroller of the Currency; and (2)
ti verification of supplies and equipment and certain items derived from closed
receiverships held for safekeeping. The omission of these j i n a t i e r s [from the
scope of the audit seriously reduces 1 he effectiveness and value of the audit
work performed.
Moreover, the audit by the Bureau of Accounts is made on t h e basis of a
request from the Comptroller's office, and its scope is determined t h r o u g h an
understanding between representatives of the Comptroller and t h e Bureau of
Accounts. It is clear that the auditors of the Bureau of Accounts are not in a
position to independently d e t e r m i n e the scope of their audits, a n d , inasmuch as
the audit is made on a request basis, it seems that a mere desire on the part of
the Comptroller not to be audited is all t h a t would be necessary to discontinue
completely all audit work by the Bureau of Accounts.
<
v
Tt was noted that the audit reports prepared by t h e Bureau of Accounts'
auditors contained a n u m b e r of recommendations designed to improve the
accounting operations of the Comptroller. Only a few of these recommendations
appear to have been adopted even thon.'rh t h e y seem very sensible. For example-,
the unadopted recommendations include sujorcstions t o ' ( I ) deposit w i t h the
Treasurer of the United States funds in excess of X:' ( ()(),()()() which are now deposited
in a commercial bank, earning no interest or other apparent benefits for the
Comptroller: and (2) establish an appropriate payroll lair in lieu of disbursing
payrolls on the last, working .day of the payroll period. It was noted also that
the Office of the Comptroller'has been slow in adoptim/ f u n d a m e n t a l accounting
techniques.. A general ledger was not i?).stalled until 11*5-1. and the accounts are
kept on the cash rather than the accrual basis of accounting. It appears t h a t ,
the internal auditor of the Office1 h;>s opposed r a t h e r (lian supported many of tinworthwhile audit suggestions made by, the Bureau of Accounts.
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MONO. SECTION
A C T I V I T I E S O F THK I N T K H X A L A l D I T O l i
I n t e r n a l a u d i t functions w i t h i n t h e Olfice of t h e Comptroller of the Currency
are performed by the a u d i t o r for the Comptroller.
The i n t e r n a l a u d i t system of
the Office appears to provide a detailed verification of financial transactions, done
us an extension of routine bookkeeping operations. I n t e r n a l a u d i t i n g in the
Otlice a p p a r e n t l y does not include reviews of operations w i t h a view toward
appraising the effectiveness of policies, procedures, and internal controls. Howover, the internal a u d i t o r docs perform an a n n u a l inventory verification of the
contents of the unissued Federal Reserve currency vault. .
The reports prepared by the internal auditor resemble accounting rather t h a n
audit reports, and show detailed financial data as to changes in each account
balance with relatively little explanatory comment. The reports contain no
conclusions, opinions, or recommendations. They give the impression that the
internal auditor is the chief bookkeeper and that internal a u d i t i n g in the Office
of the Comptroller of the Currency is little more than a clerical function.
Mr. Stepnik's memorandum points out manx other dangers and
weaknesses in the Office.i)f the Comptroller of the Currftnc\v : One
of the most fantastic ones is that nobody checks to see whether the
Comptroller carries out his legal responsibilities. In other words,
as it is now, the Comptroller of the Currency is a. king. He gets his
money from the banks he is supposed to supervise, and how and to
what extent he carries out his legal responsibilities, \ obody knows
anil nobody can ask.
A few y« ars ago 1 had the Library of Congress look i n t o this- matter
of what.Federal agencies collect funds from private sources and which
of those can use these funds w i t h o u t congressional authorization.
With some very minor exceptions, only t h e agencies which supervise
banking are authorized to spend the money they collect without
specific authorization, and without being subject to audit. The
memorandum on this subject is as follows:
THE L I R H A R Y OF COJNUHKSS
I.LUaSLATlV'h; HKFEKUNCE SKKV1C1'., AMK1UCAN LAW DIVISION
WASHINGTON 25, D. C., February X5, 1954.
To: lion. Wright. 1'atinan.
Subject: Federal agencies having independent sources of income.
In response to yoifr request of February 23, 1954, we submit, herewith a revision of the memorandum originally prepared March t>, 1952 on '{Federal agencies
having independent sources of income" which we have b r o u g h t up to date.
This is a representative list of Federal agencies which have independent sources
of income, classified to show whether (a) such income is available for expenditure
by the agency w i t h o u t congressional authorization or appropriation, (b) it may
be spent by the agency only with t h e annual authorization of Congress, or (c) it
must be turned in to the Treasury and the expenditures of the agency paid by
moneys appropriated by Congress.
The following agencies collect certain moneys which they are permitted to use
in accordance with law without special .congressional authorisation or appropriation:
Comptroller of the Currency:
'Assessments for bank examinations, 12 1). 8. C. 481, 482
Assessments against insolvent banks for expenses of liquidation, 12 U. S. C.
19(>
Reimbursement by Federal Reserve banks for expenses of note issue and
redemption. 12 U, 8. C. 420
Federal Deposit Insurance Corporation:
Premiums for deposit insurance, 12 U. S. C. 1817
Interest on investments, 12 U. S. C. 1823
Federal Reserve Foard:- Assessments against Federal Reserve banks for expenses
of Board, 12 U. 8. "C. 243'
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Home Loan Bank Hoard: Assessments 1'or examination of financial institutions,
24 C. F. It. 123.20, 12 I'. S. C. 1439a
Department of Agriculture: Charges for inspection and certification of certain
farm products and license fees, 7 If. 8. C. 55, 499c, 585
Department of Health, Education, and Welfare:
Federal Credit Union fees, 12 (I. S. C. 1750
Fees for examination of seafood, 21 U. S. C. 372a
General Services Administration: Fees for testing commodities, 5 U. S. C. 030g
Tin: following agencies are, to a large extent, supported from revenues of the
enterprises operated or supervised by them, or from the property .they administer,
but they must obtain special authorization to use monies in their hands for
designated purposes, or in some casesj for any purposes.
Federal Housing Administration: 15 U. S. C. 712a, Public Law 17(5, 83d Congress
Home Loan Bank Hoard: 15 IT. 8. C. 712a, Public. Law 170, 83d Congress
Office of Alien Property: Public Law 195, 83d Congress
Commodity Credit Corporation: 15 U. 8. C. 712a, Public Law 150, 83d Congress
Export-Import Bank of Washington: 15 U. S. C. 7l2a, Public Law 207; 83d Congress
Federal Crop Insurance Corporation: 7 U. S. C. 1508, 1510, Public Law 150,
83d Congress
Federal Farm Mortgage Corporation: 15 U. S. C. 7l2a, Public Law 150, 83d :
Congress
Federal Intermediate Credit Banks: Public Law 150, 83d Congress
Federal National Mortgage Association: Public Law 170, 83d Congress
Federal Prison Industries, Inc.: Public Law 195, 83d Congress
Federal Savings & Loan Insurance Corporation: 15 U. S. C. 712a. Public Law 170,
83d Congress
Inland Waterways Corporation: Public Law 195, 83d Congress
Panama Canal Company: Public Law 153, 83d Congress
Production Credit Corporations: Public Law 150, 83d Congress
Public Housing Administration: Public Law 170, 83d Congress
Reconstruction Finance Corporation: 15 U. 8; C. 712a, Public' Law 207, 83d
Congress
'
Virgin Islands Corporation: Public Law 172, 83d Congress
Tennessee Valley Authority: 16 U. S. C. 831h-2
The following agencies collect certain moneys which are covered into the
Treasury and which can be withdrawn only upon appropriation by Congress:"
Attorney (Jeneral:
Aliens and immigrants
Various receipts, 8 U. 8. C. 1350
Department of Agriculture
Farm Credit Administration—assessments for examination and supervision
deposited in special fund in Treasury which is authorized to be appropriated
for those purposes, 12 U. 8. C. 832'
Forest Service receipts, 16 U. 8. C. 580e
Inspection fees, etc., 7 U. 8. C. 78. 149, l O l a , 395, 415d, 499n. 51 le
Rural Electrification Administration—proceeds of loans, in certain circumstances, 7 U. S.-C. 903f
Department of Commerce
China Trade Act Corporation fees, 15 IT. S. C. 157
Service and publications, fees and charges, 5. U. S. C. 000
National Bureau of Standards, fees for tests, etc., 15 U. S. C. 270
Patent Office fees, 35 U. S. C. 42
Department of*Interior:
Electricity—sales from various power projects, 10 U. S. C. 825s, 825s-l,
832j, 833i
Geological Survey-—Side of publications, 48 U. S. 0- 41
, Grazing fees, 43 Ui S. C. 315i
Federal Power Commission: Water power license fees and charges, 10 U. S. C. 810
Secretary of the Department of Health, Education and Welfare: Food inspection
fees, 21 U. S. C. 24, 40a
,•
Post Office Department: Postal revenues, 31 U. S. C. 495, 39 U. S. C. 786, cf:
39 IJ. S. C. 794jx
«
Securities & Exchange Commission: Fees for registration of securities, national,
securities exchanges and qualification of trust indentures, 15 U. S. C. 77f,''
77ggg, 78ee
A complete list of agencies which receive independent income could be made
only after a detailed examination of the entire United Slates Code, which cannot
be accomplished in the limited time available. Accordingly, the above list does '
not- purport to- be comprehensive, either with respect to the agencies which
receive moneys from outside sources or With respect to sources of revenue of the
agencies listed.
MAHY LOUISE RAMSEY.
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MONO. SECTION
R E Q U I R E T H E H A N K S TO COMPETE FAIliLY YOU DEMAND DEPOSITS
Next, wo should consider repealing the provision of the law which
forbids the national banks to pay interest on demand deposits. That
prohibition was put i n t o the law in 193,'i, in the depth of the depression.
At that time it was considered an emergency measure to help the hanks
out of the distressed condition they were in. The need for, this
emergency relief has long since passed; and I think it would he well
for us to consider repealing that provision, so that we may have fair
competition among the hanking institutions of this country.
As it is now, the competition for demand deposits which has sprung
up is the under-the-counter, discriminatory kind of competition.
The hanks are paying some of their depositors—the big depositors—
in indirect ways, such as by giving favors and free services in making up
company payrolls, keeping company hooks, and so on, while not paying other depositors anything.
,
This is a bad situation; and one of the remedies which has been
suggested is that we repeal part of the law so as to legalize these indirect payments, but that would not make it a proper solution; it
would only expand and perpetuate the discriminatory competition.
If we remove the prohibition altogether and let the banks pay interest
openly and directly on demand deposits, that will go a long way toward
eliminating the backdoor competition, and it will at the same time
stimulate fair and wholesome competition. Certainly, demand deposits are the stock-in-trade of the commercial banks. Demand
deposits are of value to the bank, and it is a strange kind of law which
prohibits the banks from paying for the use of the depositors' money.
If the committee"'does riot recommend repealing the prohibition
against paying interest on demand deposits, then I have as a minimum
an amendment to the bill which would make it unlawful for the banks
to discriminate among depositors in giving favors or providing-the
so-called "free services" to some depositors and not giving favors or
providing "free services" to all other depositors on proportionately
equal terms.
Similarly, I have an amendment which would make it unlawful for
a national bank to discriminate among its depositors in the matter
of charges and fees for services rendered. Since the commercial banks
are, in effect, instrumentalities or you might say "wards" of the Federal Government-—the Federal Government protects them from competition and grants them all kinds of subsidies—then the Federal
Government should see to it that the banks do not discriminate unfairly
among the people who have to 'depend upon the banks for services.
THE FEDERAL USURY LAW SHOULD UK STRENGTHENED, NOT REPEALED
The Federal usury law should be modernized and strengthened by
setting maximum rates of interest which national banks may charge
without respect to any higher maximums that may be permitted by
State law.
There is an amendment in these financial institutions bills that*
would repeal the principle of National Bank v. Johnson, which was
decided by the Supremo Court 77 yenrs ago. If one provision in those
bills (Title I, section 35) becomes law, it will permit every national
bank in the United States to become a loan shark office with no limit
on its interest charges.
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Now the only argument which we h a v e heen jiliJe to elicit in support'
of this a m e n d m e n t is t h a t the supporters of the hill t h i n k t h a t the
Federal Government ought to t u r n its responsibility o\'er to the
States. But we all know that, most of these State laws are out-ofdate, too, and in practice the method of extending a loan by means
of a "conditional sales conn-act " - w h i c h is the method most in use
today for consumer installment financing-—is not regarded as a "loan"
under most of the State laws. But u n d e r the Federal law, these
conditional sales contracts are deemed to be loans, and the federal
law gives consumers and small-business men, and other borrowers
protection. A Federal Court of Appeals ruled in 1955 in Daniels \.
Fii-Nt National Bank of Birmingham t h a t a conditional sales contract
is a "loan" and therefore subject to the maximum interest, rate
specified in the Federal law. This was a f t e r the Supreme Court of
Alabama had ruled that a conditional sales contract is n o t , under t h e laws of Alabama, a "loan," "discount," etc., or other evidence of
indebtedness which is subject to the maximum' interest rates'of theState.
Now as to the argument that State laws will provide proper pro->
tection, we need only to t u r n to section 51 (Title I) of the bills before
us. Here we find a new amendment which would place t h e n a t i o n a l
banks beyond the reach of any State law. So what we would hnvc
under these bills is a very strange arrangement whereby the Comptroller of the Currency, a Federal oflicer, and a Federal officer only
could police and enforce the laws of the States. And as I have ail ready
pointed out, nobody could police or even audit the Comptroller of
the Currency.
We have heard an argument, of course, that section H5 of t.hest
bills would give the national banks parity w i t h the State banks.
Well, even if we could accept the proposition t h a t we should allow
immorality to compete w i t h immorality, this would still be an argument for having the tail wag the dog. The n a t i o n a l banks account
for about 85 percent of the bushiest) and the State banks for 1 about
15 percent.of the business.
The Federal usury law is now 77 years old, and it is otit-of-<'ute
and weak. Many new k i n d s of paper have come i n t o use for extending credit, and these new kinds of paper are evading the usury law.
Consumers,small-business men, farmers and all borrowers should have
a firm, clear, and positive protection against exorbitant interest charges
by the national banks. After all, the national banks are, "in effect,
i n s t r u m e n t a l i t i e s of the .Federal Government. Agencies of the Federal Government m a i n t a i n and protect these banks in a quasimonopoly position. In other words, t h e Federal Government actively
intervenes to prohibit the competition between and among banks
which might otherwise protect the public against usurious interest
charges, so Federal law must affirmatively give the public that
protection. The Federal Government riot only acts to limit cornpetition among national banks, but through the FDIC it limits and
restrains competition that might arise from State banks.
Clearly it is time—and past time—to modernize t h i s law, to close
the loopholes t h a t time has put into it, and to extend it to all of the
FDIC-insnrcd banks.
1 will offer an amendment to put th'c Federal usury law in the FDK '
Act, so that all insured banks will t h e n be under the same limitations
My proposed prohibition will follow these principles:
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22 MJ
MONO. SECTION
(1) No FDIC-insured bank can charge interest, fees, etc., which
may result in a cost to the borrower of a sum in excess of 7 percent per
annum. This includes both direct loans and paper purchased from
another owner.
(2) When an owner of the paper, sells it to the bank with recourse,
or with a guarantee, then the seller is counted as a borrower, as is the
original maker of the paper.
I don't believe the banks should be allowed to charge 10 percent a
month. I don't believe they should be allowed to charge 5 percent
a month. But if this amendment goes through, it will effectively
repeal both the Federal and State usury laws.
I don't think the bankers of this Nation want this. I don't think
they are clamoring for it. I think there are only a few who are doing
this. But we must stop those few.
• The bankers generally would not think of actually taking advantage
of this repeal of the usury laws. But a few would take advantage of
it and laws are made for the few. Therefore, we should prohibit the
few who would take advantage.
: Now, if anything would shock people, this amendment would shock
them. As much as is being spent for interest and service charges on
installment buying today, and to think that this Congress would even
consider taking the lid off and letting the national banks collect any
amount of interest that they want to collect. I call this the Ebenezer
'Scrooge amendment, because it is only an Ebenezer Scrooge who
"*would attempt to exact of the people any such extortionate rates and
* terms as w^ould be permitted under this amendment. Our committee
should not hesitate in striking that provision out.
ALL FDIC-INSURED BANKS SHOULD BE PROHIBITED FROM WRITING
INSURANCE
There should be a law, and I shall propose an amendir.ent .to .make
it a violation 'of the law for any bank to write life insurance or any
other kind of insurance. Any bank that is insured by the FDIC,
That would include State banks as well. There is no reason why
banks should be in the insurance business.
It has only recently become clear that the insurance companies are
, not exempt from the Sherman Antitrust Act, with reference to the
practice or coercing or forcing people who borrow from a company to"
buy their insurance exclusively from that company/ The Department
of Justice now has on a drive to stop this practice. It has the FBI out
making investigations, and it has grand jury investigations going.
This was a,ll announced last fall. But when a bank, sells insurance,
it has an Automatic built-in coercion. If these bills were enacted,
we would be creating a loophole, a practical by-pass to the Antitrust
Laws.
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23 MJ
MONO. SECTION
FEDERAL RESERVE BOARD GIVES THE COMMITTEE PARTIAL INFORMATION
Now, Air. Chairman, I went through the audits of the Federal
Reserve banks, or at least the parts of the audits which they would lotus see. I asked that those audits be sent up here and they were sent
up for 5 years. I guess it is the first time that the audits have ever
been gone through. Remember, these are their own audits. They selected the auditors, they gave the auditors instructions, they received the
audits themselves and they were considered private and confidential,
It was requested they bring them up to the Committee and permit me
to examine them and they did, in part.
&
They furnished me part of the audits. Certain information, I
requested, in connection with them has been refused.
For instance, I wanted the transactions of the Open -Market Coin-?
mittee over certain periods of time but just recently I got a letter
refusing that; .they claim they should not let us see anything later
than December 31, 1956, because anything later might reveal to us
their current policies.
Also the board's written instructions to the auditors are that the
audit reports are to be made in several different parts. The auditors'
comments and the information they have to report on the officers and
directors of the Reserve banks—their financial operations, market
speculations, and other such, tilings as a business auditor would
normally put in an audit report—-are put in a. separate report. Chairman Martin wrote me a letter refusing to supply the commit toe with
copies of these for our inspection.
'
Also, I asked Chairman Martin to have tabulations made of the
prices paid and received by'the open market account, and the Open
Market Committee refused that, because they said it would cost about
$4,000; and also they felt the infornfation would not be "significant".
They suggested that they might have the board's staff meet with me
and the chairman of the committee and somebody else and sec if we
couldn't get up something else.
But this refusal and countersuggestion came after several months,
and, well, of course, the time is too close, now. So that was tantamount
to a refusal to furnish that very informative information "and needed
information.
But I did go over these partial audits and it will be shocking to you,
Mr. Chairman, to know that we have licensed an agency known as
the Federal Reserve System, under the Federal Reserve Board, which
has the privilege of going down to" the Bureau of Engraving and
Printing and getting unlimited quantities of printed money—Federal
Reserve notes. Each note is an obligation of the United States Government, just as much so as a Government bond. The only difference is
the money does not bear interest. The bond does bear interest. So
this Federal Reserve System can obtain from the Bureau of Engraving
artd Printing, unlimited quantities of currency to trade for Government securities. Just as if the charimari owed ,$1,000 on his home
and he gave me a check for $1,000 and told me to go see the holder of
that vendor's lien and pay off that $1,000 on his home. And I took
the chairman's check and I carried it to the holder of that mortgage
and I endorsed the check id the holder of the mortgage to pay that
mortgage. The mortgagee at my ^request, transfers the mortgage
to me and then I hold the mortgage and every year I go to the chair-*
man and say, "You have to pay me interest on this."
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Federal Reserve Bank of St. Louis
MJ
MONO. SECTION
Now, that sounds idiotic, doesn't it? It would be idiotic. It
would not be allowed and it would not be tolerated. But we do
tolerate that same type thing in the Federal Reserve System. We let
them take $23 billion worth of Federal Reserve notes and trade them
for $23 billion worth of United States Government bonds; they
hold these Government bonds and they collect interest from the taxpayers on them every yeai. Last year that interest amounted to
almost $600 million. Now, they spend that money any way they
want to. That is taxpayers' money. And then at the "end 6f the
year the}' voluntarily turn over, as they should have done all the
time, 90 percent of the net earnings to the Treasury. That was $534
million, to the best of my recollection, last year. Ten percent they
keep in their surplus funds. That 10 percent is not needed.
We have an amendment in this bill to perpetuate that. What will
they do with that 10 percent? They have $1 billion approximately in
surplus funds. They are not used. They are not invested. They
are. not needed. They will never be used. Neither is the so-called
capital stock.
If that capital stock had been put out at an interest rate of'3; percent and the surplus funds had been put out at 3 percent interest, the
Federal Treasury would have over $1 billion today that it doesn't
have. But these funds remained uninvested.
So they take this money and spend it as they want to.
As one illustration of the fact that the Federal Reserve System is
very generous with the taxpayers' money when they are on the loose
under no Government supervision, not even including an audit made
by the General Accounting Office, I am inserting herewith a table
/comparing the salaries paid the Federal Reserve officials with Government officials' salaries.
This money for salaries is paid out of the'taxpayeis' dollars. Hie
Congress has no adequate control over the System, since it is privileged
by Congress to use the Government's money that is printed at the
Bureau of Engraving and Printing and, therefore, the System doesn't
ask for an appropriation since it has unlimited amount of printed
money for use and is not under the scrutiny of the appropriations
committees of Congress.
:
The annual salaries of the principal Federal officials are:
President of the United States
' $100, 000
President, Federal Reserve Bank, New York1 » _ . _ . .
"GO, 000
President, Federal Reserve Bank, Chicago" ::
,
'..
50, 000
, Presidents, Federal Reserve Banks: Boston, Philadelphia, Richmond,
J
Atlanta, St. Louis, and Kansas City
•'35, 000
Vice President of the United States. _..._'
..
35, 000
Speaker of the House of Representatives.
,
—
35, 000
Chief Justice of the United States.
.._._.._'
35, 500
Associate Justices of the Supreme Court
35, 000
r±
Presidents, Federal Reserve Banks: Cleveland, Minneapolis, Dallas,
and San Fransisco '
»
30, 000
• -Salaries fixed by racli Federal Reserve Bank, with approval of (lie Board of Governors under ia%v passed
by Congress. All other salaries listed fi.\ed by Congress.
And let me tell you some of the ways that they spend this money.
You take, for instance, one way-—I don't know that I would want
to say much about it, it is on education of their employees—I am for
education, but I don't know whether the Federal Reserve System
should pay the expenses of people going to school and college to the
extent of thousands and hundreds of thousands of dollars a year out
of funds that are really public funds, but that is happening.
I don't think they should be allowed to pay country club dues,
as they are. And bank golf tournament fees and commissions and prizes
and presents. But they buy Christmas remembrances for persons
other than even bank employees. They have holiday season expenditures, and they spend money for any purpose that they want to spend
money for. There is no restriction. There has never been an audit.
There is nobody to stop them.
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Federal Reserve Bank of St. Louis
25 MJ
MONO. SECTION
UNUSUAL EXP10NSKS
One thing here I know will he shocking to the chairman. I am'
going to see if 1 can't shock him on this: They had a symposium of
two days on consumer credit and they invited some speakers, and
they paid certain honorariums to those speakers. Two of them, they
paid $2,000 each. Four of them, they paid $1,000 each. Two of
them they paid $1,550 and $1,500, respectively, and one of them $500,
Mr. BETTS. Who were the speakers?
Mr. PATMAN. I don't know that it is necessary to mention their
names, hut they are people who spoke on installment buying. If you
insist, I will put the names in; they are as follows:
Name
•Alice, John S
Tobln, James
Andersen, Theodore A
Humphrey, Don D
Miller, Ervin .
Shay. Robert P
Simmons, Edward' C
Nadler, Marcus
Friedman, Milton
Alliluitioii
Title of IKIIXT
Consumer Credit Expansion' Macrocconomie Analysis and Data
Requirements.
Consumer Debt und Spcndnm:
Yule University
Some Evidence from Analysis of
a Survey.
University of California at Market Practices in the Consumer
Los Anpeles.
Lending Industry.
Duke University. - .
Instalment Credit mul Business
Cycles.
University of '•Pennsylvania 'Consumer Credit and Economic
Growth.
Consumer Credit Control as an In•University .of Maine. .,
strument of Monetary Policy for
Economic Stability.
Consumer Credit Control and CenDuke University
tral' Banking
For Standby Consumer Credit
New York- University
Control.
University of Chicago mid %
National Bureau of Eco.•flfrumeiii of Stabilization Policy.
nomic Research.
University of Pittsburgh
Amount
$,VKUJO
1 500. 00
i,r>:.o.ou
1, tiOO. (10
1, (HXJ. 00
1,UOO.OO
t'\
l.lkX). 00
2, 0110. 00
2 HOO. 00
Now, if that is not/spending money rather recklessly, I would like
to know what is—I am sure that is shocking to the chr.irman to learn
that the Federal Reserve System has the power to go out and hire
speakers, have meetings and pay honorariums up to $2;000 and moro
if they want to. That has been done clear across the board rll over
the country. Not only that, I will tell you some of t) e others.
They pay dues and assessments to the American Bankers Association, the American Institute of Banking, the private clearing houses,
the chambers of commerce, and others, and pay officers' and employees' fees and expenses for attending meetings of such organizations.
Examples:
Richmond, 1958
'Deferred charges:
Assessment'and dues:
American Bankers Association...
$350. 00
Richmond Clearing House Association
... 320. 76
Robert Morris Associates.
198. 31
Richmond Chamber of Commerce
-.,
158. 29
Advanced registration fees—meetings of bankers' associations
280. 00
-Dallas, 1956
Una mortized expenses of portion paid in advance—Assessment and
dues American Bankers Association
$700. 00
Bank's contribution to Dallas Chapter AIB—July 1-Aug. 31, 1956_ 333. 26
St. Louis, 1955
Advanced registration fees for convention of National Association
of iBank Women.. c
'_
$84. 0$
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Federal Reserve Bank of St. Louis
.
26
MJ
MONO. SECTION
I haven't soon where the Independent Bankers Association received
any of these generous gifts or any of these assessments or dues. But
the American Bankers Association has been the recipient and the
beneficiary of many substantial funds of what really means public
funds. We have had no accounting of it whatsoever. Dues to the
Clearing House Association, the American Bankers Association,
Robert Morris Associates, Richmond Chamber of Commerce—that
is just for one bank. It goes clear through the system.
They pay expenses for training programs at the conclusion of
which—listen to this—"employees accept employment in other
commercial institutions."
In other words, they let employees go to school to prepare themselves
for other jobs outside and the Federal Reserve bank pays their
expenses. If that is right, I don't know what right and wrong is.
(Continuing examples:)
Philadelphia, 195g
Personnel: The 2-year training program at the Reserve bank continues in effect,
6 recent college graduates and 1 regular employee participating at the present
time. All 3 persons completing the training in 1951 accepted outside positions,
and only 2 of the 5 individuals finishing the program in the current year remained
with the bank. The majority of the trainees accept employment in other commercial institutions where the chances for rapid advancement are more evident.
Philadelphia, 1956
In the area of training for executive development, the program of affording
'opportunities for selected senior employees to attend graduate schools for banking
and to enroll for other educational courses is being continued, 13 employees participating at the present time.
Seven men are currently enrolled in the college trainee program. The purpose
of this program js twofold: (1) to develop future executive material for the Ke'serve bank's staff, and (2) to provide trained banking leadership in the district.
Since the program was inaugurated in 1946, 36 college graduates have completed
the 2-year course. Three of these men, one of them an officer, are at present
members of the bank's permanent staff. The remaining graduates, almost without exception, are in commercial banking and we have been informed that they
are making rapid advancement in their institutions.
They subsidize training of junior employees^in shorthand And
typing. Example:
New York—1952
Junior employees are encouraged to enroll for courses in shorthand and typing.
Reimbursement for tuition and oth*>r related costs is made on the saine basis tg
these employees as to those who complete A. I. B. and college courses.
They also loan employees to different drives, including charity
drives and others, and one of them was lent for 31C days. The
Federal Reserve bank paid him all this time. Well, maybe-it was
justified, I don't know, but it doesn't look like a very good policy fora
public institution to be furnishing employees at public cost and
expense to serve 316 days a year.
(Continuing examples:)
Chicago, 1956
The bank examiners comment on leaves of absence as follows:
"The lending of this employee [a utility cltvk attached to the personnel deparjtment] to charitable'organisations for an aggregate of 316 days in the year does
not appear to comply with the ,vicws of the Board of Governors on this subject
as expressed in its letter of September 25, 1951 (S. 1396)."
Boston, 1956
Officer's contribution to American Red Cross, $15:
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Federal Reserve Bank of St. Louis
27
MJ
MONO. SECTION
They have generous rules and regulations about leaves of absence*
for their employees. And paying registration fees and graduation
fees of different people working for the Federal Reserve bank who get
their education at the expense of the Federal Reserve and go out to
work for other commercial institutions and do not go back to the
Federal Reserve System.
They make expenditures for a dining room for bank guests. One
item here of $19,000. They can give banquets any time the)7 want to.
They can pay all 'the expenses of the banquets. They can pay
$2 ,.000 to a speaker if they want to. All that conies out of the
Treasury. It is just the same as.dipping their hands in the United
States Treasury, taking that money and paying it out.
CJ'ougi'ess has never looked at these expenditures.^ Therefore, the
banks feel free to continue doing it.
They have Federal Reserve Club expenses.
(Continuing examples:)
Dallas, W54
Deferred charges—bank's contribution to Federal Reserve Club, $1,488.90..
Dallas (Houston branch), 1954
Bank's contribution to Federal Reserve Club, $200.
St. Louis, 1952
Advance to Federal Reserve Club for expenses of annual picnic—settlement
to be made when all bills are paid, $1,500.
They have all kinds of fees for research and preparation of opinions.
Theater tickets. Baseball tickets. When the directors complained
about the expenses being so high to go from these Federal Reserve
banks to the American Bankers Association Convention arranged for
they wanted to get their wives'.expenses paid too, whatever they got
that done too. Not only do the 108 directors of the 12 Federal Reserve
banks, Mr. Chairman, and the officers get their own expenses paid
but their wives' expenses are paid too. How much, we don't know.
There is no supervision. There is nobody looking into it for Congress
or for the Government. They are just doing \vhatever they want to,
and they are encouraged to continue. There is no limit. They spend
money for everything imaginable for anything they want to.
(Continuing examples:)
Boston, 1953
Bank policy established to reimburse expenses for officers' wives at conventions.
"It is customary at several conventions which one or more of the bank's officers
are asked to attend for wives to be invited. * * * On such occasions, attendance
by an officer without his wife may give rise to an unfavorable impression. Because some of these meetings are expensive to attend, there may well be reluctance
on the part of some officers assigned to attend to take their wives. It would
therefore seem to be good bank relations policy to encourage officers to take their
wives on such occasions, although of course their attendance remains optional.
"Therefore, necessary expenses for wives of officers assigned to a t t e n d will be
authorized for such meetings as the New Hampshire Bankers Association at
Portsmouth and at Whitefield; the Connecticut Bankers Association at Manchester, Vt.; the Maine Bankers Association at Poland Springs; and the Vermont
Bankers Association at Manchester, Vt."
I will place in the record a number of things. Like legal fees, $2,500.
For what purpose? I don't know.
, .
Eighty-six theater tickets at $4.88 each; eighty-five baseball tickets
at one meeting, $1.85 each; fifty-seven theater tickets at $1.75 each,
for one group.
I just mention those to indicate specifically what has been done in
i'he way of spending this money.
The blanket insurance policies covering athletic accidents—they
are out money on that.
At the Minneapolis bank, they paid expenses for entertainment at
a meeting including musicians, basketball tickets, Ice Follies tickets,
dinner music, and football tickets. They paid the cost of a dinner
party. They handled collections of grain drafts for about 25 years
without,imposing any charge for these services.
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Federal Reserve Bank of St. Louis
OQ
<OO
MONO. SECTION
I liave a list of expenses here like entertainment—who did the
entertaining—and the tickets and for different things that they spend
money for.
Another list of unusual expenses and assessments, such as for the
American Institute of Banking. Imagine a Government agency paying out money for dues to the American Institute of Banking, and the
American Bankers Association.
The CHAIRMAN. What were those banquets for? What was the
purpose of them?
Mr. PATMAN. Whatever they wanted them for. There is no evidence of what they were for. There is an item of expense like $36,000
for expenses to be met. There is no evid'ence as to who got it, what
they did with it, and there is no reporting made.
Remember, these things are picked out of reports that were made
under the direction of the people who are being audited and investigated. They are not going to put a lot of unfavorable material in
these audit reports—I 'just doubt that they would. If they did, I
do not know how secure they would be in their jobs in the Federal
Reserve banks because these audits are made by Federal Reserve
bank employees. They pay for dinners for employees groups.
There is plenty of evidence on that.
Here is just, one little expenditure of $1,773.70, in Kansas City.
They had a' conference there and entertainment—Eddie and Ruth
Jester, $75. Another one, $65. Another one, $75. Another one, $100.
A pianist, $20. .
All the entertainment' expenses, paid any way* they want to pay
them. The sky is the limit, because nobody is watching them.
The expenses to the Federal Reserve banks are unlimited so far as
I have been able to find through an examination of these reports.
They pay the cost of dinner parties for retiring officers; and while
the examiners sometimes "take exceptiou," there is no indication that
any action is recommended or taken on the "exception." Example:
Minneapolis, 1956
The examiners• take, exception- to the following item: Cost of dinner party on
June 30, 1955, in honor of retiring assistant vice president. The party was
attended by 18 officers, 3 former officers, and 1 employee and 1 director, $281.00.
They perform costly services free of charge to private firms aiid
organizations, even nonbanks. Example:
Minneapolis, 1956
!
OHAIN DRAFTS
The auditors make the following comments: »
"In 1955 the Department handled 916,000 city collections totaling $785{milliwi.
The grain drafts included in this total were 788,000 in number and Amounted to
$704 million. During January and February of 1956, approximately 107,000
city items totaling $106 million were handled. These figures include 84,000
grain drafts aggregating $89 million. It is estimated that more than 90 percent
of the latter were received by the Reserve bank from Reserve city banks located
in Minneapolis and St. Paul. The Reserve, bank has been collecting ifir-se drafts for
about 25 years and has not imposed any charges for its services. Effective January
1, 1956, the Reserve bank made an arrangement with a large grain cooperative
and a St. Paul bank which services tho. "co-ops' account whereby drafts drawn on
the cooperative are now drawn'payable through the member bank with settlement through the Twin City Clearing House. As a result the volume of grain
drafts handled by the noncash collection department has been reduced by about
18,000 items per month. Having established this precedent, the Reserve bank
hopes that similar arrangements acceptable to the grain firms and the member
banks can be devised with respect to the grain drafts drawn on other dealers."
They pay large and unusual fees. Examples:
Folios 101-200--Lino Section
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Federal Reserve Bank of St. Louis
1 FBO-LINO
w. Louix, i or,',
Legal fee for research and preparation of an opinion on the applicability
of labor laws to employees of the Federal Reserve bank, $2.;"i{X).
Expenditures in connection with negotiation for purchase of building site,
$3,807.
There is an item for purchase of property in Louisville. K.v. : Purchase price.
$ I lit.. '{().">; legal expenses, $7,.~>4(>.i)S ; title insurance and miscellaneous expenses,
$2.110.112. Architects' fees uud other expenses pertaining to new building construction, $2r».813.33, of a total of $484,77.~>.03.
They hire entertainers; buy football, baseball, and basketball
tickets; and hire musicians to provide dinner music. Examples:
Miii u cajiolifi, 1 f)5!i
"All expenditures . . . were reviewed to determine the propriety in compliance
with the rules and regulations of (he Reserve bank and the Hoard of (lovernors.
The following expenditures were noted. Included in total expenses of $!,;{!>,"»
incurred in connection w i t h the A n n u a l Conference of Personnel Otlicers of the
12 Federal Reserve banks on May 1.1. lfl.~»2 were the following items:
(1) Entertainment— Hill Olsen______________________________________$.10. (X)
(2) Included in the total expenses of $1.002. 14 incurred in connection with a conference of Oth District Rank Examiners on Nov. 20,
1!>"»2. is ihe following item: Entertainment — Clyde Snyder Production — Schick's Sextet ______________________________________________ 1"»0. (X)
Jdimteapitliit, W5~t
Examiners' conference held Nov. '2.1, l!t.">4 :
Juan it it's Kutertiiimnent Service (musicians and vocalists)
$1(X). 00
Short course iu central banking held Jan. 1 to .July 1, lit,"):
2(i basketball tickets
Ice Follies tickets-..
(i'J. 40
(50.00
Total
Directors and Officers Assembly held Apr. 2.~t-2(i, li).V>—Wesley Harlow
(dinner •music)
:
.___
Directors meeting to he held October l!)r>">—21 football tickets-
122.40
72. 00
7(5. 40
m. -Lout*, iur>>f
86 theater tickets at $4.88 each for musical comedy "Pal Joey",
purchased for the use of directors and officers and their wives
$415). {J,S
Meeting held at St. Louis on June 10, I!)"i4—included in the cost of
meeting of $1,.~»10.22 in the following items:
Purchased for use of directors and officers and Their wives':
85 baseball tickets at $1.85 each
$1.77. 2."i
57 theater tickets for the municipal opera at $1.75
each _
1)0. 75
Total
2:V7.00
The banks made contributions to the Federal Ileserve Society.
Example:
Boston, / .9,7,7
Reimbursable charge—Contribution to Federal Reserve Society, $12,(XK).
Boston, J!W>
Contribution to Federal Reserve Society, $0,100.
They pay the cost of setting up and operating new elearino; houses.
Examples:
A r nr York, W,">(i
Nassau County Clearing House, organized in 1053.
The Reserve bank agreed to pay the i n i t i a l costs and expense of the clearing
arrangement during a trial period of (> months, and thereafter to pay two-thirds
of the operating expenses less the cost'of h a n d l i n g intrahank items:
Expenses paid by bank July !».".:$ to May 1!>r,(i
__..
fiV27.
O.'»0
The bank feels that this arrangement is advantageous as-it serves to expedite
the collection of items and to reduce the tremendous number of items which
How through the Reserve bank's clearing process.
They pay for "conferences"' of bank supervisors and examiners at
which entertainment is provided at, bank expense. Examples:
Krni.tas City, 1953
EXPENDITURES
Expenses .incurred in connection with a conference of bank supervisors and examiners on Mar. 2*5. !!).">."»
:
$1. 77.'?. 70
Included in the total cost of this conference were the following:
Entertainment Eddie and Ruth Jester
$7-1
Cedric and Algie
(J."i
Pauline Denuison and Virgil Woodside
7-~»
M a t t Tuck
100
Chopin pianist
20
Total_-
. .",2.1
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Federal Reserve Bank of St. Louis
2 FBO-LINO
During. t!>.~,i;
E x p e n d i t u r e for witwtaiiniienl : Bobby Williamson, $100.
M u s i c a l e n t e r t a i n m e n t :il ;i d i n n e r given on J u n e 4. l!).">(i. for reiU't'switJltiveM
of the 12 Fedei ;il Reserve h a n k s who were delegates to the N a t i o n a l Convention
of Hie A m e r i c a n Institute of I > a l i k i n g .
They make unspecified expenditures for holiday seasons.
Example :
Chlaujd. l!>~>(i
Expenditures for the current holiday season are expected to lie approximately
$1,!IOO.OO
(The a u d i t report does not i n d i c a t e w h a t disposition was made of these items,
or npon whose a u t h o r i t y the expenditures were approved.)
They buy Christinas "remembrances"' for persons other than bank's
own employees. Example:
Cliicuyo, 1!>~>(1
Charge of December 23, 11)."».~>, covering expenses of Christmas remembrances
to persons other than hank's own employees who rendered \ a l u a h l c services
to the bank during lJ>r».">. $1,5)0!).
They pay for employees' i>'olf tournaments. Example:
fhh-iifitt, i!>.~>'/
Deposit with country oluh for thefl),~»4Federal Reserve Bank golf tournament,
.$100.
They pay for deluxe staterooms for officers to jjjo on Chamber of
Commerce cruises, pay for o-ifts for directors and their wives, pay
for picnics, and so on. Examples:
C'hwhnnl, /.0,7?
Cost of one deluxe stateroom used by two members of the bead office on
June 10 to 20. 1!).~»2. in the annual lake cruise sponsored by the Cleveland
Chamber of Commerce. $2!).~>.
Expenses incurred in connection with a joint meeting of the Hoard of Directors of the head office and the two branches held in Cincinnati on
June 11 and 12. mvj. .$."..417.
Included in the total cost of the above were the following :
1. Rook Wood Pottery Co.—favors for directors and wives. $!(!.">.
"2. Johnson Moat Co.—<!S passengers transportation on the Ohio Itivur,
$1S4.
3. WLAV Promotions. Inc.—entertainers, .$]."().
4. Taft Museum Garden Fund—honorarium in conned ion with'services of tour guides for wives of directors. $1.~>.
5. Uruce lirowntield entertainers. $40.
"An amount of $1.800 was provided for this meeting in the bank's budget.
. for 1!)."»2. and on .March 13, I!)."i2. the head oifice board of directors approved the sum of .$.'!,.">00 for this occasion."
Deposit with Cincinnati Board of Park Commissioners for use of picnic
grounds in 1{)."3, $40.
They pay for luncheons for participants in community fund driv.es.
"Example:
ricrrJaiul, 7.0.7;?
Head oifice: Cost of luncheons for various members of the V.KTJ Cleveland Comm u n i t y Fund Drive as guests of President Gidney, who was president of the
Cleveland Community Fund. $7!).'JO.
Pittsburgh P.ranch : Cost of luncheons and dinners for division chairmen of
the Community Chest as guest of Vice President Kossin. general chairman of
the Allegheny Comity Community Chest Campaign for !'.).">:;, .$70.."»0.
They make loans of bank funds to officers and employees. Example: '
AV/r Ynrk, /.0.72
j
Authorized "officers' fund" account for loans to employees. $'J">.0()0.
AY ir To/-/,-. /.OJ.7
Reimbursable expenses due from officers and employees:
Loans oustanding
,
.$10. 7-VJ. 71
Educational loans
1. r»3S. .10
Dining room charges
124. (».°.
Sundry
27S.-.SS
/>'o.s'/o», /.f>.7?
Loans to employees. $1.347.
They pay the insurance premiums on "workmen compensation
policies" covering officers and directors, and pay for insurance covering
employees against injury Avhile enjrayjt'd in athletic punes. Examples:
nuiif'itt. ia.-,',
Employer's l i a b i l i t y coverage applicable t<> officers a n d directors under t h e
•workmen's compensation policy was increased from .$.~>0/$200,OOO to $.".()/.$ri(Kt.(MK».
3 FBO-LINO
St. Lout*, /fl-7,5
Blanket athletic accident expense: A iKtlicy was procured at the head office to
cover medical payments arising'from bodily injuries sustained by members of the
Reserve bank's Softball team.
They pay for hospitnljzation and surgical insurance, including supplemental death benefit premiums. Examples:
San Frcnicinco, 1!).~>4
Deferred charge: Reserve bank's portion of fees under Reserve
bank's group hospitalization plan charged to current expense at end of
month, $2,24cS.:>5.
San Fruttvlsco (Lox Anr/clcx branch), //);>.{
Retirement system contributions:
Supplemental death benefit
$8, 705. 00
Premiums, group hospitalization and surgical expense benefits
policy
1, 819. 70
Deposit in connection with annual dinner for employees with service records of 2.~i years or more
">0. 00
Some of the Banks give the clearing house associations rent-free
space in the Federal Reserve Bank building. Examples:
PJiiJddcJpltia, 19.12,
• .
1.800 square feet assigned to Philadelphia Clearing -House on rent-free basis!.
Boston, Wr>f,
An office comprising 1.128 square feet has been allocated to the Boston
Clearing House Association on rent-free basis, in consideration of Reserve
Bunk's exemption from association dues and assessments.
St. Lowis, lOM
Leased 70."> square feet to the St. Louis Clearing House on a rent-free basis.
San Francisco, 1f>52
The Reserve Bank occupies the entire head office building except for a small
area which the San Francisco Clearing House Association continues to use on
a rent-free basis in lieu of payment by the Reserve Bank of dues and assessments
as paid by other members.
Thev mav rent-at nominal rates office space in the Federal Reserve
Bank buildings to private banker associations. Example:
New York, 19X2
2..r>r>0 square feet of space leased to New York State Bankers' Association
at -$340.
Riclnnonil (T'nlfimorel)ranch), W.~>2
A basement area of .1.H31 square feet is rented to the Baltimore Clearing
House Association at .$-~>0 per month.
,
When it comes to making the bank premises lush and plush, the
Reserve banks spare no expense. They spend enough on the premises
to have them gold-plated. Thev have auditoriums and they buy
organs. They build small dining rooms for entertaining banks'
guests, presumably for small intimate parties, where there aren't
enough guests to feel comfortable in the large dining rooms. Thev
build roof gardens. Thev build parkins' garages for bank personnel.
They acquire land and buildings for future possible needs. They
pay»large sums to option land and allow the options to expire. They
pay large architects' and engineers' fees, usually without indicating
how the lucky contractor is selected, and they pay for costly plans
for buildings that are not built.
These banks are suvmosed to be limited by law in their spending
for bank premises. They are expressly forbidden to build or enter
i n f o any contract to erect any building to cost in excess of $250,000
without comimr to Congress for the authorization.
But the Federal Reserve System has invented a new accounting
system which seems to eliminate much of the normal inconvenience of
any restraint on capital outlays. By this new system, they simply
charov capital outlays to current expense.
They lease bank space to others, including clearing house associations, and then meet their own needs by leasing space outside the bank
building.
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Federal Reserve Bank of St. Louis
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4 FBO-LTNO
Cliicdf/o, 1952
The head oflice building provides n total of 307,138 square feet of usable floor
space, of which the Reserve Bank utilizes 203,800 square feet for its operations.
The remaining area of 13,248 square feet is occupied, under lease by the District
Chief National Bank Examiner, the Federal Deposit Insurance Corporation, and
the Chicago Clearing House Association. The rental from these tenants amounts
to $2,310.03 per month. The expanding level of operation at the bank has in• creased the space requirements considerably. To meet this situation 10,528 square
feet of space has been leased in the insurance building, 175 West Jackson Boulevard, directly across the street from the bank, and during the course of examination this leased area was augmented by 5,000 additional square feet.
Boston, 1!)S3
An outstanding decorative feature of the entrance lobby is a relief map of
the First Federal Reserve District carved in marble.
Ricliniovtl (Baltimore In-ovcJn, 1952 .
The available space seems adequate for the branch's operations at their current level. However, the management feels that additional space would be
desirable to provide needed service and auxiliary facilities.
RlclimoiKl, 1954
Expenditures in connection with the new building addition aggregated
$2,551,349.75.
Quarters on the first and third floors of the main building were redecorated
and refurnished to provide for a reception area (first floor) and an exhibit
conference room (third floor) at costs of about $6,000 and $14,800, respectively.
PliHadclplna, 1952
Estimated cost of construction of balcony on mezzanine, $55,000.
St. Louis, 1956:
Sculpture (estimate)
1
$S, 000
Mural (estimate)
1
18,000
Boston, 1!)53
Cost of console organ purchased from the Baldwin Piano Contpany on December
23,19r.2, and placed in the new auditorium, $6,000.
St.Loii is, 1955
The garage contains a service center for bank-owned automobiles but is used
primarily as a parking area for employees', cars. \ A nominal parking fee is
charged for the latter accommodation.
Atlanta, .1955
* * * wit^i the authorization of the Board of Governors, construction «tf a 3story, 7-deck parking garage for the use of bank personnel was commenced on
this part of the property. When completed this structure will have a parking
capacity for about 140 cars.
>
The construction contract was awarded on the'vbasis of a low bid of $20!),i)00
and, inclusive of architects' fees and other expenses, it is estimated that the total
cost will be $303,000.
\
.NcwYork, 1952
* * * $0.145 for the erection of a platform on the roof of the Annex Building.
The construction served two purposes: needed repairs to the roof weVe made
and the employees were provided with a roof garden which has proved to1 be
highly popular with the staff.
•
•
Pliilddclpliirt, 1952
Studies are now being made of the advisability of the construction of a joint
assembly hall and recreation room on the roof of Building No. IB at. a cowt of
about $150.000.
Cliicdffo, 1952
Projects * * * at the head office comprise the laying of tile flooring and installation of lockers in shower room * * * The largest undertaking completed was
the remodeling of the auditorium on the fifth floor. In addition to the reconstruction of the floor and ceiling, new seats, and lighting were installed and a
movie screen, cloak and storage rooms were provided. The auditorium has a
sea ting'capacity of 240 persons and is used by the Reserve Bank for personnel
training through the medium of motion pictures and for employee meetings and
other activities. The Reserve Bank has also made tl\e facilities of the auditorium
available to member banks and other appropriate groups with related interest.
Boston, 1953 ,
• \
There are also provided such faci1ities~,as an auditorium, a renovated and
enlarged cafeteria, an employees' recreation lounge, a medical section, and
classrooms.
Atlanta. 1953
On September 23. 1052, the Jacksonville Branch took occupancy of its new
building at 515 Julia Street. This distinctive structure incorporates many
features of modern design. Disbursements to this construction project amounted
to the total cost to date to $2,314,061.33-.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5 FRO-LTNO
SPACE ASSTOXAfEXT
Fifth floor
Personnel Department : employees' cafeterin and lounge: i n f i r m a r y : kitchen;
library: ofticers' lounge and d i n i n g room : old tile storage: recreation room.
Although there is considerable area of unused space on the fourth floor, the
management does not contemplate the leasing of any space to outside tenants.
.Tt'njinioHtl (Charlotte branch i . I9.~,,l
A ne\v addition was. for all practical purposes, completed during the latter
part of September 1052 although it had not been formallv accepted Tbe a d d i t i o n
which has increased usable space by approximated" ({4.000 sonare feet has not
only supplied ample working areas, but has made possible such facilities as »n
auditorium, cafeteria, an employees recreational lounge, and a library and
reading room. These together with the excellent modern lighting and soundproofing provide an efficient comfortable and attractive working environment.
Ddllttx iTToitxtoi) branch). 1 !>•">(>
The new home of the branch will be of modern design and without windows.
It will consist of a basement, three floors, a penthouse for elevator machinery.
suul a roof terrace and sun deck for the use of employees.
St. Loiria, 7.0,76'
* * * a bid of $32.823.10 was accepted covering food /service equipment to bes
installed in the building.
St. Lout*. 7.0,7.7
Ohargeoff to expense for furniture and e<iui"ment purchases. In the v<viv 1954,
this amounted to $137.805.23. In the year 10.",:!. this amounted to $1X7.200.33.
St. Lonix, 7.0,76"
It is planned als.i to replace the f u r n i t u r e in the Accounting, Fiscal Agency..
Safekeeping, and Money Departments, and $101.000 has been budgeted for this.
purpose.
D all a ft, 7.0,7.7
Forfeiture of option money on t e n t a t i v e building site at Houston, $1,500.
St. Lmiift. 70,7:2
Expenditures in connection with expired options on. sites for a proposed new .
Louisville Branch Bank, $1.532.00.
Atlanta, 7.0.7.7
Architects' fees and other expenses related to the several nrolects thus
far paid total $200.549.01 at the head office. $41.032.81 at the Birmimrham
Branch and $20.208.24 at the Nashville Branch. Architects' fees totalling
$34.343.23 were paid for work done in preparing prelimina'-v l O s i n s »ind 'cost
estimates in .connection with an earlier and radically different d^sivn for t^e
head office construction. As this tentative proposal was discarded the relevant
architects' fees were charged to profit and loss in 1054.
f?1iicac/o, 7.0,7;7
On n proposal to add four stories to the existing hank bui'dim>. After full
consideration that plan was abandoned and $110.000 which had been expended
on it for architects' fees and engineers' fees was charged off.
San Francisco. W5R
Loss on architects' fees paid for services performed in connection with subsequently discarded plan for proposed alterations to head office building. 1055.
$2.035.
They expand bank premises bevond f heir neerls. but hold spnce "in
reserve," rather than making; it available for rental.
Chicaao, 7,0;7.'?
Although the 7th and 8th floors of the new addition are currently not needed
for bank operations, the management deems it advisable to hold this space in
reserve and not consider making these areas available for rental.
Thev make purchases without approval —not in accordance with
even their own bank regulations.
Richmond, 7.0.7.7
Earnings and expenses: "Under the Reserve Bank's procedure, neither the
disbursement vouchers nor the supporting invoices bear any direct evidence
that the purchases were approved in accordance with the Reserve Bank's regulations. This matter was discussed with the management and we were advised
that appropriate revisions would be made in present procedures, so that the
vouchers would carry evidence of the necessary official approvals."'
They acquire land and buildings and lease them for $1 per vear;
in one case "in consideration of" the lessee's agreement to park bank
employees' autos for $4 per month.
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Federal Reserve Bank of St. Louis
C FBO-LINO
JficliniCHul,
r.
/.O.7.?
Other real estate consisted of two parcels of land acquired for banking house
purposes ;it Richmond and Charlotte, tlie book value of these properties being
$14<>.r.4!».W and $10.x<>8.42. respectively. The head office figure retlected a
reduction of $(i.807.2.~i in the interval between examinations, representing the
net proceeds of the-sale of a small portion of the land.
The Richmond property is located on North Eighth Street opposite the new
building addition and is leased to a parking lot and tilling station operator
for $1 per year in consideration of his agreement to park Ifank-owned and
employees' automobiles for a nominal fee of $4 per month.
The Charlotte property adjoins the branch building and is used as a free
parking lot for employees' automobiles.
If-iclimnml, / .0.7,7
An unimproved lot adjoining the rear of the branch of this building was acquired in 1044 in contemplation of a possible enlargement of the present building. The cost of this property. $10,808.42. The expenses, principally city and
county taxes, incurred in connection with this property, amounted to $178.05
in the year 10.12.
Sun Francisco, 19~>2
Other real estate carried at a book value of $3.~>.000. This property is currently used by branch employees, as a .free parking lot. Taxes are the only
item of expense on the property and amounted to $817.80 for 19."»1, and to
$277.0.~> for the current year to date of examination.
Fan Frrnicixcn, 19~>?>
The Los Angeles property was acquired in the current year at a cost of
$320,81.7. This property was acquired primarily to provide for possible future
needs of the branch, but present plans contemplate conversion of part of it to
a parking area for employees' cars.
Dallas, Jfi;~>2
* * * While the management is currently negotiating for the puvhase of a
desirable site, it is reali'/ed t h a t "regardless of the plan finally adopted the bank
cannot proceed with any building program under present conditions."
P'liilaa'clpJiia (Plttftlnirali
Ircmcli). UK2
The remainder of the land is rented by this companv under a lea so e-niring
' on June 23. 1954, for .$0.448.20 per annmii; approximately the tax as<essiMe'>f. and
is used as a parking lot. * * * However, plans for proceeding w i t h the enlargement of the present building are being held in abeyance pending congressional
authorization of additional branch building.
Atlanta (Hirmlnflham Itrancli') . / .9.7.1
One-half of the Birmingham property is under leave to a commercial parking
lot operator at a monthly rental of $300. The remainder of this property and
the property at Nashville are currently used as parking areas for employees' cars.
They let construction contracts '"without call in o- for fixed-price bids.
A'or Tori; /.O.T2
<
It was impractical to attempt to obtain bids for this work on a fixed-price basis
and it is now expected that the final cost may exceed $03r>.00(), by as much as
$100,000.
They acquire properties and. pay architects' fees for buildings not
authorized.
nail-as (Ran Antonio branch}. /.0;>3
, .
i'
Accordingly, a site was purchased on July 1. 1052, and a firm of architects
has been engaged to prepare plans for a ilew building.. "Any program of construction is. of course contingent ou the obtaining of appropriate authorization."
j\[innc«polif;, W,r>.r>
The Board of Governors authorized a total expenditure of $5.105,000 which
is intended' to cover the construction costs specified in the aforesaid contracts,
the architects' fee, and a contingency allowance of $200.000.
This figure includes $81.523.33 covering architect's and engineers' fees and
other costs related k> the present construction which
were incurred in prior
years and previously charged to profit and loss \;rhen there was no definite assurance that the project would he adopted.
Here are just a few examples of construction costs which are
charofed to current expenses.
Clcrcland. 1fl~>2
''Also Hearing completion is the installation of new doors for the security ,
court. The cost of this replacement is 'estimated to be approximately $39.000
and the entire amount is t o . b e charged to current expense as repairs and
alterations."
AV?n Tori; /.052
Total costs $121.41(5 for alteration, in the gold vault were charged to current
expense on the theory t h a t the alteration did not materially add to asset values
but served rather to make the alteration and utilization of existing vault space.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Atlanta, MM
FBO - LINO
During 10.~4. an incinerator was installed in the basement of the annex building at a cost of $ir>,i>S7..">8. The amount was charged to profit and loss on the
assumption t h a t the incinerator would have no salvage value.
Clcrcland, IMfi
Construction costs of $13.">.000 allocated to current expenses.
Philailclftlna, /.0.5tf
Construction of a counter and rearrangement of the serving area in the cafeteria, *2.r>.S8.
All of the expenditures in connection with the projects mentioned above were
" charged to current expenses.
TOSSES AXD msrUEPAXCIES
Some of the loq^q and tho divwrn-ncMH! in the accounts of the
Federal "Reserve hanks are truly amazin.o-. All of these banks exneri>ence tremendous losses of registered mail containing deposits, securities, and other thimrs of value. They oharo-e off or set ur» reserves
amounting to millions of dollars for such losses. They have all manner
of looses and di<-vrpiv.>n<-iaq iu HIP funds; -,»nd Mvo^fti'fv of *he ^eser>re
banks, nccordinq- to their own auditors. And when the General
Accounting Office has occasion to audit
auv of their work, as when they
r>av checl.-s for the «u-fount of H»P l T vuf-or!ftf«f«M?Treasury, the Government auditors find losss which the bank auditors appear not to know
about.
^
Kansas City, 19.r>2
,
Loss absorbed bv Federal Reuewe bank account as result of delay in transferriner fwuls for member bank. $82.23
Head office—difference account: This balance largely-made up of substantial
amounts of differences vela ting to work processed in 10."i:2 by the Government
Card Check Sections as a result of the Government Card Checks Section'of the
Check Collection Department of the records of the bank were not maintained in
such a manner as to permit ready identification of the differences, and it further
appeared that the Federal 'Reserve bank wos unaware of the existence of such
Inrere differences until they were disclosed by the General Accounting Office's
audit of card checks naid by the Reserve bank for the account of the United
States Treasury, $7,077.13.
Kansas C\tji (Oklitlmtna Citn ItrancJi). tf>~>3
Shortage in assorting teller's cash at the Oklahoma City branch. .$100.
Kansas City (OmaJ(a Branch), !!)!>(>
•
Audit revealed 2." $200 series »E savings bonds which Reserve bank's records
showed to have been part of shipment of unissued bonds forwarded to an
issuing agent on August. 3, 1055, were reported by agent as not having
•been received.
San Francisco, W.~fi
TIncollected cash items: Misronted items forwarded to mender banks nnd
other Federal Reserve banks—charges- deferred to correspond with availability
date of relevant cash letters, $l.r)7,S3R.sn.
San Francisco, /.95,T
REOONCUVTATIOTir
Understatement of accountability of TT. R. Government securities
$200,000.00
Uneoliected en ah items: Misronted items reforwarded to member
banks for collection—charged next day
400,170. 34
8an Francisco (PortJanfl Branch), W5!)
Account* of member aniJ nonnn-mJicr 7>flri/iNv and others
i
DEFERRED ACCOITNTR
-^Nlissent item reforwarded as noncash collection
$271, 700. H8
ilissent items reforwarded as noncash collection
46, 7?)4. 21
Misi-outed items reforwarded to other Federal Reserve' banks—
, . charged next day
,
l,'fi.r>2. "»7
San Francisco (Lox AnftcJcs BrancJi), W5j
>,
A review of "difference account'' record disclosed rather fre«iuent Transit
Department entries in substantial amounts occasioned by improper handling of
the relevant transactions or by lack of due diligence on the part* of employees
in the department. "From the foregoing it appeared to us [auditors] that the
department needed closer supervision."
'
San Francisco, IflZJf
* •
*
Accounts of tncniltcr o«ff nonmcmbcr banks ana" others
DEFERRED ACCOUNTS
Uneoliected cash items:
Misrouted items forwarded to Federal Reserve banks—
charged next day
$42.281.07
Missent items reforwarded as noncash collections
14,100.00
Due from ..member and nonmember banks
* 51, H83, 221. 62
8
BO - LINO
i Does not include $.10.732.1(1 ;it the I.(is AnjjHrs Branch, rciircscntinu: inisxorti>d <-iish
Hems which wore forwarded on Oct. 1. 1JI54. in special cash letters to I he hanks on which
d r a w n . This
a m o u n t was carried in ••Difference account" at date of examination.
Adjnstiii;, r entries were made on Oct. (i. 11134.
Han Francisco, 1 {>,'>(>
I»XHniarc anil fl<lc]iti/ bonds
Amount
Head office
Bunkers' blanket bond: Money stolen from Reserve bunk officer while traveling
on ollicial business
$(iO
Uaii- claim
tiled
Oct.
20.1955
Shipment of currency received by Reserve bank, claimed by shipping
bank to be $1,000 more than Federal Reserve count. Matter was
closed because of lapse of time.
/&'«« Frunelftco, wr>.'h Auditing-Department
The general auditor advised that one special investigation was made under his
direction during the interim between examinations. It concerned a shipment
of currency received by the Reserve hank on November 11, 1053, from the * * *
branch of Bank * * *, and verified to contain $132.000. The shipping bankclaimed that the contents totaled $133,000. The general auditor's investigation
did not develop evidence of any irregularities in the handling of the shipment
at the Reserve bank and no formal claim has been filed by bank * * *. Moreover, an investigation by the Federal Bureau of Investigation at both the office
of the shipping bank and the Reserve bank also failed to disclose anything of
a suspicions nature which would warrant further inquiry. In view of these
circumstances, as well as the .lapse of time since the incident, the matter is
considered closed.
Kav#an City (Onifilni
frnnicln,
lf)r>(>
Shortage of currency shipment made on July 1, 19."."), to Omaha, at the request
of * * * bank (reimbursement from the bonding-company). $200.
Of the numerous reconciling items shown by a member bank, pertaining to the account maintained by it with Reserve banks, *1-V2
remained unadjusted, amounting; to over $1 million. F i f t y - n i n e
exceptions were more than 30 days old.
8(in Francixco, l!)i>(>
ACCOUNTS OF M K M I5KJI HANKS
. Officially executed reconcilements were received from all the member banks
in the district. Of the numerous 'reconciling items shown by bank * * *.
pertaining to the accounts maintained by it with the Reserve bank's head office
and Los Angeles Branch 242 remained unadjusted at the conclusion of the
examination, and are summarized as follows:
Number
of -items
Head office
Bank * * * debits
Bank * * * credits
FBB debits
-'FRB credits
.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'
.
-
-
..
,.
Total..
Bank * * * debits
Bnnk * * * credits
FRB debits
FRB credits
Total
I,OS ANGELES PRAXCH
......
.
,
..„
Grand total...
Amount
•41
27
32
33
$16-1. 24S 23
lW,li02. «*
133
48Ti, 480. 50
29
18
2S
34
27, OSfi. 25
41,531.41
90, 505. 29
08, 130. 04
34. 244. 22
40, 725. 34
109
152. 51(0. 22
242
030. 07C.. 72
The majority of the foregoing items were of recent dating: however, 50 exceptions totaling $2!),811.05 were more,than 30 days old at examination date.
Deductions from X'et Earnings: Registered mail losses (year 1055), $44,457.03.
Richmond, 19~>2
NONCA8H COLLECTION DEPARTMENT
Country collections outstanding with collecting agents consist of 333 i'teuis, ill
the total amount of $213.!)S.~>.21, and were confirmed by correspondence with the
agents concerned.
Examination of this function disclosed that one collecting jurent was holding
2.'! past due items which had matured in the period April 21 to June !'. 1052. \\\
but 2 of such items were subject to protest. Another agent was holding 7 past
due items which had matured in the period of May 1 to June 2. 11)52. While the
records indicated that these items had been traced to the collecting hanks, there
was no evidence that the matter had receiv . consideration at the official level.
We were advised that in the future all past due items or instances wherein the
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
LINO
collecting hanks were not adhering to the applicable instructions would he brought
to the a t t e n t i o n of the supervising officer.
HidlllKHHl,
1!>.~>3
Insured losses recovered on mysterious disappearance of currency reported by a currency counter __________________________ $.100.00
Loss sustained in coin shipment w h i l e in transit from the branch
to hank * * * North Carolina on June 22, 10.13 ________________ 18.8.1
Loss on returned check on which the payee's endorsement was
allegedly forced and on which the Reserve Bank's prior endorser
couid not be identified_________________________________T ______ 02.00
RiaJnnond, Hi').1/
Debit adjustments in connection with errors in redemption of
savings bonds by paying agents______________________________$2.230. 00
Credit adjustments in connection with errors in redemption of
savings bonds by paying agents _______________ ^ __________ _ _____ 4. .1-10. 00
Embezxlemeiit of $85,000 in currency shipped by Federal Reserve
bank by a post office employee.
PJiiJit(lcli>liiti, 7,0,7?
On September 17. 10.11. the Federal Reserve Bank of New York, at the request
of the Federal Reserve Bank of Philadelphia, shipped $8.1.000 in currency to
two member hanks located in ilic t h i r d district. These shipments were not
received by the addressees and the ensuing investigation by the Post Office
Department revealed that the currency was embezzled by a Pos< Office employee.
At date of , e x a m i n a t i o n . $68.004.02 had been recovered on the loss: and. as
mentioned subseouently under litigation, there is a possibility of obtainintr an
additional $-1.000. The unrecovered portion of the shipments. $1(5.00.1.38. is
being carried in a suspense account pending determination of 'he u l t i m a t e loss
to he charged to the reserve for registered m a i l losses and/or distributed among
the various Federal Reserve banks under the loss sharing agreement.
P!ii1u<lcl))liia. !(>:>',
Cash department—difference account losses
in."*:?
1!ir,4 January to August
Philadelphia t$~)(]
Mysterious disappearance of a deposit apparently received from
the Postmaster at * * *. Pa., on Oct. 1!). 1!).">4—not reported to
Reserve Bank until January. in."G__
$1. <.>.":*. oo
25M.OO-
$170.00
Unusually larire errors in Cheek Collection P e i v i r i m e n i . Tlie records Avere in such unsatisfactory condition that the/majority of differences could not be located. The net debit differences o-F the Checjc
Collection Penartmpnt amount to $o2,700 of which $22,384 was
chara'ed to ]>rotit HI id loss in 1052.
Jioxtoti. 1!>~>2
In tlie orevious report of e x a m i n a t i o n reference was m" (1 e to t l i o unusually
large differences occurring in the Check Collection Department. The management attrihuted this situation p r i m a r i l y to the substantial increase in the volume .
of checks liandled and the necessity for operating under n d u a l svstem during the ,
period of conyersion from the use of a hlock system, the use of proof machines,
and the rather heavy turnover which has resulted in a large proportion of inexperienced personnel in the Department. In tlie latter part of 1!).~»1 when it
hecame apparent to the manager that the Adjustment Division of the Check
Collection Department did not have sufficient personnel to cope w i t h the increasing numher of differences, the division was increased on November 2f>.
from 0 to 42 employees. Progress reports revealed the unsatisfactory condition
of the records and indicated that the majority of the differences Could ijot be
located. Corrective measures were subsequently taken to see that in the future
the records would he cared for and filed in such manner as to facilitate the
checking of differences. The Adjustment Division currently lias a staff of 25
employees. At December .'VI. 10.12. the net debit difference of the Check Collection Department amounted to $:>2.7!)0.4.'{. of which $22..'!X4.7X was charged to profit
and loss and the remainder of $10.412.li.l representing net unlocated differences
for the month of December 11).~1. was carried forward to 1!)."2. In addition, net
debit differences aggregating $o.2S1.(>7 applicable to the 1!).">1 period, prior 'to
December were reported in in.~>2 and remained u»t!<"'ated. However, only
$1.00X01 of the differences for the month of December 1!>51 remains unlocated at
this time. The management believes that Completion of the changeover to proof
machines fully converted on August G. l!)r»2. and the continuance of the comparative staff stability now prevailing' will result in increased efficiency among
the^departmental personnel and a more satisfactory difference experienced ' r
the future.
The many corrective measures as instituted by the management to expedite
the h a n d l i n g of checks and to eliminate the underlying causes creating differences
is reflected in the progress noted above. However, continuing vigorous efforts
must be made if a further reduction of such differences is to be accomplished.
Moslem, /.9J.7
A special investigation of a discrepancy of $08 between the records maintained
by the Public Relations Department and the Expense Department in reflecting
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Federal Reserve Bank of St. Louis
10 FRO-LTNO
N)6'proceed** of the sale of a brochure published by the Federal Reserve'btitik
indicated that this \vas caused by inadequate bookkeeping procedures in the
Public Relations Department.
/
Reserves for contingencies:
Reserve for losses from tire and allied risks
$380,000.00
"Reserve for registered mail losses
853. 44S. 18
Contingent l i a b i l i t y on acceptances purchased for
foreign correspondents
$1,1)1)0, 775. It)
Losses under loss sharing agreement:
Pro rata share of claim paid Federal Reserve Hank of Phila'delphia account net loss of $10.995.38 resulting from the
theft of currency, totaling $85,000, shipped by registered
mail on Sept. 17, 1951
758. 30
Boston, lf>,">(!
Advanced traveling expenses
'.
$10, 252. 00
Difference resulting from error in advice of charge received from
Federal Reserve Rank of New York covering its shipment of unlit
1A Federal Reserve notes to the Treasury Department on Mar.
16, 1956—adjusted on Mar. 21, 19561
10, 000. 00
Bankers' blanket bond
Mysterious disappearance of postal deposit:
Received from the Postmaster, * • * Mass., on Mar. 29,
1955
:
Received from the Postmaster, • » * Maine, on Mar. 3,
1955....
Date cl'iim
filed
Date set tk d
$200
July 22.UI55
July 25,1055
70
Sept, 15,1955
Sept. 28.1955
Amount
Mr. CHAIRMAN. Here are some more examples for the record. I
believe that you Avill find it quite educational just to scan some of
these items.
Chicago, 1f)52 ,
Mysterious disappearance of coupons detached from Government
obligations
„
$4(55. 00
Charge by P>ureau of Engraving and Printing. Washington, D. C.,
for furnishing new Puerto Rico bonds to replace bonds inadvertently canceled by Federal Reserve bank
907.60
Unadjusted exception of member bank account representing a
charge of Feb. 14, 1952, covering the shipment of 2 bags of
coins by insured mail which did not reach the Reserve bank ,._
402.14
Cliicaffo, 1!>53 .
Loss in a currency shipment dispatched to'Reserve hank, Oct. 14.
1952, from * * * Hank, * * * Mich
-__,
___J__^___
.$3,050.00
Loss in currency shipment dispatched from the Reserve bank on
December 17, 1952. to the * * * Rank at *• * *, 111
7, 000. 00
Mysterious disappearance of Government coupons
465.00
Chicago, JOiiJi
Under the loss sharing agreement, the Reserve bank absorbed a
net loss resulting from damage to a currency shipment of $7.000
' in transit from the Reserve bank to the * * * Rank, * * * 111.,
on or about Dec. 17, 1952
$775. 00
Partial recovery on the Reserve bank's share of a loss sustained in
1951 by the Federal Reserve Rank of Philadelphia
333; 18
Fiscal agency securities forming a part of the total accountability—not reported—adjusted during auditor's examination
1,500,000.00
Mysterious disappearance of * * , * School District bonds shipped
by registered mail to the Treasurer, * * * District, * * *.
Iowa
^
^
5, 000. 00
Unlocated differences, year 1953
'
124, 918. 22
Unlocated differences January 1-May 28, 1954__L___^
„___
88,522.45
Chic<if/o, 1955
Loss resulting from faulty handling security transactions from
member banks. 1954
^______
Jan. 1-Sept. 2, 1955
P
Loss resulting from mishandling of check received for collection!..^
Loss of postmaster's deposit of currency. .Tan. 1-Sept. 2, 1955
Mysterious disappearance of photostat equipment
Loss of mutilated currency
•__„
•.
J? IcJi nioml, 1(>i>2
Refunds due from uonmember paying agents—to adjust errors in
cashing savings bonds
..
Transit Department differences—pending adjustment
,
\
$232.41
v 24.26 '
2, 300. 00
220. 00 '
154. 00
11.00
$1,910. 57
1,7 Hi. 44
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Federal Reserve Bank of St. Louis
11 FBO-LINO
Claims unilcr Itanl-c^s ManliCt ~boml
Shortage in assorting teller's cash disclosed by audit of Money Department (.11 May fi. 1052
$1, (KM). 00
Shortage in assorting; teller's cash
100.00
Short ago in assorting teller's cash
00.00
Ricliiiionil (Charlotte branch), W,rt2
Shortage in pay teller's account
$200.00
Shortage in shii»inent of unfit Federal Reserve hank notes to Treasury
Department on Mar. 31, mil
200.00
Shortage in coin teller's account
100.00
Mysterious disappearance from coin teller's account
24.15
Medical expense claim under blanket accident policy, employee injured
while playing on hank's Softball team
24. 00
Richmond, 1954
I [end office
Amount
Dale claim
filed
Date .settled
June 9, 1953
Oct. ti, 1053
July 2. 1953
N'ov. 17, 1953
CLAIMS UNDER B A N K E R ' S B L A N K E T BONtt
Mysterious disappearance of currency reported by a currency
assorter
- Do
:
Medical expense blanket .accident policy—employees injured
while playing on bank's Softball teams:
* #*
* » *
* **
$100
100
15 Sept. 17, 1953 3e.)t. 30. 1953
5 July 10, 11)53 July 22, 1953
18 Aug. 11,1953 Sept. 1, 1953
Richmond' (Charlotte branch), W5.'i
Mysterious disappearance of cu •rency from a shipment to Treasury Department
$180
AUK. 21, 1953
Nov. 18, 1953
Richmond (Charlotte branch), /flj.f
Loss arising from forged endorsement on check received for collection
in 1050 and on which prior endorser cannot he determined______„
$1)2. 50
Unadjusted exception of member bank reserve account arising from
_ Federal Reserve bank's charge of Dec. 17, 10.13, for return of a Government check on which payment had been stopped. Check reportedly had been issued in error and the bank claims the check
was paid on proper identification and refused to accept the charge.
The Reserve bank referred this matter to the Treasurer of the
United States. Amount of exception ____________________________ 100.00
Auditors' verification of the $2,0(>0 impressed fund carried with the
postmaster and included in miscellaneous cash items revealed that
the fund was overstated by $100 on the Reserve bank's books, as a
result of various errors in charges to expenses for postage used ____ $100. 40
There were rive unadjusted differences in the accounts of issuing agents,
the aTiditors were unable to authenticate the signatures on many of the reconcilements returned by issuing agents because the Reserve bank does not muin;
tain a complete signature file on such accounts.
Host on, HIM
Earnings reduced by transfer to reserve for registered mail losses____$3.", 307. 21)
Difference account net losses ___________________________ -. __________ 1, 55.5. 38
Atlanta (Head office), 1!).r)2
Shortage in shipment of fit Federal Reserve notes to Federal Reserve
bank of St. Louis on May 21. 1051_______;____ ________ ___________ $100. 00
Atlanta (Ncic Orleans liraneh), tf>r>2
Shortage in shipment of currency to * * * Hank of New Orleans, La.
on October 24, 1051__________'__________________________________„ $100. 00
Registered mail loss in connection with shipment of currency to * * *
Bank. * * * Louisiana on October 2(5, 1051 __________________ _____ 65. 00
Atlanta (liinnhitfhatn Branch), 1952
Auditor's count of sorted currency forming part of the vault cash revealed an overage _______________________ .__'. _____________________ $170. 00
Atlanta (ItiriHinuliani f i r a n e h ) , 1!)!>3
Pro rat a share of claim paid Federal Reserve Bank of Philadelphia
account net loss of $10.005.38 resulting from the theft, of currency
totaling $85,000, shipped by registered mail on Sept, 17, 1051 ...... _*_ $«51. 70
Atlanta (Jacksonville liranch ), l!)~>3
Shortage discovered Oct. 25, 1053, in bundle of fit $1 bills ____________ 100. 00
Atlanta, tflty
Shortage of Treasury Certificates of Indebtedness. "After tbe loss was
discovered, an exhaustive search was made of all working areas
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Federal Reserve Bank of St. Louis
12 "BO-LINO
where the certificates might conceivably have been. In view of the
failure to find them despite Ilie intensive efforts that were made and
the inability to trace tbeni beyond their delivery to the vault, custodian, there is a strong feeling on the part of the bank that the
certificates fell or were accidentally brushed off the desk of the vault
custodian into a trash basket and disposed of as wastepaper"
101,000.00"
Atlanta (\cir Orleans ISrancli), l!>.~>'i
Mysterious disappearance in currency
$100. 00
Check Collection Department differences—pending adjustment
1, U84. 72
Atlanta ( A'i'ir Orleans Rraneli), 1!),r>,~t
Unadjusted exception dating back <o 1!).").", in the reconcilement of
Reserve account of a member bank in the New Orleans I (ranch territory represent ing a deduction by the Ueserve bank from credit for
member bank's transmittal letter covering paid IT. S. savings bonds._
$100. 10
Transfer to reserve for registered mail losses
,— 27,001.34
Not loss on sale of II. S. Government securities
0,270.98
Atlanta (Nafthrillc Jlruncli), /fl.'T.I
Loss in transit to Federal Ueserve bank of New York of registered mail
•shipment containing coupons
,
$1,338.75
Atlanta, 1!>5(!
Shortage in shipment of $70,300 in currency received from Reserve
bank by an Atlanta member bank. On the basis of the information
furnished by'the member bank, it appeared that the shipment had
been opened by one of its employees without the presence of a witness
$300.00
Cleveland, 1!),r>2
Deductions from net earnings include—
(1) Delay in returning (-heck to a member bank
__^
$3."»0. 00
(2) U. S. savings bond issued in error
18.75
(;j) Chargeoff of architects' fees in connection with proposed hnprove.nents at Cincinnati Branch
4, Or»0. 00
(4) Refund of 1 day's interest on loan made to member bank to
offset a deficiency in reserves resulting from mishandling
of a security transfer
191.10
Cleveland, 1953
Deductions from net earnings include—
(1) Loss resulting from a delay in purchase of securities for a
member bank, year 1fl.~>2
$13. 7"'
(2) Refund of 1 day's interest on loan made to member bank to
offset a deficiency in reserves resulting from the mishandling of a security transfer, year 1052
191.10
Cleveland, W5.}
Reserves for contingencies:
Reserves for registered mail losses: Balance, Nov. 30. 10."»3
$<»S7. 232. 23
Add : Transferred from profit and loss, Dec. 0. 10,";)
39, 472. 44
Balance, Sept. 7, 10.14
„_:
i__
720, 704. (>7
All other: .
Balance. Sept. 7, 10.">4 (no change since last examination),
composed of—
Such reserve for contingencies
S. 102. 000 •
Reserve for losses not covered by loss sharing
agreement
1, 000, 000 », 102. 0<H». (Ml
Total
9, 82S, 704. «7
Cleveland, W~>~>
Lona: Unpaid missent check which endorsing bank refused to accept
because of delay—period Jan. 1 to June 23. 1!>."54
*.
Savings bonds issued in error in the year 19"»4
$3-"i4. 97
332. 50
Cleveland, 19.~>(i
LO.IN: "Faulty handling of security transactions for member banks",.. $12-'I. 00
Losses on unpaid missent check which endorsing bank refused to
accept because of delay
3."54.97
Ncir York (Head office), 19~>2
The registered mail and messenger service policies (insurance and fidelity
bonds) were revised and no longer include coverage on gold or silver while
temporarily stored on any pier in the Tort of New York or in the vaults of any
trucking company; or on gold in transit between the United States Mint at San
Francisco and the Federal Reserve Bank of San Francisco.
Reimbursement of $1.32."5.r>r» was made to a member bank in head office zone
for the amount of the increase in the premium charged on the renewal of i{«
bankers' blanket bond. The additional premium resulted from the payment of
a claim of $20.000 in connection with the theft of a currency shipiuent in transit
to the Reserve bank on July 20. 104.S. and the amount reimbursed to the member
bank was charged to the reserve for reglstere'1: lail losses.
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Federal Reserve Bank of St. Louis
13 FBO-LINO
Yr/r York (lltiffulo Hrtun-li), lt.t.~>.i
Subsequent to dale of examination, a charge of $500 to the reserve for registered
mail losses and a recovery of $100 from the 1'ost Office Department effected the
settlement of a loss of $(•()(> in coin ; this hiss had occurred in shipment of curreucy
and coin to a member bank on April 7. 1J(52.
Due to clearing house banks account errors in exchanges held in this account
pending a d j u s t m e n t by clearing house banks affected, $1NS,220.
.\t-ir York, t!>;>>
Coin shipment of Apr. 7, 1U53. to the * * * Hank. * * *, N. V.. lost
in transit __________________________ ____________________________ $<»00. (KJ
.Wir York, HI,!,!
One exception to officially executed reconcilements of accounts of
member bank was not cleared _________________ * ___________________ $200. 00
,Yr/r York, H>~>~>
Disappearance of coin shipment of $200 sent by Reserve bank to the
* * * Hank of * * *. X. V., on Sept. 28. 1«)54— Xet deduction for
that loss ________________________________________ _ _______________ $150. (K)
X<'ir York, lit'iU
Shortage in untit $20 Federal Reserve notes ________________________ $200. 00
Reserve for registered mail losses, 1055 ___________________________ r>4, V>8. 05
On .March 17, 1!>5<5, a special audit was made of all Treasury tax and limit
accounts, as a result of information received that remittance letters in support.
of two entries, totaling $44, 551., SS in the accounts of the 2 Treasury tax and
loan depositories, could not be found. The banks involved disclaimed any
knowledge' of the transactions, and the audit of the various accounts disclosed
no basis for the entries in question. Accordingly, the entries and the corresponding credits to the l ? . S. Treasurer's account' were reversed.
On March 1'.). 1!)5(>, a survey was conducted of the operations of the Delivery
and Records Sections of the Safekeeping Department because of the numl>er of
errors reported in the handling of securities. The survey disclosed some minor
exceptions. 'ami certain recommemla lions were made to improve the controls.
Phihidclitliia, l!>.~,2
Aiuonut of unissued savings bonds reported by the issuing agents as stolen;
and claim for stock credit was forwarded to the Treasury Department on December 4. 15>.">2. Difference short, JtU.rHM).
M in nc(i])(t1ix, 1 !>">.!
Loss .: Two
Ajimn
* \\ 11 typewriters
l ,\ J ;^ ^ i I
belonging
if 11^11 ij^ to
l ^ » Treasury
O - i r * i r ^ i i i ^ Department.
J fr|Hl i
ill .
MimicitiHilix, }!)')',
Mysterious disappearance of cash item in lleserve bank. .f!k>.
>sV<» Fruttf-iftcu', l!)5ti
Counterfeit currency:
January W><»_.___
1
.f_M.H
September 1!>.~>.~>
,
1
(»!)•">
Shortage in coin deiiosit not <-onsidered chargeable to depositing .bank.
i«s8,__!
<w
JMouey lost by or stolen from an examiner while on an e x a m i n a t i o n
assignment
:
-_'
.
*i(f
Money lost by an examiner while on an examination assignment
45
»SV. Loui>tt /.'/.52
I'ank of * * *. * * *, Ark.—Shortagr between agent's balan<-e and
'
/
the Federal Reserve bank's balance
$:». (HKI
Kf.T/wn>. 7.0561
Shortage in account of issuing agent ____ _ ___________________ ______ $5.750
KKSKRVKS KOK CO. N'T I \C.K\f 'IKS
,
AHotber:
Special resets o for contingencies.________________._ ....... _
_ ; _____ 4. 210. O<K)
Reserve for losses in eve-ess of blanket bond covc-rage__......____________1.OOO. oou
Record of losses not <-ov«>red by loss sharing agreement ____________ 500. OOO
5. 710. 000
Now, we' have possible law violations—a iniinber of instnncrs
involving law violations.
POHSIIU.K LAW VIOLATIONS
Itoxfnn. 1!>~>(!
Mysterious disapr»ea ranee of registered mail deposits forwarded by postmaster
to the Reserve bank's Postal Deposit Fnit.
JVV/r York iltiiffuln It ranch), W~>~>
New York clerk in Cash Division at Hnffalo Branch admitte<l withholding small
amounts of cash from incoming cash.
, U n l a w f u l borrowing by special assistant examiner — by incurring direct atid
indirect indebtedness from certain State member banks.
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Federal Reserve Bank of St. Louis
14 FRO -LINO
AVir T.oi-1,- (RocJtctitcr llnnic'lt), l!)~>2
Supervisor of the Return Checks and (Joverninent Paper Cheeks Division usp<l
his position on li or ;> occasions to '"kite" personal checks in the amount of $,"><).
RicliiiKintl, 1 !>,'>.'i
Violation by supervisor in the Transit Department in the Baltimore Branch who
was discovered to have substituted an unlisted check of small amount enclosed
in an incoming cash letter for a personal check of similar amount which he
cashed at the hank. Further investigation disclosed similar manipulation and
employee admitted to four instances.
Chicago, J954
Two checks had been raised in the aggregate amount of .$180.
MiiincupoJix. l!>.~)2
*~ Improper purchases of food were charged to cafeteria operation but converted'
to personal uses.
flan Frtittciifro, 1!>,">.l
An employee found guilty of embezzling the sum of $2.(HK).
Lox Aiif/clcft, 19~>C>
Defalcation by an employee in the amount of .$4,44,".
GENEUOFS SUUSjniKS TO DINING ROOM A N D OAPETKK1A COSTS
They make o-enerous subsidies to the employees" cafeterias and
dining rooms. The Board has authorized the banks to pay up to
one-half of the costs. As previously pointed out. the total cost of all
the cafeterias in 1950. according to the bank's method of computing
these costs, came to $2.540,099, and of this amount the banks paid
$1.196,814, while the cafeterias receipts took care of $!>> million.
(See i>t. T, p. 569, of the hearings.)
T do not object to a fair subsidv for restaurants and cafeterias in
connection with a business. I think it is pretty we1! accepted practice.
Hut T think it is very unusual for the Government to have to pay 50
percent of such expenses, and even more. Furthermore, these audit
reports disclose that even the theoretical m a x i m u m of 50 percent is
an understatement.
Tn other words, in the Federal T\eserve banks, theyret a $4 steak
for $2. (Ver here at the Capitol, the members <ret a $2 steak for $4.
There is a little
difference there.
But having 1 control of the purse-strings, they can spend any \vay
they want to.
TTowaver. T nsked Chairman Mw/rtVn Inst Anjmst to snnplv more
detailed breakdowns of certain of expense it-ems shown in the Board's"
renort, for the year 1956. and bv letter of October T, 1957, C h a i r m a n
M'-n-tin siinnlWl a report showing certain dot;nils of these expense
items. One of the exnense items shown in the board's regular annual report for 1956 is for "printing, stationery, and supplies."
Clnimian M-irtin's snnnlement'.il ronort of Oftohpr T. 1957. shows
tint one of the ch;ir'>-p« "-oinp; into the r;itpo-orv "nvin'inf. stationery,
and snnplip.s" M*-I« ^1.508.641 for "rnfp'pvi-i food." Tn oth'-r words,
the cost of rMfpteria food alone incurred in the 12 Federal I\esorve
banks and the branches
cmnp to sli<>-htlv more t h a n the Board has
renortpd ;'« the entire 'iost of cafeteria operations in these banks and
'branches. So it would appear that the cost of overhead—bank space,
liffhts, watr>v. ;iH the expensive eouipinent and the dinin.<r room furnishings and perhaps even the personnel—are furnished free by the
banks and are not counted ajrainst ihe 50 percent subsidy which the
banks have been authorized to make to the cafeterias.
T miffht add that two other items of <renoral exn^nse^ for which
Ch;'i' % man Martin's sinmlemental renort yives rlp.tniled breakdowns
ovp these—H^ "fnrnjtnrp ;»nrl prtninmp.nt nurrhases" and ( 2 V " f u r nitin-p ;md equipment ^entnls."' The hi'pnkdo.^'rts of those items in the
snnnlpnipnt'ii renort show no Hiarjres of furniture and equipment for
the p'lfp.tp.rins or d i n i n < r room.
1 will insert tlip snnnlpnipntnl vpport supplied bv Chairnvm Martin
at a later plarp, so that all of this report will appear together.
OKXKTIOFS nr/rTKKMKXT srsTK^r
And the retirement system of the Federal Keserve is rleai 1 out of
line with that of other Government employees. T believe in a fjood
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Federal Reserve Bank of St. Louis
15 FBO-LINO
liberal retirement system, hut 1 don t believe they should have a better
system than the other Government employees because they work for
the Government.
They have a generous retirement system for officers and employees, and they make supplementary contributions to retired em-.
ployees. As has been previously shown, through .June -H), 1957, the
banks and the Hoard had contributed $117.8 million to the retirement funds of the Hoard and the employees, plus another $2.2 million; while the employees have contributed $68.6 million. (See pt,
I, p. 568 hearings.) The banks have on occasion made supplemental
contributions to the retirement system for supplemental death benefits
and for allowances for members who retired before qualifying for
Social Security benefits.
Examples:
Boston 1053
Supplementary retirement allowance for members retired before qualifying'
for .social security (January-May), $140,402.
Boston 195G
Retirement system contribution—supplemental death benefit, $24,,159.
St. Louis 19i>.'i
Payment to retirement system to provide supplementary allowances for ineiii-bers who retired before qualifying for social security benefits, $14.">,r>t).~.r>3.
DEFICIENCIES IN RESERVES OF MEMBER BANKS '
There are all kinds of irregularities about the use of bank reserves.
They have never been looked into. Nobody has ever looked over theirshoulder.
They assess or waive penalties for deficiencies in member bank reserves on the basis of erroneous computations, or without authority.
They accept incorrect reporting of net demand and time deposits for-'
computing required reserves because of using only test checks.
Atlanta (BirtnhiffliamJiraiictt), 7.9.J2
The bank disclosed one instance wherein a penally of $241.0.1 had been waived1
without authority; however, prior to the conclusion of the audit, authorization
to waive this penalty, was requested from and granted by the .Board of Governors.
Minneapolis (Helena ln-<i>icli), 1!),').',
"It has been the practice to assess or waive penalties for deficiencies in reserves:
maintained by member bifnks on the basis of computation made by only one
employee of the branch. Inasmuch as five erroneous computations had been;
made in the interval between examinations, we recommended that the accuracy
of the computation of all deficiencies and their resultant penalties, whetherassessed or waived, be rednecked by another employee."
Kansas Citi/ (Oklahoma Viti/ branc&),1956
A review of reports of'net demand and time deposits and required reserves
submitted by all member banks for 1 reporting period disclosed "» instances of"
incorrect reporting at the Oklahoma City branch. Tn view of this it was suggested to the branch management that instead of making test checks as had been
the practice in the past all reports should be received to be checked for
correctness.
Sun Francisco (Portland lirfinrli), 7.9,7,7
The following comment is made :
"All penalties assessed and waived since last examination were reviewed.
The verification disclosed that a penalty of $40.03 was erroneously waived for 1
tiie * * * jn th e period ended February 4, 1953. Inasmuch as this bank's average daily deficiency in the period amounted to, $(50.000. or $.11.080 in excess of
2 percent of its average daily required reserve, the board's permission to waive
the penalty should have been obtained."
Atlanta. (Itirminglmm branch), 195.$
At the Birmingham branch the audit review indicated that approximately
20 percent of the member banks were reporting deposit balances incorrectly for
Sundays and holidays.
One Reserve city bank was improperly carrying reserves on a
country-bank basis.
Dallas (Houston ItranrJi). 7.9.7.?
*
At the Houston branch, our review disclosed that one Reserve city bank, a
small outlying institution, which opened for business on January 24, 19.13, was
improperly carrying reserves on a country-bank basis. This member bank had
not requested permission to carry reduced reserves and the branch management t
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Federal Reserve Bank of St. Louis
16 FBO-LINO
inadvertently overlooked the requirement that the Board's approval he ohtained
in sm-h cases in accordance with the Hoard's letter of August 1), 1940 (S. !>28).
This m a t t e r was drought to the attention of the Reserve hank management,
which in turn apprised the memher hank of the necessity for tiling a formal
application for permission to carry reduced reserves.
Banks made unusual and unduly liberal adjustments in deficiencies
in member bank reserves without official approval. These adjustments
have been made for banks which have been constantly deficient in
reserves. Examples:
.\tlniitd (Xt-ir Orlctnifs l i f t u i c l i ) , /.'>.>'/
The audit review disclosed this analysis adjustment of $2.~>0.000 for ."> days in
favor of the * * * seemed unduly liheral in light of the underlying circumstances. To remedy this situation, which was a repetition of a condition prevailing at the date .of the last examination, the branch management arranged
to advise the memher hanks concerned as to the proper'method of reporting and
to insure more care by the branch personnel in checking the reports. The
adjustment was in the computation period ended July 22, 1!>r>3. This hank had
pledged .*2."iO.OOO in Treasury hills with a State official. The hills matured
July 10, l!)r>3. but the member hank was unable to obtain their release until
July 22, on which date the proceeds were credited to its reserve account. It
was our view that these circumstances were not sufficient basis for granting the
adjustment.
The Reserve bank management agreed that the adjustment was unduly liberal
and that all unusual adjustments of this nature should have official approval
and-be so indicated on the record.
Atlun-tu- (~Xrir OrJcutm In'ttucli), 1fl~>-~>
* * * [The same bank] was deficient in reserves in IT computation periods
during the year 1JVV4: it was deficient in 10 weekly reserve computation periods
during the year l!>.">r>. <S of them being consecutive.
PENALTY PAYMENTS TO UNITED STATES TREASURY
Reserve banks pay the Treasury penalty charges Avith money that
would go to the Treasury anyway.
Kansas City, WSJ/
Penalty tax paid to the United States Treasury: On May 21. 10.~>4, the
Reserve bank paid a penalty tax of $."i7.000 to the Treasurer of the United
States in accordance with section 10. paragraph 3. of the Federal Reserve Act.
The circumstances giving rise to this payment have heretofore been fully
reported by the Reserve hank to the Board of Governors and to the Treasury
Department.
MEMBER BANK RESERVES AND OTHER DEFICIENCIES
Member banks have been deficient in reserves for as much as 40
percent or more of the computation periods in a year.
The audits revealed that there were numerous instances in which
agents Avere permitted to carry stocks of unissued savings bonds in
excess of their designations or requirements. Member banks' collateral
security accounts frequently remained deficient for over the 10-day
period permissible under current Treasury regulations.
CJticuyo, 1952
Three hanks located in the head office zone were deficient in reserves in
reserves in 40 percent or more of the computation periods for the year 1951.
Chicttgo. W55
The bank examiners made the following statement with respect to stocks
of unissued savings bonds carried by issuing agents:
"A review of the issuing agent's accounts maintained at the head office revealed numerous instances in which agents were permitted to carry a stock
of unissued savings bonds in excess of their designations or normal requirements as measured by their sales."
Concerning the bond flscnl agency department, the examiners made this
comment:
"A review of the collateral securing the accounts disclosed two deficiencies
which are set forth in the schedule section of this report. As indicated therein
both deficiencies were corrected during the examination, although one was
permitted to continue slightly longer than the 10-day period permissible under
current Treasury Department regulations."
The Comptroller of the Currency and the Federal Reserve System
Are Not Audited
Now, the General Accounting Office has never audited the books of
a Federal Reserve bank, Federal Reserve oBard, or the Comptroller
of the Currency, Mr. Chairman.
The office of the Comptroller of the Currency has handled over $154
billion worth of Federal Reserve notes; it has received this much from
the Bureau of P r i n t i n g and E n g r a v i n g ; it has issued a major percentage of this to the Federal Reserve banks; it has received back a
large percentage of this for destruction ; and it holds seA-eral billion
dollars worth in custody, yet none of tuese operations is subject to any
a u d i t ; they are not even audited by the Treasury's own internal
auditors.
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Federal Reserve Bank of St. Louis
17 FBO-LINO
The Federal reserve system, as 1 have pointed out, has never had a
Government a u d i t . It lias never had any audit by independent auditors from outside the system itself. There are internal audits, made
by personnel of the system, and even these audits—takino- them for
what they are, internal audits—show on their face to be subject to
serious inadequacies and limitations. The audit teams are supposed
to be made up so t h a t the employees of one bank audit another bank,
but even this principle is rarely followed 100 percent. In practice
the employees of a particular bank are on the team to help audit their
own banks.
Boston. 7.0,72
The examiners borrowed from the auditing department of the Federal Reserve
Bank of Boston 14 employees to assist in this examination.
Boston, 19~>,~>
The examination of this hank was made with borrowed assistance from the
auditing department of the Federa.l Reserve Bank of Boston, a total of '13
employees and a total of !)7 man-days.
Cleveland, '1!>:>2
The examiners borrowed from the audit department of the Federal Reserve
Bank of Cleveland 21 employees, and from the auditing department of the Federal
Reserve Bank of New York, 18 employees to assist in this examination.
Cleveland, / .9,7,7
The examiners borrowed from the Federal Reserve Bank of New York 20
employees, and from the audit department of the Federal Reserve Bank of:
Cleveland 13 employees to assist in this examination.
Cler eland, ,/.9;75
( The examiners borrowed assistance from the Federal Reserve Bank of New
York's head office, 14 employees of which were nsed in the Cleveland head'
office, 6 employees in the Cincinnati Branch, ,8 employees in the Pittsburgh
Branch. In addition, the examiners borrowed from the audit department of the.
Federal Reserve Bank of Cleveland 11 employees for the examination at the
head office, 4 employees for the Cincinnati Branch examination, and 2 employees
for the examination of the Pittsburgh Branch.
Cleveland, WW
The Board examiners borrowed 24 employees of the Federal Reserve Bank
of New York for the examination of the Cleveland head office, the Cincinnati
Branch, and the Pittsburgh Branch. In addition, the examiners borrowed from
the audit department of the Federal Reserve Bank of Cleveland 12 auditors
to assist on the examination of the Cincinnati Branch, and .". auditors to assist
on the examination of the Pittsburgh Branch.
The examiners staled Mint "all Federal Reserve notes and other cns]\ on
hand were verified l>y us. our procedures including a dciaili'i! pii«c<> «-onnl of
quantities wo considered adequate for test purposes."
The examiners borrowed five employees of the A u d i t Depart mem of liie
Cincinnati P. ranch to assist in the examination of the C i n c i n n a t i I ' r a m - l i .
Three employees of the a u d i t department of the P i t t s b u r g h Branch were
used as assistants in the examination of the Pittsburgh P> ranch.
x an York, /a;.?
The report indicates that the examiners borrowed from the Federal Reserve
Bank of Boston, 24 employees; Cleveland. 2H employees; Philadelphia. l."> employees; and Richmond, 2.~> employees. Additionally, personnel was borrowed
from the a u d i t i n g department of the Federal Reserve Bank of New York. A total
of 14 employees were borrowed from the Xew York bank.
New York, /.0,7,7
Tn the examination of the Buffalo Branch of the New York bank, two employees were borrowed from Cleveland and two employees from the a u d i t i n g
department of the Buffalo Branch who were used to assist in the examination.
The report indicates the following borrowed assistance in the conduct of the
e x a m i n a t i o n of this bank and its Buffalo Branch: Borrowed from the Federal
Reserve Bank of Boston. 25 employees; Cleveland, 2.~> employees; Philadelphia,'
HO employees: Richmond. 2.~> employes: also used were 27 employee.? from Hie
auditing department of the Federal Reserve Bank of New York.
J'IiiJ<i(1cll>Iiitt. 7.O.7.?
The examiners borrowed from the a u d i t i n g department of the Federal Reserve
Bank of Philadelphia, 15 employees to assist in the examination.
FliilrnJ<'l})lii(t. 7 ,9.7.7
The examiners borrowed from I he audit division of the Federal Reserve Bank
of Philadelphia, 1!* employees; for a total of 100 man days to assist in the
conduct of this examination.
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Federal Reserve Bank of St. Louis
RicJimowJ, 1953
FBO-LINO
The examiners borrowed J! employees from the Federal Reserve I lank of New
York, and 14 employees from (lie auditing department of the Federal Reserve
Bank of Richmond to assist in this examination.
Richmond, 10,7 J
ir> employees of the auditing department of the Federal Reserve Bank of Richmond were used to assist in the examination of this hank and its branches.
liiclnnond, !!);>(>
In addition to assistance horrowed from the Federal Reserve Bank of Xew
York for this e x a m i n a t y m , the examiners used 15 employees of the auditing
division of the Federal Reserve Bank of Richmond for the examination of the
head otlice.
These internal audits of the Federal Reserve banks have many limitations with respect to verification of currency, checks, gold,-and
securities. Frequently the banks' audits do not conform to the recommended procedures of the Conference of Auditors and the audit committees of the boards of directors of the banks themselves. The audit
committees override the recommended procedures of thy Conference of
Auditors. Sometimes audit committees of the board of directors fail
to meet even once a year. Examples:
Atlanta, li>,~>5: Collateral and custodies
The verification of collateral and custodies is subject to the following
qualifications:
(1) The general auditor's certification was accepted covering $l.~,r>10,000 in
unfit silver certificates held under audit control ;
(2) Nonnegotiable notes held at the head ollice for the Commodity Credit
Corp. and carried at their face value of .$171,20o,947.(51 were not counted or
confirmed;
(:•>) United States savings bonds held for individuals (these bonds are nonnegotiable and nonmarketable obligations) were not counted or continued.
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Federal Reserve Bank of St. Louis
FOLLOWS LINO
•Chicago, 1952, auditing deportment
By the authorization of the audit committee of the board of directors it COIN
tinues to be the practice to make 2 rather than the recommended 3 audits of the
check department at the head office.
Chicago, 1953, andUing department
By the authorization of the audit committee of the board of directors, the
practice of making 2 rather than the recommended 3 audits of the check department at the head office was continued in 1952.
Chicago, 1955., auditing department
The examiners make the following statement:
"There is a regularly constituted audit review committee of the board of directors
which in the past has met annually; however, a meeting of the committee has not
been held since January 1954."
Cleveland, 1953
In accordance with the practice authorized by the audit review committee of
the board of directors, the audit department's analysis of reports of net deposits
•submitted by member banks in connection with reserve requirements, embraced
only 1 reporting period for each member bank in 1952, instead of 4 as recommended by the conference of auditors. In the current year t h e n u m b e r of these
analyses had been increased to two, which will conform with the revised frequency
•established by the conference in 1953.
Cleveland, 1955
. The examiners make this statement:
"Effective January 1, 1955, the audit review committee of the board of directors authorized, the general auditor to discontinue the direct verification of
pledged securities with the pledgees, except securities being held subject to thu
order of Federal agencies."
Dallas, 195B, auditing department
The completed 1951 audit program for the head office and branches substantially conformed to the minimum frequencies recommended by the conference of
auditors. However, agents' cash at the branches continued to be audited only
3 times a year instead of the m i n i m u m of 4 audits annually. This variation
arises from the fact that the branch auditors also act as the Federal Reserve
agents' representatives which precludes their making a verification of such
holdings as a branch audit function. Consideration is being given to designating
employees other than the branch auditors to act as the Federal Reserve, agents'
representative at the respective branches. When the proposed change is accomplished, the branch auditors will be able to verify such holdings as part of their
audit program and the present deviation will be corrected.
Minneapolis, 1952
With the authorization of the audit committee of the board of directors, it
continues to be the practice to reconcile reserve, clearing, and deferred credit
accounts to member and nonmember clearing banks 3 times annually rather
than 11 times as recommended by the conference of auditors.
Minneapolis, 1953
In accordance with the practice adopted several years ago, reserve clearing and
deferred credit accounts of member and noninember clearing banks arc reconciled
3 rather than 1 1 times annually as recommended by the conference of auditors.
This variation from conference frequently has been authorized by the auditing
committee of the directors.
Minneapolis} 1955
In accordance with a practice followed for many years and with the sanction of
the audit committee of the board of directors, reserve, clearing, and deferred
credit accounts of member and nonmember clearing banks are reconciled 3 times
per annum rather than 11 times annually as recommended by the conference of
auditors.
Minneapolis, 1956
The examiners make the. following comment:
"With the approval of the audit committee of the board of directors, this
department observes a minimum frequency of 3 reconcilements annually on
reserve, clearing, and deferred credit accounts of member and nonmember clearing
banks, instead of the m i n i m u m of 1 such verification a year as recommended
by the conference of auditors. During 1955, these accounts were reconciled
4 times at the head office and 3 times at tin- Helena branch/'
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Federal Reserve Bank of St. Louis
r
f\
cw York, 19')(>
ACCOUNTS O F M L C M H K U A N D N O N M IC.MHKU H A N K S A N D OTIIKHS
Checks and drafts held over in the check and Government check" departments
ainounted to $52,284,209.<H> and
consisted of approximately 319,000 items; of
these 7,181 items t o t a l i n g $l,h' ( ,Mi,051.52 were verified by us. Tin- examiners did
not undertake a verification of the remainder because to have done so would have
unduly disrupted the work of the check department and delayed the preparation
of the items,
C O L L A T E R A L A N D CUSTODIES
( i O L U B U L L I O N A N D COIN
The examiners accepted from the general auditor, under whose direction an
independent fiscal control is m a i n t a i n e d , his certification covering the total
holdings of gold bullion and coin. The total held $5,87.1,724,940.02, or 84.57 percent, was independently verified by the examiners either at prior examinations or during the current examination.
They have bank examiners located on field stall's who also serve as
fiscal reserve agents and as alternate assistant Federal Reserve agents.
This situation seems most inadvisable.
Minneapolis, 1956
The examiners indicate that included in the field staff is a senior examiner,
who is also assistant fiscal reserve agent, and 6 examiners, 1 of .which is also an
alternate assistant Federal Reserve agent.
VERIFICATION A N D DESTRUCTION OF CURRENCY
Now, if there ever was a disgrace, it is Congress' permitting people
to have complete control of United States cunvncy who do not consider themselves obligated to the Government, at least—not even a
Government employee. Some of these employees of Federal Reserve
banks are, but they are not willing to admit it, and they do not
concede it.They claim they are not.
They have charge of destroying the worn and mutilated currency.
And, of all the irregularities and seemingly dishonest dealings in connection with it, you will find plenty of eye openers in these reports that
even their own auditors made about the irregularities in handling the
tremendous amount of money that is destroyed 'every year, and the
loose fashion in which it is handled.
Up at Pittsburgh, a cyclone or a heavy wind hit the city while currency was being destroyed in the municipal incinerator and scattered
money all over Pittsburgh, Pa. The only reason we found out about
it through the newspapers and they had to redeem a lot of that currency because it wasn't burned and under certain conditions it is
redeemable.
There are other cases just as bad as that throughout the United
States.
In July of 1953, the Federal Reserve banks took over the destruction of unfit United States currency which had previously been
handled by the Treasury Department. The principal reason given
for the changeover was to save the expense of transporting the
currency back to Washington for destruction—the only possible
savings since the Treasury reimburses the banks for the actual costs
of destruction. However, one expense not considered was the costs
to the Federal Reserve banks and branches for the installation of
incinerators and1 other equipment for destruction. These costs the
Federal Reserve banks have charged oft' to current expenses, thereby
reducing their revenues and amount of money paid into the Treasury
by the Federal Reserve. And the savings to the Government, if
there have been any, have been at the sacrifice of less security over
United States currency.
The banks have destroyed around $8 billion of currency since
1953—and this without Government audit.
The banks have employed inadequate controls over the destruction
of United States currency. Although their own auditors recommended methods of improving procedures, the same weaknesses
continued throughout the System year after year.
The following are examples of la, k of security in the destruction
of currency by the Federal Reserve banks.
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Federal Reserve Bank of St. Louis
MONO. SECTION
Even when there are provisions made for dual control of currency,
they do not maintain it continuously.
Currency verifiers do not execute a receipt to the destructors for
canceled currency turned over to them.
Appropriate records of test errors inserted in currency were not
maintained.
Incinerators were not cleaned before and after destruction of
canceled currency.
Cleveland (Cincinnati Branch), 1954
' * * * it was observed that dual control of the canceled currencj' was not coiv
tinuously maintained as prescribed by the rules of the Reserve bank. Specifically,
1 lot of canceled currency was delivered to the currency verification unit by 1
employee of the cash department instead of 2, and only 1 representative of the
currency verification unit inventoried and receipted for the lot of currency at the
time of its acceptance from the cash department.
Cleveland (Cincinnati Branch), 1955
On the basis of the audit, review of the operations, it was suggested that existing
procedures be supplemented in the following respects: (1) That dual control be
maintained over canceled currency from the time of cancellation to the time of
delivery to the currency verification and destruction unit, (2) that the verifiers execute a receipt to the destructors for the canceled currency turned over to them for
verification, (o) that the unit maintained an appropriate record of test errors
inserted in currency to be verified, (4) that the incinerator be cleaned and inspected
before and after the destruction of canceled currency so that the ashes' from the
currency will not be mingled with the residue from other matter burned in the
incinerator.
Cleveland (Cincinnati Branch), 1955
The following weaknesses were present:
• (1) Because the currency verifiers have custody of all the canceled currency
in the unit and make, their own selection of $1 bills to be piece counted, the program
of inserting test errors in selected bundles cannot be accomplished for notes of this
denomination, and
(2) The canceled currency is destroyed by the same employees who act as
.verifiers and this does not seem to conform to the intent of paragraph 10 of the
Treasury Department regulation which provides that the lot shall be destroyed by
2 employees of the currency verification unit who shall be charged jointly with
the responsibility of receiving the currency for destruction and destroying of it.
Banks hold unverified currency aggregating millions of dollars for
several months.
They permit individuals to serve in dual capacity of verifiers and
currency destruction clerks.
:
They maintain inadequate controls during and after incineration.
Examination of the ashpits after all currency had been placed in
an incinerator revealed that 2 packages of $100 bills each had fallen
through the grate. Moreover, the doors to the ashpit could be pulled
back far enough to remove ashes or any unburned currency without
tampering with the lock.
Dallas, 1956
At the time of the examination, unverified currency holdings in the head office
aggregated over $9 million and represented an accumulation dating back to
August 1956. This backlog had existed for several months. A more prompt
verification ^vas necessary in order to avoid undue delay in advising depositors
of any differences found. The currency verification unit, at the time of examination, had on liand 4 lots of canceled currency totaling $474,000. The unit had
partially verified one of these lots but had not commenced verification of the
others. The following observations with particular reference to the security
features of the procedures of the currency verification unit were made by the
examiner:
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Federal Reserve Bank of St. Louis
(1) The currency destruction clerk, who jointly- with the toller supervised the
incineration of the. verified canceled currency, also works full tinVe as a verifiei
On occasion he serves as a relief for the teller and therefore has access to the
records of test errors. We believe that the security of this operation is weakened
by having one individual serving in the dual capacity of verifier and currency
destruction clerk.
(2) It was observed that there, was some relaxation in the maintenance of dual
control during the transfer of the verified canceled currency from the vault to tho
containers used in transferring it to the incinerator.
(3) An examination of the ashpit after all currency had been placed in the
incinerator revealed that two packages of $100 bills each had fallen through tho
grate. Moreover, it was noted that even though the doors to the ashpit were
secured by chains with locks, the doors could be pulled back far enough to remove
the ashes or any unburned currency without tampering with the locks.
Banks permit canceled currency to be destroyed by the same em-.
ployees who act as verifiers, contrary to Treasury regulations.
They do' not verify bundles not included in percentage counts nor
do they make any determination that the standard of fitness of tho
currency conforms to Treasury regulations.
Cleveland (Pittsburgh Branch), 1P55
* * * the canceled currency is destroyed by the same employees who act as
verifiers. This does not seem to conform to the intended paragraph 10 of the
Treasury Department regulation which, provides .that the lot shall be destroyed
by two employees in the currency verification unit who shrtll be charged jointly
with the responsibility of receiving the currency for destruction and destroying It.
Cleveland (Pittsburgh Branch), 1956
* * * with particular reference to security features and it was noted that in
the handling of $1 bills the unit does not employ the practice of "fanning" the
bundles of currency not included in the percentage count. Hence there is no
verification of the contents of the bundles or determination of the standard of
fitness of the currency conforms to that prescribed by the Treasury Department.
San Francisco, 1956 •
With respect to certain procedures in 'the currency verification unit, the following comments were made by the examiner: .
(1) It was noted that in the handling of $1 bills, the unit doe$. not employ the
practice of "fanning" the bundles of currency not included in the percentage count.
Hence there is no verification of the contents of the bundles or determination
that the standard cf fitness of the currency conforms to that prescribed by the
Treasury Department.
(2) The practice with regard to the insertions of test errors in straps of currency
to be verified does not provide for maximum effectiveness in that test errors are
directed only to the number of bills .and do not include the mixing of denominatious or..jssues.
Banks v^ere not conforming to Treasury Department regulation
requiring that errors to be inserted in packages of unfit currency.
Minneapolis (Kansas City Branch), 1954
Although it was provided for in the procedures ,«et up, in practice, the bank
.is not conforming to Treasury Department regulation requiring that each Federal
Reserve bank, from time to time, arrange for test errors to be inserted in the
packages of unfit currency to be verified by employees in the currency redemption
unit, in order to maintain the integrity of the verification operations and to
insure that employees are actually performing the work for which they are
responsible.
Minneapolis, 1955
In the currency redemption unit it was the practice for two particular vault
custodians to act as the regular currency verifiers with others filling in only when
the regular verifiers were absent on vacation or otherwise. The lack of planned
rotation of the verifiers was called to the attention of the management. On the
basis of review of the operation of the currency redemption unit the examiner
suggested that existing procedures be supplemented in the following respects:
1. That dual control of the currency be maintained during all phases of the
verification process.
2. That a sight examination by "fanning" be made of the $1 silver certificates
not verified by piece count.
For 2 successive years because, a bank's records of cash holdings
had not been posted for several months, sectional verification according
to denomination or vault location could not be made bv the examiners.
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Federal Reserve Bank of St. Louis
Si. Louis, 195;")
(.'ASH
H O l . D l M i S AM)
ACCOUNTS
The examination of coin holdings reveal that the subsidiary record controls
pertaining to such holdings liad not been ported since mid-l'.')55 and therefore
sectional verifications according to denoininatioa or vault location could not bo
made. These records were also nncurrent at the t i m e of the 11)5-1 examination
and this condition was brought to the attention of the Reserve bank at that time.
Minneapolis, 195/,
The following weaknesses were present in the operation of the currency verih'ca-.
tion unit:
1. There is no custodial control of the currency independent of that maintained
by the verifiers;
2. There is no planned rotation of verifiers;
:i. Because of the circumstances mentioned in paragraphs (1) and (2), there are
not adequate safeguards against the possibility of collusion between employees
of the currency and coin department and employees of the currency verification
unit;
4. Because the currency verifiers have custody of.all the canceled currency in
the unit and make their own selection of $1 bills to be piece counted, the program
of inserting test errors in selected bundles cannot be accomplished for notes of this
denomination; and
5. The practice of having test errors inserted in strap of denominations other
than $1 by the currency and coin department seems inappropriate when if is
considered that one of the principal functions of the currency verification unit is
to verify the work of the former department.'
The verification of unfit, canceled currency was being performed
in a utility cage in the cash department, contrary to Treasury Department regulations.
Banks failed to mix denominations or issues in, test errors.
Banks have cash holdings on hand of many millions of dollars of
unverified currency representing accumulations of unworked deposits
dating back several weeks.
Because of inexperienced machine operators and vacations, work
of transit department had not been current for 2 months. Because
millions of dollars in checks and drafts held over, examiners could
not make satisfactory examination.
.San Francisco (Seattle Branch), 1958
(1) The verification of the, unfit, canceled currency was being performed in a
utility cage in the cash department whereas the Treasury Department regulations
provide as follows:
...
,
"The verification and destruction of unfit United States paper currency at each
Federal Reserve bank and branch shall be a fiscal agency operation and shall be
performed in a currency verification unit which shall bo separate and apart from
each cash operations of such Federal Reserve banks and branches."
(2) The practice with regard to the insertion of test errors in straps of currency
to be verified does not provide for maximum effect!veness in that such test errors
are directed only to the number of bills and do not include the mixing of denominations or issues.
'"
San Francisco (Los Angeles Branch), 1955
CASH HOMHNGS
Cash holdings included $11,700,000 in unverified $1 bills representing an
accumulation of uuworked deposits of currency of this denomination dating back
6 weeks.
San Francisco (Portland Branch), 1955
Because of an unusually high percentage of inexperienced machine operators
on the staff, and vacation absences, the work of the transit department had not
been maintained on a current basis for about 2 months, ('hecks and drafts held
over at the time of examination amounted to over $12,000,000, and consisted
of 80,700 items. In view of this large number of items the examiner could not
make, a satisfactory verification.
The Boston bank maintained, inadequate safeguards against the
possibility of collusion between employees of currency verification
division and currency and coin department and employees of currency
verification division, and lacked dual control of currency.
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Federal Reserve Bank of St. Louis
U
. SECTION
JiiMlun, 1955
The. examiners have the following comments with respect to the activities of
this division:
"From our review of the operations, it appeared to us that the following weaknesses were present: (1) Dual control is not being maintained from the time of
cancellation to the time of delivery in the currency and coin department to the
currency verification division. (2) The practice of having only one individual
inventory the currency at. the time of its acceptances by the division precludes
the maintenance of dual control. (3) After completion of the verification process,
the currency comprising a particular lot is inventoried by two persons, one counts
the currency by straps and bundles, and the other makes a bundle count only.
Because of the limited count made by one of the, parties-to this final inventory before, incineration, the effectiveness of the dual check is considerably reduced.
(4) Because the. supervisor and assistant supervisor of the verification division
make the selection of the notes to be piece counted and also act as currency verifiers, the program of inserting test errors in straps of $1 notes to be verified cannot
be accomplished. (5) There is no rotation of employees. (6) Because of the
Circumstances mentioned in paragraph 4 and 5 there are no adequate safeguards
against the possibility of collusion between employees of the currency and coin
department and the employees of the currency verification division. (7) The
practice of having test errors inserted in straps of denominations other than $1 by
the currency and coin department seems inappropriate when it is considered that
one of the principal functions of the verification division is to verify the work of
the former department."
Backlogs of many millions of unassorted currency accumulate at
banks.
They insert test errors in straps of currency within view of
verifiers.
They do not examine ashes remaining from currency destruction
in accordance with Treasury Department regulations.
Chicago, 1953
A backlog of approximately 22,800,000 pieces of unassorted currency, of which
19,800,000 pieces were in denominations of $1 and $2, had accumulated .since,
December 31, 1952, and were on hand at date of examination.
Chicago, 1955
Although the procedures in effect appeared to be in conformity with Treasury
Department regulations, under present practices test errors are inserted in straps
of $1 certificates within view of the verifiers. It was recommended t h a t provisions be made to prevent verifiers from having prior knowledge of the preparation
of the test pa'ckages.
St. Louis, 1954
The examiners indicated the following weaknesses in the operations of the
currency verification section:
(1) Dual control is not being maintained from the time of cancellation to the
time of delivery by the money department to the verification ,-eotion.
(2) During the verification process there are times when only one individual
is present in the verification section.
(3) Because the supervisor and the currency verification clerk who made the
selection of bills to be piece counted, also act as currency verifiers, t h e program
of inserting test errors in bundles to b<; verified cannot be accomplished insofar
as these individuals are concerned.
(4) There is no planned rotation of custodians or verifiers.
(5) Because of the circumstances mentioned in paragraphs 3 and 4, there are
no adequate safeguards against the possibility of collusion between employees of
the money department and employees of the currency verification section.
(0) Ashes are not being examined in accordance with the Treasury Department regulation.
Because of (lie physical layout of the incinerator room, they could
not maintain absolute dual control during the destruction process of
unfit currency.
They leave extraneous matter in fire box during the currency burning process.
They need to make more careful examinations of residual ashes for
recognizable pieces of currency.
They assign cash department employees to currency verification
units.
They have such loose protective arrangements that unauthorized
personnel can gaiii access to contents of the incinerator during the
burning, process.
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Federal Reserve Bank of St. Louis
•7 XQ
MONO. SECTION
Dallas, 1955
After review of the operations of the currency verification unit it was suggested
"that existing procedures be supplemented in the following respects:
1. That dual control be maintained;
(a) From the time of cancellation to the time of delivery by the cash depart-;
luent to the currency verification unit;
(b) During all phases of the verification process;
(f) During the destruction process. (The present absence of an absolute dual
control at this stage is caused by the physical layout of the incinerator room and
it is impracticable to correct it until other facilities are available.)
2. That extraneous matter be kept out of the firebox during the currency buvning process.
3. That a more careful examination of the residual ashes be made to insure that
no recognisable pieces of currency remain.
4. That adequate records be maintained to show that "the work of each olnployee engaged in sorting, counting, and strapping such currency .in the cash
division [isj subjected to verification regularly" (Paragraph l> (a) of Treasury
Department regulations).
5. .That the practice of occasionally assigning an employee of the cash department (currency sorter) to the currency verification unit as a verifier be dis,continued.
It was also observed that certain mechanical defects exist in the protective
arrangement used to prevent unauthorised personnel from gaining access to the
contents of the incinerator during the burning process.
They loft opon the grille door to main vault throughout the day,
contrary to the bank's rule and in disregard of ordinary security
precautions.
In the check collection department they keep no record control
of checks requiring investigative action.
They permit verifiers to make their own selection of currency to bo
piece counted.
They have no planned rotation of verifiers.
VAULT
Minneapolis (Helena branch), 1954
It was observed that the grille door to the main vault was left opon throughout
the day, contrary to the bank's rule and in disregard of ordinary security precautions.
PAYROLL
In the preparation of the payroll disbursements, the personnel clerk did not
verify the funds received from the paying teller, -nor did the paying teller verify
the excess balance returned to him. In order that responsibility for any differences might be fixed, it was recommended that each party immediately make a
verification of the moneys received in his custody.
CHECK COLLECTION DEPARTMENT
Minneapolis, 1956
^
It was noted that the check collection department followed the practice of
holding, without entry, certain checks, few in number and nominal in amount,
which require investigative action in order to determine their proper disposition.
It was recommended that a record control be established for these checks and
greater effort be made to expedite these items.
Minneapolis (Kansas din K ranch), 1954
...
The examiners noted th r -Mowing weakness
with
respect
to the operations of the
l
currency redemption u n i ?
(1) There is no custodial control of the currency independent of that being
maintained by the verifiers.
(2) Although the bank's procedures contemplate that the chief of the unit make
an independent selection, of the currency to be piece counted, in practice, the
verifiers make their own selection.
(3) There is no planned rotation of the verifiers.
A backlog of over 4 million pieces of unassorted currency was
permitted to accumulate over a period of 3 months.
At banks it was the practice for only one person to inventory
canceled currency as it was received into the division and one person
made a count by strap and bundle, and another person, by bundle only.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Richmond, 1953
At (ho Baltimore Brunch, approximately 4,120,000 pieces of unassorted currency
in denominations of $1, $2, and $5, representing an accumulation dating from
December 4, 1952, were on hand at the examination date., The management
advised that appropriate measures would be taken to reduce this backlog 'and
place the currency assorting operation on a current basis.
%
Richmond, 1955
* * * in the interest of greater protection: (1) That procedures be extended to
insure the maintenance and effective dual control during the entire period that the
canceled currency is in the custody of the division. It was the practice for only
one person to inventory the canceled currency as it was received into the division,
and that in making the final inventory for incineration, 1 of 2 persons made a
count by strap and bundle and the other by bundle only. (2) That test errors be
inserted at least monthly in packages of unfit currency to be verified by employees
in the currency verification and destruction division.
They use an incinerator with mechanical imperfections. Whole
notes were found after the burning process—in the elevator, on the
chain feed, and in the upper portion of the firebox. Any notes not
thoroughly incinerated are disposed of by burning in a trash receptacle.
New
York, 195(1
•„
A new incinerator, specifically designed for burning currency, was placed in
operation on August 19, 1954, but because of mechanical imperfections that
developed it was not used on a full-time basis until February ', 195(i. It was
observed during the course of our examination that the mechanical defects have
not yet been entirely eliminated; whole notes were found after the burning
process—in the elevator, on the chain feed, and in the upper portion of the firebox.
Because of these defects, an inspection is made after each incineration and any
notes not thoroughly incinerated are disposed of by burning in a trash receptacle
provided for the purpose.
They left combination locks on a chest in the bank vault unturned.
They do not maintain dual control over canceled currency in the
currency verification and destruction unit.
They do not inspect bundles and packages of currency to insure
that all currency has been canceled.
In using municipal incinerators for the burning of unfit United
'States currency, the banks have, allowed money to escape destruction
and have had to redeem partially destroyed currency.
Banks hold such exceedingly large q u a n t i t i e s of u n f i t paper currency on hand that the auditors at times can make at best only
percentage audits and in some cases no counts a t all.
Their witnesses to the destruction of canceled currency do not
maintain dual control while currency is being placed in incinerator.
Philadelphia, 19/Jo
During our review of the operations, it'was observed (hat wiines>es to the
destruction of the canceled currency had not fully exercised their responsibility
of maintaining dual control while the currency was being placed in the incinerator.
Atlanta, 1954
Up to January 15, 1954, the*canceled notes had been destroyed by incinerator
at the city of Atlanta's incinerator after having been cut into upper and lower
halves. Use of the municipal incinerator was discontinued on that date following
the discovery that two half notes had passed through the incinerator without
being destroyed. •:
* * * The following excerpt is quoted from General Auditor Adams' report
to the audit committee of the board of directors:
"Unfit United States paper currency (new series) amounting to $10,240,000
was found to be in agreement with the memorandum control maintained in the
accounting department. Due to the exceedingly large volume, of currency on
hand, a percentage count was made of $5 and 310 denominations (10 and 20
ercent, respectively) and a close inspection was made of $1 and $2 denominations.
11 addition to the punched currency, the. unit was holding 40 heavy corrugated
boxes containing half notes (uppers), with a total dollar value of $3,079,000, the
lowers having been destroyed by incineration, and 208 such boxes containing
half notes (uppers and lowers), w i t h a total dollar value of $0,450,000.• This
currency was not counted but each of the; boxes was opened and inspected. At
the conclusion of the audit this currency including the half notes in boxes was
placed under seal of the auditing department and it will remain under audit
control until released for destruction/'
E
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Federal Reserve Bank of St. Louis
MONO. SECTION
Atlanta, 1955
AUDITING DEPARTMENT
Ou October 19, 1954, a, special audit was made of all collateral and custodies
held by the Nashville branch. The General Auditor determined upon this audi^
when it was reported to him that the acting vault custodian at the branch discovered that the combination locks on a chest in the vault hud been left unturned.
No exceptions or irregularities were disclosed by.the audit and it is presuiued
that the vault custodians had inadvertently failed to throw the combinations.
CURRENCY VERIFICATION AND DESTRUCTION UNIT OF THE SERVICE DEPARTMENT
On the basis of review of the operations, it was suggested that existing procedures be supplemented in the following respects:
(1) That dual control be maintained over canceled currency from the time
of cancellation until the delivery thereof by the currency and coin department
to the currency verification and destruction unit;
(2) That at the time of delivery of currency to the unit each bundle and package
be inspected to insure that all currency has been canceled, such inspection to
be performed by one employee of the cash division not charged with the can-^
cellation.function at the time of delivery to the currency verification unit and
before that unit executes the receipt to the cash division.
(3) That the unit maintain such records of the currency verified but it will
Show that "the work of each employee engaged in sorting, counting, and stripping
such currency in the cash division is subjected to verification regularly."
Atlanta, 1956
* * * of the operations disclosed that personnel replacements during the
vacations of the regularly assigned currency verifiers are drawn from the staff of
currency assorters of the currency and coin department. In our opinion, this
practice is incompatible with Treasury Department regulations which provide
that the verification and destruction of paper currency be performed in a unit
"which. £hall be separate and apart from other cash operations" of the Reserve
bank.
Atlanta (Jacksonville branch), 1954
This unit received currency in canceled (by perforation) whole note form from
the currency and coin department daily. Such currency was independently verified
within the unit, cut into upper and lower halves and then destroyed by incineration
at the South Jacksonville municipal incinerator. However, on November 27,
1953, the upper half of a $5 silver certificate canceled, but only partially burned,
was presented at the branch for redemption. The following day an inspection by
representatives of the branch was made of the premises surrounding the incinerator
but no additional currency was found. To avoid a recurrence of this nature, the
use of• the municipal incinerator was discontinued and, effective December 8,
1953, the operations of this unit were terminated.
HANDLING OF UNITED STATES TREASURY ACCOUNTS
Let us come now to the fiscal agent's department. The fiscal agent
in each Federal Reserve bank, and in the branch banks, have charge
of the accounts of the United States Treasury. The fiscal agent
receives and has custody ,of Treasury securities which have not been
issued; and he is responsible for canceled or redeemed securities which
are to be returned to the Treasury. Furthermore, he has the allimportant responsibility for the Treasury tax and loan accounts with
the private banks. He has to see that the funds which the Treasury
has on deposit with the private banks—and these funds usually amount
to between $2 billion and $6 billion—are in order, and that the private
banks have on deposit sufficient securities to cover these tax and loan
accounts. Here then are a few of the things that the Federal Reserve
auditors themselves have commented on about the way the fiscal
agents' departments are being handled.
Boston, 1952
Under the fiscal agency department schedule of unadjusted differences in the
accounts of issuing agents, it is indicated that an agent has a shortage of $2,075
in his balance. The footnote indicates that this represents unissued bonds
reported by the agent as stolen.
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Federal Reserve Bank of St. Louis
Boston, 1953
One unadjusted difference in the account of an issuing agent is .-hown in the
schedule section of this report. The inaiiiigeinenL i*> aware of this difference and
is endeavoring to effect adjustment.
We were unable to make our review of issuing agent's accounts inasmuch as
individual ledger sheets for each agent are not maintained; the Keserve bank's
records consist only of punched cards used in connection with tabulating equipment.
Richmond, 1955
The examiners make this statement:
"Our verification of the securities on hand at the head office disclosed that
securities retired upon denominational transactions were not being canceled until
prepared for shipment to the Treasury Department. Procedures were changed
during the examination to provide for cancellation of these securities at the timethe transactions are completed."
Cleveland, 1955
The examiners make this statement:
"We were unable to authenticate the signatures on many of the reconcilements
returned to us from issuing agents because the Reserve bank does not maintain
a complete signature file on such accounts."
Chicago, 1952
Balances due from 1,811 Treasury tax and loan depositaries, of which 1,680
were located in the head office /one, aggregated $807,743,080. 97. A review of
the collateral securing the accounts disclosed 9 deficiencies, 8 at the head office
.and 1 at the Detroit branch. * * * an uninsured bank which had been permitted,
through oversight, to carry an unsecured balance ranging from $535.40 to
$1,059.70 from March 4 to April 4, 1952, when sufficient collateral was obtained
to secure this account.
Chicago, 1954
The auditors' reconcilement of the Treasury tax and loan accounts indicated
that numerous issuing agents are crediting the proceeds of sale of savings bonds
directly to these account 3. This practice is contrary to the applicable provisions
of the Treasury Department Circular No. 657 that "each banking institution
qualified as an issuing agent will * * * open and maintain * * * a separate
deposit account * * * to be known as the series E bond account. It was
also observed that a number of depositaries for Federal taxes are not complying
with the instruction in Treasury Department Circular Xo. 848 that "depositaries
shall forward daily * * .* the depositary receipt * * * together w i t h payment * * * covering the aggregate amount of all Federal tax deposits received
during that day." A list of these issuing agents and depositaries was furnished
the Reserve bank management.
Chicago, Detroit Branch, 1954
Balances due from 258 Treasury tax and loan depositaries aggregate
$104,701,728.05, and this total was confirmed with the Treasury Department.
The balances were reconciled with all depositaries except the * * *, Mich., from
which we have been unable to obtain a balanced reconcilement. Recent, news
releases state that the cashier of this bank has been charged w i t h embezzlement
of bank funds and that the irregularities involve the Treasury tax and loan account.
Atlanta (New Orleans Branch), 1954
Deficiencies in collateral, held to secure .Trennnrif In.r and loan ticcmmls
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Atlanta, 19o4
This difference was dHclo-'-il when the a « e > H . in responding to our request for
verification of his holdings, reporter] ;i bond as being either lost or stolen. The
Reserve bank is endeavoritm t o o b t a i n additional i n f o r m a t i o n from the agent.
The h a n d l i n g of the Treasury t a x and loan accounts at that branch gave evidence of lack of proper attention.
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Federal Reserve Bank of St. Louis
11 XQ
MONO. SECTION
Atlanta (Nashville Branch), 1954
Accepted the general auditor's certification as to the amount of such notes In
IJeu of an independent verification.
Atlanta (New Orleans Branch), 1954
* * * A review of the collateral securing the accounts disclosed one deficiency which is set forth in the schedule section of this report. This deficiency
came about when the depository bank made a substitution of the securities pledged
as collateral and held in custody of its correspondent bank. It was determined
that the substituted securities were ineligible as collateral, but because of the
failure of the branch to operate properly to follow up to secure their replacement by
acceptable collateral, the Treasury tax and loan balance of $349,055.32 remained
unsecured (except to the extent of $10,000 deposit insurance) from February 4.
to 23, 1954, or until after the inquiry was made in the course of our examination.
An adjusted difference of $1,000 in the account of an issuing agent is shown ili
this report.
Dallas (San Antonio Branch), 1954
... .
The accountability of the branch to the Treasury Department, for unissued
Government securities was carried on the records of the fiscal agency department
in the amount of $352,245,450 and on the control and general ledger at'$302,295,450.
The difference in the records was caused by an error made on April 5, 1954, by
which a $50 million transaction was reported as $50,000. The branch management has instituted procedures to prevent errors of this nature from concinuing
undetected over an extended period.
Banks permit collateral securing Treasury tax and loan accounts to
remain deficient for a period of 10 days in accordance with the time
limit prescribed by Treasury regulations. However, the examiners'
review disclosed numerous instances where these deficiencies existed
for periods in excess of the 10 days permissible under Treasury regulations. Examples:
Dallas (El Paso Branch), 1953
A deficiency in collateral securing the accounts in the fiscal agency department
in the El Paso branch was not corrected until 17 days after the conclusion of the
examination.
Minneapolis, 1956
FISCAL AGENCY DEPARTMENT DEFICIENCIES IN COLLATERAL HELD TO SECURE
TREASURY TAX AND LOAN ACCOUNTS
The examiners indicate that the * * * Bank had a deficiency in collateral in
the amount of $9,443.24 originating on February 29, 1956. This is a period of 12
days.
%
Richmond (Baltimore Branch), 1955
FISCAL AGENCY DEPARTMENT
The examiners make the following comment:
v
"A review of the collateral securing the accounts, disclosed two deficiencies.
In view of the length of time—17 and 28 days, respectively—these deficiencies
were permitted to remain unadjusted, it was recommended to the management
that closer supervision be given to the review of collateral securing the Treasury
tax and loan accounts.
Richmond, 1955
With respect to the Treasury tax and loan depositary district, the examiners
make thin statement:
"A review of the collateral securing the accounts disclosed six deficiencies, the
details of which are shown in the schedule section of this report. As indicated
therein, all were corrected during the examination, although 1 deficiency at the
head office, 2 at the Baltimore office, and 1 at the Charlotte Branch remained
unadjusted for periods in excess of the 10 days permissible under current Treasury
Department regulations/'
San Francisco, 1952
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Federal Reserve Bank of St. Louis
MONO. SECTION
FISCAL AGENCY DEPARTMENT
The schedule indicates that the * * * had deficiencies'in collateral held to
secure Treasury tax and loan accounts from April 15, 1952, to May 22,1952 (37
days).
A deficiency in collateral securing accounts in the Baltimore branch
zone for each of 2 years was "inadvertently" permitted to continue
14 days. Examples:
Richmond (Baltimore Branch), 1953
In commenting upon the collateral with respect to the Treasury tax and loan
depositaries, the examiners make this comment:
'.'A review of the collateral securing the accounts disclosed 2 deficiencies, 1
each at the head office and the Baltimore branch. These temporary deficiencies
are shown in the schedule section of this report. As indicated therein, the
deficiency in the head office zone was corrected within the 10-day period permissible under current Treasury Department regulation, but the one in the
Baltimore Branch zone was inadvertently permitted to continue for 14 days
before correction was effected."
Richmond (Baltimore Branch}, 1954
The deficiencies in collateral securing the accounts were the same conditions
as in 1(J53, with one in the Baltimore branch zone inadvertently permitted to
continue 14 days before correction was effected.
It was discovered in a test review that securities held for the account
of a member bank were released on the authorization of one official
signature, although member, banks have instructed that the release be
made only on authorizations signed by two officers. •
An over-the-counter delivery of $2 million in United States Treasury
bands was made to an officer of a local member bank against his
authorized signature. Normal written request for the release of these
securities was not obtained as-required by the procedures of the Reserve bank.,
Cleveland (Pittsburgh branch), 1955
RELEASE OP SECURITIES FROM CUSTODY
In a test review of the authorizations on which the branch acted in making
releases from c.Utetody, it was noted that on one occasion the securities held for
the account of"a member bank were released on the authorization of one official
signature 'although the member bank had instructed that the release be made
only on authorizations signed by two of its officers. On another occasion, "un
over-the-counter delivery of $2 million in United States Treasury bonds was
made to an officer of a local member bank against his authorized signature.
Formal written request for the release of these securities was not obtained as
required by the procedures of the Reserve bank.
For several years a Federal Reserve branch held in their vaults
member banks-securities other than United States Government obligations, even though the examiners in three ^successive reports con:
sidered that the facilities were already taxed beyond their limits.
Examples:
Pallas (San Antonio), 1952
As mentioned in our last two reports of examination, the management was
requested to review the circumstances under which securities other than United
States Government obligations were being held by the San Antonio Branch for
four local member banks, particularly since the vault facilities for the bank were
taxed beyond proper limits. Since last examination, two of the member banks
have withdrawn their securities and the other two have assured the Reserve
bank management of their intention to withdraw their holdings in the near
future, when additional vault facilities now under construction in their respective
institutions become available.
They make errors in overstating and understating accountability
for unissued United States securities on consignment with issuing
agents. They make errors in reporting tax and loan collateral accounts
held by. commercial banks and have numerous discrepancies in the
records pertaining to this collateral.
Atlanta (Birmingham branch), 1953
Error in reporting Treasury tax and loan collateral held by commercial banks—
adjusted at our examination, $100,000.
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Federal Reserve Bank of St. Louis
MONO. SECTION
Atlanta (Jacksonville Branch), 1954
Overstatement of collateral for Treasury lax and loan accounts, $1,170,000.
There, were numerous discrepancies in the records pertaining to collateral for
Treasury tax and loan accounts. It was also observed that Treasury tax and loan
depositaries were tardy in .submitting their monthly statements to the branch and
that the department was unduly slow in reconciling the statements received. It
was recommended to the management that closer supervision be given to the
operations of this department.
Richmond, 1954
COLLATERAL AND CUSTODIES—RECONCILIATION'
Deduct (head office):
Overstatement of accountability for unissued U. S. Government
securities on consignment with issuing agents:
United States savings bonds charged to issuing agents in
Washington D. C., prior to delivery to Treasury Department. $1, 823, 000
Duplication in reporting
820, 400
Total
.
_. 2, 649, 400
BANK EXAMINATIONS
The Federal Reserve banks have set certain policies with respect to
member-bank examinations. However, they make frequent exceptions to these policies throughout the Federal Reserve System.
As an example, at the San Francisco Bank it was the policy to
examine 4 of the 5 holding company affiliates within the district
biennially, and the fifth, Transamerica Corp., on a triennial basis.
However, the bank failed to make examinations of this holding company for 6 years. They make frequent exceptions to the policy of
examining banks once a year and to their policy of making examinations jointly with State examiners.
The}'' do not always examine branches simultaneously with head
offices, nor do they examine the commercial departments of banks
concurrently with trust departments.
On many occasions they defer examinations when mergers are
pending, when banks arc making alterations on the premises, and
when examining personnel is not available, and fail to examine new
banks.
San Francisco, 195£
While it is the policy of the Reserve bank to examine Transamerica Corp. on a
triennial basis, the examination in 1952 was the first which had been made of this
organisation since 1946.
San Francisco, 1954
Seven new banks which opened for business during 1953 were not examined in
that year. In the case of one large California branch banking organization, it is
the practice to assign members of the Reserve bank staff to the more important
branches and to review the findings of the State examiners as to the other offices.
San Fran,cisco, 1955
Four new banks which opened for business during the year 1954 were not
examined in that year. One bank considered to be in an unsatisfactory condition
was examined twice. Because of an increase in the number of special investigations required in 1955, it was expected that five banks and the trust department of
one of them would not be examined during the current year.
San Francisco, 1956
One bank considered to be in the problem category was examined twice.
The Reserve bank made 10 independent examinations in Nevada, Oregon, Utah,
and Washington during 1955 and 12 to the date of examination in 1956 as a result
of the State authorities' inability to coordinate their schedules with that of the
Reserve bank,
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Federal Reserve Bank of St. Louis
San Francisco, 1952
Four of the five holding company affiliates in the district were examined during
the year 1951, being the policy of the Reserve hank to examine these four affiliates
biannually. The remaining affiliate, Transamerica Corp., was under examination at the time of our examination of the Reserve bank. While it is the policy
of the Reserve bank to examine Transamerica Corp. on a trianmial basis, this is
the first examination which has been made of this organization since 1940.
San Francisco, 1954
Because of a shortage of experienced examining personnel, the * * *, San
Francisco, which was examined as of December 16, 1952, was not examined
until the early months of 1954. In addition, seven new banks which opened,
for business during 1953 were not examined in that year.
Branches are not always entered simultaneously with head offices. The
Reserve bank is represented at the examination of all branches, except in the case
of one large California branch banking organization. In that examination it is
the practice to assign members of the Reserve bank's staff to the more important
branches and to review the findings of the State examiners as to the other offices.
There are five holding company affiliates in the district, and it has been the
custom to examine the largest of these, Trknsamerica Corp., triennially, and the
remaining four biennially. Transamerica Corp. was last examined in 1952, and
three of the other holding company affiliates were examined in 1953; the remaining
one, though not examined during the biennial year 1953, was examined in 1954,
as of December 31, 1953.
San Francisco, 1955
Four new bunks which opened for business during 1954 were not examined in
that year; with these exceptions, all .State member banks were examined in 1954,
and one bank considered to be in an unsatisfactory condition was examined twice.
Because of an increase in the number of special investigations required in 1955
and the Reserve bank's inability to maintain its 'field examining staff at the
desired level, it is probable that five banks, and the trust department of one of
them, will not be examined during the current year.
San Francisco, 1956
Because of the continuing shortage of examining personnel and an increase in
the'number of special investigations, the department was unable to fulfill its 1955
examination-schedule to the extent that five banks (including the trust department
of one of them) were not examined. All of these banks were examined during the
early part of 1956. One bank considered to be in the problem category was
examined twice.
In Nevada, Oregon, Utah, and Washington, it is the general practice to make
examinations jointly with the respective State supervisory authorities. However,
the Reserve bank made 10 independent examinations in these States during 1955
and 12 thus far in 1956 as a result of the State authorities' inability to coordinate
their schedules with that of the Reserve bank. There are no State member banks
in the portion of Arizona located in the 12th Federal Reserve District.
Usually, examinations of commercial and trust departments are not made
concurrently. When physically possible, head offices and branches an; examined
simultaneously. The most notable exceptions to this policy are the * * *,
and the * * *, which have 97 and 53 branches, respectively; in these cases, the
branches are all examined during the course of the examination of the head office
but at varying times.
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Federal Reserve Bank of St. Louis
Boston, 1952
Five banks and trust, department of one large bank were not examined in 1951.
The inability to complete the 1951 schedule in accordance w i t h the established
policy of examining all Slate member banks, including the trust departments of
those exercising fiduciary powers, at least once each calendar year, was attributed
to the necessity for making 2 membership examinations which required practically all of the bank examination department's manpower for approximately 5,
weeks.
Boston, 1955
The examination of 1 bank, although dated as of December 31, 1954, was
not commenced until the opening of business on January 3, 1955. Examinations
are customarily conducted jointly with the respective State supervisory authorities
and all States of the district with the exception of New Hampshire where the one
member bank of the State was examined independently. In 1954 because of a
shortage of examining personnel in the State banking department, the Reserve
bank ma'de independent examinations of 2 member banks in Massachusetts.
In both instances the Reserve bank's examination was of limited scope, embracing
an appraisal of assets and a credit examination of the commercial department and
all'phases of the usual examination of the trust department except .proof of
records and verification of assets. Wherever feasible trust departments are
examined concurrently with commercial departments. This general rule cannot
be applied, however, to certain large trust departments in Connecticut and
Rhode Island. It is the practice, also to make simultaneous examinations of the
main office and branches of branch-bank organizations, an exception being made
in the case of one bank whose branches are too numerous to be entered simultaneously. In this instance several branches arc entered on dates shortly following
the start of the main office examination.
Ne.w York, 1952
Three State banks were not examined in 1951. Early in 1952, 1he Xew Jersey
State-Advisory Authority advised the Reserve bank that it would be unable to
examine eight State member banks during the year and therefore the Reserve bank
made independent examinations.
Philadelphia, 1952
Three banks were not examined in 1951 because of shortage of State banking
department personnel. In 1952, 4 or 5..small to medium-size banks in central
'Pennsylvania and one large trust company in Philadelphia area were not made.
The latter case resulted because of a major renovating .program underway in that
institution.
New York, 19513
In the year 1951, there were three exceptions to" the established policy of
i examining all State member banks", including the trust department of those exercising
fiduciary .powers, at least once each calendar year. These banks are located in
New Jersey and the exceptions occurred because the State authority was unable to
examine the banks during the year; however, joint examinations of all three banks
were made early in 1952.
f Joint examinations of commercial departments are usually made by the Reserve
bank and the representative State supervisory authorities' in all States in the
.district. However, early in 1952, the New Jersey authority advised that it probably would be unable, to-examine eight State member banks during the year; and
the Reserve bank, with the concurrence of the State authority, made independent
examinations of these banks. These were the only exceptions to the established
policy of conducting joint examinations.
Philadelphia, 1952
I« the year 1951, there were three exceptions to the established policy of examining all State member banks, including the trust departments of those exercising
fiduciary powers, at least once each calendar year. The three banks, which were
examined .early in 1952, are located in Pennsylvania and were not examined in
1951 because of a shortage of State banking department examining personnel.
For a similar reason as well as a shortage of Reserve bank examiners early in
the current year,
examinations \\ill not be made in 1952 of 4 or 5 small to mediumsized banks in1 central Pennsylvania and one large trust company in the Philadelphia area. In the latter case, the examination will be deferred until after March
1, 1953, owing to a major renovation program presently underway in that
institution.
Philadelphia, 1954
One large institution in Philadelphia was not examined in 1953.
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Federal Reserve Bank of St. Louis
MONO. SECTOR
Philadelphia, 1965
Two banks were not examined in 1954. IrTone instance, it was agreed to defer
the examination because a merger of a State bank with a nonmember bank was
pending. Two of the larger banks, one in Pennsylvania and one in Delaware,
were not examined during 1955 because "the Reserve bank was unable to make
necessary arrangements with the State authorities."
Philadelphia, 1956
A large bank of Philadelphia and a commercial department of a Wilmington
bank were not examined because the State bank department did not have the
available manpower and independent examinations by the Reserve bank "were
impractical because of the size of the institution/'
Cleveland, 1952
"A serious illness of one of the Reserve bank's senior examiners and other extenuating circumstances will probably necessitate the postponement of the 1952
examination of 6 to 10 of the smaller banks until early 1953." Two State member
banks were examined twice during 1951 because of their unsatisfactory condition.
The Reserve bank considered it advisable to forgo the examination of two banks
upon being informed of a merger and an audit of public accountants in process.
A joint examination of two banks had been scheduled on two occasions but were
deferred at the request of the State banking department.
Philadelphia, 1954
Because of a shortage of examining personnel in both the Reserve bank and
the Pennsylvania State Banking Department, one large institution in Philadelphia
was not examined in 1953, but was examined as of March 29, 1954.
Philadelphia, 1955
Two banks were not examined in 1954. In oiie instance it was agreed to defer
the examination because a merger of a State member bank with a nonmember
bank was pending. In another case the omission was attributed to the shortage
of examining personnel in both the Reserve bank and the Pennsylvania Sta.te
Banking Department. Two of the larger banks, 1 in Pennsylvania and 1 in
Delaware, were not to be examined during 1955 because "the Reserve bank was
unable to make necessary arrangements with the State authorities. Examinations of these banks, neither of which is regarded as a problem bank, will be made
early in 1956.
Philadelphia, 1956
The * * * Bank of Philadephia and the commercial department of the * * *
in Wilmington were not examined in 1955. The State bank departments were
unable, because of unavailable manpower, to join with the Reserve? bank in examinations, and independent examinations by the Reserve bank "were impracticable because of the size of the institutions." •
Cleveland, 1952
In the year 1951 there were four exceptions to the bank examiners' policy.
Two of these banks had been scheduled for examination late in the year, but upon
being informed of a'merger and an audit by public accountants was in process,
the Reserve bank considered it advisable to forego the examination. An examination was made in April 1952 after the merger. A joint examination of the
other 2 banks was scheduled on 2 occasions but were deferred at the request of
the State banking department. Two State member banks were ^examined twice
during 1951 because of their unsatisfactory condition. "A serious illness of one
of the Reserve bank's senior examiners and other extenuating circumstances will
probably necessitate the postponement of the 1952-examination of G to 10 of the
smaller banks until early 1953."
Cleveland, 1955
Because of continuing shortage of examining personnel, the bank examination
department was unable to examine 19 banks and 22 branches of the Reserve city
banks. Three banks considered to be in the problem category were examined
twice in 1954.
Cleveland, 1956
Continuing shortage of examining personnel made it impossible to examine
11 banks, including 3 trust departments in 1955. Instead of simultaneous examination of the main office with branches, one bank "will usually have been entered
within a week following the commencement of the examination of the head office."
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Federal Reserve Bank of St. Louis
•aJ. «7I
Cleveland, 195,5
Because of the continuing shortage of examining personnel, the bank examination department was unable to fulfill the 1954 examination schedule. In that
year, 19 banks and 22 branches of the Reserve city banks (the Cleveland Trust
.Co.) were not examined. Three banks considered to be in the problem category
were examined twice in 1954, and two special credit examinations were conducted
in each of the years 1954 and 1955. Branches entered simultaneously with
respective main offices except in the case of the * * * whose, branches are too
numerous to permit simultaneous coverage by available examining personnel.
'Cleveland, 1956
Because of the continuing shortage of examining personnel, the bank examination department was unable to fulfill its 1955 examination schedule to the extent
• that 11 banks, including 3 trust departments were not examined.
.'It was also anticipated that four State member banks would not be examined
by the Reserve bank during 1950.
It was expected that instead of simultaneous examination of the * * * with
the main office, all branches of this bank "will usually have been entered within
a week following the commencement of the examination of the head office."
In the examination of the member banks in Cleveland, as well as in other districts,
the examiner made the following statement:
"Officially executed reconcilements were received from these banks and all
reconciling items included thereon were cleared to our satisfaction, or were in
process of adjustment at the close of the examination."
• The auditing reports do not describe what was meant by the term "officially
.executed reconcilements," therefore there is no way to determine whether or not
such reconcilements constitute a good auditing procedure in verifying the
balances.
Richmond, 1952
In 1951, however, lack of available manpower necessitated the examination of
the branches of a North Carolina bank in 3 of the 5 cities outside of the head office
city, after the opening of the head office examination and the examination of the
commercial and trust departments of one Richmond bank on different dates.
Richmond, 1954
-The size of one large branch banking organization in North Carolina, however,
makes it infeasible to examine all offices simultaneously.
Richmond, 1956
The report indicates that 5 State member banks, 3 of which exercise fiduciary
powers, are located in the District of Columbia and are therefore under the supervision of the Comptroller of the Currency. The * * * was not examined in 1955.
Examination of this bank had been scheduled for December but was canceled when it was learned that the institution was in the process of merging
with the * * *.
Atlanta, 1953
Since there are very few qualified trust examiners in the State, banking departments of this district, examinations of trust departments an; usually conducted
by the Reserve bank with little assistance from State authorities.
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Federal Reserve Bank of St. Louis
MONO. SECTION
Atlanta, 1954
It is also the policy of the department to conduct periodic examinations of the
three holding company affiliates which hold general permits to vote the stock of
their subsidiary member banks, such examinations being scheduled on a rotation
basis so that each affiliate is examined once every 3 years. One of these affiliates
was examined during 1953.
Examinations are conducted jointly with the respective State supervisory
authorities in Florida, Louisiana, and Mississippi; but in accordance with the
expressed preference of the backing authorities in Alabama and Georgia, independent examinations are usually conducted in those States, only one large bank
iu Georgia being examined jointly. Joint examinations were formerly conducted
in Tennessee, but at recent examinations the lack of available personnel has made
it difficult for the State authorities to participate; consequently, independent
examinations will usually be conducted in this State in the future, except in the
case of one large bank which will continue to be examined jointly.
Chicago, 1952
Permission to forgo examination of one bank in 1951, for which adequate
manpower could not be made available atsthe time, was granted by the Board
of Governors on December 6, 1951.
Chicago, 1955
All branches of State member banks except the one branch of the * * * were
examined simultaneously with their head offices in 1954.
Chicago, 1956
The * * * of Chicago was not expected to be examined in .1956 because of
the fact the State authorities could not enter into an arrangement for a joint
examination because of manpower limitations and the fact that the bank is too
large for the Reserve bank to undertake an independent examination.
St. Louis, 1953
Nine banks were not examined in 1952, and again it was expected that 30 to 40
would not be examined in 1953. The management of the Federal Reserve bank
stated that the lack of numerical strength of the field staff, coupled \vi th the
extra man-days required in repeat examinations of difficult and problem banks,
were the principal reasons for the failure to complete the schedule.
St. Louis, 1954
Because of a shortage of examining personnel and the necessity for making 2
examinations of 3 difficult or problem banks, 32 banks were not examined during
1953. It was expected that one bank would not be examined during 1954, due
to the fact that the bank was reported to be undergoing a remodeling of its banking
quarters and the Reserve bank considers it inadvisable to make an examination
while the work is in process.
St. Louis, 1955
For the same reason of adverse physical condition imposed by a remodeling
project then in process in another' bank, it was expected that examination of this
bank would be omitted in 1955. In 1954 one member bank considered in unsatisfactory condition was examined twice.
St. Louis, 1956
There were 8 holding company affiliates in the district, only 2 of which hold
voting permits. One of the latter was examined in 1955, and on<; was investigated.
Of the remaining 6 holding company affiliates, 1 is a State member bank and is
examined in usual course; the other 5 were examined or investigated in 1955
simultaneously with the annual examinations of the affiliated banks.
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Federal Reserve Bank of St. Louis
Minneapolis, 1f)f>J
Alternate independent examinations arc made by the Reserve bank and by the
State department* in Minnesota and North Dakota. The State authorities accept
u Federal Reserve examination in lieu of 1 examination by the State department
involved, thus satisfying the statutory requirements of 2 examinations annually
iu the above-mentioned States. In the. other States of the district, it is the general
practice to make examinations jointly with the respective State banking depart.
ments. However, 13 independent examinations .were made in these States by
the Reserve bank in 1951. In (> instances, the deviation from tin; usual practice
occurred because the State department was understaffed; in the case of 3 banks,
it was deemed advisable that 2 examinations be made within the year, the State
department and the Reserve bank each making separate examinations; in 3 other
cases the same plan was followed at the specific requests of the banks concerned;
in the remaining instance, the Reserve bank made an independent examination
as an accommodation to the State supervisory authority.
Kansas Citu,'1952
*
Nine banks were; not examined in 1951. The management stated that lack of
.manpower was the principal reason for failure to comply with the schedule.
Three examinations of one small member bank were made during the year because
of the bank's unsatisfactory condition. These examinations required more time
.'than would have been necessary to the average bank.
Kansas City, 1955
Because of a 'tight manpower situation in the bank examination department,
7 State member banks, 2 in Kansas, and 5 in Missouri, were not examined in 1954.
All of these banks were examined during January and February of this year.
In 1954, 3 examinations of 1 problem bank in Colorado were made jointly with
the State authority,
: Alternate independent- examinations are made by the Reserve bank and by
the State authorities in Kansas, Nebraska, and Oklahoma. In each of these
, States, the law requires two examinations by the State banking department
during a calendar year. .The State departments—Nebraska and Oklahoma—
have interpreted the statutes to permit acceptance of an examination made by
the Reserve bank in lieu of one examination by the respective State banking
authorities, and the statute in Kansas has been amended to specifically authorize
acceptance of an examination by the Reserve bank. Colorado, New Mexico, and
Wyoming statutes require 2 examinations each year by the. respective State
authorities; Missouri law required 1 such examination yearly. In each of these
;, four States, the Reserve bank's examinations are usually made jointly with the
• State banking departments, and there were no exceptions to this practice in 1954.
i
i
FOREIGN OPERATIONS
The Federal Reserve Bank of New York has what is called a "foreign
department." This department handles all -manner of transactions
for foreign banks and international banks. It makes tremendous
loans to these banks, on gold and on securities of various kinds. It
accepts and holds collateral and custodies for these foreign accounts.
And when foreign accounts wish to purchase bankers' acceptances' of
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Federal Reserve Bank of St. Louis
JO. SECTION
private banks in the United States, the Federal Reserve Bank of New
York underwrites and guarantees these bankers' acceptances, although
none of the Federal Reserve banks underwrites or guarantees bankers'
acceptances for domestic purchasers.
Among other things, the Federal Reserve Bank of New York has
an agreement by which it is committed to lend the Bank for international Settlements up to $25 million on gold. Prior to October 31,
1955, there was not even a charge-made for this commitment, although
since that date there has been a charge of one-fourth percent per annum
for that part of the commitment not sold in any calendar month.
None of these operations is subject to any independent, outside audit.
All 12 of the Federal Reserve banks participate in this department,
in the sense that they participate in the profits the department makes,
if any, and they participate in any losses or liabilities it might incur.
New York, 1952
FOREIGN LOANS ON GOLD
Foreign depositors' borrowings on gold amounted to $45 million at examination
date. This indebtedness represented five advances outstanding to Banque
Centrale de la Republique de Turqiiie as follows:
Date of advance
Aug. 13, 1952
Sept 15 1952
Do
Sept. 19, 1952
Sept. 29, 1952..Total
Maturity
1
-.
-
.-
-.
• F(>h 13.1958
Deo 15, 1952
do
Doc. 19, 1U52
Dec. 29, 1952
Amount
$21,500,000
500 000
8, 000, (XX)
8, UK), 000
7, (XXI, (XX)
45, (XXI, 001)
- .-'-
Advances aggregating $11 million to Banque Centrale de la Republique de
Turquie were the only foreign loans on gold made by the Reserve bank during 1051.
These borrowings were repaid during the year and for the second consecutive
time there were no foreign loans on gold outstanding at year end.
* * * The bank's policy with respect to loans on gold remains unchanged,
contemplating the making of "loans only for a short-term period for the purpose
of relieving balance of payments' disequm'bria of a seasonal or other temporary
character."
DUE TO FOREIGN DEPOSITORS
Dollar deposits, totaling $686,031,916.15, decreased by approximately $80
million in the interval between examinations. Dollar balances1 amounting to
$366,671.80, maintained by the Reserve bank as fiscal agent of tin United States,
are included in the foregoing total but are not participated among the other Federal
Reserve banks.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, INTERNATIONAL
MONETARY FUND, AND SECRETARY OF THE TREASURY SPECIAL ACCOUNT
The accounts maintained by the foreign department of the Federal Reserve
Bank of New York for the International Bank for Reconstruction and Development and for the International Monetary Fund at date of examination reflected
total deposit balances of $40,675,416.79.' earmarked gold valued at $1,027,652,835.51, and securities carried at $2,324,658,930.15, including $1,263 million in
special non-interest-bearing notes of the United States-International Monetary
Fund series. The aggregate showed an increase of about $166 million since date
of last examination.
New York, 1952 '
Tlie activities^ the foreign department also included operations by the Federal
Reserve Bank of New York as fiscal agent of the United States in the purchase
and sale of gold and in foreign exchange and allied transactions. The records of
the Reserve bank indicated a total deposit balance of $26,337,397.07 and earmarked gold valued at $43,400,676.44 held for the special account of the Secretary
of the Treasury.
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Federal Reserve Bank of St. Louis
CUSTODIES
Custodies hold for foi'eign account totaled $0,101,785,801.45 representing the
dollar value of the following holdings: $2,334,992,482.57 in securities, acceptances,
and commercial paper; $3,820,705,133.25 in earmarked gold-; and $28,185.03 hi
earmarked silver. These custodies showed a net decrease of $351 million in the
interim between examinations, the principal amount of.the change resulting from
a decline of $1,078 million in holdings of earmarked gold and an increase of $741
million in holdings of United Slates Government securities. During the same
period, holdings for domestic account increased by about $17 million to a total
of $141,047,402.54 at examination date, this amount represent ing the dollar value
of earmarked gold transferred from foreign accounts to other designations because
of the pledge of such gold as collateral to loans made by domestic banks for foreign
account.
VERIFICATION
As has'been done in the past few years, a list of the foreign banks and governments and other financial agencies abroad for which the Reserve bank maintained
dollar balances or held custodies was referred to the bank's vice president and
general counsel and to the manager of the foreign department. They were re'7
quested to advise whether there were legal restrictions on communications with
any of such foreign correspondents, or whet her .there were any other circumstances
known to them which would make it inadvisable to seek verification by correspondence with the foreign parties at interest.
GENERAL
The rise in the Reserve bank's holdings for foreign account, which has been in,
evidence during the past several years, reached its peak in March 1951. Since
that time a steady decline has been noted; at date of examination, the total of
such holdings^a-mounted to $0.8 billion, a net decrease of $432 million, or approximately 0 p.ercent in the interval between examinations. During the same period,
assets held for the International Bank and the International .Monetary Fund
rose slightly, bringing the combined > assets held for foreign and international
account to $10.2 billion at date of current examination.
The number of foreign banks and governments and other financial agencies
abroad for which the Federal Reserve Bank of New York was carrying deposit
accounts or holding custodies totaled 78, a net increase of 2 in the interval bc•tween examination.
i "•
.••-„•
SIGN
ACCOUNTS OF FOREIGN OPERATIONS DIVISION—PARTICIPATION
OP FEDERAL RESERVE
BA'NKS
Currently all Federal -Reserve banks are participating in\ all foreign accounts
and custodies except those carried byi the Federal Reserve Bank of New York in
its capacity as fiscal agent of the United States. Balances aggregating $300,071.80
carried for 5 fiscal agency accounts are included in the participation of the Federal
Reserve Bank of New York in "Due to foreign deposits" shown above.
New York, 1952
At date of examination, the principal foreign accounts participated and the
Federal Reserve Bank of New York's participations therein were as follows:
System
'
;
' '" >,
ASSETS
'
Foreign loans on pold
Due from foreign banks...
. '..' ••
-
Federal
Reserve Bank
of New York
-
.............
$45, 000, 000. 00
23, 020. 48
$13, 590, 000. 00
080, 031, 910. 15
219, 767, 916. 15 f
13, 910, 309. 17
4, 017, 900. 35
6,954.00
LIABILITIES
Due to foi'eign depositors .
-.
CONTINGENT LIABILITIES
New York, 1954
CONTINOENT LIABILITY ON ACCEPTANCES PURCHASED FOR FOREIGN CORRESPONDENTS
Included in the custody holdings was a, total of $9,058,4.22.19 in bankers' acceptances which the Reserve bank has purchased for foreign accounts with its guaranty
of payment at maturity, such guaranty earning a commission of one-eighth of 1
percent per annum: The foregoing total reflected a decrease of about $20 million
from the amount held at the time of last examination, this change being attributed
to a scarcity Nof bankers' acceptances available for purchase.
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Federal Reserve Bank of St. Louis
New 1'wA:, 1956
FOREIGN LOAN'S ON COLD
The loan agreement with the Bank for International Settlements is the renewal
of an arrangement which has been renewed or extended several times in the past;
this latter renewal became effective October 31, 1955, and runs for a period of
12 months. The agreement provides for a loan or loans on gold up to an aggregate principal sum of $25 million at any one time outstanding, with a maximum
credit available in any calendar month not to exceed the equivalent of $25 million
for a total of 1 days. This latest renewal includes, for the first time, a commitment charge of one-fourth of 1 percent per annum on that part of the loan facility
not used in any calendar month.
During 1955, loans on gold were made to only two foreign correspondents:
Bank for International Settlement and Banco Central de Ileserva de Kl Salvador.
The former made active use of its $25 million standby arrangement, drawing on
16 occasions amounts of $3 million to $10 million for periods up to a week; the
total of these borrowings amounted to $103 million. The Banco Central de
Ileserva de El Salvador borrowed $1 million shortly before year end under a $3
• million arrangement entered into in December; this loan was repaid on January
20, 1950.
A loan to Banco do Brasil as fiscal agent of the Brazilian Government, on which
there was a balance of $l()6,(k>(>,6(>6.()8 outstanding at date of last examination,
was repaid in the interim in accordance with its terms, the final installment
having been paid on October 24, 1955.
1
-^
WHO ARE THE "DEALERS" WITH THE OPEN-MARKET ACCOUNT?
\
Now, the trading in securities. Under the 1913 act and up until
1935, each bank had its own open-market operations and it was plain
that there was conflict among the banks.
Some would be buying and others selling, and it rather upset the
market. They gave that as an excuse for the amendment that went
into the' 1935 act, which permitted 1 Open Market Committee and 1
manager of that account in the New York Federal Reserve Bank to
handle it for all the banks.
None of the banks touches these securities except the New_York
bank. The money they get, the New York bank sends to them.
Yet this trading in securities is still going on. When a member
bank of the system \vants to buy Government securities, or to sell
them, the likelihood is that it will ask the Reserve bank to handle the
transaction. The Reserve banks are buying and selling hundreds of
millions of dollars worth of Government securities, acting as agent for
member banks and for others. 80 they are in competition with otic
another today, and they are in competition with the Open Market
Committee. They cannot trade with the open-market account, so
they may be buying at the same time the open-market account is
This so-called open market means that the Government must
pay this select group of open-market dealers a split of some kind,
a commission or fee, in order to buy or sell Government bonds. It
cannot be done any other way. And in a great many instances, this
thing is rigged so that the dealers receive two fees when the openmarket account is selling at the same time a Federal Reserve bank is
selling, and vice versa.
There are only 17 dealers and in 1956 five of them did 52 percent
of the business. The top did 88 percent of the business. Many of
these 17 dealers got their money for speculation in the Federal Reserve
Bank of iNew York.' We have never looked into that, and we do not
know anything about it.
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Federal Reserve Bank of St. Louis
E,:
1 can s t a t e , however, that according to one report of the T)pnn
Market Committee t h a t 1 have seen, the open-market account hotight
from and sold to l.'J of these dealers who are not banks—that is,
nonbank dealers•—(Jovernment securities amounting to $2.9 billion
in I he year 1950. And, in contrast to total purchase and sale transactions w i t h these 13 nonbank dealers amounting to $2.9 billion, the
open-market account lent these dealers, through repurchase agreements made during the year, $4.0 billion with which the,-dealers carried
Government securities in their portfolios.
How does the manager of the open-market account decide the
question of allocating a given volume of sales, or a given volume of
purchases, among these 17 y dealers? Well the answer seems to be
"primarily"—but not exclusively—on the basis of, which dealer offers
the open-market account the best price. The Committee should be
extremely interested in the following statement from the Open Market
Committee's Annual Report for 1950:
The distribution of o u t r i g h t transactions among dealers continues to reflect
the account, management's practice of doing business wi'ih dealers and dealer banks
primarily on the basis of- the "best price" obtainable. Repurchase agreement
volume reflects princiapally the financing needs of the various dealers and the
willingness of Hie account* managvnu'nt,'in Implementing system policy, to enter
into agreements at the. times, they were requested by dealers. Also, consideration
was given at all times to the financial capacity of the specific dealers in extending
repurchase agreements, the need to distribute on a given day the t o t a l of repurchase agreements equitably among nonbank dealers, and the dealers' exposure, as
measured by their positions.
Who are these dealers? We have their names and that is about all.
I will list these names and then point out what 1 have tried to do
to learn something for myself about who these dealers are.
17 dealers trading with the open-market account in 19»6 (showing percent of total
volume dune, by groups of 5's)
Percent
Dealer:
of trading
Discount Corp
..Chemical Corn Exchange Bank.
Salomon Bros. & Hutxlcr
i. ) 51. 7
C. J. Devine & Co
Aubrey G. Lanston & Co., Inc.
D. W.'Rich & Co
:•
C. F. Childs & Co., Inc
• Guaranty Trust Co
) 30. 6
Bankers Trust Co
First Boston Corp
Continental Illinois National Bank & Trust Co., Chicago.
Briggs, Schaedle & Co., Inc
T.
First National Bank, Chicago
Win. E. Pollock & Co., Inc.
11.7
N. Y. lianseatic Corp__
J. G. White & Co
Chas. E. Quincey & Co.
Total
)00. 0
Now, I t h i n k the committee should look into the Open Market
Committee and try to find out a little something about who these
dealers are that serve as the funnels through which our great Federal
"Reserve System passes out additions to the money supply of the
country, and pulls in substractions from the money supply of the
country. So, I have had the first 10 names looked up—that is the
names of the 10 biggest dealers—to try to find out who the people
are t h a t are partners in these dealer firms, and who are the officers
and directors in these dealer firms where the firm is incorporated. Then
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Federal Reserve Bank of St. Louis
I have askod for information on the other connections of those people
wherever such information is available from published directories
Well a large percentage of these people do not publish information
about themselves. But enough of them do give information to show
us that they represent all of the big money interest of the country—
the big commercial banks, the big investment banks, the big insnnmce
companies, the trust funds, and the big industrial and utility corporations.
The following list shows the names of the top officials in each of the
10 dealer firms doing the largest volume of business with the openmarket account in 195b. Then, where information is published about
the other connections of the individuals, those connections are shown
too.
Discount Corp.
Mills, Dudley H., chairman
Great American Insurance Co., director
Underwood Corp., director
American National Insurance Co., director
Great American Indemnity Co., director
Rochester American Insurance Co., director
Anderson, Edward E., senior vice president and director
East River Savings Bank, trustee
Bixby, Wingate, vice president
Fleming Realty Co., director
432 East 57th "Street Corp., director
Fairchild, Julian D., vice president
Kings County Trust Co., trustee
Franklin Savings Bank, trustee
Cleveland, J. Luthur, director
Guaranty Trust Co., chairjnan
Guaranty Safe Deposit Co., director
Atchison, Topeka & Santa Fe Railway, director
American Arbitration Association, director
Anaconda Co., director
Sunray Mid-Continent Oil Co., director
Colt, S. Sloan, director
Bankers Trust Co., chairman and director
Provident Fire Insurance Co., director
Royal Exchange Assurance Co., member United States Advisory
Committee
State Assurance Co., Ltd., member financial advisory board
Car and General Insurance Corp., Ltd., member financial advisory board
American Bank Xote Co., director
General Foods Corp., member finance committee and director
General Electric (Jo., member finance committee and director
Metropolitan Opera, assistant treasurer and "director
American Can Co., director
Tax Foundation, Inc., treasurer and trustee
Ebbott, Percy ,]., member executive committee and director
Chase Manhattan Bank, chairman trustee advisory board and director
Allied Stores Corp., member executive and advisory commit,t''es, iind
director
Moore-McCormack Lines, Inc., director
'•International Paper Co., director
- Chase Bank, vice-chairman
Oberlin (Ohio) College, trustee and chairman, investment commit tee
Belding-Heminway Co., director
New York State Chamber of Commerce, vice-president
American Export Lines, Lie., director
Massie, Adrian M., director
Nov." York Trust Co., chairman
Pacific Fire Insurance Co., director
Rotary Electric Steel Co., director
Homeland Insurance Co., director
Commonwealth Insurance Co., director
Mercantile Insurance Co., director
Columbia. University, trustee
Bankers <fe Shippers Insurance Co., director
Jersey Insurance Co., director,
North British & Mercantile Insurance Co., director
Greenwich Savings Bank, trustee
United States Life Insurance Co., director
Sweet Briar College, member board of overseers
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Federal Reserve Bank of St. Louis
MONO SECTION
,
Sherer, Dunham B., director
Chemical Corn Exchange Bank, director
Home Life Insurance Co., director
Whitney, George, member, executive, committee and director
J. P. Morgan tfe Co., member executive committee
Braden Copper Co., director
General Motors Corp., member financial policy committee and director,
Kennecott Copper Corp., member executive committee and director
Continental Oil Co., director
Cpasolidale-d Edisoji Co. of New Yor,k, member, executive and salary
committees, trustee
Helm, Harold H., director
Chemical Corn,Exchange Bank, chairman and director
Corn Products Refining Co., member executive committee and director
City Investing Co., direptor
Home Insurance Co., member, finance, executive committees and director
Whitehall Foundation, Inc., trustee
Princeton University, trustee and chairman, executive committee, member, finance, grounds and buildings committees.
Commercial Solvents Corp., member executive and audit committees
and director
Associated Dry Goods Corp., member executive committee and director
Lord & Taylor, director
Christian Properties Corp., director
Log Cabin Association, Inc., trustee
Federal Hall Memorial Association, Inc., trustee
Champion Paper & Fibre Co., director
Chemical Corn Exchange Safe Deposit Co., director
[Equitable Life Assurance Society of the United States, member, executive and finance committees and director
Ralston Purina Co., .director
National Industrial Conference Board, director
Repp, Herbert N., president and director
Dunbar, Charles E., vice president and secretary
"jVIarckwald, Andrew K., vice president and assistant secretary
.Coon, Robert M.. vice president and treasurer "
Leverich, Walden H., vice president
Nagle, William G., vice president
Jantzen, Ray H., vice president
Bethke, Robert H., vice president
Morton, Stewart C., vice president
Shepherd, Howard C., director
Chemical Corn Exchange Bank
Helm, Harold H., chairman and director
Corn Products Refining Co., member executive committee and director
City Investing Co., director
Home Insurance Co., member financial and executive committees and
(director
Commercial Solvents Corp., member executive committee, audit committee and director
Associated Dry Goods Corps., member executive committee and director
Lord & Taylor, director
Christian Properties, director
Champion Paper & Fibre Co., director
Discount Corporation of New York, director
( Chemical Corn Exchange Safe -Deposit Co., director
Equitable Life Assurance Society of the United States, member executive.,
and financial committees and director
Ralston Purina Co., director
Jackson, N.|Baxter, chairman, executive committee and director
; Chemical Corn Exchange Deposit Co., chairman
General Reinsurance Corp., director
McCrory Stores Corp., director
American Chicle Co., director
French American Banking Corp., director
Interchemical Corp., director
Western Electric Co., director
Aluminium, Ltd., director
Alco Products, Inc., director
Roosevelt Hospital, trustee
Vanderbilt University, trustee
Beekmau—Downtown Hospital, treasurer and director
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
26 XQ
MONO. SECTION
Grainger, Issae B., president and director
I^L Safety Industries, Inc., director
Chemical Corn Exchange Safe Deposit Co., director
Fort Myers Southern Railroad Co,, director
Hartford Fire Ins. Co., director
Kerite Co., director
Missouri Pacific Railroad Co., director
Hartford Accident & Indemnity Co., director
Campbell, LeRoy Walter, vice president
Chemical Safe Deposit Co., director
Sun Chemical Corp., member of executive commission and director
Napier Co., Conn., director
' Beatti, Francis P., vice president
Mercury Aircraft, Inc., director
Bromfield, Horace P., vice president
Nationwide Food Service, director
Brummer, Harold, vice president
Mrs. John S. Sheppard Foundation, Inc., trustee and director
Carr, William D., vice president
Railway Valley Railroad, treasurer and director
Cummings, W. Burton, vice president
New York Federal Savings & Loan Association, director
Berkshire Gas Co., director
Driscoll, William Jennings, vice president
Teleprograms, Inc., vice president
Duncan, Claudius D., vice president
Manhattan Life Insurance Co., director
Durham, Kenneth A., vice piesident
Snowden, Inc., director
Worth Street, Int., director
.
*
Gibbons, John L., vice president
Angostura-Wupperman Corp., director
Hauser, Alfred H., vice president
Maracaibo Oil Exploration Corp., director
American Surety Co., trustee
Empire City Savings Bank, trustee
American Hide & Leather Co., director
Granby Construction, Mining, Smelting & Power Co., Ltd., director
' Hawkins, Walter M., vice president
. Dunlap & Associates, director
Love, Hamilton M., vice president
\
Hoagland Laboratory, treasurer and director
Mooney, Wandell M., vice president
Chemical Corn Exchange Safe Deposit Co., president
Chesebrough-Pond's, Inc., director
Clemson Bros., Inc., director
Sherwin, Arthur S., vice president
Dalminter, Inc., directo
Borneo Sumatra Trading Co., director
Far Eastern Agencies, Inc., director
Italit, Inc., director
Pur-Sale Service Corp., director
. Swidut Food Importers, Inc., director
Urmy, Keith M., vice president
New York Medical College, Flower and Fifth Avenue Hospitals, treasurer
and trustee
VanPelt, Edwin, vice president
West Side Federal Savings & Loan Association, director
Republic Pictures Corp., director
Wright, Ford, vice president
Coca-Cola Bottling Co., director
Sinsabaugh, Robt. W., traffic officer
Commercial Casualty Insurance Co., secretary
Concordia Fire Insurance Co., secretary
Firemen's Insurance Company of Newark, secretary
Girard Fire & Marine Insurance Co., secretary
Metropolitan Casualty Insurance Co., New York, secretary
Milwaukee Mechanics' Insurance Co., secretary
National-Ben Franklin Fire Insurance Co., secretary
Loyalty Group, secretary
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
27 XQ
MONO. SECTION
Houston, Frank K., .honorary chairman, vice chairman, executive
mittee and director
Chemical Corn Exchange Safe Deposit Co., director
Standard Insurance Company of New York, director
Aetna Insurance Co., director
Century Indemnity Co., director
Piedmont Fire Insurance Co., director
World Fire & Marine Insurance Co., director
Hotel Waldorf-Astoria Corp., director
Thomas Jefferson Memorial Foundation, president and director
Vanderbilt University, trustee
Johnston, Percy H., director
New York' Life Insurance Co., director
Federal Hall Memorial Association, Inc., governor
,Bower, Joseph A., director, member trust and executive committee
Detroit International Bridge Co., chairman
Canadian Transit Co., chairman
Goelet, Robert, director, chairman, real estate and mortgage committee
City Investing Co., director
Lopert Films, Inc., director
Fifth Avenue & 66th Street Corp., vice-president and director
Lopert Films Distributing Corp., director
Lopert Films Productions, Inc., director
Hillman, Jr., J. H., director
J. H. Hillman & Sons Co., president and director
Chemical-Bank & Trust Co., director
Pennsylvania Bankshares & Securities Corp., chairman
Pittsburgh Coke & Chemical Co., chairman, finance committee and
director
Great Lakes Steamship Co., director
Peoples First National Bank & Trust Co., Pittsburgh, Pa., director
Texas Gas Transmission Co., chairman
Pittsburgh Steel Co., director
Williams, Thomas R., director
Ichabod T. Williams & Sons, partner
Geo. D. Emery Co., president and director
Edgewater Saw Mills Co., president and director
Niagara Fire Insurance Co.. director
Astoria Importing & Manufacturing Co., president and director
Roosevelt, John K., director
Roosevelt & Son, partner
Hackensack Water Co., director
v
Elizabethtown Consolidated Gas Co., director
Elizabethtown Water Co., Consolidated, director
All American Cables Co., director
Harris, Henry Upham, director
Harris, Upham & Co., partner
Texas Co., New York City, director
Stone & Webster, Inc., director
New York Stock Exchange Governor
Great American Insurance Co., director
Humphreys, Jr., H. E., director
United States Rubber Co., chairman and president
Latex Fiber Industries, Inc., director
Terminal Warehouses, Ltd., Toronto, director
Great American Ins'urance Co., director
Dominion Rubber Co., Ltd., Montreal, director
Mutual Life Insurance Company of New York, trustee
Rubber Manufacturing Association, director
National Industrial Conference Board, member
Callaway, Cason J., director
Blue Springs' Farms, Hamilton, Ga., owner
United States Steel Corp., director
Trust Company of Georgia, Atlanta, director
Shell Oil Co., director
University Systems of Georgia, member board of regents
v
Nutrition Foundation, Inc., trustees
McKim, Robert J., director
Associated Dry Goods Corp., president and director
Bowery Savings Bank, trustee
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
XQ
F.'ONO. SECTION
Moore, Maurice T., director
Cruvath, Swaine & Moore, partner
Pennsylvania Glass Sand Corp., director
Studebaker-Packard Corp., director
Time, Inc., chairman
Bruce, James, director
American Airlines, director
Commercial Credit Corp., director
General American Investors Co., director
Equity Corp., director
United States Industries, .Inc., director
Fruehauf Trailer Co., director
National Dairy Products Co., director
Congoleum Nairn, Inc., director
Technicolor, Inc., director
Federal Home Loan Bank of New York, director
Republic Steel Corp., director
Avco Corp., director
Grayson-Robinson Stores, Inc., director
Continental Insurance Co., director
Western Table & Stationery Corp., director
Few, Benjamin F., director
Liggett & Myers Tobacco Co., president and director
Duke University, trustee
Roberts College, Istanbul, trustee
Woods, J. Albert, director
Commercial Solvents Corp., president and director
Central Savings Bank, president and director
Corn Products Refining Co., director
Wilson & Toomer Fertilizer Co., Jacksonville, Fla., director
Thennatomic Carbon Co., chairman
American Smelting <fe Refining Co., director
Black, James B., director
Pacific Gas & Electric Co., chairman, member executive committee aud
director
United States Steel Corp., director
Southern Pacific Co., member executive committee and director
Equitable Life Assurance Society, director
Shell Oil Co., director
Fireman's Fund Insurance Co., raember executive committee and director
Ford Foundation, trustee
Del Monte Properties Co., director
California Pacific Title Insurance Co., director
Drysdale, Robert A., director
Drysdale & Co., Sr. partner
Central Savings Bank, trustee
Guardian Life Insurance Co., director
Westchester Fire Insurance Co., director
North River Insurance Co., director
United States Fire Insurance Co., director
Sherer, Dunham B., director
Discount Corp., New York, director
Home Life Insurance Co., director
Nichols, C. Walter, director
Nichols Engineering & Research Corp., chairman
First National Bank of West Orange, vice president and director
Nichols Engineering & Research Corporation of Canada, president
and director
Corn Exchange Safe Deposit Co., director
Ralph C. Coxhead Corp., chairman
Allied Chemical & Dye Corp., director •
• Sintering Machinery Corp., chairman
Wellman Engineering Co., director
Kenneeott Copper Corp., director
Kiggins, Jr., Willard A., director
A. H. Bull Steamship Co., president and director
Bull-Insular Line, president and director
Bull Steamship Line, president and director
A. H. Bull & Co., president and director
San Antonio Docking Co., president and director
Dafton Realty Corp., president and director
Sail Antonio Co., president and director
Baltimore! Insular Line, Inc., president and director
Caribbean Dispatch, Inc., president and director
New Rochelle Federal Savings & Loan Association, director
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MONO. SECTION
Black,-Kenneth E., director
Home Insurance Co., president and director
Harlem Savings Bank, trustee
Home Indemnity Co., president and director
Atlantic Coast Line Railroad, director
Insurance Society of New York, director
General Adjustment Bureau, Inc., president and director
National Board of Fire Underwriters Building Corporation, vice president
Underwriters' Laboratories Inc., director
^
Beekman-Downtown Hospital, director
Perkins, Gilbert II., executive vice president
Johnson, Clinton C., executive vice president
McCall, Howard VV., executive vice president
Renchard, William S., executive vice president
Anderson, Thomas G., vice president
Azoys, Geoffrey V., vice president
Blum, William H., vice president
Brennan, Peter J., vice president
Brown, J. Stanley, vice president
Bubindey, Paul F., vice president
Caldwell, Arthur C., Jr., vice president
Calhoun, N. S., Jr., vice president
Chambcrlahr, Melville P., vice president
Cleary, F. Stafford, vice president
Compton, Joseph II., vice president
Cropper, Samuel II., vice president
Cunliffe, John J., vice president
DeWitt, William C., vice president
Dribben, Seymour, vice president
Farnsworth, George L., vice president
Finlayson, Daniel A., Jr., vice president
Foy, Amos B., vice president
Frey, William A., vice president
Haggerty, Frederick B., vice president
Haviland, David, vice president
Hayward, Charles E., Jr., vice president
Hellerman, Louis, vice president
Hellier, James E., vice president
Hall, Magne, vice president
Jantzen, William J., vice president '
Johnson, Reginald H., vice president
Kildea, York, vice president
King, George L., Jr., vice president
Laemmel, William G., vice president
Lysle, George, vice president
McFadden, Joseph A., vice president
McGowan, George B., vice president
McManus, Edwin S., vice president >
McMillen, Lloyd M., vice president
Me William, Franklin A., vice president
Moore, William H., vice president
Newfang, Edward C., vice president
Obeda, John, vice president
O'Brien, Robert B., vice president;
O'Callaghan, John H., vice president
Onthank, Pierce, vice president
Patterson, Donald C., vice president
Peck, Mark B., vice president
Peer, George A., vice president
Pons, A. Karl, vice president
Pugh, Harry J., vice president
Ranee, Charles E., vice president
Richter, Charles, vice president
Rogers, Thomas A., vice president
Rommel, Frederick H., vice president
Ross. Walter M., vice president
Salzer, Richard L. H., vice president
Schneider, Leo, vice president
Schneider, M,ax J., vice president
Scherer, Frank A., vice president
Smith, John J., vice president
\
Topp, Marinus J., vice president
Townsend, J. Kenneth, vice president
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
c
r
30 XQ
MONO. SECTION
Tree, Alfred K., vice president
Turner, Huntington M., vice president
Weir, Hugh, vice president
Welles, I'M ward II., vice president
Williams, Z. Homer, vice president
Wittmun, William J., vice president
Kinkier, A r t h u r P., vice president and comptroller
Nanner, Herbert W., treasurer
Jordan, \V. Donald, secrotary
"
Sandnieyer, Earl C., public relations director
Krhart, George M., corporation trust oilicer
Corbett, It. Leroy, trustee (personnel)
Tomlinson, Eustace W., trustee (personnel)
Jenkins, Merwin S., trust officer- (investment)
Wfhite, Irving, trust officer
M\uoke, Arthur J., trust officer (pension)
Clark, James M., trust officer
Doyle, Albert W., trust officer
Emmerich; Joseph F., trust officer
Farringtou, Ralph, trust officerLightall, Richard J., trust officer
Metz, Herman W., trust officer
Miller, Robert A., trust officer
Moore, Raymond W., trust officer
Nicholsop, Clayton M., trust officer
Oats, C. Reginald, trust officer
Pfeitt'er, Fred G., trust officer
Rosebrook, Charles A., trust officer
Sherman, Russell H., trust officer
Wells, Clinton A., trust officer
Goelet, Robert G., director
Salomon Bros. & Hutzler
Brummer, Bertram F., partner
New York Stock Exchange member
Brummer Investing Co., president and treasurer
Bertram F. & Susie Brummer, lac., president, treasurer, and director
Levy,. Benjamin J., partner
Holsten, Edward L., partner
Ottens, Jonas II., partner
Perrin, Myles'!)., partner
Carson, James H., partner
von Glahn, Theodore A., partner
Simon, Charles J., partner
Spencer, Girard L., partner
Salomon, William It., partner
Freeman, Merrill I)., partner
Levy, Maurice, partner
Curran, Ralph A., partner
Stevenson, John, partner
Brown, Harry, partner
Quinn, Robert J., partner
Kaufman, Irving, partner
Kelly, Daniel M., partner
Obendorfer, Herbert, partner
Gaertner, Clement J., partner
Curran, Ralph A., limited partner
Salonlon, Percy F., limited partner
Losee, Herbert 1., limited partner
C. /. Devine <{: Co.
Dcvinc, Christopher J., partner
Stoutenburgh, William J., partner
Reilly, Matlhi>w F., partner
Dunn, Stewart A., partner
Herrmann, Vincent H., partner
Kennedy, Frank T., partner
Kreitler, Carl J., partner
Rcvits, Samuel, partner
Bellinzpni, A r t h u r J!, partner
Conian, John J., partner
Cross, Joseph, Jr., partner
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
O JL ^X^Vor
MONO. SECTION
Aubrey G. Lansion & Co.
Graustein, Archibald Robertson, director
Grausteii), Hatch & Kormeudi, partner
Agency of Canadian Car & Foundry Co., director
D. W. Rich & Co., president and director
Brightwater Paper Co., director
Synfoam Yarns, Inc., president and director
Luvan, Peter I. B., director
,
Stroock & Stroock & Lavan, partner
Winter & Co., director
American Securities Corp., director
United Factors Corp., director
American Machine & Metals Co., director .
United Merchants & Manufacturers, Inc.; director /
Vistario Corp., director
Union Sugar Co., director
Delavan Foundation, Inc., president and director
Haveg Industries, Inc., director
Molybdenum Corporation of America, director
Nacional Hotel, director
Lanston, Aubrey G., president and director
Horton, Leonard M., vice president, treasurer, and director
Youngdahl, C. Richard, vice president
Piser, Leroy M., vice president
Childs, Curtis VV. (Boston), vice president
Montgomery, Marshall II., vice president
Duffy, ./Mines P., vice president.
Callahan, Daniel./., vice president,
Comix.', A r t h u r ./.. vice pn-'sident
MolTatt, Donald L. (Chicago), vice president
Freeman, John P., Jr., assistant, vice.president
Could, Charles W. (Boston), assistant vice president
Ross, Helen P., secretary
Hoffman, Samuel,, director
D. W. Rich & Co.
Graustein, A. R.., president and director
Graustein, Hatch, & Kormendi, partner
Agency of Canadian Car & Foundry Co., director
Aubrey G. Lanston & Co., director
Brightwater Paper Co., director •
Synfoam Yarns, Inc., president aud"director
Ewig, T., secretary and director
O'Gara, A., treasurer and director
Rich, Dominic W., vice president and director
Me Morrow, C. M., director
C. F. Childs & Co.
Partridge, M. A., secretary and director
Childs Securities Corp., secretary
Childs, F. Newell, president
Boynton, Elwood D., vice president
Brown, Murray F., vice president
Cantwell, Timothy F., vice president
Fletcher, William M., vice president
Fraser, David B., vice, president'
Smith, Merril S., vice president
Van Cleave, Robert G., vice president
, Obplanalp, Harry, assistant vice president
Coffin, Robert H., assistant vice president
Condict, John K., .assistant vice president
Doyle, R6bert, assistant vice president
Fletcher, Stanley W., assistant vice president
Georgie, Charles J., assistant vice president
Hawkins, Russell S., assistant vice president
Heiskell, Raymond H., assistant vice president
Kellihcr, Richard E., assistant vice president
Koenig, Philip F., assistant vice president
Stenzel, Frederick J., assistant vice president .
Williams, Russell T., assistant vice president
Carr, Charles D,., treasurer
Currie, Stuart G., treasurer
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ekiunn, C. R., treasurer
Galambos, M. L., treasurer
Giamondi, Charles, treasurer
Oolin, Herman, treasurer
Keys, Thomas, treasurer
McNally, John D., assistant treasurer
Moorshead, Beatrice, assistant treasurer
Nebhan, Luke, assistant treasurer
Briggs, Luring T., assistant secretary
Hamilton, Thomas J., assistant secretary
Jennings, Joseph A., assistant secretary
Lenihau, A. T., assistant secretary
Robert!, Robert E., assistant secretary
Ruddy, Marion, assistant secretary
Stover, M. G., assistant secretary
Uhlarik, Thomas S., assistant secretary
Guaranty Trust On., New York
Cleveland, J. Luther, chainn.-in and director
Guaranty Safe Deposit .Co.. director
Atchison, Topeka & Santa Fe Railway, div r ^<ii
Anaconda Co., director
Discount Corporation of Ne\v York, director
Siinray Mid-Continent Oil Co., director
Kleitz, William L., president and director
Wilson «fe Co., director
IBM World Trade Corp.. director
Liverpool A London <.v Globe Insurance Co., Ltd., member local board
in New York
Royal Insurance Co., Ltd., member local board i:: NYw York
British A:. Foreign Marine Insurance Co., Ltd., 'm-mber local board in
New York
'
Virginia Fire & Marine Insurance Co., director
Thames <t Mersev Marine Insurance Co., Ltd., member local bourcl in
New York
Newark Insurance Co., director
Queen I n s u r a n c e Company of America, director
American A; Foreign Insurance Co., director
Globe I n d e m n i t y Co.. director
l-;ov.'i.i L - i d e n m i t y Co.. director
Slur (ii^urn.nc* 1 C-o]np:iiiy <>1 Anu-rica.. director
. One H u n d r e d F i f t y William Street Corp., director
W. T. G r a n t Co., director
American Smelting <k Refining Co., director
Sharp, Dale ]•]., executive vice president
Slfindord Accident Insurance Co., director
Pilot Insurance Co. (Toronto), director
Planet Insurance Co., director
Yorkshire Insurance Company of New York, chairman
Seaboard Fire it M a r i n e Insurance Co., director
Jerman, Thomas Palmer, executive vice president
Union Pacific Railroad, director
Broome, Robert E., vice president
Iowa Public Service Co.. director
McCabc, Herbert P., vice president
New Jersey Natural Gas Co.. director
Palmer, Louis Babcock. vice president
Peerless Insurance Co., director
Verbeck, Guido F., Jr., vice president,
Morris C o u n t y Savings B a n k , director
Wallace. John Brougham. Jr.. vice president
Union Terminal Cold Storage Co.. director
Manhattan Refrigerating Co.. director
Interwoven Stocking Co.. director
White, William RafFord, vice president
Bowery Savings Bank, trustee, member executive committee!
Strelow, William Richard, viee president
Pan American Society of United States, director.
National Council American Importers, Inc., director
National Foreign Trade Council, director
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Anderson, Harold F., vice president
Swedish Chamber of Commerce, U. S. A., director
Sandvik Steel Co., director
Colwell, Kent G., vice president
,
Belgian Chamber of Commerce (United States), director
Kimpel, Ralph E., vice president (foreign)
Peruvian-American Association, Inc., director
Mexican Chamber of Commerce (United States), Inc., director
Venezuelan Chamber of Commerce of United States, Inc., director
Menapace, Robert B., vice president
Chile-American Association, chairman
American-Brazilian Association, treasurer and director
Swart, Philip F., vice'president
New York Board of Trade, Inc.. director
Twyeffort, Herbert E., vice president
Rusticana Corp., secretary and director
936 Fifth Avenue Corp., vice president and director
Brickhouse, Ephr'aim L., vice president
American European Securities Co., director
Kunhardt, Kingsley, vice president
Carpenter Steel Co., director
Royal McBee Co., director
Peabody Home for Aged and Indigent Women
Diocesan Investment Trust, trustee
Chemical Enterprises, Inc., director
Buckley, Jere D., vice president
\ Columbian Carbon Co., director
Yale & Towne Manufacturing Co./director
(
Parvin, W. Rodman, vice president
Guaranty Safe Deposit Co., president and director
Gost, William F., vice president
Guaranty Safe Deposit Co., vice president and director
Baker, Walter Cummings, vice president
J. J. Newberry Co., director
Union Cojlege, chairman board of trustees and director
Manhattan Eye, Ear, and Throat Hospital, director
NYC Bank for Sight Restoration, Inc., president arid director .
555 Park Ave., Inc., treasurer and director
American Academy in Rome, trustee
Metropolitan Museum of Art, trustee
Archeological Institute? of America, treasurer and director
Stephens, Robert W.. vice president
Guaranty Safe; Deposit Co., vice president and director
Barrett, R. T. Tupper, vice president (foreign)
' Compagnie IBM-France, director
'
Cie Francaise Pour La Propriete Fonciere, director
Whitoman, H. Clifton, second vice president, New York Presbyterian Founddation, Inc., treasurer and director
Gundersen, Reidar E., second vice president, United States-German Chamber
of Commerce, treasurer and director
Zulch, Walter H., second vice president, Compagnie Francaise pour la Pro-*
priete Foiiciere, director
Bloom, Winfred C., trust officer:
Raymond Concrete Pile Co., controller and assistant treasurer
Centriline Corp., assistant secretary-treasured and director
Raymond Concrete Pile Company of Venezuela, assistant secretary
Cia Constructora Raymond de Colombia, assistant secretary and assistant treasurer
Raymond Concrete Pile Company of Delaware, assistant secretary and
assistant treasurer
Raymond Concrete Pile Company of America, assistant secretary and
assistant treasurer
Raymond Concrete Pile Company of Panama, assistant treasurer and
director
Raymond Concrete Pile Company of Cuba, assistant secretary-treasurer
Raymond Construction Corp., assistant treasurer
Raymond Concrete Pile Company of Puerto Rico, assistant treasurer
Raymond Concrete Pile Co., Ltd., treasurer
Compania Raymond, S. A., assistant secretary-treasurer
Cen Vi-Ro Corp., treasurer
Raymond Concrete Pile Co., Ltd., Liberia, assistant treasurer
Construction Corp., assistant treasurer
Raymond Concrete Pile (Ontario), Ltd., assistant secretary-treasurer.
Raymond Contraction Co. of Puerto Rico, .assistant treasurer and
director.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MONO. SECTION
Raymond Builders, Inc., assistant treasurer and director
Centrilino Co., S. A., assistant secretary-treasurer •
Raymond Concrete Pile Construction Co., Ltd., assistant treasurer
Raymond Concrete Pile Co. of South America, assistant secretary and
treasurer
>,
Raymond International Co., Ltd., assistant treasurer and director
Allen, George G., director:
American Cyanamid Co., director
Duke Power Co., chairman
' \
Bolenius, William C., director:
American Telephone & Telegraph Co., vice president (accounts and
finance).
Bell Telephone Company of Pennsylvania, director
195 Broadway Corp., directpr
Indiana Bell Telephone Co., director
Cooper, Charles P., director
Presbyterian Hospital in City of New York
Crane, Jr., Winthrop M.( director
Crane & Co., Dalton, Mass., chairman
Agricultural National Bank, Pittsfield, Mass., director
Berkshire Life Insurance Co., Pittsfield, Mass., director
American Bank Note Co., New York City, director
Otis Elevator Co., New York City, director
Eaton Paper Corp., Pittsfield, director
Western Massachusetts Electric Co., director
Western' Massachusetts Cos., director
Air Reduction Co., Inc., director
Dorrance, Jr., John T., director
Campbell Soup Co., assistant to president and director
C. A. Swanson & Sons, director
John Wanamaker, Philadelphia, director,
John Wanamaker, New York, director
Pennsylvania «fe Atlantic Railroad, director
Pittsburgh, Fort Wayne & Chicago Railway, director
Dunlap, Charles E., director
Berwind-White Coal Mining Co., president and director
Archer Coal Depot Co., president and director
v
Berwind Bank, director
/
Berwind Fuel Co., director
Eureka Stores, director
Havana Coal Co., president and director
Howe Sound Co., director
International Products Corp., director
International Telephone and Telegraph Corp., director
Kentland Coal & Coke Co., president and director
Mutual Life Insurance Co., trustee
New River & Pocahontas Consolidated Coal Co., president and director
North British & Mercantile Insurance Co., director
Northern Insurance Company of New York, director
Porto Rico Coal Co,, president and director
Seamen's Bank for Savings, trustee
Wilmore Coal Co., president and director
Wilmore Steamship Co., director
Windber Trust Co., director
Franklin, Walter S., director
Pennsylvania Railroad, director
Long Island Railroad, director
Wabash Railroad, director
Western Saving Fund Society, member board of managers
Norfolk & Western Railway, direr tor
. Girard Trust Corn Exchange Bahk, Philadelphia, director
Bell Telephone Company of Pennsylvania, director
Detroit, Toledo & Ironlon Railroad, director
Curtis Publishing Co., director
Jones, W. Alton, director
Cities Service Co., chairman, member executive committee and director
Adriatic Petroleum Corp., chairman
Colombia-Cities Service Petroleum Corp., chairman
Sixty Wall Tower, Inc., president and director
Empire Gas & Fuel Co., member executive committee, president and
director
Cities Service Oil Co. (Pennsylvania), chairman
i
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
35 XQ
MONO. SECTION
Cities Petroleum Corp. (Canada), chairman
Cities Service Hi-fining Corp., chairman and member executive committee
Cities Service Mid-East Oil Corp., chairman
Dhofar-Cities Service Petroleum Corp., chairman
Sixty Wall Street, vice president and director
Arkansas Pipeline Corp., director
Dominion N a t u r a l (!a> Co., Ltd., director
Orange State Oil Co., director
Chrysler Corp., member finance committee and director
Cities Service Uefen.se Corp., president and director
Cit-Con Oil Corp., chairman
Cities Service Research «<t Develop. Co., chairman
Mexico Cities Service Petroleum Corp., chairman and director
Richfield Oil Corp., chairman finance committee and director
Citie^ Service Pclioleum Corp. (Venezuela), chairman
Cities Diverge .Wets, Inc., president and director
American Petrochemical Corp., vice chairman, member executive
committee and direcior
Petroleum Chemicals, Inc., chairman
Kelley, Cornelius 1''., director
Anaconda Co., director
Butte, Anaconda $ Pacific Railway, president and director
Mines Investment Co., president and director
Chile Copper Co., chairman
Chile Kxploration Co., chairman
Silesian Holding Co., president
Silesian-Ainerican Corp., president
Potrerillos Railway, director
(Jlesche Spolka A k c y j n a , 'chairman
Santiago Mining Co., director
Andes Copper Mining Co., chairman
Andes Kxploration Colnpany of Maine, director
, .
Butte Water Co., director
Arizona Oil Co., director
American Brass Co., director
'
Anaconda-American Brass Co., Ltd., director
Anaconda Sales Co., president and director
Greene Cananea Copper Co., director
Washoe Copper Co., director
, . •
International Smelting & Refining Co., president ami director
Basic Magnesium, Inc., director
Anaconda Wire <fe Cable Co., director
Anaconda Alloys Corp., president and director
Copper Institute, president and director
Munson, Charles S., director
Air Reduction Co., chairman
l
Consolidated Etlison Co., New York, member executive committee and /
trustee
"Commonwealth Insurance Co., director
North British & Mercantile Insurance Co., director
Ohio Chemical — Canada, Ltd., director
Dry Ice, Inc., director
Cuban Air Products, Inc., director.
Sterno, Inc., director
Liquid Carbonic Corporation of Cuba, director
1
National Distillers Products Corp., member finance committee and
director
6 East 72d Street Corp., vice president and director
National Shares Corp., director
Air Reduction, Canada, Ltd., director
Homeland Insurance Co., director
Penick & Ford, Ltd., member executive committee and director
Manufacturing Chemists Association, director
Greyhound Corp., director
Taft School, trustee
Roosevelt, George E., director
Roosevelt <fc Son, partner
y
Bank for Savings in New York, first vice president, trustee, and chairman executive committee
French American Banking Corp., director
Broadway Improvement Co., president and director
Investors Management Co., chairman
Union Pacific Railroad, director
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
O
j»V*SP*
Oregon Snort Line Railroad, director
. '
Oregon-Washington Railroad & Navigation Co., director
Los Angeles <fc Salt Lake Railroad, director
Long Island Railroad, director
New York University, chairman
Roosevelt, Hospital, vice president, treasurer, trustee
Shanks, Carrol M., director
Prudential Insurance Company of America, president and director
Life Insurance Association of America, director
Federal Insurance Co., New York City, director
National Biscuit Co'., New York City, director
Public Service Electric & Gas Co., director /
Bigelow-Banford Carpet Co., director
Fidelity Union Trust Co., Newark, director
Institute of Life Insurance, director
Georgia-Pacific Corp., director (Georgia Pacific Plywood Corp.)
Union Carbide and Carbon Corp., director
,
Spofford, Charles M., director
Davis, Polk, Wardwell, Sunderland & Kiendl, partner
Mutual Life Insurance Company, New York, trustee
Distillers Co., Ltd. (Delaware), director
Carnegie Corporation o7 New York, trustee
Stetson, Eugene \V., director
Textile Banking Co., chairman
Coca-Cola Co., member finance committee and director
French American Banking Corp., chairman executive committee and
direct or
McLellan Stores Co., member executive committee and director
United Stores Co., director
Illinois Central Railroad, chairman executive committee and director
Air Reduction Co., member executive committee and director
Tri-Continental Corp., member advisory committee and director
McCrory Stores Corp., member executive committee and director
Gulf Atlantic Warehouse Co., chairman executive committee und director
(Sub Anderson Clayton & Co., Inc.)
Symes, James M., director
First Penn. Banking & Trust Co., director
'Pennsylvania Railroad, president and director
Norfolk & Western Railway, director
Long Island Railroad, director
Wabash Railroad, director
. '
Detroit, Toledo & Ironton Railroad, director
Association of American Railroads, director
x
Insurance Company of North America, director
Richmond, Ere.dericksburg & Potomac Railroad, director
Towe, Kenneth C., director
Putnam Trust Co., director
American Cyanamid Co., president and director
Southern Minerals Corp., director
Southern Pipe Line Corp., director
Southern Petroleum Corp., director
Woodruff,-Robert W., director
Metropolitan Life Insurance Co., director
Trust Company of Georgia, director
Coca-Cola Co., chairman finance committee arid director
Southern Railway, director
Continental'Gin Co., director
General Electric Co., director
American Express Co., director
Young, George S., director
Columbia Gas System, president and director
Atlantic Seaboard Corp., director
Virginia Gas Transmission Corp., director
Amere Gas Utilities, director
Eastern Pipe Line Co., director
Home Gas Co., director
Keystone Gas Co., director
Central Kentucky Natural Gas Co., director
Binghamton Gas Works, director
Cumberland «fe Allegheny Gas Co., director
Manufacturers Light & Heat Co., director
Natural Gns Co. of West Virginia, 'director
United Fuel Gas Co., director
Ohio Fuel Gas Co., director
Preston Oil Co.. director
Virginia Gas Distributing Corp., director
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Federal Reserve Bank of St. Louis
37 XQ
. OEC;
Atkinson, 11. Alton, vice president
Bissell, Ellsworth C., vice president
Bottomley, Jay E., vice president
Brandebury. Carl V. E., vice president
Brass, Edward K., vice president
Duval, Gordon Bisland, vice president
Ford, Francis P., vice president
Goodwin, John B., vice president
Ives, Gerard M., vice president
Lee, Elliott H., vice president
McGregor, A., vice president
Morey, Robert W., vice president
Potter, 'Walter H., vice president
.Schwartz, H., vice president
Post, Samuel D., vice president
Wardburgh, Russell L., vice president
Brooks, Oliver R., vice president
Knndsen, Harry W., vice president
McCarroll, T. Clyde, vice president
Patton, B. Frank, vice president
Lack, William F., vice president
Kiendl, Arthur H., vice president
Sherman, Harold M., Jr., vice president
Abeel, Alan C., vice president
Bound, Charles F., vice president
Brown, Stanley H., vice president
Dalton, Lawrence E., vice president
Leach, Ralph F., treasurer
Barnes, Stuart K., secretary
Anthony, Donald B., second vice president
Betz, 0. John, Jr., second vice president
Blake, Benson, second vice president.
Cavanaugh, Frank J., second vice president
Cleveland, Charles A., second vice president
Crowther, G. Kenneth, second vice president
Dalrymple, Temple E., second vice president
Denier, Robert S., second vice president
Glorieux, John P., second vice president
Lang, William C., second vice president
McKaig, J. Arthur, secoiid vice president
Mengel) Theodore H., second vice president
Miller, Charles L., second vice president
Sandstrom, Frank, second vice president
Schaumberg, Frank R., second vice president
Scott, Corwin S., second vice president
Valentine, Stephen, Jr., second vice president
Wilson, Harry M,, second vice president
Firmbach, Wilbur C., second vice president
Stoddard, Donald A., second vice president
Green, J. Bradley, second vice president
Bochow, John P., second vice president
Doty, John R., second vice president
O'Brien, Edmund C.> second vice president
Rohrbefg, Clifford A., second vice president
St. Aubyn, Everest, second vice president
Schwoon, John H., second vice president
Butteryj Joseph C., second vice president
Merker, William W., second vice president
Neil, William J., second vice president
Rippe, John D., second vice president
Wainken, Herman W., second vice president
Ince, Louis R., second vice president
Lewis, William McK., second vice president
Tewes, Elmer G., second vice president
Braden, William, second vice president
Dater, Walton F., second vice president
Hay the, Madison H., second vice president
Lazo, William C., second vice president
Denuir, Robert S., second vice president
Brewe"r, Ferdinand H., second vice president
pjitner, W. E., vice president
Keyes, John M., second vice president
Martinez, Manuel, second vice president
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Federal Reserve Bank of St. Louis
. SEC.
Schaefer, John S., second vice president .
Schcu, Lawrence D., second vice president
Eiseman, William C., second vice president
Hallock, Gerard, second vice president
Lord, Joseph F., second vice president
Backer, Joseph A., second vice president
Lelloy, Joseph, second vice president
McMaster, William J., Jr., second vice president
Whelan, Richard V., second vice president
Knott, John S., second vice p"<jsident
Curr^v, Bernard F., traffic officer
Henrick, Karl R., traffic officer
Jndd, Howard C., traffic officer
Kelly, Harry J., traffic officer
Kreger, Don C., traffic officer
Powers, James A., traffic officer
Wiesenauer, Percy, traffic officer
Crocker, Dana R., traffic officer
Gettman, Albert L., auditor
Bratton, Meredith J., manager, publicity
Wildhack, Adelbert C., purchasing agent
Stevens, Robert M., director
Weed, Clye E., director
Wilson, Charles E., director
Bankers Trust Co., of New York
Colt, S. Sloan, chairman
Provident Fire Insurance Co., director
Royal Exchange Assurance Co., member United States advisory committee
State Assurance Co., Ltd., member finance advisory board
Car & General Insurance Corp., Ltd., member advisory committee
Discount. Corp. of New York, director
General Electric Co., director, member finance. committee
American Can Co., director
Tax Foundation, Inc., treasurer and trustee
Baer, Francis S., chairman, executive committee
Union Oil Company of California, director
Crowell-Collier Publishing Co., director
Jones & Laughlin Steel Corp., member executive committee and director
TXL Oil Corp., director
Gersten, ,E. Chester, vice chairman
Consolidated Cigar Corp., director
.
American Broadcasting- Paramount Theaters, director
Moore, William H., executive vice president
American Can Co., member executive committee and director
Delaware Lackawanna & Western Railroad, director
Republic Aviation Corp., member executive c ommittee and director
Royal-Liverpool Insurance Group, director
M. A. Hanna Co., director
Leeb, Brian P., senior vice president
Franklin Savings Bank, trustee
v
Phoenix London Group, director
Hospital Center, Orange, trustee
Shelbnrne Museum, Inc., treasurer arid director
Brewer, Graham H., vice president
Securities Co., director
Carolina Clinohfield & Ohio Railway, director
Stony Wold Sanatorium, treasurer and director
Budinger, J. M., vice president and chairman advisory committee
Thomas J. Lipton, Inc., member executive committee and director
Mavibel International N. V., director
,
Rockwell Spring & Axle Co., director
International Commercial Corp., president and director
Beekman Downtown Hospital, director
New York Becurny, director
General Aniline & Film Corp., me mber of finance committee and director
Dikeman, Edward J., Jr., vice presiden t
Connam Trust, trustee
Foote, Ray Palmer, vice president
Telerama Inc., treasurer and dire ctor
Englewood Hospital, president board trustees
Eaglebrook School, trus tee
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Federal Reserve Bank of St. Louis
Frcy, S. T. Muson, vice president
•Southern Indiana Gas & Electric Co., director
Fulkersou, VV. Neal, vice president
Greater New York Savings Bank, trustee
Hamilton, Frank, vice president
Consumers Power Co., director
Lake, L. Craig, vice president
Swedish Chamber of Commerce, treasurer and director
Maser, Herman George, vice president
EL PC) A, director
Cupsaw Lake Improvement Corp., director
National Arts Club, governor
Mills College for Education, trustee <
Mathias, David B., vice president and general auditor
Williams Club, Inc., governor
Mendell, M. L., vice president
Queens College, trustee
Moore, Miller, vice president
American Youth Hostels, Inc., president
Pouch Terminal, Inc., director
Morgan, Win. A., Jr., vice president
Century Investors, IncI, directorWebster Investment Co., director
American Manufacturing Co., Brooklyn, director
Mueller, Carl M., vice president
Texas Butadiene- & Chemical Cor])., director
Murphy, J. M., vice president
The EJvergreens, Brooklyn, trustee
Norton, A. Sidney, vice president
Baltimore Gas & Electric Co., director
Parsons, Robert W., vice president
Seatrains Line, Inc., director
Charles Pettinos, Inc., chairman
Overlook Hospital, trustee
Xine Ninety Fifth Avenue Corp., director
Strait, Harold C., vice president
Fifth Avenue Association, director
Gibbs & Hill, Inc., director
Taber, John Starr, vice president
Dun & Bradstreet, inc., director
Taber Pump Co., director
American Extract Co., Inc., director
• Ohio Edison Co., director
„ Sanborn Map Co., director
Thompson Grinder Co., director
Taylor, W. T., vice president
Adams Land & Development Co., director
American Land & Development Co., director
Adams Express Co., member executive committee and board of managers
American International Corp., member executive committee and director
ACF Industries, Inc., member executive committee and director
ERGO Division (ACF Industries), member advisory board
First National Bank in Greenwich, Conn., director
Basic Research Corp.", trustee
Cplumbia College, council, chairman
Watkins, Harry Ashton, vice president
Neptune Meier Co., director
Minute Maid Corp., director
Brady, James C., director
Brady Security & Realty Corp;, president and director
Chrysler Corp., director
Purolator Products, Inc., director
Berkshire-Hathaway, Inc., director
Feedback Controls, Inc., director
Somerville Trust Co., director
Cullman, Howard S., director
Cullman Bros., Inc., president and directorPort of New York Authory, honorary chairman
Tobacco & Allied Stocks, Inc., vice president, secretary and director
Cullman Bros., partner
Lexington Avenue & 42d Street Corp., chairman
Prudential Insurance Company of America, director
Waldorf-Astoria Hotel Corp., director
Cigar Institute of America,-Inc., chairman
Philip Morris, Inc., director
Tobacco Merchant Association, president and director
Fifth Avenue Coach Lines, director
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Federal Reserve Bank of St. Louis
Given, Jr., William B., director
American Brake Shoe Co., chairman
Bueyrus-Erie Co., member executive committee and director
Mellon National Bank & Trust Co., director
Combustion Engineering, Inc., chairman executive committee and
director
Dry Dock Savings Bank, trustee
Fabrications Auxiliares des industries Loeomotrice (honorary), director
Dominion Brake Shoe Co., Ltd., director
Hanes, John W., director
Oliri Mathieson Chemical Corp., chairman finance committee and
director
United States Lines Co., chairman executive and finance committee and
director
Johns-Manville Corp., director
Ecusta Paper Co., president
Purolator Products, Inc., director
Thomas Young Orchids, Inc., director
Mutual Life Insurance Co., trustee
P. H. Hanes Knitting Co., director
Lapham, Lewis A., director
Grace Line, Inc., president and director
Federal Insurance Co., director
Barber Oil Co., director
W. R. Grace & Co., director
Melville, Ward, director
Melville Shoe Corp., chairman
Bowery Savings Bank, trustee
Suffolk Improvement Co., president and director
McElwain (J. F.) Co., director
W. T. Grant & Co., director
Three Village Inn, owner
1020 Fifth Avenue Corp., director
Montgomery, George G., director
Kern County Land Co., president and director
Castle &-Cooke, Ltd., director
Matson Assurance Co., director
Matson Navigation Co., director
Oceanic Steamship Co., director
American Trust Co., director
/
General Electric Co., director
Pacific Lumber Co., director
Morgan, Thomas A., director
Lehman Corp., director
Atlantic Mutual Insurance Co., trustee
Bulova Watch Co., director
Centennial Insurance Co., director
Western Union Telegraph Co., director
Shell Oil Co., director
General Aniline & Film Corp., member executive committee and director
United States Industries, Inc., president and director
Jewelers Acceptance Corp., director
Olin, John M., director
Olin-Mathieson Chemical Corp., chairman
Equitable Powder Manufacturing Co., president and director
Egyptian Powder Co., president and director
Columbia Powder Co., president and director
Liberty Powder Co., president and director
Illinois State Bank, president and director
First National Bank & Trust Co., director
Midwest Rubber Reclaiming Co., directo»
St. Louis Union Trust, director
Washington University Corp., director
Ecusta Paper Corp., director
United States Defense Corp., chairman
Liberty Powder Defense Corp., president and director
Midwest Research Institute, trustee
Squibb, S. P. A. (Rome), director
Pomeroy, Daniel E., director
American Brake Shoe Co., director
Bucyrus-Erie Co., director
American Museum of Natural History, trustee
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Federal Reserve Bank of St. Louis
Puckett, B. Earl, director
Allied Stores Corp., chairman
James Black Dry Goods Co., Waterloo, Iowa, directorL. S. Donaldson Co., Minneapolis, director
L. H. Field Co., Jackson, Mich., director
Golden Rule, St. Paul, director
Herpolsheimer Co., C'Jrand Uapids, director
Jordan Marsh Co., Boston, director
Joske Bros. Co., San Antonio, director
F. N. Joslin Co., Maiden, Mass., director
Maas Bros., Inc., Tampa, director
Meyer's Co., Greensboro, N. C., director
Morehouse-Martens Co., Columbus, Ohio, director
Muller Co., Ltd., Lake Charles, La., director
O'Neill <fe Co., Baltimore, director
Pomeroy's, Inc., Reading, director
A. Polsky Co., Akron, Ohio, director
Rollman & Sons Co., Cincinnati, director
Louis Samli-r, Inc., Lebanon. Pa., director
• Titche-GtM'ttinger, Co., Dallas, director
A, E. Troutiuaii Co., urwusburg, director
C, M. Guggeiiheimo.r Corp.,ljynehburg, V'a., directorGi-o. B. Peck, Inc., Kansas City, Mo., director
Waite's, Inc.,, Pontiac, director
Heer's Inc., Springfield, Mo.., director
C. C. Anderson Stores Co.,, Boise?, director
, Polsky Really Co., Akron, Ohio, director
B. GerU, Inc.
Bon Marche, Inc., Lowell, Mass., director
Stern Bros., director
Lehman Corp., director
Pee Wee Corp., president and director
Wayne Petroleum Co., president and director
Robinson-Puckett, Inc., director
Twentieth Century-Fox Corp., director
Reed, Philip J)., director
General Electric Co., chairman
Metropolitaiii Life Insurance Co., director
Moving Corp., directorTiffany & Co., directorTbmpkins; B. A., director
Administrative division (Greater New York Association, Inc.),
dent and director
Btiwery Savings Bank, trustee
General American Investors, director
Otis Elevator Co., director'
Babcock <fe Wilcox Co., director
National Aviation Co., director
Flintkote Co., director
International Paper Co., director
Detroit Edison Co., director
Webb & Knapp, Inc., director
Pnrolator Products, director
Watson, Jr., Thomas J., director
International Business Machines Corp., president and director
Directory of Directors Co., director
Mutual Life Insurance Co., director
'International Correspondence Schools World, Ltd., director
Whiting. Justin R., director
Coun, McKone, Badgley. Doinke & Kline, director
Moore Investment Co., director
Michigan Gas Storage Co., director
Consumers Power Co., chairinan finance committee and director
National Bank of Jackson, director
/.
Ardey, Alex. II., president and director
Dreibelbis, J. P., senior vice president and director
Alliger, Philetus, vice president
*
Andel, E. M., vice president
Babcock, Talbot, vice president
Baskin, Herbert K., vice president
Baylis, Chester, Jr., vice president
Beach, E. E., vice president
Bloom, Jacob, vice president
"Bonynge, Paul, Jr., vice president
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Borman, Charles, vice president
Burrows, Herbert C., vice president
Cahill, T. Merton, vice president
Dunckel, W. B., vice president
Dunstan, E. F., vice president
Dye, Roy A., vice president
Ebert, E. F., vice president,
Farnum, C. W., vice president
Farrell, E. G., vice president
Farrell, James F., vice president
Fay, Harold C., vice president
Finley, Wm. F., vice president
Flaherty, Frederick D., vice president
Forrestal, F. V., vice president
Garrett, Charles G., vice president
Gevers, M, E., vice president
Gruber, Benjamin B., vice president
Gundersdorf, Harold P., vice president
Hartman, Win. N., vice president
Hemminger, R. W., vice president
Hetzler, Edward T., vice president
Hickson, Daniel C., vice president
Kennedy, Joseph C., vice president
Kenny, W. J., vice president
Kissel, William J., vice president
Kubach, John J., vice president
Kyle, W. H., vice president
Laud-Brown, W., vice president
Leary, Fred J., Jr., vice president
Lee, R. B., vice president and deputy controller
Levine, Irving, vice president
' Livingston, W. P., vice president
Martin, M. Scovell, vice president
McKee, Floyd E., vice president
McKinley, Wm., vice president Miller, Charles G., Jr., vice president
Millikin, J. H., vice president
Morris, R. C., vice president
'
Mulgrew, Felix A., vice president
Muller, A., yice president
Murray, R. F., vice president
Orr, Everett, Jr., vice president
Pagnamenta, G., vice president
Paul, Julius, vice president
Pfizenmayer, W. J., vice president and deputy controller
Rath, John F., vice president
Reierson, Roy R. L., vice president
Ripley, H. H., vice president
Ruejile, A. G., vice president
Rutherford, W. F., vice president
Salamon, Theodore I., vice president
Sanders, Henry, vice president
Sandier, A. Herbert, vice president
Sauter, J. V., vice president
Schlicting, A. W,, vice president
Schliesinan, John E., vice president
Schneider, Ernest H., vice president •
Schoenfiein, Benjamin P., vice president
Shea, Herbert D., vice president
i Shepard, F. P., vice president,
Shields, Richard, vice president
Silver, Maxwell, vice president
Sime, Thomas E., vice president
Singer, Joseph, vke president
Sitgreaves, E. Jack., vice president
Smith, Irwin AV., vice president
Snow, William J., Jr., vice president ,
Stuart, D. R., Jr., vice president
Summers, Charles, vice president
Tait, Malcolm R., vice president
Tappen, Harry F., vice president '
Tut tie, P. M., vice president
Walker, Colernan C., vice president
Woodward, Gordon, vice presidentMo#es, Henry L., director '
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Federal Reserve Bank of St. Louis
First Boston Corp.
Woods, George D., chairman
Kaiser Steel Corp., director
Linsley, Duncan Robertson, vice chairman and director
Sharon Steel Corp., director
Coggeshall, James, Jr., president and director
Commercial Credit Co., director
United States Life Insurance Co., director
Brushaher, Albert Bailey, vice president and director
National Union Fire Insurance Co., director
H. K. Porter Co., director
Cannon, Francis A., vice president awd director
Plainfield Savings Bank, director
Glavin, Charles C., vice president and director
Belle Isle Corp., director
J. J. Kennedy Corp., director
Commonwealth Oil Refining Co., director
Wilshire Oil Company of Texas, director
Gerade, Alfred A., vice president
w ;
4
Melrose (Mass.) Savings Bank, vice president, trustee and member
board of investors.
Barter, Robert L., vice president
Bonanza Airlines, director
Lyles, James Adam, vice president and director
Southern Nitrogen Co., director
Berkshire School, trustee
Sarah Lawrence Coll., treasurer and trustee
Townsend, Edward, vice president
'•:.
Transoceanic Development Corp., Ltd., vice president and director
Addinsell, Harry M., director
Phillips Petroleum Co., director
Virginian Railway, director
Bachelder, Charles F., director
Ruberoid Co., member executive committee and director
:
Holbrook, Luther G., director
"
General Reinsurance Corp., member finance committee and director
Guaranty Reinsurance Co., Ltd., director
T. Millon '& Sons, assistant vice president
Herbert Clough, Inc. (New York City), director
Carlon Products Corp. (Cleveland), director
Orr, James H., director
Colonial Management Associates,.partner
Colonial Fund, Inc., president and director
Standard Accident Insurance Co., director
Bond Investment Trust of America, president and trustee
Planet Insurance Co., director,
.
Gas Industries Fund, Inc., president and director
Seaboard Finance Co., director
Account ing Service Cor))., trustee
Pitney-Bowes, I n c . , director
Draper Corp., director
-.Commonwealth Oil Refining Co., director
Providence Gas Co., director
Pope, Allan M., director
Insuranshares Certificates, Inc., director
' i(V
Commerce & Industry Association of New York, member executive
committee and director
Black, Starr & Gorham, Inc., director
Knapp Bros. Shoe Manufacturing Corp., director
Zion Industries, Inc., director
Emerson', Kobert (in-enough, director
l-'ir-t N ; i i ioiui! Bank of BoRtOH, director
Maryland Casually Co., director
First of Boston International Corp., director
Suffolk Savings Bank for Seamen & Others, trustee
Baystate Corp., director
Nevada-Massachusetts Co., director
New Ocean House, Inc., director
Sheraton Buildings, Inc., director
Atlas Plywood Corp., director
Plymouth Rubber Co., director
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Murray Company of Texas, director
Baltimore Gas & Electric Co., director
Merchants Warehouse Co. (Boston), director
Boston Tidewater Terminal, director
New England Confectionery Co., director
Commonwealth Oil Refining Co., director
Northeastern University, treasurer and trustee
Bradford Junior College, trustee
Pattberg, Einil J., Jr., chairman, executive committee, and directorPotter, William H., Jr., senior vice president and director
Cross, Milton C., vice president and director
Chappell, William B., vice president and director
Day, John A., vice president
Delafield, Richard M., vice president
Dorsey, Cornelian. A., vice president
v
Herron, S. Davidson, vice president
Hodges, Ransom F., vice president
Hovorka, Robert J., vice president and director
Johnson, Thomas J., vice president
King, Francis S., vice president and director
Ladd, Edward H., vice president and director;
Lebens, PJdward P., vice president
Macy, Norman L., vice president
Maxson, L. Meredith, vice president
McCarthy, Dennis H., vice president
Merritt, Wilbur M., vice president
Miller, Paul L.,' vice president
Morris, Joseph E., Jr., vice president
Morrison, James C., vice president
Perin, George L., vice president
Richardson, Howard. P., vice president
Ruxton, Warren A., vice president
Simpson, George W., vice president
Smyth, Henry G., vice president
Sullivan, Winthrop E., vice president
Tritschler, Frederick M., vice president
Whitbeck, Brainerd H., vice president
. Wilkes, Howard L., vice president
Ross, Lawrence O., treasurer
Kirkpatrick, R. J., secretary
Glavin, F. A., financial secretary
Dasburg, Albert, comptroller
.. Bradlee, W. L., clerk
Ford, Nevil, director
Whitbeck, B. H., director
Woods, J. D., director
THE TREASURY AND THE FEDERAL RESERVE SYSTEM GET THE ADVICE
OF BIG FINANCIAL INTERESTS
Another thing the committee has not looked into in connection with
these bills is the advisory councils and the advisory committees which
help the Federal Reserve System decide what interest rates shall be
set and 'what the money supply shall be, and help the Treasury decide what kind of securities to issue and at what interest rales.
Recently, the Select Committee on Small Business of the House, of
which 1 am privileged to be chairman, issued a report on the interlocking officers and directors between and among the 1.35 largest private financial companies of the country. Using this list of the officers
and directors of these 135 companies in 1956, I have had these compared to the membership lists of the Federal Reserve Advisory Council which is provided for in these bills, as well as so the Treasury's advisory committees. I believe the following summary of the results
will strongly suggest to this committee that it should stop, look, and
listen before passing a bill to continue any of these advisory committees without making same drastic amendments to the way they
are selected and organized.
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Federal Reserve Bank of St. Louis
FEDERAL RESERVE SYSTEM PERSONNEL WHO ARE DIRECTORS AND OFFICERS OF
MAJOR FINANCIAL COMPANIES
'
As of the middle of 1957, at least 21 individuals who are directors or officers of
major financial institutions (the "base" companies of this report) serve on the
Federal Reserve System as directors of individual Federal Reserve banks or on the
Federal Advisory Council of the Board of Governors. Eight of the'total are
members of the Federal Advisory CounciVj'4 are directors of the Federal .Reserve
Bank of New York; and 3 are directors of the Federal Reserve Board of San
Francisco. The remaining 6 are directors of the boards of the Federal Reserve
banks of Boston (1), Philadelphia (1), Cleveland (2) and Chicago (2).
The eight members of the Federal -Advisory Council, with their major connections with other companies, a'fe as follows:
Robert V. Fleming, president of the Federal Advisory Council, is chairman of
Riggs National Bank, Washington, D. C., and is also a director of Metropolitan'
Life Insurance Co. (largest life ihsurance company in the United States), of the
Southern Railway, of Pan American World Airways, and of the Chesapeake & i
Potomac Telephone Co.
Frank R. Denton, vice president of the Federal Advisory Council, is vice chairman, of the Mellon National Bank & Trust Co. (12th largest commercial bank),
and is also a director of the following companies: Union Oil Company of California,
Shamrock Oil & Gas Corp., Diamond Alkali Co., Jones & Laughlm Steel Corp..
Westinghouse Electric Corp., Pullman, Inc., Western Allegheny Railroad, and .
National Union Fire Insurance Co.
Herbert V. Prochnow, secretary of ,the Federal Advisory Council, is a vice president of the First National Bank of Chicago (sixth largest commercial bank).
Lloyd D. Brace, president of First National Bank of Boston (14th largest commercial bank) is also a director of the John Hancock Muutal Life Insurance Co.
(fifth largest life insurance conipany), of the American Telephone & Telegraph"*
Co., of Gillette Co., the United Shoe Machinery Corp., the Pullman Co., and the
Boston Five Cents Savings Bank.
Frank L. King, president of the California Bank, Los Angeles (22d largest .commercial bank), is also a director of Pacific Mutual Life Insurance Co., Pacific
Indemnity Co., and the Times Mirror Co.
Homer J. Livingston, president of the First National Bank of Chicago (sixth
largest commercial bank), is also a director of Continental Casualty Co. (12th
largest fire and casualty insurance company), of Standard Oil Companyx>f Indiana,
Sears Roebuck & Co., and Continental Assurance Co.
Adrian M. Mtissie, chairman of New York Trust Co. (31st largest commercial
bank), is also a trustee of the Greenwich Savings Bank (eighth largest mutual ]sav- '
ings bank) and a director of the United States Life Insurance Co.
William R. K. Mitchell, chairman of Provident Trust Co., Philadelphia, is a
director of Provident Mutual Life Insurance Co. (18th largest life insurance company), a^id of the Fire Association of Philadelphia.
I. Federal Reserve Bank of Boston',
t Milton P. Higgins is a director of the Liberty Mutual Insurance Co. (fifth ;
largest fire and casualty insurance conipany), president of the Norton Co., and
director of the Boston Manufacturers Mutual Insurance Co., and the New England Telephone & Telegraph Co.
II. Federal Reserve Bank of New York
Clahnce Francis, a director and former chairman of General Foods Corp., is
also a director of Mutual'Life-insurance Company, of New York (ninth largest life
insurance company), of Lehman Corp.* (13th largest investment trust), and of
Mead Corp., Air. Reduction Co., United States Rubber Co., Bendix Aviation
Corp.; and Northern Pacific Railway.
Howard C. Sheperd, chairman of the First National City Bank of New York
(third largest commercial bank), is also a trustee of the East River Savings Bank
(ninth largest mutual savings bank), and also a director of the Corning Glass
Works, Anaconda Co., New Jersey Zinc Co.. United Aircraft Corp., Federal
Insurance Co., Union Pacific Railroad and Consolidated Edison Company of
New York.
Lansing'P. Shield, president of Grand Union Co., is a director of the Prudential
Insurance Company bf America (second largest life insurance company), and of
American Reinsurance Co.
Charles H. Diefeudorf, on the board of directors of the Buffalo Branch of the
Federal Reserve Bank of New York, is chairman of the executive committee of
Mariiie Trust Company of Western New York (35th largest commercial bank),
and also a director of Marine Midland Trust Co., Marine Midland Corp., General
Baking Co., Dunlop Tire & Rubber Corp., International Salt Co., Carborundum
Co., Niagara Share <3orp., and the Erie Railroad.
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Federal Reserve Bank of St. Louis
46 XQ
III. Federal Reserve Bank of Philadelphia
Geoffrey S. Smith, president of t'ue Girard Trust Corn Exchange Bank, is also
on the board of managers of the Philadelphia Saving Fund Society (second largest
mutual savings bank), and a director of National Life Insurance Co. and of thu
Bell Telephone Company of Pennsylvania.
IV. Federal Reserve Bank of Cleveland
Arthur B. Van Buskirk, chairman of the Federal Reserve Bank of Cleveland and
Federal Reserve agent, is also a director of the Equitable Life Assurance Society of
United States (third largest life insurance company), of Pittsburgh Consolidation
Coal Co., of Koppers Co., and of General Reinsurance Corp.
Joseph H. Thompson, deputy chairman of the Federal Reserve Bank of
Cleveland, is chairman of the M. A. Hanna Co. and also a director of the National
City Bank of Cleveland (34th largest commercial bank), of the Labrador Mining
& Exploration Co., National Steel Corp., American Ship Building Co., Butler
Bros., and the Pennsylvania Railroad.
V. Federal Reserve Bank of Richmond
None.
VI. Federal Reserve Bank of Atlanta
None.
VII. Federal Reserve Bank of Chicago
Walter J. Cummings, chairman of Continental Illinois National Bank & Trust
Co. (eighth largest commercial bank), is also a director of the Texas Co., ACF
Industries, Inc., the Chicago, Milwaukee, St. Paul & Pacific Railroad, and Commonwealth Edison Co.
Raymond T. Per ring, on the board of directors of the Detroit branch of the
Federal Reserve Bank of Chi'cago, is the president of the Detroit Bank & Trust
Co. (21st largest commercial bank), and also a director of Standard Accident
Insurance Co. and of Detroit Edison Co.
VIII. Federal Reserve Bank of St. Louis
None.
IX. Federal Reserve Bank of Minneapolis
None.
X. Federal Reserve Bank of Kansas City
None.
XI. Federal Reserve Bank of Dallas
None.
XII. Federal Reserve Bank,of San Francisco
A. H. Brawner, chairman of the board of the Federal Reserve Bank of San
Francisco and Federal Reserve agent, is vice president of the Fireman's Fund
Insurance Co. (13th largest fire and casualty insurance company), and also director
of California Packing Corp., W. P. Fuller & Co., and Caterpillar Tractor Co.
James E. Shelton, on the board of directors of the Los Angeles branch of the
Federal Reserve Bank of San Francisco, is the chairman of the Security-First
National Bank of Los Angeles (10th largest commercial bank), and also a director
of Rexall Drug Co., of Southern California Edison Co., and on the advisory
board of the American Mutual Fund, Inc.
Edward C. Summons, on the board of directors of the Portland branch of the
Federal Reserve Bank of San Francisco, is president of the United States National
Bank of Portland (27th largest commercial bank), and also director of the Northwestern Mutual Life Insurance Co. (6th largest life insurance company), and of
the Pacific Telephone & Telegraph Co.
In summary, the above information 'shows that these 21 directors of Federal
Reserve banks and members of the Federal Advisory Council of the Board of
Governors of the Federal Reserve System are officers or directors of 26 of the 135
base companies of this study. These include 12 of the 35 largest commercial
banks of the Nation, 3 of the 9 largest mutual savings banks, 7 of the 18 largest
life-insurance companies (including the first, second, third, fifth and sixth largest),
3 of the 13 largest fire and casualty insurance companies, and the 13th largest
investment trust.
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Federal Reserve Bank of St. Louis
( H K M B K K S OP THK A D V I S O R Y COMMITTEE FOR THE STUDY OF F E D E R A L STATUTES
C O N C K H N I N C F I N A M 1 A L I \STIT CTIOXS A N D CREDIT OF THE SENATE COMMITTEE
O K H A N K I X t . \ M > ( M H K K X l ' V \VHU A R E I N T E R L O C K I N G DIRECTORS A N D OFFICERS
O F M A J O R F I N A N C I A L COMPANIES
Of the 27 members of the Advisory Committee for the Study of Fedenil Statutes
Concerning Financial Institutions and Credit,21 7 are officers jijid directors of 1
or more of the 135 major financial companies. These.seven men, together with
their more important interlocking corporate connections are:
' The full list of members of the advisory committee'Is published in IT. S. Congress, Senate Commit toe
on2 Banking and.Currency. t?tudy of hanking laws; hearings, pt. 1, Xov. IMO, 1BSO, p. 3-4.
The 135 top financial companies were chosen as of December 31. 19.SO, and were selected on the bai-is
of '1 -posits in the case of banks, and admitted assets in the case of insurance companies.
1. Joseph A. Broderick, chairman of the board, East River Savings Bank,
New York (llth largest mutual savings bank).
2. Reese H. Harris, Jr., senior vice president, Connecticut Bank & Trust Co.,
who is also a director of the Connecticut General Life Insurance Co. (the l-lth
largest life-insurance company), and a trustee of the Society for Savings, Hartford,
Conn.
3. Norris O. Johnson, vice president, First National City Bank, New York,
N. Y. (third largest commercial bank).
'
4. Homer J. Livingston, president, First National Bank of Chicago (sixth largest
commercial bank), who is also a director of the Continental Casualty Co. (12th
largest fire and casualty company), of Standard Oil Company of Indiana, of Sears
Roebuck & Co., and of the Continental Assurance Co.
5. John J. McCloy, chairman of the board, Chase Manhattan Bank (second
largest commercial bank), who is also a director of Metropolitan Life Insurance Co.
(largest life-insurance company.-in the United States), of United Fruit Co., of
Allied Chemical & Dye Corp., of Westinghouse Electric Corp. and of American
Telephone & Telegraph Co.
('). James E. Shelton, chairman of the board, Security-First National Bank of
Los Angeles (10th largest commercial bank) is also a director of Rexall Drug Co.,'
of the Southern California Edison Co., and on the advisory board of the American
Mutual Fund, Inc.
7. Ben Wooten, president, First National Bank in Dallas (26th largest commercial bank) is also a director of the Gulf, Colorado & Santa Fe Railway, a subsidiary of the Atchison, Topeka & Santa Fe Railway.
Thus, these seven men between them are senior officers of the 2d, 3d, 6th, 19th,
and 26th largest commercial banks in the country and of the llth largest mutual
savings bank (based on deposits at the end of 1956), and are also directors of the
1st and 14th ranking life-insurance companies and of the 12th ranking fire ajid
casualty insurance company.
It should also be noted that this 27-member advisory committee includes
directors of two Federal Res'erve banks:
Vivian Johnson, president, First National Bank, Cedar Falls, Iowa, is a director
of the Federal Reserve Bank of Chicago.
James E. Shelton, chairman of the board of Security-First National Bank of
Los Angeles is on the board of the Federal Reserve Bank of San Frahcisqo, Los
Angeles branch.
In addition, Homer J. Livingston, president, First National Bank of Chicago,
is a member of the Federal Advisory Council of the Board of Governors of.-tho
Federal Reserve System.
MEMBERSHIP OF ADVISORY COMMITTEES TO THE TREASURY DEPARTMENT WHO ARE
ALSO OFFICERS AND DIRECTORS OF "BASE" COMPANIES
There are at present four committees of major financial organizations* which
advise the Secretary of the Treasury on de.bt-management policies and Operations.
These are the Government Borrowing Committee of the American Bankers
Association, the Governmental Securities Committee of the Investment Bankers
Association of America, the Committee on Government Securities and the Public
Debt of the National Association of Mutual Savings Banks, and the Joint Committee on Economic Policy of the American Life Convention and the Life Insurance)
Association of America. These 4 associations have a combined membership
of 75. Of these 75, 45 hold positions as'directors or officers in 22 of the 34 largest
commercial banks, 9 of the 14 largest life insurance companies, 6 of the 17 largest
mutual savings banks, 2 of the 14 largest investment bankers, the-2d largest
investment trust and the 12th largest fire and casualty insurance •company.
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Federal Reserve Bank of St. Louis
In a number of cases, these large financial institutions were represented by more
than one member on these committees. Thus, for example, 4 officers or directors
of Chase Manhattan Hank are represented on 3 of these committees; 3 officers,
or directors of Metropolitan Life Insurance Co. are represented on 2 of them.
The following companies are represented by two directors or officers on these
committees. Hank of America National Association & Trust Co., G u a r a n t y
Trust Co., Continental Illinois National Bank & Trust Co., Security-First National
Hank, Los Angeles, First National Hank of Hoston, J. P. Morgan & Co., Bowery
Savings Bank, Massachusetts Investors Trust, and New England Mutual Life
Insurance Co.
The specific connections of each of these 45 individuals are shown in I lit! follow-,
ing sections, one for each of the advisory committees.
A. Government Borrowing Committee of Ike American Bankers Association
The Government Borrowing Committee of the American Hankers Association
was formed in November 1942. As of the middle of 1057 it had a membership of
21. Of these 21, 12 are otlicers or directors of "base companies" of this study.
These 12 members with their major connections with other companies are as
follows:
Robert V. Fleming, Chairman of the Government Borrowing Committee, is
chairman of the Riggs National Hank, Washington, 1), C. and also a director of
Metropolitan Life Insurance Co. (largest life Insurance compaii}'), of the Southern
Railwaj', the Pan American World Airways, Inc., and the Chesapeake & Potomac
Telephone Co.
Henry C. Alexander, chairman of J, P. Morgan & Co, (30th largest commercial
bank) is also a director of American Viscose Corp., Johns-Manville Corp., and
General Motors Corp.
.
_i
S. Clark Bcist is president of the Hank of America National Trust & Savings
Association (largest commercial bank).
•]
Fred F. Florence, president of the Republic National Hank of Dallas, Tex. (28th
largest commercial bank), is also a director of Lone Star Steel Co., and of tho
Missouri-Kausas-Texas Railroad.
H. Frederick Hagemann, Jr., president of the Rockland-Atlas National Hank,
Boston, is also a member of the finance committee and director of the New England Mutual Life Insurance Co. (llth largest life insurance company), on the
advisory board of Massachusetts Investors Trust (2d largest investment trust),
of Provident Institution for Savings, and of the Massachusetts Honding & Insurance Co.
N. Baxter Jackson, chairman of the executive committee of Chemical Corn
Exchange Hank (fifth largest commercial bank), is also a director of American
Chicle Co., of Intel-chemical Corp., of Aluminum, Ltd., of Western Electric Co,,
of Alco Products, Inc., of McCrory Stores Corp., and of General Reinsurance
Corp.
David M. Kennedy is a vice, president of Continental Illinois Bank & Trust Co.
(eighth largest commercial bank).
William Fulton Kurtz, chairman of the executive committee of Fiivst Pennsylvania Hank & Trust Co. (19th largest commercial bank), is also a trustee of the
Penn Mutual Life Insurance Co. (13th largest life insurance company), a director
of Proctor & Schwartz, Inc., of the Philco Corp., of Western Saving Fund Society,
of the Fire Association of Philadelphia, and of the Reading Co.
Homer J. Livingston^ president of the First National Hank of Chicago (Oth
largest commercial bank), is also a director of the Continental Casualty Co. (12th
largest fire and casualty company), of Standard Oil Company of Indiana, of Sears
Roebuck & Co., and of the Continental Assurance Co.
John J. McCloy. chairman of the board, Chase Manhattan Bank (second largest
commercial bank), is also a director of Metropolitan Life Insurance Co. (largest
life insurance company), of United Fruit Co., of Allied Chemical & Dye Corp.,
of Westinghouse Electric Corp., and of American Telephone & Telegraph Co.
Earl B. Schwultz, chairman and president of Bowery Savings Hank (largest
mutual savings bank), is also a director of the Saving; Hanks Trust Co.
James E. Shelton, chairman of the Security-First National Hank, Los Angeled
(10th largest commercial bank), is also a director of Rexall Drug Co., of Southern
California Edison Co., and on the advisory board of the American Mutual Fund.
Robert V. Fleming and Homer J. Livingston are also members of the Federal
Advisory Council of the Hoard of Governors of the Federal Reserve System.
James /'/. KhcUon is also on the board of directors of the Los Angeles Branch
of the Federal Reserve Hank of Sun Francisco.
Homer J. [siringslon, John J. McCloy and James K. Shclton fire also members
of the Advisory Committee for the Study of Federal Statutes: Concerning Financial
Institutions and Credit of the Senate Committee on Banking :iud Currency.
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Federal Reserve Bank of St. Louis
Between tlu'tn these 12 men are represented on the hoards of directors of 0 of
the 30 largest commercial banks of tin 1 United States, including the 2 largest; of
3 of the 13 largest life insurance companies, (2 of the 12 men being directors of
the. largest life insurance company) of the largest mutual savings bank; of the 2d
largest investment trust, and of the 12th largest fire and casualty insurance
company.
B. Governmental sec.itritiea committee, Investment Bankers Association of America
The governmental securities committee of the Investment Bankers Association was first appointed in 1918 and consulted and advised with the Treasury on
a variety of problems from 1918 to 1922. Beginning in 1947, it again commenced
to consult and advise \vith the .Secretary of Treasury whenever requested to do so.
The committee no\v has 2i members of whom 18 art- officers or directors of
"base" companies of. this study. These 18 members with their major connections
with other companies are as follows:
Einil J. Pattberg, Jr., chairman of the committee, is chairman of the executive
committee of the First Boston Corp. (the largest investment banker, based on
underwritings managed during 195t>).
Robert B. Blyth is a vice president of the National City Bank of Cleveland
(34th largest commercial bank).
Milton S. Bosley is a vice president of the National Bank of Detroit ( l l t h
largest commercial bank).
Dvvight W. Chapman is a senior vice president of the American Trust Co. (IQth
largest commercial bank).
W. Wayne Glover is a vice president of the California Bunk, Los Angeles
(22d largest commercial bank).
Hardin H. Hawes is a vice president of the Harris Trust & Savings Bank,
Chicsigo (33d largest commercial b'ank).
Rnssel A. Kent is a vice president of the Bank of America National Trust &
Savings Association (largest commercial bank in the United States).
Frederick G. Larkin, Jr. is a vice president of the Security-First National Bank
(10th largest commercial bank).
Ralph F. Leach is a treasurer of the Guaranty Trust Co. of New York (seventh
largest commercial bank).
Pat G. Morris is a vice president of the Northern Trust Co. (32d largest commercial bank).
Robert C.'Morris is a vice president of the Bankers Trust Co. (ninth largest
commercial bank).
Delmont K. Pfeffer is a vice president of the First National City Bank of Now
York (third largest commercial bank).
'George B. Kneass is a vice president of the Philadelphia National Bank (20th
largest commercial bank).
John H. Perkins is a vice president of the Continental Illinois National Bank &
Trust Co. (eighth largest commercial bank)..
L. Sumner Pruyne is a vice president of the First National Bank of Boston
(i4th largest commercial bank).
F. Brian Renter, a vice president of the Mellon National Bank & Trust Co.
(12th largest commercial bank), is also a director of the Pennroad Corp.
Girard L. Spencer is a general partner of Salomon Bros. & Hutzler (14th largest
investment banker).
Together these officers and directors represent Hi of the 34 largest commercial
banks in the United States, including the 3 largest, and 2 of the 14 largest investment bjmkers, including the largest one.
C. Committee ,on Government Securities and the Public Debt of the National Association of Mutual Savings Banks
The Committee on Government Securities and the Public Debt of the National
Association of Mutual Savings Banks was established in 1942 under the name of
Committee on War Effort Cooperation. In 1946, this Committee was merged
with the Committee on Government and Municipal Securities and in 1947 the
name of the Committee was changed to the one it now has. The committee has
a membership of 17. Of this total, six are officers or directors of "base" companies
of this study-.
These six officers or directors and the major positions they hold in other conv
panies are as follows:
John H. Dlierki is vice president of Howard Savings Institution, Newark, N. J.
(17th largest mutual savings bank).
W. H. Harder, a vice president of the Buffalo Savings Bank (16th largest mutual
savings bank), is also a director of Institutional Investors Mutual Fund, Inc.
Richard A. Holton, a vice president of the East New York Savings Bank,
Brooklyn (ninth largest mutual savings bank), is also a director of Institutional
Investors Mutual Fund, Inc.
Alfred C. Middlebrook, a vice president of East River Savings Bank (11th
largest mutual savings bank), is also executive vice president and director of
Institutional Investors Mutual Fund, Inc.
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Federal Reserve Bank of St. Louis
John Ohlenbuscli is a vice president of Bowery Savings Bank (largest mutual,
savings bank).
A. Edward Schorr, Jr., a vice president and treasurer of Dime Savings Bank
of Brooklyn (fourth largest mutual savings bank), is also a director and vice
president of Institutional Investors Mutual Fund, Inc.
These 0 individuals combined are officers in C of the 17 largest 'mutual savings
banks in the country, including the largest one.
;
D. Joint committee on economic policy of'the American Life Convention and the Life
Insurance Association of America
The joint committee on economic policy was organized in 1945 under the name
of a joint treasury liaison committee. This was renamed the joint committee on
monetary affairs in the same year and was given its present name in September
1952 with broadened functions, including the formulation of views of the lifeinsurance business regarding monetary, fiscal, and housing policies of the Federal
Government. At present the committee has 12 members of whom 9 are officers
or directors of base companies of this study. These nine members and their major
connections with other companies are:
;
Carrol M. Shanks, chairman of the joint committee, is president of the Prudential-Insurance Company of America (second largest life insurance company),
and also a director of the Guaranty Trust Co. (seventh largest commercial bank),
of National Biscuit Co., of Bigelow Sanford Carpet Co., of Georgia Pacific Corp.,
of Union Carbide & Carbon Corp., of Fidelity Union Trust Co., of Federal Insurance Co., and of Public Service Electric & Gas Co.
O. Kelley Anderson, president^ of New England Mutual Life Insurance Co.
(llth largest life insurance company), is also a director of Canada General Fund,
Ltd., Consolidated Investment Trust, Century Shares Trust, and Boston Edisou^
Co.
Paul F. Clark, president of John Hancock Mutual Life Insurance Co. (5th
largest life insurance company), is also a director of First National Bank of
Boston (14th largest commercial bank), of the Massachusetts Investors Trust
(2d largest investment trust), of Armour & Co., of Boston Insurance Co., and
of Seaboard Air Line Railroad.
Louis W. Dawson is president of the Mutual Life Insurance Company of New
York (ninth largest life insurance company).
Frederic W. Eckcr, president of Metropolitan Life Insurance Co. (largest
life insurance company) is also a director of Chase Manhattan Bank (second
largest commercial bank) and a trustee of Excelsior Savings Bank.
Devereux C. Josephs, chairman of the board, New York Life Insurance Co.
(4th largest life insurance company), is also a director of J. P. Morgan & Co.
(30th largest commercial bank), of American Brake Shoe Co., of American
Smelting & Refining Co., and of Consolidated Edison Company of New York.
Ray D. Murphy, chairman of the board, Equitable Life Assurance Society of
the United States (third largest life insurance company) is also a director, of
Chase Manhattan Bank (second largest commercial bank).
Frazar B. Wilde, president, Connecticut General Life Insurance Co. (14th
largest life insurance company), is also a director of Connecticut Bank &
Trust Go., of Plax Corp., and of Emhart Manufacturing Co.
James Ralph Wood, president of Southwestern Life Insurance Co., is also a
director of First National Bank in Dallas (26th largest con|mercial bank), and of
Chance Vought Aircraft, Inc.
Altogether these 9 individuals are situated on the boards of directors of 8 of the
14 largest life insurance companies of the country (including the five largest), of 5
of the 20 largest commercial banks, and of the second largest investment trust.
Two of the individuals are on the board of the second largest commercial bank.
CONSIDERATION SHOULD BE GIVEN TO THE FDIC RESERVES
Now, the FDIC only has $1.44 to protect eyery $100 of bank
deposits in insurance. That is a pretty small amount.
' The Federal Savings and Loan Insurance Corporation has 60 cents
to protect every $100 of liability. That is a pretty small amount.
Now, in each case, the FDIC has a commitment from the United
States Treasury. It is written into the law. It does not cost them
a penny.
Bankers charge people for commitments, but the bankers are not
charged for commitments in this case. They have a commitment of
$3 billion that they can go down to the Treasury and pick up at any
time they need it; provided, of course, that the Treasury has it, or
can raise it under the existing debt limit.
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Federal Reserve Bank of St. Louis
.._.-'•
The Federal Savings and Loan Insurance Corporation lias $750
million.
1 t h i n k we should at least consider increasing these fees until the
FDIC Iras enough money to release the Government from that
l i a b i l i t y , and have at least a s u b s t a n t i a l sum in there to guarantee all
this insurance t h a t has been put out on homes and farms and also to
depositors. We should at least do t h a t .
So far, we have had very ijood luck, since the FD1C was established;
we have not had any serious business reversals which would put a great
strain on the banks. But we cannot be sure that we will always
be so lucky.
THE COMMITTEE HAS A BIG RESPONSIBILITY
Mr. Chairman, we have, as Members of Congress, representing Unpeople of our districts and representing the people of the United States,
and as members of this committee representing the House of Representatives, we liave^some grave responsibilities. As matters stand, wo
.are permitting this Federal Reserve System to continue to go footloose
"and fancy free, spend all the money they want, and without any
accounting to anybody.
Now, all other Government agencies have to go through the Appropriations Committee. They have to have their expenditures screened
that way. But not so with the Federal Reserve Banking System,
which is wholly owned by the Government and operates on the
Government's money. And not so the 'Comptroller of the Currency,
who, does not have his funds audited or his handling of billions of
dollars of currency audited, and who is not checked on the question
whether he is cariying out his legal responsibilities in the laws lie is.
administering.
.
There is no way for Members of Congress to find out how these
Federal agencies spend this money or administer the laws entrusted
to them. We just accept their word for these mutters.
I do not believe our constituents want us to allow these things to
continue. I do not believe the Members of the House want us to allow
it. It does not look sensible that we would just turn people loose
without safeguards and public accounting.
Suppose that someone^ would suggest that the Congress could go over
and take from the Bui-ear of Engraving and Printing enough Federal
Reserve notes to buy enough Government bonds that the interest
on those bonds would pay the expenses of Congress and a lot more
besides.
We would not have a chance of getting by with that. It would
not look sensible at all, and it would not be sensible.
But that is exactly what we do with the Federal Reserve. We just
turn them loose, let them go over there and get all the money they
want, print it on Government credit and use it to buy Government
bonds. Then we let them keep the. Government bonds, collect' the
interest from the Treasury of the United States, use the. interest as
they want to use it. To pay entertainment fees, to pay honorariums
of $2,000, have banquets, pay not only the Directors' expenses to
all kinds of bankers association meetings but also their wives expenses;
and I do not know what else. They pay money for anything they
want to.
Now, if that makes sense, 1 do not have any sense. It is just not
sense, that is all.
Normally, we would not allow that in our own business and wo
should not allow it in the Government's business. This is the Government's business.
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Federal Reserve Bank of St. Louis
Now, the whole tiling in the banking system, Mr. Chairman, is for
the local hanks to sell out to some outside hank. Outside people get
in control—absentee ownership and monopoly. And I think the
examiners are in part the cause of this.
When they go into a local bank, they say "You ought to build up a
big secondary reserve." And you will find that the banks today have
$GO billion worth of United States Government -bonds.
<
Now, I do not object to the banks having some Government bonds.
But I do object to their being so loaded with bonds that local people
needing the credit these local institutions cannot get it. That is
exactly the. position of many of these banks today.
Some of them have Government Bonds, 50 percent, GO percent, 75
percent, and we have heard of institutions, banking institutions having
100 percent in United States Government securities. Now, that is
not rendering service to the people.
The Comptroller of the Currency does not look after the people's
interest. He does not determine whether or not they are being charged
usurious interest. Ho does not determine whether or not the banks
are furnishing the local community enough money and investing too
much in outside securities.
The Federal Reserve banks are not doing it. All they are doing is
making it possible for the banks to get into fewer and fewer hands—
encouraging absentee ownership, and that should be stopped. We can
write into this bill a provision that will stop it.
I ask only that consideration be given to these amendments. I
urge particularly the amendment for the small business capital banks.
That bill is not only sponsored by the Small Business Committee of
the House, after careful consideration, but it is sponsored by the
majority leader in the United States Senate and many other Members
of that body. It is looked upon as a good bill; it is very much needed,
and I think we should pass it. I will offer it as an amendment to
these financial institutions bills at the proper< time, in connection with
the consideration and reading of the bills.'
Now, if there are any questions, Mr. Chairman, I will be very glad
to yield.
The CHAIRMAN. You may propose your amendments and in executive session we will consider them.
Are there any questions?
Mr. BUTTS. You mentioned the supreme court case. I would just
like to read into the record what the Supreme Court of Virginia said.
The question cannot arise here because national banking associations organized
under the laws of the United States and doing business in a place, the population
of which does not exceed 5,000 inhabitants, are expressly granted this, power.
See title 12, United States Code, section 92.
Mr. PATMAN. Section 92 was in the code at the time. It was erroneously in the code. The code is only prima facie evidence of what the
law is. It was in the code at that time, and the judge presumed the
code was correct, because there was no issue made of it. The litigants
did not contest it. They accepted the code as correct.
' But the code is just prima facie evidence. If the litigants had raised
the question of whether the code was correct, the judge would have
gone to the statutes;,decided whether or no4; this provision was existing law, and the judge would have found it was not a valid statute.
Mr. BETTS. I know the gentleman wants' to be fair and I understood when the chairman mentioned this, you denied it.
fylr. PATMAN. I denied that the court passed to the validity of the
statute.
Mr. BETTS. It did, because it saidjt was in effect, and I just wanted
to read it into the record.
Mr. PATMAN. Is the gentleman a lawyer?
Mr. BETTS. Yes.
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Mr. PATMAN. You know that a code is prima facie evidence.
The section was erroneously in the code at that time, and the judge
accepted it as prima facie evidence of the law, because no one raised a
question to cause him to go to the underlying statutes, which are the
final authority on what is law.
Now, if either side had raised a question about it and said, "Although
the code is prima facie evidence, it is not a valid part of the code,"
then the judge would have taken up that question and passed on the
question on the basis of the statutes. But that question was not
raised.
The gentleman won't even contend it was raised.
Mr. BETTS. But the point I make is, if the Supreme Court of Virginia felt it was the law, I do not think it is fair for the gentleman from
Texas to imply to thesp witnesses here that they were unfair holding it
was the law.
Mr. PATMAN. Let us take the gentleman's argument. Let us send
back here and get the code of 1952, and you will find it is not in tho
code of 1952. Therefore the presumption is, it is not the law. That
being the case, the gentlemen who put this forward as being the law
have the burden of showing that the code is wrong, and that they
cannot do, because the statute of 1918 is just as plain as can be—the
insurance provision was repealed in 1918.
You see, the codification carries with it prima facie evidence of
validity, and this 1952 code which the chairman says—it is shocking
to me to hear him say the staff knew this and did not tell us about it—
that is the most shocking thing I have heard on Capitol Hill in 30
years.
The CHAIRMAN. What did you say was so shocking?
Mr. PATMAN. The fact that you said that the staff knew that this
was not in the code and did not tell us about it, as members of the
committee.
Now, it is not in the code; it was left out, because it was repealed
40 years ago, and here we are.
The CHAIRMAN. They made a complete memorandum and told
why'it was not in there.
Mr. PATMAN. You mean after the question was raised?
The CHAIRMAN. Your sensibilities must be quite strong to be
shocked by that. .
Didn't you say that since they did not report this the way you
believed it to be, it was shocking and impugned the honor of the
Senate and the House and the committee of the House?
People have differences of opinion, you know. They should not
be shocked because somebody else has a difference of opinion.
This opinion, I am sure, was made by the staff in good faith. They
had no interest in it.
Mr. PATMAN. I just cannot believe that the staff knew it and did
not c'all our attention to it.
Now, Mr. Vanik said the other day that lie felt, as a Member of
Congress, that he had the right to rely on these reports and comparative prints of the bills.
Now, the report of the Senate said that this language pertaining to
insurance continues a provision in the code.
Now, of course, that is not correct, because it is not in the code—
the 1952 code, which is the latest code. And the code says it is not
the law. That is the last expression of the law we have in the law
'offices of the Nation for the gentlemen to be governed by.
The CHAIRMAN. You may think you have found a hydrogen bomb,
but I think it is a dud. I do not think it amounts to anything. I do
not think it is so important.
Mr. PATMAN. If you want the banks to write life insurance and
other things, it is not important?
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Tlie CHAIRMAN. It has nothing to do with that' question, in my
mind. I do not express any favor of the bank's writing insurance.
I do^not believe the banks ought to write insurance. . That is not the
question involved here. The question is a question of law.
Mr. PATMAN. Like it is now,. it is not the law.
The 'chairman of the Judiciary Committee made an argument on
that yesterday and I do not think it can possibly be answered. It 4s
not the law.
Now, then, if we put this in an enacting clause like it is here and
enact it, it will be the law.
The reason that the national banks have never used the erroneous
authprity shown in the code prior to 1952 is because they have smart
lawyers. Their lawyers looked into it and say, "That is not the law.
You'd better stay out of that business,"
Therefore, only 77 banks in 'the entire Nation are now operating
under that old code, according to the Comptroller of the Currency.
The CHAIRMAN. That is not a very material matter because we are
free to deal with it as we please.
'
i Mr. PATMAN. It goes to the integrity of this committee, too, and
the integrity of. Congress..
The CHAIRMAN. We are free to deal with it as we please.
_:
Are there any further questions?
You may stand aside, Mr. Patmari,., and you may insert youir
amendments into the record that you intend to introduce.
Mr: PATMAN. I hope you will read what I put in the Congressional:
Record yesterday, on the question of who owns the Federal Reserve
System.. The private banks do not; the Federal Reserve System is
owned by the Government.
I put in documentary proof on that. I cited such witnesses as
Mr. Eccles, Mr. Martin, Mr. Gol'denweiser, Mr. Allen Wiggins, and
""Mr. Folsom.
DETAILS OF SELECTED ITEMS OF'EXPENSE REPORTED FOR THE 12 FEDERAL
RESERVE BANKS
Mr. Chairman, on August 6 of last year Chairman Martin of the
Federal Reserve Board was before this committee testifying bn this
financial institution bill. On that occasion,! made a suggestion for
shortening the time of Mr. Martin's appearance, and also for saving
the committee's time, which was to hand to Chairman Martin some
of the questions I had written out to ask him. You expressed yourself,
Mr. Chairman, as being agreeable to my suggestion, as did Chairman
Martin,. So I handed him, at that time, a list 1of 44 questions.
To date — although more than 6 months have passed — I have not
received the answers to the first 27 questions on that list. I have been
advised from time to time that the answers would be forthcoming
shortly, the last such advice being contained in a letter from Chairman
Martin dated January 23, 1958. But I still d'b'not have the answers.
Yet each and every one of these 27 questions pertain to matters
authorized or proposed to be authorized by title II of this financial
institutions bill, which is the Federal Reserve Act portion of the bill.
Furthermore these 27 questions do not have a mere shadowy pertinence to title II of the bill, they go — at least to my mind — to the
very heart of the most important matters involved in this legislation.
Now I should like to insert at this point in the record the entire
44 questions, after which 1 will review the status, of the remaining
questions.
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QTESTIONS FOB MR. MARTIN
1. Mr. Martin, in your prepared statement you suggest that the bill be amended
to provide specific authority for the repurchase agreements. You further say in
your prepared statement that the repurchase agreement has some of the attributes
of a loan.
Does the repurchase agreement have the attributes of anything else other than
a loan, and if so what?
2. Last week I obtained from the Board a list of the names of all of the dealers
who do business with the Open Market Committee. I note that there are 15
dealers on the list ; 5Jare called bank dealers, and the other 10 are firms of another
character— I suppose they would be called securities brokers, or investment
bankers.
Are these all of the firms the Open Market Committee does business with — you
sell Governmejit securities to no one else and you buy from no one else?
3. Has this list of names ever been made public; and does the Open Market
Committee regularly publish the names of the dealers it does business with?
4. What are the requirements that a dealer or a bank must meet, in order to
trade with the Open Market Committee?
5. What is the nature of the general agreement that a dealer must sign, if this
itj still a requirement, before he can trade with the Open Market Committee?
(I. Why is it that the ,()pen Market Committee does not buy and sell United
•States Government securities directly from or to the member banks?
7. What, are the circumstances under which the open market desk buys securities from a dealer under a repurchase agreement and what is the rationale insofar
as the member banks or the public interest is concerned, for a practice' which is,
in effect, a"f>ractice of making loans to dealers in Government securities?
8. What has been the total dollar volume of purchases under repurchase
agreements in the 12 months ended June HO, 1057?
9. Please supply for the record a description of each of the 15 dealers and
bank dealers now trading with the open market desk, giving for each the financial
condition, the capitalization, the average value of United States Government
securities held for the dealer's own account in the last 12 months, the average
and the maximum amount of securities held for -eac.h under repurchase agreements, and the dealer's gross profits, in the past year, from dealing in United
States Government securities.
10. Do the dealers and bank dealer's trade with the'open market desk both as
principals and commission brokers? If so, who decides whether in particular
trades the dealer is to act as agent or principal; what are the controlling circumstances; where a commission is paid, what is the amount of the commission; and,
if commissions are paid, what was the total value of securities traded w i t h each
of Hie 15 dealers in the past 12 m o n t h s (a) where the dealer acted as broker and
(6) where the dealer acted as principal?
11. What is the m i n i m u m amount of Government securities a dealer is required
to hold for his own account?
12. Does the Open Market Committee receive regular, formal reports on the
amount of Government securities each dealer is holding for his own account?
13. How does the. Open Market Committee transact its sales and purchases —
is this an auction market, or are prices negotiated with the dealers, or what?
14. Are the prices which the Open Market Committee pays or receives for
United States Government securities promptly made public —-that is, can the
banks read ((notations in the newspapers and know what prices the Open Market
Committee is receiving and pnying?
15. What section of the law provides for the Open Market Committee to buy
and sell .Government securities to dealers, rather than to member banks?
It). Is it the Board's position that 15 dealers are enough to insure a competitive
market, and that there is no serious risk that the Open Market Committee mny
at times be up against a "rigged" market, or a market influenced by other important noncompetitive factors?
17. Can you name any other organized market, where there are' trading rules
and penalties for violating trading rules, where the traders are as few as 15?
18. Are there trading rules for dealers trading with the open market desk? If
so, please, supply a copy of the rules.
19. In case some of the 15 dealers who dea' with the Open Market Committee
should try to "rig" the market, what a*e the penalties?
20. Under present organization and procedures, is there any danger of informational leaks, or any danger that dealers who trade with the open market desk will
receive information, in advance of the banking community generally, that the
Open Market Committee has decided to support the market for Government
securities?
21. Have regulations been issued on the subject of employees of the Reserve
System owning or trading in Government securities? If so, please supply a copy
of the regulations.
22. Are there special regulations applicable to members of the Open Market
Committee or to the manager of the open market account?
23. What steps have been taken, if any, to encourage trading with the open
market desk by larger numbers of dealers and banks?
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24. Tlu> report-of the Open Market Ad Hoc Subcommittee (1052) states that
before t h e market opens each day, meetings an; held with-the recognized dealers
at which there is an exchange of information. This report, further states that the
"comments of the Committee's representatives in attendance are very guarded."
W h a t safeguards are there to assure the Board that the Committee's representatives speak so guardedly that the dealers obtain no advantages from these premarket conferences?
25. What are the safeguards which assure that the reports given representatives
of the Open Market Committee, by the dealers are accurate and not self-serving?
20. If the Board of Governors were to become the Open Market Committee,
what disadvantages could be expected to flow from this change in jurisdictional
responsibility over open market operations?
27. What changes in present methods of operation would be necessary to
induce, say, 50 commercial banks to enter actively into the trading with the
open market desk?
28. Please supply, if possible, the number and amount of applications for
loans, discounts, and advances which the Federal Reserve banks received last
year but turned down. Also, if the banks make any tabulation as to the reason
for denying a request, I would like to know the number and amount of the.
applications denied for each of the different reasons. If it is not possible to
supply exact information as to the number and amount of applications which
were denied, then there should be a statement from the President of each Reserve
bank stating whether or not any request.of member banks was turned down,
giving his impression as to the approximate number and amount of such requests.
29. Mr. Martin, with reference to the record of the transactions of the open'
market from the date of the Treasury-Federal Reserve accord, in 1952, which
record I requested last Friday, in order to avail the possibility that you will
work up surplus information, my request is stated more precisely, as follows:
What is wanted is a day-by-day record of open-market transactions, showing
the kind of .security traded, the name of the. dealer to whom it was sold, or from
whom it was purchased, the amount sold or purchased, and the price paid or received. In addition, with reference to repurchase agreements, the record should
show the name of the dealer, the name of the security, the unit price, the dollar
value, the interest rate, and of course, the record for each date, should show
whether the transaction was a repurchase or a "sale" under a repurchase agreement.
Furthermore, since some time may be required to copy the information described
above, it will be appreciated if you will supply promptly certain brief information
necessary to bring up to date the table which you supplied the Joint Economic
Committee several years ago. This will require, simply, the total volume of repurchase agreements. The table should show both, but separately, the volume,
of repurchase agreements entered into ard the volume closed out in the month.
30. Does the new language appearing in section 35 (a) of the bill, amending the
usury provisions of the National Bank Act, change the law as held by the Supreme
Court in National Hank v. Johnson (104 U. S. 271)? If so, in what way wi)l the
new language change the law as held in that decision.
31. Does the new language appearing in section 35 (a) of the bill change the
law as held by the U n i t e d States Court of Appeals for the Fifth Circuit in Daniel
v. First National Bank of Birmingham-(^l Fed. 2d 353, 5th C. C. A.V?
32. Is it true that to the extent national banks comply, w i t h present law they
may not purchase, in any State, conditioiml sales contracts which call f o r . t h e
original borrower to pay usurious interest charges?
33. Is it true that under section 35 (a) of the bill, national banks could legally
purchase conditional sales contracts without respect to the.rate of interest which
the borrowers named in those contracts have contracted to pay—except and
unless the law of the State in which the national bank is located is deemed to
prohibit State; banks from purchasing such contracts?
34. With reference to the so-called conditional sales contract, does the Board
have any information as to the amount of such paper the member banks now
hold? If so, please submit for the record the figure you may have on that; and
also any information you may have as to the range of interest rates which this
paper carries. (By "interest rate" it is meant, of course, effective per annum
rates, computed to include all financing charges.)
35. The Federal Reserve Bulletin frequently reports average interest rates
currently being charges on business loans and the interest rates rarely go above
5 or 5}^ percent, even for the smallest loans. What instructions have been given
to the member banks for the preparation of the reports from which these statistics
are drawn; and, have verifications or sample checks of the reports been made to
assure that interest rates reported are not in fact discount rates on amortized
loans, and to assure that the computed interest rates do not omit other factors
which properly should be considered in the rate computations?
36. 1 judge from your previous testimony that you feel the principal burden
of combating the recent inflationary trend lias fallen on the Reserve System; and
I judge that you think the monetary restraints you have imposed have worked
pretty well against inflation. Assuming that you are right—although I don't
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necessarily agree with you—I want to ask you this: In case a serious deflationary
trend should set in, or in case we have a recession, do you think monetary controls
will then be equally effective—in other words, can you push a string as well as
pull it?
37. Title I of the bill increases lending limits of national banks in a number of
ways. The general Joan limit is increased. Then there are several increases in
limits on lending on what used to be called real estate; and there are increases
in its loan limits on consumer installment paper, on refrigerated or frozen foods,
and perhaps other things.
Do you see any danger in these increased loaii limits, either singularly or collectively? In other words, would the decreased liquidity of the national banks permitted by these changes be a significant factor in case of a recession?
38. Monetary controls have the effect of limiting bank credit; do these controls
also significantly affect the amounts which the-insurance companies can lend; and
do such controls substantially affect the amount of money available in the capital
markets?
39. When bank credit is tight, such as now, is it the Board's position that the
price of money allocates the available supply—in other words, assuming that the
borrowers competing for the available bank credit offer equal risk, does the bank
then decide which borrower gets the credit on the basis of which borrower offers
the highest price for the hire of the money?
40. Some of the recent statements of the American Bankers Association would,
indicate that banks do not allocate credit on the basis of either the price of the
money or the risk—just so long as the risk meets acceptable standards—claiming
that the banks are favoring small business, in preference to big borrowers.
Has the Board made any study or collected any reports from the member banks
that inform the Board jts to what the impact of its monetary restraint is, particularly as to how small firms are making out compared to big firms?
41. With' reference to title II, section 7 (b) of the bill, would the Board have a
serious objection to making the franchise tax 95 percent instead of 90 percent?
42. Briefly, what were the circumstances and considerations which prompted
the inclusion in the Federal Reserve Act of section 13 (b)?
43. What evils or inconveniences are now resulting from section 13 (b)?
44. The Board has objected or recommended against a number of changes ift
substantive law now contained in the bill; yet despite the presence of these objectionable features, the Board still favors the bill, on balance, and recommends its
passage. What are the principal changes in the bill which the Board considers
of such merit as to outweigh all of the objectionable features?
NOAV as to the questions other than the first 27 which have not
been answered:
Replies to 16 of the 44 questions were transmitted by a letter from
Chairman JVtartm, dated January 23, 1958—less than 1 month ago,
and almost,6 months after, the pay when the questions were handed
to Chairman Martin. These replies were to questions numbered 28
and 30 through 44. I offer these for the appendix of the record.
A reply to question 29 was transmitted on November 12', 1957,
more than 3 months after it was requested. The reply to this question,
consists of photostatic copies—witli certain deletions—of purchases
and sales of Government securities made by the Open Market Account:
At this point, I might call the committee's attention to the subsequent history of these documents submitted in reply to question 29.
The details appearing on these,documents are voluminous; they must
be tabulated and analyzed before they yield any information on a'
variety of pertinent questions, such as the extent to which
the open
market account trades with the different dealers on the1 basis of the
most favorable price, and the exteiit to which the business is allocated
among these dealers without regard to price. Consequently, on
November .28, 1 wrote Chairman Martin asking that he arrange to
have made^certain tabulations which I outlined. On January 29, he
wrote me that he had put the question of having these tabulations
made before the Open Market Committee, and the Committee had
refused my request. Similarly, after examining these records, it
appeared that they do not show prices actually bid or offered tho
open market account by the individual dealers on the occasions when
the account has made sales or purchases to these dealers; these data,
it turns out, are maintained on a 'separate record. Accordingly,
since a reasonably complete answer to the questions involved here
would require reference to these bid and offered prices, I wrote
Chairman Martin on November 26, requesting these data. Chair- '
mail Martin's letter of Januaty 29 refused this request..
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In addition to the foregoing items, I have sought to obtain-from
Chairman Martin a variety of other, information which is not only'
important to the consideration of the financial institution bill, they
are important for our consideration at all times. They involve matters
that are vital to a proper functioning of our whole economic system,
but the}r are secret, like the plans for ballistic missiles.
One of these pieces of information I have already mentioned; it is
the part of the audit reports which Chairman Martin refused to let
us see.
The Board's written instructions to the audityrs call for them to
separate out, and make separate reports on several matters that
would normally be covered by an auditor's report. These matters
for which separate reports are prepared are:
(1) Management—General comments.
(2) Management—Comments on newly appointed members of the
official staff.
(3) Officers of the Federal Reserve agent—newly appointed members
of the Federal Reserve agent's staff.
(4) Inattendance of directors.
, .
?,
(5) Indebtedness, stock ownership in member banks, avhd outside
business connections of officers and employees.
(6) Schedule of above (item 5) for examiners, assistant examiners,
and officers supervising the examination function.
(7) Apparent or possible violations of the criminal provisions of the •
banking laws of the United States (involving officers or employees of State member banks).
On September 26, 1957, I wrote Chairman Martin asking that these
reports be sent to this committee, for the members' inspection along
with the other parts of the audit reports. On October 7, Chairman
Martin wrote me refusing the reports, saying that they are prepared
for the confidential information of the Board. He made the point '
also that he feared that if these reports were not held in confidence
by the"Board, the auditors would in the future feel less free to say
the things they have been saying. And I have no doubt this point
is correct; as long as the Board depends upon internal audits; it will
have to depend upon voluntary revelations of information by the >
auditors. Chairman Martin's letter on this,subject is inserted below.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
OFFICE OF THE CHAIRMAN,
Washington, October 7, 1957.
Hon. WRIGHT PATMAN,
House of Representatives,
House Office Building, Washington 25, I). C.
DEAR MR. PATMAN: This letter is in response to yours of September 26, 1957.,
requesting copies of memorandums prepared in connection with examinations of
the Federal Reserve banks in accordance with instructions to the Board's
examiners.
These memorandums are for the purpose of making available to the Board,
strictly for its own confidential information, certain information and views of
the chief Federal Reserve examiner. Throughout the history of the Federal
Reserve System, the Board has closely guarded the confidential character of the
memorandums to insure the freedom with which the Board's examiner necessarily,
must express his views.
.
j.
We believe you will agree that an effective discharge of the Board's super-'
visory responsibilities requires that such information be obtained and made
available to the Board. Any departure .from the principle of strict confidentiality would tend to undermine the value and usefulness of the memorandums to
>the Board and Avould interfere with the orderly discharge of the responsibilities
placed upon the Board by the Federal Reserve Act.
In view of the above, it is the Board's belief that you will agree that the
memorandums should not be furnished.
Sincerely yours,
WM. McC. MARTIN, Jr.
i
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1
I come now to a long' list of other information which Chairman
Martin has refused to supply, concerning the $25-billion-a-vear underthe-counter trading in Government securities, with Government
money, by the so-called open market account with their l i t t l e club
of so-called dealers. I offer for the. record my letter of November 2(>,
describing- the information requested, together with Chairman
Martin's reply of January 7, refusing the information requested.
Hon. WILLIAM MtiC. MARTIN*, Jr.,
TEXARKANA, TEX., November 26, 19o7,
Chairman, Board of Governors'of the Federal Reserve System,
Washington, D. C.
DEAR MR. MARTIN: This is with reference to your letter of November 12
with which you enclosed a letter to Hon. Brent Spence, concerning the t r a n s m i t t u J
of photostatic copies of certain of the records of transactions of the open market
account, which records are offered in response to my request to you of August G.
While I am happy to receive these after so long a time, after looking them over
I find that they provide incomplete information as to the subject matter in several
respects which I hope you will' correct.
First, in the case of sales to or purchases from dealers, the record shows only
the prices and quantities of a security actually bought or sold. I am informed,
however, that the open market account also has a record which shows the prices
bid or offered by each dealer, for each security on which the open market account
solicited quotations on-each day of trading. Furthermore. I understand "from
. Messrs. Johnson and Clark, who looked over these, records, that on this sheet a
• circle in red pencil is made around each particular offer which the open market
. account accepted.
I would-appreciate it if you would arrange to supply, under the same terms and
conditions, copies of this latter record for each day of trading, going back over the
past 3 years. Frankly, these are the things I have in mind. , In-view of the small
,• number of traders trading with the open market account, and the fact that trades
are transacted in a closed, nonpublic market, it is important to be reassured that
the dealers trading with the System account are not given to (a) all quoting
identical prices, or (fe) systematically rotating price quotations.
Second, the records which you have supplied are up to date only through the
end of 1956. I note from your letter to Mr. Spence that the Open Market
Committee authorized the furnishing of only "the requested information that was
noncurrent." Furthermore, I. fully appreciate the Committee's position in withholding information which may reveal either (a) the open market account's present
trading strategy, or (7>) the precise nature of the Committee's credit policy. It
seems to me, however, that there is a vast difference between information which
would reveal these things and information concerning tho operations of tho
account in recent historic periods. Specifically, I should like to ask if you cannot
supply both the records described above, and the-records of the kind which yon
have already transmitted, for the period up through June 30, 1957. I cannot
imagine that records up to that date conld possibly reveal either the policy toward
credit ease or restraint, or the posture and trading strategy of the open market
account as these things prevail today.
Third, as explained in your letter to Mr. Spence, wherever the record shows
a trade with a foreign department account, thfe name of the account has "been
deleted. As I understand it; it is no secret that the System open market account
trades with foreign central banks, acting at times as agent for such banks. No
•explanation has been given, however, as to why transactions with foreign central
banks are more confidential than trades with United States nationals, which
'information you have held to be also confidential.
I would appreciate it if you would give me your explanation and reasoning as to
why the names of foreign central banks with whom the account has traded in the
past should be withheld from the committee.
In view of the Board's request for legislation to authorize repurchase agreements, which are in effect loans to nonbank dealers for carrying Government
securities, it becomes especially important to obtain information which will at
least give a hint of the scope of the dealer operations and the extent to which
financing from Government and other sources is provided the dealers to carry
Government securities. Consequently, I would like to request information in a
form which would be a substitute to the form of information which I understand
Mr. Johnson of my staff attempted to obtain at the New York bank early in
October. Specifically, I would like to have tabulations of each item of information submitted on the "daily report of dealer operations in United States Government securities," to cover each Monday and each Thursday in the 3 years preceding June 30, 1957. For the purposes'of these tabulations I am not requesting
individual dealer information, but aggregates of the information covering dealers
in groups of fours. In other words, the tabulation should show totals for tlm4 largest nonbank dealers, the second 4 largest nonbank dealers, etc., and the1
bank dealers should be similarly treated. For this purpose, it will be satisfactory
to determine which dealers are the largest on the basis of their total .volume of
business in the last fiscal year, so that the report for each Monday and each
Thursday will classify the dealers in the same way. In addition, I would like
these tabulations, in the case of nonbank dealers, to set out separately the amounts
of repurchase agreements outstanding on the date specified.
Als6, on the matter of financing, I should like to request two other pieces of
information:
(1) Tabulations of the reports on "borrowings by nonbank security dealers,"'
showing the amounts of borrowings on "collateral loans" in each type of fund
and each source of credit, and the amounts of "other financing" similarly broken
down and showing in each case a separation between loans of 1 day and those
of over 1 day, and the rates of interest or equivalent paid for the financing.
These tabulations should cover each day for which the reports have been collected, and should be in groups of four dealers corresponding to the same groupings
already described with reference to the dealers position and volume report.
(2) Similar tabulations for each group of four dealers, bank and nonbank,
showing the amount of the dealers financing of their own customers to cany
Government securities, specifying classes of customers.
Finally, I would appreciate receiving information concerning the dealers bids
on the Monday Treasury bill auction, and unless you feel that such information
for individual dealers is also secret, I would like to have this for each of the individual dealers separately. Specifically, I would like to know for each auction
over the past 3 years (a) the average price received by the Treasury for all bills
sold on competitive bids submitted to the New York bank, (b) the amount of
bills purchased by each of the 17 dealers, (c) the average price bid by each of the
17 dealers, aud'(o) the average price paid by each of the 17 dealers on bids accepted'
by the Treasury.
While the foregoing description of information needed seems rather lengthy,
I think you must agree that the information requested is not only pertinent, but
essential for even a perfunctory appraisal of the question of whether there should
be legislation to authorize the open market account to finance nonbank dealers
to carry Government securities. I hope, therefore, that 3'ou can see your way
clear to have the requested information supplied with reasonable promptness.
I am,
Sincerely yours,
WKIGHT PATMAN.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
OFFICE OF THE CHAIRMAN,
Washington, January 7, 1958.
Hon. WRIGHT PATMAN,
House of Representatives,
Washington, D. C.
DEAR MR. PATMAN: Your letter of November 26, 1957, asking for further
information relating to operations of the System open market account and of
dealers in United States Government securities has been discussed at meetings of
the Federal Open Market Committee. Some of the information you request is
not reported to the Federal Reserve and hence cannot be furnished by us. Some
is given to the-System account on a purely voluntary and strictly confidential
basis and hence it is not within our discretion to transmit it. Some is available
to the Federal Reserve System because it is fiscal agent of the United States, and
the Treasury, rather than the System, should be approached for such data.
Finally, one major portion of the data you request could be made available in the
detail you wish only with immense effort. In this case we suggest an alternative
which may serve your "purpose equally well. To the extent practicable from, the
standpoint of the amount of work involved, and with proper consideration for the
confidential nature of some of the data, the committee desires, of course, that you
be furnished with information that will be useful in your analysis of System
account operations. Your several requests are discussed in the order in which
your letter presented them.
1. Your request for copies of the record of the amounts of purchases and sales
of Treasury bills and the prices bid or offered by each dealer for each security on
which the System account solicited quotations on each day of trading over the
past 3 years would requh-e an immense amount of work, especially since it would
be necessary to accompany such a record with memoranda explaining the background of the operations and the reasons for the actions taken, if you were to
obtain an understand! ng of the situation reflected by the data. It would appear,
however, that 3'our purpose might be served by having the information (with the
accompanying explanatory 'memoranda,) for selected dates, rather than for the
entire 3-year period. If this" striked y6u as practicable and you wish to select a
number of'days for each of the 3 years—say a dozen days a year—preceding
December 31, 1956, we would have the material prepared for you as promptly as
possible. You now have the photostatic copies of the sheets, showing transactions, so that you would be in a position to select days when the account wad
active.
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Federal Reserve Bank of St. Louis
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
81 XQ
2. Your second request refers to the tabulations transmitted with my letter of
November 12, 1957, showing each transaction of the System open market account
with each dealer in Government securities from the period of the TreasuryFederal Reserve accord in March 1951 to the end of 1950. You now ask for
similar records of each transaction of the System account for the period from the
end of 1950 through June 30, 1957.
Each year, pursuant to the requirements of the last paragraph of section 10
of the Federal Reserve Act, a. record of policy actions taken by the Hoard of
Governors of the Federal Reserve System and by the Federal Open Market Committee, together with the reasons underlying those actions and the votes taken
in each instance, is made public in the Board's annual report to the Congress.
Until that record is made public in the annual report, which is published in the
spring of each year, the policy directives of the Federal Open Market Committee
are regarded as current and are handled in the strictest confidence. It is true
that weekly statistics showing the condition of the Federal Reserve banks are
published and that to a greater or lesser degree individuals make judgments on
jfche basis of those reports as to the policy actions taken by the Committee. My
Better of September 10 stated that the Federal Open Market Committee felt that
it would not be proper to divulge information regarding Committee policy docir
sions and operations for the current calendar year. It continues to be the judgment of the Committee that disclosure of its policy decisions should come in the
manner that has been followed for many years in carrying out the provisions of
section 10 of the Federal Reserve Act, namely, in the annual report to the Congress
CQvering the year most recently ended. For this reason, it believes that it would
not be desirable to furnish the information regarding operations of the System
account pursuant to.the policy directives issued during any part of the year in
which the directives were issued. If, however, you so request, wo will undertake
to prepare tabulations of the transactions not only for the first half of 1957 but
for" the entire calendar year, to be submitted at substantially the time the Board's
annual report is published.
3. You note that the naines of foreign central banks were deleted from the
tabulations transmitted with my letter of November 12, and you ask why the
names of such banks with which the System account has traded in the past shoujd
be withheld from the House Banking and Currency Committee.
To be certain that the situation with respect to f,h<> 1,700 odd pages of tabulations sent with my November 12 letter is correctly understood, I wish to emphasize that there were very few deletions from those sheets and that all of the
names appearing on those schedules, were names of dealers in United States
Government securities. In some instances, those dealers are also domestic
commercial banks. However, the distinction between deleting and retaining
names was a distinction between investors in securities and dealers in securities,
and there was no intention of distinguishing between foreign and domestic banks
per se.
• .
Transactions between the System account and dealers are in a different category
from transactions between the System account and the Federal Reserve Bank
of New York, acting on behalf of and under instructions from its depositors.
In the first place, many central banks and international institutions maintain
accounts with the Federal Reserve Bank of New York. •' Such central bank
accounts are operated by the Federal Reserve Bank of New York on behalf of
all of the Reserve banks. Transactions for these accounts have traditionally
b.een held in strict confidence for substantially the same reasons that, as a matter
of policy, banks in general hold in strict confidence transactions on behalf of any
of their depositors. This confidential relationship be'tween bankers and depositors
has been considered to be especially necessary with respect to operations of
foreign central banks, whose deposits with the Federal Reserve banks largely
represent monetary reserves of their countries. Disclosure of such operations
would be of interest to many persons who follow political and economic developments in foreign countries, but such disclosure might well have serious repercussions and imperil the confidence that foreign countries place in the Reserve
banks.
Secondly, you state that you understand that "it is no secret that the System
open market account trades with foreign central banks, acting at times as agent
for such banks." Actually, this is not strictly correct, and the relationship to
which you refer is not between the System account and the foreign banks. The
Federal Reserve Bank of New York acts only upon instructions, specific or standing, from its foreign depositors in handling their accounts. Orders to buy and sell
securities are given by the depositors to the foreign department of the New York
Reserve Bank, which in turn transmits them to the securities department of that
bank for execution. Such orders usually are executed by the Reserve bank in the
open market, but the foreign customers have been notified that they may be
executed with the System account nt the discretion of the manager. They are
carried out with the System open market account only when the manager of the
account so directs for the purpose of coordinating the foreign transactions with
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Federal Reserve Bank of St. Louis
MONO. SECTION
current open market operations that arc being executed pursuant to the directives
of the Federal Open Market Committee. The initiative in executing transactions
with tlie System account rather than in the market in no manner lies with the
foreign correspondent.
4. With respect to your request for data from the daily reports of operations
received from United States Government securities dealers, these reports are furnished by the dealers on a purely voluntary basis and in the strictest confidence.
It would not be within the discretion of the Federal Open Market Committee or
the federal Reserve Bank of Ne\v York to disclose information in connection
with these reports.
5. You also request a tabulation of dealer borrowings, with a breakdown by
types, sources of credit, terms, and rate. Such data are not available to the
management of the System account.
(i. The answer to y6ur next request is the same — we have no data showing
dealer financing of their own customers to carry Government securities. By way
of comment, I might say that it seems highly doubtful that dealers do finance their
customer holdings to any significant extent although there might be an occasional
transaction of that kind. The dealers have difficulties enough in financing their
own portfolios of Government securities without assuming added burdens in
financing customer holdings.
7. Filially, -you request information concerning dealer tenders for Treasury billsin the weekly auctions. In handling tenders in the bill auctions, each Federal
Reserve bank acts as fiscal agent for the Treasury Department. A request for
data relating to the tenders should, therefore, be directed to the Treasury Department.
Sincerely yours,
\\M. McC. . MARTIN, Jr.
Finally, I offer for the record a letter of August 28, 1957, from
Mr. C. Cauby Balderstoii, Vice. Chairman of the Federal Reserve
Board. This letter points out that the officers and employees of the
Federal Reserve banks are not employees of the United States, and
do not take the oath of office required of Government employees.
This makes a very interesting arrangement. Here we have nonGovernment employees running these banks which are owned by the
Government and handling and spending billions of dollars of Government funds, and owing no allegiance to the Government.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,'
Washington, August 28, 1937.
Hon. WRIGHT PATMAN,
House of Ifeprescntutives, Washington, D. C.
DEAR MR. PATMAN: This is in response to your letter of August 22, regarding
the status of officers and employees of the Federal Reserve System, other than
the members of the Board, as public officials.
The Federal Reserve banks are instrumentalities of the Government with
public functions. In that sense, the officers and employees of .the Federal Reserve
.banks are engaged in the performance of public service and hence can be considered to be public officials. However, they are not officers or employees of
the United States Government and do not subscribe to the oath of office taken
by officers and employees of the Federal Government.
Some of the officers and employees of the Federal Reserve, System, other than
the Board and its staft, can be considered as public officials of the United States
Government. They are the members and alternate ,. members of the Federal
Open Market Committee, and the Federal Reserve agents, and assistant Federal
Reserve agents at the various Federal Reserve banks.
The Federal Open Market Committee is, of course, a governmental body
, created by the Federal Reserve Act. The Reserve bank presidents and first
'vice presidents who are members or alternate members of the Committee serve
in a dual capacity. As such members they, subscribe to the constitutional oath
of office prescribed by section 16 of title 5 of the United States Code. In their
capacity as officers of the Reserve banks, however, they have the different status
indicated in the second paragraph of this letter.
The Federal Reserve agent at each Federal Reserve bank, who is also chairman
of its board of directors, acts in his capacity as Federal Reserve agent as an agent
and representative of the Board of Governors and as such takes the oath of
office prescribed by the above-mentioned provisions of the United States Code.
For similar reasons, the Federal Reserve agent's assistants likewise subscribe
to the statutory oath of office.
. /
I trust that this will supply th»» reformation you ^osjro
Sincerely yours,
C. CANBY BALOKR^TOV,
Vice Chairman.
03 XQ
On August 1C, 1957, 1 wrote Chairman Martin, asking for a more
detailed breakdown of certain of the categories of expenses shown in
the Board's annual report for 1956, relating to the expenses of the 12
Federal Reserve banks.
No specific details were requested by me, but rather I left this
matter up to Chairman Martin to supply what might be available
from already existing tabulations, or summary accounts in the
Reserve banks; without making new tabulations of individual expense
items.
Following my request, the Board staff suggested a list of categories
in which the information might be supplied, indicating that this
would be the most detail that could be supplied without going to a
great deal of work to make new tabulations of individual expense
items. Under the circumstances, this 'breakdown seemed to me
acceptable, in that it would, in most instances, at least supply totals
for each of several departments or broad functions of the Reserve
banks.
In the case of a $1.2 million telephone and telegraph expense, the
information was that this is not allocated to any separate departments or functions.
I will insert in the record at this point a letter of October 7, 1957,
from Chairman Martin, transmitting the report of expenses for 1956,
together with the several statistical tables comprising this report.
(The letter is as follows:)
Hon. WRIGHT PATMAN,
OCTOBER 7, 1957.
House of Representatives, Washington, D. C.
DEAR MR. PATMAN: Pursuant to the request contained in your letter of August
16, 1957,- attached is a detailed statement of each of several items of expense
shown in table 6 of the Board's annual report for 1956.
.Sincerely ypurs,
^YVM. McC. .MARTIN,.Jr..
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Federal Reserve Bank of St. Louis
Breakdown of traveling expenses of the Federal Reserve banks and brandies for 1956—Continued
nnnn
Directors
Federal
Advisory
Council
System
committees
Auditing
function
Bank examination
function
Research,
public information,
and bank
relations
function
III Mill
Other
functions
Total
traveling
expenses
ninin
nniin
innin
main
nnnn
_ inn in
ninni
Breakdown of traveling expenses of the Federal Reserve banks, ana branches for 1956
Directors
Federal '
Advisory
Council
System
committees
Auditing
function
Bank examination
function
Research,
public information,
and bank
relations
function
$567
$5, 586
$331
$50, 434
$13, 780
$13, 405
1,043
819
282
4,717
440
3,054
142, (102
24, 280
667
32,107
: 4,175
1,862
282
3, 494
142, 602
24,947
36, 282
6, 266
279
'254
33,984
11,361
8,147
78,000
9, 2S1
2, 235
940
14,750
8,849
0,916
78,000
12,456
30,515
57, 137
11,351
972
502
21,758
8,050
5, 165
57,137
12,825
34,973
33, 741
7,654
174
513
238
493
18,431
1,433
2,297
1,593
2,161
25,915
22,170
4, 455
Boston-
nnnn
IHlllll
iimni
ninni
nnnn
ninin
iiiiini
11 nun
mum
$89, 437niliin
Total
traveling
expenses
==rr.r=--^=-.-jr 11)11111
New York.Bulfalo.
District total:
Philadelphia
Cleveland.
Cincinnati.
Pittsburgh.
District total
Richmond
Baltimore.
Charlotte..
4, 764
2,574
2,039'
420
9,377
420
5,440
5, 807
2,162
2, 214
44
3,936
District total
Chicago
Detroit.
District total1
St. Louis.
Little Rock...
Louisville
Memphis
District total.
Minneapolis.
Helena...
6, 362
2. 448
4,193
3, 692
4,699
5,440
6fi
1,004
1,551
2, 610
3, 936
1,305
3,'971
516
11,058
105
2,316
4,716
2, 364
5,073
21,394
1,305
4.487
14, 574
9, 072
8,430
1,373
785
4, 697
537
8,007
23.391
3,499
9.803
4, 697
8. 544
3, 760
2,050
1.878
1,917
4,111
434
787 -..
1.156 ...
985 ..
736
13, 902
3, 687
4, 495
3, 599
9,005
4.111
41,312
11.470
25, 683
8, 305
27. 445
11,202
535
14,604
2,992
6.510 •
3,163 .-..
26,890
41,312
9,006
497
"1.231
9, 673
668
8,305
2,974
27. 445
11,737
17.596
8, 535
2.226
2,412
2. 834
805
7,11?-
• 835
2.212
3,134
1,766 ....
19,727
13, 740
1,386
1, 562
1,841
•12,341
1,485
369
2, 045
District total.
16.007
805
7.117
7. 947
19.727
18, 529
16, 240
7, 630
4.443
2,694
3,179
,1,903
5,853
212
2.6%
1, 957
2,020
31,997
8,807
171
308
921
17,584
3, 452
661
•
708
17. 946
1,903
5, 853
6. 885
31, 997
10,207
22, 405
1,293
11,088
73,011
,.._
:
Salt Lake City.
Seattle.....
9. 591
1,047
2,948
2. 739
3,344
13, 085
843
280
, 101
145
6, 753
2,760
1,904
3,708
2,089
District tol.nl.
19, 669
1.293
11,467
27, 548
73,011
14,454
17,214
137,113
9,120
68, 816
89. 581
706, 948
177,734
275,000
Dallas..
El Paso..
Houston
San Antonio.
District total.
San Francisco...
Los-Angeles.
Total...
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
112,71011111)11
14, ti62nm
11,446iimill
null)
379
10,208
5.557
5,145
6. 638
100, (Minim
16,933nniii
13, I 9 ( l i i n i n
limn
130, 150MIHII
=;.=:=--:;—.limn
71, 569)1111)1
6,887iiiiili
11, 719)11111)1
12,'426iinini
mum
110,488)11)111)
r=~---iiT)im
177, 568mnm
t7,334iiii)iii
—-—
nnnn
194.902111)1)1)
=—---=.=-=i)riim
Kansas City..
Denver
Oklahoma City.
Omaha
District total
63,391iimni
r=r===^==rr.—j=r_H||ll||
r=r—:=— I l l l l l l
10,183
Atlanta
Birmingham..
Jacksonville..
Nashville
New Orleans.
3, 1(H)
205,47111111111
8,715iiiiiiii
-nnnn
214, I h t i i m m i
73, 294 p K K
7.021pKK
8, 7<iOpl< 1C
7, 237pK 1C
pKK
=^r-=--- pIC 1C
68, 972pK K
9, 420pKIC
pK K
78.398p K K
: - — — - . : pK 1C
63, lOOp 1C K
7!<77pKK
8,480pKK
pKK
86,372pKK
r^rrriT.-—:^ pK 1C
73,«86pKK
10.702pKK
fi, 620p K K
6, 828pKK
pKK
07,196pKK
==—=r=r~pKK
114,821pKK
14, 858pKK
10, 689pKK
Il.WMpKK
12, 595pKK
pKK
3=ss==r==pK K
l,464,312pKK
pKK
66 XQ
Breakdown of postage and expressage expenses of the Federal Reserve banks and branches for 1956—Continued
Shipping charges on Federal Reserve currency
Redemptions
New issues
KK
KK
Total post- KK
Other funcage and
KK
tions
expressage S K K
SKK
SKK
SKK
SKK
Fiscal agency function
Currency
and coin
function
Check collection
function
Government
checks
Other
Breakdown of postage and expressage expenses of the Federal Reserve banks and branches for 1956
Shipping charges on Federal Reserve currency
Redemp- •
tions
New issues
New York
Buffalo
..
District total
Philadelphia
. .
,
....1. .
-
Cleveland
Cincinnati
Pittsburgh—
.
±
—,
..'
District total'.
Richmond
Baltimore
Charlotte ..
..
District total
Atlanta
Birmingham.
Jacksonville.
Nashville
New Orleans
,
...
i...
-
-._
'..
District total
.'.
St. Louis
Little Rock
Louisville
Memphis
District total
Minneapolis
Helena
1
..
^..._
_
<.
District total
;
Dallas
El Paso
Houston
San Antonio
.'
.
t
..-.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
$48, 692
9,918
2,473
154, 289
725
131,434
' 1,753
2, 190, 286
145, 102
253,654
19,948
1,184,849
585, 345
12, 391
155,014
133, 187
2, 344, 388
27 408
4, 065
426, 060
276, 099
2, 978
47. 157
40, 651
821,418
45,020
1,584
1, 620
973
228, 393
153,229
265, 476
, 160, 205
. 97,278
130, 344
8,188
5, 202
4,807
53, 758
13, 519 .
14,654
40,815
18, 769
.. 18,358
538, S03
289, 677
434, 612
.45,620
4,177
647, 098
387, 827
18,257
77, 942
1, 262, 852
76,414
3, 114
1, 402
1, 670
574, 476
135, 4C4
208, 274
198, 750
91,85,3
78, 244
6, 754
3, 360
4, 326
55, 062
' 7,222
0,888 -
76,414
6, 186
918,214
308, 847
14, 440
69,172
30, 652
1,483,925
41,680
3, 335
1,426
5,288
830
2,167
120,433
75, 640
335. 800
65, 079
213, 796
49, 539
37, 250
77, 250
42, 875
38,800
10, 800
4, 250
, 900
2, 500
8, 667
51, 903
1,468
3, 500
2,220
10, ill
67, 538
12,871
29,833
3,131
15,690
345, 234
132, 905
452,571
110,635
289, 291
81,931
13,046
810, 748
245, 774
27, 123
69, 202
129, 063
1, 336, OW5
9, 906
3,323
855, 249
190, 089
000, 808
120,528
10,629
5, 028
103, 948
22,982
121,933
12,565 •
1,891,753
. 354,505
13, 229
1, 045, 338
727, 336
15,657
126,930
134, 488
2, 249, 258
173,251
30, 764
65, 236
36,094
3, 351
2,388
3, 370
3,188
50,777
539
660
1,789
11,899
0, 055
•2,524
7,215
305, 345
12, 297
53, 765
30, 693
115,713
. 21,542'
3,877
1,700
30, 742
224
45, 309
2,354
.
57, 079
2, 097
, 626
1, 240
1, 468
192, 608
49, 477
61, 322
54, 090
.
357, 497
205, 967
55, 053
11,079
2,611
• 261,020
137, 255
5, 577
30,966
.
45, 471
2,190
1,830
837
.711
120, 135
103, 300
91, 380
80,805
103, 664
52, 322
50, 100
43. 628
8.717
3,450
3,700
4,438
51, 908
1, 934 ,
2,000
1,955
.....
45,471
5,568
395, 626
249. 714
20,305
57, 797
28,138
2.170
1,625
1,138
1.024
222, 707
46. 171
71,064
84, 059
125, 167
23. 364
46, 900
50, 678
7, 562
3. 909
1,960
2,969
50, 291
1.156
3,382
2,031
. _
,
47, 723
63, 465
6,440
. 8,134
24,725
91, 764
491,062. 811
92,849 SH
134, 352 SH
103.844 SH
—
8 H II .
; 822,107 SH
414.735 SH
81, 490 8H
8HH
496,231 8 II
385,550 SH
168, 282 SH
156, 151 811
'156,262 SH
S H II
866,245 SH
28,138
5. 857
424. 001
246, 109
16, 460
56,860
13,480
442,623 SH
76.290 SH
128, 457 SH
143,535 SH
8H H
790,906 SH
187,324
6.819
9,775
1,321
1. 066
2,546
314, 470
441,937
103, 493
56, 807
126.816
78, 532
143, 909
51, 191
46, 060
61, 086
13, 420
22, 631
' 3,314
2,799
7.182
68, 357
31, 323
4, 439
2. 058
12, 023
35,677
13, 266
1.600
6,423
• 5,382
704,599 SH
662, 841 SH
165,358 SH
115,213 SH
215,035 fill
- . ....
.
933, 882 '
247, 649
302, 394
41,680
1,988
623
...
19,312
8. 348 .
2,992
186 280
5,431
District total
Total
$5, 654
515,846
69, 499
11,079
•
.
$285, 600
57,079
District total
San Francisco
Los Anceics
Portland
Salt Lnkc City
Seattle.
$809, 192
1, 115, 130
69,419
...
District total
Kansas City ..
.
Denver
Oklahoma City
Omaha
^
;
18,715
1,233
".
.
Other
$5, 421
186,280
.
Government
checks
253 654
(
District total . _
Chicago
Detroit
Check collection
function
$56 426
,.. .
1
KK
KK
Total post- KK
Other funcuinJ and
KK
tions
expressage S K K
SKK
SKK
SKK
SKK
$35, 659
$1,246,6-14
Fiscal agency function
Currency
and coin
function
-
6,588
105
. 4, 013
2,774
187,324
21, 527
1,043.523
380, 778
49, 346
118,200
62, 348
1,803,040 8H
.1.016,573
107, 066
8, 323, 166
4, 196, 029
200, 485
915. 686
827. 050
15.586,655 SH
BHH
67 XQ
MONO. SECTION
Breakdown of telephone and telegraph expenses of the Federal Reserve banks and branches for 1956-^-Continued
Telephone
Telegraph
Leased wire
service
Commercial
service
Total telegraph
TWX
service
Tolls
Total telephone
Equipment
rental and
local service
pN
pN
Total tele- pN
phone and pN
telegraph pN
pN
j»N
pN
Breakdown of telephone and telegraph ex penses of the Federal Reserve banks and branches for 1956
Telephone
Telegraph
•
Leased wire
service
• Boston
,.
r
-
District total
--,---
Philadelphia
'---
-r —
— -----
,
Cleveland
Cincinnati
Pittsburgh
. .
•—
District total
,
Richmond..'
Baltimore..
Charlotte
.
,
—'
District total.:,.....
Atlanta
L
Birmingham
Jacksonville
Nashville..
New Orleans
..„
T
,...
,...•_ --,-,-
District total
.
.
,
: —'—, — ,.. — ,._•_...
Chicago
Detroit.
-...
-
._•
District total.........
St. Louis
Little Rock
Louisiville
Memphis..
.-
— -„
j,
,
,.
_
-----
District total.
Minneapolis
Helena
-
'- —
j
.,
District'total
Kansas Citv
Denver
' Oklahoma City
Omaha
..-
....
District total
....
_
..
(j
.
..
District total
..
•
San Francisco
Los A npclcs
Port land
Sail Lake Citv
Seattle
District total
.
'
Dallas
El Paso...-.
Houston
San Antonio
.
...
Total....
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
$29, 354
13, 120
123
28, 671
5, 164
92, 532
3, 093
121,203
8, 257
245,264 N N
14,693 NN
13, 776
13, 243
130, 497
33, 835
95, 625
129,460
2,865
363
20, 058
13, 993~'5r~~
25, 908
39, 901
6, 665
1, 782
580
609
280
288
23,399
10, 802
9,849
10,908
3, 221
3, 177
14,250
8, 148
7, 809
25,158
11,369
10, 980
259,957 N N
. . . NN
59,959 N N
\ iV
48,557 NN
22,171 N N
20,835 pN
- 9, 027
1,177
44, 050
17, 306
30, 207
47, 513
7, 898
739
5,312
3,517
120
479
24, 185
7,608
12, 423 .
11,130
2, 999
1,515
18,068
6, 100
3,171
29, 198
9,099 '
4,686
91,563
•
53,383
16,707
17,109
26, 151
13, 949
4,116
44,216
15, 644
27, 339
42, 983
87,199 NN
11 831
3,907
4,289
2 548
6,219
7, 402
5, 619
14, 036
1,750
10,097
407
120
130
120
199
19, 640
9, 046
18, 455 '
4,418
16, 515
4, 140
1,002
3,657
1,426
1,949
14, 933
4, 048
9,373
4,333
5, 8\50
34,573 NN
13,694 N N '
27,828 NN
8,751 NN
22,371pNN
28,794
38, 904
976
68, 674
$2, 185
13, 002
714
103,478
16,830
16 125
8,740
8.98L
.
l
$278
-
10, 793
3,046'
. , 5,716
2,907
. 3,907 v
12, 174
1
vr \r
•
NN
N V
NN
NN
NN
107,217 N N
26, 369
38,543
38,870
14,973
. 65,045
19, 262
105,864 NN
34. 961 N N
74, 307
140,825 N N
26, 247
4, 453
5, 426
3,432
43,383p.__.
7,(i82p
10,218p..._
7,971p....
1
\f xf
34,425
10,664
14, 158
3, 666
-\ 2, 230
1,369
50,819
15,699
16,175
4,289
45,089
17, 824
3. 605
66,518
20, 464
53, 843
13,286
2,195
4,003
• 4,270
3, 560
S94
660
102
290
140
129
167
17, 136
3,229
4,792
4, 539
6, 823
1, 363
1, 278
711
19, 424
3, (190
4, 148
\2,721
23,754
5,216
726
29, 696
10,175
29,383
39, 558.
69,2540."!^
14..512
2, 335
19,619
3, 545
33, 167p....
8,653p.--
8 141
2,248
-„
$41, 155 .
$11, 801
12 770
6 749
6,632
;-
Total telephone
Equipment
rental and
local service
124, 061
6, 430
.
97 879
5,599
33,846
.
Tolls
$19, 135
$16,672
_
New York
Buffalo
Total telegraph
Commercial • TWX
service
service
pN
pN
Total tele- pN
phone and pN
telegraph pN
pN
pN
pN
pN
$60,290 N'N
4, 5,50
2, 644
957
216
13, 648
5,108
5, 007
' 1, 210
.
,
J.J -sf
top—
10,389
7, 194
1,173
18, 756
6, 217,
16, 847
23i 064
41,
12 996
4.531
4,094
4,286
7,228
2, 498
4, 735
1,966
268
110
120
127
20,492
7,139
8,949
6,379
7, 066
896
COO
1, 441
6, 903
3,558
2, 561
3, 049
13, 969
4,454
3,161
4,490
34,461p....
25,907
16,427
625
42, 959
10,003
14 657
2,433
7 444
4,692
11,414
1,110
613
1,354.
1,219
457
453
483
29,226
14, 491
2,612
46, 329
11,479
622
1,598
190
235
354
24, 518
17, 122
7, 455
6. 183
8, 431
7, 629
5, 710
1, 106
1, 336
2, 383
21,208
12.752
5 245
3,341
5,285
2,688
2,772
2,020
2,607 ,
2,792
27,290
4,000
8, 510
6, 529
'
12!llOp.".II
10, 869p
26. 074
69,033p—
10, 239
1,786
3,162
2,937
18,218
2, 955
4f730
3,700'
45, 508p
6,955p-.13,240p.—
10, 229p
18,124
' 29, 603
75,932p..:-
13, 442
15, 876
5, 372
3, 748
7, 352
31,071
21,586
6,478
5, 084
9. 735
45,589p.—
38,708p....
13,933p..ll,267p---18, 166p
16,071
7, 979
MG9 '
1,568
763
•
47,831
12,879
2,999
63, 709
18,164
45,790
63, 954
127,063p_.=
407,967
154, 737
31, 893
594, 597
181, 255
414, 860
596, 115
1,190, 71 2p
P --'-
p....
r\ f~lT^,rA
ffiwa9jpw?rv>
LtaOi
. SECT
Breakdown of printing, alalioncrii and supplies expenses of the Federal Reserve banks aitd branches for 1956 — Continued
Personnel function
Provision
of space
function
Cafeteria
food
Currency
and coin
unction
Checkcollection
function
Other
Research,
Accounting
public
function
information
and bank
relations
function
Fiscal
agency
funct ion
Other
Junctions
Total
printing
DDSS
stationery DDSS
and supplies DDSS
DDSS
DDSS
DDSS
Breakdown of -printing, stationery and supplies expenses of the Federal Reserve banks and branches for 1956
Personnel function
Provision
of space
function
Boston
Buffalo
Disfrict total
....
Philadelphia..
Cleveland .
Cincinnati
Pittsburgh
.....
District total
Charlotte ..
District total
Atlanta
Birmingham
Jacksonville
Nashville
New Orleans
........
_-
District total -
.
-
District, total ..
St. Louis
..
L i t t l e Kr>ck
Louisville. .......
Memphis
.
District total
....... . . .
District total
District total
Dallas
Kl I'aso
Houston
San Antonio
District total
-
_
San Francisco
Portland
Salt Lake Citv
Seattle . _ .
District total
Total...
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
_.
Research,
public
information
and bank
relations
function
Fiscal
agency
function
$79, 720
$25, 104
$79, 023
$52, 012
$20, 115
$03, 210
$41,l>01
*«. 935
118, 121
2, 589
240, 975
8, 392
37, 132
802
09, 304
5, 107
73, 117
12, 502
47, 745
3, 054
150.432
742
123,044
579
91,077
3, 3(>3
tH>2, 947 DDSS
37. 190 DDSS
120,710
255, 307
37. 934
74.411
85, 079
.50, 799
157, 174
123.023
94, 440
MMMI, 137 DDSS
20,593
59, 249
11,979
18, 111
33, 070
15, 712
35. 491
51, 983
25. U8M
278. 770 DDSS
58,009
11,709
14 352
4, 039
510
18, 190
3, 549
4, 795
45, 925
30,318
29, 547
28, 131
14, 497
21,872
9, 800
4. <H)7
5, 544
40, SOO
400
459
41,340
13, 971
20, 107
10. 009
17,810
10. 509
209, 035 DDSS
97. 221 DDSS
119, 755 DDSS
Other
Other
functions
Total
print ir.g
stationery
: nd supplies
84,730
4,549
20, 534
105, 790
04, 500
20, 257
47, 779
81. 424
51.048
480. O i l DDSS
30,854
9.914
4,458
48,185
21,001
11,079
15.833
0, 024
3,182
11,332
14, 987
8, 845
21, 704
18,444
11,305
10, 185
3,901
4, 720
28, J30
73
135
30, 300
7, 188
3. 470
28, 047
11. 148
7.0.50
224, 0!Mi DDSS
93. 280 DDSS
54, 904 DDSS
45, 226
80. 805
25, 039
35, 104
51, 573
18, 800
28. 344
41.018
40, 245
372. 880 DDSS
13,731
5, 427
4,955
1. 010
3.955 '
53, 977
19,425
21, 230
13, 059
1,528
1, 808
527
2. 308
15, 384
1,873
12, 000
2,912
13. 742
20, 921
8, 985
14, 500
9, 150
8,147
7, 092
1,575
3, (XXI
1. 290
4, 034
29. 052
103
17
25, 393
3. 113
3, 500
3, 883
8.212
0, 487
8. 024
4, 330
2, 773
2,015
192, 290 DDSS
50. 053 DDSS
05. 4IXIDDSS
2, 157DDSS
03, 497 DDSS
21,024
.
29, 078
115.050
19, 950
45,911
07, 709
17.597
29, 172
44. 101
21. 229
394, (X>3 DDSS
00, 550
10. 180
288. 103
.50. 395
45, 921
5. 070
103,092
28,013
80, 439
18,929
19, 208
• 5, 752
73.717
I.OIKI
99, 103
17. 215
38. 877
0, 294
821, 130DDSS
143, 51 4 DDSS
70, 730
338. 558
51.597
131. 105
105, 308
24. 900
74. 777
110,378
45.171
UK4, 0.501 )I)SS
V«. 047
00.318
107
19. Ilil
3, 955
10, 877
11. 254
34. 259
0. 072
4, 390
2. (MMi
10, 839
1.0(18
2. 799
3, 127
29. 891
55
27
40
.13, 229.
:; l, 79I
3. 041
4. 430
21,387
3. 207
272, 045q<)
7.709
10.314
740
437
002
04 002
08, 134
12. 153
40. 247
47. 327
18. 433
30,013
42. 491
39, 037
303. 037QC)
x, SIM:
191
12.041
•2, 00r>
3.5. 454
3.434
4.584
1. 100
19.728
351
22. 073
3,915
148. 094QU
3. 888
5.722
2,345
34, 420
HMIMcW-IlI
8. )K»7
14, 040
38.888
5, 090
34. 420
20, 079
20. .588
1.59. 928 <)t)
30. 191
9. 320
10, 099
970
15, 199
154
550
397
9, 725
0. 81 5
0. 440
3, 804
19, 097
5. 742
9, 920
7, 085
3, 758
1.781
1,410
2,000
38, 970
138
130
33. 370
2, 083
1,320
1, 055
31. 143.
0. 128
4. 580
0, 223
237.099QQ
37.JI87OQ
30.02.VjQ.:..
24.834oq._..
58 110
50. .580
10. 300
20. 844
42. 444
9.01.5
39.238 '
38. 434
48. 074
335 04.5QQ .
11.914
1.302
1.733
4.340
69. 302
13,794
2, 020
4,407
4, 137
22. 010
4, 292
9. 119
7,280
8, (>08
2, 082
3. 305'
2,018
21, 325
2
27
34
32. 087
2,781
3. .507
3,014
4, 700
9, 330
14, 745
ISO, 503Q()r._..
17 470QQ
3l,730go
4I.043QQ
24, 418
42, 707
10,073
21,388
41,389
29,704
270, 818QO
50, 904
39. 080
0.105
3, 473
13,499 •
35. 9.53
21,270
12.050
0,421
8, 074
4. 0,54
5, 908
1.730
2, 034
2,359
17, 345
123
180
58
122
32, 8IMi
32. 195
5, 805
3, 052
8,700
22. 821
18. 147
4. (MM)
7,892
7, 300
210 309OO .
105,99300 ...
40, 350QO
32,97000---03,8-1800----
10.020
49. 040
4, 920
1. 570
2,574
Denver
. ..
Oklahoma, Citv
Omaha
- -
Accounting
function
$29,072
9 788
832
HclciiH
Check
collection
function
x
DDSS
DDSS
DDSS
DDSS
DDSS
DDSS
$123. 458 DDSS
Cafeteria
food
Currency
and coin
function
19.289
11,028
18,007
5, 750
1,812
10, 004
1
3.003,
10, 540
231
182
1, 200
03. 025
12. 105
30, 883
27, 091
10, 420
7. 504
11.034
9. 975
4.112
250
-IM
1.070
40.721
80, 932
1.5.537
113.121
85. 308
10. 085
17,828
83, 104
00. 220
525,57000
012.087
1, 208, (Mil
203, 949
708, 791
717, 245
234,742
578, 840
725. 085
524. 339
5.574.5H900---
MONO. SECTION
Breakdown of insurance expenses of the Federal Reserve banks and branches for 1956—Continued
Hospital and Workmen's
medical
compensattrvice
tion
premium*
/
Currency,
coin, and
security
shipments '
Blanket
bond
Fire and
public
liability
Automobile
8
Total
insuruiicu S
Other
_s—
Breakdown of insurance expenses of the Federal Reserve banks and branches for 1956
8
.Hospital and Workmen's
medical
compensaservice
tion
premiums
- 4
- -
Currency,
coin, and
security
shipments '
Blanket
bond
Fire and
public
liability
Total
8
insurance 8
OtUer
Automobile -
-
Boston
. .
$52,964'
New York
Buffalo
District total
.
$11,899 _
128 191
8,620
44, 821
2,137
$152
$3,339
278
3,456
$4, 304
$74.864
$20
$2,186
5, 721
MO
3, 340
305 ....
\
•
;
189, 3<3
11.982 -*—-
3, 556
,20r.3l5
136,811
46, 958
278
3, 456
6, 611
3, 645
Philadelphia
35,333
2, 749
3,818
3,099
2, 909
1, 555
713
SO. 176
Cleveland
Cincinnati
Pittsburgh
49 873
14 084
17,304
8,847
2,023
2, 955
2, 366
2 ^58
830 ..
3, 276
4.434
2, 380
1.248
1,483
275
685
12
46
120
70,291 -T~
21.006
23, 142
81,261
13, 825
5, 454
3, 276
8,062
2, 443
178
33 839
12 897
7 234
2,175
2, 097
853
12, 860
3,101
2, 439
1,527
387
999
194
101
11
53,970
5, 125
19, 851
3, 101
4, 353
20 058
•> 413
9 973
4 873
5,396
4, 047
1,216
1, 700
8.53
2,671 .
4, 829
800
1 312
1 599
3, 084
2, 454
8, 540
-^
1.
..
District total:
Richmond
Baltimore
Charlotte
__
District total
Atlanta
Birmingham
Jacksonville,
Nashville
New Orleans
.
....
District total
Chicago..
Detroit
.',
.
.'
„
District total
St. Louis..-;..
Little Rock
Louisville
Memphis-.
District total.-
.*-
Minneapolis
Helena-
,.
District totalKansas Citv
Denver
Oklahoma Citv
Omaha
-.
.. .
.-=.
District total
Dallas
r._._
El Paso
Houston..
San Antonio
,
..
District total
I
...1.
v
4 782
3.550
U4>.)»
55.474
18,924
13,427 —
70
131
87.825
•>06
100
1, 685
413
853
792
135
256
78
139
35.770
8.327
15. (K«;
IS)
86
7. '.Mill
3, 084
6, 068
1,41X1
1..Y2
7C-.-.M-I
5, 058
1,749 -.
3, 456
7, 625
2,422
1,267
243
6,807
3, 456
10, 047
4. 3-16
2 152
2 900
4,480 ..
2,014
3, 522
328
87
388
2,014
45,713
10, 487
109 324
18,622
14, 521
-1,146
127,946
13,375
30 535
4 319
6 764
3,950
I, 894
466
659
1. 185
45,568-
8,104
23 350
}, 949
4,640
310
1, 232
-26 .,
25,299
4,950
26 298
7,678
4 591
li, 933
6, 10S
1, 144
1,386
751
1,294
111*
'.», 14.1
-
•18
45 '
I4I.'JW
1,510
93
163,231
902
196
.144
102
309
49
40
47. 522k K K
7. 510k K K
10. 460k K K
10. 235k K K
4, 325
1, 434
398
75. 727k K K
2,622 -
11,332
281
677
141
283
!»25
44. 136k K K
3. 5KOk K K
.1, 206
2, 622
11.613
818
3,833
228
911
1,410 _ _
3, 089
7, 574
753
1,813
636
1,064
104
246
1,414
13, 884
1.208
12
191
400
_
_
47.7IC.kKK
I- I- L-
47. 97Sk K K
JO. »98k KK
l».347kKK
9. 730k K K
.
im
77. 153kKK
485
275
497 . ...
341
2
37. 006k K K
5. 436k K K
ft. 102k K K
9,753kKK
45,500
9. 389
6. 382
3, 089
10, 776
22, 434
2,648
4 528
4, 905
7, 7&3
769
1,240
755
1,568
1 704
1 584
996
3. 084
1, 650
40
253
1,092
34,515
10, 547
5, 85V,
3.084
3,035
1. 598
1.666
24 629
23 020
7 643
6,297
7 662
5,514
4, 305
2,088
2.012
2,474
3,270
1,371 ;
.' 436
612
596
568
1,264
900
308
601
446
223
1,664
60, 297k KK
—u_—-— — ..a. —"K K Ix
San Francisco
Los Angeles.,
«..-.
Portland
Salt Lake City.-."..
Seattle..:.
. ..
;
District total
Total.
j'
,
581
562 -^
768
356 ..
873
69,251
16, 393
3.140
3,270
3,583
3, 519
754. 131
153,801 .
75. 364
36, 890
75,686
22,816
223
9,741
3ft,«52kKK
29.223kKK
11, 419k KK
«.862kKK
12. 023k KK
kKK
99,37»kKlv
kKK
1. 128, 42»kK K
kKK
i Represents cost <>[ insurance purchased to cover shipments of («) securities, and (6) currency and coin other than to and from member banks; the latter are covered by the loss'
sharinir agreement of the Federal Reserve banks.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Breakdown of furniture and equipment purchases of the Federal Reserve banks and branches for 1956—Coutiuue'd
General
overhead
function
Provision
of space
function
General
service
function
Currency
and coin
function
Check collec- Fiscal agency Other function function function
' lions
Total furniture and
equipment
purchases
SDI)
SDI)
SDI)
SDD
SDD
8DD
Breakdown of furniture and equipment purchases of the Federal Reserve banks and branches for 1956
General
overhead
function
Boston
—
$6,218
$3,240
$6, 848
$5, 572
26, 569
458
7,131
379
1,834
1, 109
23, 193
' 67, 981
1,171
2, 241
27,027
7, 510
2, 943
23, 193
69, 152
16, 457
16,371
18, 834
7, 066
6, 167
10, 003
12, 918
352
1,652
37, 157
9,931
11,848
14, 220
7, 970
9,518
364
3, 670
4,491
3, 905
3, 522
4,967
373.221
12, 723
11,648
30 665
14, 922
58, 936
31", 708
8, 525
12,394
97, 592
254,74281)1)
8,632
16 603
10,687
21,567
3,857
57,925
31, 597
2,679
19, 501
29, 557
3, 183
53, 272
16, 731
4,349
199
5,638
'
44, 253
4
34, 646
4
94, 639
143, 1 38SI)1)
59,08681)1)
258.39381)1)
35,922
83, 349
53, 777
83, 336
20, 509
10, 186
173,538
... 460.0I78DD
...
22
49
1,875
56
400
439
667
500
220
676
19, 446
3,377
1,550
3, 321
1,594
11, 556
3,431
8, 750
5,048
13, 638
6, 340
1,674
2, 375
1,318
290
16, 584
606
400
6, 755
1,080
16, 800
502
1.441
9, 055
7, 728
71,18781)1)
10, 306SDD
16.891SDD
25,77381)1)
25.406SDD
2,402
2,502
29,288
42,423
H',997
25, 425
•35,526
149,56381)1)
.. „_
53,975
884
8, 776
1,099
18, 296
6,836
56, 224
41,250
6, 163
5,189
17, 154
972
32, 942
12,780
54,859
9,875
25, 132
97,474
11,352
18,126
45, 722
193, 5308 DD
60,01081)1)
SDD
262,54081)1)
1,199
13,962
4,092
168
109
10, 331
11, 753
1, 140
7, 398
31, 525
16, 581
13, 253
17, 782
3, 916
8, 478
359
367
55, 651
2, 532
83
510
J 97, 129
•25,010
1, 767
1, 125
13, 120
.
•
District tola!
Richmond
-
-
-
—
•--
-
Charlotte
.
-
District total
-
.1
,
Nashville.
New Orleans...^.
—
DisU-ipt total-.— .,
Chicago
Detroit
-
,
-
-
',.--.,
-
-
District total
St. Louis
Little Rock
Louisville
-.
-
.-,
,
District total
.
-_
..
- ...
District total
Kansas City
Denver
Oklahoma City
Omaha
..
-
-- ..
District total
Dallas
El Paso
Houston
San Antonio
.
..
District total-8an Francisco
L o s Aneelcs
- -
$1,837
4 210
*
4 210
1,456
27 704
1 190
1 771
3 572
,
Minneapolis
-.
...
SDD
SDD
SDD
81)1)
SDD
SDD
SDD
$53.32881)1)
Total furiiilure and
equipment
purchases
$25, 209
Philadelphia
•
Check collec- Fiscal agency Other ninetion function function
tious
2,213
28
-
Buffalo
Pittsbuvgh
Currency
and coin
function
$4,-404
--
District Jotal
General
service
function
Provision
of space
function
507
aas
1
—
133, V31SDD
3, 14581)1)
SOU
136. 2768 DD
. ~ si ) i )
76.3548DD
-
169,489SDI)
39, 3588 DD
45,89581)1)
58, 776
125,031
203,843k 1C K
78, 484 kK 1C
16, 717k K 1C
30, 754k 1C 1C
k 1C 1C
329, 798k K 1C
3, 282
735 ..
2, 924
« 57, 637
4, 227
163. 503 VCk
20. 947k K 1C
13,515
4,017
2,924
61 , 864
184, 450k K 1C
2.105
2, 488
8, 743
193
2,090
523
946
731
79
3, 121
3, 286
' 16, 752
1,961
4, 752
6,326
28. 4 Ilk KK
7. 221 Ik K 1C
11.519kKK
20, 594k 1C 1C
18,733
4,369
30, 628
79, 141
663
68, 550
24, 267
8, 650
6, 180
7,335
•
603
68,550
32,917
2,370
226
445
2,532
152
190
1,268
5,863
7
3,041
4,142
5, 895
13,936
3,752
7.217
29, 791
07, 774k 1C K
6,396
2,462 .
4,367
, 8, 658
1, 584
289
35, 180
4, 620
328
2. 888
31, 491
5,285
71
39ft
1,904
10.973
2, 849
» 56. 326
46. 802k 1C K
5, 678k KK
9,l21kKK
153. 200k K 1C
45,711
39,327
7,659
70,148.
2t4.80lkKK
13,502
19, 279
682
5,750
7. 280
1,780
3,493
1,922
2, 891
1,877
. 998
137
947
25
9,349
10,998
6, 503
1,233
2, 696
7, 952
18,207
15, 365
18, 384
3, 135
416
3. 210
9,701
924
8, 413
6,997
2, 572
1,690 5, 888
•17,790
« 20, 734
1.236
• ,1.463
2.812
54, 703k KK
66, 284k KK
8, 192kKK
6, 783k K K
17. 318k KK
Salt Lake City
Seattle
480
1, 355
District total
> 4,031
15, 1!M>
25, 560
37,377
20,231
6,850
44, 035
153,280K;ivk
176,026
241,372,
349, 124
477,183
146,079
185, 705
767, 974
2, 343, 523k KK
kKK
Total
..
i Includes $28,195 for research, public Information, and bank relations function.
» Includes $10,905 for accounting function.
a Includes $1 5,685 for emergency operations function.
* Includes purchases for personnel Junction as follows: Baltimore, $18,310; Charlotte,
$77,810.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3,914
5
Includes $35,620 for accounting function,
•Includes purchases for personnel function as follows: Little Rock, $11,784; Minneapolis, $50,239; San Antonio, $51,594; San Francisco, $6,086; Los Anccies. $9,533.
,
' Includes $9,030
for accounting function, and $0,177 for research, public Information,
and bank relations function.
SECTION
Breakdown of furniture and equipment-rentals of the Federal Reserve banks and branches for 1956—Continued
Personnel
function
Check
collection
function
;
Accounting
function
Research,
public information,
and bank
relations
function
Fiscal
agency x
function'
Other
functions-
Total furnitun- and
equipmentrentals
SS—
SS88—
SS—
SS—
SS—
8888—
88—
Total furnltuns and
equipmentrentals
88—
88—
88—
88—
SS—
8S—
88—
SS—
- - - - - -
Breakdown of furniture and equipment-rentals of the Federal Reserve banks and branches for 1956
Personnel
function
Check
collection
function
Accounting
function
Research,
public information,
and hank
relations
function
Fiscal
agency
function
Other '
functions
Boston
$3,957
$295, 789
$20, 554
$3,959-
$41,035
$23, 069
88—
$889, 80388—
New York
Buffalo
18, 454
750
405,081
52, 504
48, 105
6, 074
4,992
82. 814
1», 762
12, 194
2,217
571,7(KKSS—
7I.307SS—
19, 204
457, 645
54, 239
4,992
02, 576
14,411
0-13, 00788—
5,935
219, 580
33, 876
2, 025
45, 105
0, 014
313, 73588—
2,444
1, 675
1,986
130, 540
67, 246
102, 216
878
404
1, 108
1,830
32, 935
18, 829
20, 620
7,220
5, 087
8,201
175,85388—
93, 241SS—
134, 137S8—
0, 105
300.008
2,390
1,830
72,390
20,508
403.23188—
1,825
140
173
113,775
61, 780
44, 788
6,742
482
5,998
33, 775
9,271
8,364
0,408
3,271
2,719
2,138
220, 343
7,224
5, 998
51,410
15,458
171,58388—
74, 04488—
50,04488—
SS
302,57188—
812
30, 852
29 706
00, 083
29,932
24, 404
1, 510
51, 671
10,418
12,744
8,378
11,704
2,300
998
905
1, 582
1,218
Philadelphia
Cleveland
Cincinnati
Pittsburgh
.
-_
District total
Richmond
....
Charlotte
District total
,
—
jv
'
Nashville
New Orleans
~*
.
..
District total
Chicago
Detroit
.
1
263
.
102
1,177
12,442
344
-
District total
12,780
.
1,516
94, 915
7,003
419, 073
95,788
11,335
1,458 ..
17, 073
81,436
24, 619
33,713
10,064
180,977 ..
515,461
12,703
17, 673
100,055
43, 777
132,218
13, 194
37,215
16, 044
1,251
1,953
24, 194
3,816
7, 040
8, 154
25, 032
817
371
1.449
198.671
1,251
1.953
43, 804
28, 269
'
St. Louis
Little Rock
Louisville
Memphis
District total...
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
' .
tsq
„j
93, 15188—
41.12288—
74, 05588—
30. 80388—
37, 42888—
SS
285, 04888—
576, 27288—
132,27388—
SR '
708, S4588J185,248NTSS
17.827N88
45, 226NHS
25, 047N.SR
NSS
273, 948NS8
Minneapolis
Helena
District total
800
Kansas City
Denver
Oklahoma City
Omaha
;...'
..
District total
Dallas
Kl Paso
Houston
Sau Antonio
.
San Francisco
Los Angeles.
Portland
Salt Lake City
Seattle
.'
Total
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
144 '>27
12
95 124
29, 191
38 155
48, ttlXi
1 159
1 159
21 040
2 408
. 155 070XSS
20 21')XS8
24 11,4
0 370
175 882X88
20, 743
0, 782
5 C50
12, 920
203
125
209
39, 175
13, 577
30 805
0 130
3, 070
4 005
4,418
1, 140
902
1, 142
130 543 N8S
19 810NSS
41,920X88
41,375 S3
3,100
50, 730
7, 002
2,580
20 002
44, 323
3, 440
5, 509
6, 201
1,531
1,783
125
44
066
211,100
355
1 270
39
88 240
12 540
37, 288
30 102
14
13
2,684
174, 170
1,290
3,237^
104, 734
205, 949
43, 918
30, 780
77,838
3 093
239, 048X88
=
' 12, 324
1 938
388 i
388
388
:=^— Nr88
151 008X88
253, 993XSS
47,871X88
42, 781X88
85.093XSS
3,237
409, 219
15, 420
2,580
80, 135
4, 149
580, 740XSS
58 083
3, 387, 202
149 410
47 391
748, 344
191, 527
4,582,017X88
Breakdown of Federal Reserve currency expenses of the Federal Reserve hanks for 1956
Original cost
Boston
Kr\v York
.
Philadelphia
.... '_..
Cleveland
.Richmond
•Vtlnnfii
Cliicnsro .
. . .
S( Louis
Minneapolis
__
. - Kansas City _
- Diillas
'
San Francisco
- -
0 1°0
244
135.047XS3
30,591X83
43 930X88
48, 965XSS
MM)
205, 133NSS
355
800
±
District total
12
2 645
..
District total
120 739
17 488
-*
:..
- -
Total
Cost of
Total F.-deral
Reserve
redemption
currency
$3 Hi. 023
$32. 904
1,400, 777
220, 985
198. 53.1
470, 408
37"), 7(iH
875. 909
220, 949
IS. 292
204,115
09, 010
713, 051
119.802
34. 004
38, 231
40,512
35 579
85. 751
24, Ii93
7, 322
19, 183
15, 390
51,757
1, 520. 039
201,049
230. 7<Wi
510, 920
411.347
901.000
245. (>42
25,014
223. 298
X4, 400
705; 408
5, 097, 322
505, 854
5, 003, 170
$349, S27
i These expenses are borne entirely by the head oilices; therefore, the amount shown above for each bunk
Is the total for the district. ,
.,
Q
BOARD OF G O V E R N O R S
or THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To_
Chairman Martin
From
Mr. Carpenter
Date February i
SubjectL
CONFIDENTIAL (F.R.)
Attached is a copy of the letter addressed by Congressman
Patman to Chairman Spence under date of February 20 to which Chairman
Martin referred at the meeting of the Board this morning.
Attachment
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1958
COPY
Hon. Brent Spence
Chairman
Committee on Banking and Currency
House of Representatives
Washington, D. C,
Dear Mr. Chairman;
Attached is a corrected copy of my testimony before the Committee
on Friday, February 7, 195B, in which I have inserted the remainder of the
exhibits to which I referred.
While I have put into this record some facts of a scandalous
nature, this is not because, as you previously suggested, I derive any enjoyment from setting off ".a hydrogen bomb". Truth is that these facts, and
others of a like nature, are being whispered about, and have been for some
time, and our Committee could not long continue sweeping them under the rug,
even if we should wish to. Furthermore, I know from first-hand sources
that these matters are causing some acute embarrassment to a number of people
on the inside of the situation, including even the Wall Street insiders who
are actually profiting from it, as well as people in the Federal Reserve
System.
It is my suggestion that the Committee call the members of the Fed*
eral Reserve Board and the Presidents of the Federal Reserve Banks, or at
least those who are presently members of the Open Market Committee, and
place squarely on them the burden of making some suggestions for corrective
legislation.
Similarly, I would suggest that the Committee also call the Comptroller of the Currency, both for a further consideration of several points
about which Mr. Gidney seems to have been in error at the time he testified—
particularly on the question of whether there is any audit supervision over
the handling of Federal Reserve currency by his Office—and to invite Mr.
Gidney's suggestion for legislation to put this and other functions of his
office under audit supervision.
As for a recodification bill, if the Committee feels under compulsion to report one, such a bill could readily be drafted without having
in it substantive changes in present law. In this event, it would be my
suggestion that we refer the matter to the Subcommittee on Revision and
Codification of the Statutes of the United States (of the Committee on the
Judiciary of the House) asking them to whip into shape such a recodification bill. After all, this is the official committee for such work and it
is admirably equipped with expert assistance to do such a job. Furthermore,
by that Subcommittee1 s handling the matter, we might avoid causing that
Committee an unnecessary delay in getting out its new codification which ia
now nearing completion. As you know, the present Code of the United States
is now 6 years old and the new general codification, which is due by the
end of this session of Congress, is badly needed, and should not be disrupted or delayed*
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Federal Reserve Bank of St. Louis
Hon. Brent Spence
February 20, 195#
-2-
On the other hand, if the Committee is going to seriously consider reporting a Financial Institutions bill which contains a number of
major changes in law such as those now in the bill, then I think we should
have an opportunity to question Mr. Cravens and perhaps some of the other
members of the Advisory Committee which he headed. The present bill
would make a number of changes in existing law, the meanings of which I
still do not know, and I believe that we should have an opportunity to
learn from the people who drafted the bill what the purposes and intended
effects of these changes are.
Mr. Chairman, as I see it, all of the Members of our Committee—
both majority and minority members—are placed in a most untenable position
by some of the conditions which have grown up in the Federal Reserve System
and in the other Federal agencies having supervisory responsibilities over
banks and banking. The fact that the Federal Reserve is carrying on underthe-counter trading in Government securities with a small club of private
speculators, to the tune of s^5 billion in Government funds annually, without public reporting of even the prices at which these trades are made,
will be most repugnant to the American people. The people in my part of
the country will not even appreciate the fact that Federal Reserve banks
are having a free hand in the till of the United States Treasury. Since
these are matters which should concern each Member of the Committee, I am
sending a copy of this letter to each Member.
Sincerely yours,
/s/ Wright Patman
Wright Patman
Enclosure
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Federal Reserve Bank of St. Louis
February 21, 1?$8
BY
The Honorable Brent ipence,
Chairman,
Hcmae Banking and Currency Coraaittee,
House of
ftepresentativea,
Washington 2$, I. 0.
Bear Mr* Chairmani
As I understand the record of your Ccwaittee's hearings on
the landing Financial Institution* Mild («Ut. 7026 and S. UiSD »ay
soon be closed, I should appreciate it if you would advise your Comraittee that tlie Board would weleoiae an opportunity to sutreit written
cements on Mr. Patman's stateiaant of February 7.
To do so properly, it will of course be necessary for us first
to exsedne in its entirety the material Mr.1 Patatan said in that statement he Intended to place in your Gosmittee s record. As you will recall, tlae Board supplied to your CosHsittea last August atid September
reports of examinations ami audits of the Federal Reserve Banks made
in accordance with the longstanding requiroaents of ths Board* Ittwi
the Conaittee record becoi^s available and we know what Mr. Pataan
has e»serpted from the reports we made available, we should like to
furnish to the Coawdttee is writing saeh information and consents as
may be necessary to prevent any Misunderstandings with regard to ths
various itoas on which Mr. Fataan has coomentad.
Meanwhile, there is one matter which Mr. Patoan referred to
several tiaes in the course of his general stateawnt which Involves
at least an JU^pliad criticism of persons outside the Federal Reserve
System. Therefore, I would like to correct iansdiately, in Justice
to them, miSTinderstandings indicated by Mr. rattan's remarks.
Mr. Fatnan statess "They had a syaposiisa of two days on eon*
suner credit and they invited soae speakers, and they paid certain
honorarioa to these speakers. Two of the®, they paid 12,000 each.
Four of them, they paid
11600 each. Two of thm they paid $l£QO,
and one of them I5C0.8 Later Mr. ratmao statesi MThat the federal
fteserve System has the power to go out and hire speakers, have meet*
ings and pay an honorarium up to $2,000 if they want to.
that has
been done clear across the hoard an over the country.11 Again he
states2 *fhey can pay 12,000 to a speaker if they want to.*
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Federal Reserve Bank of St. Louis
f be toormble Brent dpenee
-2«-
The ei£wu11tureg to whieh Kr* Fatsian apparently refers were
payment* to highly respeeted yaiversitj proTensore for expert professional eorrlces over a period approaeisiatiag nine aootha. these services
Here revered is eormeetiOR nit'n tiw «to4jr of instaliaeBt credit, undertaken by tbe ao«rd pursmiBt to a revest nade early ie 19S6 ^r tbe
Cli«ii«*i5 of the Council of Beoaomie Mfieere, a* the direeticm of the
President, for a comprehensive anal^eia of that fubject* Toa nill reeell that interest in this »tud$ was also eajpressed tgr ths Bsjaki^g aad
Owremjr O^annlttees of the Houae and Senate ana the Joint Kconoaic Com*
idtte«*
A aa4or part of the i^rtalmemt credit styd^ consisted of
analyses fef tfet tmiir«rsit;? professors referred to abwe* fhs> arrangeaents for their servioes were aa^e trough ^e auspice* of the Kational
Bureau of Seonomic Eeseareh^ an ontstsiiduag ii^epmsd^xt research orgsMsa*
tioa# Attendance at %h* two-day eoaferenee referred to % Hr» ratsun
ooBsideratioa of ths paynests ha aantioss. In fact, the iiartieipants
prepared major papers on the subject, and flit worM involved occupied a
substantial part of their time in 19S6.
flie results of this work are published in Part IX*
sad f f of the Board's report on conssaer instalment credit* It nIll be
evident from SB eaESBdnsti«m of these voltes that the contribution of
the participatiag scholars was considerable, and was ia secordsnce with
the proper objectives of indepimdeiit research into a field of great
•tosasie significsnco to ths American people*
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Federal Reserve Bank of St. Louis
Sincerely youra,
(Signed) Wm. McC. Martin, Jr.;
COMMENTS BY BOARD OF GOVERNORS ON REPRESENTATIVE PATMAN»S
TESTIMONY OF FEBRUARY 7, 1958 BEFORE HOUSE BANKING & CURRENCY COMMITTEE
Section U of the Act provides that "every Federal reserve bank
shall be conducted under the supervision and control of a board of directors," and sets forth both the composition and manner of election or appointment of such boards. It further specifies that "the board of directors shall perform the duties usually appertaining to the office of
directors of banking associations and all such duties as are prescribed
by law."
Section 11 authorizes the Board to exercise general supervision
over the Federal Reserve Banks5 other fundamental powers which the Act
confers on the Board include the authority to liquidate or reorganize a
Federal Reserve Bank (Section 11), and to readjust or create new districtsnot to exceed twelve in all (Section 2),
Congress provided for an accounting by the Board of Governors of
its stewardship over the Federal Reserve System by requiring (Section 10)
that the Board "shall annually make a full report of its operations to the
Soeaker of the House of Representatives, who shall cause the same to be
printed for the information of the Congress."
The responsibilities placed upon the Boards of Directors of the
individual Reserve Banks, and the Board of Governors, must be taken into
account -when considering expenditures and practices upon liiich Mr. Patman
has commented.
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Federal Reserve Bank of St. Louis
Section 21 of the Federal Reserve Act provides that the Board
shall at least once a year order an examination of each Federal Reserve
Bank. With regard to the scope of the examinations, the Board1s instructions to its examiners contain the following general provisions:
"The examination of a Federal Reserve Bank shall determine
(a) its financial condition through appraisal of its assets
and verification of its assets and liabilities, including
liabilities as custodian, without undue duplication of
effective and acceptable verifications made through the
Reserve Bank's own audit procedure; (b) proper discharge
of its responsibilities as Fiscal Agent of the United
States; and (c) compliance by the management with applicable provisions of law, regulations of the Board of
Governors, and any other applicable requirements. Also
the Board's examiners shall develop pertinent facts and
opinions which will enable the Board of Governors to appraise the condition, operations, and administration of
each Reserve Bank,"
Pursuant to these instructions, the examination reports containalong with detailed schedules of assets, liabilities, and reserves—a
wide variety of information and comments. Some of these comments are of
a critical nature; others are in the form of suggestions as to operating
procedures; and still others pertain to matters which the examiners feel
may be of interest to the Board or should be made a matter of record.
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Federal Reserve Bank of St. Louis
-3Upon the conclusion of each examination, the examiner presents
his report to the President, and the Chairman of the Board of Directors
of the Reserve Bar1'., at which time the examiner's suggestions and
criticisms are fully discussed.
The report is then reviewed by the
Board of Governors, and advice is requested from the Bank concerning
matters that seem to warrant further attention. Copies of these reports
covering years as far back as 1949 have on previous occasions been furnished to the House Banking and Currency Committee*
Last August Mr. Patman requested copies of the reports of examinations made by the Board's examiners during the five-year period 1952-1956.
That portion of Mr. Patman's statement of February 7 which concerns expenditures and operations of the Federal Reserve Banks was based on
these reports.
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Federal Reserve Bank of St. Louis
(
C
-uInsurance
On Page 15^9 Mr. Patman stated that during the year 1956 the
Federal Reserve Banks spent $1,821,1+29 for insurance (as shown on Page 1666,
this total should be $1,128,1*29), and asked* "Why should the Federal Reserve
banks buy insurance?11 His statement continued:
"This insurance is unneeded
• • o with all the money and resources of the Federal Reserve System, if
it
can not carry the risk of its oun insurance, then certainly there is no
private insurance company that can carry this risk,"
The Federal Reserve Banks have discontinued purchasing substantial
amounts of insurance.
About 15 years ago the Banks, with the encouragernent
of the Board, entered into a loss-sharing agreement under which they discontinued the purchase of registered mail insurance for their own account
and reduced the Bankers' Blanket Bond coverage at each Bank to $500,000.
Each year the Reserve Banks set aside a portion of their earnings (at the
rate of two cents per thousand dollars of value of shipments covered) as a
reserve for registered mail losses. At the end of 1956 this reserve totaled
approximately $10 million.
The question of purchased insurance has been considered from time
to time, particularly the possible desirability of extending the coverage
of the loss-sharing program of the Reserve Banks. For various reasons, extensions of this program to risks other than mentioned above were considered
undesirable or impracticable. For example, a program of loss-sharing in
lieu of Workmen's Compensation insurance would necessarily have to comply with
the laws of each of the States in which the Federal Reserve Banks have employees.
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Federal Reserve Bank of St. Louis
Administration of such a program would require expert technical
c
^
c
-5-
knowledge on personal injury and insurance matters, such as investigation
and settlement of claims, with respect to which Federal Reserve personnel
have had little or no experience.
A breakdown of the $1,128,U?9 which the Federal Reserve Banks
spent for insurance in 1956 is shown in the table on Pages 1665-1666. As
this table indicates, about $750,000 of the total represented the Banks'
portion of premiums paid for hospital and medical service insurance, and
about 0150,000 was for Workmen's Compensation insurance,
"Unusual Expenses"
Mr. Patman's statement mentioned (pages 1562-158U) numerous items
under the heading "Unusual Expenses." These items include expenditures for
the following purposes:
Personnel activities including training, recrea-
tion, loan funds, and employee insurance; Membership dues; Charitable activities; Meetings and entertainment; and Buildings and land.
Except for the "Buildings and land" category, all of the above
reflect operating policy decisions at the individual Reserve Banks. The
Board has taken the position that the responsibility for determining whether
expenditures of this nature are necessary expenses within the meaning of
Section 7 of the Federal Reserve Act rests primarily with the officers and
directors of the individual Banks. This position is consistent with the
provisions in Section U of the Federal Reserve Act that "every Federal
reserve bank shall be conducted under the supervision and control of a
board of directors" and that the"directors shall perform the duties usually
appertaining to the office of directors of banking associations."
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Federal Reserve Bank of St. Louis
-6The Board of Governors relies upon its examiners to
review all such expenditures and brinL those about which there
may be any question to the attention of the Bank1s management
and to the attention of the Board.
More specific comments with regard to these matters
are given below:
Personnel activities
The fact that employees of the Federal Reserve Banks
are not Government employees is particularly important when considering personnel programs. The Reserve Banks must compete in
the local labor market and, if they are to compete successfully,
their personnel programs must be in line with those of the community.
The Federal Reserve Clubs, which Mr. Patman referred to
on several occasions, are employee organizations which sponsor social,
recreational, and educational programs. Allotments to them are part
of the per capita cost which the Reserve Banks budget for their personnel activities.
To a large extent the efficiency of the operations of a
Reserve Bank depends upon the experience and stability of its staff.
In this light, the real measure of personnel activities is their
effect on reduced turnover and greater efficiency, rather than
the direct cost of the various activities.
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Federal Reserve Bank of St. Louis
Membership dues
Mr. Patman commented (page 1561;) that the Federal Reserve Banks
"pay dues and assessments to the American Bankers Association, the
American Institute of Banking, the private clearing houses, the chambers
of commerce, and others, and pay officers' and employees' fees and expenses for attending meetings of such organizations,'1
Among the organizations mentioned were, "private clearing houses."
Memberships in local Clearing House Associations greatly expedite the
presentation by the Federal Reserve Banks of checks drawn on local banks.
Membership dues are levied by these associations to pay their operating
and administrative expenses.
In some cases, the Reserve Banks pay such
dues; in other cases they provide the Clearing House with operating space
in the Reserve Bank building and are accordingly relieved from the payment
of dues. One advantage of the latter arrangement is that it eliminates
the need to transport through the streets each day the great volume of
local checks received by the Reserve Banks.
Memberships in such organizations as the American Bankers Association, chambers of commerce, etc., reflect—like personnel activities-operating policy decisions at the individual Reserve Banks, The over-all
guiding principle in connection with such memberships is that they should
be confined to organizations falling within one or more of the following
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Federal Reserve Bank of St. Louis
-8-
categories:
1. Organizations whose activities are directly
related to the work of the Reserve Bank, such as
national and State bankers1 associations.
2. Organizations in which the Reserve Bank feels
it should be represented, such as chambers of commerce
and appropriate financial and agricultural associations.
3. Organizations in which membership is desirable in
order to obtain publications and other services, such
as economic and other professional associations.
Memberships in the first two categories permit regional soundings
and a blending of views that constitute one of the most important strengths of
the Federal Reserve System.
They form a means of economic intelligence that
enables the Reserve Banks to obtain and transmit to appropriate authorities
in the System information concerning rapidly occurring changes in our economy,
and are directly relevant to the timely formulation of credit policy.
Although it feels that individual decisions with respect to memberships should be determined at the local level, the Board has devoted
considerable attention over the years to the general question of expenditures
for membership dues. The most recent review of this matter, begun in the
latter part of 1956, resulted in discontinuance of certain memberships carried at Bank expense.
Meetings and entertainment
In this category Kr. Patman cited from the examination reports comments concerning the following matters:
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Federal Reserve Bank of St. Louis
Cleveland 1952
Expenditures
of ;;?295 for stateroom for two officers in
connection with annual lake cruise sponsored by the
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Federal Reserve Bank of St. Louis
Cleveland Chamber of Commerce.
Expenses of sj>5,417 for joint meeting of Boards of
Directors of the main office and the Pittsburgh and
Cincinnati Branches at Cincinnati, including $165 for
favors, $134 for a river trip, and &190 for entertainers.
Boston 1953
Reimbursement of expenses (&158) incurred by officers
as a result of attendance of their wives at meetings of
State ban'iers associations.
Minneapolis 1953
Entertainment expenses of 050 in connection with Annual
Conference of Personnel Officers of Federal Reserve Banks;
and entertainment expenses of $150 in connection with a
conference of Ninth District Bank Examiners.
Kansas City 1953
Expenses totaling $1,773*70 incurred in connection with
a Conference of Bank Supervisors and Examiners, including ^325 for entertainers.
St. Louis 1954
Expenditure of v419»68 f°r 86 theater tickets purchased
for entertainment in connection with November 12, 1953
joint meeting of Boards of Directors of the head office
and the three branches.
Expenditures of $157.25 for 85 baseball tickets; and of
099*75 for 57 theater tickets purchased for entertainment in connection with June 10, 1954 joint meetings of
Boards of Directors of the head office and the three
branches.
-10These tickets were for the use of the directors and officers
of the Reserve Bank and their wives,
Minneapolis 1955
Expenses of (a) |>100 for entertainers in connection with an
Examiners1 Conference; (b) ^62.40 for basketball tickets
and np60 for Ice Follies tickets purchased for entertainment
in connection with various sessions of the "Short Course in
Central Banking" during the period January 1 - July 1, 1955;
(c) $72 for dinner music entertainment for April 1955
"Directors and Officers Assembly"; and (d) &76.40 for 21
football tickets in connection with the October 1955
Directors1 meeting,
Dallas 1956
Expenditure of &100 for entertainment during dinner
given to delegates from all Federal Reserve Banks
attending National Convention of American Institute
of Banking,
The above expenditures were in connection with business meetings
of direct interest or benefit to the Reserve Banks. They were considered
by the management of the individual Bank concerned to be reasonable and
appropriate for t>e occasion. In each case, however, after the matter
was made a subject of comment in the examination report, the Bank reviewed
its policy and subsequently discontinued incurring expenses of the type
questioned,
Buildings and land
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Federal Reserve Bank of St. Louis
On page 1571 the following statement by Mr. Patman appears:
"These banks (the Reserve Banks) are supposed to be
limited by law in their spending for bank premises. They
-11are expressly forbidden to build or enter into any contract
to erect any building to cost in excess of ^250,000 without
coming to Congress for the authorization."
This statement is incorrect in two respects. First, the limitation
in the law applies to branch buildings, not to head office buildings.
Secondly, the limitation cited is that originally enacted June 3, 1922,
and ignores subsequent amendments.
The full text of the limitation is found in paragraph 9 of Section
10 of the Federal Reserve Act, which reads as follows:
"Mo Federal reserve bank shall have authority hereafter to enter into any contract or contracts for the
erection of any branch bank building of any kind or
character, or to authorize the erection of any such building, if the cost of the building proper, exclusive of the
cost of the vaults, permanent equipment, furnishings, and
fixtures, is in excess of ^250,000: Provided, That nothing
herein shall apply to any building under construction prior
to June 3, 1922: Provided further, That the cost as above
specified shall not be so limited as long as the aggregate
of such'costs which are incurred by all Federal Reserve banks
for branch bank buildings with the approval of the Board of
Governors after the date of enactment of this proviso does
not exceed &30,000,000."
Mr. Patman1s statement continued:
"But the Federal Reserve
System has invented a new accounting system which seems to eliminate much
of the normal inconvenience of any restraint on capital outlays. By this
new system, they simply charge capital outlays to current expense."
The examples cited with respect to the charge of construction
costs to current expense (page 1575) refer to repairs and alterations at
heed office buildings. The basic principle followed in such charges is
to capitalize those which add to the intrinsic value of the property, and
to charge to expenses the costs of repairs and alterations which keep
the properties in repair and make for efficient utilization of space and
operations but do not add new intrinsic values to the building. This is
in accordance with standard accounting practice.
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Federal Reserve Bank of St. Louis
-12-.
Much of the material concerning Bank premises which is contained
in Mr. Patman's statement represents merely comments by the Board's examiners with respect to the progress of building projects at various Federal
Reserve Banks and branches. Mr, Patman cited several instances of parking
arrangements provided for Bank employees.
These arrangements are similar
to those provided here in Washington for employees of Government departments
Losses and Discrepancies
On page 1575> fcr, Patman stated:
"Some of the losses and the discrepancies in the accounts
of the Federal Reserve Banks are truly amazing. All of
these banks experience tremendous losses of registered
mail containing deposits, securities and other things
of value. They charge off or set up reserves amounting
to millions of dollars for such losses."
The implied criticism of the practice of setting up reserves
against possible registered mail losses seems to conflict with the earlier
assertion (page 1549) that the Federal Reserve System should carry its own
insurance.
As mentioned previously, the Federal Reserve Banks do have a
registered mail loss-sharing agreement, and—as part of this program—set
aside a portion of their earnings each year as a reserve against possible
losses.
The record does not support the assertion regarding losses and
discrepancies at the Reserve Banks.
In the light of the tremendous volume
of money, checks and securities handled by the Reserve Banks—losses and
discrepancies have been exceedingly small and infrequent.
The following data indicating the volume of currency, checks and
securities which the Federal Reserve Banks handle in one year were taken
from the table on page 79 of the Board's 1956 Annual Report.
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Federal Reserve Bank of St. Louis
-13Millions
of pieces
Billions
of dollars
1956 volume of—
Currency received and counted =>'
Checks handled—
Government
All other
Issues, redemptions and exchanges
of U. S. Government securities
4,46?
29
539
2,822
114
1,005
199
422
I/ Does not include new money received from Washington.
In contrast to the above amounts which are in billions of dollars,
the following figures showing net losses at all Reserve Banks due to differences and registered mail losses, during the years covered by Mr. Patman's
statement, are in actual dollars.
Net Lo£?ses charged to
Fro fit and Loss — Reserve for registered
mail losses
Difference account
1952
1953
1954
"1955
1956
£L6,239
11,907
9,325
9,097
7,112
$1,150
1,140
150
965
100
Note—The total of about :tf3,500 charged to the
Reserve for Registered Lail Losses during the five
years 1952-56 resulted from the loss-sharing agreement of the Federal Reserve Banks. It may be of
interest to mention that during the same period this
agreement also resulted in a savings of more than ^2
million in premiums that the Reserve Banks would have
paid if, in lieu of the loss-sharing program, they
had purchased insurance to cover their shipments of
currency, coin and securities.
In several cases, the losses which Mr. Patman cited were beyond
the responsibility of the Reserve Banks and were included in the examination report only as a matter of information. For instance, on page 1578,
Mr. Patman commented on an ^85,000 currency shipment by the Federal Reserve Bank of New York which was embezzled by a Post Office employee.
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Federal Reserve Bank of St. Louis
The quotation from the examination report clearly indicates that the
embezzler was an employee of the Post Office Department, and that most
of the money was recovered. In the light of these facts it is obvious
that there was no negligence or culpability on the part of the Reserve
Bank in connection with the incident.
Moreover, certain of the larger items which Mr. Patman listed
under the general heading "Losses and Discrepancies" do not belong in such
a category.
They pertain to Deferred Accounts, Reserves for Contingencies,
and other such schedules which are necessary in the examination report
to show the detail of the Bank!s assets, liabilities and reserves. They
do not represent, or indicate, losses or discrepancies.
For example, on page l5?6 there is listed from the 195U Examination Report of the Federal Reserve Bank of San Francisco an amount of
$51,883,221.62 which is shown under Deferred Accounts as "Uncollected cash
items—Due from member and nonmember banks." This amount, of course,
represents checks and other cash items which the Reserve Bank forwarded for
collection and for which, in the normal course of business, payment had not
yet been received as of the date of the examination. It is in no sense a
loss or a discrepancy.
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Federal Reserve Bank of St. Louis
Cafeteria Subsidy
On page 158U, Mr. Patman1s statement includes the following remarks:
"They make generous subsidies to the employees'
cafeterias and dining rooms. The Board has authorized the
banks to pay up to one-half of the costs. As previously
pointed out, the total cost of all the cafeterias
in 1956, according to the bank's method of computing
these costs, came to $2,51*9,099, and of this amount
the banks paid $1,196,8lU, while the cafeterias receipts took care of $1.3 million. (See pt, I, p. 569,
of the hearings.)
-15"I do not object to a fair subsidy for restaurants
and cafeterias in connection with a business. I think
it is pretty well accepted practice. But I think it
is very unusual for the Government to have to pay 50
per cent of such expenses, and even more. Furthermore, these audit reports disclose that even the
theoretical maximum of 50 per cent is an understatement ."
He adds (on page 1585) that "it would appear that the cost of
overhead—bank space, lights, water, all the expensive equipment and the
dining room furnishings and perhaps even the personnel—are furnished
free by the banks and are not counted against the 50 per cent subsidy
which the banks have been authorized to make to the cafeterias."
In most of the cities in which the Reserve Banks or branches are
located, it is well-established practice for business and industrial firms
to provide low-cost meal service.
In some areas, many of the large banks
and insurance companies provide free meals to employees.
This is a com-
petitive factor in local labor markets where the Reserve Banks must recruit
their employees.
A first-class cafeteria serving low-cost, balanced meals
is an internal economy factor as it minimizes absenteeism, increases productivity, and reduces turnover. The Reserve Banks' average cost of ^6?
per employee during the year 1957 for the subsidized food service is small
in comparison to the advantages derived.
The Board has authorized the absorption by a Reserve Bank of
up to one-half of the cost of operating its cafeteria, based upon the
following expense items:
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Federal Reserve Bank of St. Louis
-16Salaries and retirement contributions of
employees assigned to the cafeteria operation.
Cost of food> and cafeteria supplies (including
ordinary day-to-day replacements of small utensils,
dishes, glassware, etc.)
Cost of licenses, permits, and outside laundry
and cleaning..
As Mr. Patman notes, the cost of operating Federal Reserve Bank
cafeterias does not include allocations of overhead and space charges.
Exclusion of these items from cafeteria and dining room costs is in line
with commercial accounting practices.
Retirement System
On page 15-35, Mr. Patman states: "... the Retirement System
of the Federal Reserve is clear out of line with that of other Government
employees.
I believe in a good liberal retirement system, but I don't
believe they should have a better system than the other Government employees
because they work for the Government."
This statement with regard to the Federal Reserve Retirement
System has been reviewed by the actuarial firm of George B. Buck. Mr,
Buck is the Actuary of the Retirement System of the Federal Reserve Banks
and is also Chairman of the Board of Actuaries of the Civil Service Retirement
System,
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Federal Reserve Bank of St. Louis
jfr.. Buck1 s firm noted that—
1. Benefits to which employees of the Board of
Governors are entitled under the Federal Reserve Retirement System are identical to those provided for
Civil Service employees other than Members of Congress.
-172. Under the Federal Reserve Retirement System,
a Federal Reserve Bank employee is not eligible for full
service retirement benefits until he has attained age 65
regardless of the number of years of his service; whereas,
under the Civil Service System an employee may become
eligible for full benefits at age 60 after 30 years of
service or at age 62 after 5 years of service.
3. The cost to the employer of the total benefits
(including Social Security) provided for Bank employees
versus Civil Service employees is quite close to being
the same.
The following figures compare the total service retirement benefits under the Bank Plan and Civil Service Plan for employees having a
"final average salary" of $3,000 and $25,000 with 30 years of future service
rendered after the effective date of the changes in the Bank Plan on
September 1, 1957.
Retirement benefits as
a per cent of salary
Bank Plan
Civil Service
(including Social Security)
Plan
30 years service and "final
average salary" of $3,000
55.8
58.3
30 years service and "final
average salary" of $25,000
56.3
56.25
While some benefits of the Bank Plan, when compared with the Civil
Service Plan, would be more favorable in certain cases and less favorable in
others, the figures given above as well as those that apply at other salary
levels show on the average closely comparable benefits between the plans. On
the twenty-two salaries that exceed $25,000, the maximum retirement benefits
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Federal Reserve Bank of St. Louis
-18for 30 years* service would amount to 57.0 per cent of final average salary.
In this latter group there are only two salaries that exceed $35>000—one at
$50,000 and one at 660,000.
Deficiencies in Reserves
Mr. Patman stated (pages 1586-1587) that "there are all kinds of
irregularities about the use of bank reserves," and that "they assess or
waive penalties for deficiencies in member bank reserves on the basis of
erroneous computations, or without authority."
All member banks are required to submit reports of deposits for
reserve purposes—central reserve and reserve city banks on a weekly basis,
and country banks on a semi-monthly basis.
These reports, numbering over
162,000 a year, are compared at the Reserve Bank offices with the member
banks' reserve accounts.
The Board delegates to the Reserve Banks discretion as to whether
penalties are assessed or not in specified types of cases—for example, when
the penalty is less than a certain amount, and when the deficiency is less
than a stated percentage of required reserves and is offset by excess reserves
during the immediately following reserve computation period.
In all other
cases, penalties incurred shall be assessed unless the Board, after a review
of the facts of the case and the recommendation of the Federal Reserve Bank,
authorizes the Reserve Bank not to make the assessment. Detailed instructions
regarding these waivers were furnished to Mr. Patman, at his request, with the
Board's letter of September U, 1957From October 10, 19U9 through August 15, 1957, during which about
1.3 million reports were reviewed for reserve purposes, only 76 cases were
referred by the Reserve Banks to the Board, and in these cases the Banks were
authorized not to make the assessment.
Experience in this matter indicates
that member banks conscientiously attempt to maintain adequate reserves, and
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Federal Reserve Bank of St. Louis
-19that deficiencies arise largely through inadvertence, clerical error, delay
in mail, and absence of key employees of the member banks.
The Board believes there is no justification for the charge that
there are all kinds of irregularities about the use of bank reserves*
Examination Procedures
In connection with the examinations of Federal Reserve Banks, which
are conducted by the Board's examiners pursuant to the requirement of Section
21 of the Federal Reserve Act, Mr, Patman made the following comments
(page 1588):
"The Federal Reserve System, as I have pointed out,
has never had a Government audit. It has never had any
audit by independent auditors from outside the system itself. There are internal audits, made by personnel of the
system, and even these audits—taking them for what they
are, internal audits—show on their face to be subject to
serious inadequacies and limitations. The audit teams
are supposed to be made up so that the employees of one
bank audit another bank, but even this principle is rarely
followed 100 per cent. In practice the employees of a
particular bank are on the team to help audit their own
banks,"
Since 19^2 the Board has employed public accounting firms to audit
its accounts. The certifications submitted in connection with these audits
have been included in the Board1s Annual Reports to Congress.
Beginning in 195>3 the Board has also engaged the same public
accountants to accompany the Board's examiners on one examination of a Reserve
Bank each year for the purpose of obtaining an independent judgment as to the
adequacy of the examination procedures and as to whether the procedures are being carried out properly. The reports submitted to the Board in this connection by the public accountants have consistently indicated the effectiveness of
examinations made ty the BoardTs examiners; for example, in a report dated
June 13, 1957, the public accountants made the following statement:
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Federal Reserve Bank of St. Louis
-20"We believe that the examination conducted at the Federal
Reserve Bank of San Francisco, including its four branches,
conformed to the standards expected from an examination conducted by independent public accountants. The detailed audit
procedures manuals set forth clearly an adequate examination
procedure related specifically to the operations of the Banks.
The audit assignments were carried out by the examiners in
accordance with such audit procedures."
The Board's field staff of examiners comprises a group of approximately 35> examiners and assistant examiners who are employees of the Board.
They work throughout the year under the active direction of the Chief
Federal Reserve Examiner, who is an officer of the Board's Division of
Examinations, responsible to the Director of that Division and through him
to the Board of Governors,
Within each Federal Reserve Bank there is a General Auditor who
has a staff which is engaged throughout the year in conducting internal
audits of the affairs of the Bank and any branches of that Bank. The
General Auditor and his staff are independent of the operating management
and operating staff of the Bank and do not participate in operations. The
General Auditor is responsible directly to the Board of Directors of the
Bank, and he reports the results of the internal audits to the Directors.
During the first part of each examination of a Federal Reserve
Bank conducted by the Board's field staff, there is necessity for verification of a very substantial volume of currency and securities which
must be accomplished quickly in order not to interfere unduly with the
Bank in the conduct of its day-to-day business.
Moreover, in making
simultaneous entry into all offices of a Bank which has several Branches,
there is a temporary need for additional personnel to provide adequate
coverage.
It would be wasteful for the Board to maintain a field staff
of examiners of sufficient size in itself to perform expeditiously all
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Federal Reserve Bank of St. Louis
-21the detailed work concerned with the opening phases of these examinations.
Therefore, the Board's field staff utilizes the temporary assistance of
men (a) from other Federal Reserve Banks—chiefly from the internal audit
staffs of the other Banks; and (b) from the internal audit staff of the
Bank under examination. The men borrowed temporarily from other Banks
and from the Bank under examination are not conducting the examination;
rather, they are assisting the Board's examiners and in so doing they are
at all times under the active supervision of members of the Board's field
examining staff. The temporary assistance received from within the Bank
under examination is restricted entirely to members of the internal audit
staff of the Bank who, as stated above, are independent of the operating
personnel of the Bank.
Member-bank examinations
Mr. Patman cited on Pages 1603-1608 a number of factual reports
by Board1s examiners concerning the frequency of member-bank examinations
made by the examining staffs of the Reserve Banks. He prefaced these
citations by stating:
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Federal Reserve Bank of St. Louis
"The Federal Reserve banks have set certain policies
with respect to member-bank examinations. However, they
make frequent exceptions to these policies throughout the
Federal Reserve System.
"As an example, at the San Francisco Bank it was the
policy to examine h of the 5 holding company affiliates
within the district biennially, and the fifth, Transamerica Corp., on a triennial basis. However, the bank
failed to make examinations of this holding company for
6 years. They make frequent exceptions to the policy
of examining banks once a year and to their policy of
making examinations jointly with State examiners.
"They do not always examine branches simultaneously
with head offices, nor do they examine the commercial
departments of banks concurrently with trust departments.
-22-
"On many occasions they defer examinations when
mergers are pending, when banks are making alterations
on the premises, and when examining personnel is not
available, and fail to examine new banks,"
State member banks are subject to examinations made by direction
of the Board of Governors or of the Federal Reserve Banks by examiners
selected or approved by the Board, The established policy is to conduct
at least one regular examination of each State member bank, including its
trust department, during each calendar year, ty examiners from the Federal
Reserve Bank of the district in which the member bank is situated, with
additional examinations if considered desirable.
In carrying out this policy, the Board has not required that all
examinations of trust departments or all examinations of branches of State
member banks be made simultaneously or concurrently with examinations of
their head offices, nor has the Board required that all examinations of
the commercial or trust departments of State member banks be made jointly
with State examiners.
The programs for examination of State member banks have been
substantially completed in all recent years. Deviations from the general
policy have been largely due to a shortage of qualified examiners, and
almost without exception have involved State member banks in sound condition and under capable management, A large majority of the banks not
examined in a specific calendar year were examined during the latter part
of the previous year and, as a general rule, during the early months of
the following year. In no case was there a deferment involving a bank
considered to be in unsatisfactory condition. During the period 1952-195>6,
all newly organized banks were examined within one year by either the
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Federal Reserve Bank of St. Louis
-23State banking department or the Federal Reserve Bank, and in a majority of
cases by both authorities.
The approach to the examination of branches of State member banks
is governed almost without exception by the aggregate number, size and
location of the branches of the institution under examination.
At banks
with a small or medium number of branches, it is customary to examine all
offices simultaneously with the head office, but it is not possible to
follow this policy consistently when a large number of branches is involved.
However, in every case, statements of all branches are obtained as of the
date of examination of the head office and are reconciled to the books of
the head office as of that date.
Due to the specialized character of fiduciary activities and the
required separation from commercial banking activities of fiduciary responsibilities and related functions, records and assets, it is the judgment of
supervisory authorities that the examination of the commercial and trust
departments of State member banks other than on a simultaneous basis does
not represent a departure from sound examination principles.
The examination of Transamerica Corporation which would ordinarily
have been made on a triennial basis in 19U9 was omitted because of the
Clayton Act proceedings with respect to the Corporation which were in
process at that time. The Board's order in these proceedings was issued
March 2?> 19!?2 and an examination of the Corporation was commenced on
April 21, 1952.
Verification and Destruction of Currency
With regard to the work which the Federal Reserve Banks are
performing in connection with the verification and destruction of unfit
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Federal Reserve Bank of St. Louis
-24Treasury currency, Mr. Patman suggested (page 1591) that it is a disgrace
for Congress to permit "people to have complete control of United States
currency who do not consider themselves obligated to the Government. . ."
His statement continued:
"They have charge of destroying the worn and mutilated
currency. And, of all the irregularities and seemingly
dishonest dealings in connection with it, you will find
plenty of eye openers in these reports that even their own
auditors made about the irregularities in handling the
tremendous amount of money that is destroyed every year,
and the loose fashion in which it is handled,
"Up at Pittsburgh, a cyclone or a heavy wind hit the
City while currency was being destroyed in the Municipal
incinerator and scattered money all over Pittsburgh, Pa.
The only reason we found out about it through, the newspapers and they had to redeem a lot of that currency because it wasn't burned and under certain conditions it is
redeemable."
Mr. Patman1s statement then quoted certain criticisms and other
comments concerning individual Reserve Banks, as shown in the reports of
examinations made by the Board's examiners.
Under date of June 24, 1953, the Secretary of the Treasury
directed the Federal Reserve Banks and branches as fiscal agents of the
United States, under the provisions of Section 15 of the Federal Reserve
Act, to verify and destroy unfit United States paper currency. The proposed change in procedure was discussed by Treasury representatives with
appropriate Congressional committees during the hearings on the Treasury
appropriation for the fiscal year 1954. In this connection Secretary
Humphrey1s letter of May 22, 1953 to Chairman Canfield of the TreasuryPost Office Subcommittee of the Houffe Committee on Appropriations concluded:
"Since the net savings resulting from this change of procedure will be
substantial, it is assumed that your Committee would concur in the
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Federal Reserve Bank of St. Louis
-25Departmentfs proposal to proceed along the lines indicated."
From the time the Reserve Banks began this work on July 1, 1953*
it has been performed under regulations issued by the Treasury Department.
A copy of these regulations was forwarded to the House Banking and Currency
Committee with the Board's letter of December 16, 1957.
As stated on
page 1801, the Treasury Department has advised the Board that it is their
practice to visit the Reserve Banks which destroy currency at least once a
year for the purpose of observing the verification and destruction operations. One purpose of these visits is to ascertain that the operation is
being conducted in a manner satisfactory to the Treasury.
Certain safeguards and other controls covering this operation are
described on pages 1742-1750 and 1780-1792* In many respects the safeguards
in effect at the Reserve Banks go beyond Treasury regulations.
In some
cases the additional safeguards were the result of suggestions by the
Board's examiners, such as shown on pages 1592-1595 of Mr. Patman's statement. However, in considering the matter of suggested additional precautions
over and above the requirements of the Treasury regulations, the Reserve
Banks must balance the added protection against its cost, and in this light
some of the examiners' suggestions were not deemed feasible.
The Pittsburgh incident mentioned by Mr. Patman on page 1591 occurred when an unknown quantity of cancelled currency escaped incineration
because of completely unforeseeable malfunctioning of the incineration
facility of the City of Pittsburgh.
The City incinerator was used in July
of 1953 to destroy the first batch of currency at the Pittsburgh Branch because
at that time the Branch had no facility of its own. This incinerator was
then also used by local offices of the United States District Court, the
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Federal Reserve Bank of St. Louis
-26-
Federal Bureau of Investigation, the Internal Revenue and other departments
of the Federal Government to destroy confidential records. Before its use
for the destruction of currency, the facility was thoroughly tested, and its
use was approved by the Treasury Department.
Nevertheless, before the can-
celled currency was completely destroyed an unknown amount passed through
the grates into the water tanks provided for receiving the ashes. A complete account of this incident appears on pages 179U-1799.
When it occurred, the matter was reported immediately to the
Secret Service, the Federal Bureau of Investigation, the Pittsburgh Police
Department, the Treasury Department, and the Board. Contrary to the statement on page 1591 that "they had to redeem a lot of that currency," all of
the money was cancelled and valueless before it was taken to the incinerator.
There has been no loss to the Treasury as a result of this incident or of any
of the others which have occurred (described on pages 1793-1791; and 1799-1800.)
All of the cancelled money which has been presented to the Federal Reserve
Banks for redemption has been confiscated, and in all but a very few cases
the Reserve Banks have refused to give credit or value for it.
The exceptions to this last statement constitute three $5 bills
and five $1 bills which were accepted at face value and charged to profit
and loss by the Reserve Banks because of operating circumstances, such as
the fact that the notes were partially burned and discovered to have been
cancelled too late in the sorting process at the Reserve Bank to permit identifying the bank which deposited them.
From the time the Reserve Banks under-
took \he currency destruction work on July 1, 19!?3 to the present time, their
loss as a result of this operation has totaled $20.
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Federal Reserve Bank of St. Louis
» ** *
BOARD OF GOVERNORS
OF THE
F E D E R A L R E S E R V E SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
February 21, 1958
The Honorable Brent Spence,
Chairman,
^ouse Banking and Currency Committee,
House of Representatives,
Washington 25, D, C.
Dear Mr. Chairman:
As I understand the record of your Committee's hearings on
the pending Financial Institutions bills (H.R.7026 and S.li^l) may
soon be closed, I should appreciate it if you would advise your Committee that the Board would welcome an opportunity to submit written
comments on Mr, Patman's statement of February ?•
To do so properly, it will of course be necessary for us
first to examine in its entirety the material Mr* Patman said in
that statement he intended to place in your Committee's record. As
you will recall, the Board supplied to your Committee last August
and September reports of examinations and audits of the Federal Reserve Banks made in accordance with the long-standing requirements
of the Board. When the Committee record becomes available and we
know what Mr. Patman has excerpted from the reports we made available, we should like to furnish to the Committee in writing such information and comments as may be necessary to prevent any misunderstandings with regard to the various items on which Mr. Patman has
commented.
Meanwhile, there is one matter which Mr. Patman referred to
several times in the course of his general statement which involves
at least an implied criticism of persons outside the Federal Reserve
System. Therefore, I would like to correct immediately, in justice
to them, misunderstandings indicated by Mr. Patman!s remarks.
Mr. Patman statess ""They had a symposium of two days on
consumer credit and they invited some speakers, and they paid certain
honorarium to these speakers. Two of them, they paid $2,000 each.
Four of them, they paid $1600 each. Two of them they paid $l£00,
and one of them $£00.M Later Mr. Patman states: That the Federal
Reserve System has the power to go out and hire speakers, have meetings and pay an honorarium up to $2,000 if they want to. That has
been done clear across the board all over the country.14' Again he
states: nThey can pay $2,000 to a speaker if they want to.**
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Federal Reserve Bank of St. Louis
The Honorable Brent Spence
-2-
The expenditures to which Mr. Patman apparently refers were
payments to highly respected university professors for expert professional services over a period approximating nine months. These services
were rendered in connection with the study of instalment credit, undertaken by the Board pursuant to a request made early in 1956 by the
Chairman of the Council of Economic Advisers, at the direction of the
President, for a comprehensive analysis of that subject. You will recall that interest in this study was also expressed by the Banking and
Currency Committees of the House and Senate and the Joint Economic Committee .
A major part of the instalment credit study consisted of
analyses by the university professors referred to above. The arrangements for their services were msde through the auspices of the National
Bureau of Economic Research, an outstanding independent research organization. Attendance at the two-day conference referred to by Mr. Patrnan
was only a small part of the work undertaken by the participants in
consideration of the payments he mentions. In fact, the participants
prepared major papers on the subject, and the work involved occupied a
substantial part of their time in 19£6The results of this work are published in Part II, Volumes 1
and 2, of the Board's report on consumer instalment credit. It will be
evident from an examination of these volumes that the contribution of
the participating scholars was considerable, and was in accordance with
the proper objectives of independent research into a field of great
economic significance to the American people.
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Federal Reserve Bank of St. Louis
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
BY MESSENGER
tli* Honorable Brent
Chairman,
House awning and Currency Cosadttee,
House of Representatives,
Wasrdngton 25, 8. 3*
Dear Mr* Qhalnsam
You *dll recall that on February 21, 1958, 1 addressed a
letttr t© you with r«»|Xict to Mr* Pstaaa** state&sat of February 7
before your uon^dttee during the hearings on th* pending Financial
Institutions Act (H*S* 7026 and S, 1451)* I stated ther. that, after
we bad had an opportunity to exas&ne in its entirety the smt@rial
which Mr. Patasn placed in your Conaaittee's record, the Board would
like to furnish to tb« Coa^.ttee In wrltifig sttefe information and
eow^eata as udght be neeesaary to prevent uLaunderstandings*
Aoeordingly, IK>W that this mterial (appearing on pages
1535-16^8 of Part 2 of four Cosedtte® hearings oa 3* 1451 and
K.R. 7(^6} feas been r«fi«iwd» I a® transmitting herewith 35 copies
of our ©owa«Bts. The page tmsifc^rs appearing tte^oughcwt tt» memorandum refer to Fart 2 of the above-^aentioned
hearings* the
aenorandnaa does not ooameRt on Mr* Patsan1® state0et*t$ with respect
to Open Market and ether natters nhiefe have been th© subject of dis»
mission on earlier occasions.
8r» Fataanfs statejasnt contains raamsrous «3ce«rpts or paraphrases of excerpts taken from reports
of examination of the Federal
Eeserte Banks a»d« by the Boardfs eaesjsiners over a period of five
years* KUMVOUS itemi of ®3£p«ndit«re authorixed by the boards of
directors of the 12 Federal Easerve Banks and their 24 branches, as
well as imstanees of losses or diserepancies in the handling of
checks, currency, arid similar items were cited.
The Board is satisfied that in aH cases where judg^nts
way differ as to the wisdom of certain expefiditures, the Bank aanagejsents aetad in good conscience.
the Federal Reserve Batiks annually handle a volume of
transactions that runs into billions of iteas and hundreds of billions
of dollars*
losses and discrepancies are hsnanly unavoidable,
but every effort is isade totaol<Sthen to a ssiniimisi*
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Federal Reserve Bank of St. Louis
~2-
To\i will find ea«los<*d a eopy of ay latter of February 21
and our additional comments concerning Mr. Patsianfs statefa»nt of
FtbmaiT- 7* The Boanl beli*v«s ttmt ih®s« t^planations *l«5ul4 surv*
to prevent ffiisund^rstanding of the operating policies and practic«»
of the Federal leaorva Bank*, and of th« earo and thorougfenasa tdth
whieh these operations are conducted.
If yow desire farther inforamtloa, i*e aliall undertake to
furnish it*
(Signed) WDS. McC7 MartinT 3
Me@, Harttn, Jr.
JHF:ig
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
FEDERAL RESERVE BANK OF CHICAGO
To:
From C. E. ALLEN
This article is protected by copyright and has been removed.
Article Title:
Inflationist at Work
Journal Title:
Chicago Tribune
Date:
February 17, 1958
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Federal Reserve Bank of St. Louis
Tae Honorable Kenneth S. Keating
House of Representatives
Washington, D. C.
Dear Ken:
In answer to your letter of February 26, with which you enclosed a
memorandum relating to expenses of Federal Reserve banks, there is
enclosed a copy of nay letter to Chairman Spence, of the House Banking
and Currency Committee, which contains a statement of the Board's
approach to the matter. As indicated in the first paragraph of the
attached letter, the expense items referred to were mentioned in a
statement which Congressman Patman made before the House Banking
and Currency Committee in connection with the pending Financial
institutions Act on February ?.
The Federal Reserve Act provides that Federal Ee serve banks shall
be conducted under the supervision and control of a board of directors.
As you know, theare are twelve reserve hanks, each with a board of
nine directors, who are performing a aonsalaried public service.
They are men of good repute and standing, and I am sure that they have
welcomed the opportunity to comment on such items as the five cited by
your constituents. I shall be glad to pass along to you, if you wish,
their comments and those of the Board as soon as available.
Standing alone, isolated instances of expenditures may be misunderstood, particularly if it is assumed that they were paid out of appro*
priated funds, which is not the case. In conducting the affairs of
Reserve banks over the past forty-four years, the directors and officers
of the banks have felt that it was in the interest of their banks to hold
various meetings from time to time with member bankers and other
interested groups, and to authorise expenses for incidental entertainment
and other purposes that seemed to them to he warranted by the circumstances ia their districts.
With ail good wishes,
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. &4eC. Martin, Jr.
Enclosure
SRC:ET:nbk
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@FedFRASER