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August 5, 1914. W. F. G. Harding, Msg., e/o U. S. Sub-Traasury, New York City. harding:I have just received a cable from Mr. Kent, in which states that the moratorium in London will probably last until all Bank of England notes have been printed; that no ships are obtainable for Continental Americans whose situation has become intolerable; that if our Government will credit him or any responsible person there with 10300,000 out of the appropriation made by Congress, he believes a vessel under the American flag can be started to relieve American residents who are in distress at Continental points; that they cannot await ye 88018 from America; that some Governmental authority is immediately necessary to conduct this arrangement under the protection of the American flag. This communication seams to me of sufficient importance to be brought immediately to the attention of those in authority at Washington, in order that it may receive the President's careful consideration. Yours very truly, (Signed) Benjamin Strong, Jr., President. July 8th, 1915. Hy dear Mr. Harding: A number of engagements have so far interfered with my discussing Mr. Bares letter with Mr. Platten. I an making an engggement with him, however, for the latter part of next week, on My return from Rochester and will lot you know the result. Very truly yours, N. P. G. Har41111% Esq., PederallVgift Tashingtan, P. C. a, BS Jr/VOU P. S4 as requested. Mr. Bares letter is returned herein, Aug. 20, 1915. Sirt in the abperce of Governor Strong, I beg to acknowledge receipt of your telegram, and enclose herein conies of two telegrams, which, I trust, are those desired. Renpectfully, Secretary to _Ir. Strong. Honorable 2. 441gir.44.4x, 7'ederal Reserve ,shington, D. C. PE Enos. (2) ar , June 16th, 1916. My dear Mr. Harding: I cannot thank you enough for the sympathy aad encouragement I have received from you and your associates on the Board. For s2me time I felt that it was absolutely necessary, in fact, inevitable, that I should resign from the bank perma,4 nently, but possibly that would be a mistnke and I are going to do as I am told to do. Fearing that I might be pretty to go away with nothing at thinking that all to do and the doctors, also, something to occupy part of essary, I Shall probably have my restless and unhappy my time wil secretary with me be nec- 9rd keep in toqch with the bank more or less, as w-11 as .'oing some private work in which I am interested. Your letter of the 15th is just received. encouraging and mind of uncertainty as to proposed, and helps a good deal reassuring the I cannot tell T'u friendship which you h-ve ell given me. Very sincerely yours, 7. P. G. Harding, Care Federal Reserve Board. Washington, D. C. Hon. BS Jr/VC to relieve my wisdon and propriety of how much I value It is most the course the help and Estee Park, Gol., August 25th, 1916. Dear Governor Harding: For some weeks I have been with t stenographic help and my correspondence has gotten b/Iii behi a hand. f Won't you accept this apology for my bated condiAulatiOns / upon your / appointment as Govermb7F-0-f.the Federal/"Aserve Board! It gaveAte (// alita d that there was no dan deal of tiring from this work, no/ atoned when I was in WrAthington. as you had now and t I am a(re th atisfaction to feel /there are sufficient reasons for encours\ ent to ibity,"all of us in claiming that success is well 412iilf7reaoh, and knowing what sacrifices you made to 1 Ivo Birmingham, I feel that this is the only real reward y4,can receive. Your term as Governor of the notable one if, as I imagine, we tem in the confidence of the Board should be a finally establish country within the the Sys- next few years. With warmest regards and congratulations, I am, Sincerely yours, Hon. W. P. G. Harding, Governor, Federal Reserve Board, Washington, D. C. 441. CONFIDENTIAL. .igut 25 Ilardtrig to Ale of ar 9!: Estes Park, Col., you *a soon as poseible a ..syton Act slid some arguments on wl II August 25th, 1916. 5 r. e Dear Governor Harding: / +r1^,,, Just prior to my leaving Eew York, we atarted a serious I [ effort to bring some of the larger state banks Onta trust compa- nies of New York City into tembership 91-44eEgd I Reserve Sys- tern, and you are doubtless acquaint,sdith the m % I am just to bring it about. e employed t the prospects of suce ieed cess were rather favorable until\ n of the larger trust come panics were advised thkibrsh the would make it necesa/a y for no re Federal Reserve System banking private firms to I resign as members o their Boa ,----1 n 79. This would mean of Directors. - lstionships of great value and im- busi'h thesevera8cd portanca(and n sacri.gioe which I am advised the trust companies I 1 , 1 prepar4to are not make. _dif4./culty erises, of course, from the Clayton Act and unless, therefore, further provisions of amendments to that Act can be brought about I hardly see how we can count upon the admission but not of the largeritust exactly, the same companies in New it may and other institutions. disappointment to me and I be possible to secure overcome the difficulty. Somewhat, situation exists in Chicago with the Merchants Loan & Trust Company This is a great York. hope that some amendment to the law which will With this in view I am going to send -2Adj. August 25, 1916. Hon. W. P. G. Harding. you as soon as possible a sketch of an amendment to the ClaytoL Act and some arguments on the subject which I hope the Board ,i5th, 191 will consider. I remain, F iO 4,4L 4i L4, Very truly yours, t tt b, por York we chile of the- larger tte banks inta temberanip lion, W. P. G. Harding, Governor, Federal Reserve Board Washington, D. C. jus ; BS Jr/VCM (1 o.t471 SetieUe .,rust compa- in p dr favorab*e unt the ie... ,,* trust con- Idvised. federal Reeerva System a. .Livatc ba,,:king firms to of Directors. This would mean ;Lonshipc of great value and im- ,r which Iam advised the trust companies '0 make. oulty arise, of course, from provisionr of the Clekton Act and unless, therefore, further Amendmercts to that ci oan be brought about .1 hardly see how, we can count upon the admission of to largerttunt companion jr hew York. Somewhat, but no* exactly, the, came situation exists in Chicago with the 4haate Leah5 Trust ',:ompany sad other institutions, is is a great diewappoiatmont to m end I hope that to seouro s s to the law whict, will we Form 1207 .RED age utter itild mark an X oppoass of service desired: WISE THE TELEGRAM _L BE TRANSMITTED AS A FAST DAY MESSAGE. NEWCOMB CARLTON, PRESIDENT Send the following telegram, subject to the terms on back hereof, which are hereby agreed to To Washington, D. C. rsnnrt on amAndmont bill printed in full in Chronicle Paragraph "E" 4,; 26th. maken no provipion for amendment to Section Fourteen t be ossible that this has ;:f1V1?T'Ar PPP berm omitted with no pr,9r1i,hj,1+1 of ArPflrii,Rint ilnqrAng Benjurin girr,n6S VC SENDER'S ADDRESS FOR ANSWER SENDER'S TELEPHONE NUMBER PI+ 7,-..1; ALL TELEGRAM .3 TAKEN BY THIS COMPANY A SUBJECT TO THE FOLLOWIN. To guard against mistakes or delays, the semi, of a telegram should order it REPEATED, that is, telegraphed back to the originating office for e-half the unrepeated telegram rate is charge,/ in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND I consideration whereof it is agreed between the sender of the telegram and this Company as follows: I. The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegiarn, b ceived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beye-id fifty times r 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 COMM. 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 telem used 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 ting hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be pail based on such value equal to o, e 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 rea, Itination. 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 wns. 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 hisexpense, endeavor t ntract 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 dne 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 ml with the Company for transmission. Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in addition to all , foregoing terms. No employee of the Company is authorized to vary the foregoing. THE WESTERN UN ION TELEGRAPH COMPANY INCORPORATED NEWCOMB CARLTON, PRESIDENT CLASSES OF SERVICE AST DAY MESSAGES A full-rate expedited service. 1G HT MESSAGES Accepted up to 2.00 A.M. at reduced rates to be sent during the night id delivered not earlier than the morning of the ensuing business day. AY LETTERS A deferred day service at rates lower than the standard day mesge rates as follows: One and one-half times the standard Night tter rate for the transmission of 50 words or less and one-fifth of e initial rate for each additional 10 words or less. SPECIAL TERMS APPLYING TO DAY LETTERS: In further consideration of the reduced rate for this special "Day ?.tter" service, the following special terms in addition to those enu- Letter shall be delivered on the day Of its date absolutely and at all events; but that the Company's obligation in this respect is subject to the condition that there shall remain sufficient time for the transmission and delivery of such Day Letter on the day of its date during regular office hours, subject to the priority of the transmission of regular telegrams under the conditions named above. No employee of the Company is authorized to vary the foregoing. NIGHT LETTERS Accepted up to 2.00 A.M. for delivery on the morning of the ensuing business day, at rates still lower than standard night message rates,' follows: The standard day rate for 10 words shall be charged for the tra mission of 50 words or less, and one-fifth of such standard day rate for words shall be charged for each additional 10 words or less. erated above are hereby agreed to: SPECIAL TERMS APPLYING TO NIGHT LETTERS: Day Letters may be forwarded by the Telegraph Company as a .ferred service and the transmission and delivery of such Day Letters in all respects, subordinate to the priority of transmission and In further consideration of the reduced rate for this special "Night Letter" service, the following special terms in addition to those Day Letters shall be written in plain English. Code language Night Letters may at the option of the Telegraph Company be mailed at destination to the addressees, and the Company shall ,livery of regular telegrams. not permissible. c. This Day Letter may be delivered by the Telegraph Company 7 telephoning the same to the addressee, and such -delivery shall be a ,mplete discharge of the obligation of the Telegraph Company to diver. D. This Day Letter is received subject to the express understandagreement that the Company does not undertake that a Day enumerated above are hereby agreed to: be deemed to have discharged its obligationi n such cases with respect to delivery by mailing such Night Letters at destination, postage prepaid. Night Letters shall be written in plain English. Code language is not permissible. No employee of the Company is authorized to vary the foregoing. PERSONAL. Estes Park, Col., September 4th, 1916. Dear Governor Harding: letteT of August 30th, strongly 4. possible that f coming on to Replying to your personal I am ariting at once to urge as you and Warburg carry out your ting. \ Colorado after the Kansas Oi If your time you in Denver at the // Hotel and that will save t will be a great treat to me to '4'i3cuss a lot of matters that opnortuni cl, move rather hl ingly by an y for wo Iwill arrange to meet e ce B ro you a few days/prr and give us t, orrespondence. '7iha6ou I am waiting can corn 0, Thatak you very much for your good wishes. i \ I am i iRK.. ing o4t)4ere, but so far have not done very much work. Lva____a" '''------(ine of the things which I want to discuss with you and ltrburg is the plan really suggotted by him that I do some writing for the Reserve Act. press on certain features of the I would like to make sure that le is in accordance with Federal whatever I tack- your views. With warmest regards to you and my other gcod friends under the same roof, I am, Sincerely yourei Hon. W. P. G. Harding, Federal Reserve Board, Washington, D. C. Estes Park, Col., September 4th, 1916. dear Governor Harding: Your favor of the 30th ult. is rle caved and I am writing to ask if you would min.4 readitlg a letter which I wrote to Congressman glaao On thi \jest of the proposed note provisiA f t Federal R erve ! Act, copy of which was a Mr. Warburg. was a great disappotm ent. 7 ant of all tha ,mendmen i Tha \adop 1 It o have the most importw at this session. ng you f ri)your letter and with kind regaf Sincerely yours, Hon. W. P. G. Harding, Governor, Federal Reserve Board, Washington, D. C. -2- 648. been redeemed by the Treasurer in gold or gold certificates, then such funds shall be reimbursed to the extent deemed necessary by the Secretary of the Treasury in gold or gold certificates, and such Federal reserve banks shall, so long as any of its Federal reserve notes remain outstanding, maintain with the Treasurer in gold an amount sufficient in the judgment of the Secretary to provide for all redemptions to be made by the Treasurer. Federal reserve notes received by the Treasurer, otherwise than for redemption, may be exchanged for gold out of the redemption fund hereinafter provided and returned to the reserve bank through Which the were originally issued, or they may be returned to such bank for the credit of the United States. Federal reserve notes unfit for circulation shall be returned by the Federal reserve agents to the Comptroller of the CUrrency for cancellation and destruction. "The Federal Reserve Board shall require each Federal reserve bank to maintain on deposit in the Treasury of the United States a sum in gold sufficient in the judgment of the Secretary of the Treasury for the redemption of the Federal reserve notes issued to such bank, but in no event less than five percentum OF THE TOTAL AMOUNT OF NOTES ISSUED LESS THE AMOUNT OF GOLD OR GOLD CERTIFICATES HELD BY THE FEDERAL RESERVE AGENT AS COLLATERAL but such deposit of gold shall be counted and included as part of the forty percentum reserve hereinbefore required AND ISECURITY; SHALL BE COUNTED AND CONSIDERED AS IF COLLATERAL SECURITY DEPOSIT4D WITH THE FEDERAL RESERVE AGENT. The Board shall have the right, acting through the Federal reserve agent,to grant in wbo:e or in part or to reject entirely the application of any Federal reserve bank for Federal reserve notes; but to the extent that such application may be granted the Federal Reserve Board shall, through its local Federal reserve agent, supply Federal reserve notes to the bank so applying, and such bank shall be charged with the amount of such notes ISSUED TO IT and shall pay such rate of interest en said-affieent as may be established by the Federal Reserve Board and the affieunt ef ON ONLY THAT AMOUNT OF SUCH NOTES WHICH EQUALS THE TOTAL AMOUNT OF ITS OUTSTANDING FEDERAL RESERVE NOTES LESS THE AMOUNT OF GOLD OR GOLD CERTIFICATES HELD BY THE FEDERAL RESERVE AGENT AS COLLATERAL SECURITY. Federal reserve notes as issued to any such bank shall, upon delivery, together with such notes of such Federal reserve bank as may be issued under section eighteen of this Act upon security of United States two percentum Government T:onds, become a first and paramount lien on all the assets of such bank. Any Federal reserve bank may at any tiffie redee its lia'sility fer elite-tending Federal reserve netes 15y de.-eesiting with the Federal reserve agent its Federal reserve- 648. - 3 - netes,-geld,-geld eeft.ifieatts, ef IswinI 1,eaney ef the United Fedefal fesefve netes se depesited shall net be-feZtates. issued, eit-eet npen eenipIianee with the eenditiens ef an-efiglnal issne. The FedefaI fesefve agent shall_ held aneh geld7 geld eaftilisates ef lawfnI ffieney available exelnsively fef exehange 1,9F the entstanding FedefaI fesefve netes when effefed by-the Upon the request of the fesefve bank ef whieh he is a-difeetef. Secretary of thc Treasury the Federal Reserve Board shall require the Federal reserve agent to transmit se sineh ef the paid-gel& to the Treasurerof the United States SO MUCH OF THE GOLD HELD BY iirm AS COLLATE= SECURITY FOR FEDERAL RESERVE NOTES as may be required for the exclusive purpose of the redemption of sneh Hetes FEDERAL RESERVE NOTES. Any Federal reserve bank may at its discretion withdraw collateral deposited with the local Federal reserve agent for the protection of its Federal reserve notes depesited with-it ISSUED TO IT and shall at the same time substitute therefor other like collateral of equal amount With the approval of the Federal reserve agent under regulations to be prescribed by the Federal Reserve Board. ANY FEDERAL RESERVE BANK MAY RETIRE ANY OF ITS FEDERAL RESERVE NOTES BY DEPOSITING THEMWITH THE FEDERAL RESERVE AGENT OR WITH THE TREASURER OF THE UNITED STATES, AND SUCH FEDERAL RESERVE BANK SHALL THEREUPON BE ENTITLED TO RECEIVE BACK THE COLLATERAL DEPOSITED WITH THE FEDERAL RESERVE AGENT FOR THE SECURITY OF SUCH NOTES. FEDERAL RESERVE BANKS SHALL NOT BE REQUIRED TO MAINTAIN THE RESERVE OR THE REDEMPTION FUND HERETOTORE PROVIDED FOR AGAINST FEDERAL RESERVE NOTES WHICH HAVE BEEN RETIRED; NOR SHALL THEY BE FURTHER LIABLE TO PAY ANY INTEREST CHARGE WHICH MAY HAVE BEEN IMPOSED THEREON BY THE FEDERAL RESERVE BOARD. FEDERAL RESERVE NOTES SO DEPOSITED SHALL NOT BE REISSUED EXCEPT UPON COMPLIANCE WITH THE CONDITIONS OF AN ORIGINAL ISSUE. ec-ocr, 41+ 5/11/16. Davi, etc - algke 111, 7/ a, 648 That section sixteen, paragraphs two,three,four,five,six and seven, of the Act approved December twenty-third, nineteen hundred and thirteen, known as the Federal Reserve Act, as amended by the Act of September 7, 1916, be further amended and re-enacted so as to read as follows: "Any Federal reserve bank may make application to the local Federal reserve agent for such amount of the Federal reserve notes hereinbefore provided for as it may require. Such application shall be accompanied with a tender to the local Federal reserve agent of collateral in amount equal. to the sum of the Federal reserve notes thus applied for and issued pursuant to such application. The collateral security thus offered shall be notes, drafts, bills of exchange, or acceptances rediscounted under the provisions of Section thirteen of this Act, or bills of exchange indorsed by a member bank of any Federal Reserve District and purchased under the provisions of Section fourteen of this Act, or bankers' acceptances purchased under the provisions of said section fourteen, or gold or gold certificates, OR PROMISSORY NOTES OF MEMBER BANKS ACQUIRED UNDER THE PROVISIONS OF SAID SECTION THIR-, TEEN AND SECURED BY SUCH NOTES, DRAFTS, BILLS, OR BANKERS' ACCEPTANCES AS ARE ELIGIBLE FOR REDISCOUNT OR PURCHASE BY FEDERAL RESERVE BANKS; BUT IN NO EVENT SHALL SUCH COLLATERAL, WHETHER GOLD, GOLD CERTIFICATES, OR ELIGIBLE PAPER, BE LESS THAN THE AMOUNT OF FEDERAL RESERVE NOTES APPLIED FOR. The Federal reserve agent shall each day notify the Federal Reserve hoard of all issues and withdrawals of Federal reserve notes to and by the Federal reserve bank to which he is accredited. The said Federal Reserve Board may at any time call upon a Federal reserve bank for additional security to protect the Federal reserve notes issued to it "Every Federal reserve bank shall maintain reserves in gold or lawful money of not less than thirty-five per centum against its deposits and reserves in gold of not less than forty per centum against PROVIDED, HOWEVER its Federal reserve notes in actual circulation. THAT WHEN THE FEDERAL RESERVE AGENT HOLDS GOLD OR GOLD CERTIFICATES AS COLLATERAL POR FEDERAL RESERVE NOTES ISSUED TO THE BANK SUCH GOLD OR GOLD CERTIFICATES SHALL BE COUNTED AS PART OF THE GOLD RESERVE WHICH SUCH BANK IS REQUIRED TO MAINTAIN AGAINST ITS FEDERAL RESERVE meney NOTES IN ACTUAL CIRCULATION and net effset by geld er depesited-with the Federal reserve agent. Notes so paid out shall bear upon their faces a distinctive letter and serial number, which shall be assigned by the Federal Reserve Board to each Federal reserve bank. Whenever Federal reserve notes issued through one Federal reserve bank shall be received by another Federal reserve bank they shall be promptly returned for credit or redemption to the Federal reserve bank through which they were originally issued, OR, UPON DIRECTION OF SUCH FEDERAL RESERVE BANK THEY SHALL BE FORWARDED DIRECT TO THE TREASURER OF THE UNITED STATES TO BE RETIRED. No Federal reserve bank shall pay out notes issued through another under penalty of a tax of ten per centum upon the face value of notes so paid out. Notes presented for redemption at the Treasury of the United States shall be paid out of the redemption fund and returned to the Federal reserve banks through which they were originally issued, and thereupon such Federal reserve bank shall, upon demand of the Secretary of the Treasury, reimburse such redemption fund in lawful money, or, if such Federal reserve notes have Estee Park, Colo., September 16th, 1916. Dear Governor 'Harding: I am sending you under separate cover five coodes of a brochure issued by the Bank of Free in an effort to stimulate the use of cheeks instead of the 3ank's notes. 1 thought these might prove of intoreat to you and your associates. Sincerely yours, Hon. P. G. Harding, 7-elreTTirreeri"Virffrted7 Wa eh i n gt o n D. C. VC! (COPY) October 7, 1916. Dear Governor Harding: I ar. very mach obliged for your letter of October 5th and regret to learn of the condition of the matter. I am sending a copy of your letter to Governor strong. Gov_.rnor Strong Culd I should like It ver:, much if Yr. Curtis could be 3ivpn an opportunity to discuss the matter with the state department authorities, and if you should. approve of his being given such an opportunity and a favorable opening should arise, I trust that you will be ible to arrange it. Very truly yours, Chad rman. Honorable W. P. G. Harding, Governor, Federal Reserve Board, Washington, D. C. COMPARISON OF THE ACTIVITIES OF THE FEDERAL RESERVE BANK OF NEW YORK ON OCTOBER 23, 1915, AND OCTOBER 23, 1916. 1915 Deposits by mail over counter Items handled Clearing House Amount Home debits Amount Transit Amount 1916 210 45 902 109 787 9,120,279.35 38 6,453,122.20 6,918 2,186,292.17 3,603 21,466,049.18 140 11,735,108.00 31,255 10,012,091.56 The Transit Department on October 13, 1916, handled 50,983 items amounting to *12,770,717.43 Government Deposits Items Amount 0 0 5,092 882,863.26 On August 7, 1916, handled 16,030 items, $1,751,966.30 Items returned unpaid Discount Department Number of items Amount 67 5 17,990.67 378 51 1,345,531.26 On September 13, 1916, handled 453 items, C6,732,040.14 Money Department, bills handled 25,045. 75,700 11/205 Number of Employees - officers, clerks & watchmen Salaries for one day 73 431.34 174 700.76 e:DERAL RESERVE BANK OF NEW YORK October 30, 1916. Dear Governor Harding: Confirming our, telephone conversation of to-day, Mr. Curtisand I had a meeting with Messrs. Eent and Hemphill, representing the trust companies interested in the French acceptance development, and I advised them that you had authorized me to state that the Federal Reserve Board, after giving further consideration in session to-day, would not issue any farther statement in regard to the French acceptances; nor would they deem it necessary for the trust companies interested to issue any additional circular, provided the amount of the acceptance of member banks should not exceed, as a maximum, $20,000,000. and should be held to that figure. e I further advised them that the decision of the Board in re acceptan- ces would be outlined by an address to be made within a few days, in which there would be no reference, directly or indirectly, to this particular acceptance. We understood them to give us the assurance that tney would confine the member bank acceptances to not to exceed 20,000,000., putting out such other amounts to State banks t private bankers and individuals as they were able to do and felt justified in doing. I trust that this carries out your instruction in this matter. I understood in my later conversation to-day that you approved of our submitting the copy of your address,' which will be mailed from Washington to-night, to the governors who will be at the New York Federal reserve bank to-morrow (Tuesday) for an informal conference, with the understanding that VE BANK YORK -2- they are to treat same as confidential until after the address is released to the press Thursday morning. Respectfully yours, Deputy Governor. Honorable W. P. G. Harding, Governor, Federal Reserve Board, Washington, D. C. }T /CEP D, ffice Correspondence To From__ ttr. AV. R. 1.?renna. FEDERAL RESERVE BANK OF NEW YORK Date October 30, 1916. Subject: Telephone conversation by Governor Parding to :it,. Trenan, October 30, 1916, at 2:45 n. n. in re natter of french ac- oeptancen inaugurated by the Guaranty Truet Calearvi and the Bankers ?rust CovInany4 Governor Harding stated that the Bowed hed been considering thie. natter in farther aeselon to-day and they desired that I aee teern. Kent and Penphi// to-day, informing then that if the acceptances of :somber banks under this negotiation eherld not exoeed, as the Pederal Reserve Board understood they won Id not, t.20,000,000. and they (Mestere. Kent and Henphill) would avrnre the ",onrd that they would be '.1ald to tle fare, the Beard on Ite part would not insue aay ennorneenent of their own; nor would they ask the trust oorpan- les mentioned to iseue any further circular; and that ).1e 3oard would not parene this matter further, other than to have the general eub,iect of acceptances treated in a public addle:se (by Governor Parding presumably) within a few dart, In which addrees there would be no reference, directly or indirectly, to the ?rendh acceptances which have ben ender consideration, but would only explain the Board's interpretation of the acceptance byeinees. Copieft of euch addreen will be nailed to-day ?7'endity), acoompanied by a cenfidential let-er from the loard to each Federal reserve agent, and it will be suggested confidantial'y to the ?ederel reserve agentn tn-t a /ightly higher rate, nay 1/3 to 1/44, sheuld be necnred on sueh finance bills over regular bona fide aceentences as anatter of general policy, bnt the nendling of these nattere will be left to ouch individual -batik after they have receive. this statement of the general policy of the Pedinna ;Reserve Board in re aoceetgL1143e ff r- ovember 2, 1916. Pear Mr. Harding: Your letter of October 31st relative to the Prench acceptance credit and yonr dismission of the matter in your addrese before the American Institute of Banking were duly received and were read to our board of directors yesterday. e had quite a discussion of the whole question of rates for the purchase of acceptances and decided that we should make no different rate for domestic acceptances and for acceptances naae to furnish dollar exchange than for the import and export acceptances of the sane institutions which we.have hitherto been buying. 7e also felt that for the nresent, while acceutancee uneer the so-called renewal credits were being offered in moderate voleme we shoeld not, as long as we were purchasing them in conservative amounts, make a differential in the rate for these forms of acceptances. Inaenuoh an we presume that your letter of October 31st was writ- ten to all Federal reserve agents and as we shall probably receive inquiries from other ?ederal reserve banks as to the policy this bank will pursue In regard to purnhasing the different classes of acceptances we thought it edvieable to write to all those for whom we are now ourchaeing acceptances stating the views of our board, copy of which letter I end se Very truly yours, Chairman. eeable P. G. Harding, -ernor, Federal Reserve Board, hington, I. C. Pe/RAH herewith. November 10th, 1916. Dear Governor Harding: I hate enjoyed before the American reading the addre Institute of Banking ve which you much. Apparently you hold to t ongly maintained by Warburg that these foreign acceptance credit ble to reach dangerous prop. ercise some restraint of t now are lia- u that the Board should exsiness of this character. trol rtily ere the world at peace, 1 iroZ- you have expressed agree with v.Lews e such that I cannot help fecling we must and delivered methods for the - - time being employ ever lich is undoubtedly good and well tak f foreign con- erce and to protect secured, to possibly our international balance shee 11 be the reverse of the present. Don't you pplying to ways ap c nk there is something in the view that 't transactions in time of peace, do not al- r conditions? We are shouldering a great responsibility whrn we accept such a large share of the world's gold, if we permit it to expand our own banking structure exclusively and it will give rise to no end of trouble in the future. If we use it to expand our abroad, we automatically get protection, loans so I am inclined to think 2 To Governor hording. Nov. 10, 19_ that every good loan which can be made abroad under present conditions, is so much insurance for the future, whether it is a short government loan, an acceptance credit, a commercial credit or a collateral loan. Thank you for sending me the adds and success to your administration as Governor. Very sincerely y Hon. W. P. G. Hording, Governor, federal Reserve Washington, D. C. avember 10, 1916. Pederal Reserve Board, Washington, D. C. sirs I, baste report as the butanes* of the bz?zik for the month of October, 1916, as follows: Deposits at the end of Leptentber October - DEPOSITS. Lnerease 206,246,564.86 ....112A2451012:15. 15,722,194.49 - 5,500,603.29 October..3.428.285.05 Govt. Deposits at the end of September " " " Decrease - 4 2,072,316.24 Tan member banks seMeittee 20 applicatifts for reeiscounts aggregating 4,055416.65, an Increase over the preceeingmerith of 5 In mbar and 4474,535.-36 in amount. Rediscounts at the end of September41 " 4 " " October- - - increase - -4? REDISCOUNTS. Reelsoounts maturing:vie:in 10 days- - e 0 0 " " 0 0 30 60 90 If - ..., ... " .... - - *--- 0 762,244.86 4043.406.9;4 261,162.00 229,873.68 516,760.26 278,428.00 10.345.00 Total- - - - 4 1,0430406.94 SO chances were made In the discount rates; vie., 3% for 15 dap, 4% 15 to 90 days, 57) over 90 days, NI trade acceptances SO. ACTANCEs. The bank purchased for its om account banleare° acceptances for .13,600,297.20 and for other Pederal reserve btaas 416,085,972.77. 2. Federal Reserve Board. 11/10/16. The high rate vas 3fr%, low 2%, and average 2.539%. Acceptances awned at the end of September - - 424,529,174.45 ft " " " " October - - - ...2.5eg94.E.3.. " Increase - - 4 Acceptances maturing within 10 days - - - - - 4 562,220.48 ACCEPTANCES. " " " ft ft ft " 30 60 ft " 90 " " " 3,074,146.90 5,486,982.43 8,333,373.08 10496.691.72 Total- - - - 425,091,594.93 The bank purchased for its own account warrants amounting to 43,560,000., and for the account of other Federal reserve banks 44,700,000. The high rate was kiS, low 2e-:fe plle, average 2.601%. - October ----- Warrants armee at the end of September- WARRANTS. ft ft ft ftff Increase - arrants maturing within 10 days It " 30 " " tt ft tt It 0 " " " over " " " 60 90 90 ..... .11.0 +11. WM am vs. Total- - - No. of Items seat to Transit Dept. in Oct.- ft VI COLLECTION 5/Benxi. " " " Clearing House " " Average No. of Items daily AreerIt sent to Clearing Home " " Transit Deeertment -- 4,673,237.30 7.534.783.09 4 2,661,545.79 4 2,314,160.20 1,281,756.97 3,370,164.97 76,516.74 492.162.21 7,534,783.09 634,360 90,880 38,550 -.:1337950,612.46 227,017,372.04 The daily average in September was 31,399; the total to the Clearing House was ,:;304,248,655.85, wed to the Transit Department 4195,156,814.23. FED. RES. NOTES. Federal reserve notes smessting to 431,240,000. were delivered to the btu& by the Federal reserve It up to November 1, 1916, when the notes outstaading were 04,230,815. The decrease of e47,009,185. in gross amount represents the *otos sent for destruction to the Comptroller of the Currency. There were paid out to 36 member banks 13,548,500., and to 3. 9 nonmeMber banks 1A33,000. 43,545,000. sorted bills. FEL.RES. NOTES. 11/10/16. Federal Reserve Board. Of these, .10,336,500 were new bills, and New York City banks deposited 4.:3,122,830. notes of this bank, and out-of-town banks sent in 4766420.; the Treasurer of the United States sent in 41,105,500. Notes of other Federal reserve banks amounting to 41 349,600. were also received. Tq. 0 Income from bills discounted - northers ft - purchased " investments " U. S. bonds ft " sundry profits 0C'20 4 3,243.00 Total - - 5/9740.62 18,904.33 6,746.59 16.404.87 99,041.61 Via.t_ Lsense: Assessment ?ederal Reserve Board Salaries Directors' fees- Per diem allowance Traveling expenses -- ...... pfficers' and clerks' traveling expenses INCOME AND EXPENSE. Rent Telephone 2,819.85 22,528.05 SO, ---- 290.00 70.00 55.00 154.85 4,233.34 166.10 187.75 Telegraph Postaoit Expressage 1,234.14 Insurance and premihiss an Fidelity bonds 601.63 377.83 1,748.89 20.80 - Printing and stationeryRepairs and alterations AS Oil All other expenses, N. L. S. Cost of federal rest notes issued to the bankft.. -- 1,374.74 17,080.00 1,666.66 3,013.95 Total - - 5,282.95 117.90 4 64,024.04 7.037.36 4 56,986.68 Fe&eral reserve notes - monthly proportion All other emortization Depreciation, furniture and egaipment Service charges paid Yee- Res. Agts." Conference, traveling expenses- Less service Chge., Transit Exp.- 2otal Income over expenseAs compared with income over expense in Sept.- - 947.63 42,054.93 43,437.23 - Federal Reserve Board. 4. 11'10/16. No important fluctuations occurred in money rates in October. all loam rose to *1', an the 9th and 17th but declined to 2..41 during MONEY BATES. the last week. to term. Time money aa collateral raneed from 3% to Oaccording Bankers" acceptances remained tracheagedat 20e2V. Com- mercial paper was taken at alidatly easier rates of 3e% to M. In the foreign exchanges closing rates for sterling, francs, marks, guilders and roubles, Show only slight fractional Changes during FOREIGN EXCHANGE. the month. Lire declined to 6.70je, a discount of 29.3.;; against a dis- count of 24.3% on October let. No slackening wasnotee in October of the intense activity pre- vailing in trade and industry. Nee records of volume were made in many lines, but the demands of consupere are so great that under eresent con- ditions there is not such danger of over production. prices which be three menthe ago, has developed into a widespread speculative movement in commodities aid securities. the highest price since 1890. GIMML. Civil War. The advance in Meat is quoted at Corn is dearer than at Soy time since the Cotton teuched 20.04 on October 25th. After a prolonged dispute, large New York distributors of milk: agreed to contract for a six months' supply at 151 advance per quart. Leather prices have risen rip idly. Sole leather advanced 5' per lb. doring the lent week in October, and various grades are 15i to 2011 a lb. higher then a year ago. In upper leathers, colored kid is now 84 par foot againnt 490 in July, 1915. taken place on sheep leather. A similar rise of 100% has 5. Federal Reserve Board. 11/106. Comparative cash prices of staples on November 3, 1916, and No*ember 5, 1915, are the following: Bor. 3/16 49.75 _Lour, Minn. pat. Wheat ,No. 2 red, winter Wheat, No. 1, speg Corn, No. 2 Oats, No. 2 Cotton, mid. up Print cloths, 64x Wool, 0. & Pa. X l.93* 2.25 1.14 1.12,k .59i 64 Lard, choice Butter, ex. army. Cheese, state 1.c.f. Sugar, centrif. aagar, gran. Coffee, 110. 7, job lots Cotton-seed oil Petroleum, rfd.,gal. Iron, basic pig Iron, Bessemer Iron, No. 2 Steel billets 45.50 2.051'7. Wool, No. 1 comb. Pork, mess, new GENER AL . Nov. 4115 Billets, open-Wth Steel rails, 0.-41. Copper, eleotre, lb., Lead, lb. Tin, lb. Spelter (St. Louis) .1890 .31 & .32 .48 & .49 31.00 .1710 .37 & .37t . .22 .0646 .0735 S 42d .1180 .03B- .30 & .31 .40 & .41 16.75 .0935 .29i & .26 .0446 .0524 .09k .12 .0835 22.00 26.95 17.00 50.00 50.00 33.00 .2850 .07 .41874- .1037k .0770 .0775 15.00 16.95 13.00 25.00 26.00 28.00 .18121. .05 .361* .1475 During the month, New Yea bankers arranged a credit of ;)50,000,000. to French merchants and a new British loan of ,;300,000,000. A published computation of the foreign loans and credits ar- ranged in the United States since the war started and still outstanding, is as follows: l'OREIGN. Anglo-French 5-year 5's on 45 basis British 2-year 54 ool. loan on ok% basis British 3 and 5-year col. loan,- - 4500,000,000. 250,000,000. 300,000,000. 6. Oedema awry° Board. Broudat forward 11/10/16. 4,a5o,o0o,coo. French 3-year col. loan on al% basis Prendh connmrcial credits British banks extends( loan - 400 air .111 Miscellaneous crefilts City of Paris 5-year es on tools --------London Jot. Later Board 1-year dies. - ----- 4.1,4 a- 50,000,000. 6% 0111 Canada; Dominion 5, 10 and 15-glar 5'sOh Ime Dominion 2...yr. 5's at St% Provincial Paalcipal riofoandland 3-year 5's at 5e- - krgantina: 5-year 6's on 64-:: basis- - WM, 2 and 3-year 6's on 64,% basis MOO ix months notes- 1-year 5"a an 4.70% basis 1-year discounts, 5 to 5 basisRussia 3-year loan an fre basis OM Mt OW, IR* high WOO Italy 1-year 6's on 6. basis ------ 9Witserland 3 and 5-year 51s on 6% taide Gasaany 1-year treasury notes 0 bestsdn. Ey. Norway 2 and 3-year 6's on 6 basis; 7-year S's on 5.75:7 basis - - Ole OW .0 Greece bank credits Chile bank loan --- - -- Bac Zaulo, Brasil, 2-11-year W. 61s-NW a ** Bogota, Colodbla .Ageeen 2-year 6's aa 6% basis - ref IN" China banking loaae 411, .4Ir Panama aortal 5's 12-year 5's on 5.20 Bolivia txurdc 1O a a- 9116 MO MO- O. 100,000,000. /70,010,000. 50,000,000. *50,000,000. -- basis-1111. a 101 OW M. a #111- 60100,000. 75,000,000. 20,000,000. 57,500,000 63,000,000. 5,000,000. 25,000,000. 10,000,000. 6,000,000. 16,000,000. 15,000,000. 50,000,000, 25,000,000. 10,000,000, 10,000,000. 3,004000. 5,000,000. 7,000,000. 6,000,000. 5,500,000, 5,0,0,000. 5,000,000. 4,000,000. 1,200,000. 1,250,000, 111.910050,c00. Estimated. Leading houses consulted have reportaa on various lines of business as follows: Department Stores, no change in business during the last month. Sales keep up; collections are satisfactory and the outlook is go0d Drugs and Chemicals; goods are Obtainable at higher prices 7. reders1 Reserve from all siastrIso except Germany and Austria. Board. 11/104 Salee of proprietary articles are above the normal; collectioes are fair. Hardware; some houses seam to have bought goods above their requirements, conseqaently there is some falling-off in sales and collections are only fair. Clothing; nerefaeturers and jobbers are looking ahead and trying to avoid any possible trouble. Business seems to be going well with spring orders in satisfactory volume. There is a good ammasd for men's wear but lees activity in cloaks and suits. Collections are fair. Pianos: trade is sood and payments are prompt. Meets and Provisions: sales are being maintained, and prices are good with payments satisfactory. Silks and Drygoods: restrained. prices continue to rise and buying is more The retail and cutting up trades are fair; collections are good. Labor is rally euployed at high wages, and there seeus to be less disposition to strike than in recent months. The loans of the New York Clearinghouse members on November 4th e 43,357,047,000., deposits 4124,107,040. 43,524591,000., and excess reserves Since September 30th loans lemrsamed :,19,609,000., deposits increased .58,758,000., and excess reserves Inc reed ;;;;54,917,470. Other statistics of October, 1916, campared with October, 1915, are the following: New York Clearing House, 415,711,195,935., an increase of ,971,517,283. New ineorporstlems, eastern states, capitalized at .0000000. or over, ,;303,768,700., an increase of 495,073,700. 100/16. Federal Reserve Board. 8. Transactions on the Nee York Stock Exchange, par value of bende 4143,543,000., an increase of 439,420,500. Building in New York City, 11,542,880., an an increase of 1,743,659. increase of 4,150,255. Shares of stocks, 28,348,361, Postal receipts New York City, ,;3,095,923., an Failures in Mew York State, 153, with liabilities increase of 003,743. of 41,643031.0 a decrease of 136 Al number and 4;6,113,510. in liabilities. Production of pig-iron, 3,508,049 tons, an increase of 383,358 tons. Foreign trade of New York for the fear weeks ende'3 October 26th, exports 4254,591,463., an increase of 450,149,104.; imports ;118,918,710., an increase of 48,689,976. The changes in the statements of the Bank of England, the Bank of Prance and the Imperial Bank of Germany since my last report are the following: BANK OF ENGLAND Gold, November 1, 1916 September 26, 1916 Reserve b56,363,340 107,569,000 1167,729,000 53.652.336 35.564010 156.852.000 2,023,000 10,877,000 Is 2,711,002 Increase Other SeCarities Novqber 1, 1916 SepteMber 28, 1916 B105,714,000 95.384000 10,326,000 Increase 17 Deposits Increase Ratio of Reserve 22.40% 22.87. .47% Decrease BANK OF FRANCE Gold Silver Oircalaton November 2, 1916 P4,992,020,250 P326,095,000 F16,128,267,000 September 28, 1916 4.832.751.000 F 159,269,250 Increase 340.034.000 F 13,939,003 Decrease 16.720.027.000 F 591,760,000 Decrease 9. a. F4 11/10/16. ildtawitg. beendan! 2, 1916 F1,924,180,000 September 28, 1916 i.).615.0C214c42 P1,969,429,000 -104ArtElagA F 714425,000 257,214,0X Decrease Decrease A L 174 iLLtNJ aga October 23, 1916 Circelettpn. M2003,401,000 H7,033,961,000 bepteober 22, 1916 -1107,444,QPQ IA 31,776,000 Increase II 136,705,000 Increase =LAU= The month of October is reported by all branches as having very satisfactory. The crops have not been evenly good; but the average milit be said to be fair. the instability of prisms. I. The grestest complaint is of Some of my informests believe that this leading to too mach speculation within business linen. One largo mnnufacturer confessed to no that he had bougnt a great amount of oottoabeyond anY present needs and that the sale of the emcees Ald give him a larger profit than his manufacturing. are Mew:bents arally satisfied with the voluna of business. It should be noticed thei there has been much less dis- turbance of business than is ustua because of the presidential election. 21.LIR4 2here has been no change in fundamental conditions since my last report to you. 10. Federal Reserve Board. 100/16. However, the high cost of commodities is giving meny people mudh concern. It is very difficult for mapy merchants to plan for the future. Salaried nen are feeling the burden of higher costs, and manufacturer, who make standard goods for which there is a standard price are feeling the necessity of sore change in the price fixine method. In banking circles we hear more and more discussions as to the coot of doing a country banking business, and it seems inevitable that some measures be taken to eliminate burdensome accounts. Business conditions in our vicinity continue to be very satisfactory. Our minufacturing industries are working to capacity, Metechants report a rather better than usual trade, and in every line of endeavor there seems to be a feeling of satisfaction over con- ditions and results. In many instances there has been an enlargement of Mi4U- facturing plants and the only complaint is scarcity of labor and the hige price itscemeands. We think we see evidences of additional capital requirements due to the increased cost of merchandise and the ter cost of production. ego:n=0mA This section is in the center of the greet dairy region of New York State. There are probably more cows to the acre for 50 melee around Oneonta than any other section of the United States, and Is semetines called the "Wiley 'egy," and there seems to be a better feeling among the farmers on account of the increased price 11. Federal oserve Board. 11/10/16. of milk which they are now receiving. Along other lines things seem to be running along in about the usuAl way. ITE4CA November in this section finds labor still in great demand and LvT 'vastly no labor in night to satisfy it Farmers, stile only having in some cases a partial crop, are realizing such unusually high prices for such products as potatoes, cabbage, beans, Wheat, etc., that many of them are having a very profitable year. The increased salary lists amd high prices paid for agricultural products are enabling certain portions of the public to be in a position to spend freely, and in many cases the money, instead of being saved, ie being spent for luxuries, which is one of the unfortunate developments of this period of proeperity. The foreign element who are in this section, and are benefiting by the increased wages, evidently are, as individuals, saving their money. Collections .are good and improving. The outlook is for prosperous business conditions up to at least the middle of 1917. FAX 3,11';(2i4V4VM. General conditions in this section still rain very astisfactory. Merchants and manufacturers are all having an increasingly satisfactory business,,mmd banks are experiencing a better &stand for money. 12. Federal leserve Board. 11/10/16. gAALPYR4QUa, No change in business conditions. The business of the aralcultural implement manufacturers is normal, having been no change practically for a year or more. Mannfactarers of automobiles and parts of same report busi- ness better than ever before. Brewers: nosiness conditions about as last month, but much better than a year ace at this time. Building trades: Show a slight falling off from last month, Farming industry: several years. The farmers have not been as prosperaus for thlle the crops have not perhaps been up to the ONMPeate, with the inception of hay, the prima are very high. tatoes are bringing now 1.75 per bushel. vanced. Po- All dairy products have ad- Vegetables, such as onions, cabbages, carrots, etc., are bringing prices nearly double to that of some previous years. Meat and buckwheat have also largely advanced. The above condition. places the tamers in this section in a very favorable position. aanafacturers of hosiery and underwear: Report busivose good. Prices within the last year have largely increased, owing to high cost of labor and material. The reenracturers are not urging sales, as most of their goods are sold for future deliveries running from six months or longer. iludh of the material now used has more than doubled in cost during the past year, and the maaufacturers fear that, should a decline in price of such material occur, there would be a large cancelation of orders. nanufacturers of clot/it-yea Sales are larger than a year ago and collections are much better. 13. 100116. Federal Reserve Board. Mercantile houses, both jobbers and retailers, report business very satisfactory. Shoe nnnufacturers: While business contlasee satisfactory, they have much difficulty in obtaining sufficient labor. Loather has been steadily advancing and is new more than double the price of a year ago. steel asaafacturers: Business continues to improve. Raw material Is more easily obtained, and the approadh of winter Is making labor more contented. AWAILSMUIVEML 0.7,666,367.49 14,756,767.69 October, 1916 October, 1916 yR01.1 UTICA There is no change to Mart in the general outlook in this vicinity. Baldness continual at an abmegaml rate, the demand for money Increaming as the cost of all raw materials is rising. De- posits apparently continue to increase with the same rapidity that the deaand does. :MU JAMLLTOLk The presidential campaign has not interfered with the business of western :lee Yeez this year, and while registration is large - sure indication that the electorate is interested in national policies and candidates - there has been little open enthusiasm and political speakers have not had overflowing audiences. There is abundance of "pep" in manufactaring districts. Your correspondent does not hear a single cry of distress. Every 14. ?ederal Reserve Board. 11/10/16. belt is stretched tight with the load lepose4 by the necessity to produce to the limit in order to meet demands. ZIanafactarers are often heard to say: "we never had such a tremendous volume of business as this year, but not until we take the close of the year inventory will we know how profits coepare with previous years -whether or not our advances in prices have beam proportionate to the increased cost of materials and labor." Farmers are finishing their harvest. It has not been a good year for them, but as usual they are better off than they prophesied during the crowing maths. ?.muting does not share in the ever rising tide of vo1uMe and profits. aoney Is toe Abundant. interest be paid theme Depositors are insistent that Rates on loans remain stationary. of conducting banks advances. The cost tasareholders will look in vain for extra or increased dividend* from country banks this year. PPM VCATIZTOpt Our report for this month is just the same As last. Orders in money are in great abundance, the table bane Shortaee of labor andmaterial. ZAMA OWNSBURG Business conditions are good all through this section. . holesalers, retailers and rxennfacturers report increaso6. sales and gocil collections. Labor Is fully employed, farm products bring high prices, OA the pest may be said to have been a successful season. Amissol. Reserve Board. , 100/16. Bank deposits continue to increase, and there Is a good dommnd far money at this lima. There has been practiaAly no chmOMO in business conditions in thin neighborhood since the last report. All our factories continue busy; payrolls gem to be con- stantly an the increase, and while sone of our factories are experiencing difficulty in getting a oopply of raw materials, production is large and we can see no falling off in any of our various linos, with the possible exception of the corset business, but as this Is normally a dull period with these people, the ftennfacturers in this lino appear to be satisfied. Building operations continue active, and the demand for Inc accomodations is still largely in excces of the =pray. Retail business In all lime Is mod. and depoolts In all our savIn6st institutions are rapidly Increasing. Businems conditions continue very satisfactory in Nee Brunswick and vicinity, in fac. seam to be coing on with a con, otantly acceleratini: speed. A groat deal of complaint is heard from mommtacturers and merchants about the diffloulty in getting snpplies With the approach of cold woornher UM expect labor conditions to be nomedhat cased up because of the enforced clooin down of certain outside activitiesOne to the season. 16. Federal eserve Board. 11/10/16. Bank deposits and clearings continue at high water mark with a noticeable improvement however, in the demand for money, which is very welcome. FROM ENGLIZilITMLT. R. J. At the and of October we find conditions in our coast towns quiet; there is some activity in building operations, some new cot- tages are being built and many renovated. Bank deposits continue to be good and considerably in excess of last year. In the inland section the farmers are progressing with their work; they are now in the midst of harvesting their corn of which there is a very good crap. This has been the most prosperous year the farmers of this section have ever had. narily large and prices high. The potato crop was extraordi- There is plenty of hay and corn and a lery good yield of apples, which also sell at high prices. Bank deposits continue to run heavy with little demand for 'teazle. Respectfully, Chairman. HVC/HAB November 20th, 1916. Dear Governor It444.01;_. Your letter of November 16th has ust reached me and I greatly appreciate the frank ste.ement We are really not as f I to be mount of fine do favor a limitation upon Federal reserve ed by ban e position of any restrai by citizens or banking inst the case. aper purchas- other hand. I think the im- upon the extension of credit ns of the United States ligerent countrie to t only a serious blow our on domest calar ty of the greatest tude to the ci not loans share your view to magni- Of course, we do want to make bel- not that these ink every one of them will be paid. are hundred of millions of people in the world to be fed an lothed ,Jid she in after red, and the business of the world is go- the w that t notwithstanding the inevitable readjustments involve. We must not lose issued one loan in sight of which the the fact that England has not gov,rnment has engaged empt the holder froE paying any amount of taxes itself to ex- which the neces- sities of the government may require it to impose upon the holders of its own bonds. England will not repudiate, even if it has to tax a half, three-quarters, or even all the interest on its domestic debt. To a great extent, that is true also in Francs. -2Nov. 20, 1916. eovernor Harding. I do not like to hazard a ;;ttOss as to whet kind of dif- ficulties will arise when the war ends. meny possibilities of difficulties thet There seem to be so prophecies are almost But I certain to discredit the prophet. from the category of dan::. measure eliminated billity that these credits now being extended and their banking in a considerable have any strong , England, Yrance . institutions will .; fault. What I think is a in this much more likely is that they may need to renew country at ending es absorbed th a time when 'we have prob- that day comes, England capacity created by gold imp necessity of not only pay- and ?ranee may be confronte loans, but also pledge col- ing unheard of rates for lich as yet they would lateral for the sec not contemplate uration of What y sentiment e e stopped. ctly. I beli ve i lson. and wi 'irig to do so b stop Ii that she has personally that Germany has been -Ling for a in the terms of peace which she must accept accept punish- The effect upon the German people is German Government fears. third party can break such annihilation, whice is too ready face the consequences of the been wrong from the start and must ment for wrong-doing. Pres- year past, but is unable to unwilling to use unabl admission in what the No outside in- government represented by n stop it, fluence ident the war is my oen Only the intervention of a a deadlock except, of course, complete appalling to consider. I, personally, -3- Nov. 20, 1916. Governor Harding. believe that peace sentiment is stronger to-day than at any time during the whole war. ,hether you and I believe or do not believe tha- we are going to face serious problems growing out of the war, everybody without exception should agree that F.:eri problems are posible and it is the duty of the Federal Reserve stem to prepare for them. As I recently wrote Warbu g the m effective prepara- tion beyond all doubt is to clear up our hod ld basis with and get the country on an ac odge currency great mass of free gold held by the res and I know you will not mind You have wkitt my stating quite as frankly n conviction that the most imand your associates is to portant duty now ass that we must get rid of our convince the P s, take the burden of redemption greenbacks, ou Federal reserve banks and put them in po in er requ ion to actu em in gold every dollar of paper money culation in t is country by enabling /hem to gather togeth- thousand millii dollars or thereabouts in excess of their reserves on is proud of his constructive achievements. of them would approach this in importance to the country at this time. I am amazed that he being a student of these matters,nas not seen it long ago and prepared a message to go to Congress with an urgent recommendation, to com,lete the work started by the Federal Reserve Act. -4governor Nov. 20, 1916. Harding. Once the reserve banks can get this gold in hand, my future is reduced to an out that, and risking all the dangers of concern for the ourselves to remain in a bsolute minimum. adthprophecy, we permit position where persistent and long- continued adverse exchanges might force a n suspersion-of specie' payment. You say you cannot see ho gold without giving value. many and Fiance and by flo ted by high tariff, with for th ents. this r of gland, Ger- the world not ode,- South vor.of London, have American countries, Paris and make direct loans We only protec- meet these he world over will in New York end do not s now due to t our squiring the In order to and Eastern countries, e going to get They will get it rest of the world to pay all debts to Europe and pay Euro e borrow Berlin. belliger- heir own debtors to bring about t. Essays couls be written on this subject and I do not pro- pose we shi o inflict you d get our d t as stated above, my conviction is that in hand and that we cannot do it too prompt- ly quite personally and hope you will understand my having written you a I would be glad to have you consider this letter little more definitely and positively than I write to any of your associates. have been willing to 5 To 0_ Nov. 20, 116. Governor Harding. I am getting along first rate but suffer from the irksomeness of this banishment. I am also constantly conscious of the consideration shown me by members of the Reserve Board and frequently think that I ought to insist upon resigning so that you might have an active head for t ith warmest regards, beliove me Faithfully yours, Hon. W. P. G. Harding, Governor, Federal Reser Washington, D. O. BS/VC:. Now York bank. December 9th1 1916. Dear It was a great pleasure to receive ur nice letter of the 5th to which I want to reply ce to a few points and again to ask if there is anything wit that I cn do to promote progr The views expres ment of November 28th seem of the Advisory Counci is currency action. en shared by the members will understand my stat- it necessary to take this for an orderly and constructing of the problem of our huge gold reserves and the expan on which it wi these portations o, steps a regret that the ven larger additions to our gold stoc ive h ter. d in the press state- ing frankly that I Board and the Ad my power ken control over its use. I agree with the Board that old are not necessarily bad, provided, ce to impound the gold and exercise some This is an ideal situation in which to deal with our currency, but the opportunity will be lost once the gold is scattered in detail through our banking system and is permitted to develop an immense expansion of credit. -2Dec. 9, 1916. Governor Harding. Could it not be arranged to retire the greenbacks at one stroke and give the Reserve Board discretion to effect the retirement of, say, not exceeding t100,000,000 of national bank notes per annum? I would personally be gled see the Board t given discretion without any rE:striction in eff ting the re- tirement of national bank nrAes and it 3trikes m that the lim- itation of 4200,000,000 within the nex is compromis- ing with a situation which should be dealt with much getically than is suggested by tI No scheme of curren limi oform w at least some brosdening of the even though short of the cash reserves. e ener- tion. be complete without s of Federal reserve notes of having them count as be truly scientific Nor and complete without o revision of t present methods by which ned and by the denominations of which our Sub- treasuries ter a good deal of thought on these subjects, I am hat satisfacto convince ing the s athy and coo that you an progress can only be made by enlistation of the President and I do hope ates find it possible to impress him with the importance of early action. You can imagine that I am awaiting with a good deal of interest some word in d to the action of the Board on the subject of our foreign relations which / am informed is now about to be taken. Alitt -Governor hording. 1111111111111r With kindest regards, and again many thanks for your letter, I am, 'Very truly yours, Hon. W. P. G. Harding, Governor, Federal Reserve Board, Washington, D. C. BS/VCM Form 1201 'ASS OF SERVICE SYMBOL Message Blue Letter Nile ght Message NL If nuns of these three symbols appears after the check number of Night Letter 1 words) this is a day message. Otherwise its character is indicated by the symbol appearing after the check. WESTEOISENA UNION TEL M CLASS OF SERVICE Citt Day Letter Ws\ Blue Night Message WESTERN Nite Night Letter NL If none of these three symbols appears after the check number of words) this is a day message. Otherwise its character is indicated by the NEWCOMB CARLTON, PRESIDENT BELVIDERE BROOKS, VICE-PRESIDENT GEORGE W. E. ATKINS, VICE-PRESIDENT RECEIVED AT symbol appearing after the check. Denver, Colorado, December 21, 1916. Hon. T7.P.G. Harding, Federal Reserve Board, shington, D. C. Christmas and New Years Greetings to all the Board. After two years of unexampled success I im sure you must view the past with satisfaction and the future with confidence. Benjamin Strong. Chg. Benj. Strong, 4100 Montviow Blvd., Denver, Colorado. SYMBOL Day Message Denver, Colorado, Decamber 22, 1916. AMLIIDIMITS BO'S 1 & 2, FEDERAL RiMERVE BOARD liEBORANDUkt NUMBER 9 AMENDING SEC. 19 RISPECTING RESLNVES. 4,4 The inelusion of Postal Savings a little ambiuous. Itight not tbi OS 8 8 -e accurately o words - "and all deposits of Po me as being ed by the funds"? r In general, I am convi theo, of this amendment is absolutely correct and one which ld be adopted just as soon as ionh arises is whether it it is safe to do so. involves in fact an o in sequently Whether servo requirements, eon- ntraetIon or open the door to expansion. n1 144SIs111/11' as disclos IA. ; reports to the comptroller and bank rose amendme upon ac no of this eharact r would in nu opinion be safe unless based te knowledge o its effect upon the reserve situation. est compt r s report, as i recall, Showed cash (IDA do4.1 posited reserv ountry banks as a whole in excess of 26A, all re- , serve city banks around 22A aad presumably, even if this amendmont A involves some increase in the reserves of those institutions over What is now required by existing law, it would be more likely to cause diffi- culties in the central reserve cities, due to withdrawal of balances, rather than in reserve cities and in the country districtslAhiCh now soon over supplied with cash and deposited reserve balances. Approving as I 2. Amending Sec. 19 :eeseecting Reserves. December 22, 1916. do of the theory of this amendeont, Which helps to solve the difficulty in regard to the Federal Reserve note issue, I would still very strongly urge that most direful inquiry be made as to its feet. The other euestion naturally arising in re to this amend- ment is whether the bankers of the country by tra and exnerience ean be safely trusted to use their own ut statutory restraint, as to the amount of cash hould keep on Foreign canmercial banks almost statutor requirements, but w tion are not subject to uch a Where we have nearly 30,000 banks o uation be safe serve banks neces ion h reserve centers and re- which are applicable to a system Europe possibly may net be safely branch banking un stroke to system. 11 organized nig more diffused banking e can take a le son in this matter from England. if the war the ' outbreat in the no to my know1 borbood this country This is a country of vast extent, distances a if eat. c3mmmi . applied in °sit and discount as contrasted with only 76, as 1 re if In vault. Prior to the of Ragland customarily carried a gold reserve 000,000. No estimates of value hadAbeen made erne-ant of gold held by the joint stock banks in ad- dition to their holdings of Bank of Ragland notes, but a very careful esti- ante L3 made by 1r. J. H. Tritton of Barclay & Company in the early part of 1916, Which disclosed that the joint stock banks of Rngland held about 300,000,000 of Independent gold reserves,(yitich bad been auemented during A the early part of the waras disclosed by other careful estimates, to the extent of at least $125,000,000 as a result of the issue of currency notes Lmendin, Sec. 19 Respecting Reserves. December 22, 1916. Which to that amount had taken the place of gold in general circula- tion and driven an equivalent amount of gold into bank reserves. The fact is that tSe gold reservestilysthe banking system of England prior to the outbreak of the war probably id not exceed 50,000,000 to s400,000,000 gold, sum so insis leant in its proportion to the immense internationsl banking trans Britain as to expose the British system Os/ disaster, in Vaa time of crises. The English banks have, in tion to their reserves and the could correct this tendency was b and thereby seriously would have been a r banks for the purp England the lack of keenest ki it imps of all the turbance, if not years overloaned in propory Which the sank of 4ngland ing its own loans into gold power. The other alternative ts of all the joint stock id, and even in. conservative uirements and the existence of the meets he big joint stock banks seem to make A cable for them to strengthen their reserve position by voluntaly action. Briefly expresso LAgland ion of Great Id, in fact the absence of a statutory reserve provision in many years result in an ovaries:nod condition hind less than the outbreak of war could have convinced tSe Snglish banking community that their situation was unsomd. Can we, therefore, exnect our oncontrelled and scattered bankins ; 4 tit, organization, as a Stole, to sufficiently fortify its cash position at all times end under all conditions, without any statutory requirement? Al not competition drive them into difficulties? This reference to the situation in Great Britain is intended to Amending Sec. 19 Respecting Reserves. December 22, 1916. support my recommendation that the greatest care be taken to insure that the deposited reserves required by the amendment will be adequate now that it is proposed to embody no requirement 1 recommend, restoring the line proposed to the first paragraph on the third page. Authority to vault reserves. stricken out in ained by the Federal Reserve Board to permit assistance to be tate 3anks having no affiliations with the system may prove to be a powe protection in time of trouble. My persoeel view iS tha investigations disclose that the required are adequate. agency for should be adopted after deposited reserves to be The ratio of reserves shown in this memorandum is calculated upon the Total Net Deposits in order to make comparison with old conditions. The proportion of Time Deposts of the three classes of National Banks, since the ,)romulgation of regulaions defining Time Deposits, has been approxiAately, as follows: Central Reserve 13ankS Reserve City Banks County Banks 35 10 to leo 30% The ratio of reserves required under the Act in relation to Total Net Deposits, therefore, works out, as follows: Central Reserve Banks 17 .7C Reserve City Banks 13.80% County Banks 9.905 The proportion of Time Deposits varys widely in different sections of the Country, hence the percentage of cash reserve required will show a corresponding variation. 44" ANENDNEWIS NO'S 8 & 12, FEDERAL RESERTE /WARD 14141eRADIDUU NO. 648. NOTE PROVI SI OHS. I cannot urge the adoption of this aeendme too strongly and recognize that coupled with No's 1 & 2, and subjocs o the remarks in relation to a proposed retirement of gre tional Bank notes, it is probably the best that can be done with C se at this time. In other words, it is doubt ot to attempt Congress to make Federal Reserv tender, or count as cash reserves, if the other amendment ask tamed. The following comments as to detail occur to me: ovides that eold or The second gold certificates s t of the gold reserve of the t they are pledged as collateral Federal i.eserve Sank, to be eaivine a red flag under the noses of critics of this plan and 1 should think less offensive languaee might be "Provided, hoeever, that when the Federal Re- holds gold or serve notes issue the id certificates as collateral for Federal Reserve such gold or eold certificates shall nevertheless be counted as a part of the assets of the hank and the 2ederal Reserve notes issued against such collateral shall be considered and sheen as one of the liabilities of the Tederal Reserve banks until they are finally retired and cancelled." The saes suggestion applies to the second earaeraph on the second page of the memorandum. The enlargement of the functions of the eederal Reserve notes proposed by this amendment will undoubtedly impose heavy expense upon the 2. December 22, 1916, Note Previsions. Reserve Banks, if thee are loyal enough and bread minded enough to take advantage of the opportunity thus afforded to accumulate gold. Should the provision for the retirement of green acks be adopted by of Congress, particularly if the tax is 14/2; ins 2o, the ed to support the en- of the Reserve Banks might be sufficiently augme income resulting tire note issue considerably enlarged. requiring the from the greenback retirement, I eould favor a mew Bureau of Engraving e Federal Reserv notes without Printing t ation In aid of the Bureau be cost, with the suggestion t made. revenues 1 It strikes The danger of aperopria MB is no greater ssionnl meddling eith the ile- than any other danger .ressIowl interference serve system. Fre I can see no particular will depend upon s managed. danger as a resul ropriation of the character suggest- ed and th advantage if the cted to accumu1a e say to be serve otes, end those D if our circulat Banks wo be 1#000,000,000 1) eserve Banks are issues of Federal Ile- tes are turned over, as they form so important say only twice a year, the cost to the Reserve judge not less than 42,000,000 a year (this is a guess Which could be readily verified from statistics which are available to the Board). At an average earning rate of 3, , this eould require the Reserve banks ta increase their investment account e70,000,000, not;ith- standing that the United States Government will save a large part, if not all, of this 2,000,000 in connection eith present Issues of gold cer- tificates. It seems certain that the first obstacle Ahich will arise to the Note Provisions. December 22, 1916. passage of this amendment will the charge, or the fear that it aill open the door to inflation of the note issue. To save repetition, please refer to a recent letter which I wrote t Ar. Delano of the Board on this subject. 1 have not the aighte t fear of inflation resulting beyond possibly what may be required to crrj the cost of the note issue, if Congress makes no appro iatio4 t the strongest kind of argument will be necessary with both the congres and with congress itself to ove argument'before the committe as being the most direct will the management of the Re Which are the pipes objection. committees Th strongest which will appeal to them hat can be advanced directly by elves, and if the Reserve 3anks, ich expansion might spread, unite in presenti point, I should think it would be effective. on for issuing Federal Reserve notes i. ; ,,qvois4 0.11116.... A in in 7e. Odenominations, natio wise being 4500 'leg strongly urge be recommended, the denomi45e00, 10000 and 4100000, with provision like- the issue of if ificates payable to order in the denominations $ of l00'' 4 d $1000 d This amendment MOze than any other is the one that 1 hoe() may be adopted by Congress. .\ GSV) elf 04. , g4IS 210 homii BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That Section 19_of the Act approved December 23, 1913, amended by an Act Of AugUTC14, 1914, be further amended and re-enacted so as to read as follows: Sac. 19. Demand deposits within the meaning of this Act shall comprise all deposits payable within thirty days, and time deposits shall comprise all deposits payable after thirty days, aTecl- all savings accounts and certificates of deposit which are subject to not less than thirty day.' notice before payment, AND ALL POSTAL SAVINGS DEPOSITS. AQR the Secretary et the Treaeury all hav in GUA14 ARARAV 34 IqGmay elect, the establishment el a Federal VGGQVW; .baRk in any dietriat, every GI,thAGC-tiAg R6Fikt6f EVERY bank, BANKING ASSOCIATION, OR TRUST COMPANY WHICH IS OR WHICH BECOMES A MEMBER OF ANY FEDERAL RESERVE BANK shall estabilsh and maintain BALANCES WITH ITS FEDERAL RESERVE BANK reservelsas follows: aARGUAG"44, (61.01/1f eakt.a.C.4-04,, A bank not in a reserve or central reserve city as now or hereafter defined shall hold and maintain WITH THE FED-. ERAL RESERVE BANK OF ITS DISTRICT A BALANCE IN COLLECTED AVAIL- 797, ABLE FUNDS reserves .equal to NOT LESS THAN twelve SEVEN per centum of the aggregate amount of its demand deposits and f4vec3 IV-4444; THREE per centum of its time deposits, ae tellowe: date In its vaults t.cor a-period et thirty gix menthe after said and permanently thereafter 1AP- tivo-tweltthe thereet twGlitici.g. /n the 784GVal VGAGVV8 bask At it district, ter a peried said date, two-twslftes,-and for each et twslve menthe at GUGGG44ing GiX MARtIqG an additienal ene-twslith, until tivetwelfthe have been ee deposited, WI1ehall be the ameunt permanently required. For a-peried'ot thirty-gix menthe after said date the balance et the vezerve may be held 4n it ewn vaults, AV 4n the Federal reeerve 1;alak, or in natiOnal banks in OGGGFVG or AAntVal PG4GFVO qiti4A aG ROW detined bF law. Atter said thirty-eix menthel paried,-said VAGAVVG4,9thGr tlqA va1,114, et VAal; theee koreinbetere required te le held V6GGVA bank, shall be held the-member lank and in the Vederal in the vaulte ef the membe; bank er 4n the RQ421Gral VAGAVVA bank OF eptien et the member bank. teth, at the A bank in a reserve city, as now or hereafter defined, shall hold and maintain WITH THE FEDERAL RESERVE BANK OF ITS DISTRICT A BALANCE IN COLLECTED AVAILABLE FUNDS reeervosequal to NOT LESS THAN fifteen TEN per centum of the aggregate amount of its demand deposits and 4ive THREE 116:r centum of its time deposits, as-fellowe: koatAtrie3A. -2- 904. In ite yaulte ter a peried et thirty-six menthe at Gaid date eix-tifteentha thereet, and permanently thereatter tiye-fifteenthe. In the ;g4gPal VgGGVVQ bank of it dietrist fer a peried ei twelve menthe. after the at afereeaid at at threg-tittegnthe, and y45,..x, 4G each eugsgeding GA MORtiqG an additiGhal 0144-ti4t;gath,-lantil .3Efifteenth; have IgGGR GO deposited, which shall be the ameunt pgrma, Aently required. Geld date the balance FG; a pgried el thirty-eix menthe at (4' th CGgVVGG MaY bg held in ite GWR vaulte, er .i1=1 tlqg RG4Gra1 POGGVG er eentral reserys;oltiee reGerve bank, er in natienal banke as new detined by law. -At er said thirty-six menthe' period all et :4,944 VGGGVVgG except theee hereinbetere required te bG iqgld permanently in the dGral VOGGcV6 bank, Ghall be ya.ulte ef the member bank and in the ggs 3ig bank, er in beth, at the held in the yaulte er in the Federal eption et the MgMbgr baRk. /=1 (c) A bank in a central reserve city, as now or hereafter C6t.t. 62444r2-. defined, shall hold and maintain WITH THE FEDERAL RESERVE DANK OF 1,0011..` ITS DISTRICT a BALANCE IN COLLECTED AVAILABLE FUNDS reGerve equal to /..) pC: NOT LESS THAN eighteen THtRTEEN per centum of the aggregate amount of lg 4 its demand deposits and five THREE per centum of its time deposits ae fellows: In ite waults eix-eighteonthe thereef. In the Federal rgGGrVg bank Geven-eighteenthe. TI=IG balanee et Gad reserves shall bG held in V-0G GWR vaulte er in the YGdGPR; rgGGVVG bank at its option. Any Federal F6GGV*4 bank May VGGG4Vg trem the MgAbgV banks. as 2=1GtaalMG14t,-giblG paper GRG4=1 ag deecribed 114 Geetien teurteen, properly indereed and acceptable VgeGPVGG, ROt 6KGG94ing ene-half of to the' Gaid VGGGPVG bank. It a 0tat e bank er truet sempany ie required by the law et ite State te keep ite reegryes 61;C.4 tt`g OWP vaulte or with anether gtate bank AV truet company, eueh VgGGPVG depesite GG kept in Gush gtate bank er truet company Ghall be Gene-trued within the meaning ef-thie GgGtiGA, as it they were VgGg-rlig dGpG4itg in a-natienal bank a VGGgVg er eentral PGQ,G.rVG Gity t.GV a peried et three yeare after the Secretary et the Treasury snall have effiGially anneuncgd the eetabliehment et a Federal reeervg bank in the distrist in which Gush State bank QV trust eempany is eituate gxeept az thus provided, RG No member bank shall keep on deposit with any nonmember bank a sum 1=1 004 4- 3- in excess of ten per centum of its own paid-up capital and surplus UNLESS SAID NONMEMBER BANK SAHLL HAVE QUALIFIED AS AN ASSOCIATE OF THIS ACT. No MEMBER BANK UNDER THE PROVISIONS OF SECTION member bank shall act as a medium or agent of a nonmember bank in for or receiving discounts from a Federal reserve bank applying under the provisions of this Act,- ;t by pg.nniegien el thg F6dGral RQGGVVG g9a4, UNLESS SAID NONMEMBER BANK SHALL HAVE QUALIFIED AS AN OF THIS ACT. ASSOCIATE MEMBER UNDER THE PROVISIONS OF SECTION The REQUIRED BALANCE :;G,74V3kg carried by a member bank with a Federal reserve bank may, under the regulations and subject to such penalties as may be prescribed by the Federal Reserve Board be checked against and withdrawn by such member bank for the purProvided, however, That no pose of meeting existing liabilities: bank shall at any time make new loans or shall pay any dividends unless and until the total VGGVATG BALANCE required by law is fully restored. In estimating the rggevvgBALANCES required by this Act, the net DIFFERENCE balaneg of amounts due to and from other banks dhall be taken as the basis for ascertaining the deposits against which PGGGVVGG REQUIRED BALANCES WITH FEDERAL RESERVE BANKS shall be determined. Balanc.eg in PGGgcVG banke dne te =GRIVQP bank; gha-11 te thg gxtgnt hevein p.newidgd, be gennte4 ag r_48;VGG. National banks OR BANKS ORGANIZED UNDER LOCAL LAWS located in Alaska or outside the continental United States may remain nonmember banks, and shall in that event maintain reserves and comply with all the conditions now provided by law regulating them; or said banks gxPept in thg Philiping Iglandg, may, with the consent of the Federal Reserve Board become member banks of any one of the reserve districts, and shall, in that event, take stock, maintain reserves and be subject to all the other provisions of this Act. THIS ACT SHALL BECOME EFFECTIVE SIXTY DAYS AFTER ITS PASSAGE. q/L a 905. AMENDMENT TO SECTION 22. BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That that part of Section 22 of the Act approved December 23, 1913, known as the Federal Reserve Act, which reads as follows: "Other than the usual salary or director's fees paid to any officer, director, Or employee of a member bank and other than a reasonable fee paid by said bank to such officer, director, or employee for services rendered to such bank, no officer, director employee, or attorney of a member bank shall be a beneficiary of or receive, directly or indirectly, any fee, commission, gift, or other consideration for or in connection with any transaction or business of the bank," be and hereby is amended and re-enacted so as to read as follows: Other than the usual salary or director's tQQ;;; FEE pad to any officer, director, Gy employee OR ATTORNEY of a member bank and other than a reasonable fee paid by said bank to such officer, director, er employee, OR ATTORNEY for services rendered to such bank, no officer, director, employee or attorney of a member bank shall be a beneficiary of or receive, directly or indirectly, any fee, commission, gift, or other consideration for or in connection with any transaction or business of the bank.) PROVIDED, HOWEVER, THAT NOTHING IN THIS ACT CONTAINED SHALL BE CONSTRUED TO PROHIBIT A DIRECTOR, OFFICER, OR EMPLOYEE FROM RECEIVING THE SAME RATE OF INTEREST PAID TO OTHER DEPOSITORS FOR SIMILAR DEPOSITS MADE WITH SUCH BANK, OR TO PROHIBIT A DIRECTOR, WHO IS NOT AN OFFICER, OR EMPLOYEE, FROM RECEIVING, DIRECTLY OR INDIRECTLY, THE USUAL AND CUSTOMARY COMMISSIONS OR FEES FOR SERVICES RENDERED IN BUYING AND SELLING SECURITIES OR OTHER INVESTMENTS FOR OR ON ACCOUNT OF SUCH BANK, BUT IN THIS LATTER CASE THE ACTION OF THE BOARD OF DIRECTORS, IN DIRECTING THE PURCHASE OR SALE OF SUCH SECURITIES OR OTHER INVESTMENTS, MUST BE RECORDED IN THE MINUTES OF THE MEETING OF SAID BOARD, AND SUCH MINUTES MUST SPECIFY THE NAME OF THE DIRECTOR, OFFICER, OR EMPLOYEE AND THE FIRM OR CORPORATION WITH WHICH HE IS CONNECTED, IF ANY, THROUGH WHICH SUCH ORDER IS TO BE EXECUTED, AND, PROVIDED, FURTHER, THAT NOTES, DRAFTS, BILLS OF EXCHANGE OR OTHER EVIDENCES OF DEBT EXECUTED OR INDORSED BY DIRECTORS OF A MEMBER BANK MAY BE DISCOUNTED WITH SUCH MEMBER BANK ON THE SAME TERMS AND/ CONDITIONS AS OTHER NOTES, DRAFTS, BILLS OF EXCHANGE OR EVIDENCMF DEBT UPON THE AFFIRMATIVE VOTE OR 1RITTEN ASSENT OF AT LEAST THREE-FOURTHS THE MEMBERS OF THE BOARD OF DIRECTORS OF SUCH MEMEER BANK. ImAttoks7N3f -NALL Denver, Colorado, December 22, 1916. AU4R1MENT NO. 9, FliDERAL RESERVE BOARD Wia0RANDMIL NJ. 05. PROFITS JF DIRSCT,MB. This is a great improvement ov statute and 1 hope can be passed. I would suggest adding after the wo seventh line from the bottom t xeouted" on the r investment ma e." 11411-494N, q34-110-(l4,uprPyit...e., 906 BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That Section 11 of the Act approved December 23; 1913, known as the Federal Reserve Act, as amended by the Act approved September 7, 1916, be and is hereby amended by adding at the end thereof two new clauses as follows: /t/11 t4.' riVik VI (n) Upon the request of a Federal reserve bank to authorize it from time to time to repay to its member banks a part of their cash-paid subscriptions to its capital stock, provided, however, that such cash-paid subscriptions shall never be less than one and one-half per centum of the paidup capital stock and surplus of the respective member banks and shall be the same percentage for every member bank in any one district, and provided, further, that the subscribed Ig* capital stock of Federal reserve banks and the liability of / stockholders shall remain as now provided by law. Nothing herein contained shall be construed to deny the right of the Federal Reserve Board, in its discretion, to call the balance, or any part thereof, of any member bank's subscription to the capital stock of its Federal reserve bank. :: All provisions of law luconsistent with any of the provisions of this clause are to that extent and to that extent only hereby repealed. 4 AmMOVv - ;11"11' (0) Whenever extraordinary conditions justify, to increase, from time to time for periods not exceeding days, on the affirmative vote of five of its members, the amount of balances required by this Act to be maintained by member banks with their respective Federal reserve banks, per provided, such increase shall at no time exceed centum of such required balances, and provided, further, that the Federal Reserve Board shall make a report to Congress in writing setting forth the conditions on which such action is based. AILIZIDIlt.NT NO. 3, B JAM ...1.1113RAIIDILI N. 906. Fx1D,1aUL CAPITAL STOCK. The proposed clause (N) of Section 11 is a se recommendation, in mu opinions iii its present form, enab1 ng as it d.es those banks Jose capital is too largo in proportion to deposits to e them to earn not be dividends without overloaning. York to reduce its paid-in necessary for the Federal Bose end to the directors of the capital by one-half, and I you do so be made, at any rate at bank ,hat application for permissi r ,t2,)0.000,000 and a paid-in Wit the present time. ve d fficulty in earning dividends capital of .J2,000 conditions, and I believe that and a substantial k is none too large as at present. the naid-in ctal On the ott anks can doubtless safely take advantage hand, other °vision, thereb' strengthening themselves with their on members of this very muc and mak hett showin in both earnings and reserves. TY TO INORLASn RLSIRVE. REcaiagaTS. ?his will prove to be a most unpopular amendment, and, While seem- tag to be logical, taken in connection with No's 1 .1 2, I believe is un- necessary, if the reserves required by No's 1 investigation. S2 2 are based upon careful This amendment strikes -me as placing powers in the hands of the Reserve 3oard which will prove obnoxious to the member banks and provoke serious criticism throughout Lilo country. It will have the 2. Authority to Increase Reserve 2equircuaents. December 22, 1916. appearance of placing powers iu the Reserve Board of such magnitude as are exorcised by no other public body outside of Congress, and 1 would urge that no attempt be mAfle to secure its of congress. ssago at this session 907 BE IT ENACTED BY THE SENATE AND HOUSE 02 hEPREE:ENTATIVES OF THE UNITED STA.TES OF AHELICA IN CONGLEbb ASSEMBLED, That every national banking association possessing a capital of more than one hundred and fifty thousand dollars shall pay to the Treasury of the United States in the months of January and July, in addition to the tax now imposed by existing law, a tax of per centum each half year upon the average amount of its notes in circulation in excess of eighty per centum of its capital, Provided, that after January, 1918, the tax thus imposed shall apply to the average amount of its notes in circulation in excess A. sixty-five per centum of its capital, and after January, 1919, the tax thus imposed shall t apply to the average amount of its notes in circulation in excess of fifty per centum of its capital, Provided, however, 18010je that the tax imposed by this Act shall in no event be construed to apply to the circulating notes of a bank which are not in excess of one hundred and fifty thousand dollars. The first payment of the tax imposed by this Act qr."41 shall not be due until July, 1917, and shall be at the rate of per centum per annum and shall be based on the average circulation outstanding, during the period between a date thirty days after the passage of this Act and the date of the payment 64 of the tax in July, 1917. No national banking association hereafter organized, regardless of the amount of its capital stock shall be per,9art 1)1(P1 mitted to issue circulating notes in excess of fifty per centum of its capital stock, So c.uch of,.thu provisions of Soctionniri, of the Act of March 4, 1907, as limits the deposit of lawful money with the Treasurer of the United States for the purpose of withdrawing national bank circulation to nine million of dollars in any one month shall not be construed to apply to the deposit of lawful money made 21t"° for the purpose of wiehdrawing circulation which is subject to the ,c46.0) tax imposed by this Act. L led C04 6'A )IP to° *a, A 601 nAlc- D Denver, Colorado, December 22, 1916. AKENDILINT NO. 44 FMLRAL RESERVh; BOARD :,ZAORANDMI NO. 907 TAX ON 1-iLTIJ1Ai BANE NOTES. This appears to be an amendment Bank Act and a itself dis- not of the Federal Reserve Act, but no ing in the ame closes what place it will take in d banking laws of the United States. at Which should be based This again appears to be an ler's reports to determine upon a careful investiga e the present provisions What effect it will of the Reserve Act f4 National Bank notes a purchases of go too rtid and the rate of retirement should e Reserve Board and that the rate be deterral: to be paid by the government on the 30-year conversion bonds of inter° Lied in the die should , in mini meat bonds and retirement of tion uf a maximum 14 ations of If AO 493 the Secretary of the Treasury withsay 3,. and considerable general advance te interest rates following the conclusion of the war, with a resulting decline in the value of United States bonds, it might result in the suspension of conversions by the reserve banks, notwithstandin6 that the increasing tax upon National Bank notes would render it unpoofitable to continue National Bank note circulation. In other words, the increased tax, par- ticularly if a large one, would force sales of government bonds by National banks, at the saes time that the decline in the value of government bonds 2. Tax on National 3ank Notes. December 22, 1916. would. make it difficult for the Reserve banks to purchase them and convert them into 3's and re-sell them. it is a little difficult to see how the proposed plan would aork and i have n means of ascertaining bow much National Bank note circulation would be ected by the new tax, as the calculation would require a_ examinati of the circulation report of each National bank. There would ac no danger whatever in this aaer with it the Secretary of the Treas rate of interest on the convers i am in favor of any plan note circulation and will aCcumulation of !tilt place =OW, the acse seems no more than of millions bonds is if coupled have discretis. to fix the ove suggested. safely reduce National bank e banks against an excessive government bonds have no Banks or member banks, and it ke transactions involving hundreds mitation of 3:.,; on the conversion tinned. 40-4-4 908. BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That Section 5202 of the Revised Statutes of the United States, as amended by Section 13 of the Act approved December 23, 1913, known as the Fed- eral Reserve Act, as further amended by the Act approved September 1916, be and is hereby further amended to read as follows: No national banking association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the nature following: First. Notes of circulation. Second. Moneys deposited with or collected by the association. Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the association, or due thereto. Fourth. Liabilities to the stockholders of the association for dividends and reserve profits. Fifth. Liabilities incurred under the provisions of the Federal Reserve Act. SIXTH. LIABILITIES AS INDORSER ON ACCEPTED BILLS OF EXCHANGE REDISCOUNTED AT HOME OR ABROAD, PROVIDED SUCH BILLS MRE NOT DRA,iN OR ACCEPTED BY THE INDORSING BANK. The discount and rediscount and the purchase and sale by any Federal reserve bank of any bills receivable and of domestic and foreign bills of exchange, and of acceptances authorized by this Act, shall be subject to such restrictions, limitations, and regulations as may be imposed by the Federal Reserve Board. 7, Denver, Colorado, December 22, 1916. AMENDMENT NO. 10, FEDIAMAL RMERVE BOARD LiEmaammua LIABILITIES OF NATIONAL B . 908. NG ASSOCIATIONS. This, it seems to me, is banking Law. wise and neces8ar7 41i-4 910 BE IT ENACTED BY THE SENATE AND HOUSE UFId,i2LEsENTATIVES OF THE UNITED STATES OF hLual-i.i.c.a IN CONGRESS Asbh:ABLED, That the fiftg paragraph of section 13 of the Act approved December 23, 1913, known as the Federal Leserve Act, as amended by the Acts approved march 15, 1915, and September 7, 1916, be and is hereby amonded so as to read as follows: Any member bank may accept drafts or bills of exchange drawn upon it having not more than six months° sight to run, exclusive of days of grace, which grow out of transactions involving the importation or exportation of goods; or which grow out of transactions involving the domestic shipment of goods provided shipping documents conveying or securing title are attached at the time of acceptance; or which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples. No Member bank shall accept, whether in a fcroign or domestic transaction, for any one -oerson, company, firm, orcurporation to an tx amount equal at any time in the aggregate to more than ten per centum of its paid-up and unimpaired capital stock and surplus unless the bank is secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance and no bank shall accept such bills to an amount equal at any time in the aggregate to more than aac-half of its paid-up and unimpaired capital stock and surplus ax.* PROVIDED, HOV,EVER, THAT THE FEDERAL RESERVE BOARD, UNDEL SUCH GLNERAL REGULATIONS AS IT MAY PRESCRIBE, WHICH SHALL APPLY TO ALL BANKS ALIKE REGARDLESS OP THE AMOUNT OF CAPITAL STOCK AND SURPLUS, MAY AUTHORIZE ANY MEABER BANK TO ACCEPT SUCH BILLS TO AN AMOUNT NOT EXCEYDING AT ANY TIME IN THE AGGREGATE ONE HUNDRED PER CENTUM 02 ITS PAID-UP AND UNIII2AILED CAPITAL STUCK AND SURPLUS, PROVIDED, HMEVER, THAT THE AGGREGATE OF ACCEPTANCES GRCkING OUT OF DOIL.IG TRANSACTIONS SHALL IN NO EVENT Exerm FIFTY PLR CENTUM OF sUCK CAPITAL STOCK AND SUhPLUS, - 12-1B-16 AMENDMENT 10. 7, FEDERAL RESERVE BOARD MEMORANDUM NO. 910. ACCEPTANCES BY MEMBER BANKS. This amendment is undoubtedly wise and necessary. strongly favor removing the limitation measar surplus in favor of a provision requiri reserve on accentance liabilitieS az . I would capital stock and Its to ; dePosit liabi/ the same es. tz), <010"--- 912 BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That Section 18 of the Act approved December 23, 1913, known as the Federal Reserve Act, be and is hereby amended by striking out from the second 19-k_ paragraph thereof the Proviso worded as follows: "Provided, That Federal reserve banks shall not be permitted to purchase an amount to exceed $25,000,000 of such bonds in any one year, and which amount shall include bonds acquired under section four of this Act by the Federal reserve bank." BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, That Section 17 of the Act approved December 23, 1913, known as the Federal Reserve Act, be and is hereby amended so as to read as follows: Sec. 17. So much of the provisions of section fiftyone hundred and fifty-nine of the Revised Statutes of the United States, and section four of the Act of June twentieth, eighteen hundred and seventy-four, and section eight of the Act of July twelfth, eighteen hundred and eighty-two, and of any other provisions of existing statutes as require that before any national banking associations shall be authorized to commence banking business it shall transfer and deliver to the Treasurer of the United States a stated amount of United States registered bonds AND SO MUCH OF THOSE PROVISIONS OR OF ANY OTHER PROVISIONS OF EXISTING STATUTES AS REQUIRE ANY NATIONAL BANKING ASSOCIATIONS NOT OR HEREAFTER ORG4NIZED TO MAINTAIN A MINIMUM DEPOSIT OF SUCH BONDS WITH THE TREASURER is hereby repealed. 12/12/16 Denver, Colorado, December 22, 1916. ALIA:WM, FEDIMAL RESIEVE BOARD IMIORANDUIT NO. 12. laza. These changes,' umiersta e inconsistency from the Fedora :. Latitude in dealing with go 0.1 xli remove quite an unnecessary prOv ownership of gove me as being wise. ' . as to the f an and permit greater and, as to the second, from the Law as to the ;nks, and both strike Denver, Colorado, December 22, 1916. GEWERAL COMUENTS ON PROPO3E1 ALEEMME-11,9 Ti TEE FiDERAL RESERVE ACT. A careful study of the program of amen ts to be proposed by the Reserve Board leads me to believe that ther a good deal of danger which may result from Congress tad_ proposals L.nd rejecting others, upon so:_e of the are Largely in should be dealt with as one p lation. /arly to amendments No's 1 ec 12, and the Board would group at least t so that the inter-de nt proce if a. shOuId suppose that roof might be explained to the P th a more comprehensive view of e accomplished. These prop°. recent This applies particu- ndmonts enumerated into one bill, Committees of Co what is sought to °pendent and understand, were disonssed at the erence of I have not yet read the record of their ngs, Which ii .,'t develop some facts that would modify the above; I will send 'a ilementary memorandum. ,96(.9e0t'd A 014 ASSOCIATE MEMBERS BE IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED, / kk_ 4A-1;;0 ,fio,t(r1 11/40,4:;14 Prifb-44" g That any bank or trust company incorporated by special law of any State or organized under the general laws of any State or of the United States shall be entitled, under such rules and regulations as the Federal Reserve Board may prescribe, to become an associate member bank of the Federal reserve bank of the district in which it is located. Any State bank or trust company which has become an associa-ce member under the provisions of this Act and the regulations of the Federal Reserve Board shall have the privilege of clearing and collecting checks through its Federal reserve bank and shall have all the rights and shall be subject to all the restrictions imposed by law, by the regulations of the Board, or by the regulations of the Federal reserve banks upon their respective member banks/in so far as they relate to the clearance of checks through Federal reserve banks. Clearing members are hereby required to maintain the same balances with their respective Federal reserve banks as are now required to be maintained by neml:er banks under the Ttaag-4..* 1 )P3IP Nrcad 1,; krei )44 provisions of the Federal Reserve Act. lations of the Federal Reserve Board governing the admission of associate members shall provide, in addition to such other requirements as the Board may specify, that each associate member shall satisfy the Federal reserve bank of its district at the time of its admission, or at any other time, as to tilr financial condition and each Federal reserve bank is hereby authorized to prOvide for special. examination of any associate member at such time or times as may be deemed advisable in order to procure information necessary to determine their condition. The Federal Reserve Board may upon thirty days' notice suspend from membership any clearing member which has failed to comply with the provisions of law or the regulations made in conformity therewith. Any provisions of law inconsistent with this Act are to that extent and to that extent only hereby repealed. 12.12.16. cco,0 The rules and (A10 Denver, Colorado. December 22, 1916. AMENDNIXT NO. 6, FSDEBAL RESERVE BOARD 11410RANTUM BO. 914. ASSOCIATE LIIIB.:13.S. The wisdom or unwisdom of this plan depend 88 on 0 effect in promoting or retarding the 1 am inclined membership in the Pederal Reserve that it will be a long time befo or the other, on the attitude t has those in New York City. To vantages ahich they will the extent that it wil th member ban.. ons Match give associate extent that it is co mote the still wi n the sound development of the urd their admission. To the collection system, considora effect at all, one way institutions in the larger cities of the country and particula suffer as contrasted tire1:1 upon its to anksifull advantages members sociate members, I think it may pro- ission of OOi try State aanks to associate membership, but have little or effect upon larger institutions IL reserve centers. If the provisions are changed, as proposed in amendments 1 & 2. it will mean no penalty or loss to the big Trust Companies in New York City of an; consequence, as they are already required by a state law and Clearing Horse regulations to maintain 15 cash reserves in their vaults .;:rid 10 deposited reserves with banks which carry 25% vault reserves. In that respect the provisions of the regulation are exceedingly liberal, and by avoiding the difficulty of loss on Reserve balances and the further Associate ..embers. December 22, 1916. difficulties of the Clayton Act as to private bankers serving as directors, it soems as though the last bar had been let down ia favor of the big New York. institutions. Of course it affo s ne relief to New York State Banks which carry 251 ease reserves. Another comment is necessary generalle as t -eserve requirements. Has sufficient investigation been made mission of State Banks to associate ther general adzrahip may not m relaxation of reserve reouirement Is proportions? It seems to me a thorough investigatio This amendment should not be based et should first be made. guess in that regard. as been advised of efforts The Federal Rese Whice I made last sp largest Trust C , to brine a s into the Rese failure was the Clay brought ab difficu Act and that the ranee of a number of the System. The principal cause of as is not eliminated by the changes operation as it did not reach private on the bankers general ing on Trust Company Boards. This amendment does avoid that and were I In stens be this amendme confiden York, I would be inclined to recommend that lly and privately, tam n actually advance of recommending whether pledges could not be ob- tained from a few of the larger institutions to take associate membership ie the event this amendment passed. Such a program might accomplish two results - it might secure the admission of some powerful institutions on the one hand and it would furnish the Board with a powerful argument to submit to Congress as to the wisdom of the amendment. This is the most difficult of all the proposed amendments upon 3. Associate Members. December 22, 1916. whicl to form a definite conclusion, but on the Whole I am inclined to disagree with the Governors of the Reserve 3aaks and to recommend that this amendment be attempted, particularly if ome course such as the one suggested above can be followed in Our di i a surprised that the Board has not coupl lot. with this amend- ment a provision for associate membersh Board aware that a strong movement is State Rankint; law so that Saving bills Which are eligible for a conservative provision. +deposit requirements co strength to the Syst companies, like for mt_a_ Trust Co., et al, ha by Which nks. foot in New Yo is the amend the e permitted to invest in o discount? I believe that to membership, with moderate vino; Banks, would add great deposit and state trust .nd Tryst Co., Uerchants Loan partments, that the RA incentive class of institutions would be very tz(-1 0/(4 909 MEMORANDUM - RETIREMENT OF GREENBACKS. The twelve Federal reserve banks shall be authorized and directed to assume all liabilities for the payment and re- demption of all outstanding United States notes, commonly known as greenbacks, amounting to $346,681,016, and all outstanding United States Treasury notes of 1890, amounting to $2,254,000, and such banks shall be required to redeem any of such United States notes or Treasury notes which may be presented at their counters for that purpose, and shall also be required to reim- burse the United States for any of such notes which may hereafter be presented to it for redemption and actually redeemed by it. Any United States note or Treasury note of 1890 here- after redeemed either directly by the United States or by any Federal reserve bank on behalf of the United States shall be permanently retired and canceled and shall not be reissued. In rte.voN for the responsibilities and obligations imposed upon the twelve Federal reserve banks the Treasurer of the United 40,101b States shall give and deliver to the various Federal reserve .ec ' banks all of the gold now held in the Treasury of the United States as a gold reserve for the redemption of United States notes and Treasury notes of 1890, amounting to $152,977,036.63, and the Secretary of the Treasury shall be directed to issue to such Federal reserve banks, free of charge, aneyett-r---ge.1.4L 909 twenty-forty year gold bonds Of the United States in an amount equal in the aggregate to the difference between the total amount of United States notes and Treasury notes now outstand- ing and the amount of gold hereinbefore directed to be given to such Federal reserve banes; such difference amounting 957,979.37. The total liability or reserve bank either to to $195 obligation of any Federal redeem directly or to reimburse the United States for the redemption of United States notes ury notes of 1890, shall be or Treas- limited to such proportion of the ag- gregate of such United States notes and Treasury notes as the capital and surplus of such Fecieral reserve bank shall bear to the aggregate capital and surplus of all Federal eee( Each Federal per I- reserve bank shall ,,t:et:( reserve banks. 4 it T1414/ maintainla reserve of one hundred cent um against the amount of United States notes and Treasury notes outstanding which it is under obligation to redeem. reeerve shall consist of notes, drafts, bills of kers' acceptances acquired under the teen and fourteen of the Federal exchange previsions of Reserve Such or ban- Sections thir- Act, and gold or gold certificates and bonds or notes of the United States in such proportions as the Federal Reserve Board may from time to time deter- mine, Provided, however, that the amount of gold or gold certificates held as reserve shall in no event be less than centum of the total liable to redeem. forty per--c6,1-3eumfr- amount of greenbacks outstanding which is The Federal Reserve Board shall have power from time to time to make adjustments reserve banks with the view d between the maintaining the various Federal proportionate lia- bility imposed on the Federal reserve banks by the provisions of this Act, and such Board may require the transfer of such amounts 909 of gold, gold certificates or bonds or notes of the United States from one Federal reserve bank to another as may be necessary to effect such adjustments. Any Federal reserve banki to which gold, gold certificates, or bonds or notes of the United States are thus transferred shall assume the liability of serve bank from which they were transferred to the Federal re- redeem an amount of United States notes or Treasury notes outstanding equal to the amount of the gold, gold certificates or bends or notes of the United States which were thus transferred. Upon the request of the Secretary of the Treasury the Federal Reserve Board shall require each Federal reserve bank to deposit in the Treasury of the United States a sum in gold equal to five per centum of the amount of United States notes and Treasury notes outstanding which such Federal reserve bank posit of gold shall be centum reserve herein is liable to redeeml but such de- .4/ included as part of the forty per counted required. The twenty-forty year gold bonds and the gold fund herein required to be given and delivered various Federal reserve banks shall be distributed to to tile such banks in proportion to the amounts of their capital and surplus. The bonds of the United States herein provided for shall bear interest at the rate of three per centum per annum, but each Federal reserve bank shall pay to rate of two the United States each half year a tax at the and one-half per centum per annum on amount of such bonds owned by it during such half the average year. Any Fed- eral reserve benk whtch may acquire from time to time bonds of the United States provided for under the provisions of this Act shall have the right to deposit such nolommer bonds with the Treas- urer of the United States in the manner provided by existing law 909 and shall be entitled to receive from the Comptroller of the Currency circulating notes in blane: registered and countersigned as provided by law equal in amount so deposited. to the par value of the bonds Such circulating notes shall be obligations of the Federal reserve bank procuring them and shall be similar in form and shall be issued and reeeemed under the same terms and conditions as Federal reserve bank notes authorized under the provisions of Section 18 of the Federal Reserve Act. IHMORANDUM - RETIREMENT OF GREENBACKS. The twelve Federal reserve banks shall be authorized and directed to assume all liabilities for the payment and redemption of all outstanding United States notes, commonly known as greenbacks, amounting to $346,681,016, and all outstanding United States Treasury notes of 1890, amounting to $2,254,000, and such banks shall be required to redeem any of such United States notes or Treasury notes which may be presented at their counters for that purpose, and shall also be required to reimburse the United States for any of such notes which may hereafter be presented to it for redemption and actually redeemed by it. Any United States note or Treasury note of 1390 here- after redeemed either directly by the United States or by any Federal reserve bank on behalf of the United States shall be peimanently retired and canceled and shall not be reissued. In exchange for the responsibilities and obligations imposed upon the twelve Federal reserve banks the Treasurer of the United States shall give and deliver to the various Federal reserve banks all of the gold now held in the Treasury of the United States as a gold reserve for the redemption of United States notes and Treasury notes of 1890, amounting to $152, 977, 036.63, and the Secretary of the Treasury shall be directed to issue to such era-1Federal reserve banks, free of charge, one year gold notes of 909 -3- bonds and the gold fund herein required to be given and delivered to the various Federal reserve banks shall be distributed to such banks in this same proportion under rules and regulations to be prescribed by the Federal Reserve Board. The notes and bonds of the United States herein provided for shall bear interest at the rate of three per cent per annum, but each Federal reserve bank shall pay to the United States each half year a tax at the rate of two per centum per annum on the average amount of such notes and bonds owned by it during such half year. Any Federal reserve bank which may acquire from time to time the notes or bonds of the United States provided for under the provisions of this Act shall have the right to deposit such notes or bonds with the Treasurer of the United States in the manner provided by existing law and shall be entitled to receive from the Comptroller of the Currency circulating notes in blank registered and countersigned as provide'd by lam equal in amount to the par value of the notes and bonds so deposited. Such circulating notes shall be obligations of the Federal reserve bank procuring them and shall be similar in form and shall be issued and redeemed under the same terms and conditions as Federal reserve bank notes authorized under the provisions of Section 18 of the Federal Reserve Act. 0 909 -2- the United States and thirty year gold bonds of the United States in such proportions as he nay deem advisable in an amount equal in the aggregate to the difference between the total amount of United States notes and Treasury notes now outstanding and the amount of gold hereinbefore directed to be given to such Federal reserve banks; amounting to 195,957,979437: such difference Each Federal reserve bank re- ceiving one year gold notes from the Secretary of the Treasury under the provisions of this Act shall enter into an obligation with the Secretary of the Treasury similar to that now required of Federal reserve banks which obtain one year gold notes in exchange for two per cent gold bonds of the WI" $1' United States under the provisions of Section 18 of the Feder1"* f 'KAPP 101 6.441 al Reserve Act. The total liability or obligation of any Fed- eral reserve bank either to redeem directly or to reimburse Irft the United States for the redemption of United States notes 6N OL c4,4 or Treasury notes of 1890, shall be limited to such proportion - of the aggregate of such United States notes and Treasury notes -1,07 04fr,,-. '014 cA/1"' as the capital and surplus of such Federal reserve bank shall bear to the aggregate capital and surplus of all Federal re- eAlb rfi'41/:x/i) 6141'6/ serve banks provided, however, that the Federal Reserve Board may, from time to time in its discretion, make adjustments between the various Federal reserve banks so that the outstandimposed by this Act ing liability of such banks/will remain approximately in the apAt OA 660,04/0/4 ret.r otiNxi same proportion. The one year gold notes, the thirty year gold Denver, Colorado, December 22, 1916. ALIJIZ1.i3NT NO. 4a, F.a.,KRAL, RiZERV E. BOARD amktAilDUit NO. 90RaIRALIENT OF GRIXTBACKS. The word "charge" on the last line of the f F t page would imply e charge for the nreparation of the bo se o me the word "cost" should be subetituted. etion of the Secretary of The provision leaving it the Treasury as to the proper ar gold notes and of 30-year conversion bonds, to be issued to t serve Banks, is dangerous and may give rise to dispu um nraportion of 30-year ute so as to avoid any conversion bonds sh danger to the Rose The rate of in the dis should be the ra On the 30-year conversion bonds he Secretary of the Treasury, within say of 3,, and 4: It strikes me that the Rose Banks will of greenbacks is amendment contaies one serious defect -- called upon to retire a total of i;346,000,000 e UON legal tender for all purposes and Which are likewise available as cash reserves for National and State banks. To make the olleration successful and to avoid denuding the .eserve 3anks of gold, they Should be able to issue Federal Reserve notes against the retirement of greenbacics. Neither these notes nor Federal Reserve 3ank notes being legal tender or reserve money. the Reserve Banks will in- evitably pay out their gold to a very conversion. large extent in the process of Once having paid out their gold, it is difficult to see 2. December 22, 1916. Retirement of Greenbacks. how they can recover it by issues of Federal Reserve notes, unless the certainly note provisions of the Act are considerably amended, extent contemplated by Memorandum No. 648, and p to the bly to the extent of making Reserve notes count as cash reserves, Wh 1 & 2 would accomplish indirectly if adopted by The mechanical pracess of on resulting redanp e Banks 3reenbacks Which the Reserve Balances duo at 11 be settled by the use of he Reserve Banks will be settled in gocau not be acceptable un the Act and the Note rovisions of th it ct are both adopted. This will uying greenbacks with gold and ant for 44% gold and 56% 30-year eenbacks to selling t bonds a i eserve Ban deral Reserve notes will the Reserve provisions of a the amendmen result in effe Reserve reupon cancel and retire. the Clearing Houses in gold and must be so m this amend- ouseSin the ment will take place through the '1 cities. Balances due to the Res Co..EISS. fter, 3% notes. Ther, in order to put out circulation, the to use the 56% of government bonds and notes ks will be'for Reserve as securi or Federal serve Bank notes, and the result of the transac- tire the greenbacks, but to tion will be no convert 56%, say 496,000,000 of greenbacks into bond secured hank notes. )ard as a most unfortunate method for the retirement of that is This I re- greenbacks. The object of the above remarks is to suggest that unless the eronosed amendments the Federal to both the Reserve the Note provisions of Act are adopted simultaneously with this amendment, it Reserve provisions and would be unwise, and possibly dangerous, to attempt the retirement of 3. :December 22, 1916. Retirement of Greenbacks. greeneacks by this method. I would in any event prefer to see the greenbacks retired by having them all assumed by the Reserve eanka,be ing the Deserve Banks take over the trust feed and 496,000,000 of dove '-nt bonds, and then al Deserve notes for have the amendment provide that as secur Federal Reserve banks might use at least the amount o vernment bonds issued to them ie retirement or There are man, advantages in having the Reserve Banks assuae backs en bloc. is in the acquisition of the en und at in their acquisition of the =Port' e been lost and destroyed and will never be pr in the fact that the sold; and still mother is lag liability for the greenbacks, nted for redem eserve Banks as the greenbacksAil1 t after, on le in be secured by :.4% gold and 56% whether thee ever ewe in for redemption ring eovernme interest another is F gold and government bonds for enbacks tee immense number of one stroke; One advantage or not. fixing of the, should thi that a posed tax of 2e; is no doubt necessary, but I 1-1/2e:, being the on National Bank no es, would be sufficient. equivalent of the present tax Let ee illustrate by the position of the Federal Reserve Bank of New York: Our capital is rouehly 2C of the capital of the whole system would, therefore, be assumed b; and 20; of the greenback operation This would give us ,30,600,000 in mid and fe39,200,000 of government bonds, On which Our net income, out of Alice the expense of the note issue 7ou1d be borne, eould be _392,000 per annum. meet This would leave n considerable margin over the expense of menaee- of the note issue of 430,600,000, but if our profit could be increased 4. December 22, 1916. Retirement of Greenbacks. to 1-1/2%, or 0588,000 per annum, it -would be sufficient to meet the expense of so large a note issne as to obviate the necessity for asking Congress to make any appropriation Whatever in nnection with the cost of issuing notes. Without a profit of this sor I am inclined to think that we would be justified in asking to have all eral letserve notes prepared free of cost, in Which case On would go to the Burean of Engraving and Printing an ot directly to -eserve Banks, control" of the Reserve Banks and the danger of so-called "a by Congress would be measur 1 have always regarded t e of applying various taxes to x.tecsssary because surplus the Reserve Bank as profits 3o to the ovision for a tax in this matter sufficient vernnent securities on substan- tially the same b est charge as the present 2's now essary. notes secnri o one believe4moFe strongly in the retirement of greenbacks than I do ut I woula prefe o see the amendment accomplish this result b7 Federal ne e notes, rather than ris the possible conversion issues of greetb extent of ;196,000,000 into bond secured hank notes, thus increasing and perpetuating an existing evil. Let me also suggest that tie amendment co modified in its tax provisions by directing that the amount of the 2,, tax to be paid to the government shall be reduced by profits othoraise payable to the government b. Retirement of Greenbacks. December 22, 1916. by Reserve Banks out of earnings. Needless to say, rather than to see no steps taken to retire the greenbacks, I would infinitely prefer to see this amendment passed, even though in some respects I feel that it miL;ht be ved. ITZIORAnDINI2La,r2ILALTZ el,a2,3=4A A; P.P.PITZY GOVEB:trYR 7.7rfig <vt. aorIT. t-tT- 0V7R TIT TTIPPinn AT 11:30 A. t!.. DECTMMal 26k 916. much surprised in the ?edema Mr. ?roman stated that we were very Reserve 7ank of New York to have the anmouncerent made in the public press this morning, making public the authorization of the eederal Reserve 3oard for the New York reserve bank to enter into negotiatione with the Bank of 7ng1and lonking touards reciprocal banking relations ender which each will act as cerresponeent and agent for the other bank in their regpective countries; that these negotiations had, as we understood, been carried on by Governor ngland Strong in person during his visit to dence; dential; that the o negotiations were to be considered an abso1ute17 confi- and that in the memorandun furnished to each nether of the 2edera1 Peserve loard at reshington - and subsequently by correspon- there was a clause which stated distinctly, "Ilo announcement, directly or indirectly, to be mide regarding the contents of this nemorandun without the explicit consent of both'inetitutions." Then "r: Trenan asked Governor Ilirding if Governor strong had been communicated with regarding this announcenent being nade public and whether he had authorized its publication, ns he had conducted the negotiations, to which Governor Tlerding replied, 'n,lo." that Governor Strong wan out in Denver lnd that things were noving eretty rapidly in raehington and the 2ederal Re- serve Board had a motive for their action, reasons having arisen suddenly lloh made it seen expedient to nuke the announcement at this tine; that the en-ouncerient sine/y recited that the :ederul Reserve Board had authorized the 'nderalTieseree Bank of !Tee verkl appoint the Bare,: of rngland as one of its foreign correspondents under the tr,rms of the federal reserve Act, nod that the action of the bard covered only the authorization. "r. TrOssn replied that Governor Strong had enphasized at diff rent times in his letters to Mr. Treman that it mg most important that these negotiations be kept absolutely secret and confidential, as otherwise it would place Governor Strong in a most embarrassing position; furthermore that we had been very particular to guard the secrecy of these matters at New York, to which Governor Harding replied that he knew that was so and that whatever criticism arose as to this announcement, we should throw the /marden of upon the Board at Washington. Tremau told Governor Harding further that he thought that as a matter of courtesy he personally should have been furnished with this information before it was announced publicly, the first intimation Mr. Treman having received of the official action being what was recorded in the morning papers and called to his attention at a meeting of the junior officers this morning. 'r. Treman said further that he did not see haw he could continue to keep his position in the New York bank unless he could be advised officially of matters as they progressed, and to this Governor Harding replied that Secretary Willis was instructed to communicate with Mr. Jay and a carbon copy was to be furnished r. Treman. Ho call Mr. Willis to the phone and Mr. Willis stated that within thirty minutes after the Board had adjourned he had sent a certified copy of the resolution to Mr. Jay at New York and also a carbon copy to Mt. Treman. Pt. Plreman answered that no such communication had been received for him by the bank according to testimony of the officers this morning, and that the communication sent to Mt. Jay on Thursday last had come to the bank marked "Private" or "Confidential," and so was forwarded to Mt. Jay at Aiken, S. C. Governor Harding further explained that he would have written him personally but that he had been confined to the house by an attack of grippe, from which he had not yet recovered. Mt. Treman stated that the announeement had come as a very great surprise in New York, w44 the bank was besieged by newspaper correspondents seeking information in explanation; that the officers in New York were not in a nosition to explain any of the reasons for this action and were simply taking the position that they had no comments nor explanation to make, to which Governor Harding replied that the Board had only authorized the New York bank to begin negotiations. Mr. Treman replied that one of the New York papers quoted Governor Harding as making a supnlementary statement concerning same. Mr. Treman repeated that the announcement seemed a breach of confidence in view of the agreement made by Governor Strong in England, and we in New York could not feel otherwise than that it would place Governor Strong in a most embarrassing position officially with the officers of the Bank of England, in view of the explicit agreement entered into by both parties that no announcement was to be made without the wfitten consent of the parties. Governor Harding then stated that if he could see (or when he could see) "fr. Treman personally, he could make explanations which he could not make over the phone, which he thought would explain their action more satisfactorily. The conversation then ended but the above is substantially what was said. RHT/CEP December 29, 1916. Pear Governor Harding: I trust you will pardon the delay in answering your favor of December 26th in the matter of foreign banking correelbendents of the Federal Reserve sank of new York, an it line been a most strenuous week here, owing to a com- bination of matters, so that rqy correspondence has been necessarily much delayed. In answer to your communication, I note with regret that you were ill last weak and barely able to attend the Ineeting of' the Board on 7:ednesday afternoon when the action was taken, and I trust that by this tine you have entirely recovered. First, let me assure you that I accept unreservedly your assurance that there was no intention of treating no with any discourtesy or of withholding the information from me, and I trust you will give no farther consid- eration to this aspect of the natter, as far as I am personally concerned. In order that you may more correctly understand my position in this matter, I beg your indulgence to an account as brief as possible of the facts connected with it. This bank made formal application to the lederal Reserve Board in August, 1916, for permission to coMplete arrangenents for reciprocal banking relations with the Bank of "Ragland, the receipt 3° which was duly acknowledged, and in answer to our inquiries, both oral and 7Jritten, at different tines we were advised that the matter was progresAng as rapidly as existing conditions would permit. On cember 21st 1 received a personal letter from Mr. Yarburg 2. Honorable P. G. Harding. 2/29/16. dated December 20th, from which I quote as follows: "As to the foreign agency natter, it was disposed of to-day and I think in a nanner that will be perfectly Pleasing to Governor , ,',trong. expect that Governor varding is goine to write to yen direct and I have to-day confidentially written to 71r. Strang." after which paragraph Warbure interlined in his awn handwriting this eentence: "Treat this as confidential until you bear officially." which sentence I assune nr. Varbures clerk did not include in the infornation he rave you. Aside fran the above, the first information I had, or that this bank had, of the action of the Federal :Reserve Board taken on 'ednesday, lember 20th, was what we learned from the newspapers published Tuesday morning, Deceriber 26th. In these newspaper articles wore printed the reso- lntion adopted by the ?fulcra' Reserve !exiled and a&ed explanations, pone of Vetch were attributed to you, an to the effect of the same, the individual interpretation of which on the part of mono of the eewsnaners was that the arrangenents had alreadr been completed. After anr officers' meeting on the eorning of Tecenber 26th, I immediately telephoned you to ask if you would do ne the courtesy of advising ne why this had been made public in violation of the confidential agreement; and further whether you had secured Governor 3trong's consent to this public announcement, he (Governor strong) having iipressed upon ne at various time In writing and orally the very greet inportence of secrecy and the very embarrassing position in which he would be placed with the Bank of senglane offi- cials were the facts of our negotiations to leak out in any way. After you had explained the action that had been taken and had stated that there were reasons whioh seemed sufficient to the Board to justify Honorable e. P. G. Herding, 12/29/16 this action on ita part, you stated that you, being 111, had asked Dr. Willis to convey the information to the Tew York bank and you called Dr. to the phone, who stated that he had sent a copy, duly certified, of the resolution to -r. "ierre Jay, say that he had Federal Reserve Agent at !Ter York, and I understood him to included a carbon copy for the bank. In answer stated that no such resolution or copy had been received be the bank, as I had evade inquiry previoue to telephoning, but that a connunication had been received by the bank on Thursday, 14menber 21st, addressed to -r. -lierre Jay, eedern/ rtesc-ve Agent, narked 'Confidential" and being so narked had been !:orwarded by ny instruction to Dr. 'Ulna stated that the commuJay at Aiken, 3. G. nicetion had not been marked "Confidential" nor "Private, but that it was merely addressed to !Ir. Jay as eederal reserve agent--at ]east I so under- stood binbut ee received on 'ednesday, lieceeber 27th, fron r. Jey the let- ter which had been sent to bin, on the bottom of which he wrote, "I have eent copy to eovernor Strong. Dr. ' Dais '2his cane in envelope marimd. 'ConfidentIals." later read to no the words of the reaolution, after which I pinned you further as to the emberrassing position in which the officera and directors of this bank were placed by this action, and called attention to the fact that in the memorandum furnished to each meeber of the iederal -eeerve Board at "eshington, the last clause distinctly stated: "Teo announcement, directly or indirectly, to be made regarding the contents of this nemorandum without the explicit consent of both institetione." and eou relied that the Board, while regretting the neceseity of it, assumed all reseonsIbility eed whatever criticisn night arise. then stoted that I could not but feel that as a natter of courtesy the deputy governor who had, in behalf of this bank, nada the format applica- tion for this authority, should have been informed directly ana not through the medium of the reserve went as to the action taken, and that if such important 4. eonornble' . P. G. earding. 12A9/16. matters wore not to be conveeed to bin promptly and he have in each natters the confidence of the Board, I did not nee how any self-respecting man could attenpt to fill the oosition, as it would be untenable. You then expressed your re- gret that It should have occurred and stated that you had. ietended to have written me, had you not boon ill, and that when you could ace as you could explain more in detail than you could over the phone and yoe thought that I would then better understand the 3oardis action. ravine explained in detail the events, I bee now to reiterate my belief that whoever attenpta to direct the affairs of this bank as its head must 112,ve the confidence of the meebers of the Easerve Board to the extent that vill permit them to send all communications pertaining to and affecting the operation of the bank and its nanegenent to Mn, sending very properly to the 2edera1 reserve. agent such natters as pertain to his functions. In regard to the remaining portion of your letter, in which you remind no that the eoard is a governmental bode, that its acts are of a public oharacter, and ferther "that the eoard could not have been justified in sup- pressing in this report a reference to thin feet," and again ferther "az anfficient tire had elapsed for the Ietard's fornal notice to have been received and digested by the aethorities of the :lee York Pederel reserve bank, it seemed inexeedient to delay any further making a public statement regarding the Board's action," I beg to state that while I cannot concur with you with regard to the propriety of the position thus taken, it SCQYIS to no that there are certain principles involved in this matter afrectieg the position of the /federal Reserve Bank of ';ew York so vitally that it is better that the subject be referred to the board of directors for them to state their position as to this portion of your letter rather than for me to commit the board in any way In ny official ponition by an expression of ny individual views. I have, therefore, referred that portion of your lettcr to the executive ommittee of 5. Venerable 7. P. G. Harding. 12/29/16. the bank who w11 bring It before the boord of directors for its action at the regular rneeting on :Wednesday next, January 3rd. Agin expressing to you my regret at your illness and eiv sincere hope that you have entirely recovered, I remain, Very truly yours. Deputy Governor. Honorable 7. P. G. Harding, Governor, ?edema? Reserve rotted, ashington, D. C. RHT/CFP FEDERAL RESERVE BOARD WASH IN GTO N September 21, 1914. SEP Z. Dear Mr. 1914 Strong:- I hand you herewith receipt of the Warrant Warehouse Company, Birmingham, Alabama, for one bale of cotton duly insured and all charges paid to September 1, 1915. I am sorry there should have been so much delay in closing this matter up, but the receipt did not reach me until this morning. Your moral support of the "Bu,y a Bale" movement is very highly appreciated by the Southern people, and I desire to thank you personally also. Sincerely yours, kr. Benjamin Strong, Jr., c/o Bankers Trust Co., 14 Wall Street, New York City. FEDERAL RESERVE BOARD WAS H IN GTO N October'14th 1914. Deaf Mr. Strong: I have your letter of the 13th instant enclosing temporary receipt covering purchase of bale of cotton for you some weeks ago. you have donated the I am glad to know that cotton for the charitable object as suggested by Mrs:Ttoss Smith of Birmingham. With kindest regards, I am, Sincerely yours, Mr. Benj. Strong, Jr., 16 Wall Street, New York City. Jecomber 31, 1914. Dear jr:C Receipt is heroby acknowledged of proxy appointing Ur. Benj....Areng, Jr. to act in the place and stead of Er. W. P. G. :ding in connoction with the Cotton Loan Very truly yours, Secrotary to 7,1r. Strong. L. aidy, Esq., Assistant Secretary, Cotton Loan Fund, Treasury 3,ai1ding, Washington, D. C. PMIN )11 BELN J. ST130 Jr. AI, . PERSON KNCW ALL MEN BY THESE PPESENTS, That I, W. P. G. Harding, daving been duly appointed a member of the Cotton Loan Committee, pur- suant to and by virtue of the provisions of a certain completed plan for the creation of a fund of approximately 1.35,00O3000 for making loans on cotton in certain states of the Union, which plan was ap- proved by the Federal Peserve Board on November 30, 1914, do hereby constitute and appoint Benjamin Strong,Jr. my true and lawful attorney in fact or proxy, to act in my name, place and steed as a member of said committee in any matters which may require action by me at any meeting at which I am not personally present, or at any time when my said proxy may be called upon to take any action in my absence from the City of Nev; York, in connection with the provisions of said plan. Any action sc taken, or act done, in my absence from the city of New York, to have the same force and efect as if taken by me personally. WITNESS MY HAND AND SEAL THIF-74AY 0Filet,---h,/ 1914. ritnese. 4 FEDERAL RESERVE BOARD WAS June 21st, 1915. Personal dot 4(4 -8 1915 My dear Mr. Strong: I hand you herewith for your perusal a letter which I will ask you to return to me after you have finished with it. It seems to me that if the people that are behind the Gulf States Steel Company could acquire the Pratt Consolidated, they would have just about the most attractive proposition in the South. Sincerely yours, Mr. Benj. Strong., Jr., C/o Federal Reserve Bank, New York City. FEDERAL RESERVE BOARD WASHINGTON October 13, 1915. Dear Governor Strong:- I have your letter of the 11th instant that you are sending me a sample of your apple crop. advising me I thank you very much for your kind re- membrance and assure you that my daughters and I will enjoy the apples very much With kind/regards, I am, Sincerely yours, w Mr. Benjamin Strong, Federal Reserve Bank, New York City. indeed. FEDERAL RESERVE BOARD WASHINGTON of, 0 - _es'! '-1--June 15, 1916. ,19 My dear Yr. Strong:I was very sorry indeed to learn from Messrs. Warburg and Delano that your health has become impaired, but with your strong vitality I feel sure that a complete rest for some months in another climate will restore you. You must not, on any account, think of severing your connection with the Federal Reserve Bank of New York, but you should avail ' yourself of leave of absence, which can be extended from time to time, and restore your health. You can no doubt during your vacation keep in touch in a general way with some of the larger problems with which we are all confronted, and escape entirely all of the nagging details and worries incident to administrative duties. If you will study your own physical needs as,closely as you have the financial require- ments of the country, there can be no doubt whatever of your winning your fight for health. With all good wishes and warmest regards, Sincerely yours, Mr. Benjamin Strong, Jr., 903 Park Avenue, New York. I am, FEDERAL RESERVE BOARD WAS August 30, 1916. Mr. Benjamin Strong, Jr., Estes Park, Colorado. Dear Governor Strong: I note what you say in your letter of the 25th instant re- garding the effect of certain provisions of the Clayton Act upon prospective applications from some of the larger State banks and trust companies in New York City and elsewhere, for membership in the Federal Reserve System. It seems a pity that the proper develop- ment of the System should be hampered in this way; and I would be very glad to have the outline of an amendment to the Clayton Act which I understand you are preparing. We have recently succeeded in getting several amendments through Congress,pretty much all, in fact, that we asked for, except the one relating to the issue of Federal reserve notes against direct deposits of gold, etc.', and the one giving National banks the right to establish branches. This last amendment has been introduced as a separate bill, and will probably go through during the short session next winter; and I have hope that we can get favorable action upon your proposed amendment to the Clayton Act at the same time. With kind regards, I am, Sincerely yours, FEDERAL RESERVE BOARD po. WASHINGTON SepteMber 9, 1916. .11 if Dear Governor Strong:- I have received your letters of the 4th initant and have read with a great deal of interest copy of your letter to Collgeessman Glass on the subject of the gold amendment which we failed to get on account of Er. Glass's opposition. Your arguments seem to me to be unanswerable and I tope that we may yet be able to bring enough influence to bepr on Mr. Glass to get him to cooperate with us in this matter this winter. Whi/e he appears to be unalterably opposed to the idea, I do not believe that he hp.s realized as yet the importance of it and that he has allowed himself to be cjtroiiea by his first impressions and has rather fought against being convinced.. I do not think, however, that he is by any means a hopeless case. Warburg is looking forward with much pleasure to his trip to Colorado to see you, but I am afraid that this pleasure will be denied me as far as the near future is concerned. I had intended to go to Kansas City, but it looks now as though I will be unable to leave here during the present month. Hoping that your health will continue to improve steadily, I am, with warmest regards, Very sincerely yours, Mr. Benjamin Strong, Estes Park, Colorado. 0. FEDERAL RESERVE BOARD WAS September 22, 1916. Mr. Benjamin Strong, Estes Park, Colorado. Dear Governor Strong:I have your letter of the 16th instant ex losing five copies of the brochure issued by the Bank o mending the use of checks instead of the I am a little rusty on my French, able to interpret the meaning of the France, recom- LOS notes. t think I will be oklet, which I will study with much interest. Warburg left at two o'clock and I understand that he will you. I am very sorry that I r esterday for Cincinnati, from there to Denver to meet s not able to make the trip with him, but my new,duties her keep me pretty closely occupied. I hope, however, to be to leave here Monday night for Kansas City, so as to the Convention. e there during the last three days of I With warm reftrds, I am, Sincerely yours, 11. October 5, 1916. Dlr. W. P. G. JI-krding, Governor, Federal Reserve Board, Washington, D. C. Dear Sir: The statutory provisions of Section 13 provide that any member bank may accept drafts or bills of exchange for the purpose of furnishing dollar exchange as required by the usages of trade in the country in which the draft is drawn. Generally speaking, the usage of practically all commercial countries is to draw bills at long sight; only, however, for the purpose of meeting the requirements of individual customers and not as a matter of market custom. In the important South American countries, such as Brazil, Jnile, Peru, and practically all of the Central American countries, foreign exchange quotations are, as a rule, based upon the selling value of 90 day sight drafts on London and this valuation is the measure of appreciation or depreciation of the currency of the respective countries, and thus has grown up the practice of settling all exchanges on the basis of the rate for 90 day sight drafts on London; and as remittances in settlement of those exchanges are demanded, it naturally follows that a 90 day sight draft will be used. Where a remittance is asked for on a different basis, the amount remitted is curtailed to the extent of the interest involved. Why a 90 day sight bill was selected as the basis of exchange quotations I Mr. W. P. G. H. -2- 10/5/16. am unable to determine, nor can I find any reason given therefor in any of the standard reference books. Hence, it must be assumed that the practice has grown up through conditions which existed at some former time and it is needless now to attempt to discover the raison d'etre of this usance. A draft remitted to a South American country for collection, if drawn in sterling, is generally paid for by a 90 day sight bill on London, if the text on the item does not stipulate to the contrary, and payment on the part of the drawee in any other manner would be strongly resented. Dollar exchange is an innovation in the Central and South American countries and as long as the pay- ment of items is not subject to the rate of exchange covered by gt, 90 days sight bills, dollar exchange will always be the least preferred of all other exdhanges; and in course of time, undoubtedly the American merchant will mark up the price of his commodity to meet this situation, in order to avoid friction with his clients in those countries. So that it can be naturally inferred that the rule of 90 days sight remittances in dollars will be the practice just the same as it is now the practice in connection with London drafts, and unless this facility is granted, the London remittances naturally will be preferred to the detriment of dollar exchange. Even now, in Brazil, payment of a draft drawn in dollars takes place by a remittance of a 90 days sight draft on London, and any other method is an expensive one. In the Argentine -Republic, conditions are quite different. die the exportation of their merchandise; such as wool, hides, linseed, and quebracho, has practically all been on the basis of confirmed credits in New York against a 90 day sight drafts, this con Mr. 71. P. G. H. -3- 10/5/16. dition has prevailed to its present extent only since the beginning of the war. Before that period the custom was to pay on the basis of 90 day drafts on London as in the cases of the other countries above mentioned. All drafts drawn on time on an American bank, whether by banks or firms, should be construed as drawn under the provisions of the law permitting acceptances where the importation or exportation of merchandise is involved, for the following reasons:- Drafts are drawn in one foreign country on another mainly for the purpose of paying a debt owing to the country on Which they are drawn. The debt undoubtedly arises out of some transaction or series of transactions covering the exportation of merchandise, and may represent a liquidation of a balance resulting therefrom. The general understanding is that only in this way can a 'edit in a foreign country arise, as a rule. The purchase of sec- urities or personal transfer of funds in their relation to the whole bear such a small propOrtion that, according to my opinion, these features might be safely considerad a negligible quantity, or not considered at all, particularly at the present moment. Consequently, would it not come within the meaning of the statute that, in the event of a foreign banker desiring to remit to a client in a country not his own, he be permitted to draw upon a National Bank at usance- that is, at any tenor within six months and could not this transaction, without in any way stretching the meaning of the law, be considered as one involving the exportation or importation of merchandise? It is pretty safe to assume that -4- Mr. W. P. G. H. 10/5/16. any credit against which such a draft would be drawn was created by the vary thing that the law desires to encourage, and, that being the case, could not any foreign banker draw a ninety days sight, or four months sight, bill on a National Bank in the United States, and should not the Federal Reserve Board consider this as coming within the meaning of the statute? The case that I have in mind at the present moment is a credit arrangement with a foreign bank, properly secured, desiring to draw on the National City Bank of New York, the funds being needed in the United States by clients of the foreign bank only for one purpose, and that is for the purchase of American merchandise. And in making proper preparation for this purpose the foreign bank deposits securities with the mutual understanding to protect the draft at maturity. On the face of it, this appears to be a finance bill, but in reality it is not, inasmuch as the total amount drawn for will probably be distributed among a great many merchants desiring to secure a remittance'in United States Dollars through the United States and the bank adopts this method to provide the necessary facilities to its customers. It stands to reason that the foreign merchant will make use of the funds created by these long drawings only in payment of mercantile debts in the country to which he mits same. London has achieved a success as a financial center mainly through the granting of facilities such as are referred to in the foregoing exposition and its bankers have been able in this way to mobilize their credit standing in a way that practically controls Mr. P. G. -5- 10/5/16. the commerce of the world, and it would seem rather a hardship that New 'Cork should not be placed in a similar position in order to at- tract to it business operations that naturall7 -ould come this way. The requirements of the regulation setting forth the usages of trade in the respective countries, etc., is a difficult one owing to the generel character of the practice which it is now sought to invoke, and it eeems to me that la; a liberal view of the matter a great good can be accomplished. The Board in its ruling of September 7, 1915 practically covers the ground under Sub-Section (c) of Division III of Circular o, 18, to the effect that bankers' acceptances must be drawn by a purchaser or seller or other person, firm, company or cor- poration directly connected with the importation or exportation of the goods involved in the transaction in which the acceptance originated, or "by a banker." But whether this ruling is not supersed- ed by Regulation C, Series, of 1916, I am at a loss to determine, and I vould therefore respectfully suggest, if I am permitted to do so, that in lieu of the specificrequirement of Regulation C. the ruling No. 3 of September'7, 1915 sub-section C. be permitted to stand. Respectfully yours, Vice President. (AMP) COPY FEDERAL RESERVE BOARD Washington. October 9, 1916. 1.1r, John E. Cardin, Vice-President, National City Bank, New York, N. Y. Dear Sir: Your letter of the 5th instant addressed to me officially was duly received and will be brought to the attention of the Federal Reserve Board What follows in this letat its next meeting on Thursday, the 12th instant. individual opinion and must not be ter is therefore merely an expression of construed as being in any sense a ruling of the Board. Regulation C, Series of 1916, was not intended and should not be construed to revoke or curtail the existing right of national banks to accent drafts growing out of transactions involving the importation or exportation amendment to the of goods. 1 It is a regulation made necessary by the recent banks under regulations preFederal Reserve Act which authorized national scribed by the Federal Reserve Board, to accept drafts for the purpose of furnishing dollar exchange as well as drafts growing out of transactions involving the importation and exportation of goods. The general subject matter of Regulation R of September 7, 1915, to which you refer in your letter is covered by Regulation 3, Series of 1916, which is printed on pp 5 and 6 of the Board's new pamphlet of regulations. You will observe that there is nothing in that regulation, which deals with the eligibility of bankers' acceptances for rediscount by Federal Reserve Banks, which further restricts the existing right of national banks to accept drafts growing out of transactions involving the importation or exportation of goods. The Board has previously considered the question discussed in your letter and has ruled that, though there is no necessity for requiring that a draft should be connected with'some specific exportation or importation of goods, nevertheless, the accepting bank should be sure that the proceeds of the draft a draft might That are to be used for the purpose contemplated by the Act. law even though the particular contract which come within the provisions of the the it is to finance has not been entered into at the time of acceptance, but furnished with suitable assurance that accepting bank should, in such case, be the proceeds of the draft will be used for the purpose of financing some transaction or transactions involving the exportation or importation of goods and Probability that the will be employed for that purfor no other purpose. the pose is not the opinion of the Board, sufficient, because, in such case, accepting banla is aware that some, if not all of the proceeds of the draft There which it accepts might be used for a purpose not authorized by law. that the customer of the accepting bank deshould be some conclusive evidence contracts for the sires the funds for the financing of a bona fide contract or Whether or not such contracts are in existence at the Shipment of goods. the funds time of the acceptance is Ammaterial so long as it is assured that will ultimately be used for that purpose and no other. is, -2- The Federal Reserve Board and the Comptroller of the Currency contemplated just such a situation as this when it made its ruling, published on page 208 of the September, 1915 Federal Reserve Bulletin, to the effect thata national bank may enter into an agreement obligating itself for a specified period of time (not limited to six months) to accept drafts drawn upon it, provided such drafts grow out of transactions involving the importation or exportation of goods, and, provided further, that the individual drafts have not If a national bank entering such an agreemore than six months' sight to run. ment is assured by the terms of the agreement that the credit afforded by it will be used only for the payment of transactions involving the importation of exportation of goods, that is sufficient; even though certain of the transacIn this contions to be covered are not existent at the time of acceptance. printed on nection your attention is also directed to a ruling by the Board page 405 of the Doer 1915 Federal Reserve Bulletin. It should be remembered, however, that national banks may, under the terms of the recent amendment and Regulation 0, Series of 1916, also accept drafts drawn by banks or bankers located in foreign countries or dependencies or insular possessions of the United States, for the purpose of furnishing dollar exchange, though such drafts must not have a maturity of more than threemMuths' sight, exclusive of days of grace. You will be advised in due course whether or not the Board concurs in the foregoing. Very truly yours, (Signed) P. G. Harding. COPY FEDERAL RESERVE BOARD Washington October 12, 1916. MY. John E. Gardin, Vice President, National City Bank, New York, N. Y. Dear Sir: 14r personal letter of October 9th, replying to yours of the 5th instant was adopted by the Board to-day, and you may therefore consider it official. Very truly yours, (Signed) W. P. G. Harding, Governor. P Y FEDERAL RESERVE BOARD Washington ' tober 25, 1916. Mr, John E. Gardin, Vice President, National City Bank, New York, N. Y. Dear Sir: Referring to our recent correspondence I hand you herewith for your information copy of letter that was sent yesterday to a national bank which had made application for the privilege of accepting drafts running not to exceed three months sight, to be issued by banks or located in London and Paris. bankers Very truly yours, (Signed) W. P. G. Harding, Governor. 0 o y October 24, 1916. The Board has considered the application contained in your letter of October 17th for permission to accept drafts running not to exceed three months sight to -Le drawn by banks or bankers located in London, England, or in Paris, Franee. Under Regulation O, Series of 1916, member banks, desiring to accept drafts drawn by banks or bankers in foreign countries for the purpose of furnishing dollar exdhange, are required to make application to the Board setting forth the usuages of trade in the countries in which the foreign banks or bankers are located, and the Board grants application only when it determines "that the usages of trade in such countries * * require the granting of the acceptance facilities applied for. . The purpose of this Act and the Regulation made pursuant thereto was to enable the American banks to provide dollar exchange in countries where the check is not the current means of remittance in payment of foreign debts, but where the three months bankers' draft is generally used for that purpose. The Board is of the opinion that this custom does not If any one in either of these exist in England or in France. countries desires to make remittance to the United States in payment of a debt or obligation, it is not customary, according to the information of the Board, to send a three months draft, and there should be no difficulty in securing in London The or Paris cable transfers or checks on the United States. Board is informed that the bankers' custom of selling three 0Onths drafts in preference to checks originated in countries where the mail conhections were irregular and the foreign exchange market was a limited one and where it would have been difficult for the drawing banker to be certain that he could find a cover against the checks drawn by him in time to forward it by the same mail, whereas, in drawing a three months draft, he would feel assured of being able to forward remitSuch conditions do tances before his obligation fell due. not exist in relations between England and Prance and the United States, and after consideration of all the circumstances the Board does not feel justified in granting your application, Cs-OP Y FEDEAL.L B.E6ERVE Bola]) Washington October 25, 1916. Mr. John E. Gardin, Vice President, National City Bank, New York, N. -Y; Dear Sir: On my return to Washington to-day I discussed with Governor Harding the explanation which you made to me of your desire in connection with acceptances and he has sant you to-day copy of a letter addressed by him yester- day in response to an inquiry which seems to be "on all fours" with yours. I trust that this will cover the matter. Very truly yours, (Signed) Sherman Allen, Assistant Secretary. fz,7 tht1.5/ /// G ft; Pear Sir: On October 23rd a telegram was sent you in referaice to an acceptance credit approximating '100,000,000. drawn on _Anerican banks and trust companies. Yot't were advised that in the opinion of the B,oard banking prudence and obliga- tions towards general commercial interests of the country required the 2edera1 reserve banks should not acquire acceptances of this character beyond a conservative amount. For your information I would add that the total amount of this credit will in no event' exceed ''50,000,000. and that the extent of participation by member banks will not be more than .20,000,000. There has been sent you to-day under separate cover copy of an address to be made by the writer in New York to-morrow evening, which contains quite a full discussion of the rTub.lect, pages 9 - 18. The text has been submitted to each member of the Board, and while it is not intended as an'Official statement, it may be fairly regarded as indicating the views of the Board, particularly the discussion of policy which you will find on pages 9 and 10. The sum7estion may also be added that the reserve banks will find that they are possessed of an ef'esctive means of regulating transactions of the char- acter in question by the establishment of a Proper differential in the case of such acceptances, namely 1/4 to 1/2 of 15 over the rate for pure commercial credits, which are self-liquidating in the highest sense. COPY FEDERAL RESERVE BOARD WASHINGTON November 16, 1916. Dear Sirs:Your letter of November 14, 1916, Ineking application months sight to run, drawn by banks cr bankers including branches of the National City Bank of New York located in all Central and South American countries for the purpose of furnishing dollar exchange, has been duly received. for the right to accept drafts having not more than three You are hereby advised that, reserving the right to modify or revoke its aoproval on ninety days notice, the Board has decided to permit member banks to accept drafts drawn upon them by banks or bankers located in any country of South or Central America. It IA understood that such drafts must be drawn for the purpose of furnishing dollar exchenge as required by the usages of trade in the respective countries. Notice to this effect will be published in the next isaue of the federal Reserve Bulletin. Whether or not the varioas branches of the National City "banke or beakers," within the meaning of Section 13 which authorizes the acceptance of drafts for the purpose of furnishing dollar exchange, is a matte.: which the Federal Reserve Board has taken under consideration and about which it will advise you in due course. Bank are Very truly yours, (Signed) W. P. Gi Harding Governor. Natio:Al City Bank, New York, N. Y. FEDERAL RESERVE BANK OF NEW YORK """ THE NATIONAL CITY BANK OF NEW YORK New York, November 1,, 1916. JEG . W. P. G. Harding, Governor, Federal Reserve Board, Washington, D. C. Dear Sir: With reference to the Act passed by Congress at its latest session and approved by the President under date of September 7th, 1916, reading: ."An Act to amend certain section of the Act entitled *Federal Reserve Act,' ap:roved December .3, 1915," and to that particular portion, authorizing member banks to accept dra:ts or bills of exchange, drawn under regulations to be prescribed by the Federal Reserve, Board by banks or bankers in.foreign countries or dependencies or insular possessions of the United States for the purpose of furnishitt dollar ekchange as reouired by the usages of trade insthe respective countries, etc., we hereby make application for the privilege of accepting drafts drawn by banks or bankers, including bran4es of the National City Bank of New York, located in all Central and South American countries, for thepurpose of furnishing dollar exchange. Practically the only usance bill in these countries is the 90 days sight bill, and consequently all drafts drawn in foreign currencies, without stipulation as to method of payment, are covered at the rate of exchange for As I am reliably informed, the tender of 90 days sight bills at maturity. an approved ninety day bill in li,uidation of any collection or any debt at The practice maturity of same constitutes a legal liquidation of the item. has therefore been established and has become the usage of the countries to This custom has draw bills of this tenor in order to create proper exchange. arisen from the fact that mail connections, as a rule, are irregular and that the foreign exchange market in subject to certain limitations dependent upon the seasonal movement of the.crops. . Respectfully yours, (Signed) John E . Gardin, Vice President. JEG/CFZ JLT wry. th t leesd a tempomr:i oxpla ale November 14, 1916. taullor nQtes is acoomplishe' A discussion of a plan for the establishment of a Federal Reserve Silver and Legal Fund as proposed by Mr. R. M. Gidney, of Washington, was held at the New York Athletic Club on the evening of November 13th. There were present Messrs. Sailer, Hendricks, Renzel, Higgins, Jefferson, and Cann, This plan was gone over with considerable care and the consensus of opinion was practically as follows: The general plan as outlined was approved, but several modifications of the details were suggested. This fund, it was thought wise, could not be permitted to exceed 20% of the lawful money reserve of the Federal reserve banks. The expense of shipment of the legal and silver currency should not be made a general expense but should be borne entirely by the bank ordering the shipment. This fund should be under a joint control of the Feder,a1 Reserve Agent and the bank. -2- 1e recommend that this be a temporary expedient until the retirement of the legal tender notes is accomplished, and a distinctively dif- ferent distribution of denominations is determined. The suggestion is that withdrawals may be made in amounts of 400,000. or multiples thereof. In our opinion, any issue of small denominations of gold certificates as is intimated would defeat the purpose of the issue of Federal reserve notes, and that instead of issuing f.35. gold certificates, the issue of lOs and 20s and possibly 50s be stopped. The other details as outlined in the plan were considered wprthy of trial. It seems very necessary that this fund should be established at once and have the general plan ready for use should occasion arise, and not wait until it is forced upon us although the probabilities are that it will not be used in the immediate future. LHH/JGC Dear Sir: On October 23rd a telegram was sent you in reference to an acceptance credit approximating 100,000,000. drawn on American banks and trust companies. You were advised that in the opinion of the l'R)ard banking prudence and obliga- tions towards general commercial interests of the country required the Federal reserve banks should not acquire acceptances of this character beyond a conservative amount. For your information I would add that the total amount of this credit will in no event exceed t50,000,000. and that the extent of participation by member banks will not be more than !!20,000,000. There has been sent you to-day under separate cover copy of an address to be made by the writer in New York to-morrow evening, which contains quite a full discussion of the subject, pages 9 - 18. The text has been submitted to each member of the Board, and while it is not intended as an official statement, it may be fairly regarded as indicating the views of the Board, particularly the discussion of policy which you will find on pages 9 and 10. The SugRestion may also be added that the reserve banks will find that they are possessed of an ei*fective means of regulating transactions of the char- acter in question by the establishment of a proper differential in the case of such acceptances, namely 1/4 to 1/2 of 1% over the rate for pure commercial credits, which are self-liquidating in the highest sense. FEDERAL RESERVE BOARD Washington October 31, 1916. Yr. Pierre Jay, ""'"""'"4"tfrarrraan of the Board and Federal Reserve Agent, Federal Reserve Bank of New York. New York, N. Y. Dear Sir: On October 23, a telegram was sent you in reference to an acceptance credit approximating one hundred million dollars drawn on American banks and trust 'companies. You were advised that in the opinion of the Board banking prudence and obligations toward general commercial interests of the country recuired that Federal reserve banks should not acquire acceptances of this character beyond a conservative amount. - For your information_l may add that the total amount of this credit will in no event exceed fifty million dollars and that the extent of participation by member banks will not be more than twenty million dollars. There is being sent you to-day under separate cover copy of an address to be made by the writer in New York to-morrow evening, in which there is quite a full discussion of acceptances (pages 9 to 18). The text has been sub- mitted to each member of the Board, and while it is not intended as an official statement, may be fairly regarded as indicating the views of the Board, particularly the discussion of policy, which you will:find on pages 9 and 10. The suggestion may also be added that the Reserve banks will find that they are possessed of an effective means of regulating transactions of the charin the case acter in question by the establishment of a proper differential of such acceptances (say from one-fourth to one-half of one per cent) over the rate for pure commercial credits which are self liquidating in the highest sense. Very truly yours, (Signed W. P. G. Harding, Governor. Jo FEDERAL RESERVE BOARD WAS November 16, 1916. Dear Governor Strong:I thank you for your letter of the 10th instant, from which it seems that we are not entirely in accord in our views as to the proper course to pursue in our financial relations with foreign countries. In spite of all the optimistic talk given out recently by our friend, Henry P. Davison, I cannot help feeling that there is danger of the wax continuing to a point of absolute financial, as well as physical exhaustion on the part of all participants. I think that we are treading on very dangerous ground in the matter of our credits to Every loan is soon belligerent nations, which seam to be cumulative. followed by another for a larger amount, and the volving credit 20,000,000 Brown re- which we favored in August 1915 was soon followed by another issue of 25,000,000; then by the Schneider credits and then by the pending French industrial credit for 400,000,000. loan to Great Britain of Our last 300,000,000 is, I understand, soon to be fol- lowed by an unsecured loan, and I am told that our bankers are soon to have an opportunity to subscribe for a Russian loan. Of course these loans keep our export trade going in fine shape, and the greater our expansion of business the more we fear the inevitable reaction. You nay remember about twenty years ago the Tennessee Coal, Iron and Railroad Company was on the ragged edge, and that on two or three -2- occasions it escaped receivership almost by a miracle. When I first went with the First National Bank of Birmingham I was surprised and shocked at the volume of T. O. I. paper that it had under discount for merchants and ore contractors, but when I raised the question as to the wisdom of carrying so much of that particular paper, I was told that unless these continuing credits were granted the operations of the company would cease and it would be thrown into bankruptcy, and if the company went broke the whole community, including the bank, would be broke, so the only thing to do was to "take a firm grip on the tail of the bull and run along with it." I fear that we are beginning to drift into a similar position in the matter of our foreign credits. There is another view that I think we ought to take and that is this: The carnival of death and destruction has gone far enough. ought to be stopped. It I cannot escape the conclusion that the united States has it in its power to shorten or to prolong the vex by the at. titude it assumes as a banker. belligerent powers by giving If we decide to finance one group of it unsecured credits, we assure in large part a burden which another group of belligerents is carrying on its own account, and the possible complications policy are frightful to contemplate. which may core from this On the other hand, if we sell on a cash basis, our foreign trade will be confined to more reasonable limits and will fall off gradually, as the ability of foreign nations to pay diminishes. If the Federal Reserve Banks and all large member banks make up their minds to lock up the excess gold that is coming -3- to UB by carrying abnormally large reserves, they would, I think, provide the best insurance against the post-war period which some of us fear so greatly. For the life of me, however, I cannot see how Europe is going to draw gold from us after the war, except by giving us good value for it, and I believe that a large stock of actual gold in our possession is certainly as good insurance as unsecured obligations of countries who are reputed to be spending .75,000,000 a day. I have never expressed these views publicly, and do not intend to, but the foregoing represents private opinions and convictions which have been crystallizing for several months past. I trust that your health continues to improve, andnay have the pleasure of hearing from you frequently during the winter. With assurances of my appreciation of your good wishes, I remain, with kind regards Sincerely yours, Mr. Benjamin Strong, 4100 Iontview Boulevard, Denver, Colorado. j 0 L RESERVE BOARD 'WASHINGTON December 5, 1916. Dear Governor Jtrohz.:- Your letter of :ovellper 20th was duly received but an unusual pressure of I presure of course that routine natters has prevented an earlier resronse. you have read the Board's statement that appeared in the press on 7ovember 20th, I an in entire but I will not embarrass you by asking your opinion of it. The members of the Board accord with that you say on page 3 of your letter. have had several conferences recent17withT'r. Glass and we are moving to get rid of about :;200,000,000 of national bank notes within the next tree years. WarbUrg has doubtless written you fully of the plan, and if r. lass gives us the support that he now seems disposed to I think that -e can get the le,l-is- 'here has been a considerable improvement recently in lation throuj,h. the Board's relation to the %:hite rouse and I believe that in many ratte-s where the L').. ' Itself can reach a harmonious agreement we can enlist the synrathy and cooperation of the :resident. The 2ederal Reserveents are in conference with us next week the Governors of the Eederal Reserve Banks Will here this week and cone. I an extremely busy and haven't time for a longer letter today. I ar delighted to learn that your health continues to im:orove, and remain, with warm2 reards, sincerely yours, Or. Lr. Benjamin strong, 4100 Ilontview Boulevard, Denver, Colorado. A, FEDERAL RESERVE BOARD WASHINGTON December 23, 1916. Dear Governor Strong:I wish to acknowledge receipt of your telegram of the 21st instant Which has been read to the Board. We feel that the Federal Reserve SysteM is now firmly established and desire to express our appreciation of/the excellent work that has been done by each Federal Reserve Ba 'and the loyal support that has been given to the efforts of the Boatd by the entire organization. We sympathize with you in yofr that your health is being built/Up can, in clue course of time, which you are so admirably enforced absence, but sincerely hope on such a sure foundation that you r6sume the discharge of those duties for quipped and in the performance of WhiCh you have already rendered sulK distinguished service. With cordial good ishes for the new year, I am, Sincerely yours, Mr. Benjamin Strong, 411 Llontview Boulevard, Denver, Colorado. ir FEDER/L1RZOER'V: BOARD 14444.. WAMINGTON December n6, 1916. Mr. R. H. Troman, Deputy Governor, Federal Reserve Bank, New York. Dear Mr. Treman: Referring to our conversation over the telephone tt;is morning I wish to say that the Board's resolution authorizing the Federal Reserve Bank of New York to eonstitute the Bank of England as one of its foreign Correspondents and agents was adOlted by the Board at a meetine' on last ednesday afternoon, and notice of the fact was sent by mail, over the signature of the 6oCretary of the Board, to Mr. rierre Jay, Federal Reserve 44gent. Mr. 7i1lis is writing you toe-day exnfirming what he said over the telel-hone about this notice. I was suffering last week from quite a severe attack of grippe and was barely able to force myself down to attend the meeting Wednesday afternoon. But for this fact I should have written you fully regarding the Board's action. It is greatly to bo regretted that neither you, nor the directors of the Federal Reserve rank of New York, knew anything of the action taken by the Board until the statement relating thereto appeared in the press this morning. Mr. ,:arburg's secretary, however, calls my atten- tloe to the fact that Mr. Warburg wrote you on the 20th a personal letter in which he stated that the Board "had disposed of the matter in a manner Which would be satisfactory to Governor Strong," and we assumed that an official letter addressed to the Federal reserve agent at New York would have been opened before being forwarded to him. I ensure you that there was no inten- tion whatever of withholdine the information from you or of treating you with any discourtesy, and I regret very mach the unfortunate combination of circum 2. stances which tended to place the Board in an unfavorable lieht In this respect. As far as the :eress statement itself is concerned, I mast remind you that the Board is a governmental body, that its acts are of a public character; that either house of Congress can at any time demand the right to insrect its minutes, and that the Board is now eroparing its annual report to Congress and of coarse it could not, in any event, have been justified in suppressing In this report a reference to the fact that it had taken stops looking toward the ostabliehment of foreign agencies, as provided under the Rederal Reserve Act. This report will no doubt be in the hands of Congress nefore all the details of Governor 3trong's arrangement with the Rank of ngland can have been ,erfocted, and as sufficient time had elapsed for the Board's formal notice to have been received and digested by the authorities of the New York Federal Reserve Bank it seemed inexpedient to delay any further making a public statement regarding the Board's action. No reference is made in this statement to any tentative contract or agreement with the Bank of England and only by inference can the conclusion be reached that the Federal Reserve Bank of Now York hail requested authority to eetablish the agency. The Board has reelected the injunction as to secrecythdch was imposed as far as the details co: the arrangement are con cerned, and the announcement made is only that the Federal Reserve Board has authorized the Federal ReServe Bank of Now York to appoint as one of its foreign correspondents and agents the Bank of neland of London, ngland, under the terms of the Federal Reserve net, etc. eureiy it will not be contended that either Governor Strong or the authorities of the Bank ofITeagland sought to en- join. secrecy upon the Board in a matter relating to the exercise of its own authority. Very truly yours. (Signed) W. I. G. Harding, Governor. ) ,?,clard in 4A uTAlavurablaItla VA- fttatement its4 coocurnok, I c-klet auts a.rv et aA Reserve Bank of New York be authorized to appoint as its corresiondent and went the Bank of land of London, England, and that it be farther kuthorized to open and maintain bankin.; accounts with and for said corres- pondent and agent for the 1._url-oe of purchasing, ei1in and col- lectIn- bills of exehaas.e, in accordance with the provisions of ,tion 1_ and othor irovisions of the Federal Reserve act, as amended: and for such other purioses as may be remitted under said Federal Reserve Act, as amended. I hereb7 cert:.* that the above is a true extract fron the minttes of the meeting of the Federal Reserve Board held on Tuesday, ..)ocember 19, 191. (Signed) H. larker .ecretary. Pir'n o g rEDERAL RESERVE BOARD Washington, Decenber 30, 1916. ear 7r. Treman: I have received and noted your letter of December 29th from which I understand that the subject of our correspondence will be discussed at the meeting of your board of directors on January 3rd. Permit me to say thnt in my judgment the Federal Reserve oard will be much more interested to learn what steps are being taken to consummate the proposed arrangement with the Bank of England than it will be in any expression of opinion on the part of your board regarding the propriety of the press statement that appeared on the morning of the 26th. Very truly Yours, (Signed) W. P. G.-Harding, Governor. Mr. R. H. Trenan, Deputy Governor, Federal Reserve 7ank, New York.