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CONFIRMATION OF TELEGRAM FROM

gin BANKERS TRUST COMPANY,
16 WALL STREET

NEW YORK CITY

Septenber 8, 1914

I" Nuullg. riarburg. Reserve Board
Federal
Washington D.C.

,

,

1

Illessrs Norgaa, Schiff and i 93.szuling to be in Washington Thursday morning
for conference with Secretary.
Rave adios(' him if he desires preliminary
conference with me Wednesday evening. If not do you wish to see me then
for any purpose.

'
-

Benj. Strong Jr.

,

Cbarue

Bankers Trust Co.




October 10, 1914.
Paul Warburg, ems.,
Washington, D. 0.
Dear Warburg,

I am doing e little quit work at my house Saturday afternoon, having
epent tho morning playing tennis. itunday and Monday I am going to loaf; and it
nes just dawned on mo tent without two or three days rest I might have been obliged
to epond more than teat.
Mr. Lewis has brought me yours of the 9th. I have a mass of information

at the office about, cotton, particularly In letters from Mr. Kent as to the situ
ation in ngland, art e this will be supplemented by whatever informetion we get
from Oir George 2aish. To muetn't forget that cotton sold in 190e at (V a pound,
that she crop this yeer, if all harvootee, woule be one of the largest, if not the
largest, crop on record, and in quality probably uniformly better then any former
c-op. I have heard many aeteto men in the lust row. teeks express the belief that
etton would have sold et Se! and possibly less this year. even had no war occurred.
The country is now encouraging be a piece or sentimental heseeria a trumendeue

cotton speculation, and naturally the reaction from thet is general reluctance
of spinners the world over to bay. Somewhat the same deadlock oecurred in Texas
in 1907. It became so bad that Mr. Fent, who van then in Chicago, rent to Texas
to attend a meeting of the merchants, and told them the best way to get the crop
Marketed was to sue the farmers on their accounts. It had a salutary effect. The
merchants began to collect and the farmers begun to sell.
Last year cotton produced N534,000,000. of exchange. ?his year cotton
shipments in volume are not over 10% of last year, and of course the price is

If some part of this crop is not exported, all of our efforts to avoid
a cold premium and u really serious situation will be fruitless. It has a direct
lower.

bearing on the werk we are undertaking in starting the Federal Reserve banks. For
the last twontyfour hours I have been mulling over the proposition of how a
7edera1 Reserve bank can be successfully launched at a time when there is a premium
on gold. The bank must either pay gold or refuse to pay gold. All the other banks
have refused to pay. Ie the Feeeral Reserve banks refuse, they will be discredited
at the outset, and gold will certainly be demanded of them if the Winks expand
their note 150/196 at a time when gold will be at a premium. Your annwer likely is
that they can pay in lawful money. That is quite true, if they have it to pay;
atte thos3 who demand the lawful money will then ask the Treasury Deeartment to
tarnish the cold. After a good deal of thought I cannot escape the conviction

that one of the Most serious menaces in the situation is the lack of a free export

movement of cotton, and it will continue to be a menace, except export of foodstuffs and general :T:terehandlee, together with a. reeuction in our imports and a
complete embargo on sales of foreign securities in this market, make up the deficit
and protect us ag inst an adverse trade balance.
Don't for a moment think that am cane to hold beak in the organization of
the New York institution. If you and your associates aeree that that is the thing
to do at once, I am here eo carry out orders. But first let us reflect a bit,
and we may conclude that negotiations can be effected preliminary to or concurrent
with the oreanisation of the bank, which will at once eliminate the premium on gold
J.

as reflected in the price of sterling and insure the safety of the now organization.



P.W. 2.

Of course you may be sure that I will take the first opportunity to reach
The past week has been evoted entirely to getting out of everything
that I have been connected with, and this has involved arrangements in regard to a
suecessor in some of these matters which are important, all of Which take time and
interfere with getting promptly at the bank work.
Next week I hope to see better progress made; also to have a visit with you
and discuss the program. Mrs. nrong sails on the "Lusitania- on Tuesday. Arrangements about her trip have occupied a great deal of my time, as I naturally want to
safeguard the party in every possible way. With cordial regards,

Ur. Mumford.

Very sincerely uoure,

p. S. - Since dictating the above I wrote you by hand from Greenwloh and have
your acknowledgment of the 12th. Many thanks. Will also look up Mr.Ward.
Ay comeente on the bylaws are about completed and I hope to have them cleaned
up today.




eovember 2, 1914.

Hone Paul U. *earburg,
Federal Reserve Board,
Washington, D. C.
Dear Warburg,

Yours of the 29th ultimonis received this morning. Miss

Walker will co-operate with me in extending the necessary relief to
the "oid man's" eyes. I am sorry that it was necessary for you to

write about it, but, of course, we have to be economical these days,

and it saves about 251, of paper used in writing long letters.
I have no new "kicks" this morning on the subject of
Federal Reserve Bank netters, so don't worry!

I have some fears., however, that still require being
allayed. I am confident that the minute the menorandem reaches your

friend Sir George Paish it is likely to be released,

unless all

slew fall. The "Tribune" seems to eet the story pretty straight
every day, and it will be up to you and to your associates to guard the
contents of that memorendum with your lives, for it iS is published it
is eoing to do damage, eossihlle serious danage at any rate until something more definite is agreed upon between London and New Y. Resentment will #etleike arise if the New York banks think we are neeptiating

away their credit without consulting than on earticuJerly so important a

matter as this is.
I spent Sunday afteraocn polihinr 'ay the language in the
report which was rather defective In mazy respects. It is now being



Ron. Paul M. Warburg.

1...2111M

eopies. and I hope to have two final oopies to send you /ate this afternoon.




Thank you for FiSherts letter. I am writing Min about it.

Faithfully yours,

November 2, 1914.

Nor. rTtul T. Warburg,
Washington, D. C.

D eRr Sir,

rr. Strong Rsks me to send you the erlosed copy of
letters and memoranda. This is substantially as it was
prepared in Washington, the language having been simply

polished up a little in places.




Yours very truly,

4

WESTEirazINA UNION

Form 260

WESTERN UNION

W. E. ATKINS, VICE-PRESIDENT

TEL g-vti Sr- AM

R'S No.

TIME FILED

NEVVCOMB CARLTON, PRESIDENT

BELVIDERE BROOKS, VICE-PRESIDENT

CHECK

) the following Telegram, subject to the terms
back hereof, which are hereby agreed to




November 4, 1914.

Paul M. Warburg,

Federal Reserve Board,
Washington, D. C.

Please refer my letter Monday supplement second headed Gold Shipments

last paragraph page 2 foreign trade balance October should. be .thi-rty 6o
dAmiondllions. Kindly make correction.
Benjamin Strong, Jr.
(Charge Federal Reserve Bank)
Government rate.

ALL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLL
To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the
For this, one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNRI
PAID FOR AS SUCH, in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREI
amount received fr, sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of auy REPEAT
the sum received for sending tho same, unless specially valued; nor in any case for delays arising from unavoidable interruption in t,
errors in cipher or obscure tel.cgrams.
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or I
gram, whether caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this
a greater value is stated in writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum
on such value eatial to one-tenth of one per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any otl
reach its destination.
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and with
cities or towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender'
expense, endeavor to contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting of
such office by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writin
gram is filed with the Company for transmission.

THE WESTERN UNION 7

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

INCORPOF

NEWCOMB c

CLASSES OF SERVICE
TELEGRAMS
A full-rate expedited service.

NIGHT TELEGRAMS
Accepted up to 2.00 A.M. at reduced rates to be sent during the

night and delivered not earlier than the morning of the next ensuing
business day.
DAY LETTERS
A deferred day service at rates lower than the standard telegram
rates as follows: One and one-half times the standard night letter

rate for the transmission of 50 words or less and one-fifth of the

initial rate for each additional 10 words or less. Subordinate

to the priority of transmission and delivery of regular telegrams.
Must be written in plain English. Code language not permissible.




Telephonic delivery permissible.
express understanding that the Corn
the same on the day of their date su
time remains for such transmission

hours, subject to priority of the trati

NIGHT LETTERS
Accepted up to midnight for deliv(
ensuing business day, at rates still lowf
rates, as follows: The standard day ra
for the transmission of 50 words or lea
day rate for 10 words shall be charged
less.

Must be written in plain Ent

missible.

Mail delivery, postage p:

Confidential
November 5, 1914.

Hen. Paul
Warburg,
Federal Reserve Board,
Washington, D. 0,
Dear Warburg,

You caught me at a bad time yesterday in preparing to mate

the cans in that Paish report.

Jim BraWn was here, and he, Wiggin

and your humble servant have felt that ue ought to get the report in final
shape and out of our hands without further changes. As you know, we are

all pretty busy and it is difficult to get together and agree an any
Changes at all. Furthermore, the others feel, as I do, that we would be
very much handicapped in making arrangements with New York banks to carry

out the plan suggested if it Iles made public, or in any wgy came to their
knowledge prior to our having discussed it with them.

Let me say new

that if the lettereaddressed to you and Governor Hamlin, 'which I was

obliged to re-write very hastily last evening, is not satisfactory in any

respect, please don't hesitate to send it back and I will substitute
another one. I won't butder you with the whys and wherefores, but will

just state generally that I am very anxious that the Whole matter should

be in share satisfaetory to yea and to your associates, and will do my

best to make it so.
The insertion of a clause, such as you seemed to think was
objectionable,eabout not meking the report public, is really for our own
protection here and to make a record of our views. If your views differ
fram ours in respect to publicity, I aSsume you 10.11 say sOf and give us







Hon. Paul L. Warburg

-2-

opportunity to discuss the matter of publicity before any decision is
reached. That is the Ithole story! and now let us be happy about it.

This replies to yours of the 4th, and is, of course, confidential.
Very truly yours,




November 5, 1914.

ton. Paul M. Warburg,
Federal Beeerve Board,
Washington, D. 0.
Dear Warburg,

Thank you for yours of the 4th enclosing copy of the memo-

randum in respect to the October trade balance. The figures now given
in the menorandum sent you, I believe, are accurate except that September

is stated at 01,000,000 export balanete instead of 04,000,000.

The

difference arises from our having taken the estimated figures published
before the actual figures were compiled, and I guess they are near enou8h

for the purrose..
After carefully reading the whole memorandum,won't you drop

me a lint, stating your views about it? The work was done so hastily
that I am conscious of many shortcomings In the text, as well as omissions

of rather important material.

I am Chagrined that more time was not

afforded us to make a stronger presentation.
Very truly yours.

S-W

November 19, 19'4,
Hon. Paul M. Warburg,

Federal Reserve Board,
Washington, D. C.
Dear v'arburg,

Yours of the leth is just received. I an always prepared
for the worst, and am writing now to tell you what sort of preparation we
make over here. We art reedy for the meeting at 10 o'clock toevrTow and

have a nice Board roam, aa I advised you by telephone.

Mr. Broderick,.

I understand, you will bring with you.

My preparation for the worst is to be r)bliged to decline,
much as I dislike to do eo,to eat ae your substitute on this cotton
committee.

It would be absolutely impossible for me to do that, and I
an sure if you sat at my del* for one day you would realize that it would
simply involve neglecting something, and that I am unwilling to do. This
message I will deliver to you personally tomorrow, and I Simply NNIC this

letter as a record, so don't be disappointed.
Very truly yours,
awr./Bw-1




No7:er l, 1914.
Confidential.

Ron. Paul H. Zwilm.,,

Federal :Reserve Board,
'Cashing-ton, D. C.

Dear Warburg,

I am going to ask you this time to do an unpleasant job for me, Dr. Willie made a report Of his vork as Chairman of the Preliminary
Orgradization Coml-aittee which ha ben iexit to all the Federal Reserve
banks.

In the report he states that I made a careful examinationoof

the anuounting system and kJ-loved it. A.s a matter of last, alLi as

he rauat have known, I gave it a very cursory aeamination, ard relie6
entirely upon /4.r. Robinson's sta.terAents as to its being wortable. I

also criticized some features of the plan, and the time did not permit
me to examine more than a small fraction of the '.thole echette and a very
small =rube r of the forms .

Dr. Willis wv.s not authori zed to lase rly

name as endorsing the :elan or anything else. I toad him that it looked
to me like a workable scheme; that Robinson impressed me ,luite favombly,

and that I wanted to employ him here, particularly an we would be forced

to adopt this Sy0 tem ra her than any other if the bank las to open in the
short time permitteli.

I never like to have my name used without authority,

which he did. in this case, and I thought you

drop him a gentle hint

that I didn't like it and wouldn't care to have it done acain.

Your

artful way of handling such !netters will, I am sure, be all that is




Hon. Paul T. Warburg,

-2-

needed.

Very truly yours,

38.TR./70-3




November 23, 1914.

Ron. PaulMIL. Warburg,

Yederal 4amerve Board,

'eaahangtoa, L. e.

My dear Warburg,

Various suggeations in rear a to possible amendments co the Federal

Reserve Aet are submitted from ame to time, and it will possibly facilitate
your coesideretion of these /netters if I bring them to your attention at once,
although doubtlese many of them are already being discussea.

bection le of th, Act (earagral.k

provides fOr "A 'waiver of demand,
e.

eroteet', 'which it is understood muot be attaohee to al: paper which
the Leek disuounte tor -ember beake. The cfteet ot this reqairement may prove

to be u fortunate, and possibly the bill should be amended on that account.

A

member bank which redisoourte paper beerlue prior endorsements, in other worts

.ouble /ewe paper, must depend upon the care with Whieh this leeer is presented

and pretested for its protection in holding prior endorsers to their liability.
They have no assurance that they will be so pretected after thee waive demand,
notice ana protect, and a tendency mayetherefore, develop amone member banim

to ovoid offering for rediscount any paper Which carries an endorser's liability.
Two member banks in this district have alreaay raisec this question, and We have
disposed of by agreeing,informally, to send the paper back to the member bank

to whom the discount ems given for collection a sufficient number of days in

advance of maturity to insure their having opportunity to make presentation.
While, of course, it would relieve the Federal :deserve bank of



liabilities that might arise for failure to nhow diligence in presenting its

Hon. Paul i. Warburg.

-2-

per for payment, it :re:, be better to have the Federal Reserve banks under
the same obligation as any bank in that matter, rather than have them deprived

of the advantage of getting thebbes1 paper, that is to say, double name paper,
aupowtted by responsible endorsers.

won't you favor us with any coionents on this point that may develop in

any discussion of the mtter in Washington, so that we may be guided thereby.
Very truly yours,
BaJr./BW-5




41.

'

r

,

-




November 28th, 191,4.

Dear Mr. Chapman:

beg to acknowledge receipt of

letters regarding the cotton situation which
were returned to me under date of November
25th.

Very truly yrs,
Governor.

Mr. W. T. Chapman,
Care Federal lisE;e-:ve Board,
Washington,
C.
B.O.Jr./VCM-1

V;9.1AC7V

6C

A,

1(0

S60
Dec embe r 14th, 1914.

dea r Warburg

T.;enlyias to youro of the 12th pbout diasma,AAU44Sopein
preznsion I took away from our meeting :'naturday morning was r: thr3r ex-

traordinary, considering the occurrences of the past month.

I felt

that an a whole, the Governors were disposed to keen their rates high,
realizing that the Federal Reserve, noard was beginning to incline towards lower rates.

The reversal of position man be explained by the

same influence operating on your minds that has really influenced the

minds of the Governors of the individual banks, viz:- the fear of

coil impairment through lack of sufficient earnings to meet eonSOB.

I do not believe that you realise that current rediscounts
or loans to b nic correspondents by New York banks nhich have been run-

ning for some months past, have not generally been reduced ns yet,

and that a lowerinn of our rate in ffew York, oven so moderate as that

suggested in your letter,

simrly have t'ho effect of forcing the

membnr has to reduce their rates and -All produce lit 10, if any,
business for the Federal reserve bank.

It is undoubtedly true that

the rates established by member banks would ramia under our rates

so long as there is a surnlus lending poker to be absorbed by both




-2To

Hon. Paul U. Warburg.

Dec. 14th, 1914.

classes of institutions.

We can ke p this up by successive roduc-

tions until money is unioanable in Now York, and the consaluence will
be expansion and speculation.

I am opposed to reducing as yet simply

to make earnings, and as between the two courses, would infinitely prefer to see the reserve banks, as a temporary matter only, make moderate

investments in high grade warrants and use a limited amount of their resources in the purchase of bankers' acceptances Where they are available.
Once we begin reducing, where will we stop?
course,

that our diecounts in

i;ew York have really been made up of only

two items;;that is the Chemical and the Ilechanics.
their loan
and

certificates and

You realize, of

They have retired

probably need little, if any, accomodation,

..!Ie cannot expect to reelace their lines by the rediscounts of

their members in our oen district, unless e0 make considerably loeer

rates than those in yoer

letter.

employ in time about

0j0,000 by moderate purchases of

On the other hand, ee could I believe.

warrants and by gradually picking up bank acceetances.
have no doubt

30,000,000 of

acceptances at the

good revenue

There are, I

present running in

New York market, none of Aeich ee have purchased.

the

In any event, I hope

this matter can be allowed to await 1,;:r. ilorgants return from e shington

and we will invite his attendance at a 3oa d meeting on .:ednesday for
the purpose of discussing the matter.

Zhalk you for writing mo.

Very truly yenrs,

Hontsitul
,arburg,
Care Federal Reserve iloard,
Washington, D. O.
11S.jr/V011e.3

Dictated by llr. :::trong but
signed in his absence.



Governor.




Deco:tabor 17th, 1914.

My dear Warburg.

Itealty

have written Kinneor of the U. S.
Construction Co. to inquire :nether

we con get accomodations at 'Mite l'!ulph00

without fall, advising about how many will be i
in the party, but this is subject, of course,

to vor letting e know that yaur
ments aro already made.
Very

Non. Paul M.

Federal Reserve 3oarc,

Wadhingbon, D. C.

3SdriVal

aiy yours,

own arrange-

STPC-i'.;1
RS.3N A L

.1,'ocomber 17th, 1914.

My door Warburg'

1 have succeeded in reserving drawing roams X 21 and Z 3 on the
0.

(3: 0.

, leaving Hew York on Tedneeday evening, Decoribor 30th for Vihito Sul-

phur Springs, wnich will be held for vs until ;,:iond4y the 28th, and of course,

prior to that time, unless our piano chknge, I will take them up.
The 0. & 0. is telegrunhine to White Sulphur to see WhcA reser-

vations they can make for returning on January 4th or 5th.

In regard to Mrs.

Strong going, I am not yet quit' certain 4Lether it will be feasible.

Sho

iwants to go, but various engagements, at home largely in connection with the

children, may make it difficult for her to get away just then.

1 think, at

any event, my oldest boy will go and I an confident of going myself and en-

joying a quiot visit with you *here ,he can do a little work and quite a lot
of play.
Very truly yours,

Hon. ?aul U.arkwarm,
Federal Reserve 3oar,
W.:shington, D. J.
3S.Yr/VCM







December 40 1914.

4y dear V:arburgs

I find that Mr. Fred I. Kent at the
Banker() Trust Compmly will bevery glad to han-

dle the cotton matter about Which you wrote me,

and has already taken It up with the parties in
flew Orleans.

I hope this Li entirely satisfac-

tory to you.

truly yours,

Governor.
Hon. Paul %V....LUAU:Um,

Federal eserve ioard

Wathinpon, D. 0.

_BENJ. STROWC+,
PERSONAL.




Decezaber 29th, 1914.

Pear '.;11*:

Mnclosed pleace find three tickets
covering transportation to White 9ulphurt Springs,

togetr idth two tickets for drawing room and
section.

It was necessary to secure thfee throe

rai1wa7 tickets in order to obtain drawing roe-11.
V,.3ry truly yo)rsi.

Hon. Paul U.

Federal 3eserve
Zashilzton, D. C.

1LING DEPT.
JAN.-7

1915

tDERAL RESERVE BANK




JanUary 6th,1915.

My dear ' arburgs.p

Foreign exchange to-day' is prettY wEimk. Sterling,

understand, has sold az low as 4134.
Of cour.Ao, none of no know what mny develop in the

way of a gold premium abroad, although as I advised you at Mite

napbxr 4rinim, we have learned that the Bank of France has negotiated
for one American golds and if they succeed in obtWning any quantity,

it no

than

mere/likely that the gold will be ehipped from New 'fork to

Ottawa, and released by the Bank of England to the Bank of Franco.

Such a development, an I vipw it, would simply indicate that the french
Bank is willing to pv a promiUm for :American gep in order to relieve.

the Bea of England of the necessity of surrendering gold on direct
transactions Across the Channel, an I believe the French-nglith 14xchanges
ari now in favor of Zrance.
Considering all the circumstances surrounding our
condition at home, with the rapid. easing in the money market, as well
au conditions Abroad Avers gold premium might develop of same consequence,

I am strongly in fever Of having the fold Fun* Cernittee retaln. their
..
control of the pledged gold, at any rate for somo timo longer. This
,

F"
January 6.1915.

lion.Paul M. ',Arburg.

is submitted ratbor diffidently, as I realize that with your wide experience in these natters, you mey entertain other views.
Yours vary truly,

Governor.

u1 M. Tarbure,
Pede:..al Reserve 3oard,
Remorab1e

V;ashingtot,D. C.

BUriaR,11







Jaluary tb,1915*

My deox Zarburg:

Just a lino to toll you how thorow;hly I enjoyed my

visit zith you over the holidays*

It is rather discouraging to find on my return that
6ongrees is going to investigate the new money trust*

The heading

of a nemeonper article suggests a now money trust Investigation, but
the text of the resolution indicates that COMO congressmen regard
the Federal 110E30MB Bank system /113 the old money trust under a now

=Ie.

I hope no foolish enterprise of that character develops.

'.11 we need Is time Anti, a fair show to cot the s,ysteci started, ESIld
IA will be Ito win spokesman.
best :Ashes to you for the New Year, b911e,ve me,

Oincerely yours,

Governor*

hon.

,,-=coul

Federal Reserve Board,
1,7e,shington, D. (4
'. 6.1r/V011..2

/

FILING

r

FrnPRAI: RFRFRv;

January 13th, 1915.

dear Warburg:

The light waz; very poor in the telephone booth where Gov-

ernor :IeDongal was trying to explain the Committee's views of the
commercial pager,pag;4*Qatelea4 he hes asked me to erite and confirm

What he said over the 'phone.
The Committee gives its unanimoue and very hearty endorse-

rent to the new regulation.

They say it is going to take a load

off the mines of the member banks in all the districts that they reresent.

This, I know, yo_ :ill be gratified to hoar as we both put

in about two solid den work on this matter end if it la favorably re-

ceived it is going to help a lot.
There were tem cheages of rather minor imertance suggested:

In Article 111, Paragr4h (1), all the members of the Committee felt
that the word 'depositors' should be qualified by adding language
someWhat as follows,

"provided such depositor does not sell per

in the open market."

The object of this suggestion is to put all paper issued by
borrowers Who use the open market upon ihe eame basis whether it is

offerred by a in mber bank ehich happens to have one of such borrowers'
acoounts, or whether it comes from a member bank which has purchased

the paver in the open merket.



To

Non. ?aul

Jan. 13, 191.

Warburg,

.

The other change in Article 111, 7aragraph (2), Subparagraph (0), was suggested with a view to increasing the minimum

or which might be offerred without a certificate as to

punt of

credit information by banks having a capital of 325,000, the members

of the Committee felt that %5,000 would afford ample latitude for all

institutions except those which would have auch a small capital that

it would restrict then to 1200 or 11500 made to one borrarer, so they
suggested changing the langtage of Sub-paragraph (b) to read as follows
"The aggregate amount of stligations of such depositor rediscounted and

offerred for rediscount does not exceed 5,000; but in no event a sum
.

in excess of 10 % of the paid-in capital of the member bank."
Both the changes suggested impressed me favorably.

Very truly yourse

Governor.

Hon. Paul
Warburg,
Federal Reserve Board,
'.7ashington, D. 0.
BLiJr/VC-2




January 15th, 1915.
my dear tarbumi

Thanks for yours of the 14th.
say.

Personally, I agree with what you

You will be .7ratified to learn, howovor, tht all of the Governors

are convinced that bad practioe has prevniled in the handling of so-cal:40d
purchased paper.

They tainK. the banks are without sufficient information

in regard to that (Awls of napor and stinulus sheild be given to effrat:=, to
improve this practice.

We aaa do it later very easily, and I am just as

wall ploa3ed to strIke oLt

suggestion which came from our mooting.

a-e gradually. Totting things into smooth-

I am glad to say that
er wooking ord,r in tho office.

Them if:s been a great deal more to do than

would be indicatied by the activity of cur Alsinoss but I had ratil-r havo the
machine working smothly first and lot business come afterwards, tnn the rove rsa.

Yuur partner, Delano, Ir:s just discovnred that ho andI ere
cousins. It seemed advisable that I should advise you of the fact as this
makes two memcbrs of the Federal eserve Board toward whom I shall have no

particular hood of mhwoing oespeet.

This licludes you and Delano. (Hotice

I have dropped the mr.)

Very truly yours,

ion. ?aul

Ped-)ral Resoioresnicard;°
Washington, D. C.



Javaary 19, 1915.
Mrs. i'aul .:.:.

441/04Pirtami
- 13th 5treet,.

Washington, D. C.

I will pull your latchstring at about eight
forty-five to-night.
Benj. Strong, Jr.
BSJr/VCM




FILING DEPT.
JAN 2 7 1915
rFOERAI RESERVE BANK

Jan. 26th, 1915.

4 dear ';:arburg:
Bearing on our discussion in regard to the method which is
gradually developing by whioh (115count rates are Changed,I enclose

clipping from the Anmlist of January 25th.
Certain telegrams were enntioned when this matter Was pria,-

nted to the Board, and Tweibly W, enclosed extracts from those in

our files nay throw further light on the matter.
As you stated, we are certainiy. not very far apart in this
matter, but unanimous expressioa in regard to both the method of fixing

the rate rd the method of announcing changes,

impressed me v;ry strong-

ly, as it doubtless did the members of your Board.

Aa soon as the result of the meeting last week is sifted

out, it will all be conveyed to Ir.. in writing and 1 hope will rrove of
interest and value.
With best regards,
3incerely yours,
Governor.

lion. Paul U. Warburg,

Pedral ':esorve Board,

Washington, D. C.




-Jr/V014.1




FILING b MPT.
JAN 2 7

1915

FPDER41 RESERVE
BANK

January 26th, 1915.

Dear Sir:

Replying to your favor under date of

Janua2y 22nd, I beg to advise that the expense of

railway tickets purchased for the trip to White
Sulphur Springs was as follows:

3 tickets, -11.85 each,

$35.55

Drawing roam,

9.00

Section,

4.00

Total...

.4=-48.55

Ur. Strong says that he is under the im-

pression that there is some offset to this because
of disbursements by Mr.

account of hotel

accomodations which he requests that you deduct from
the above.

Very truly yours,
Secretary to 7.1r. Strong.

W. T. Chapman, .3sq.,
Federal Reserve Board,

Washington,. C.
V011




January 28, 1915.

2 Chapman, Esq.,
Federal Tqeservo Board,

WasMngton, D. C.

Dear Cir:Pecolpt la hereby acknowledF^ed of your favor

of January 27th, containinr check for 48.55 to reimburse
Mr. Strong for tickets gurchasod in connect :on with trip
to Mite 3u1phur Snrings.

Please accept Mr. Strong's

thanlin for aano.

Very truly yours,
Secretary to Ur. Strolag.




Jan. 28th, 1915.

4 dec.r Warburg
/ have been listening to
commonts In regard

to rates with considemblo intront
since returning
from ',:ashineton and fear that
the 4 '.;t: rates whleh are
boing authorisod In some

districts will give riao to
eensidestable criticism- and dissatisfaction.
A little
later, I will write you moo fully about

lt.

Very truly yours,

Hon. Raul

Varb

Federal FoserIltlo
2a3hington, D. C.
.314r/VJU

le:,441t

,ITLIV
JAN 3 U

9

D74PT,

15

NJ, srinq01,1 a',

FEDERAL RESERVE BANK




January 29,1915.

.

dear

rburg

We barn had the last two reports of the tomptroller
of the currency 44144Yzed, and you will notice the very much better

owine made than in the analysis of the report made lecembor 2, 1907.

intral rosorve cities between Juno 30th and 3epte2tber lath laet,
converted an a4:coss reserve of ,,2,240,o0o into a deficit of 445,663,000

in rcservos.

'1ho reoorvo cities aa a Whole, converted an excess of

05,912,000 lilt° a Issfloit of 40,849,000. The country banks outside
of the reoorvo and. contra:. reserro cities on Juno :!Oth had an excess
,Otef caah and on :3optembw-

Z52,5/6,000, showing

1ci tondoaey to pile up reserves in bad timoo, but not near-

ly ao atrikinc au 1907, when, as I recall, the country and city
banks khomd 412,000,000 of reserveu.

1 am seudin under se emu: corer, a sparo
report, which you ray keep for your files.
Very truly yours,

Governor.

Hon. .au1 L. Warburg,
Seserve Board,

.shiluton, D. C.

Copy

WESTEkxtViAA UNION
TEL
A !Mr"

Form 260

E

WESTEONUNION

iliVtlit-tz'

NEWCOMB CARLTON. PRESIDENT

Z. W. E. ATKINS, VICE-PRESIDENT

TIME FILED

EIVER'S No.

13ELVIDERE BROOKS, VICE-PRESIDENT

CHECK

"11E1V-71)M
SEND the following Telegram, subject to the terms
on back hereof, which are hereby agreed to

Awf

Feb. 2 .1915.

ul
1704 'ighteenth Street,
tashincton, D. C.
I hope L1r0 Warburg warned you that I exaDect to arrive at your house at

about eicjit-thirtydnesdayevening.

If it is not convenient, you can

bend no away, but it will be his felt.




Benj. Strong, Jr°
'0

Strouc, Jr"
Btree.

ALL TELEGRAMS TAKEN BY TI-11S COMPANY ARE SUBJECT TO THE FOLLOW

To guard against mistakes or delays, the sender of a telegram should order it REPEATED,
that is, telegraphed back to the originati
For this, one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED .
PAID FOR AS SUCH in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED teleg
amount received for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, be
the sum received for sending the same, unless specially valued; nor in any ease for delays arising from unavoidable interruption in the working of its
errors in cipher or obscure telegrams.
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery,
gram, whether caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valu,
a greater value is stated in writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paidor agreed to be pa
on such value equal to one-tenth Of one per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessi,
reach its destination.
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such.officein o.
cities or towns. Beyond-these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at
expense, endeavor to contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to
such office by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegram is Sled with the Company for transmission.
No employee of the Company is authorized to vary the foregoing.

THE WESTERN UNION TELEGRAPH COMPANY
IN

NEWCOMB CARLTON, PRESIDENT

CLASSES OF SERVICE
TELEGRAMS
A full-rate expedited service.

NIGHT TELEGRAMS
Accepted up to 2.00 A.M. at reduced rates to be sent during the

night and delivered not earlier than the morning of the next ensuing
business day.
DAY LETTERS
A deferred day service at rates lower than the standard telegram
rates as follows: One and one-half times the standard night letter

rate for the transmission of 50 words or less and one-fifth of the

initial rate for each additional 10 words or less. Subordinate

to the priority of transmission and delivery of regular telegrams.
Must be written in plain English. Code language not permissible.




Telephonic delivery permissible. Day Letters received subject to
express understanding that the Company only undertakes delivery of
the same on the day of their date subject to condition that sufficie ,nt
time remains for such transmission and delivery during regular off
hours, subject to priority of the transmission of regular telegran

NIGHT LETTERS
Accepted up to midnight for delivery on the morning of the next

ensuing business day, at rates still lower than standard night telegram
rates, as follows: The standard day rate for 10 words shall be charged
for the transmission of 50 words or less, and one-fifth of such standard
day rate for 10 words shall be charged for each additional 10 words or

less. Must be written in plain English. Code language not permissible. Mail delivery, postage prepaid, permissible.

i913
,

FEDERAL

IIESERVE BANK




Feb. 2, 1915.

.,,

dear .:arburgt

Thanks for yonre of the 1st in which

you correct my figures as the reeerves_as

in the stat,ment sent you.

shown

Hy letter vas

ily diottted and 3. probably road tha footings
wrong.

The moult is interesting, and

.0-re so

When compared with the result of December, 1907

inquiry, which has already been sent you.

Very truly your,
4overnor.
Paul

V.arburg,

ioderal ..loserve
Tashington, D. C.
31.i.lr/VM$4

1915.

aul U. Wa

otol Dennis,
Atlbmtic City,

J.

liery sorry can't join you over holidays.

Engagamont tonight and work

okday mak9s it impossible.

Benj. Strong, Jr.
aharge to Benj. Strong, Jr.
Veld







February 2,th, 1913.

My dear "rburgs.
I &if:. grateful to you for your note from Atlantic City,

and once again, AS I have repeatedly said and written, ue postively
must not get discouraged When disagrec.:ent arises.

You have strong

views and co have I about aome matters, but we muse-1'41°w them to be-

come absolutely brittle.

The feet is, that I have been a good deal

worried about this regulation regarding acceptances.

The one that

was handed to me in Washington at the time of the Committee meeting

and the one you and I doped out at White Sulphur Springs, were not
even fourth coustiastwice removed, and how you could have gained the

as satisfied with the last edition, provided the
word nand" was eliminated, is beyond me. The fact is that I had
impl,ession tha

I

only glanced through it prior to our discussion With the other mem.

bore of the Board in your office that afternoon, and until I returned
to New York had no opportunity to examine it carefully and really

study the changes that had been introduced sinc the time we worked

on the matter at 'bite Sulphur Springs.
to my
The principal concession ---

Itxtreme views embodied in

the regulation is the elimination Of member banks' endorsement. Against




To0102.

To

Hon. Paul M. Warburg.

Fob. 24th, 1915.

that concession, hemever, a good many other resPrictions have boon
added which, to my mind, throw the vAzole thing out of joint and you

and I must some day sit down and thrash this thing out to the last
detail and agree on those points where wo can agree, and then un-

derstand each other as to the points where we do not agree.

In

other words, lot us roduco this difficulty to an irreducible minimum and see whore we stand.

So far as enthusiasm about the accentnce business is con
corned, that can be worked up very easily on short notice, but
had rather work it up after we had bought same acceptances than be-

fore, as it will mak.° some difference in the rate.
New York is not sulking as badly as you think, or at any

rato, :Ira. Warburg does not think so, and her opinion is the only
one that counts.
Do not worry about thic matter and believe me,

Cordially yours, also, tne same,

Hon. Paul
Warburg,
Federal eserve Board,
Washington, D. CI.

ba Jr.

February

Dear Zarburo..

I am seading you a telegram advising you that I

cannot possibly

get to Atlantic City over the holidays, as I find that it will be absolutely
necessary for me to do some work Uonday and Mrs. Strong and I have a longstanding engagement to entertain some friends this evening.

It is

time,

however, that we took a holiday, for I fear we are getting overtraind again

on this thole natter.
The enclosed clippings, if you have not seen tIlem, may prove of
interest.

The one from the Journal of Camerco is particularly

significant,

as their man, tho came in our office yesterday, had rather a lurid story about

It

the acceptance regulation 7,hich I told him he must on no account publish.
be
may that our experiehce with that paper in V:eshington, of which they doubtless

have boon fully

advised, together with this request,

as accomplished all that

will be needed to avoid disagreeable newspaper comment.

I hope you have a

good rest, and shall further hope that you and

Delano can make it convenient to come to

New York and attend

our Board meet-

ings occasionally, so as to keep directly in touch with the views of the
Board on these various matters, to the advantage of all of us.
Please give my best regards to


Hon. Paul Li.
http://fraser.stlouisfed.org/
Hotel Dennis,
Federal Reserve Bank of St. Louis

Sincerely yours,

"rburg,

Warburg.

mnroh 9th, 1915.
Paul M,

-11,44444s,,,

A.eral Reserve Board,
Washington, D. 0.

Will arrive Washington ednesday March tenth on Congressional Limited.

perfectly convenient




spend the night with va.
Benj. Strong, Jr.

If




March 18, 191b.

Dear7...9rburg:

Jim Perkins has asked no to make an address at the meeting
of the New York State Bankers to be held in ;: aratoga some timo in

June, and I have acepted.

It is the only opportunity to make a talk

to J,4a., Of the bankers of the state, and we should not case it.

He is, also, writing you, making a similar request, and
as to
toA, him I would urge you to accept, but without any illusion= the
chances of yuccess.

in case you should decide to accept, would you mina collaborating a bit so that we may not cover the same ground?

I am hoping you will be with us at the office to-morrow
to attend the Oommittes meeting.

Sincerely yours,

Ron. Panl M. Warburg,
2..4% ),.,.uagg.4,m4.*

Hartsdale, New York.
BS Jr/W21

1st April, 1915.
Paul A. Warburj, Esq.,
Tioard,
0/o. YeIrra.l.

Washington,

c).

Dear Warburg:

Thank you for yours of the 31st and for the good wishes.
You may judge the holiday has been of value, as Mrs. Strong and I
have just returned from a twentymile horseback ride awl T am

feeling about ten years younger.
I read th'' Trust Company's statement you referred to
with a great deal of interest, and possibly, had you not written
me, I would have had a letter on the way to you next Monday from
New York on this very subject.
A few weeks ago T had quite a serious talk with Jack
Morgan in regard to that company's policy, awl think I understand
the influences which are now, and in fact are always, exerted to
keep these matters within conservative bounds. As you doubtless
know, there are some of us who have considered that the man who



Paul L. Warburg, Esq., #2.

let April, 1915.

has charge of the foreign department in that company is a little
inclined to be speculative. On the other hand, I think we must
give him credit for being one of the ablest and most astute in
the .business. What I would personally fear of a man of that type
would be speculation in exchange and, frankly, I do not like to
see such a large investment in foreign exchange as that shown by
their last statement. The acceptance account of $55,000,000 is,
to be sure, very large. I do not think that it represents the
actual outttanding acceptances, however, as I believe the banking
department requires each acceptance contract to be shown at the
full amount rather than at the amount for which acceptances have
been actually made. This I have not officially confirmed, but
believe to be the case. Shortly before leaving New York, one
of the Vice-Presidents informed me that the total was =00,000,000,
which I understood at that time was the amount they had accepted
and not their liabilfty on commercial letters of credit, Lioh., of
course, '2,11 always exceed the outstanding acceptance account. At
the same time they told me that they only had #700,000 or bills
outstanding, which does not cover strictly import or export business.

I also understand tnat =Oh of their export acceptances are against
foreign bank credits, which strengthens the bill considerably. That
Is likewise the case at the Bankers.
As above suggested, I do criticise the amount of their
Investment in foreign exchange. It looks speculative and I do not



Paul M. 3arburg, Esq., #3.

lot April, 1915.

think any American institution at this time is justified in buying
large amounts at long bills on which they cannot get immediate
discount. And, furthermore, to the extent that this represents
foreigh balances against which exchange has not been sold, I think

the risk does not justify the possibility of a profit, considering
the uncertainty of the present situation. One difficuly about
the management of this account is the character of the man that
hanlies that department. He always has and always will play his
hand alone.. Just as soon as I get back to town, I am going to
have another talk with the Cnairman of their Executive Committee,
with whom I have discussed this matter before, and will be glad
to give you some more information which I will certainly have no

difflculty in getting.
Before leaving New York, it was understood in the office

that our line was full and that without saying anything to any of
our partners in the other eleven Cities we would take the same
position for their account. It is most interesting to me to watch
the course or this development, on account of the old Bankers Association. The Bunkers demand bill always sold better than the
Guaranty's by a small fraction, and at the present time their
acceptances, I believe, sell about onehalf of one percent. below
the Guaranty's, but, as you doUbtless know, Kent is one- of the
most conservative men in the business, and, furthermore, he is a



Paul M. Warburg, Esq., #4.

1st April, 1915.

thorough student of his subject and very conservative about the
lines which he extends.
I have no word from keDougal about the meeting on the

6th as yet, but anticipate that he will notify me and I will
certainly try to attend. Jay expects to be away next week, but
can jrobably slip over for one day. I have an engageinent on
tre right of the 7th, which I must attend if possible.
1 air mighty glad to haue you write me fully and frankly
upon the matter covered by your letter. Your own experience has
been so wide and you are 30 much better posted on these matters
than I am, that I am going to rely upon you to check up as we go
along, and you need never doubt that your suggestions occupy first

Best regards to your associates, whom I shall hope to
see next week,




PaithfullY yours,

veDBJPT
Pr: 4 a
,---EDEfiAL

19,15

RESERVE BANK

April 12, 1915.

. r

Dear Warburg:

A letter was sent you last wee-,, by the Deputy Federal
Agent in regard to the possible future course of money ratem, in
which it was steted that I concurred.

As a matter of fact, I did

not concur in the views expressed and the letter was sent out under
a misapsrehension.

I mention it now beceuse I want to write you a

few lines about rates.

Six months' time money on mixed collateral is now lending
at 3 2 d minimum, as against that rate ot all industrial loans a few
days ago, and possibly as low as 3 % for the best mixed loans.
over the end of the year is quiet, and 4 % and 4

H%

:Ioney

with possibly

4 L-%, aggtIng rate, and strange to say, the rate for these longer
-loans has shown some tendency to ease

course of retes for shorter dates.

rather
The best

than correspond to the

acceptances, which sold

as low as 2 and 2 1/8, depending upon the maturity, a few days ago;
within the last two or three days have been offered

2

% for the longer

maturities,and the lowest rate

I should say, is from 2 1/8 to 2 1/4 %.
acceptances are now about 2
unable to buy,




for any maturity,

Guaranty Trust

Company

Acceptances which we are

at is, those of private bankers and mercantile accept-

ances bearing only foreign
are 2 1/2 to 2

3/8 to 2 1/2

rather freely at

5/8

endorsements, like the Yekoh-ma Specie Bank,

Call money rates have hardened a trifle,

the

April

-2-

To

12, 1915.

Hon. Paul M. Warburg.

high money rate since last Thursday being 2 1/2 Z and the ren-wal
rate 2 1/4

This is making

reflect a little bit in regard to the

,Y3e,

ithou-, dictating elaborate arguments, I have

acceptance policy.

about come to the conclusion that our wisest course is to
best aecentances that offer, which are oliijble, at 2
tain that rate

Oar

awhile.

1/4

buy the

and main-

Our line of Guaranty acceptances is full,

banks,
and of course, our purchases would be for account of all reserve

and considering the volume in the market, I

doubt if it would

result

outin the puroh se of more than a few millions, three or four at the

The reason I suggest this course is as

side in the course of a week.
follows:

The London market is now 3 to 3 ?i-%, but

e establish

the preferential rate for the dollar acceptance wherever rates are being quoted in other parts of the

crid.

I am advised that bankers are gradually quoting for-

ward rates to their correspondents abroad.

This practice should be

encouraged.

As our line

of guarantie acceptances is full, it may

increase the pressure on National banks to expend their

cceptance ac-

counts, which is desL:able.
On a rising market, it gives us opportunity to make a
steady and fairly uniform rate.
It gives us opportunity to discipline the note br61ers,
rate
disposition to trade on our 11446 as ie could
some of whom have shown a
now buy on commission.




6.

And to my mind, more important than the others, it will

-3-

To

April 14,

Hon. Paul M. Warburg.

give us the opportunity to est-blish a slightly lower rate for acceptthan
=emerald for call money.
7, - and last.

Pursued to its logical conclusion, this

policy nry enable us to buy accept:maps with member bank endorsements.
Not at once, perhaps, but after the differential gets

a bit larger.\

It would be a great -id if I could discuss these matters

with you, but not having the opportunity, I would appreciate your writing me

frankly.
Sincerely yours,

Governor.
Hon.
su1 /1. --arburg,
Federal Reserve Board,
..ashington, D. C.

BS Jr/VCM-2







April 27,

1915.

Dear Warburg:

Mr. Hepburn yesterday informed me that he waa con-

eluding the preparation of a book on the subject of banking

and currency legislotion in this country.

1 think it is

modernizing his for 'or book, with which you are doaJtless fa-

miliar.

He is anxious to .sret particulcrs in :',agrd to actual

business done by the Federal Reserve Banks, incladin

figuros as to their earnings, expenses, etc.

some

:he book will

not come out until about the first of January, bui,

,ants

his manuscript in ahnpe by the irut of July.

ld you

H3,

feel about giving him some data along these lines

ae is go-

ing to let me have o apecine nemorandum of just what be does
want, but T am sounding you in dsonce to find whether there

will bo any objection to letting him have it.
This is the first quiet day Iremember having had
in the bank sine* we opened.

Very truly yours,

Eon. Paul M. Warburg,
Federal Reserve Board,

' ahington, D. C.

BS Jr/VaM

JLIWG DVIPT.
NW
FEDERAL

5 19',
RESERVE BANK




May 4th,

1915

Dear Warburg:

Thank you for yours of May 3rd about Vs matter

Er.

Forgan

to refer to it.
tioned

ossibly, it was indiscreet for me
I feel very sure about the dates I men-

mentioned.

and naturally would hesitate to ask mr. Forgan to

look it up, unless I saw him.
be in Chicago within

the next

There is a

ten days, and if so, I

make inquir- and see just what did happen.

has the

/otter in his files.

Very truly yours,

Hon. Paul M. axburg,
Federal Reserve Board,
ashington, D. C.

BS Jr/VCM -2

chance I will
will

He doubtless

May 22, 1915.

Dear eaeburge
--eeseaea-e.

I shall probably see you before. you receive this letter, but feel
that I should send it as a reminder for your desk.
I am somewhat discouraged at the very slow growth of the Gold Fund

behind Federal reserve notes.

The past month has witnessed the release in

our district of quite a large volume of small denomination gold certificates;
DO much so that it has became noticeable. Yesterday, as an illustration, Jack

Morgan stopped in the office for a moment and produced e5OO. of gold certifi-

cates from his pocket. A newspaper reporter came in and called ey attention
to the same matter;

he had 430 of gold certificates.

Another man called Mr.

Kenzel's attention to the same thing, and he had *10. of gold certificates.
Advantage should be taken of the more free circulation of gold certificates, to perfect plans by which large denomination silver certificates, as
loll as Federal reserve notes will be put in circulation, and the cold nertif-

icates gradually driven into bank reserves.

It requires, as

law, only the exercise of discretion by the Secretary of

the Treasury.

Pose you realize that with so much cash in the vaults of banks
country in excess of What they are

I understand the
I sue-

throughout the

required to carry for reserves, there will

be less discrimination againet paper money, which does not count as bailie re-

serve, than at the time when the banks

,re

operating on their minimum required

reserve.
Including gold held by the Reserve agent, our own gold holdings have

ri,en from somethi g like 05,000,000 when we started business to about 430,000,000,

in a period of six months.




I believe if no small denomination gold certificates

#2

Honorable laul iL ILArburg

5/22/15

had been issued during the past six months, we might have accumulated from

425,000,000 to 00,000,000 more gold than we have, and I hate to see time lost

in bringing this about.

lortunate

In this matter, you may put me in tho class with the/widow.
Sincerely yours,

Governor.

Honorable Paul M. Warburg

Federl Reserve Board,
Washington, D. C.

BS dr/Rd0







Uune 2nd,

19151

Dear -:arburg:

The papers Which I left at your house

caie safely to hand to-day.

Maay thanks for

forwarding them to me.

Sinoerely yours,

Hon. Paul :1147:se-Jur,

Pederal ReseAr

-:ashington, D. C.
VOM

EDE

R

June 4, 1915.

ERVE BANK
MaiTEY RATES

Dear Mr, Warburg:

We seem to be at a point where gone change may take place in money

rates, and you will desire to be advised of developments

During the month

of May, the renewal rate for call loans was uniformly 2 until the 24th, when

it was reduced to 1 3X, and has since remained at that rate.

The low rate

for call loans throughout that period was 1 1/2; until the 21st of May when
it dropped from 1 3/4% to

4,

and again yesterday call 'money loaned at 1% and

for the first time since the let of May the high rate for loans made that day
was 1 3Ap. Mort tine loans on collateral have likewise been reduced; rates
for sixty days to four months being quoted at 2 1/4% to 3%, and six to twelve
months. 3 to 4%.

Coneercial paper remains quoted at 3 1/4-i; to 4t, but the

tendency is easier.

Actual rates for discounts in London remain quoted 2 5/8%

to 2 7/8A, and nominal discount rates reported from Paris and Berlin remain 5%

and 4 1/2i, respectively.

It Is of interest to contrast the London discount rate, which on
March let was 1 7/15 to 1 I/2, from which time it gradually rose to a maxiof 3% on April 12th to 15th inclusive, and has since declined a fraction
as abavo reported.




This ease of money is apparently due to throe causes:
1.

Slack domestic business, whidh is piling up
an reins reserves and augmenting those created by
the establishment Of the Reserve wstem.
The absence of the usual spring demand for
currency shipments.

2hn increasing amount of our export business
which is being conducted on a cash basis, and Which
it is estinated has so far resulted in our receiving to date this year :-80,000,000 of gold from abroad.

Honorable imal 114 Warburg

6/4/15

In view of the tendencies above described, I am inclined to recomneed

an energetic effort to increase the investment accounts of the Reserve banks at

present rates to as largo an amount as possible, and for as long periods as
loans can be arranged,

re are buying all the acceptances which are eligible

for purchase in this market, rates, as you notice, having been from 2 1/4% to

2 5/0.

We tare negotiating, as I wrote you yesterday, for a large block of

New York City revenue bonds.

We are also negotiating with the Comptroller of

the State of New York for the purchase of ç6,OOO,OOO of revenue bends of the

state, issued in anticipation of taxes, which we probably night purchase subject

As to the last item, it

to legality on a 2 7/C basis for October maturity.

would. be divided among all the Reserve banks desiring to participate, and would
be a prime investment, which I am most anxious to conclude.

It may be necessary

to ask a special ruling from your Board similar to the one requested in the case
of the New York City revenue bonds. - We are also asking for the opinion of

Messrs. Spooner & Cotton as to the legality of this issue, which has been ques-

tioned in a tax payer' ouit that has Just been thrown out of court by the Court
of Appeals.

The earnings of this beak in excess of its current running expenses
last month amoueted to abont $19,000, and we have accumulated current earnings

in excess of current expensesof about *37,000.

If our investment account runs

off as rapidly as it night without epecial enthority from your Board in these
matters, our earaines would be cut in half, and the good progress made to date
sadly retarded.

,I am writing you at this length in order that you and your associates
. may be able to consider the applicationemade yesterday and in this letter for

special rulings, and much appreciate in advance your consideration of the natter.
Yours very truly,
onorable eaal M. Warburg,
Federal Reserve Board



Vindhinotnn_

1-)_ 0_

Governer.
BS Jr/RAH

Pereonel.

July 23rd, 1915,

Dearkaa
Your note is just received and I an glad to hear that
yeur arrangements are pleasing and not disappeintinig, as is too

often the case.
I tried a hand yesterday at golf myself with pretty
mod success.

In the morning, I had Curtis, ?roman. and Jim

Perkins each semen down: 14 the afternoon, Curtis best me, and

I was all even with the other two.

/ ell:, be delighted to

take a track at year links at the very first opportunity, and
oonfidentially, if they aro too shorts we will play the eighteen holes as thoegh they were nine,
The Clearing House plan to which you refer is simply the Boston country clearing arredgement which enables

each country bank:eh/eh comes into the arrangement to settle

their items with one remittance letter, instead of a separate
one for each bank.

It will eliminate the exchange charge

es to those banks that came in and shorten the collection

time, as they agree to remit on the day the items axe receive at par.
It will be somenhat more advantageous at present for the country




haulm but not

90 attractive for the city banks.

On the other

hand, it is a move in the direction of par collections, and any

move in that direction is helpful to us.

aad a

bar years

If, at the end of two

When reserves are all transferred, thelr efforts,

and ours, have been successful in eliminating exchange In the

district, there will be much less difficulty in aur getting the
adhesion of our country bank members to whatever plan is finally
not
adopted.

It is neither an attempt at competion with us, bUt

might in away, be cons trued as a neeessary
collection

adhana.

Another definite advantage is that it will

probably head off a separate move of
.tioids.

conseenence of our

this kind

by state institu-

There are 35 of that class in the Clearing Rouse as

against 29 national banks, and of course, they might force three&
some plan which would he objectioneble to us, whereas, this plan
is entirely unobjectionable to us and can be operated in co-operation

with 004 plane

On the whole, I feel well Satisfied to see this

development take place.
I do not know who is talking to the newspapers about the
Brown credit.

Jim Brown is 110t.

I know because I have asked him,

and moreover, have cautioned him about

eral Reserve Beak.

any statement as to the Fed-

On the other head, this is a ease where the

beakers, particularly the national bankers, are entitled to know
what they can do




and what they

cannot do.

That is to

say,.

whether

their acceptance contract or credit arrangement is of the character
permitted by the Statute or not, and Whether the acceptances, when

made, will be eligible for us to bay.

We are, of course, eadeav-

oriag to make this absolutely elear 34ed unmistakable.

I geese we

all agree now that if a national bank can accept drafts of this
Character, we can buy them, and there seems to be no doubt whatever

that the national banks are authorized by the statute in making
the acceptance, even though the contract should run for a year, or
longer.

I really think you exaggerate the importance of the news-

paper articles and the possibility of embarrassment.

We are still

able to run the business without newspaper assistance and I do not
believe poe!)le are paying much attention to the articles from day

to day on this subject.
I am off in about three Nparters of an hour to spend the
cokend with the family at Wood's Hole, so will ask my secretary

to sign this.
With beet regards to you and Mrs. :arburgi, and wishing

you just the kind of bsoliday that you need and deserve, I am,
Sincerely yours,

non, pnia m. warbarg,
Loon Lk) House,
Loon Lake,

BS Jr/WV




NC.

Personal.

August 2nd, 1915«

Dear ';axbure,.,

I stayed at home last Friday to catch up with some back
work, and Mr. Jay on that day telephoned me- the contents of Govern-

or Hamlin's letter of July 8th about acceptance credits.
I do not understand the action taken by the Board at all,
and fear that me must in some way make our position clear that we

de not regard this construction of the law as being correct or bindtag upon member banks.

In the meantime, however, I have had a long talk with De-

lano (Who was here on Saturday), about the matter, and he has ari6

ten Harding further on the subject, and just now I have a telephone
message asking me to ex) To aashington to-moarow and go over the mat-

ter again, which I am oxpecting to do.

Things are rather quiet in the office, and we are going to
take advantage of the opportunity to got some vacations out of the
way.

Mr. Jay is going on Saturday. Mr. Curtis and I will be here

except for a few days at a time athen he and I may alternate.

You will be interested in raading the enclosed article
which anpeared in the Journal of Coma:woe.




o are gradually getting

k11.05t 2, 1915.

-2arburg.

Hon, Paul

the banks accustomed to the idea that acceptances must be endorsed

and the negotiable instruments Act has helped us to bring this

about, and if we have a considerable vole of bills developing
this fall with rater of interest advancing a bit, Iall hopeful that
WO can get the whole acceptance proposition working in good sh.lpe.

Please give my best regnrds to Ilrs. arburg and the same

to your good self.
apologize for intruding with a business letter and will

try not do it again,
Very truly yours,

nOrd.

Hon, Paul U.

rburg,

Loon LTAce House,

Loon Lako, N. Y.
13S, Jr/Val-2




August 5th, 1915,

My dear arbropursti...

had a hot time in ,Ashington yesterday, and by this I
mean bot# weather, and otherwise,

This morning, 1 have your note asking for a report Of

trip,

It has already been sent you from Washington.

Dr. Miller

is rather reserved in his opinion on the sub*Ict, stating frankly
that there was a good deal about it that was technical and he wanted

to think it over,

All the rest, that is, Governor Hamlin, the Comp-

trAler, Hardinc; and Harrison ware clearly of the opinion that we had
not understood each other and that the former lotteru of the BorIrd
wore wrong,

They "mare good swift to dhow me year letter in which,

as I recall, you stated that the Board's letter was"horrible."

They

did not know whether you meant the interpretation given to Sect ii 13

of the statute was tdo restrictive or too liberal, so I suggested to
Dr. Miller that #e get out the first letter which bore your notations
and mad:: it clear to them just how you stood.
F

The rtmtter was thrashed out very thoroughly and I think they

are now well convinced that the limitation of six:months applies to

the draft and not to the credit, but-tha no credit that =tom& for a
loner period than six menthe, and Whit% imposes ucon the holder of the




-2-

August 5, 1915.

arburg.

draft any obligation of reneettl, would be authorized by the Act.

Har-

risen is drafting a nee opinion after consulting Judge Elliott by tele-

phone, who also agrees, and the Board expects to send me a letter on

the subject just as soon as they hear from you and possibly from Secretary AcAdoo, although I understand that he has already ,ritten them

urging

that the interpretations on this matter be made broad and liberal.
I can't tell you how grateful I am for your broad view on this

subject for I was getting hopelessly discouraged.

Investigation indi-

cates that revolving letters of credit are now in use by state institu-

tions'and nrivete firms covering shipments of the folloing products:
potash from Germany; copper from Chili; meat, hides , wool, etc., from
the Argentine:

jute from India and silk from (Ilina,

commodities from the far East.
a year.

They are of a

also, many other

Those credits, in many cases, run for

character with which you are thoroughly familiar,

some of them "goods documentary" and others, "goods clean."

The Eord, after our meeting yesterday, has, I believe became
impressed with the fact that the time is approaching When the
our surplus exeorts will be governed
ties which

by the

extent of

combined amounts of securi-

ie repurchese and credit which we extend, and I do not think

any of the members will feel willing to labor under the possible Charge
that restrictive or narrow views of the functions of national or reserve

banks shoeld

noa be permitted, in view of a possible interference with

our export comeerce.
I am leaving for Boston this afternoon, and expect to spend
the week-end

with the family at ood's

Hole and get in a little tennis.

Am delighted to hear that you are in good company and hating SOW golf.




August 5, 1915.
a. Paul M. Warburg.,

One oxomination of your golf bag and its contents convinces me that

you arc a better banker than a golfer.
Once more give my best regards to re. ;,arburg and tell her

to intercept businesE. mail, coming even from yor boat friends, one
of.whom inscribes himself,

Faithfully yours,

Hon. Paul M. 1:arburg,
Loon Lake House,
Loon Lake N. Y.
BS Jr/WM




August 19, 1915.

MY deaf-!!nT43A
Mils is my first chance to write to you for some days.

Jay

has been away and Mr. Curtis also part of the time, and I have likewise
been trying to take it a bit easier myself.

You notice the accounts of additional gold coming to this country, a total of about 025,000,000 having arrived during the past week.
I fear there is some likelihood of additional Shipments.

What can you

sugest as a means of looking this up and keeping it out of bank reserves?
Haw mould it strike you to issue a special form of Federal reserve note, say
for denominations of 01,000 and 410,000 each, make a trade with the importers of the gold to turn it over to us after the Assay Office had made return to the importer, then try to persuade our Clearing House Association
to accept these large denomination certificates for settlement of balances
between statbere.

This is a rather hazy indefinite suggestion, but fratklt I have
not worked it out very completely in my own mind and to save time I thought
you might be willing to pat your mind an it a bit and give me your views.
The more we develop this extraordinary international situation,
the more satisfied I am that we would be an safer ground if Federal reserve

motes could be made lawful for cash reserves of national banks.

You recall

the last time we discussed this I expressed the opinion that this could be

safely done after we had accumulated suCh gold as mould flaw into the banks
by reason of the discontinuance of the issurInce of smnll denomination gold
certificates.



It might be that When Congress is again ingession, we could

#2

Honorable Paul M. Warburg

8/19/15.

convince those who have charge of legislation of this Character that it

would be safe to permit the direct accumulation of gold against the issue
of Federal reserve notes right away.

Whether the effort ia made or not I

believe that legislation should be all shaped up in advance so that time
might not be lost in discussion or study in case it proved desirable on
rather Short notice to advocate such policy.

Jay is still away and Curtis is taking the last of this week to
became acquainted with the National course down an Long Island.
he is playing in a tournament.
With best regards to Mrs. Warburg and your good self,
Yours very truly,

Honorable Paul M. Warburg,
Loon take House,
Loon Lake, New York,

BS Jr./BAH




I believe




September 2nd, 1915.

De'lr Sir:

Will you be good enouel to ascertain
from Mr. Warburg the amount of Mr. Strong's ex2onses on the trin from Loon Lako to iiew York

the first part of this week?
Thanking you in anticipatiaa, I am,
Very truly yours,

Secretary to Mr. Strong.
Chapman,

Secretary to Hon. Paul M. Thrburg,
Federal Reserve Boftqr,"

rashington, D. C.

VOL/

VVESTEiskr

lre E

UNION

Form 260

WESTERN UNION

GEORGE W. E. ATKINS. VICE-PRESIDENT

TEL 1"0°7 AM
NEWCOMB CARLTON, PRESIDENT

CHECK

TIME FILED

RECEIVER'S No.

BELVIDERE ESOOKS, VICE-PRESIDENT

-

SEND the following Telegram, subject to the terms
on back hereof, which are hereby agreed to

New

c City, Sept. 10, 1915.

Paul M.
.41771.77,-

Board

Thshington, D. C.
711 telephone you from Greenwich tomorrow evening.

Benj. Strong, 'Jr.Charge to
BS Jr/VCM




Pedeml Reserve Bank,

62 Cedar Street,

IIIMINIMINIMIMM11111.1.71111111
ALL TSLEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TER'
Te,guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to

..:ginating office for co-

f:1For this, one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UN REPEATED TELEG.
PAID
AS SUCH, in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
FOR

I. The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyond ,lat.
amount received for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty time,
the sum received for sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its lines; nor fo;
errors in cipher or obscure telegrams.

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

THE WESTERN UNION TELEGRAPH COMPANY
INCORPORATED

NEWCOMB CARLTON, PRESIDENT

CLASSES OF SERVICE
TELEGRAMS
A full-rate expedited service,

NIGHT TELEGRAMS
Accepted up to 2.00 A.M. at reduced rates to be sent during the

N.

night and delivered not earlier than the morning of the next ensuing
business day.

DAY LETTERS
A deferred day service at rates lower than the standard telegram
rates as follows: One and one-half times the standard night letter
rate for the transmission of 50 words or less and one-fifth of the

initial rate for each additional 10 words or

less.

Subordinate

to the priority of transmission and delivery of regular telegrams.
Must be written in plain English. Code language not permissible.

Telephonic delivery permissible. Day Letters received subject to
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hours, subject to priority of the transmission of regular telegrams.

NIGHT LETTERS
Accepted up to midnight for delivery on the morning of the next
ensuing business day, at rates still lower than standard night telegram
rates, as follows: The standard day rate for 10 words shall be chaed
for the transmission of 50 words or less, and one-fifth of such ,cand'ard
day rate for 10 words shall be charged for each additioi 10 words or
less. Must be written in plain English. Code language not permissible. Mail delivery, postage prepaid, permissible.

-




AIM1111111111111

(COPY)

pqA,/

September 9th, 1915.

My dear Mr. Warburg:

Mr. Jay is this morning in receipt of an inquiry as to what our
policy will be in establishing rates for commodity paper, and before submitting this matter to our Board meeting next Wednesday, I would very muCh
appreciate an expression of your views. There are a number or points to
be considered:
First:

There will be very little, if any, of that paper
in this market;

Second:

We have a great variety of rates already and this
will introduce another rate as an additional complication and make the rate situation rather obscure to member banks;

Third:

If we follow the lead of apme of the Southern banks
and establish a 34 rate, it will undoubtedly have
the effect we have been endeavoring to avoid of
creating dissatisfaction anong those member banks
that have a large Southern clientele. I have always
thought that as reserve balances are transferred
over a period of three years, that it would be a
mistake to arbitrarily break down the lending arrangements which are dependent upon these balances
by arbitrary rate reductions.

Fourth:

This class of paper may develop in a large volume in
the South and it would be a desirable class for us
to rediscount for Southern banks, consequently the
rates which we establish now will have SXM2 bearing
on the rate to be established later for rediscount,
if those are required, vhich I doubt.

Would you mind writing me frankly giving some expression of the
views entertained by the Board vhich I could submit at our meeting next
Wednesday. Mr. Jay will endeavor to obtain by that date, information in
regard to the rates established by the other reserve banks that have taken
action prior to our meeting.
Things are very quiet here. Money shows some easing tendency end
exchange is still feverish with a tendency to go lower with a very narrow
market. Large offerings of bills will materially reduce the rates.
With kindest regards,
Very truly yours,

Governor.

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington,
D.C.
BS Jr/VOM -2



(COPY)

FEDERAL RESERVE BOARD
WASHINGTON

September 10, 1915.
Dear Governor Strong:

I have your letter of September ninth in which you ask me to give you
some expression of the views entertained by the Board concerning the establishment of a commodity paper rate in New York.

In this connection you mention four points -

First: "There will be very little, if any, of that paper in this

market;" and

Second: that you have "a great variety of rates already and this will
introduce another rate as an additional complication and make the rate situation rather obscure to member anks."

Answering these two points together, let me say that the Board had this
very situation in mind when it indicated in its circular that it might appear
advisable in some districts where both trade acceptances and commodity paper

are being offered, to establish one single rate to govern both. That would
app3ar to be the case in your district and my colleagues and I would have
thought that a rate of three per cent established in your district both Dyr
trade acceptances and commodity paper would for the time being meet the

situation.

You say under three: "If we follow the lead of Some of the Southern
banks and establish a 3% rate, it will undoubtedly have the effect we have
been endeavoring to avoid of creating dissatisfaction among those member
banks that have a large Southern clientele. I have always thought that as
reserve balances are transferred over a period of three years it would be
a mistake to arbitrarily break down the lending arrangements which are dependent upon these balances by arbitrary rate reductions."

The Board would not think that a rate of three per cent for commodity
paper would have any such effect at this time. The Federal Reserve Bank of
New York, if it established such a rate, would only take such paper with the
indorsement of one of its member banks or through a tram action of rediscount
from one of the Southern Federal Reserve Banks. It stands to reason iitat no
member bank muld rediscount at three per cent commodity paper acquired in
the South unless it had a reasonable margin and if you.ddd to the three per
cent rate a margin of between one-half to one and one-half per cent, I helieve you will find that this rate of three and one-half to four and one-half
per cent is about the rate at which the member banks are offering facilities
to the Southern National and State banks. On this score it would not appear

therefore, that ther4s any objection to a rate of three per cent.
You say under four:

to
"This class of paper may develop/a large volume in

the South and it muld be a desirable class for us to rediscount far Southern

banks, consequently, the rates whichze establish now will have some beaming

on the rate to be established later for rediscount, if those are required,
which I doubt."



It is difficult to say at this time whatshwIld be the rate of tedisa)unt

-2-

between Federal Reserve Banks if these transactions should become actual.
Financial conditions as they will then exist will have to guide us in that
respect. If at that time it should appear advisable ID maintain yourrate
of three per cent, the Southern Federal Reserve Banks muld have to consider
unless assistance came to them again from the Treasury, whether an increase of
their rate slightly beyond three per cent would not be advisable, sp as to give
them such margin as they would deem necessary in order tocarw on the redicount
of commodity paper with the view of rediscounting the same with other Federal
Reserve Banks; of if conditions diaould warrant such a slap, your bank might ,v
feel that it would be proper at that time to reduce its rate for trade acceptances and commodity paper slightly below three per cent, in which case the
three per cent rate in the Southern districts might be continued. As to this,
it is impossible at this time to make any attempt to foretell the future, but
It would appear to the Board that a rate ar three per cent to be establislad
by you would prove proper and muld place your bank in a perfectly safe position
to meet any further development as it may occur.
Very truly yours,

(Signed)

Benjamin Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York.




Paul M. Warburg




September 10th, 1915.

Dear Sir:

Enclosed please find Mr. Strongts
check for $3.50 covering balance due to Mr.
Warburg for traveling expenses.

Thanking you for your attention to

this matter, Ium,
Very truly yours,

Secretary to Mr. Strong.
T. Chapman, Esq.,
Care Hon. --)aul

Federal Reserve Boara,--

Washington, D. C.

COPY

September 30, 1915.

Dear Mr. Warburg:

You will, I am sure, pardon my being a little amused by your
quoting Mr. Samuel Untermeyer as an authority on practice maintained

As I recall, Mr. Untermeyer

by the Rank of England in buying bills.

endeavored to enlighten the Senate Committee on Banking and Currency
on this matter, and among other things informed them that when the
bank wanted to get control of the money market, it bought bills in
large volume so that bills became scarce in the bill market, thereby
raising the rate for bills.

My impression in that the Bank of England

does not resort to this measure any more.

It is commonly understood

that when the Bank of England wants to put the rates up, it borrows
from the market.

I doubt if this practice is at all current and I

further doubt whether the bank as a matter of practice buys many bills
at all in the open market.

Most of its bills come from its regular

customers in the usual'course of business.

I will have a talk with Holden, whom I expect to see to-morrow
and get some up-to-date information about the practice of the bank, but
I really think that these matters are generally very much misunderstood.
I will write you further after talking with Holden.
Very truly yours,

Governor.

Hon. Paul M.

Warburg,
Federal Reserve Board,
Washington, D. C.
BS Jr/VCII-7




October 4, 1915.

Dear Mr. Warburg:

My meeting with Holden Friday afternoon was devoted to a discussion of acceptances and unfortunately, as others were present, I was

unable to pursue the inquiry in regard to the policy of the Bank of
I hope to get something from him in

England in open market dealings.
the near future on this matter.

I did have opportunity, however, to inquire whether the Bank
of England would discriminate against bills drawn by a foreign govern-

ment, accepted by a good English acceptor and, of course, bearing an acceptable English endorsement, and he tells me that without a question
such bills would not be discriminated against by the bank.
I really think there is misapprehension in your mind as to the
character of dealings conducted by the Bank of England in bills that
are current in the London market.
are with their own customers.

The great volume of their dealings

Those bills which they take from the dis-

count houses that are their customers, are frequently not endorsed by the
discount houses, the bank holding a general letter of indemnity for liability.

I do not think that the bank discriminates in any way between

the drawers of the bills as long as they get two good English names, one
of which must be the acceptor.




As throwing some little further light

- 2 To

10/4/15.

Hon. Paul M. Warburg.

on this matter, I enclose copy of a letter received from one of the
I

directors of the Bank of England some little time ago and, also,
copies of two cables bearing on this subject which I received last
March.

You are doubtless aware to what extent the practice of the
Bank of England has changed in recent years.

At the

quiry by the National Monetary Commission, as I recall, it was stated
by some London bankers that the Bank of England did buy bills in the
open market to some extent and that, at times, they borrowed money
from the market in order to stiffen rates when they wanted to attract
money to London to protect their gold.

I believe at times officers

of the Bank of England have denied that that practice now prevails;

that they rarely buy bills in the open market and rarely, if ever,
borrow money in the open market.

Mr. Untermeyer seems to have been struggling in hopeless confusion in regard to the operation of the London bill market.'

His

statements before the Senate Committee on Banking and Currency gave
evidence of a lack of understanding of the matter and subjected him
to considerable ridicule,,

My understanding is that the policy of the bank since the
outbreak of the war is about as follows;

Lord Cunliffe, when the

exchanges turned against Great Britain, was inclined to follow the
old formulas and endeavored by cooperation between the bank and the
British Government to bring about higher discount rates in the open
market in London.

The operation was largely conducted by the govern-

ment's short time borrowings which , as I recall, reached about £150,000,000
which lead to a constant accumulation of funds in the Bank of England




- 3 10/4/15.

Hon. Paul M. Warburg.

in public account.

This was not effective in moving the rates

7,1p

at

first, probably because of the huge guarantee given by the British
Government and the large purchases of bills that had been frozen by .

the war situation, these purchases being made by the Bank of England
under the government guarantees aforesaid,
ation offset the other.

In other words, one oper-

The credits released by the government's guar-

antees and the bank's purchases lowered the rates which the government's
borrowings were not effective in raising.

Later on, however, when the

big war loan was placed, these rayments, coupled with the continuation of
the sale of short bills by the British Government, were effective in
raising discount rates to a maximum of 5 1/8%, which was the rate quoted
for August 4th and 5th,

At that time, it was announced that the Bank of

England's rate of 5% was "effective" and Lord Cunliffe, I am confidentially informed, anticipated that, with this rate prevalent in the London market, exchanges would gradually right themselves by reason of the large volume of bills which would be carried by foreign capital in the London market.
He failed entirely to take into consideration the caution which would be

exercised by foreign buyers of bills, particularly American buyers, by reason
of the possibility of lbss caused by the violent depreciation of sterling
exchange.

No American buyers could afford to carry bills to maturity and

run the risk of the rates which would prevail at that future date.

Conse-

quently, all long bills drawn on the English market are immediately discounted on forward discount rates and the whole weight of exchange at once
fell upon the exchange market,
This has all been explained to Sir Edward Holden, whose answer is
that the effort seems to be rather to shift the risk of speculation in ex-

change from London to New York and he does not see great virtue in my suggestion that having the bills accepted and discounted in dollars will be



- 4 To

10/4/15.

Hon. Paul M. Warburg.

the equivalent of a permanent loan to the English market and the constant

advance of the exchange position for an amount equal to the volume of
bills held in this market.

In other words, he declines to recognize

that the effecting of a transfer of acceptance discounts from London to
New York is exactly the effect sought to be brought about by Lord Cunliffe in his efforts to raise the discount rates in Lombard Street.
To revert to Mr. Untermeyer's suggestion, if it is based upon
the theory that we should now undertake operations in the open market

for the purpose of correcting the international exchanges, it would
mean that he advocates our buying sterling bills which are not domiciled
in this country, which is a policy that has always been frowned upon by
the Bank of England and

one which would be fraught with great risk at the

present time unless we had guarantees and security against loss of exchange.
I am not at all clear that any duty rests upon the Federal reserve

banks at this time to use their reserves in an effort to improve the exchange situation and the only basis upon which such operation would be justified, would be affple guarantees in collateral and the assurance that our

money would be returnable to us in gold at the maturity of the bills purchased, if we do not care to renew.

Pardon this long letter on a very dry subject.
Sincerely yours,

Governor.

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.
BS Jr/VCM-2







;TRSONA4t.

October 14th, 1915.

Dear Mr

arburg;

maro,A742WeWp:
Thanks for yours of the 12th,

I hope the apples

arrive in good order.
You have been good enough occasionally to ask about

my health.

That in always a tender subject with me and, pos-

sibly, I have not been very courteous in reply, the fact is, I
hz.-Ne not been very well for some time past and would make an ef-

fort to get away for a loaf right now were it not for Father's
condition. He Is very dangerously ill and I see little chance
of imirovement, in fact,of any change, in hi a condition except

for the wore,
for awhile.

This maltes it difficult for me to make any plans
I am risking going to Minneapolis, but only upon

the doctor's assurance that it is the wise thing to do.
Oincerely yours,

Hon. Paul 1,4, Warburg,
Federf,.1 Reserve Board,

Viashington, D. O.
BS Jr/VOLI-




October 'iOth, 1915.

-ear Sir:
In Mr, Otrong's absence, I took 1.11) the matter of

recovery of your overcoat with Mr.. Hendricks, who says that

they /11.1 left the train when your telegram was received but

that he returned inmediately to the cgmpartment for your coat

and was refused possession of it by the porter.

He then

handed the teleran to the porter with instructions to forward
at once.

This was not done, however, as the Pullman Company

told Mr. Hendricks this morning in answer to his inquiry, that

Lhey were afraid to ship it without a more definite address,
but promised to :lend it forward to-day.

I trust it vi1l reach

you promptly.

Very truly yours,

Secretary to Mr. Stnng.
Hon. Paul M. arburg,

Federal 7iesoirrnard,

Washington, D. C.
VOM

November 12th, 1915.

Dear Mr. 7. arburg:

If 1 arrange, as seems likely, to
go over to rashngton on Monday afternoon,
possibly you and Mrs. ',arburg will put me up
for the night, and then understand the necessity of my moving over to the Shoreham.
are going to have evening meetings of the I:xecutive Committee I anticipate, and I am anxious that my associates Should not look upon

me as a deserter.

Sincerely yours,
Hon. Paul M. Warburg,.

Federn1 IiesiffrgV
7.ashington, D. C.
BS Jr/VeM




06"




November 29th, 1915.

Dear Mr. 'arburg:
Thank you very much for the copy of

;;our address delivered at Charlotte,
C., the
reading of which, I anticipate, will prove
moot

interosting.
Very truly yours,

Governor.
Hon.

taul

.arbur,

Federal Reserve Board,
':;ashington, D. C.
V CM

I.

DeceAber 2nd, 1915.

Dear ,:arburg:

Thera 13 just a chance that I will be over in Washington

next :reek, and probably before you have received this lettr,
have telephoned you about it,

It all Uepends ulon

has some matters he wants to look

into in

will

oodward, who

Washindton and has asked

me to go with him.
I an7reoiate very mucc, your letter and the ni e things
you say.

You need not worry about ay not"sticking it out."

mau not always "smile", but I
Please ,;ive mu

111 "stick" n11 right.

best regards to l!rs. 'arburg and Betty.

Sincerely yours,

Hon. Paul
1704 Eighteenth Street,
rne?lington, L. J.




I

December 8, 1915.

Dear Mr. Warburg:
I am very grateful to you for your courtesy in sending me
copies of your correspondence with Sir Felix Shuster.

From his let-

ter, I draw the conclusion that the practice of the London joint stock
banks and the Bank of England in respect of handling bills, both for
their customers and open market, is just about as I had stated in my
letters to you and Mr. Delano.

It seems to me, however, that your questions do not bring
out as strongly as they might, the situation which has arisen in this
country as a result of the establishment of the Federal reserve banks.

We ought to know
First:

That definition does the Bank of England, and do the

discount houses and joint stock banks, use in distinguishing between finance

bills

and other

Second:

bearing

bills?

Is there any discrimination against first Class bills

two English'names, simply because they may not be in the form of

documentary

bills?

Third:

What kind of

bills

specifically are discriminated

against, either by the Bank of England, the joint stock banks or the discount houses?

As you know, I have always maintained that a very large volume
of bills of the London market are, in fact, in the form of finance




bills

To Hon. Paul M. Warburg.

- 2 -

12/8/15.

and are regarded as the highest grade of paper because,
1st..

Their two high grade English names, and

2nd.

They are not drawn for the purpose of carrying stocks or

financing enterprises.

In other words, I believe that a very large volume of bills that
are regarded as "prime", are bills drawn for the purpose of making exchange.
I am going to prepare a careful set of questions which I will ad-

dress to two Directors of the Bank of England whom I happen to know, and see
if we cannot get a little treatise on this subject that will clear up any
doubt.

I am glad that the Board has decided to put out Regulation "S",
rather than deal with the matter by private letter.
Very truly yours,

Governor.

Hon., Paul M. Warburg,
Federal Reserve Board,
'.7ashington, D. C.

BS Jr/VCM-2




December 29th, 1915,
Dear Mr. Warburg:

I have investigate° the eon whose name you mentioned to

Mr. Jay and nave so far communicated with Mr. Forbes of larris,
Forbes R, Ccsapany, Bertron Oriecom & Company and one of Mr. Millet

Orovost's partners, all of whom know him intimetely.

The story

soo,as to be as follows:

He is a young fellow, probably net over 52, of Spanish
parentage and very excellent family, college graduate and a man

of most attractive oersonality and appearance; socially, etc., in
good etanding in New York.

He le rather quiet, not aggressive,

speaks Plaglish, French and 3penish fluently, thoroughly reliable

and trustworthy and reported to be of good habits.
employed succeesively by 3. F.ThIte

Ee haa been

onvany, Bortron Griscom &

Company, Iv.arris, 'Zorbes & ampany and now ty Parkinson & eurr,

lie is a bond dealer and negotiator, not e seleemen in the ordinary
meaning of

tilt' word, but rather a negotiator in a broader sense.

Has made good erogress in that business and is well-reported among
bond men.

11epresented Bertron Griscom in Paris for awhile and had

some experience in Franoe, Belgium and awitzerlend, as well as London.

H's had no experience whatever in foreign exchange and prob-

ably no experience in South emerican business.

Another informant just tells me that he can give him an
absolutely unqualified endorsement as to




trustworthiness,

etc., that

Dec. 28, 1915.

-.2-

2o

Hon. Paul -I. -arburg.

he was abroad representing Griseom.

He is a graduate of Cornell

and a good man to follow up work laid out for him, but

lacks inia-

titive.

My conclusion from the statements made to me is that he
is a fine chap personally, with considerable experience as a bond

man, with no experience whatever in foreign exchange, and would
probably be of little or no value along the line of work you have
in mind where experience, Laiatitive end banking judgement are
really the qualifications required.
I am sorry not to h%ve a better report.
Very truly yours,

Governor.
Pon. Paul
7arburg,
Federal Reserve Board,
Washington, D. C.

BS Jr/Val-B







March 7, 1912.

Mr. Hugh Kennedy,

of the Rogers,

Brown Iron

Co., generally is regarded as the logical head
for our Buffalo organization. He was elected-,,
president at the initial meeting of the League )
there. Mr. Kennedy is interested in Monetary
Reform, and gladly would accept the\positiou-if
he did not feel it would occupy too MUM 'Of the
time he thinks he should devote to his concern.
"I have promised Mr. Rogers I will not make

up any more outside matters", he says.
The Er. Rogers referred to is
A. Rogers, president of the Rogers,

Mr. Williams
Brown Iron

Co.

I understand letters from the right sources
not only would have the effect of lining Mr.
Rogers up for future use, but also would relieve
Mr. Kennedy of any embarasament in the matter.
A suggestion that he urge Mr. Kenndy to accept
the presidency of the Buffalo Branch of the League
would be all that would be needed in this direction.
I am informed

letters of this sort would

immediate effect if written by officials

Bankers

have

the
Trust Co. and Solomon & Co., with whom the
of

Rogers, Brown Iron Co. does considerable business.
John Duffy.
oil,At.ei4 -44 1.1,

Nu_

epa-e-o

/

///fi

7,)/y4/7/7aziffaee

4.4A

KUHN, LOEB 8. CO.

Mar. 19,

-1,.9j

2.

oCE. Veo
MAR ¶O
MAR 2 0 1912
REFERRED TO

OFFICE

Dear Strong:

Will you be kind enough to let me have

a letter

of in-

Yr. William Dinwiddie, to Err. C. H. Palmer, Vice
President of the Genesee Valley Trust Company, of Rochester?
Mr. Dinwiddie needs this letter to "push" his campaign
troduction for

up-state.
Thanking you in advance, I am

Sincerely yours,

Mr. Benjamin Strong, Jr., Vice President,
Bankers Trust Company,




7 Wall Street,

City.

V(24;1'g a/1

afre

KUHN LOEB 8, CO

e1)4

N

1

6,

Dear Mr. Strong:

Thank you for sending me the abstract
of your speech and Mr. Forgan's figures,

with"

which I am entirely in accord.
ruly yours,

Very

0

47)1,.:
11:1b4

V:erAt

4,7z

euti- I

aiezar4egoz-

eilyvi

e4,/td-ate,,,4
/4,44/, 2Avk

tate

L6ve A--

.61.4a.firg.,

.04e40._rn

Benjamin Strong, Esq.,
c/o Bankers' Trust Company,
7 Wall Street, City.



ire

THE OWEN-GLASS BILL
AS SUBMITTED TO THE
DEMOCRATIC CAUCUS

SOME CRITICISMS AND SUGGESTIONS
BY

PAUL M. WARBURG

Reprinted from The North American Review for October, 1013







Copyright, 1913, by
The North American Review Publishing Co.

THE OWEN-GLASS BILL AS SUBMITTED
TO THE DEMOCRATIC CAUCUS
SOME CRITICISMS AND SUGGESTIONS
BY PAUL M. WARBURG

Now that we have before us the Owen-Glass Bill in the
definite form in which it has been submitted to the Democratic caucus, it may be interesting dispassionately to analyze
it and to establish where it differs from and wherein it agrees
in the main points with the bill of the Monetary Commission.

It is a source of great satisfaction to note that, as the

Republican party had to outgrow and to abandon its old doc-

trine of "currency issued by National Banks against Government bonds," so the Democratic party had to relinquish
its old heresies of the 16-to-1 silver standard, the guarantee
of deposits, etc. Both parties are now agreed that reform

must provide for " a currency "to use President Wilson's own words" not rigid as now, but readily, elastically, responsive to sound credit, the expanding and contracting credits of every-day transactions, and the normal ebb
and flow of personal and corporate dealings."
There is a further and even more important progress.
Both parties have now recognized that it is not the " currency " which is the exclusive or even the chief factor that
needs reform, but that, indissolubly interwoven with this
question is the problem of rendering available and efficient
the now immobilized reserves of the country, and of mobilizing and modernizing the now illiquid American bills of ex-

change by creating a " discount market " and " bank acceptances."

Both parties are thus in agreement as to the ends to be
striven for; more than that, they are agreed even as to the

technical
http://fraser.stlouisfed.org/ means
Federal Reserve Bank of St. Louis

by which they must be attained.

THE NORTH AMERICAN REVIEW

2

Accordingly, both plans provide for concentration of reserves, for the creation of an organization for the purpose of

rediscounting commercial bills, for the substitution of an
elastic note for the present National Bank currency, and for
a conversion of the 2-per-cent. Government bonds into 3per-cent. bonds.

The country is to be congratulated upon seeing these

theories and principles clearly established ; it remains the
nation's duty conscientiously to watch that the aims now pro-

fessed by both parties be carried into effect in the best

possible way, and that they be not lost through ignorance,
prejudice, or considerations of party policy. Where there
is agreement as to the fundamentals, it should not be impossible to reach an accord as to the means, provided they be
honestly sought for.
There were five main criticisms of the Monetary Commission's plan, and it is chiefly on these points that the OwenGlass plan differs from its predecessor.
Mr. Aldrich's critics claim:

That there is too much concentration of power and

that this power is placed almost entirely in the hands of the
banks or their representatives.

That a uniform discount rate for the whole country

would not be practicable.

That the size of the balances to be kept by the sub-

icribing banks with the National Reserve Association is not
defined.

That the National Reserve Association, after taking over
all the 2-per-cent. Government bonds, is not sufficiently protected, because, although it would assume the responsibility

for the entire National Bank note issue, it would be prevented from selling the United States 3-per-cent. bonds in
case of emergency (except $50,000,000 per annum and that
only after five years).

Finally, it is claimed that currency should be issued
only by the Government of the United States and not by a
semi-official body.'

As to point 1, the writer partly agrees with these critics ;
as to 2, 3, and 4, he entirely agrees ; as to point 5, however,
he totally disagrees with them.
1 This article does not aspire to be a comprehensive criticism of the
Owen-Glass bill in all its details, but has for its purpose the discussion
only of these main points.



CURRENCY LEGISLATION
3 CZ
Let us analyze each point consecutively:
The Monetary Commission's plan proceeded on the theory
of the Bank of England, which leaves the management entirely in the hands of business men without giving the Government any part in the management or control. The strong

argument in favor of this theory is that central banking,
like any other banking, is based on " sound credit," that

the judging of credits is a matter of business which should
be left in the hands of business men, and that the Government should be kept out of business. The Aldrich plan,
therefore, provided for only a moderate amount of Government control; but on the other hand it restricted the powers
of the Central Board and the scope of the branch boards to
such a degree, and it proposed so democratic a system of
electing directors, that its author hoped to satisfy the nation that the concentrated reserves of the United States and
the note issue would be safe in the hands of this National Reserve Association. The Owen-Glass bill proceeds, in this
respect, more on the lines of the Banque de France and the
German Reichsbank, the presidents and the boards of which
are to a certain extent appointed by the Government. The
writer is inclined to think that the latter form is the one better adapted to modern nations. These Central Banks, while
legally private corporations, are semi-Governmental organs

inasmuch as they are permitted to issue the notes of the
nation,particularly where there are elastic note issues, as
in almost all countries except England,and inasmuch as
they are the custodians of practically the entire metallic

reserves of the country and the keepers of the Government
funds. Moreover, in questions of national policy, the Government must rely on the willing and loyal co-operation of
these central organs. Much is therefore to be said for the
theory of centralizing reserves and note issue in the hands
of a semi-official private corporation under a mixed administration of business men and Government appointees, the
managing officers being appointed by the Government.
In strengthening the Government control, the Owen-Glass
bill therefore moved in the right direction; but it went too
far and fell into the other, and even more dangerous, extreme.

In France and Germany the Central Banks are entirely
free from any sectional or political coloK: an officer is appointed on the strength of his qualifications, generally after



THE NORTH AMERICAN REVIEW
a long training and gradually rising in rank; a director is
4

elected on account of his standing in the business world; all
irrespective of their political faith, and they will remain in
office according to their merits and independent of whether
the liberal or conservative party be in power.
In our country, with every untrained amateur a candidate

for any office, where friendship or help in a Presidential
campaign, financial or political, has always given a claim for

political preferment, where the bid for vOtes and public
favor is ever present in the politician's mind, where class

prejudice and antagonism between East and West and
North and South run high, in a country so different from

these European states, a direct Government management,
that is to say a political management, would prove fatal.
Moreover, in Europe the banks are not required to furnish
the capital of the Central Banks, nor are they obliged to keep
balances of such size as will be necessary with us, where the
banks and the Government will be the only depositors of the
Federal Reserve Banks. The banks, therefore, should be
satisfied that the administration will be carried on without
bias and upon sound business principles. There can be no

doubt but that, as drawn at present, with two cabinet

officers members of the Federal Reserve Board, and with
the vast powers vested in the latter, the Owen-Glass Bill

would bring about direct Government management.
The Owen-Glass Bill provides for the creation of twelve
Federal Reserve Banks as against the one National Reserve
Association, with fifteen branches, as proposed in the Aldrich
Bill. The National Reserve Association is theoretically the
simpler, sounder, and, in effect, the more efficient structure.
The freest possible return of idle cash into one large reservoir is best assured by a single organ, and its larger strength

and uniform policy render feasible the creation of a real
discount market and the performance of other functions,
such as accumulation or disposition of foreign bills, gold
transactions, etc., which are necessary for the safety of the
structure.

Moreover, as we shall see later, a single organ of vast
strength is in a position to solve in a more effectual way
the question of Government bonds and note issue. Messrs.
Owen and Glass were moved to adopt the Federal Reserve
Bank system, not only because Senator Aldrich had adopted

the other, but because the absolute centralization frightened


CURRENCY LEGISLATION

5

a great many who are afraid that in some way or other
"Wall Street " might secure the key to this great chest.
Although, in the writer's opinion, this apprehension was un-

warranted, still this fear existed and had to be taken into
account. Moreover, it was thought impossible to have one
discount-rate govern the whole country; and justly so.
In dividing the country into separate districts, each having
its own Federal Reserve Bank and its own rates, it was hoped
to counteract the danger of centralization of power and to
render each district independent of the other. It seems that
the framers of the law were in the beginning impressed with
the idea of creating from twenty-five to thirty such centers,
or even a larger number. The longer they dealt with this
question, however, the clearer it became to them that the
number had to be reduced and, furthermore, that some way

had to be found to co-ordinate these separate entities, or
rather to subordinate them under the domination of one
central power.

It is clear that, if a large number of separate Federal

Reserve Banks should be created without any such superimposed organ, instead of having a free back flow of idle
cash into one center, we should have competitive hoarding of gold at each central point. This would destroy the
basic principle of the plan, which is that the reserves of one
part of the country, where there would not be any seasonal
deinand, should be available for the other, where crops might

just be moving. Without a central organ the result would
have been that these independent and weak Federal Reserve

Banks would have had to depend on the strongest among
them for assistance. In other words, New York would have
become the center dictating the country's financial policy, instead of having it formulated and carried out by a body of
men from all parts of the country, as under the Aldrich plan.
It became apparent then : First, that the number had to be
reduced in order to make the units larger, and thereby more
independent; and, second, that it was necessary to co-ordinate these units under a Central Board. Thus the number
was reduced to fifteen, and later on to twelve, and the Federal Reserve Board was created. While these moves were

in the right direction, they did not go far enough, for the
proposition as it now stands is not as yet a practicable one.
Let us see how it would work.

As an illustration we shall assume that a Federal Re


!;

(30 6

THE NORTH AMERICAN REVIEW
serve Bank is established with the minimum capital,
permitted under the law, of $5,000,000 paid in, that is a
nominal capital of $10,000,000. This would presuppose a
paid-in capital of the banks constituting this Federal Reserve Bank of $50,000,000. Let us assume that the deposits

of these banks would amount to five or six times their
capital, that is, $250,000,000 to $300,000,000. Of these, 5 per

cent. would have to be paid in as balances with the Federal
Reserve Banks, that is $12,500,000 to $15,000,000. Of these
it should normally have no less than 66 2-3 per cent. in reserve, equal to $8,000,000 to $10,000,000, leaving about 10
per cent. of the capital of the constituent banks, or $4,500,000
to $5,000,000, as available in normal times, and an additional

10 per cent. for special demands; after which the limit of a
gold reserve of 33 1-3 per cent. would have been reached.
This illustration presupposes that the banks, having paid in
10 per cent. of their capital, would want to reimburse themselves by rediscounting an equal amount with the Federal
Reserve Bank, which means that the capital of the latter
would be normally invested. But assuming that the capital
would be uninvested, the total amount available for the accommodation of the constituent banks would even then be
only 30 per cent. of their capital.
This permits of several conclusions: it shows, first, that
while the Aldrich plan left entirely optional with the banks
the size of the balances to be kept with the National Reserve Association, permitting them to count both balance

and lawful money in their vaults as reserve, the Owen-

Glass Bill, while correctly stipulating a minimum balance

of 5 per cent. of the deposits, errs in setting at the

same time a minimum limit also for the amount of actual
cash to be kept in the vaults of the banks. From the
point of view of strengthening the Federal Reserve Banks,
and thereby the banks themselves, the balances with the
Federal Reserve Banks, that is their cash holdings, ought to
be increased as far as possible. The banks ought to hold
only as large or as small an amount of actual cash as they
actually need for their daily business, and all unnecessary
cash should be deposited with the Federal Reserve Banks.
Allowing for an ample supply of till-money, but leaving the

determination as to its size to the free judgment of the

banks, it is safe to estimate that the aggregate gold holdings


of the joint Federal Reserve Banks could be increased



CURRENCY LEGISLATION
7
by some $200,000,000. The joint loaning power would thereby be strengthened by twice that amount. In estimating
this increase it has been assumed that an amount equal to
at least 2 1-2 per cent. or 3 per cent. of the aggregate deposits could be safely counted upon. In our illustration this
would mean that about $7,500,000 would be added to the
funds of the Federal Reserve Bank, of which $2,500,000
normally, and a maximum of $5,000,000, would become avail-

able for the contributing banks ; which would increase the
total to 40 per cent. of their aggregate capital. The very
object of the law should be to reduce to the smallest possible
sum the amount of cash hoarded in the banks and to increase
to the largest possible size the concentrated reserves in the
Federal Reserve Banks. But it would be a mistake to attempt at this time to do more than to free and to consolidate the cash reserves, now wastefully impounded in the
banks. It would be inadvisable to add to these vast sums
substantial portions of the cash balances now kept with reserve agents as part of the legal reserves. These balances
are now actively employed by the Reserve and Central Reserve Banks ; if withdrawn from these banks and replaced
by actual cash in vaults, or by balances with the Federal Reserve Banks, the accommodation, heretofore granted to the
community by the Reserve and Central Reserve Banks, will
have to be provided by the Federal Reserve Banks. That is
to say: the regular business done by the banks will have been
taken away from them, and the Federal Reserve Banks, which

properly should act primarily as reserve institutions, providing the elasticity for extraordinary demands, will have
been forced into the normal business, from which they should
try to keep away.

Unless it be clearly understood by legislators and banks
that the Federal Reserve Banks must not be used in normal
times to finance the country to any substantial degree, the
latter will fail to serve their purpose, because their funds
would not be available when the real" pinch "came.
The balances with reserve agents should therefore be left
undisturbed to a certain extent, or if we are to break with the
old system of counting one bank's balance with another as a
cash reserve, on the ground that such balance really is not
cash, then we must concede that our system, as it stands today, implies a reserve of only 6 per cent. for country banks,
of 12 1-2 per cent. for Reserve City Banks, and of 25 per



11.

8

THE NORTH AMERICAN REVIEW

cent. for Central Reserve City Banks. It is with these actual
cash reserves that the nation's banking business has been
done, and, if properly organized, we can safely assume that
they would be sufficient. No other nation requires cash
accumulations or balances with Central Banks of such size.
If the new law eliminates these bank balances as reserves,

it ought to provide for a corresponding reduction of the reserve requirements ; not to the full measure of these bank
balances, because a certain degree of liquidity was assured
by the old system, but to a large extent.
It would appear entirely practicable to reduce the reserve

requirements of the country banks from 15 per cent. (of

which 6 per cent. were in vaults and 9 per cent. with reserve
agents) to, let us say, 10 per cent.; of the Reserve City Banks
from 25 per cent. (of which 12 1-2 per cent. were in vaults
and 12 1-2 per cent, with reserve agents) to 17 per cent.; and
of the Central Reserve City Banks from 25 per cent. to 20 per
cent.' The law should then provide that of these reserves
a balance of no less than 50 per cent. would have to be kept
with the Federal Reserve Banks. This would mean a mini-

mum of 5 per cent. for country banks, of 8 1-2 per cent.

for Reserve City Banks, and of 10 per cent. for Central Reserve City Banks. The writer has, however, no doubt that the
balances would in fact be much larger, because there would
not be any reason for the banks keeping more cash at home
than they actually need for their daily business. On the
other hand, the size of the balances generally kept by a bank
with the Federal Reserve Bankand thereby for the benefit
of the entire communitywould have some bearing on the
consideration which, in case of need, may be claimed from
the Board of the Federal Reserve Bank. But whether this
suggestion be adopted or not, there can be no doubt whatsoever that nothing can be gained by impounding an unduly
large amount of cash in the vaults of the individual banks, or
by unduly locking up their now free funds. If properly consolidated and organized, the present cash reserves ought to
prove sufficient; if linked together in an unsound and inefficient manner, the inclusion of the bank balances will not
avail. If, after a few years of active operation, it should be-

come necessary to increase the balances, the law can be

'Provided there are only a few Central Reserve cities; if there were
in requiring

more than four or six there would not be any justification

them
http://fraser.stlouisfed.org/ to keep reserves so much larger than the other cities.
Federal Reserve Bank of St. Louis

CURRENCY LEGISLATION

9

easily amended to that effect. But it is most important to
avoid all unnecessary convulsions at the beginning.
As the law is now framed our illustration has shown that

probably eight out of the twelve Federal Reserve Banks,
thrown back on their own power alone, would not be able to
provide the necessary facilities during seasonable or abnormal demands. The smaller the circle for each Federal Re-

serve Bank the more acute would be its embarrassment,
because the demands of its constituent banks will be simultaneous, the dominating industries of the region not being
sufficiently varied. The larger the circle of each Federal
Reserve Bank, the stronger must be its own intrinsic power.
But even with larger units than are provided by the OwenGlass Bill, the law would not achieve its purpose unless it

would ultimately bring about a market for bills and bank
acceptances and a free and natural interplay of reserves
between the various centers. The business normally done
by Central Banks must be only a fraction of the aggregate
discounting done by the general banks, banking firms, corporations, large and small, and in particular by foreign
banks and governments. When the cotton crop is to be
moved, not only the Southern Federal Reserve Bank or
Banks must provide their limited share, but the local banks
in those parts of the country where money is not in as strong
a demand during that season should be ready to buy Southern bills. In doing so they would rely on their own ability

to rediscount in turn their own short maturities with their
Federal Reserve Bank or depend upon the broad market for
discounts, in which they could, in case of necessity, resell
these bills with their own indorsement. Can such a market,
which is an absolute prerequisite for the safety of the entire
structure, be developed with a system of twelve Federal
Reserve Banks as now proposed? The answer is a most
unqualified " No !"
The basis of a discount market is confidence ; confidence in

its large absorbing power and in its reasonable rates. By
" reasonable " I mean to imply rates that can be foreseen
by" reasoning," by summing up all the natural influences,

and the extraordinary ones too,that may contribute to
shape money rates in a rising or falling direction. Both
these elements would be lacking under the Owen-Glass plan.
With twelve discount rates (even though a good many might
be generally the same), with twelve competing centers, with




10

THE NORTH AMERICAN REVIEW

twelve, conceivably, different discount policies, a large discount market cannot develop. A market develops where purchasers and sellers meet. Locally the majority of the small
finance centers will be purchasers ; but, as between the various centers, they will on balance almost invariably be sellers.

No open discount market will therefore develop in such
smaller centers. It could, however, develop in the large
centers like New York, Chicago, St. Louis, Boston, Philadelphia, etc., if it were not for the arbitrary powers vested
in the Federal Reserve Board.
If, at these large centers, the banks could rely on a natural development of the discount rates, they would not hesitate to invest freely in bills instead of keeping their working
reserves (not the legal ones) in" on call money "; but What

means have they to cast any reasonable prognostication
as to the course of such rates? The New York Federal
Reserve Bank's position may be very strong and the Federal
Reserve Banks at Boston and Chicago may be in an equally
good condition. Eastern banks might therefore be quite

willing to buy Southern paper at 5 1-2 per cent. while the
official Bank Rate of the Federal Reserve Bank at New York
presumably might be at 5 per cent. and that at New Orleans

at 6 per cent. But here comes the Federal Reserve Board
and issues its edicts that the Federal Reserve Banks of New
York rediscount $10,000,000 each from the Federal Reserve

Banks at New Orleans, Seattle, Kansas City, or, perhaps,
Denver, Salt Lake City, Minneapolis, or Duluth. To what extent these requirements will be made and on whom they will

be made, whether on New York, Chicago, or Boston, no
banker will be able to foretell, nor will anybody know to what
points the money may be directed. In the face of such conditions the call-money market will remain the stand-by of the

banks ; for they will not incur the risk of investing in discounts while the discount rate, instead of developing according to the natural free flow of credit and money, jumps
according to the whim of a largely political body. With an
election comingand an election is always coming in the
United Stateshow strong a probability is there that a demand from Seattle or Dallas (be they over-extended or not)
for money from the East will be refused? How strong a
probability is there, in the face of some political agitation,
that
 a depleted New York would receive money, even were

it its own, from the South or the Far West? And even



11
CURRENCY LEGISLATION
if the majority of the men constituting the Federal Reserve

Board were entirely free from political considerations
(which they cannot possibly be because some are political
officers and owe it to their party not to disregard the political aspect of the case), what training, what ability would
they command to pass upon these business and banking
questions so as to enable them actively to run the banking
business of the entire country? For not only is the discount
rate of each Federal Reserve Bank " subject to review " by the Federal Reserve Board; not only has this
Board the power of throwing the reserves from one part
of the country to any other part that it pleases ; but the
Board will fix at its own discretion the rate at which " Federal Reserve notes " will be " advanced " to the Federal
Reserve Banks. To this latter question we shall have to
revert later.
While it is true that, by the addition of the Federal advisory council, a very commendable improvement has been

made, because through it the Federal Board will have an
opportunity of at least learning facts concerning general
conditions which otherwise it could not possibly know
(though it remains entirely optional with the Federal Board
to act on these facts, or rather upon local or political press- ure) ; while it is true, furthermore, that the arbitrary powers
of _the Federal Board have been somewhat "toned down,"
none the less, the proper working of the entire system will
depend upon the wisdom with which the Federal Board exer-

cises its functions, in particular that of " permitting or, in
time of emergency, requiring Federal Reserve Banks to rediscount " paper of other Federal Reserve Banks.
It has been argued with great insistence that the Federal
Board should not be clothed with the power of " requiring
Federal Reserve Banks " to rediscount for each other; but
it is the weakness of the entire plan that without such power
lodged in some group of men the whole structure would
fall to the ground. With twelve Federal Reserve Banks the
permission to rediscount for each other is a theoretical option of which they would hardly ever avail themselves. If
the Federal Reserve Bank of New Orleans should happen to
have a bank rate of 6 per cent., against rates of 5 per cent.

in the majority of the other zones, and if the Federal Reserve Bank of New Orleans became crowded, facing the
necessity of increasing its rate to 7 or 8 per cent., what




o

THE NORTH AMERICAN REVIEW
would happen? Would New England or Pennsylvania or
Chicago or New York of their own accord apply for permission to grant a loan? If money should be plentiful in
these regions, the boards of these Federal Reserve Banks
would argue that their individual constituent banks should
take as much paper from the New Orleans banks as they
12

would think safe and good business, but they would not for
a moment consider it wise or incumbent upon themselves to

weaken the reserve power of their own Federal Reserve
Bank for the benefit of the New Orleans Federal Reserve

Bank, shouldering thereby a burden which would otherwise
fall on the remaining ten Federal Reserve Banks. In order
to avoid the semblance of a Central Bank, the structure has
been torn into twelve separate entities ; but as the majority
of these units are unable to stand alone, and as safety lies in
union only, there must be some arbitrary power to take the
place of the links that are missing in the structure. The
further decentralization has gone, where centralization is
the end to be sought, the vaster and the more arbitrary those
powers must be.
With twelve units, for the deliberation and co-operation

of which among each other the law does not contain any
provisionexcepting the advisory council, which may advise
the Federal Board but may not actthe initiative and executive power for any joint or individual action between these

Federal Reserve Banks must rest solely with the Federal
Board.

This is most unfortunate, because for these seven outsiders, who constitute the Federal Reserve Boardoutsiders
because, living in Washington, they all stand outside of ac-

tive business and they cannot possibly ever be in direct
touch with the sameit is a problem beyond any man's
power to decide wisely which of these twelve Federal Reserve Banks is to receive a rediscount and which of the remaining eleven, and in what proportions, shall grant the
same.'
The law provides "that the interest charge to the accommodated
bank (we take this to mean the accommodated Federal Reserve Bank)
shall be of not less than one nor greater than three percentum above
the higher of the rates prevailing in the districts immediately affected."
This must be a mistake. If New Orleans's "Bank Rate" is 7 per cent.,
 Federal Reserve Bank can only take discounts at the uniform rate of
its
http://fraser.stlouisfed.org/ cent.; why then should it sell its assets at 8 per cent. or 10 per
7 per
Federal Reserve Bank of St. Louis

13 ,)
CURRENCY LEGISLATION
There will, therefore, be no natural flow of reserve money,
nor any free flow of money, into these disconnected discount centers. Important open discount markets will not
develop ; because neither Europe nor the large American
banks will trust a system of this kind, which does not insure a sufficient mobility for commercial paper. Consequently the banks will not be enabled to dispense with their

present habit of keeping a substantial proportion of their
assets in loans " on call." For the sake of creating some

provincial centers, which will be centers only by name, and
which, standing alone, will not be able to provide the needed
relief, the efficiency of the whole system will have been sacrificed.

But while a system of twelve Federal Reserve Banks will
prove a failure, it will be well-nigh an impossibility to reduce

the number later on. It is difficult to withdraw privileges
once granted, even though their elimination would be of
general benefit. On the other hand, it would not be hard, at
any time, to increase the number, if this should prove advisable later on. Meanwhile, under a system of a small num-

ber of Federal Reserve Banks, discount markets would

have developed, and the nation would have an opportunity
of judging itself whether or not those were true prophets
who predicted that the " discount market " would remove
the concentration of money on the Stock Exchange, and
whether or not the fear of a "tyranny of credit " will survive under the new system.
There are further phases of this problem that we must
consider:
The Owen-Glass Bill contains elaborate provisions for the
development of bank acceptances and for dealing in foreign
exchange. Both provisions are most appropriate, for with-

out creating an effective machinery covering these two

items the law would not achieve its aims.
If we want to finance our own foreign trade, if we want to

establish a standard banking paper with a large market at
home and abroad, great pains must be taken to develop these
cent. in order to accommodate at 7 per cent. some banks, conceivably
those that have expanded too much? If the Federal Reserve Bank of
New Orleans can borrow only at 8 per cent., its bank rate should be not
only at least 8 per cent., but rather higher in order to keep down the expanding banks of the region and in order to draw money into the dry
district from other banks of the United States or Europe.




14

THE NORTH AMERICAN REVIEW

bank acceptances (not only those of subscribing banks, but
also of our private firms ; for the banks alone could not provide all the necessary facilities). The accepting bank receiving a commission of between 1-4 per cent. to 1-2 per cent.
for giving its three months' acceptance, the discount rate for

bank acceptances will have to be about 1 per cent. to 1 1-2
per cent. lower than the rate for single-named promissory
notes. Though it would be better business for the Federal
Reserve Banks to buy 45-days paper at, let us say, 5 1-2 per
cent., they will have to make it a point to have a private discount rate for bank acceptances of, let' us say, 4 per cent.
This private discount rate must meet the English, French,

and German rates in the world's market, and, unless the
Federal Reserve Banks make special efforts to make the

American rate reasonably low, no American bank acceptance

will take the place of the European ones, no matter hoW
many foreign banks may be established under the American
flag.

Which of the twelve Federal Reserve Banks is to carry
this burden? They all will want to earn their 5 per cent., for
which the margin does not appear to be very large as the bill
is drawn at present, and they all will strive to make the surplus earnings beyond 5 per cent. as large as possible, since
they are to receive 40 per cent. of such excess. There are
several reasons, however, why the 5 per cent. dividend is not
as amply assured as it was under the Aldrich plan : (1) under the latter plan, the Treasury money was deposited free
of interest, while under the Owen-Glass Bill interests are to
be allowed to the Treasury; (2) under the Aldrich plan the
profit on over $700,000,000 National Bank notes, which were
to be assumed by the National Reserve Association, and the
profit on any further note issue, was to go to the National
Reserve Association. Under the Owen-Glass Bill the Federal Reserve Banks will have to pay interest on the notes to
the Government, so that it may not be sure that any profit
will be derived by them from this source. While the Na-

tional Reserve Association's profit was limited to 5 per
cent., the balance going to the Government, the margin
was so large that all transactions which were to be
done, for the public welfare, with small profit or even
at a loss, could be carried out without encroaching on

It is a fair question whether,
in view of these conditions and considering the vast
the 5-per-cent. dividend.




CURRENCY LEGISLATION

150

powers of the Federal Reserve Board to interfere with
the profits of the Federal Reserve Banks, the Government should not guarantee a minimum return to the stock-

holding banks,let us say 4 per cent. as maximum and

minimum,and permit the banks to dispose of their stockholdings at their pleasure, selling the stocks to them above

par, and using the premium for the establishment of a

surplus fund.'
If we review our considerations at this point, we find that
the result of the division of the country into twelve Federal
Reserve Banks, under the Owen-Glass plan, would be the destruction of a reliable and strong discount market, the weakening of the reserve power of the country, the undoing of the
hope of developing on a broad basis the American bank acceptance, and the sacrificing of a strong and efficient foreignexchange and gold policy. On the other hand, while all these

advantages of a frank centralization have been lost, the
Owen-Glass plan cannot avoid the same degree of centraliza-

tion which, however, it brings about by conferring autocratic powers upon a small group of men. And because the
technical decentralization into twelve units has gone too far,
the individual powers, which are to take the place of the wellknit links of a single organization, must necessarily be too
far-reaching. They become a danger to the whole structure
and, at the same time, to those who are to be the responsible
officers of the Federal Reserve Board.
The remedy is a simple one. If the framers of the OwenGlass Bill, continuing in the same direction in which they
have moved up to the present, will further reduce the number of the reserve centers, the very serious objections to the
present law may easily be eliminated.
In the writer's opinion a system of four Federal Reserve
'The plan of permitting the Federal Reserve Banks to participate in
any profit secured in excess of 5 per cent. does not appear to be sound.
It would act as a stimulus toward activity and money-making, where the
main duty of these Federal Reserve Banks must be conservatism, and a
strong tendency to remain in reserve without any consideration of sacrifice of profits.
It would be better to allow the stockholders a return of 5 1-2 per cent.
or 6 per cent., under a liberal system that would permit them to earn
this dividend even with the greatest conservatism, than to permit them
a share in the excess profits under a narrow system that would rather
force them to do business in order to be quite sure of even their 5-percent. dividend.



0 16

THE NORTH AMERICAN REVIEW
Banks, with centers at New York, Chicago, St. Louis, and
San Francisco, with a Federal Reserve Board at Washington, would under the circumstances form the best possible
solution. If it be objected that by such a division New York,

which would include New England, would become too
strong, a system of six Federal Reserve Banks would still
be practicable, though less safe and efficient. Any larger
number the writer strongly believes to be pernicious. It
may be well to bear in mind that with any further increase
in number of the Federal Reserve Banks, New York's

weight could not be much reduced, and the larger the number of the Federal Reserve Banks, the more acute will become the disproportion of New York's power as compared
with that of the other centers.
Let us contemplate now how a system of four or six Federal Reserve Banks will meet the various difficulties that
we have discussed. For simplicity's sake we shall discuss a
system of four Federal Reserve Banks, but if six should be
decided upon, the argument, though weakened, will still remain the same.
. A system of four Federal Reserve Banks would offer to the
people a guarantee that New York could not in any way have
any direct influence upon the management of the banks in
the other parts of the country. (The New York Federal
Reserve Bank would embrace New England, New York, New
Jersey, Pennsylvania, Delaware, Maryland.) The country
would be as safe in this respect as it would be under a system of twelve Reserve Banks. On the other hand, what have
we gained? The accumulations of reserve money would be
so strong in each of the four centers that a sectional, seasonable demand could he readily taken care of; all the more because with four large units, four powerful administrations
with a distinct and strong policy, important discount markets will develop. We should then have a real concentration
of reserves and a real mobilization of credit. As to bank acceptances, foreign exchange, government bonds and note
issue, these four Reserve Banks could agree upon a joint
handling of these (perhaps for a joint account to be based
upon the capital of each Federal Reserve Bank). Four large
concerns will be able to agree upon a disinterested policy;

twelve local Federal Banks, with unequal powers, and
naturally more selfish interests, never will. The idea
prevails among some critics, that twelve centers will




410.%

CURRENCY LEGISLATION

17 00

take better and fairer care of the country than four.
This idea is unfounded. The reverse is the case. The
question of the branches of the National Reserve Asso-

ciation and of the Federal Reserve Banks has, in the
writer's opinion, never been sufficiently considered in detail.
If a free system of transfers from one part of the country to
the other is to be established, if balances with Federal Re-

serve Banks are quickly and easily to be created and used
for the purpose of clearing, then all important cities must
have branches and all minor cities must at least be within
easy reach of a branch. It will be impossible to establish an
effective system of transfers of balances with twelve zones,
within the boundaries of each of which the easy transfer
would remain confined. There are between sixty and seventy
cities now that are entitled to branches, or where branches
are necessary to cover certain sections. Let us take cities
like Cincinnati, Cleveland, Toledo, Columbus, Indianapolis,
Detroit, Milwaukee, Minneapolis, St. Paul, Duluth, etc. They

all would be entitled to branches, and they all could be
branches of Chicago. If we were to pick out one of these
and make it a Federal Reserve Bank, the others, almost equal
in importance or possibly superior, would fare poorly by be-

coming tributary to, and dependent on, an organization
weaker than Chicago. But this must happen with twelve

centers. Moreover, it is hard to imagine that a Federal Reserve City should not become a Central Reserve City. To
create twelve Central Reserve Cities would defeat the very
idea of Central Reserve Cities ; we need not enlarge upon that

thought,but with twelve Federal Reserve Cities we could
hardly escape that necessity. By adding San Francisco to
the list of the existing three Central Reserve Cities the question might be solved without difficulty with a system of four
centers.'
1 With four Federal Reserve Banks one could imagine that each

Federal Reserve Bank city would become a Central Reserve City, each
city where there would be a branch (and only those) would become a
Reserve City. If the accumulation of reserve money with reserve agents
is to cease, the main motive in the determination of Central Reserve
and Reserve Cities will have been eliminated. On the other hand, the
position occupied by a city in the organization of the Federal Reserve

Banks will become a very important factor, and inasmuch as there
will be a certain concentration of business wherever there will be a
branch or a head office, it may be logical to require banks in these
centers to contribute in a more substantial degree to the reserves of




THE NORTH AMERICAN REVIEW
If six centers must be created, we must suppose that
New Orleans and some other city, presumably Boston,
18

would

have to be added.

(But,

again, the

South,

grouped around New Orleans, will be less efficiently pro-

vided for than by grouping a larger Southeast around
St. Louis. Even New Orleans itself would fare better
as an important branch than as a comparatively weak
Federal Reserve Bank.) In other words,to use again our

old metaphor, often employed in the last six years,in order to procure fire protection for the entire community we
must provide faucets in as many places as we possibly
can (i.e., the branches), but we must concentrate the water
so that we may have enough for any emergency. If we
cannot concentrate all the water into one central reservoir,
let us at least see to it that there will be only a few and
large ones. Small reservoirs will quickly run dry, thereby
creating consternation, and any other small reservoir, that
may be drawn upon, will quickly show the effect, again
causing anxiety and, as a consequence, an increased demand.

Large reservoirs can stand a drain without an alarming
drop of the gage and, if interconnected, they can assist one
another without much sacrifice and without creating any
convulsion or alarm. Twelve interconnected reservoirs
would be a complicated system, inefficient in its results and
to be handled only in the most arbitrary and haphazard way.
.To insist on a large number of Federal Reserve Banks
because, it is argued, reserves ought to be kept where they
originate, is a selfish and narrow doctrine. For some charitable minds it may be a comfortable feeling of safety to
see their neighbor's house burn down and to shut off from
him their own water-supply. But when their own house

happens to be on fire they may find some fault with
such a system. Moreover, with the key in the hands of a

board appointed by the President, they should be able to
overcome this provincial point of view.
As to the organization of the four Fede-fal Reserve Banks

and the Federal Reserve Board, it would not be difficult,
while preserving a similar machinery as now proposed in
the Owen-Glass Bill, to begin by organizing the branch
boards, which would be responsible to, and under the control of, the boards of the Federal Reserve Banks. The latthe nation than the other banks which in the future would constitute
the "country banks."



CURRENCY LEGISLATION

19

ter would be constituted from members of the branches,
and some members would be appointed by the Federal Reserve Board. Each branch would have a manager to be

appointed by the Board of the Federal Reserve Bank.

Each Federal Reserve Bank would have a governor to be
appointed by the President, from lists to be submitted

to him by the Board of the Federal Reserve Banks,

which lists the President might return, asking for a new
set of names. These Governors would be first-class,
expert men, who should receive large salaries in order to
render them independent and in order to make the position
an attractive one for men of the strongest caliber. The Federal Reserve Board should consist of these four governors,
three additional members to be appointed by the President,
and to these should be added the Governor-General to be
appointed by the President in consultation with a committee
consisting of delegates from the Federal Reserve Banks. It
should not be difficult upon a basis of this kind to agree upon

a constitution of the Federal Board satisfactory both to

Congress and to the business community. The Secretary of
the Treasury and the Comptroller of the Currency ought to
be members of a Board of Supervision.

With units so large and a Federal Reserve Board thus

constituted the powers of the latter may remain almost unchanged; but it is submitted, that it may not be necessary to
destroy the independent character of each Federal Reserve
Bank by making it obligatory for them to rediscount for each
other at the request of the Federal Board. If there be only
four Federal Reserve Banks, the heads of which are members of the Federal Reserve Board, at which they would
meet one another, they may be relied upon to stand by one
another of their own free willin particular if they have to
deal jointly with Government bonds, bank acceptances, foreign exchange, and note issueand the law may be easily
amended in case they should not.
In the writer's opinion Cabinet Members should not be
members of the active board. It would be safer both for
these officers and for the country if men whom duty toward
their party compels not to neglect the political aspect of
each ease should be kept away from this post. Moreover,
Secretaries resign, or, in the course of events, they change,
whereas it is most important that the members of the Federal Reserve Board should gradually become experts like



THE NORTH AMERICAN REVIEW
the members of the Interstate Commerce Commission.
There are no Cabinet Members on this latter commission,
20

nor are there any on the Supreme Court, with both of which
the Federal Reserve Board has been compared. Inasmuch

as the Democratic party appears to have set its mind on

exclusive Government control, the writer's proposition, as
above outlined, bears fully in mind this prerequisite even
though he may consider it extreme. The plan as here pro-

posed would not allow a single member on the Federal
Board not appointed by the President, none the less, but it
would gain the confidence of the business community and
overcome its objections, because the four Governors of the
Federal Reserve Banks, who would be thoroughly familiar
with actual banking and business conditions in their respective zones, would have an opportunity and duty frequently
to confer with one another, and would have an important
voice in the shaping of the policies of the Federal Reserve
Board. The remaining three members would be free from
any political pressure. The Democratic party's principles
would have been fully respected, and yet grave dangers
and defects would be avoided.

But, no matter what conclusion may be reached in this
respect, and what form the Federal Board may take, the
dangers and iniquities of Government management would
materially be reduced by the establishment of only four Federal Reserve Banks The more the Federal Board is called

upon to deal only with composite bodiesthat is, a number
of varied elements massed togetherthe more it is protected
from political pressure. The local demand would address
itself to the Federal Reserve Banks ; the Federal Reserve
Board at Washington would only deal with questions of

policy, applying to groups that would be so large that
the divergent interests of the various component parts

would in themselves eliminate any provincial color, helping the Federal Board to deal with its problems, without

fear or favor, in an absolutely statesmanlike, unbiased
way.

A structure of this Rind would have the advantage, as
against the Monetary Commission plan, that, while there
would be among the four Reserve Banks one policy of expansion or of contraction, they could each adapt their rate
to their own conditions, as against the uniform discount rate
for all the country proposed in the Monetary Commission




21
CURRENCY LEGISLATION
plan. The Federal Board might even have power to permit
a Federal Reserve Bank to establish a higher rate for a

single branch, when it would appear necessary to curtail a
particular over-expanding branch or community, without
wanting to affect by a higher rate the entire zone of the
Federal Reserve Bank.
A structure of four (or six) Federal Reserve Banks would
offer the greatest advantage in dealing with the Government
2-per-cent. bonds and the note issue. With both of these
features the Owen-Glass Bill deals in a most unsatisfactory
way.

In the first place our currency is already redundant and

we would begin with the existing maximum as the minimum,

because National Bank Currency, based on Government
bonds, does not materially contract. We would provide for
a possible increase of $500,000,000, though this limit has now
been removed by law, but for a decrease only of $35,000,000

for the first year. The entire National Bank Currency
ought to be converted into elastic currency from the begin-

ning. What do we gain by spreading this conversion of
bonds and notes over twenty years? There is every argument for a prompt conversion.

The present proposition is unsatisfactory for both the

Government and the banks. If we consider that within the
last twenty years English, French, and German Government
bonds have gone down about 20 per cent., anybody would

be a bold man who would dare to foretell at what price

United States Government 3-per-cent. bonds will sell within
the next twenty years. If the United States should embark
upon any national enterprise which would entail a material
issue of bonds, the price certainly would go down. Should
United States 3-per-cent. bonds sell below par, the National
Banks would, of course, not convert. The National Bank
note issue, in that case, would remain outstanding for twenty
years, when the United States would have to sell a 3 1-2-percent. or possibly a 4-per-cent. issue to take the place of the
old 2-per-cent. bonds. The present proposition, then, gives

the option to the National Banks to convert in case the
3-per-cent. United States bonds sell above par, while, if they

sell below, the United States will have to take the loss.

This is a poor proposition for the Government; on the other
hand, it is the minimnm that, in fairness, could be offered
to the National Banks.



4.1j

1=0,C 22

THE NORTH AMERICAN REVIEW

The Aldrich plan proceeded on correct lines in converting
the 2-per-cent. bonds all at once and in assuming the entire
National Bank note issue. It went astray when it provided
that these bonds were to be kept from the market for five
years and were to be sold only at the rate of $50,000,000 per
year after that period. This meant that the National Reserve Association, having assumed over $700,000,000 on-demand obligations, would have had its hands tied if it had

been called upon to protect these liabilitiesan unsound
position.
The problem is not an easy one. If we imagine that after

twenty years the National Banks would have disposed of all
their bonds to the public, we must expect that, on the other
hand, at that period there will be required at least the same
amount of circulation as we have to-day (and more according
to the increase in population). That means that Federal Reserve Currency will have been permanently substituted for
National Bank Currency, let us say to the extent of $700,000,000 to $800,000,000. But currency cannot be issued without
something having been given in return for it, which means
again that, inasmuch as the Federal Reserve Banks would
not own any Government bonds against these outstanding

notes, they must have other assets to that extentthat

is, mainly, commercial paper. It follows that, in addition to
their own capital and part of their deposits, the Federal Reserve Banks would have permanently invested about $800,000,000 in commercial paper, and to this we would then have

to add the extraordinary and seasonal demands for which
$500,000,000 were estimated to be issued, a total of about
$1,300,000,000 to $1,500,000,000. This would not be a healthy

condition, for normally the Federal Reserve Banks should
not be so deep in business, they should become such heavy
investors in commercial paper only in times of active demand. It would therefore be desirable to find a way of investing several hundreds of millions of dollars otherwise
than in commercial paper, provided that these assets would
be safe and quickly salable. It is from this point of view
that the following suggestion is made.
Let the four Federal Reserve Banks jointly assume the
National Bank note issue and let them take over jointly, in
proportion to their respective capitals, the 2-per-cent. Government bonds. Let the Government convert half of the

http://fraser.stlouisfed.org/
amount so taken over into 3-per-cent. 20-year bonds, the
Federal Reserve Bank of St. Louis

CURRENCY LEGISLATION
23
other half into one-year 3-per-cent. Treasury notes of the
United States. As long as their charters last the Federal
Reserve Banks would jointly bind themselves, whenever
these one-year notes would mature, to buy at par the same
amount of new one-year 3-per-cent. Treasury notes. The
advantage of this plan is obvious. For the United States it
is indifferent whether they issue a twenty-year bond or a oneyear bond the renewal of which at par has been guaranteed
for twenty years. But the position of the Federal Reserve
Banks would be immensely strengthened thereby. For, in
case the Federal Reserve Banks found themselves in a situation where they wanted to strengthen their position or create
a balance in foreign countries, they could at once sell these

short Treasury notes, if not on a 3-per-cent. basis, let
us say, even on a 6-per-cent. basis. In serious times
the loss incurred would not weigh heavily, because
money at home would then be in strong demand and
bring more than that rate. By such a sale the price
for the long-term Government bonds would not be affected in anxious times, when these could only be forced
on the market at great sacrifice and at the risk of tearing
down the price of all other securities. On the other hand,
these United States one-year Treasury notes,which might
be issued so as to mature half in January and half in July
would be a quick asset, a most suitable investment for the
Federal Reserve Banks. With $350,000,000 of such an investment it might be quite safe to preserve the holding of the
remaining $350,000,000 in twenty-year bonds. If it should
be found that the available liquid means of the Federal Reserve Banks should be permanently increased, it can safely
be left in the hands of the Federal Board to dispose of them

gradually in favorable times and in quantities that the

market will readily absorb.
While the Government, in following this suggestion, would
continue to run the risk of having to renew the 3-per-cent.
bonds at their maturity on possibly a 3 1-2-per-cent. or 4-percent. basis, it would on the other hand preserve its chance of
securing the advantage of a sale of the 3-per-cent. bonds
above par, in case the investment market should take a favorable turn. It would not grant a one-sided option. Furthermore, the profit on the circulation would from the beginning
be received by the Federal Reserve Banksthat is to say by

the Governmentand the earnings of these Federal Re


-- 24
THE NORTH AMERICAN REVIEW
serve Banks would show an ample margin over and above
5 per cent., the importance of which we have already emphasized.

This presupposes that sound counsel will prevail, and that,
in the face of the emphatic protest coming from all parts of
the country, the framers of the Owen-Glass Bill will ultimately abandon their intention of !,etting the Government
issue the new notes. One need not be a prophet in order to
be able to foretell that this heresy will have the same fate
as the 16-to-1 silver standard and the guarantee-of-deposit
plan, and that after a few years people will wonder how they
could ever have considered seriously so absolutely unsound
a theory.

Though, as against its original form, Section 17 of the

bill has been materially improved, it still remains a

puzzle to the writer how, in practice and in theory, it will
work out in any satisfactory way. Is there to be a uniform
rate for the " advances " of these Federal Reserve notes?
Or will the Government undertake to discriminate between
various parts of the country? Is this rate to be different
from the bank rate in the Federal Reserve districts?
Neither the constituent banks nor the Federal Reserve
Banks, when granting accommodations, can know whether
the ultimate customers will use this book-credit for the payment of book-debits (that is, by check), or whether it will be
employed to discharge debts that cannot be paid by checks,
and whether, consequently, notes will be required. Notes
that have been issued to-day may again be turned into bookcredits to-morrow. They are interchangeable, and, from the

Federal Reserve Bank's point of view, they ought to be

treated alike, both as deposit liabilities. To cut these functions in two, to attempt to let the book-credit and the note
twin brothersbe born by two different mothers, is a most
anomalous proceeding. But, we must ask, how would it be
possible at all for the Federal Reserve Banks to act boldly
and comprehensively with their problems, if they cannot
rely on being able to provide circulation as long as they are
within the limits of the law concerning their cash reserves
and collateral? While it is inconceivable that the Federal
Board should ever refuse to grant an advance to a Federal
Reserve Bank in sound condition, still this arbitrary power
given to the board would be a menace, and an unnecessary
source of weakness, to the whole structure. Moreover, is



25
CURRENCY LEGISLATION
it at all reasonable that a Federal Reserve Bank should not
be in a position to figure what its investments in discounts
will return? To illustrate : If a Federal Reserve Bank buys
from the Sixth National Bank $100,000 of 60 days' paper at
6 per cent., and the latter draws a check against this redis-

count, the Federal Reserve Bank nets 6 per cent. If the

Sixth National Bank, or its customer, should draw $100,000
in notes, and if the Federal Board should charge 6 per cent.
for " advances," the Federal Reserve Bank would not receive any return at all from the investment. Why punish the
Federal Reserve Bank, and indirectly the people, for issuing
a legitimate amount of circulation? If the Federal Reserve
Bank's earnings above the 5-per-cent. dividend are well assured, the amount charged for the advances will be put from
one pocket of the United States Government into the other.'
If there should be any doubt as to this 5-per-cent. dividend,
would it not stand to reason that the Federal Reserve Bank,
if it had ample cash reserves, would rather pay out its law-

ful money than pay for the costly " advance " of Federal

Reserve notes? This is, of course, the very last thing the
Government ought to encourage, but we can hardly see how
this consequence can be escaped under the law as drawn at
present.

But these " advances," when carefully analyzed, are
nothing but a myth. Sooner or later, but within twenty

years, under the Owen-Glass Bill, there will be outstanding
$700,000,000 of Federal Reserve notes (which will have replaced the National Bank notes), and in addition such notes
as will have to be issued to take care of extraordinary demands, together, let us say, between $1,000,000,000 and $1,200,000,000. Against these notes "which will be the obligation of the United States," the United States will have no
assets of their own whatsoever. The Treasury balances, of
about $100,000,000, are to serve for certain specified obligations of the Government, and are neither available nor suffi'As a question of revenue to the Government a tax on note issue is
superfluous when the excess earnings go to the Government. If the
tax is created for the purpose of acting as a sentimental check on overexpansionunnecessary, because an effective one is being applied by

the bank ratesit ought to be based on "liabilities" (comprising deposits and notes issued) and gold cover. But, in a country in which the
it would be impracticable

deposit-and-check system is so highly developed,

to apply the brake on the note issue alone.


THE NORTH AMERICAN REVIEW
cient for the purpose of securing these Federal Reserve
notes. The Government relies absolutely on the Federal
Reserve Banks to pay these notes when presented. It has
26

no money to advance to these Federal Reserve Banks and it
has no money to pay the Federal Reserve notes when pre-

sented. As long as the note is in circulation, the Government kindly grants the " advance "; as soon as the note is
presented for payment, the Federal Reserve Banks have to
cash it. In other words, if we thread our way through this
bewildering maze, it is not the Government that gives the
advance, but the public which holds the notes that grants
the credit. In other words, it is not the United States
upon whom rests the primary obligation, but the Federal
Reserve Banks. The United States are the guarantors of
the notes, which the Treasury would be called upon to pay
only after the Federal Reserve Banks are in default.
Why then not put it into a clear form? Why not let the
Federal Board at Washington issue these notesunder the
supervision of the Treasuryfor the joint account and as
the primary and joint obligation of the Federal Banks, the
United States, in consideration of the profits to be received
and against collateral, as proposed in the Owen-Glass Bill,
guaranteeing the notes? It is this the writer makes bold
earnestly to recommend. The status of both the Government and the Federal Banks would thereby become clear.'
Under the Owen-Glass Bill the Federal Reserve Banks
set aside a gold reserve for notes which they have not issued

and which do not appear as their liability. The United
States Government, on the other band, is to issue up to
$1,200,000,000 of notes, and against these no gold cover would

appear on their statement ; but as a cover they would show
only the indebtedness of the Federal Reserve Banks. There
is not sufficient differentiation between contingent and direct
liabilities and contingent and direct assets. The Federal Reserve Banks are asked to assume practically the direct obligation for a contingent liability, and the United States figure
a contingent asset as a direct asset. The writer proposes
to put direct assets and obligations into the same balancesheet, and the contingent assets into the same balance-sheet
with the contingent obligations.
1 The guarantee by the United States is not a necessity; the notes
would be good enough without the same; but

it would appear wise to follow this course.


as a matter of expediency

CURRENCY LEGISLATION
27
This is not a question of bookkeeping only, it has a most
vital bearing upon the question of direct responsibility or
contingent responsibility in the management of the Federal
Reserve Banks. If the United States issued the notes as
their primary obligation, if the Federal Reserve Board fixed
any interest rates for these advances, the Government would
establish a direct connection and direct responsibility which,

as we have shown, it is most important to avoid. If the
method suggested by the writer be followed, any political
pressure addressed to Congress or to the Executive for a
lowering or raising of rates, a freer or less supply of facili-

ties, in any particular part of the country, would be promptly turned off by the statement that while the Government
undertakes the responsibility for supervision, for installing
an efficient and honest management, it could not have any
direct influence upon the business of the Federal Reserve
Board or the Federal Reserve Banks.

It is the world's acknowledged theory and practice to
keep the obligations of the Central Banks distinct from
those of the Government. It would lead too far to present
a full argument showing the advantages of the semi-official
Central Bank over a direct Government organ. It may suffice here to refer to the gold loans granted in critical times
by the Banque de France to the Bank of England, a transaction that in 1907 we should have been only too glad to

bring about for the United States, but could not achieve

because there were no modern American bills and no central
organization. A semi-official organ can bring about a transaction of such kind, which would be hardly compatible with
the dignity and the duties of a Government. This is another
reason for keeping the Government in a " contingent position," but not in the first line of battle.

History has shown that the Banque de France survived

when the Government of France went to pieces ; it remained
unchanged whether France became an Empire, Commune,
or Republic. History has shown that by keeping the Central
Banks and the Governments separate entities, they become
mutual supports. The Government is a customer of a Central Bank; at times its largest depositor, at times its heaviest borrower. The Government's credit strengthens the
Central Bank, the Central Bank strengthens the credit and
power of the Government. Where Government credit and
bank credit have been mixed up, the consequence has been



THE NORTH AMERICAN REVIEW
to weaken both. Are the United States, under the Presidency of a man of science, going to throw this universal
experience to the wind 71 The friends of the present administration, and any good citizen, for that matter, cannot
too earnestly warn it not to insist on any extreme measure
28

that would antagonize wide circles of business men and the
very element through the agency of which alone the benefits of the law can accrue to the people of the United States.
While technical parts of the measure will have to be amended as the country develops, it will prove the greatest curse
for the nation if the fundamental structure should not become a permanent one. Extreme party policy now applied
will bring extreme revision whenever the Democratic party
should happen to again become the minority party; and the
Federal Reserve Bank, instead of being a rock standing unmoved and unshaken by the waves of party strife, will become its very plaything, a fate to be avoided at all hazards.We cannot set business free by tying it in turn to the chariot
of every conquering party. Wise moderation alone will
insure the safety and the continuity which are the basis of
prosperity.
It is sincerely hoped that amendments on lines as here
submitted will be adopted. As the bill stands to-day it is
vastly inferior to the plan ultimately submitted by the Monetary Commission. In its present form the Owen-Glass Bill
is fraught with serious dangers, and it would not be able
to bring about those remedies and benefits that the country
is entitled to expect.
The suggestions made in this article take into full account
the political requirements of the problem.

A reduction of the number of Federal Reserve Banks
from twelve to four would not violate any principle. The
demand for Government control would be carefully com-

plied with, and the notes would remain " obligations of
the United States," with the difference only that they
would express what in essence they are under the law,

and that interest charges for " advances " would be
eliminated.

In dealing with the 2-per-cent. Government bonds as here
proposed, no principle would be involved at all, but the pracWe cannot dwell here upon the harm and danger that would follow
will militate

the
 watering of the United States gold currency, which
against
http://fraser.stlouisfed.org/ our securities and our "discount market."
Federal Reserve Bank of St. Louis

29
CURRENCY LEGISLATION
tical importance of this change for the safety of the entire
structure cannot be overestimated.
Amended on these lines, the writer feels confident that the

law, though not ideal, will redound to the benefit of the
nation and be a credit to the party under the auspices of
which it was created.
The writer deems it wise not to burden this article with a

discussion of a number of questions of a more technical
nature, preferring at this time to center attention on the
main points at issue.
He hopes that it may not be considered a presumption on
his part, if, from Europe, after an absence of several months,
and out of touch with the general discussion now taking place
upon the subject, he ventures to make these suggestions.
But the active interest which he has taken in developing
the ideas, on the main lines of which legislation is now pro-.

posed, may, he trusts, justify his effort to point out some
pitfalls which may prove fatal and which can easily be
avoided.




Xglaxi-nY7emea?,e/c7/1,e,54,
KUHN, LOEB 8, CO.

V

4er-e

0

z%Nov ember

3rd.-Q/ 3

AL/1r,
tiuil

5 1913

Dear Mr. Strong:-

I have received your letter this morning, and I consider it almost a joke to receive a letter from you, emphasizing your

position of

loyalty to your Government and its institutions, and up-

braiding me as favoring the issue of "fiat" money.

It would lead too

far to enter upon a controversy in writing upon this subject, but all
I want to say is this

I do not believe that any one in this country

has given more time, thought and energy to this fight for sound money

than I

have, and as you may have noticed from my

pamphlet, I

am as

heartily opposed as you are to the issuance of elastic currency by
the Government.

There is a great difference, however, between a

guaranty and a direct issue.

Nobody would call the notes of the

German Reichsbank "fiat" money, if the German Government would decide
to-morrow, that it wanted to guarantee those notes.

I agree with you,

and I think I made that clear enough in my pamphlet, that all direct
connection between the Government and the banking business is undesirable, but you must not go to extremes and call "fiat" money what is
not "fiat" money.
sition.




By overdoing the matter, we simply weaken our po-

I have always believed that in order to secure legislation to

the United States, we would have to concede a guaranty by the Government of the Notes, and I even expressed this in my pamphlet, which
was published, I believe, in 1910 or 1911, before the Aldrich Plan
was published, and before the Owen Glass discussion began,

SO I

have

not givenway, as you appear to think, but, in this respect, I simply
stand where I stood long before the question became acute.
Before I sailed for Europe, we sometimes had the good habit
of lunching together.

How would it be if we solved the question of

fluidity and very liouid assets, by taking a cocktail together, this
or next. week.

With kindest regards, I am,
Very sincerely yours,
L_Ct_

Benjamin Strong, Jr. Esci.

of Bankers Trust Company,

#16 Wall Street, C i t y.
L.




3

/p-

,d(arri-gwei,*eyX4.
KUHN, LOEB & CO.

_,41/lay

4

11th.

40/1

my dear ',Tr. Strong:-

Thank you very much for sending
me copy of Mr. Harding's letter, which I

',,

was delighted to read.

Iugures well
--.,

for the future of the P'ederal Reserve _
-,
Board .04,../-

p?,4/4.

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

1,40.2 ....,( 4.tr te-14112261c4;)-to
Gra e u ly yours,

Benjamin Strong, Jr. Esq.
C/o Bankers Trust Company,
#16 Wall Street, C i t y.

L.




fet.4

FEDERAL RESERVE BOARD
WAS H I N GTO N

11152 (;)

August 12, 1914.

Dear Mr. Strong:

Your secretary sent me an extract from a memorandum
which you and Mr. Kent prepared in regard to the Owen-Glass
Bill.

I need not tell you that I agree absolutely with your
views and always have shared the same.

You are familiar,

however, with the political reasons that brought about the
unfortunate results.

possible

I do not know whether it would be

to get though Congress at this early stage of

the game an amendment as radical as would be necessary to
bring about the/changes you have in mind.
With kindist regards,

Very sin

Benjamin Strong, Jr., Esq.,
16 Wall Street, New York.




rely yours,

IMINOW

UNION

WESTEL
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Form 2138

WESTERNUNION-

GEORGE W. E. ATKINS. VICE-PRESIDENT

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NEWCOMB CARLTON, PRESIDENT

BELVIDERE BROOKS, VICE-PRESIDENT

DELIVERED FROM

RECEIVED AT 24 WALKER STREET, NEW YORK CITY

ASit INGTON DC
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BANKERS.TRUST.CO NEWYORK

AUG 26 1'

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TELEGRAM IT. IS A BODY.BLOW.THE WORST I HAVE RECEIVED

PAUL M WARBURG




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.ASHIGTON

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JR,

CARE BANKERS TRUST CO.,
14 WALL ST NEWYORK.

TAND SLGRETARY WILL SEE YOU
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NINE OGLOCK AT HIS HOUSE.

AM ENGAGED WEDNESDAY NIGHT BUT AN', LOOKING FORWARD

ANG YOU THURSDAY'' MORNING EARLY.KINDEST REWDS.




PAUL M.WARBURG:4'.305fiM.

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Directors

August Belmont, Jr.
D. J. Carroll
August Belmont
Geo. M. Hard
P. S. DuPont
S. S. Childs
Dunne
A. A. Tilney
H. Gary
S. H. Steele
R. Lawrence
P. W. Herrick
R. H. Higgins
H. F. Shoemaker
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F. J. Heaney

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L. Crawford
G. Fessenden
E. Loomis
J. D. Vermeule
W. H. Marshall
L. G. Kaufman
J. Ringling
Samuel Weil
Shearson
C. A. Starbuck
D. Underwood
E. P. Earle
J. M. Hansen
0. Scherer.

UNION
TEL107-. AM

Form 2138

ESTE4i8SN

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WESTERN UNION

GEORGE W. E. ATKINS, VICE-PRESIDENT

NEWCOMB CARLTON, PRESIDENT

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BELVIDERE BROOKS, VICE-PRESIDENT

DELIVERED FROM

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BENJ STRONG JR
BANKERS TRUST CO
NEWYORK NY/

SECY SENDS WORD FROM BEVERLEY
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CONFERENCE WITH YOU AND

SYNDICATE PLEASE GET IN TOUCH




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BANKERS REPRESENTING NEWYORK CITY
MORGAN AND SCHIFF KINDEST REGARDS
PAUL WARBURG

1215PM

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Form 1864

GEORGE W. E ATKINS, VICE-PRESIDENT

NEWCOMB CARLTON, PRESIDENT

BELVIDERE BROOKS, VICE-PRESIDENT

RECEIVED AT 16 Broad St. (Stock Exchange Bldg.). N. Y. ALMS
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Warren T. Hayden,
C. A. Paine,
F. J. Woodworth,

V.P. Bank of Commerce Nat'l Association
Hayden, ruler & Co.
Treas. Citizens Savings & Trust Company
Pres. National City Bank
V.P. First Trust & Savings Company

Harry P. Wolff,

Columbus, O.

Wilburn. Baldwin,




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PAID FOIAS SUCH, in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
Thfr.,Zompany shall not be liable for mistakes or delays in the transmission or deliver?, or for non-delivery, of any UNREPEATED telegram, beyond the amount
received for sending the same ; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty times the sum
received for sending the same. UNLESS SPECIALLY VALUED; nor in any case for delays arising from unavoidable interruption in the working of its lines ; NOR
FOR ERRORS IN CIPHER OR OBSCURE TELEGRAMS.
In any event the Company shall not be liable for damages for any mistakes or 'delays in the transmission or delivery, or for the non-delivery of this telegram,
whether caused by the negligence of its servants or otherwise, beyond fifty Vrries the REPEATED telegram rate, at which amount this telegram, if sent as a
REPEATED telegram, is hereby valued, unless a greater value is stated in writing hereon at the time the telegram is offered to the Company for transmission, and an
additional sum paid or agreed to be paid based on such value equal to one-tenth of one per cent. thereof.
8.

The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary

to reach its destination.
4. Messages will be delivered free within the established free delivery limits of the terminal office. For delivery at a greater distance a special charge will be made
to cover the cost of such delivery.
6. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices ; and if a telegram is sent to such
office by one of the Company's messengers, he acts for that purpose as the agent of the sender.

The Company shall not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the

telegram is filed with the Company for transmission.
The above terms shall be binding upon the receiver as well as the sender of this telegram.
NO EMPLOYEE OF THIS COMPANY IS AUTHORIZED TO VARY THE FOREGOING.
CHARLES C. ADAMS, VICE-PRESIDENT.




CLARENCE H. MACKAY, PRESIDENT.
EDWARD REYNOLDS. VICE-PREST. AND GENERAL MANAGER.

CHARLES P. BRUCM. VICE-PRESIDENT,




FEDERAL RESERVE BOARD
WASHINGTON
Septetaber 21, 1914.

Dear St itk, 11164

t).20"1\4
SEA Viols is only a hint that Mr. Fulton from New Orleans
will call on you tomorrow in order to talk over foreign exchange

lam trying hard to persuade him to become Federal

with you.

If he should

Reserve Agent or President of the Atlaata Bank.

take up the matter with you, hit him over the head hard and don't
let him go before he accepts.

T am sorry to say that Mr. Goff sent me a telegram
He said: "Careful consideration has confirmed

today declining.

the views as expressed Saturday but vant you to know that I appreciate and am grateful for the confidence shown."

Too bad:

I confirm today's telegram concerning your report and
send you herewith a corrected copy containing the change I have made,
with your approval.

I have no doubt you have secured Mr. Forgan's
N'

consent.

'''''''''''''''

With kindest regards,

Always siiorely yours,
// ,

11-1-1-e4_

4,40

/-6"-&(.1/4X-

A

/(14-7
z;---fp,

ed)6),/,
Benjamin Strong, Jr.,
Bankers Trust Company,
t14 Wall Street, New'il
Z__Z-X,ig-1-42A4f/e.
A4,
.

ext.

d=r,,,Z;;Yt/

Inc.

6?4

44' ae,azx=r-?(,fr,

,u,/,v1/0-)ry3-ozt to,46W,.6x74w,

FEDERAL RESERVE BOARD
WASHINGTON

COPY

3

P'ring House Committee:
(inserted in pencil)
At the invitation of the(Secretary of the Treasury and the) Federal Reserve Board,
a conference of delegates from Clearing House Associations was held at the Treasury Department in Washington on September 4th for the purpose of considering problems growing out of
the extraordinary derangement of our foreign exchange markets following the outbreak of the
European War. This conference, after a day's deliberation, appointed a bankers committee
charged with the duty of recommending to the Board a plan for dealing with this situation.
The committee so named submitted on September 4th its first report, which advised the creation
of a gold fund of $150,000,000. This recommendation, owing to changes in the situation, was
modified in a subsequent report, dated September 19, favoring the creation of a gold fund of
$100,000,000 to be contributed by the banks and trust companies located in central reserve
andieserve cities.

The Board has carefully considered the Committee's report and concurs (in) its
conclusions and recommendations.
The Board is convinced of the necessity for am adequate
plan of national cooperation to meet a situation, which is of national dimensions, and it
has no hesitation therefore in giving its approval to the plan proposed by the Committee,
and recommends your earnest cooperation.
The Board shares the Committee's belief that the creation of a large gold. fund, at
this juncture, will have a far-reaching effect for good, and will prove an effective factor
in restoring confidence, in bringing relief, in protecting and strengthening the douitry's
credit and in facilitating the exportation of our products.

The Board, therefore, recommends that your association appoint a committee to
secure from the national banks and state banking institutions of your city subscriptions
aggregating $
to the proposed gold fund. The Board regards this amount
as the fair quota to be raised in your city, based upon the holdings of gold and gold

certificates by the central reserve and reserve cities as recently aswrIpd. The
allotments provide a fair margin above the total amount named. Any suMir Se`hxcess of
$100,000,000 will be applied to a pro rata reduction of all subscriptions to the funi.

Forms of subscriptions and certified resolutions to be executed by participating
This
institutions have been prepared by the Bankers committee and are forwarded herewith.
Board recommends that the sums specified be pledged as promptly as possible and that you
send the pledges and resolutions, duly executed, to the secretary of the Federal Reserve
Board at Washington, D. C. that they may be available for the Committee not later than
Ootober first.
For the terms and conditions upon which the subscriptions to the proposed gold
fund are made, your attention is particularly called to the report and plan signed by the
Bankers Committee and handed to you herewith.
Respectfully,

Governor,
Federal Reserve Board.

The Secretary of the Treasury is in accord with the views of the Federal Reserve
Board and recommends the adoption by the banks of the proposed plan.







FEDERAL RESERVE BOARD
WASHINGTON
September 23, 1914.

Dear Strong:

Thank you very much for your letter of yesterday
which I was very glad to receive.
I hope that you impressed Mr. Fulton by your wellknown powers of persuasion and that he will accept.

The change suggested by you commends itself very
much to me but yesterday in order to gain time, we sent these
letters out to the Coast and to the distant points, with orders
not to release them until authorized to do so by telegraph.

This was done in order to gain a very valuable twenty-four
hours.

Inasmuch as our letters ought to be alike it is impos-

sible to make the change which you suggest.

I do not think

the matter will have a very important bearing.
I hope to hear from you soon that everything is moving along well.

truly yours,

Benjamin Strong, Jr., Esq.,
Bankers Trust Company,
14 Wall Street, N. Y.

,

WESTE

UNION

WESTERN UNION

TEL

AM

1.14

THEO. N. VAIL, PRESIDENT

RECEIVED AT 16 Broad St. (Stock Exchange Bldg.), N. Y. AST.10,'s
). 33-GOVT.
\SHINGTON. DO .SEPT.2E:H-1914.
1A'11r4 STRDNC`a JR. ,

056

BAD,KERS TRU-7 CO14 WALL ST NEWYORK
YOU TELEGRAPH OR TELEPHONE

JICK-LY

I NF ORMAT I ON

T TJAL IFIC AT I ONS DF RJBERT D FOOTE PRESIDENT NATIONAL'

I RP BANK OF I/MR I ST OWN NJ AS DEPUTY FEDERAL RESERVE AGENT
,




PAUL WARBURG

145P

Form 163

1

C

AL RESERVE BOARD
WASHINGTON

/4 IL it' September
S

29, 1914.

I' 3 0 1914

Dear Strong:

We had a meeting today with Mr. Wbodward and have told him
that considering the difficulties of the problem we thought it would
probably be better to give up our plan of electing you a director of
the "C" Class, but that in that case we would feel that you should be

made Governor and member of the Advisory Council.

He is going to dis-

cuss this with his A and B Directors tomorrow and I have no doubt
this will be acted upon favorably.

We decided this afternoon to elect as third "C" Class Director George Foster Peabody, who is a splendid man and whanno doubt you
will like immensely if you do not know him already.

He is just the

kind of man you would like to work with.

This suggestion was made so suddenly that I had no time to
confer with you, but I guarantee the election will be satisfactory to
you if he accepts.

761tc
The titipd nameowi 1 very likely be announced tomorrow
morning.
Since

Benjamin Strong, Jr., Esq.,
Bankers Trust Company,
16 Wall Street, N. Y.




ly yours,

vjESTE Cr' UNION
klAENA

Form 168

M

WESTERN UNION

TEL

!ix

Iff

AM

THEO. N. VAIL, PRESIDENT

RECEIVED AT 16 Broad St. (Stock Exchange Bldg.), N. Y. AIMS
1K FY 3b GOVT
41!Pt,

K VvASHINGTON DC SEPT 29 1914
BENJAMIN STRONG JR
kr".

SEP 29 1914

862

BANKERS 'TRUST COMPANY 16 ViALL ST NEVAORK

PLEASE SEND ME YOUR CURRICULUM TO BE USED AS BAS IS

FOR STATEMENT TO BE GIVEN

TO PRESS AT PROPER MOMENT

MANY THANKS




PAUL M Vv'ARBURG
1 24 2P M

FEDERAL RESERVE BOARD
WASHINGTON
October 1, 1914.

Dear Strong:

Thank you for your letter of
yesterday.

I am glad you like Mr. Peabody.

You are a crackerjack to take such broad
views about all these questions.

With kindest regards, I am

Cordials yours,

KL6c2i/66149
e--Irrae_..ece,i/ter




ezte

Ith-e"-414'

Benjamin Strong, Jr., 3sq.,
Bankers Trust Company,
16 Wall St., New York.

e/-7 &C4w<




FEDERAL RESERVE BOARD
WASHINGTON
October 1, 1914.

Dear Strong:

I thank you very much indeed for

your letter of September twenty-ninth with
the accompanying report bearing on W. M.
Van Dausen.

With kindest regards, I am
Very

incerely yours,

Benjamin Strong, Jr., Esq.,
Bankers Trust Company,
16 Wall Street, New York.




FEDERAL RESERVE BOARD
WAS

October 2, 1914.

Dear Strong:

Many thanks for your letter of
October first, giving information concerning Mr. Tolfe.

VeVy truly yours,

(c.e,%0
Benj. Strong, Jr., Esq.,
Sixteen Wall Street,
New York.




FEDERAL RESERVE BOARD
WASHINGTON
October 2, 1914.

OCT -5 1914,.
Dear Strong:

We had here today the Class "C" Directors from
Boston, Philadelphia and New York.
you about our meeting.

Mr. Jay will

I hope that the New York Board will

act promptly because things are getting too hot as far as you
are concerned and the situation might easily prove embarrassing for you.

How would it be for you to get your friend, Mr.

Case, to study the by-laws so that you may have the benefit of

his suggestions when the committee will have been appointed?
You have a rough Outline in Mr. Willis's report.
It is important that you frame the by-laws so as to

give yourself sufficient power as Governor, but bear in mind at the
same time that there are many othor banks where we want to be careful not to have 'the Governor run away from the Federal Reserve Agent

and the Board, so there must be some flexibility in this respect.
With kindest regards,
Always

Benjamin Strong, Jr., Esq.,
Bankers Trust Company,
16 Wall St., New York.

incerely yours,




FEDERAL RESERVE BOARD
WASHINGTON
October 3, 1914.

Dear Strong:

I have your letter of October second.

Your election will, I believe, take place on
Monday.

Any time that you want to come over, I will

try to arrange to hold myself at your disposal as much
as I possibly can.
evening with you.

I can always arrange to spend the

My days, as you know, are pretty

full, though I could possibly arrange to devote a forenoon or an afternoon entirely to a conference with you,

Vi", ee4L
Saturdays and Sundays I am free and can give you all day.

When the election will have taken place on
Monday, how
tirely free?

long

after that would it take you to be en-

As soon as you can come over here for

a couple of days, I think we could arrange to spend them
most profitably.

There are piles of work to be done.

With kindest regards
Very sine

Benjamin Strong, Jr., Esq.,
Sixteen Wall Street,
New York.

I am

ely yours,

COPY

FEDERAL RESERVE BOARD

WASHINGTON

October 5, 1914.

Dear Governor Strong:

Many thanks for your letter of yesterday, which I have
read with much interest.

I shall be glad indeed to hear further
What you say is very instructive.

from you on the subjects

Mr. Untermeyer is not interested particularly in our foreign
exchange operations.

domestic rarer

(

What is in his mind is open market operations in

trade acceptances or single name parer ) in order "to

make the discoubt policy of Federal Reserve Banks effective" and he
claims that is what the Bank of England does.

Furthermore, he would

like to see the Federal Reserve Banks go into_Douth and Central America
and do some pioneer business there.
I have written a memorandum embodying my ideas about the question

of agencies of Federal Reserve Banks in South America and Central American
countries, and shall be glad to send you a copy in a few days.
Very truly yours,

(sgd)

Benjamin Strong, Jr Esq.,




Governor, Federal Reserve Bank,
New York.

Paul M. Warburg.

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FEDERAL RESERVE BOARD OCT-7

1914

WASHINGTON
October 6, 1914.
Dear Strong:

Now that you are one of us (and I cannot say to you often enough
what a joy it is to me to know that you are) I wish you would write me
a daily letter concerning things that must be interesting and necessary
for me to know, such, for instance, as the foreign exchange situation,
the cold pool, the plans concerning the opening of the stock exchange,
and, of course, anything that touches any Federal reserve bank question.

A daily letter containing "all the news that's fit to print" and all the
gossip that I should know will be greatly appreciated.

You do not real-

ize how quickly one gets out of touch with everything that is going on if
one is confined to the Treasury Building at

:ashington.

Have you any authentic news about the moratorium in London?

I un-

derstand it has been extended to November fourth but that certain mercantile obligations have' been excluded from the new moratorium.

Have you

any definite news upon this subject?
One of the things- we want to discuss next is how to organize a system

of reports which we ought to receive from England and the Continent.
Always s

scerely yours.

Benj. Strong, Jr., Esq.,
Sixteen Wall Street,
New York.
P.S.

I have just received a letter from Mr. Wiggin informing me

about the doings of the gold pool and offering to send me daily reports.







akir.

FEDERAL RESERVE BOARD

OCT-9 1914

WASHINGTON
October 8, 1914.

Dear Strong:

I have your letter of October seventh which I have
read with great interest and pleasure.
I wrote Mr. Jay that I take it as a good omen that
you start at Twenty-seven Pine Street in the building that

was erected by my father-in-law and in which I started my
business career with Kuhn, Loeb and Co.
I thank you for what you tell me about the operations of the gold pool.

I think you are wise to retain your

membership on the same.

I am looking forward with pleasure to your visit
here.

I understand that Monday is a holiday

and if Mrs. Strong

should leave on Saturday, you might feel like spending Monday
here.

Let me know ahead whatever you decide.
I am sanding you separately a copy of a Committee reIt was necessary to compose a piece

port on Advisory Council.

of poetry of this kind in order to clarify somewhat the ideas of
Federal Reserve &gents who were asking for instructions.

You

have to make up your own mind concerning your wishes in this matter.

With kindest regards, I am
Always c rdially yoUrs.

Benjamin Strong, Jr,,, Esq.,

Sixteen Wall St., New York.

*




FEDERAL RESERVE BOARD
WASHINGTON
_3teber 12, 1914.

Dear Strong:

have read these letters with much interest
and hereby return them with many thanks.
ruly yours,

Benjamin Strong, Jr., Esq.,
Sixteen Wall Street, New York.
Inc.




FEDERAL RESERVE BOARD
WASHINGTON
October 24, 1914.

My dear lass Walker:
Mr.

W4rburg is in

receipt

of

your

letter of October twenty-third.

The letters to which you refer were

referred to Secretary McAdoo and have not been
returned to this office.

Upon their return

they will be forwarded promptly to Mr. Strong.

Faithfully

yours,

Private Secretary.
Miss B. H. Walker,
Care Benjamin Strong, Jr., Esq.,
Twenty-seven Pine Street,
New York.




RESERVE BOARD
WAS
/ILFEDERAL
NOV

4,1914

7
October 29, 1914.0 _t."'w,te

Dear Strong:

I have your letter of October 28th.

Would you mind telling your stenographer to space her
letters a little bit more liberally and rather use a few more
sheets of paper, as it is extremely difficult and trying to read
letters so narrowly spaced.

giving out so you

will

I am getting old and my eyes are

have to bear with me in this respect.

It is a pity you are not a football player because you
are so strong on long kicks.

You must realize, of course, that

during these next few weeks both you and we must act under great
pressure and with the amount of details to be perfected and the
many heads to be brought into accord it is impossible to consult

as freely and to act in as business-like a way as you and I would
prefer.

I can see your difficulty but please do not forget that

I am not acting alone either and we two acting as buffer states.
will have to do the best to cooperate as well as we can.
best of intentions existing on both sides I
succeed.

On both sides

we

have no doubt we shall

are working without any trained staff

and we are apt to strike some rocks during the next few weeks.
I hardly see how that can be avoided but when we are once fairly




-2-

under way things will become easier and more satisfactory for all
concerned.

Until then we shall have to have patience.
I suspect that a notice about the memorandum by you was

given out by Sir George Paish.

We have put on the l

and when we meet with Sir George on Friday shall open the discussion by stating to him our wishes as to preserving the confidential
character of the negotiation, so for heaven's sake go on with your

memorandum and keep it in your pocket when you are here, if you
please.

Your circular No. 1 strikes me well and it is apt to put
things right in your district.

Very sincerely yours,

Benj. Strong, Jr., Esq.,
27 Pine Street,
New York..
7

-t,nbunr.
New York. Oct.31H1914.

Mr.Paul M.Vinrburg
17 E. 80th.

n.

Nnw York City
Dear Sir:-

The attached which may be
of interest to you appeared in the

news columns of The New York Tribune
this morning.




Yours very truly,
THE NEW YORK TRIBUNE.

FEDERAL RESERVE BOARD
WAS

NOV

5 1914

Nove4lber 4, 1914.0.

Dear Strong:

Referring to our telephone conversation:

I enclose a copy of the statement from which I obtained the figure of $60,000,000 as October trade balance,

which I shall be obliged if you will keep confidential inasmuch as its publication is not authorized by the Secretary
of the Department of Commerce through whose courtesy I obtained the same.

Very sioere1y yours,

Benjamin Strong, jr., Esq.,
27 Pine Street, New York.

Enc.




EXPORT TRADE BALANCE LT OCTOBER ESTIMATED AT 460,000,000.

An export balance of 00,000,000 in Who foreign trade of

the Unitel Stales during October last is indicated by teleraphic
advices received from ten leading ports by the Bureau of orein
and Domestic Commerce of the Department of Commerce. :eports
covering the weekly transactions at New York, Boston, i2hiladelphia, Baltimore, Galveston, tow Orleans, an Iirancisco, boat tie,
Detroit and Buffalo, which handle about 85 percent of the total
imports and approximately (A per cent of the total exports of the
country give the following results:

Ten specified ports.

Imports*.

Exports.

Customs receipts.

October 1, 2 and 3

l2,OO ,000 '..115,000,000 41,500,000

October 4-10

28,810,000 34,890,000

3,760,000

October 11-17.....
October 13-24..i..
October 25-31.....

24,770,000

28,630,000

2,970,000

28,950,000

38,200,000

2,410,000

24,640,000 45,900,000

2,900,000

Total, October, 1914

0.19,170,000 462,620,000 14,O40,000

*Estimate for first three days of October.
The ten ports under consideration thus show an export balance
of about 45 million dollars, while the business at the 2emaining

ports of the country will robably bring the total exort balance to
60 million dollars.




stimatod foreign trade during October, calculated on
the ascumptiot that the ten ports above named handled in that
month 65 per cent of the imports and 60 per cent or the e21parts,
as was the ease in the first 8 months of 1914, was approximately
as follows: Imports, 140,000,000; exPorts, ,t200,000,000.
The record of foreign trade during the last three months,
durinr which time the trade balance shifted to the export side,
is as follows:
The

Month of --

Imports

August, 1914
September

October

"

Exports

Trade Balance

j30,000,000 $1104000.000 Import420,000,000
140,000,000 156,000,000 Export-j6,00),000
140,000,000

200,000,000 Export- 60,000,000

The practically stationary character of imports and the rapidly
expanding tendency in exports are also illustrated by the weekly returns from New York. Imports at that port were, for the week ending uctober 3, 18,515,011; October 10, 18,346,166; October 17,
J7,109,271; October 24, j6,4064210; and October 31, 17,294,322;
while exorts were, for the week ending October 3, J3,270,665;
October 10, 17,969,963; October 17, )15,139, 562; October 24,
;1,410,546; and October 31, , 23,379,669.







FEDERAL RESERVE B oAIR

r-,

WASHINGTON

(Strictly Confidential)

Alb,
NOV

Dear Strong:

November 4, 1914. 0.

5 1914

I have your letter of November second.
I am afraid that you are seeing ghosts so far as reporters are concerned.

The "Tribune" send me the enclos-

ed letter, which does not augur for a bad conscience on
their part.

Moreover, I cannot see in this report any

more than the concoctions of a correspondent who was guessing for there is nothing in the article that would show
real knowledge.

As to secrecy, we will try to preserve

it just as long as we possibly can.

I do not agree with

you that the bankers can take anything amiss in this case
because all we are going to offer them is an option and
we do not

pledge

them to anything at all.

I have your recast memorandum but I have not had an
opportunity of reading it as yet.

For heaven's sake stop worrying yourself, and incidentally me!

/er

(162

Since

3c;_yzottLto,irs,

Benjamin Strong, Jr., Esq.,
27 Pine Street, New York.

(-(2,-(4-.

')Y
FEDERAL RESERVE BOARD
WASHINGTON
November 18, 1914.

PP 1914
Dear Strong:

Be prepared for the worst!
morning at ten o'clock.

I shall see you on Friday

We shall have a cotton pool meeting
...00Alos

ilAingt4WolgaivImalOw0=06

and if you have a board room we should like to meet there.
Harding and I, Wiggin, Alexander, Rue and Gaston will be the
parties.

Will you be good enough to tell Er. Broderick to be in
the neighborhood, because I suspect we shall find something
for him to do in this matter.

I should like both you and Jay, if you can, to be present
at the meeting because, inasmuch as the running of the pool will

ultimately by handled in New York, it is our intention to ask
you and Jay to act as substitutes on the committee for Harding
and myself.

I do' not expect that you w

work on this committee, beeaase I do not believe that much money
will be taken, but the preliminary work may take some time.
Much of this preliminary work, however, I think Harding and I
can do and we will save you as much as possible.
Sorry to have to bother you, but it cannot be avoided.
With kindest regards,

Very truly yours,
Benj. Strong, Jr., Esq.,
62 Cedar Street,
New York,



ccaLcikiLe44,/




°

FEDERAL RESERVE BOARD
WAS
(

November 23, 1914.

Dear Strong:

Thank you very mu h for the information
concerning gold shipm4ats and for the copy of
the most enjoyable poetry.

Selahl

Veryjbruly yours, /

tcafi,u,oL
Benj. Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
62 Cedar Street, New York.

0




FEIDERAL RESERVE BOARD
WAS
December 3, 1914. 0
CONF ID ENT IAL

Dear Strong:

In working on regulations we are striking the most
puzzling questions in the Federal Reserve Act and it takes
some hard thinking to reach some definite conclusions, which
at times are very surprising.

I am sending you a sample -

an opinion which Judge Elliott worked out after long discussions concerning the right of the Federal Reserve Banks to
purchase Government Bonds.
Mr. Curtis will read it.

I hope that you and Mr. Jay and
I am particularly anxious to have

Mr. Curtis go over it very carefully and I should also appreciate it if another lawyer of particularly good mind would
analyze our conclusions and see whether he agrees or disagrees
with them.

Maybe your friend Case is the right man for that.

If I want to have anything cut to pieces, I would give it to
Mx. Henderson, but I do not think that

I have a right to ap-

proach him in the matter.

Please have Mr. Elliott's opinion treated as absolutely
confidential as I do not want it to get out before we reach a
final conclusion.

It would not be fair to any of the Federal

Reserve Banks to give it a start before the others to purchase
Government bonds.

With kindest regards, I am
Very
Benj. Strong, Jr., Esq.,
Federal Reserve Bank, N.Y.
Inc.

*

ly yours,

FEDERAL RESERVE BOARD
WASHINGTON

December 12, 1914.
aear Strong:

I am sorry that I\did not see more of you while you were
St

here but I fully realized that'it was best to leave you alone
and let you spend your time usefully with the other Governors.
I am sori-y that I ha4. to be a little insistent on our

meeting this morning.

I explained to 7.r. Curtis fully

the

reasons, and I am confidant that, after the meeting, you will
feel that it was a wite and useful thine to have had this
little conference.

I send you heraith copy of last week's discount table,
showing the various cities.

You will see that New York, Phil-

adelphia and St. Louis are losing discounte,

I am afraid that

if we keep up the 5i3/4 rate we would not only be unable to show

increases but actually lose what we have already invested.

In

/A",
5

the face of that, it would hardly be practicable to stand out
against a decrease in the sh-ort rate.

4

Are yot quite certain

that you would not be in favor of having a 5. rata for 30 days,
%

5Z
k

for 60 days and 6q, for 90 days?

That would appeal to me as

,42,,,,,,(jettc,
the mostp=-.-1-41a!ta,e arrangement under the circumstances.

I hope you spend a restful Sunday and get back to your work
after a full nizht's and day's sleep after many nights spent in
useful deliberation.




2)

With kindest re6ards,

cerely yours,

Benjamin Strong, jr., Esq.,

Governor, Federal Reserve Bank,
New York.

Enc.







FEDERAL RESERVE B OAR D
WAS
November 25, 1914.

My dear Mr. Strong:

I return herewith copies of letters concerning

the cotton situation, which you sent Mr. Warburg on
October the seventh.

These letters were referred by Mr. Warburg to

the Secretary of the Treasury on October twelfth and
have just been returned today.
Faithfully yours,

Private Secretary.

Benj. Strong, Jr., Esq.,
62 Cedar Street,
New York.

J

J

PERSON.A.T,

FEDERAL RESERVE BOARD
WAS
December 19, 1914.

Dear Strong:

Could you find out from the Guaranty Trust, City

Bank

or

maybe some private banker whether they would

entertain the negotiation of these cotton shipments
to 2weden;

With the positive assurances England has given
not to interfere with cotton shipments to

pe,,eivxt,




foreignlitate-5".

countries there should not be any difficulty in negotiating these transactions; particularly so when the
Swedish bank is of undoubted credit.

Could you send me a wire whether there is any

possibility of doing the business or whether we can
help in any way to have it done?

It is most impor-

tant for our country that this cotton should be moved
freely.

Sin erely yours,

4t1D-1
Benj. Strong, Jr., Esq.,
Federal Reserve Bank of N. Y.
62 Cedar StrHet, New York.




UNION

WESTE
1914

AM

fliVF BMVTEL

NEWCOMB CARLTON, PRESIDENT

E. ATKINS, VICE-PRESIDENT

Form 2138

BELVIDERE BROOKS, VICE-PRESIDENT

DELIVERED

FI CIM

24 WALKER STREET, NEW YORK CITY

K WASHINGTON DC DEC 17 1914

DEC 1 7 1914

784

aU STRONG JR

62 CEDAR

ST NEW YORK

FIND BALTIMORE HEARING IS JANUARY

WE SHALL LEAVE WEDNESDAY THIRTIETH

SIXTH SO THAT IF CONVENIENT
AND THEN STAY UNTIL MONDAY
FOURTH FIFTH SUGGEST YOU RESERVE

INCLUSIVE OR POSSIBLY TUESDAY JANUARY
RAWING ROOMS FOR C

AND 0 TRAIN THAT NIGHT

AND WE BETTER SECURE

PROMPTLY AM WRITING

HARD TO GET RESERVATIONS
FOR

ACCOMMODATION WHITESULPHF

PAUL MItiFiat..
-)

-

3

ic evtl
fat-7471,14

1158A

;2-

0, la.Q.9-tit.? falmvo 61,v
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di-e-A i(a,,, 0),

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?KAI- 4
,




FEDERAL RESERVE BOARD
WAS

I) c
c-

494

'..41

J.

December 17, 191/1. 0.

6-

Dear Strong:

I find that the hearing is January sixth, so that I
would suggest that, if quite agreeable to you, we leave
here on Wednesday the thirtieth and then extend our stay
until Monday evening, January fourth, or we could even
stay until the fifth, if we both find that this can be
arranged.

I expect to be in New York over the holiday over

Thursday, Friday, Saturday and Sunday so that I would

like to have three days her-%being Monday, the 28th,
Tuesday, the 29th, and Wednesday, the 30th.

Two days

only might crowd me a little.

If this is entirely agreeable to you, let us fix
our trip for Wednesday evening, the thirtieth.

If you would rather avoid night trips and if you
possibly would like to have some talks here on your way,

we could also take the afternoon train on Wednesday at
three o'clock.

This is a very good train and it would

4,(4LL

put us ia White Sulphur Springs at eleven o'clock in
the night.

Let me know your preference.
Very t uly yours,

Benj. Strong, jr., Esq.,
62 Cedar Street,
New York.




Form 120 I.

WESTE

mr-

UNION

3

WESTERN UNION

C3 0 igia FEL
L RESERVE

Nit,IVI
mtit

Imp

IA

CLASS OF SERVICE
For Full Rate

"Blue" " Day Letter

"Nit°. "
"N L" "

AM

Night Message

Night Letter
of this message

The character

is incrcated by one of the three
written after
symbols
the check (number of words).
above

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

IF NO SUCH SYMBOL APPEARS

IT IS A FULL RATE MESSAGE

DELIVERED FROM

RECEIVED AT 24 WALKER STREET, NEW YORK CITY

26K

AMG

16

IC WASHINGTON DC DEC 29: 1914
BENJAMIN STRONG JR

r

jga

SIXTY TWO CEDAR ST
YOU PROMISED KINDLY TO SEND

!III HAVE YOU DONE SO MANY THANKS

NEW YORK

TICKETS FOR ME AND SECRETARY

PAUL M WARBURG
340PM

FEDERAL RESERVE BOARD
WAS

January 8, 1916.

Dear Strong:

Many thanks for your letters of January sixth and seventh.
I was laid up yesterday and had to take a dose of your
much beloved aspirin but feel all right again today, but this
accounts for my not replying to your letters earlier.

I read them all with a great deal of interest and shall
reply to them separately, as per agreement.

Let me add to this one that I am entirely in accord with
your suggestion of keeping the

Gold Fund Committee together.

In

times like these, it is never advisable to let any fire engine
Nobody can tell in advance how many we
shall need and at what time.

get out of commission.

/r

Very truly yours,

Benj. Strong, jr., Esq.,
Governor, Federal Reserve Bank,
New York.




PERSONAL

Jr.

A DEPT.
/JAN
.

FEDERAL RESERVE BOARD

g 1915

EDERAL RESERVE

tAtIK

WASHINGTON

4.49:1:Sr.

January 14, 1915.

My dear Strong:

I have your letter of January thirteenth, and thank you very
much for the same.

I was very glad to hear from Mr. McDougal that our circular
impresses the Governors so we11.4 The Board has adopted the Governors' suggestion to make the limit ten per cent instead of
five per cent of the total, but, as to the other clause, "provided such depositor does not sell paper in the open market", I regret I am not in accord with this suggestion.

I agree with the

spirit of it, but I believe it would add to the difficulty of
operating if every bank should have to find out from its depositor(or receive a guarantyrfrom him that he is not operating in
the open market,or that he would undertake to inform the bank in
case he should decide to do so.

I agree that this is perfectly

good banking policy, but I am afraid .4464., after the experience

we have had, to put anything in this regulation which has any
mandatory character unless it is absolutely necessary.
The principle of the regulation is this; that, if a bank
knows its own depositor and he does not borrow more than $5,000,
the bank is in a sufficient position to find out what Ea--amx2R-Mc
teru44--

is owingr-If he borrows outside, then it is up to the bank which
takes his paper on the outside market to ask for a statement, and
if the depositor is going to make a statement to that bank he is



(2)

surely going to do as much for his own bank.

Moreover, every

Federal Reserve Bank or member bank is entirely free to add
this provision.

We only set the minimum they must require, but

not the maximum of what they may require.
Very sie(cerely yours,

(cu-(

Benjamin Strong, jr., Esq.,
Governor, Federal Reserve Bank,
New York.







FEDERAL RESERVE BOARD
WASHINGTON
January 22, 1915.

Dear Madam:

When in White Sulphur Springs Mr. Strong
promised to let Mr. War)

what he paid

for railroad tickets for Mr. Warburg and myself,

in order that Mr. Warburg might reimburse him.
As Mr. Strong has not yet written Mr. Warburg
about this,,I am, at the latter's direction, writing to ask if you will not be good enough to let
me know what our proportion of the transportation
expenses was.
Faithfully yours,

Private Secretary.
Mrs. V. C. McLaren,
Secretary to Mr. Strong,
Federal Reserve Bank,
New York.




FEDERAL RE SERV/EAWARD
WASHINGTON
January 27, 1915.

My dear Governor Strong
I have your letter of January twenty-sixth inclosing
clipping from the Annalist and copies of telegrams concerning changes in discount rates sent to you from time to
time by our Secretary's office,with the Board's approval.

I was sorry to have the Governors raise this question
of interpretation of the law and thought that the Board had
made its point of view entirely clear.

Inasmuch, however,

as you revert to this matter, I think it necessary to state

that since the conference with the Governors the Board has
fully discussed the question raised by you on their behalf
and I repeat to you what was stated at the meeting;and in
doing so am voicing the opinion of all the members of the
Board.

The rights and duties of the Board are fully expressed
in the law.
rates.

It is our function to review and determine the

We may review and determine the rates of the Feder-

al Reserve Banks at any time, just as much as it is incumbent
upon us, when we think it our duty to do so, to require one
Federal Reserve Bank to rediscount for another.

To concede

that the Board should have the right only to review rates
when Federal Reserve Banks shall indicate their willingness
to make a change, would not only he abdicating a power, but
would be neglecting a duty which has clearly been imposed

(2)

upon us.

There cannot be any doubt that it is our function

to use our influence in regulating rates to such extent as it
may be necessary to bring the various Federal Reserve Banks
into harmonious relation and cooperation with each other, and
to exercise such influence or power in such a way as may be
indicated, by the requirements of any district, or the entire

country, and by its relatiodship to the world markets.

The law

clearly contemplated a central authority as a means of coordinating the twelve banks under a comprehensive policy, and the
Board has determined to act upon these lines.
As you stated, you and I certainly are not very far apart
in this matter.

We all have only one thing in mind, and that

Is to achieve the best possible results, and I am convinced
that when once the system will be well under way and when normal times will be re-established, the rates will originate in
their natural way in the districts and that normally the
Board's function will rather be to approve than to indicate rates.
Under no circumstances, however, can the Board consi'ler for
a moment failing to, insist on its legal right to suggest changes

in rates or to review and .etermine them whenever this should be
required, for the best of all.

The question is of such importance that I thought that I
should express myself fully and clearly upon the subject.
Very tJuly yours,
CL-11-tei

Benjamin trong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York.




4ING EPT.
PAUL hi.WARBURG

JA2

WASHINGTON,D.C.

C7

15

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74

0
FEDEAL ES4E BANK

44

7

January 27,

4
1915,4:9

41,2

Dear Madam:

Responding to your letter of Yesterday,

I beg to

enclose herewith Mr. Warburg's cheque to Mr. Strong's
=.

order for

118.55.to reimburse the latter for tickets

purchased.

Mr. Warburg informs me that, to his knowledge,

he paid no part of Mr. Strong's hotel bill, and, therefore, no deduction is to be made from the above amount.
Faithfully yours,

Mrs. V. C. McLaren,
Care Benj. Strong, Jr., Esq.,
Sixty Two Cedar Street, New York.
Enc.




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FILWG DEPT.

13EN5. STIzONC},

Jr.

515

FEDERAL RESERVE BOARD
FEDERAL HE-SERVE

February 1, 1915.

Dear Strong:
I have your letter of January twenty-.ninth, in-

closing the analysis of the Comptroller's Report, which
I have read with the greatest interest and for which I
am very thankful to you.

May I point out to you, however, that in the hurry
of dictating youtletter you did not get your figures
right?

The central reserve cities had not an excess af

reserve of
v6,671,000.

2,246,000 on January 30th, but a deficit of
The reserve cities converted an excess of

,,4,076,000 (not $16,912,000) into an excess of $7,808,000
(not 10,849,000).

Summing up the result, you will find

that from January 30th to September 12th, central reserve
cities reduced, their reserves by $38,500,000; reserve

cities lost $1,200,000, being a total reduction in reserves
of $39,700,000f-whi1e country banks gainea $5,500,000; being a net loss of $34,200,000.

All of this is very interesting, particularly, as you
say, in comparison with what happened. in 1907.

just imagine what

You can

would have happened if during this time

Aldrich-Vreeland currency had not been issued to so libera
an extent.




(2)

It is very advisable, however, as you have done, to
analyize the situation, because it will give us a valuable
lead as to how to view similar conditions in the future in
case they should arise.

Very/truly yours,

Benjamin Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York.

,




FEDERAL RESERVE BOARD
WASHINGTON
(Personal)

March 8, 1915.
Dear Strong:

I have your letter of March sixth, and

shall be

very

glad indeed to see you here on Tuesday.

Mrs. Warburg is leaving today to spend a few days

with the boy at White Plains, so no seances of telepathy
will interfere with the seriousness of our work.
The circular from the Bureau of the Census inquiring
into your mental condition was not sent at my suggestion.
'




I am sorry that I should have missed such a good trick.

Of course, you should have known that I could not be the
man behind this inquiry because there is no doubt in my
mind as to the condition of yours!

I

hope you will

not

give this any wrong construction.

With kindest regards and best wishes for the elaborating of the

acceptance

regulation, I am

Very try yours,
Benj. Strong, jr., Esq.,
62 Cedar Street, New York.
P. S.

Just to be serious for a minute, I shall be glad

to talk to Judge Elliott about the state bank problem.

I

have done this before and, much to my regret, found him
very much determined on the subject.

However, I shall try

again.

As to acceptances, I shall keep an open mind, but please




(2)

bear in mind to change just as little as possible in
order not to mix up our member banks again.

You are

aware of your own directors' remarks concerning the

subject, and we must not upset our banks needlessly
by subjecting them again to brand new regulations.
I hope, therefore, that you will concentrate on the
main points and not indulge in the painting of the lily.




FEDERAL RESERVE BOARD
WASHINGTON
February 27, 1915.

Dear Strong:

Thank you for your yesterday's letter which
I read with much interest.

I am glad to see that your acceptance business is developing and shall be only too glad indeed to discuss the whole matter with you next
Tuesday.

I am sure Mrs. Warburg will be delighted to
have your room ready on Monday night.

I

am

reckless enough to take it upon myself to give
you this assurance without further consultation
with her:
Looking forward to the pleasure of seeing
you soon, I am
Very truly yours,

Benjamin Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York.

hvi"

P7P1.

FEDERAL RESERVE BOARD

/fl

EcENED

WASHINGTON

S 7-

MAR 2 6
,.:iSERVE BANK

RIC

March 2, 1915.

Dear Strong:

The Board has today discussed the circular letter and
the rules and requirements concerning the clearing system.
You will hear direct from the Governor concerninrY some

suggestions which the Board

wishes to

say these are of only minor

importance,

the Board is in accord with

the

make, but I am glad to
and, on the whole,

plan as outlined.

It struck me that there is nothing said in the circular
concerning the figuring of balances on a weekly

average.

it not your intention to add that, and would it not have a

helpful

influence on member banks if this were indicated?
Very truly your

Benj. Strong, Jr., Esq.,
Governor, Federal Reserve
New York.




Bank,

Is




I t-

FILIW4 DP T

t

FEDERAL RESERVE BOARD 44,rd

API.

t*

WASHINGTON
FFOEIV." IMERVE. BANK

ED
,

April 12, 1915.
,IEBANK
cJRK

Dear Strong:

Thank you for your letter of April tenth inclosing circular of the Guaranty Trust Company, which I regret to see shows a very unfriendly attitude.

More-

over, I believe that that Comapny is not quite alive to
the fact that there is a limit up to which everybody may
go and when deposit liabilities and acceptances amount
altogether to ten times capital and surplus, I doabt very
much whether it is proper for any compaay to go into a
scheme of this kind, which amounts to offering not only two
per cent,

but additional facilities into the bargain for

deoosits.

I wonder whether this is not a thought which might

properly be expressed by some one?
Very

uly yours,

attaL
Benjamin Strong, Jr.,

Esq.,

Governor, Federal Reserve Bank,
New York.

FEDERAL RESERVE BOARD
WASHINGTON

March 31, 1915.

(Personal &

Confidential)

Dear Strong:

I hope you are having a pleasant

ginia Hot Springs and
your health.

and reetful stay

at Vir-

that your golf is improving as rapidly as

I do not wish to bother you with any business thoughts
while you are at play, but there is one matter that I would like
to have you think over and about which I would be glad to have
your views,

and that is the Guaranty Trust Company.

statement as of March 19 is just published.
to an amount of about

have deposits of about

55,000,000.

Their

It shows acceptances

In addition to that, they

260,000,000 - in all, liabilities of

about 1310,000,000 against capital and surplus and undivided
profits of about 132,000,000, or a relation of liabilities to

resources of about ten to one.

own

Some months ago, Mr. Hemphill asked me what I thought would
be the

not

proper

amount for them to accept.

I said that I could

answer that off-hand; that the amount that a bank could

accept would depend upon its general status and it would also
depend

upon the

fact whether or not a bank was concentrating on

the acceptance business or whether it went
banking business in addition.




into all kinds of

I illustrated

that

the large

(2)

credit banks in England, France and Germany which were doin7 a
general business were accepting moderately, while some of the

so-called accepting banks, which concentrated on accepting and
used their own resources, if you please, as a premium fund exclusively for their acceptances, and firms like Huth or Klein-!orth, accepted their capital many times over - sometimes as

much as ten or fifteen times even.
Now, I remember that you told me that most of the acceptances of the Guaranty Trust Company are guaranteed by other
banks, but, even then, I think that the status of the Trust Com-

pany is pretty well extended, and, inasmuch as I hear that they
expect to go pretty liberally into domestic acceptances against
cotton warehouse receipts, I wonder whether you sh-uld not have
a little talk with them about their general policy.
There are several things that might be done.

One is that

we mi7ht say that banks which expect to accept so liberally
ought to keep cash reserves against their acceptances as they-do
against their general deposits.

If this Trust Company would

keep 18%, as national banks of New York do, against deposits
and acceptances, they would have to have
as against their present cash holding of

$56,500,000 in cash
39,000,000.

of course, may be an entirely erroneous conclusion because I

do not know how much of their deposits are time deposits very likely a pretty substantial amount.



(3)

Please do not misunderstand me.
the status of the Trust Company.

I do not wish to criticize

I am certain it is in excellent

condition, and, in order to form any judgment, one sh-uld know
the details of its transactions much more closely then they are
available to me.

One of the thoughts that is going through my

head is

this:

whether we should not adopt a policy (without possibly putting
it into a regulation) of taking the acceptances only of State
banks that keep within the same limits as our member banks.

If

that were known, I suppose that the Trust Company would keep
within this limit becluse it would not want to be in a position
where we could refuse to buy their acceptances, but this wants
to be handled very diplomatically and with all consideration so
as to give them time to bring themselves -ithin the limit in
case we should decide to

adopt such

a policy.

What might be

done by this Company would be to get on a joint account basis
with one or two of the leading national banks which do not have
the advantage of the relationships that the Trust Company has.
was thinking of the Comn.erce or

the Chase.

If

the Trust Company,

in opening its credits, would arrange it so that a share in
the credit is

opened by

these banks (a

modus which is

unusual in Europe) these banks could agree

that

not at all

each would dis=

count the paper of the other, which would give them valuable
accounts, and you might receive the acceptances from these banks



I

(4)

with their endorsement, but this is
all.

only a

side question after

Of course, we want to be liberal, particularly at the be-

ginning, so as to let the child develop, but we want to be
careful at t'le beginning not to let the thing run amuck so as
to call forth criticism which may do harm to the whole development of the acceptance

business.

This is a strictly personal

letter written

to

get your

mina thinking, and I shall be glad if you will write me frankly
in the same way.

Very

icerely yours,

6.41-0ja

Ett-7

Benj. Strong, jr., Esq.,
Cure Homestead Hotel,

Hot Springs, Virginia. e'r4,

/

-alcArle"tee

(cod a-geteueee

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'.91P5NG DEPT.
FEDERAL RESERVE BOARD

APR 30 1915

WASHINGTON
7EDEtt;,. 4t.SERVE BANK




April 28, 1915,

Dear Strong:

In reference to your 1et,t concerning Mt.

Hepburn's book, I do not knorWhat details he
wants.

Generally speaking, I should say that

everything we have has b fen

there is

published.

any help that ,e can give Mr. Hepburn

I am sure we shall be/very glad to do so.

VAY

Benjamin

If

Strong

ruly yours,

Jr., Esq.,

Governor,/Federal Reserve Bank,
New York.

qAt5

N.




--1

'Owe,

-

IN-9. DEPT.
016

MAY

FEDERAL RESERVE BOARD
WAS

FrDERAL 11511in DA

May 3, 1915. 4,4,.

45,45.

Dear Strong:

Lest I forget, you mentioned to me that Yr.

'organ

had told you that a certain letter which was addressed to

him by our office was dated on April fourth and reached
him only on April twelfth, and that the Advisory Council
therefore had only very short notice of the topics to be
discussed..
044-4.

I had this matter looked up and I find that the letter was dated April sixth.

I cannot s

it left on that date, but Mr. Forgan acknowledged it on
April tenth, saying that he had received it and had sent
copies to the various members of the Advisory Council, so
the margin is reduced from eight to four days, and I am not
quite certain that Mr. Forgan did not receive the letter, as
a matter of fact', before April tenth.

I shall be interested in having you verify the statements made to you by Mr. Forgan, or talk to me about the
subject when I see you next.

It is n

mistakes of this kind have occurred with the gentleman in
question.
Sincer

Benj. Strong, Jr., Esq.,
Federal Reserve Bank,
New York.




y yours,

eActui

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LOON LAKE, N.Y.

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WESTE
WV_if
TEL

Form 260

WESTERN UNION

TIME FILED

CCEIVER'S No.

BELVIDERE BROOKS, VICE-PRESIDENT

NEWCOMB CARLTON, PRESIDENT

..1E W. E. ATKINS, VICE-PRESIDENT

CHECK

SEND

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

Now York, August 31st, 1915.

Joseph Schmidt,
Care i'aul -aryurg,

---1704 EightearrStreet, N.
'ehington, D. C.
s

Arrive eight-thirty.

.D

Shall dine on train.
Paul -:arburg.

VCM




!Mk.4111.

ALL TELEGRAMS TAKEN BY THIS 4

4...IRE SUBJECT TO THE FOLLOWIN

t REPEATED,
that is, telegraphed back to the originatin
To guard against mistakes or delays, the sender of a telcgra_
For this, one-half the unrepeated telegram rate is charged in additioh.
lerwise indicated on its face, THIS IS AN UNREPEATED
of the telegram and this Company as follows:
PAID FOR AS SUCH, in consideration whereof it is agreed between the
The Company shall not be liable for mistakes or delays in the tra.
don or delivery, or for non-delivery, of any UNREPEATED telegi
amount received for sending the same; nor for mistakes or delays in the trans.n..,sion or delivery, or for non-delivery, of any REPEATED telegram, bey,
the sum received for sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its 1i
errors in cipher or obscure telegrams.
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery; ot
gram, whether caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued,
a greater value is stated in writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid
on such value equal to one-tenth of one per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary
reach its destination.
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other
cities or towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his
expense, endeavor to contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to
such office by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegram is filed wi,th the Company for transmission.
No employee of the Company is authorized to vary the foregoing.

THE WESTERN UNION TELEGRAPH COMPANY
INCORPORATED

NEWCOMB CARLTON, PRESIDENT

CLASSES OF SERVICE
TELEGRAMS
A full-rate expedited service.

NIGHT TELEGRAMS
Accepted up to 2.00 A.m, at reduced rates to be sent during the

night and delivered not earlier than the morning of the next ensuing
business day.
DAY LETTERS
A deferred day service at rates lower than the standard telegram
rates as follows: One and one-half times the standard night letter

rate for the transmission of 50 words or less and one-fifth of the

initial rate for each additional 10 words or less. Subordinate

to the priority of transmission and delivery of regular telegrams.
Must be written in plain English. Code language not permissible.




Telephonic delivery permissible. Day Letters received subject to
express understanding that the Company only undertakes delivery of
the same on the day of their date subject to condition that suffi
time remains for such transmission and delivery during regular
hours, subject to priority of the transmission of regular telegi

NIGHT LETTERS
Accepted up to midnight for delivery on the morning of the
ensuing business day, at rates still lower than standard night tele
rates, as follows: The standard day rate for 10 words shall be
for the transmission of 50 words or less, and one-fifth of such ste
day rate for 10 words shall be charged for each additional 10 w
less. Must be written in plain English. Code language r__
missible. Mail delivery, postage prepaid, permissible.

PAUL M.WARBURG
WASH INGTON,D.C.

September 8, 1915.

41111k'

10

Pi;

Dear Madam:

Referring to your letter of the second instant:
Mr. Warburg informs me that the only item
$6 for Pullman compartment ticket

and from

he paid was

Loon Lake to New York

this amount should be deducted $2.50

paid by Mr.

Jay for Pullman seats for Mr. Warburg and Dr. Miller, thus

leaving

Mr. Strong's indebtedness to Ur. Warburg only $3.50.
Faithfully yours,

'

Secret

Mrs. V. C. McLaren,
Federal Reserve Bank of New York,
62 Cedar Street, New York.







FEDERAL RESERVE BANK
OF NEW YORK

ember 7, 1915.

Honorable Paul M. Warburg, Dr.
To

F

For one seat in Chair Car, New York

eral Reserve Bank of New York.

Washington, Tuesday,

August 31st, 1915

7




FEDERAL RESERVE HOARD
WASHINGTON
September 15, 1915.

Dear Madam:

I beg to acknowledge recei

of

check for '3.50, covering. balance due

/e

Mr. Warburg for Mr. 4tongs traveling expenses, fo

which please accept

my thanks.
Faithfully yours,

Private Secretary.

Miss.,V. C. McLaren,
Secretary to Mr. Strong,
Federal Reserve Bank,
New York.




COPY

FEDERAL RESERVE BOARD
WASHINGTON

September 28, 1915.

Dear Governor Strong;
Mr. Samuel Untermeyer, who was here a few days ago to

be present at the meeting of the International High Commission, expressed to me on this occasion his thought that the
Federal Reserve Banks ought to take up open market operations, and he said in this connection (as he has often done

before) that it is the practice of the Bank of England to
buy bills in the open market and that it was this that constituted its control over the market.

I said to him that what the Bank of England bought in
the open market were either bankers' acceptances or commercial paper endorsed by banks but that the Bank of England
would not do what he wants the Federal Reserve Banks to do;
that is to say, buy in the open market, without the endorse-

ment of any bank, commercial paper, single name or double
/lam.

You may have an opportunity of speaking to Sir Edward
Holden, with whom, as you told me, you are on intimate
terms, and I should be very much obliged to you if you
would get from him a statement as to the transactions of
the Bank of England.

May I remind you that I invited you to ask him also

whether or not the Bank of England would normally take a finance

draft drawn by a foreign government upon an English acceptor.

fr

To illustrate,

a draft drawn by the Minister of Finance of Roumania upon John Henry Schroeder
& Co.

And, furthermore, whether or not the Bank of England would take a finance

draft drawn by a foreign stock broker other than banks of the United States,

against the deposit of collateral upon an English acceptor, i. e., a Dutch firm
like Boissevain on Union Bank of London.

Would the Union Bank accept for them?

I was glad to see your signature again upon your yesterday's letter
and I argue from that that you are feeling better.

I hope you will soon get

a good and extended holiday.

With kindest regards,
Sincerely yours,

(sgd)

Benj. Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York.




Paul

M. Warburg,

Washington, October 4,115.
Foreign Agenoiea

Federal Reserve Bank - National Banks.

To the

FDILLR3SEHVE WARD,

washington.

Sirs:
In compliance with the Boardla request for a statement of my
views concerning the question of "foreign agencies of Federal Reserve
Banks" as authorized in Section 14 of the Federal Reserve Act, I beg
to submit the following report:
When dealing with interpretations ef the Act, a great deal has
often been said coneerning the "I ntentton of the writers of the law".
Inasmuch as paragraph (s) of Section 14 has beee bodily taken over from
thevAldrich Plan, we have to go beyond the writers of the Federal Reserve 'Act in order to find the true intent of this peregraph, and inasmuoh ae Senator Aldrich consulted me conoerning this particular phase
of the intended Act, and inaemuch as I suggeated to Senator Aldrich the
insertion of this very paragraph, I may be pardoned for venturing to
explain what its original intention 'wee.
The two paragrapho read 441 follows:

Seo.14 (e) of the Federal
Reserve Act provides that every

Federal Reserve Bank shall have
power:

"with the consent of the Federal
Reserve Board, to open and maintain banking account a in foreign
countries, appoint correspondents, and establish agencies in
such countries wheresoever it

may deem best

Section 3e of the Aldrich Plan

reads:
nNational Reserve iseociatios to

have power

to ooem and maintain banking ac-

counts in foreign countries;
to establish aganciee In foreign cou-tries for the purpose
of purchasing, selling and tool-looting foreign bills of exchange; to bay and sell, with or

without its indorsement, through
for the purpoao of purchasing,
selling, and collecting bills of such correspondents or egencies
exchange, and to buy and sell, check or prime foreign bills



(2)

wit or without its indorseeent,

ttrough sucb correepondente or
agencies, bilis of exchunge
out,
1n out of ectual oemmereial
traneectiens which heve not more
than ninty days to ran end which
bear the signatere of two or more

arising out of ceamerciel transactions havins not exceeding 90
days to run and bearine the bignature ef two or earl, reeponae

ible partiee.r

reseonsttle perties.r
It *II be seen thet the only subetantial change was the inser-

tion of the words rhea's of exchanger where the Aldrich Pin read
"forlien bilis of axohanger Ind "rime foreign bills*.
From ectuaa operation (having been ective in several banks
in foreign countries acting es oorrespondents or dtgent 3 nar gove
arnment banke ln otter ceuntries) I eus in a position to approolate from my on experience the importanoe of the functions of foreign oerrespondents or agents, end wao anxious to secure the advantagea of auoh connections for our future financial eyatera. The
operations of thee° foreign agents for their government banks are
substentially ae follows:
Let we chooas the Bank of the letheriands as an illuetration,
though praoticelly all important government banks have bean operating on imiler lines.
There will be oertain times when, for econowic reasene,
through the mcvement of products from or to the Netherland* into
or from other oountriea or for extraordinary reezont, exchange
on Hollend will move up to the gold exporting point or down to
the gold importing point. then the point ia reached where gold
may leave the country, the Bank of the Netherlands he two mein
meens of protecting itself: one le by increasing the discount
rate, which meaeure will result in higher interest ratea set to



(3)

attraot foreign money into Hollend and thereby to counterect the
flow of money from the country. 717e other is to aell from it
portfelio bills on foreign oountries in order to create beleneee
in those countries and thereby provide menne of payment without
shipping the yellow metal. It, therefore, has been the policy
or tereign government benne to acquire foreign Ulla of 6A obtatge
on such countriee ae are apt to be creditor natione from time to
time and euch countries oni es have safe gold etandards *led enn
4oy first ci4413 blnkifig credit" These purctesee of foreign exchange
on such countriee are oeing carried on whenever exchange is .ow or
when interest rte s in the home oeuntry are so lo41 that it would
seem prudent . for tne government bank to withdraw its funds from
active employment at home and Invent the funds, thus withdrawn in
foreign countries, whence they can be called. back whenever rates
become active at home and whenever the influence of the govern-

ment on may be used to advantege in preventing nome :etas from
beooming burdensome to the burrowing community.

Ahen acquiring a' ninety-day draft on a British bank, the

dank of tbe netheriande will draw interest on thie bill at the
discount rates but when the bill metures or if the Sank of the
Netherlands acquires checks on London, it creetes d belance which
needs to he converted into an interest bearing investment. Thee*
balances will then be employed by the oorrespondents or agencies
(whichever name we may give to them) for the purchese of other
rding to its requirements, the
ninety-day drafts on London.
3enk of the Netherlands will renew from time to time its. foreign



(4)

investments. The Bank of the Netherlands oonsiders these foreign
holdings &s a secondary gold reeerve and continuos them almoet
perpetually, with such casual interruptions as may became neces-

sary for the protection of its own gold holdings.
It wee the coneideration of these conditions that led to the
insertion in the Aldrich draft or the °lessee above quoted, and
It will now become apparent what wee meant when it was provided

that the Netionel Heeerve Association - or the Federal Reaerve
Banks - should have power to "open and maintain banking accounts

in foreign countries * * 5, esteblish Agencies in such countries
* * * for the purpoa; of purchasing, selling and collecting bills
or exohange" end that they should be able- to "buy end sell with
or without its indoramment, through such cerrespondents or agene
cies, bills of exchange * * * ". In case of a "pine's", the Benk

of the Netherlands was to be in r position bf ordering its oorrespondent to rediscount with the Bank of Englend or in the open

market millions of its holdings of 3ritieh aoceptances so as to
enable the Bsnk of the Netherlands to draw a check against the
balance so produced and so to protect its gold. That is why it
wes stipulated that the bills to be purohesed by these agents
should be "prime bills" and should not ran beyond ninety days and
should bear the signature of two or more responsible parties, so

that these bills should be current bills that the correopondents
should be ale to sell freely at all times and bills on which a
lose should practically be excluded.
It ought to be stated that the foreign governments select


....11111111160fiJaili.a.ta, .lsa

.44

(5)

the strongest posable firma in foreign eountriea to act for them
as agents, and that they invariably buy these Dille with the indoreement of their egent (or oorreseondent) so that they c..ould
lone only in oese, not only the foreign .00rreepondent or agent
should fail, tut el eo the two edditional signeturee on the bill.
I am well aware of the fact that these banking habits have
developed se a protection in times of peace but, that in times
of e'er these large foreign balances way be a source of scale anxiety. It, must be borne in mind, however, that government banks
no ally we* in times of peace and that these methods of pro tooting their country against acute gold withdrawals or against
the tendency of too low retes of interest have effectually met
many on cute emergency, and furthermore that even in times of
war these belancs have eventually been paid. I might draw attention to the feet that a year ago, when. we were called upon to
meet our lerge debts abroad, it. vould he.ve been F great protection
for us if at that time belenoee could have been made available
in London to meet this first onrush.
My object in
the origin and original intent of
this peregreph is to show that thia clause was inserted for
the sole purpose of providing an Et dational piece of machinery for
the protection of the Federal Reserve Syatem. Clearly, no other
intention was underlying this aectioni
The question is no raised, whether or not it would be ad.
vieable for tiderell Reeerve Banks to establish foreign agencies in South American oountries for the purpose of aiding in




the development of our commerce aad trade with those countries,
ond, following out this thought, the question hes been raised
by 810,M4 writera whether the Federal iieeerve Banks shouldnot

open branohes in foreign oountries to compete with oome of the
brenohee of foreign Joint stock banks or the looal banks of
,1),ose countries.

In order clearly to undertarid what is wished by those
torein countries and in order to see how fur we might go and
what would be the result if we followed their wishes, it
might be well to understand first what business foreign banks
or local banks in those countries are expected to do. They ore
expented to in a capital of their own into the country. They
They are expected to staWce
are expected to take deposita.
loans to osaist in the development of the country and to finance
its trade with other countries. The lootl banks, when taking
the paper of the local merchente, femora or induatrial concerns, are generally secured by looel mortgages or pledges of
essets e incidentally they are frequently called upon to make
advances to the local governments and to flnunce government
contracts.
Any American national bank going into this field will
find itself somewhat handicapped when competing with these

toreign and local beaks, beoause its nationol chartes does
not permit it to embark as freely os its oompetitors in all
these various branches of business.
Poreign banks going into foreign oountries with widely
fluctuating exchange bave, almost 'without exception, found



(I)

it extremely difficult, If not impossible, to protect th*eselves azainst the flak of exohange iOSJOU. The history of
We banks of tho Fttr East,
well 44 in South and Central
FA.:

6merioa, Is rich in experleneesof this kind. It la only
when the origiral Investments in buildings and in loans
have beon written down to a very low point that Lhasa foreign
brtInches begin to Cs fairly 4;41 protected 4gainet further
losses on ocount of this fluotuation in exchtsige. As long
as they work Nith the deposits reoeived in foreign countries
an/ employ them on the spat, they can atold this risk of
exchange, but nIr money which they bring into tIle country
thiu risk is in4o1ved and hard to eliminate by exchange
operations for .%ture delivery. Aoreover, tbe business rlaks
invoived in these countries are very heavy and they are counteracted by very heavy interest charges and very substantial
commissions, whtch aoc4Imulate &ad form an insurance premium

fund neceaaary to sustain the losses incurred from time to time.
What service could. Federal Iteserve Banks be expected to
render under the circumetances?

They certainly could not be permitted to take reserve
money, which is to be conaidered 4b a gold reserve by their
. lember banks, and look it up In %reign oountries In long term
loans involving a substantial risk of loss, both us to prin..
oipal and Ub to exonsage. The law does not ;omit ttem to
take deposits from individuals at home, but from 1.tamber b&nks
only. They could not, under the law, take n)reign deposits.




($)

Aloy cannot make loana at home to individual*.

Should they

ee permitted to make loans to individuals in nereign lands
where the risk is a aubetentially greater ono and where !ed..
era Aseerve Banks could, not be permitted to accept anything
like the consideration that is being taken by the local banks?
Should Federal Reserve- Bunks be permitted to make loanaon

mortgages and oolleteral which they are not permitted to conclude at home? Should they be permitted to maks advances to
the local foreign governments weile tha law quite clearly lays
down that they should only be permitted to buy Unito ttates
government deouritiles end warrants of muniaipelities of the
United tat3s, and only auoh as ere specifioally outlined in
the Act?

The &never to ell these questions is, of oouree, In the
naativa. The only treesactions that agents of Fedora' Reserve
Banks in South America oould underteke would be the pureness

of American bankers' acceptanoee and, after normal conditions
will neve been re-eztablished in Surope, possibly prime bankers' bills on duel) luropeen countries a the Federel Reeerve
Banke weuld deolde to open aoceunte with for the proteotion of
their gold. holdings. I cannot oonoeive of eny °tete trensactions that redaral Reserve 5anks mould surely or properly do
through their egenta in South end Central Amerioan oountris.
The Federal eserve Lot permite only of the opening of
"branches" of national banks. This hgs led, so far, to the
unfortunate condition thet there la only one bank lerge and



enterprising enugh to open Alirican Pbrarches" in South and
Centre]. tmerican countries. Several bArks hve uproached the
Federal Reserve 3oard sugvasting that at ffiendment be urged which
would enable netinnel bink5 jc,intly to ho' the stock of bprks
chsrtered to do business in foreign 'Countries.. The Aldrich Act
contflined, in Section 57, 1,1 cleuse tOhat effect, 'provided that
such forAgn banks should not be rermitted to receive deposits in
the United StTAss, or to tr
ctny domestic brsiness not necesssrily relsted to busin ss being, dohs in'foreign 0 cuntries or dependencies of the United States-"
Some Nmendment to this effect, it ie believed, would enable
'
national banks In important centers of the United States to co' bine
in opening anAndsendont bank in South and CentrN1 r,America. I beIlsve
that such an lmndment should be urged by the Federal Reserve 7osrd,
as otherwise 414 3oard would be subjot to the reproach of apperently
f4ter1ng aiprOpoly by on4 single:beak. Pending th).$ tonepdment, it
,,C7Z
\
-"CA.:4
tt,a been $ug
112yWght .zetXblish agents or tc,ercies in Flat,

,

ces where t moy expect to develop buSIness

in South and Central Ametrics. It P44s been suggested to them thet if five ,::2.' six nationsl
hnnks Nhiohie Tact V jCintly own e bnnk In South Atilerics would together empl r
regents, they might develop coraiderble amount of
business, p iokicul&rly in financing Avericn tr.de with those countries,
1,1,
it import:) or export. Through such: agents 4riaer1can b&nkers1ac-ept;
nC5 :: might 'be pluced at ths dispossl ot south -nerican exe importers
:

ci

export8, and these credits fights extended even for the grow-

ing ofcro 4 or the production of goods sold for ex7,ortn-tion to the
;

United St' 4,1101,




,

or other countries. These credits could be so arrenged

(10)

thet the agent would piece for eech of the five or six benks
employing him certain egreed quote thereof, end, similarly,
he might act as their hgent In contreeting for them for the
eurehese of these Americen benkers/ acceptencee for forward delivery. It m6.y be ,;.ossible thet the Federal Roeerve Ftenks cen
be induced
000perate In the employment of such en egent. The
Federel Reeerve Benks might oeble to this egent their disoe nt

retes from time to time, rnd the agent !eight secure on the spot
the Jirchese of these meefeenceia. !35, meking such 911 rrangement,
some art of the expenses of this egent could be oerried by the
Federal Reserve Bulks end this might stimulate oome of the me her
hanks to go into the venture. Tha Agent in turn !eight be used
for keeOng the Federel Reserve Banks 4v1 se s to commerciel
endfinahciel conditions Ir hin field of operetion.
On the other hand, it needs!. to be very eerefully considered wh thee the spperanoe of the Fedora] Reserve Berke es active
purchae,re in foregn merkets culdrot heve e terdercy ofeeeing
the member benks out of these markets. In other words, it mey
well be th t these trdepe dont hens, which ere now 1 Arous of
entering the field, might ePly thet the rurcheeAs f these Americen
benkeref acceptances is one of the few transeciens which offer n
field for them, arid that, if the Federee Reserve Tilks expect to
enter this field in competition with them, theyesul4 rether stay
out of the market. In thet oeee, it mey be found prcticeble end
more adviseble for the Feder] Reserve Berks to ocntine themselves
oabling their forwerd dieoount rtes for transmiseicn to such
American barks es ceerete ir foreign countries end to such egents
Re 0 erate for them, giving te these foreign branches eadto such



ngerts ar opportunity of in their turn concluding the trenenctiene
with the rederel Reserve Bunke, bhe letter, however, beering the
ceble experse in order to fecilitete In every wAy the develorment
of Aeorioe, bnnking in foreign countries.
Wy own conclusion would be thet Ineemueh es the Federel
Reeerve Benks cannot cempete with the foreign barke or member berke

in foreign countries, ned ineemuch es there Is only e very restricted.
field for their operation, that Federal. Reserwe7Berke should do everything kmetkeir they peselbly or to encourage member benks (opernting
through branches, egenolee, or - if an amendment should be secured by-by independent American banks in foreigr ccuntries) in the development of Amerioen trade and Americer benking, psrticulerly in esteblishing whet is generelly called ndoll-r erchnnee in the world mnrket. However, I RM profourdly convinoed that auceeeN1 competition
with foreign banks can only be carried on by eeericer oommercial banksnot by Federel Reserve Burks - and that if the Folerel Reserve 7 nke
oernot effeetIvely compete, they should be very cereful not to do nnything which might act as deterrent rather thte en erceurngement for
American benke ertering the field of benking in foreign nerrtttee. It
ought to be stnted that no European eovernm-nt bank entertain branches or egencies in South or Centrel American couetriee.
My suggestion would be thnt, t the next Goverrors' nonference, the matter be discussed fully with the Governors and thPt
they and the releri Reserve .gent e b9 eeked to study the quentien
very carefully in all its varying nerecte and make n reTeart to the
Boerd.




Reepeotfully submittede
Peul

Warburg.

There is ore more side of the probleer that might profitebly be
oonsidered. That is the question of whether r rot Federel Reeerve
Bar:ea shoei:, epeeint existing :chel beeks it South Imericen or 7entrel
Amerieen ocuntriee to aet es their egehts cr corraseondents. Two considerations would Ailitete egaenst auoh a step at this time. The first
is thet, instead of neAsting these Americer benks that vould be willing to enter ueon the venture, we sheuld be e eistine herke with which
they would neturally hvve to compete erd for which the local benke
sre better equipped by more 7ibere1 oherters and by the feet that they
ere alreely firmly eetnblished le the field. The second is that for
these foreign benke the Americen connectien would he a mero ircident.
couldrpt rely in any well on their meking a reel effcrt in pushing
the development of Americen dorar exoe'-nge. They ,qee moretpt to pro-

ceed on the linee of let reeistence; that 15, they tre likely to
;refer the well estblishod ehenrels, and to do their businees ch 'Ines
which would offer them the greetest erofits Ir interest, no motter
whether thee -ill be European or Nmericen.
While Volaral Riverve Banks mey ultimately consider the estbliahment of suoh corrections with locd. berks in elacee where eeeeicen benks

or berkars will fail to estrblish themselvea, it is believed thtt the
Federal Reeerve Burks will probebly helve to move with the greeteet

caution in establiehIng these connections at this tme, let their etepe
might act be s retarding influence rether than en erceuregement for the
American berks erd henkera et presert oentemelating operetives.. In this
field.




COPY

October 20, 1915,

My dear Sir Felix:

At one time the papers contained a report that we might expect you over here as one of the British Commission, and I need not
tell you how much I had looked forward to the pleasure of seeing you
here again - thoughnot in any official capacity, as you know the
Federal Reserve Board could, of course, have nothing to do with the
loan negotiations; but as a friend I should have welcomed indeed an
opportunity of seeing you again.

You are one of the few who have trained their minds to think
scientifically in matters of finance and it would have been a great

pleasure to me to discuss with you some of the problems that we are
dealing with here.

Some assertions have been made by people outside of our Board
but who desire to influence our work, concerning the operations of
the Bank of England, and I should like very much to receive from you
some authentic advice as to the following questions:




First - Does the Bank of England buy discounts in the
open market?
Second - If it does, does it buy anything but first-class
paper - that is to say, paper bearing the acceptance of a
bank or first-class banking firm or its indorsement?
Third - Does the Bank of England buy in
commercial paper - paper drawn by a merchant
or promissory notes from firms with which it
connection - that is to say, who are not its
depositors?

the open market
upon his customer
has no regular
customers or

Fourth - Does the Bank of England in normal times
I am not referring in this case to
so-called "house on house" bills, as Speyer on Speyer
or Morgan on Morgan, but bills, for instance, as they
used to be drawn by German banking firms or brokerage
firms or English acceptance houses against stock exchange
collateral, or, bills, as I remember, were drawn at some
time by Roumania through a Roumanain banking firm on
British banks in order to finance the Roumanian Government; or a draft drawn direct by a foreign government
on a British accepting firm.

uay finance bills?

Pardon the somewhat confused character of these
questions, but they have been raised in this particular form and as

replies to these questions have been contradictory, I am very
anxious to receive an answer from such authority as you.

Pardon my writing you about these matters at a time
when no doubt you are very much occupied with very serious work,
but you are one of the few who realize how important it is to establish the correct principle even in the smallest trifle when we
are laying the foundation for the future growth of an important
system.

I hope you are strong and well in spite of the strain
of the time and am,

With kindest regards,
Always sincerely yours,
4.

(Signed)

Sir Felix Shuster,
Union Bank of London,
LONDON, ENGLAND.




PAUL

LE.

WARBURG.

PAUL M_WARBURG
WASHINGTON,D.C.

October 29, 1915.

Dear

Strong:

Thank you for your letter of October

28th.
My much maligned overcoat has not

yet put in

an appearance.

Would you

mind having your secretary investigate
how it was sent so that I may follow it
up?

Excuse the bother.

Mrs. Warburg got your letter this

,

morning and she

and

lietsy greatly en-

joyed the fun, even though - or possibly
because - it was at my expense.

With kindest regards, I am
icerely yours,

a-u-e

(/S

Benjamin Strong, Jr., Esq.,
Federal Reserve Bank,
Jew York.



COPY
THE UNION OF LONDON & SMITHS BANK, LIMITED,
2 Princes

Street,

London,

November 3, 1915,

My dear Mr, Warburg:

It was a great pleasure to me to receive your letter of

the 20th October, and I wish there were time for a more frequent interchange of views between us, for you would have much to tell me
that would be of the greatest interest to me,
It had at one time been suggested that I should be one

of the British Commission on the Loan, but for various reasons into
which it is not necessary to enter I thought it better not to go.

It

would have been a very great pleasure to me to go over to your side
again.

There is, however, and has been, a great deal to do here,

and it is most difficult to get away.

Tith regard to the questions you put to me, you are of
course aware that the Bank of England is not guided in its operations

by absolutely strict and rigid rules, and thus occasional exceptions
may have been made to' their general line of conducting their business,

Subject to this observation my answer to your enquiries is

as follows:
First:

open market,

The Bank of England does not buy discounts in the

It only discounts paper at its own minimum rate, occa-

sionally even somewhat above that rate, and it does so only for its
own customers,

As you are aware, most of the large commercial firms,

as well as -private individuals, keep their accounts, not with the bank

of England but at the other great Banks,




The larger firms, however,

-2-

have small discount accounts open at the Bank of England, which are
used only at times when a rise in the Bank rate is anticipated, because
at other times they can discount their paper elsewhere to better advantage.

The Banks, as yam know, are not in the habit of re-discounting

their paper with the Bank of England or elsewhere.

This is not strictly

in reply to your question, but it might be of interest to you, especially
when I add that according to the whole of my experience this policy is a
great mistake, but it is a tradition which hitherto has been carefully
preserved.
Second
and
Third:

These really do not arise as the answer to the first has

been in the negative, but as a general observation, bearing

also on your fourth question, I think the one established principle from
which no departure is made is that every bill which the Bank of Enr,land
discounts must bear two approved English signatures.
means is of course a matter of judgment

What this really

from time to time, but the English

character of the signature has always been insisted upon and, for instance,
the acceptances of branches of foreign institutions, however, good, are
never taken.

The general tendency is to give preference to bills of a

commercial character and to regard with disfavor anything that looks like
a finance bill.

In commercial paper would of course be included bills

drawn under re-imbursement credits for shipments of merchandise.

The

class of bill described in your fourth question would perhaps not be
objected to if the amount was not too large and the bill was handed in
by an endorser of high standing, but if anything like an excessive amount
were seen objection might probably be taken.

The bill described in your third question, drawn by a merchant
on his customer, would only rarely find its way to the Bank of England.




.

Such are mostly taken by the merchant's own banker, and, as I observed,

the Bank of England buys only from firms having discount accounts with
them.

Promissory Notes, mentioned in the same question, do not enter into

the regular sphere of operations of our merchants.

They are hardly ever

issued and therefore would be looked upon with great suspicion.

The or-

dinary way for the merchant is to draw bills upon a bona-fide customer,

and if the genuineness of the transaction is established, that is to say,
if it is really ascertained that goods hive passed, such bills find always

a ready market with the Banks, even when the firms in question are not possessed of large means.

The great internal trade of the country is carried

on in this way, and banking experience has shorn that it is by far the
safest bill to buy and losses are comparatively insignificant.

I hope the above will give you a fair idea of the working of our
system on the points you mention.

If the above is not

if I can be of use to you in any way please do not hesitate to write to
me again.

Believe me, with kind regards,
Yours very truly,
(sgd)

Paul M. Warburg, Eso.,
Washington.




FELIX SCHUSTER.




"-TN:

FEDERAL RESERVE BOARD
WASHINGTON

November 26, 1915.

z

Dear Governor Strong:

I have your letter of November twenty-third,
which has my full attention.

You may be interested to know that, at Charlotte, where I had to deliver an address (of
which I send you a copy
of High Point, who vet,

erewith),

I met Mr. Cox,

placed next to me at din-

ner, and I had a god opportunity of discussing
the matter with

im and expressing to him the

pleasure we s ould have in seeing his committee
and also my' hopes of cordial and helpful cooperation.

think the matter is in good shape.

Very

rul y yours,

Benj. Strong, jr., Esq.,
Governor, Federal Reserve Bank,
New York.
Enc.

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*

FEDERAL RESERVE
WAS
\44:

Decembei,

194

Dear Governor Strong:

Did you not tell me that the Clearing Hote in

Chicago

accepts only gold certificates in payment?

My attention was drawn to Section 12 of the Act
of July 12, 1882, providing for the issuance of gold
certificates

and making such certificates, as well as

silver certificates, part of the lawful reserve of
national banks.

This section further provides:

"and no National banking association shall be
a member of any clearing house in which such
certificates shall:not be receivable in the
settlement of clearing house balances."
While it is not absolutely clear whether the words
"such certificates" refer to both gold and silver certificates,

I know that the Comptroller's office and

the Treasurer' i office

have held

that "such certificates"

applies to both gold and silver certificates.

Can you enlighten me about the conditions of the
case in Chicago and in other cities where only
accepted in settlement of clearing
Very

truly

house

yours,

Benj. Strong, Jr., Esq.,
('"
Governor, Federal peserve Bank,
New York.

gold is

balances?

/.,

;

t

02




st

,n
,?/




FEDERAL RESERVE BOARD
WAS
December

9, 1915.

Dear Governor Strong:

I have your letter of D cember 28th in which
you give me a graphic ill

weakness of the presen

tratton of the serious

system of intra-district

clearings.

What you wri

I shall bring

me is extremely interesting and
to the attention of the Board.
Very/truly yours,

4-e-LUICOL
Benj. Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York.

REHM1FAUK

CF HEVi

FEDFPA1

'





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102