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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 express understanding that the Company only undertakes delivery of the same on the day of their date subject to condition that sufficient time remains for such transmission and delivery during regular office 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 cril Form 2138 WESTERNUNION- GEORGE W. E. ATKINS. VICE-PRESIDENT TEL aItk no AM NEWCOMB CARLTON, PRESIDENT BELVIDERE BROOKS, VICE-PRESIDENT DELIVERED FROM RECEIVED AT 24 WALKER STREET, NEW YORK CITY ASit INGTON DC Ii is STRING ! / BANKERS.TRUST.CO NEWYORK AUG 26 1' 6 TELEGRAM IT. IS A BODY.BLOW.THE WORST I HAVE RECEIVED PAUL M WARBURG WESTE UNION AMMIND TEL---cte-AM Form 1861 f7- WESTERN UNION WV .4 EORGE W. E. ATKINS, VICE-PRESIDENT JP NEWCOMB CARLTON, PRESIDENT BE IDERE BROOKS, VICE-PRESIDENT RECEIVED AT 16 Broad St. (Stock Exchange Bldg.), N. Y. Ajar .s .ASHIGTON ,LET JR, CARE BANKERS TRUST CO., 14 WALL ST NEWYORK. TAND SLGRETARY WILL SEE YOU I 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. PIA:1 HARTSDALE, WESTC if ESTER C O wry NEW YORK 2 61/4 r t/- /14i f/tic k4, (os,, 46,, 4/(taf, cer)-t; 47-rk,1 44,p1,,A,te e-Arg // ce pay Chatham & Phenix National Bank. 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 H. S. Hotchkiss F. J. Heaney 014/14/%41 )(Ali 7-17)V0 duo c$C, etat/0 eatt4 441 gmzt H. W. H. 0. E. Andrews A. Law 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 , WESTERN UNION GEORGE W. E. ATKINS, VICE-PRESIDENT NEWCOMB CARLTON, PRESIDENT ki 1144* BELVIDERE BROOKS, VICE-PRESIDENT DELIVERED FROM RECEIVED AT 24 WALKER STREET, NEW YORK CITY - *- 20 WS AZ Q 30 WS WHITE PLAINS NY SPY-14 BENJ STRONG JR BANKERS TRUST CO NEWYORK NY/ SECY SENDS WORD FROM BEVERLEY POSSIBLE THAT CONFERENCE WITH YOU AND SYNDICATE PLEASE GET IN TOUCH ITH E WOULD LIKE EARLIEST BANKERS REPRESENTING NEWYORK CITY MORGAN AND SCHIFF KINDEST REGARDS PAUL WARBURG 1215PM A 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 V jp,, 1247 CAR- T ST CO NE-:YORK . -All- FOR H ! TY sAV D ABOUT .. UALIFICATi AGENT; 0E0 T RUnELL, VICE --EDER AL S /.;E F . HAVE YOU ANY oe A L STA, COLWORTH, VI CE PRES I DENT f* Y P .:!OLF7 C,Lu-Du3 . George S. Russell, 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, 11 _ -- rt.-ye?,LI-4C a2 6414,g ,i?eCiattr- ifetY--,-/?6)/t &wt. 12W-pittu,'_ 1, if- 4%5- 4, 79toJ 44,474,4_ estrkz,e,-- /tuAtatir. 4'ft."^4q44--,. 6,,ce -itta4Z, 6-0 40-a-flot per-RAJ& a4---42-ttitt.-r - (1) tjatickvi_ S--0 laA-kett pro-0;4-ce, lyea Aat Nekc«.E. at 696-14-4-49*' aeptiustZ - (-lierg Wan , not_ C/h #fraCtx-r ? Z05-4--apax_41 Low - Cre I 94,r,,,p0144. vweitai ektkit tit 20-44F tz't , kitrgt_ca-aq;.e.4a2aInq ti POSTAL TELEGRAPH COMMERCIAL CABLES DEU VERY NO. TELE:GRAM RECEIVED AT lverei nROA-D S' Th Postal 1r3ph-Cable Company (Incorporated)transmits and delivers this message subject to the terms.and conditions printed on the back of this blank. DESIGN PATENT NO. 441529 16L-17410 tkivered from 9tprt0A Z 11,5 W 85 GOVT K WASHN DC, SEPT 21 14 BEN JAM IN STRONG J R AN K ERZ TRU 3T CO FOU E' EN /9/ W ALL GT N LW YO Ric- TH E. I.NSERTION ON pAaz FOUR JUST Al3;.,VE SNATURZ 4 ILL .BE, AS FOLLIONS QUOTE/WC:ATTACH F3 aim CF. it EDGC.0 131 . sE ,SI.3NED BY CONTRIBUTING NSTITUTIONS AND CERTIFI ED ... .r.--d.. - RESOLUTIONS TC; ;SE FASSCO SY THEIR 5SARD'S OF OIRCCTCRS'-"P:' CR TRUSTEESiN SASE THE .i'LAN 3HCUL; MT WITH YOUR krPROvAL 1 ivE.RESPECTFULLY SUGGEST THAT YOU ,;NCLCSE COPiES -,F* THESE FORMS :N. YOUR LETTER TO BE ADDR.z.szz3 arz, TH.: PRESIDZNTS THE CLEAR! NG HOUSE ASZCC,IATION, ZND 0.114AZ /OF rAUL iii WARBURG irk POSTAL TELEGRAPH-CABLE COMPANY CONNECTION THE COMMERCIAL CABLE COMPANY [I, S AND 16] THE GREATEST TELEGRAPH AND-CABLE SYSTEM 111 TUE-WORLD. EXTENDS OVER TWO-THIRDS OF THE WAY AROUND THE EARTIL-- THE POSTAL TELEGRAPH-CABLE COMPANY ( INCORPORATED) TRANSMITS AND DELIVERS THE WITHIN TELEGRAM SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: To guard against mistakes or delays, the sender of a telegram should order it REPEATED; that is, telegraphed back to the originating office for comparison. For this, one.thalf the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND 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. 411y 170 4 EIGHTEENTH STREET D ci, y nt T - 6 1914 / rtkA/4) A ,/ / %-e4 (A-I4 i-e<1.1i a ./A' Meow_ eiL 4,A.2 /P;' &4/7(.,u,yeKe 474,-; 4t,t evilLtLik -d-ete2. )Ze aA /64`e- zirde-t-/-ceo4_ 4e 1-&-ve 4"'/' e/Vee'c:- 444) /C) eA/c,i6eL. 53 -- -)e" 6-zdi 4tte /-,a-/c) a%A,74 1474-7 o kri/ 5&,;(7, 7 $ ce4,e/2Z C'67 -Zerti" r-e47 e? 9-44 <171-e_er_ce leAde:, 4,ce 4liczt _t44,,_ 4* 0-40-111.4.4,u4C- 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 i di-e-A i(a,,, 0), 6lat4 , giti, ?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 ) 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. A ( HOTEL DENNIS 0 ATLANTIC CITY,N.J. /egj2fdley ar/4", 4acej- 4-cy ae,4G, 4?-e_C e/?-i.Ge___ lett& 6/2,6c/ s% .4/ al-ef e-ef?-eL-e4-t-eZ, `<, / 1 / i74, i/k4f0--- - (t e a te 0 zre,-r- etx 10-v a/xe ie./24 4/9 FA " _ray A ?e- 6/-c eLe4 4.' Zpe az! Z4<.. -fee/ figz, 7 Ze7/:a eY; vfee% If .Gr/ZW' 147,_ei( /17tr, 7e(,ix cel-1/47 4/14' 4L,Le4 - < ,74:e 4, t ///e 64 a/it, 6,tw7,_:_c Rfay2e 47 zze_e/y/Ax LticrJ I' / 4,77 / 4e .;44 kaye_ ereewe- %Joie get pi-, /6"/ e-e-e4, alt,4 c-.-if. z1 ("cvzrt,e g67i,2 .417 6qh7 Zwe,,,-r. I 716 tfr dew_ 6.4 beti 4/- 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 cuz X aze /edW erd, dite,m,60,,, et 41 eor,1_ ar,;/(-te-4;4L7',4 'kty iete ia44 47ta c,;& t, 61/4 46, 64'4(.. /4et". '.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 6 cra, ADIRONDACK MOUNTAINS LOON LAKE HOUSE LOON LAKE, N.Y. 'wt. 2 319j5 Ate, ze} a-e; Aotyt4 a-07iJ J-ce-r e 71e. t(.A. ^th J2 /47 - cy 1*610-, e."(eee,16;t, 441. c2 a ii aY e4 g7a, . ,eAf.ea 7, aerr,/ - Gwic -&4IuAe_ --&W 4 A1-4 agir akx \p ADIRONDACK MOUNTAINS LOON LAKE HOUSE LOON LAKE, N.Y. - Ar 7,t,4 /a-4ezz._ (ex bAe . eiheet,4 a/ced-6.4/,5. /4tir wi-a, ez." 4-0c_ 64,, i'et ot. Itta, a/eft4.4 4-e7)4-ir' d( (Le,Y74k Ice;- 6-aa 2c2i-rt iect,dhee4 %c-,e (0K4t1_ a-e4 ley- a ci(if 2_,,t6. elL4ee 7-(C-ce u2;e -- ct)/elle4Ait l /4- Zetfitee4 rott-,7er- 6ce-e4 41-dWif"'4' 7L174 1 ADIRONDACK MOUNTA I N LOON LAKE HOUSE LOON LAKE, N.Y. p4c42___ of-a2 ,71 e/ad.ej 1(4404 A.frr, 414/2-tO 4 zed-t 1t4Z_ -/.tds aKeZ g. ( Lt47 ry-..e,y /axe 4 /4, 4 etz 41/ Z.; 44'ePZ-, 411;f0141 (&$/i /4 4 zde,a-, /4/- 1 tL/La&,i 1 /7.4 h-tytiagge.Jf. z6d Zele:?-44 e_ 14-( V1:6e ditee:/?ted Cdelft4d 4/2; /4114 alea/t0i,kvt; rge-- //VP-_ 4161/1- 4-; e./%44=4 62e,4 ) .2,61ik to/ 44%4/ 7c,g, g>/,e,t 2e/4 7,,,,e_ra 6/i6e carie p 4,4 apkt ce,te-1-1.- 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. 1704 FIGHTEENTH Ei<1, 49is okt,?, iv,ehr /(ec_ Pt.(- 4,64pt4Z,/er, 1/(4-7 d4e a trti,,,,,V /44444ei- /2.476,' . 0-4ti" et7 ,o flterene-te Ace-z Ate-c:fa, 41-6,?%.6444,b aca Aiet, ae-c4c- ix-e,t_ .eev4,4- (ea-/ a,e pt, /1-6,4 /61>Y11 .e-tlY27 /Kir/ 6 444-f-i-- Air (7 L4-/e_. 4e4tce 16ik,fh et/L.44( /76,> 67 .ze,, alt-eur_460, accree. aAe_ Az.ect(A Aid /-ifeAm.A "rzi- Zre-4,,, 47 g.--ezze,i;f4/ ofr.,_ Et/ear-441 a4tet,k aette,,, 47,,,,,, * 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 '