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September 1, 1921.

My dear Governor Strong:


I want to assure you how
greatly I appreciate the unusual courtesy extended by you anOethe other officers of the New
York bank in inviting us to be your guests at
the delightful dinner given by you to our European friends at the Metropolitan Club on Tuesday
night. The opportunity to exchange views with
those two gentlemen and especially with the chief,
both at the dinner and yesterday morning, will be
long remembered.

When the opportunity arises for
carrying out any perfected plans which develop
from the visit of these two gentlemen, you can
count on the officers of the reserve bank of Boston
using their influence and cooperation to their
successful conclusion.
I also want to take this opportunity of expressing to you my congratulations on
the splendid piece of work which you have done not
only for the Federal Reserve
stem, but for the
United. States, in your excellent exposition of the
purposes and administration of the policies of the
:Federal Reserve System before the Congressional
Committee in WaShington. We are looking forward
with the greatest interest to the extended report

the conference
believe it will
one of
0arly of banking andthis country as go downthe the
most'historic episodes.
Thanking you again for your kindness
and courtesy, I am,

Sincerely yours,

Governor Benj. Strong,
Pederal Reserve Bank,
New York, N.Y.



Septaaber 2, 1921.

Frederic H. Curtiss, Esq.,

Federal deserve Bank of Boston,
Boston, :lass.

My dear Ur. Curtiss:

Thank you most cordially for your kind letter of yesterday.
It was a great privilege to have you and Governor Morse with us to
meet those good friends of ours from Landon and I am sure we all

profited by the evening. Thank you also most cordially for the kind

things you write in regard to the congressional investigation. I am
just now engaged in reading the gaily proof and as soon as the print-


ing is completed you will be supplied with a number of copies for such
use as you care to make of them.
With kindest regards,
Very truly yours,











March 6, 1919.


My dear Governor Mores:
For some time I have been interested with some friends in a study of some

of the problems of our national financial

system and particularly to the possibili-

ties of a reform movement which might result in the establishment of a scientific

plan for a Federal budget. The need for this has
past two years and as
aome of my friends

a result of contact with


been made apparent to me

the financial

the time is now opportune

for a

machinery in

during the

general attempt to


est the people of the country in national financial reform.
The campaign for saving, thrift and sensible spending, incident
tation of Government loans has put many of our people in a

suggestions in these matters.

The national

be reduced if both individuals and the Government

to the flo-

receptive mood for fur-

debt ;list be reduced and can only

practise sensible spending.


is particularly true with the Government but cannot be made possible until scienti-

fic machinery

is installed to accomplish it.

Students of this subject seem to
budget system is the only solution.


To persuade our people that such a system should

be installed, a nonpartisan organization
paign of publicity inaugurated.

be in general agreement that a

MhJuld be built up and a wise and

It is a plan of that

sane cam:.

sort in which some of my

are interested with a view to activity after the next loan is placed.


In the meantime

steps must be taken to prepare the publicity, and the personnel of the organization
east be developed in advance.

It is, of course, out of the question to utilize the
tions as such for an enterprise of this character.

proper for me to ask you if in your

It does

Liberty Loan organiza-

not, however, seem

experience with the Liberty Loan, War aavings, or

other organizations in connection with the war, you have come in contact with individuals


March 6, 1919.

in your district who would be likely to be interested in this movement and who would

be qualified for service in such an organization and who would do so as a matter of

public duty.


What is first needed is a representative in every State, competent

take charge of the movement and direct it in the State.

Heshaald have qualifications

to enable him to become a leader of the State movement, some ability as

an organizer,

should se public spitited, able to grasp the subject and willing to study it, and
should be regarded locally as without political prejudice or purpose, and have the
confidence in general of the people of the State.
In addition to State directors, similar organizers must be appointed in
the various counties and principal cities.

I shall be



to you if you can let me have



names of men in your district for this work without, however, mentioning the matter
to them.

You may know them well enough to make definite recommendations not only

because you came in contact with

them in

Liberty Loan matters, but ether public

spirited activities with which you are acquainted or connected.
This is a matter in which I have a strong personal interest and. will be


for your assistance.

At our nesting in tashington on


20th I hope to

have an opportunity to refer to this matter mere specifically.
Sincerely yours,


Charles A. MOrss, Esq.,
Governer, Federal Reserve Bank of iloston,
Boston, '2.1ass.


September 13, 1921.
Dear Governor Mores:

You will recall that about two years ago we had some correspondence in

regard to the work of the National Budget Comaittee.

In part, at least, passage

of the budget legislation by the Congress was due to the work conducted by that
Now that the basis of the budget system has been adopted by Congress,


our organization is endeavoring to crystalliee public sentiment for the support
of the program of overnment eoonomy and thereby to insure permanent success for
the new national budget system.

te are seekiag to extend this work by selecting, so far as possible,
bankers to accept active chairmanships in various of the more important cities,
simply to carry on work which will be laid out for them by the national. cos ittee.
The scope of the work is described in the enclosed memorandum.

Can you auggeet representative men, preferably bankers, who might be

willing to accept such apiointments in the cities of Boston, Bridgeport,
Cambridge, Fall River, Hartford, Lowell, New Bedford, New Haven, Providence,

Springfield and Worceeter.

(I understand that Mr. George F. Hanigan, President

of tne Lowell Trust Company, hati tentatively agreed to serve as chairman in Lowell.)

At the present time i Shall only ask you to suggeet names, but later on
possibly you would be willing to communicate with them directly and further our
object of having them accept these appointments.

If for any reason you think it unwise to make these suggestions, will you

not write me quite frankly and, if you are willing to do so, give me your reesons.
With best regards, and thanking you very cordially,
Tours very truly,
Charles A. Mores, Esq.,
Governor, Federal Reserve Bank of Boston,
Boston, Masa.





3Ovember 22, 1921.

Dear Governor Mores;
Deferring to our discussion of the practice of certain of the reserve banks

in the purchase of bills from dealers under resale agreements; this matter has been
studied by our Mr. Hensel, who has had conferences with the more important dealers
with whom we regularly trade, and I am now writing to give you his conclusions and
his suggestions as to how the matter should be dealt with.

Loans made by these dealers from the commercial banks are not in the form
of repurchase agreements, but collateral loans, and the amount of bills pledged to
secure the loan in each instance is approximately,the present value of the bills

pledged; that is to say, an amount of paper is handed to the lending bank which at
its present worth will just cover the amount,of the advance.

Our practice has been to deduct discount for 15 days from the face amount
of the paper, thereby advancing to the dealers a larger amount than the present

worth of the bills.

The reason for this practice has been more convenience, and

in order to promote the development of the lending market, than any other reason.

14 would feel willing at once to change our practice, and discount the paper for
its full period, were it not that it will very greatly increase the clerical work
in the bank, increase the expense of conducting the business, and cause delay in
concluding transactions.

We frequently have loans of from 08 to 010 millions,

sometimes even more, in one day, and in such instance we may take in 500 or 600
pieces of papal'.

If our discount department were obliged to figure the discount

on each piece until maturity, which as you know varies considerably, it would frequently be impossible to conclude the transaction until the following day.

would require a much larger



of clerks, a great deal more bookkeeping in


0 PY

November 22, 1921.

recording the paper, and general inconvenience and expense.

This inconvenience is

further reflected in handling all substitutions of collateral which take place daily.

VI. Renzel suggests that we should continue the practice of discounting
the paper for 15 days, or such number of days as relates to each transaction, figuring


the discount upon the

amount of


at its

it to its maturity, and that each dealer making
to us, in the case of

90 day bills a

face value rather than

such resale contract with



margin of 2% of the amount of the advance, and

a correspondingly greater or lesser margin, according to the maturity of the paper.
This can be done roughly and without much work or inconvenience to Anybody.

ables substitutions
amount of work.


to be made and the amount of discount readjusted with the least

The business can be conducted more promptly and economically, and

the bank will always have in its hands an amount of paper which will cover the

Camount of the contrast, even though the dealer is unable to make good his repurchase

I am convinced that this is the desirable way tO handle the business, and


recommend that it be

just as soon as assents are received

banks now handling such transactions.

from each of the

1111 you not be good enough to wirte ms

upon receipt of this?
Tours very truly,

Benj. Strong,

Charles A. Verse, Esq.,
Governor, Federal Reserve Bei* Of Boston,
Boston, Mass.
BS :101



May 6, 1022.

Dear MOrFS:

My friend, Mr. John T. Pratt, who le head of our Budget
Committee organization is very anxious to have Alfred Aiken rep-

resent the organization in Boston.

Could you bring any influence

to bear upon him which would induce nim to accept the job:


Any rate, won't you name a nice talk with him, And let me (now the



Charles, A. Morse, Esq..,
Governor, Federal Reserve Bank of Boston,
Boston, 416.66.



May 6, 1922.


Mr. Benjamin Strong, Governor,
Federal Reserve Bank of New York,
New York City.
Dear Governor Strong:

I have your letter of May 6th saying that Mr. John T. Pratt

will visit me within a few days to discuss thqkja21zIjIgga4
Organization of Boston and that you would like to have Alfred
Aiken take charge of that organization if it were possible to
induce him to do so.

I shall do my best with Mr. Aiken and shall surely give Mr.
Pratt an interview, anticipating a very pleasant conversation
with him if nothing more.
I wish to thank you for your courtesy to me especiaiy last
Friday and to say that I enjoyed meeting your guest of the afternoon very much indeed and shall look forward with a groat deal of
interest to the success of his mission to the United States,
Very truly yours,

Charles A. Morss,


vEi L9V 51 3

3F4 JAc3C3

VIOT2C)E1 ---to



tA1 '





/1/ (6- 2




Arborotilatt Thar

















Z. 140B
140 B.1-18M-2-59)

Washington, D.C.

Oct. 16, 1922
Notation in pencil indicates Strong replied to it by hand on Oct. 17, 1922

Dear Gov. Strong:

A careful persuaal of the President's letter which appeared in the
press this morning must convince anyone that the local newspaper men are in
all probability correct in their surmise that my return to the Federal
Reserve Board is most unlikely.
I think it is time now for me to consider my own future. I have
no uneasiness from the standpoint of a meal ticket, but I really think it
d be desirable from the Federal Reserve System's point of view that I
d have the same position of moderate responsibility and dignity in
that membership on the Board may not be entirely discredited, and in
furthermore that my influence may be felt to some extent in the
cal times that I am sure are ahead of us. Will you be good enough to
nk this over, and let me know if there are any prospects for me in the

Alabama, I could exert only a local influence, which would
il nothing.


I should like very much to be able to announce my own plans at
same time--or before--the President makes an official statement of his
selections for the Board.

With assurances of my appreciation of your friendship and support
n the past, and with warm regards and best wishes, I am

Sincerely yours,






CT 1. 9 \----)1










Acknowledged: Oct. 19, 1922

7- 140B


Washington, D.6.


October 18, 1922

Dear Governor Strong:

I am obliged to you for your letter of the 17th. Certainly I shall stand by my friends at any cost, as long as it
that there is any chance of winning out on the principle for
which we are fighting.
I am now given to understand that the President's reference
to "the mistaken program of drastic deflation" was a mere gesture for
political effect in the West, and is not to be taken as an indication
of his disposition toward me. I was much pleased with the Times
editorial on the subject.


I am glad to know that I shall have the pleasure of seeing
you here next week and would like to have you come to my house in
order that we may go over the whole situation. It is very interesting,
and I am kept well informed of what is going on, except as to the
reactions in the mind of Warren G.

Sincerely yours,



Ooto ber


Dear Harding:

Tour note is just received.

I air. anxious to have a good

talk with you about the future and will make my trip to Plashing,ton

the latter part of next week the opportunity for doing so. I
may be there only for one or'possibly two days, .and have been
obliged to make some engagements which may not make it possible

for me to have an evening with you as .1 would prefer, but I will
stop in at the Club Thursday morning, before

in to the War

College and I will know by then just what my angh.gements will be.

Meantime, I an very certain that that letter to Mr.
deli should be interpreted as indicated in your note.
Thank you for writing ire.
Yours sincerely,


c/o Metropolitan Club,
Washington, D. C.


June 15, 1923.

W. P. G. Harding, Esq.,
Governor, Federal Reserve I:lank of Boston,
Boston, Mass.
Dear Governor Harding:

I have your letter of June 14 in reply to mine of the 6th and 12th regarding your participation in the accounts of the Bank of Japan and the Bankovni Urad
Ministerstva Financi, and note that it is the sense of your board that there is no
occasion in the present circumstances for your further participation in our transactions with foreign banks.

As you point out, your participation in our foreign

accounts is entirely voluntary;

and we have never had. the remotest desire to force

upon any of the Federal reserve banks a participation which they did not wish.
Aar sole reason for offering participations has been to follow out a general policy
outlined by the governors several years ago to have the Federal reserve banks act
as a single unit in their foreign relations so far as practicable.

As I have in

the past written both Governor Morss and yourself quite filly on this subject, I am
sure that you and. your directors are aware of our views and. that it is unnecessary

for me to say anything further at this time.
In view of the fact tfria.t your bank desires to withdraw from your partici-

pation in our foreign bank arrangements, I believe it would be more satisfactory
to terminate your entire participation at one time, rather than continue it as to
transactions in process, and we will be glad to take over your participations to-day
for air own account.

We have accordingly arranged. with your office to credit us

to-day .;103,241.06, being your share of the free balances, and also to wipe out your

contingent liability on bills purchased for foreign correspondents amounting to



W. F. G. Harding, Esq.


We have simultaneously Charged your account for the free balance

and increased our ccntingent liability in the appropriate amount.
As to your share of the commissions earned on the foreign accounts in
which you have participated since January 1, we will calculate the amount due you

and transfer it to your bank in a day or two with appropriate advice.
Very truly yours,

Depaty Governor,




Jane 14, 1923.

Mx. J. H. Case, Deputy Governor,
Federal Reserve Bank of New York,
New York.
Dear Mr. Case:

Your letters of June 6 regarding the participation of this bank in your
account with the Bank of Japan, and of June 12 relating to the account
you have opened for the provisional bank of issue in Czechoslovakia,
were duly considered by the board of directors of this bank at the
regular session held this morning.
It is the sense of our board that there is no occasion in the present
circumstances for farther participation by this bank in your transactions with foreign banks.
There is nothing in the Federal Reserve Act
which requires such participation, although it is provided that with
the consent and approval of the Federal Reserve Board, any Federal Reserve Bank may carry on or conduct through the Federal Reserve Bank
opening an account with a foreign bank, any transactions authorized by
Section 14 of the Federal Reserve Act.
The records of this bank show that its participation in transactions
of the Federal Reserve Bank of New York for the account of foreign banks
began on June 16, 1920 with the purchase of bills for account of the
Bank of Japan, in Which this bank's contingent liability was $1,168,000
and its share of the free balance was $292,000.
There was no change
in these figures during the remainder of the year 1920 but during the
years 1921 and 1922, your operations were extended to include other
foreign banks, and the transactions embraced the ear-marking of gold
and the purchase of Treasury certificates as well as bills.
bank's ratio of participation was 7.3%! of the total amount from June
16, 1920 to December 31, 1922, but since January 1 of this year, it
has been 7.5%.
The following summary Shows this bank's annual averages of the free balance deposits, contingent liabilities, and total
commissions paid:
Free Balance




$3,742.40 (inc. 1920)

Income to date - - - $7,498.14

Mr. J. H. Case


2 -

June 14, 1923.

It is conceded, of coarse, that the possibility of any substantial loss
in these transactions is very remote, but it seems that the income
accruing to this bank as a result of its participations is small and
not in proportion to the amounts involved.
A participation in a.,
purchase or loan returns a proportionate share of the discount or
interest paid, but our participations in your foreign accounts, while
carrying all the risk involved in a purchase, give us only a share in
a small commission.
The directors of this bank feel, that looking at the matter purely from
the standpoint of income, it is not good business to permit it to have
these contingent liabilities.
Their approval of these participations
In the past has been actuated by a desire to cooperate with the other
Federal Reserve Banks in transactions which were represented as being
in the public interest, and which in the circumstances then existing
seemed likely to involve contingent liabilities which had better be
distributed among all Federal Reserve Banks rather than assumed by one
bank alone.
There do not at the present time, however, appear to be
any considerations of a public character requiring this bank to continue to participate in accounts opened by the Federal Reserve Bank of
New York in its awn name and upon its own initiative with various foreign banks.
The conduct of these accounts is necessarily under the
sole management and control of the officers of the Federal Reserve Bank
of New York.
Your institution is the sole beneficiary of any collateral
advantages which may accrue from these banking connections abroad and
bears the overhead expense of transacting the business.
There is at
Present no strain upon the Federal Reserve System and the directors of
this bank see no reason until conditions change Why it should Ahare in
the profits or bear any part of the losses Which may grow out of your
transactions with your foreign correspondents.
In arw large transactions impressed with a distinct public interest
such as the ear-marking of gold with the Bank of England in June 1917;
the deposits you held for the account of the Bank of the Nation of
Buenos Aires, which involved their payment in gold within a certain
time after the end of the war;
the ear-marking of German gold with the
Bank of England in June 1919; and the ear-marking of gold with the
Bank of France in September 1920, the directors of this bank have cheerfully agreed to a participation, and it is their intention to participate in any similar transactions Which may be engaged in hereafter.
In view of the foregoing, the directors have instructed me to advise
you that this bank does not care to participate in your arrangement
with the Czechoslovakian bank, and with respect to your accounts with
the Bank of Japan, Bank of England, Bank of France, de Nederlandsche
Bank, 3wiss National Bank, and de Javasche Bank, in which this bank
has been a participant, to give notice of cancellation of participation
agreements hitherto made by this bank except as to transactions in

ir J. H. Case


June 14, 1923.

With assurances of our appreciation of the courtesy you have accorded

us in all these matters, I am

Very truly yours,
(Signed) W. P. G. Harding,
W. P. G. Harding,




August 2, 1923.

Mr. J. H. Case, Deputy Governor,
Federal Reserve Bank,
New York, N. Y.
Dear Mr. Case:

I am enclosing herewith carbon copy of a letter which I sent
Mr. Crissinger today.

I thought of this point last night and called Wyatt on the

telephone this morning and read him my letter to Governor

He says the point is well taken and I thi

will advise the Board accordingly.
If you can have your counsel back up my position in this
matter and send a brief to the Board on the subject, I think
it will help.

Yours very truly,
(Signed) W. P. G. Harding,


August 2, 1923.

Hon. D. h. Orissinger, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Crissinger:

The report of the Governors' Advisory Committee made to the Board and which I signed
late yesterday afternoon does not, in my opinion, condemn in strong enough terms the
Claiborne_Adams scheme.
To my mind to permit a member bank to unload upon a Federal
Reserve Bank its transit items, receive immediate credit for them and have these items
in transit counted as part and in many cases all of the member banks legal reserve is
absolutely unsound and is indefensible from any standpoint.
You will remember that before the passage of the Federal Reserve Act, national banks
were required to carry part of their reserve in their own vaults and in the case of barks
in central reserve cities, all of their reserve in their own vaults.
The law provided
that this reserve should be made up of lawful money, that is, gold and United States

The object of this letter, however, is to call your attention to the fact that under
the terms of Section 19 of the Federal Reserve Act the Claiborne plan is probably illegal
and on this question I would suggest that you refer the matter to counsel.
The point I
wish to raise is this - In Section 13 a clause permits a Federal Reserve Bank to receive
from any nonmember bank or trust company deposits of current rands in lawful money,
nationalbank notes, Federal reserve bank notes, checks and drafts payable upon presentation, or maturing notes and bills, provided that such nonmember bank or trust company
maintains with the Federal Reserve Bank of its district a balance sufficient to offset
the items in transit held for its account by the Federal Reserve Bank.
Please note
that in this case the words "actual net balance" are not used but merely the term "a
This seems entirely proper as this balance does not count as part of the
nonmember banks reserve but is merely to offset transit items sent the Federal Reserve
Bank by nonmember banks.
Under Section 19, however, which relates to reserves, this language occurs - "Every bank,
banking association or trust company which is or which becomes a member of any Federal
Reserve Bank shall establish and maintain reserve balances with its Federal Reserve Bank
as follows:
If not in a reserve or cantral reserve shall hold and maintain with the
Federal Reserve Bank of its district In actual net balance equal to not less than seven
per centum of the aggregate amount of its demand deposits and three per centum of its
time deposits.
If in a reserve city

an actual net balance equal to not less than ten per centum,


If in a central reserve city
per centum."

an actual net balance equal to not less than thirteen

Section 19 further provides that The required balance carried by a member bank with a
Federal heserve 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 purpose of meeting existing liabilities."

My contention is first, that the words "an actual net balance?! as used in the paragraphs
above quoted have a meaning entirely different from the term "a balance, as used in
Section 13 in referring to nonmember bank accounts and, furthermore, the permission given
a member bank to check against or withdraw its required balance in a Federal Reserve Bank
presupposes that this required balance is an actual net collected balance,
if it is
conceivable that under the Claiborne plan the ',required balance!! carried by a member
bank with a Federal Reserve Bank would be composed of uncollected checks in transit, it
is also conceivable that the required balance of all member banks in a given district
might be made up in whole or to a large extent of uncollected checks.

It has been demonstrated I think to the Board's satisfaction that commercial banks which
give immediate credit at par require compensating actual balances for them; if they did
not they would be unable to meet checks drawn against uncollected items and a Federal
Reserve Bank might find itself in a position where it would be unable to meet withdrawale
of its member banks against their reserve balance if such balances were made up of uncollected items.
It seems to me that if there is any feeling on the part of any iember of the Board that
it would be wise to adopt the Claiborne plan which provides for immediate credit to the
reserve account of a member bank of items which the Reserve Bank cannot collect except
in from one to four days, it would be advisable to ask counsel for his construction of
the reserve requirements as laid down in Section 19 of the Federal Reserve Act.

Yours very truly,

W. P. G. Harding,


August 2, 1923.

Hon. D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Crissinger:

I wrote you this morning raising the question as to the legality of the Claiborne plan
to have the Federal reserve banks give immediate credit to the reserve accounts of member banks for intra district checks.
I desire now to supplement statements made in
that letter by inviting your attention to the Federal Reserve Act in its original form
as approved December 23, 1913.
Section 19 of the original act provided that a part of the member banks legal reserve
must be carried in its own vault and a part with the Federal Reserve Bank of its district.
Section 19 of the act as it now stands is a material amendment to the original
act and is part of an act approved June 21, 1917.
The present law provides that all reserves must be kept in the Federal Reserve Bank and
no cash carried in the vaults of a member bank can be counted as part of its lawful reserve.
The original section 19 in prescribing the amount of a member banks total reserve to be careied with its Federal Reserve Bank for a period of twelve months and for
each succeeding six months until the total amount required is reached, does not use the
ord "balance" or "actual net balance" but uses the word "reserves."
For example, original section 19, paragraph (b) "A bank in a reserve city as now or
hereafter defined, shall hold and maintain reserves equal to fifteen per centum of its
aggregate demand deposits and five per centum of its time deposits as follows:
In its vault for a period of thirty six months after said date, six fifteenths thereof,
In the Federal Reserve Bank of its disand permanently thereafter, five fifteenths.
trict for a period of twelve months after the data of aforesaid at least three fifteenths
and for each succeeding six months an additional one fifteenth until six fifteenths have
For a period of
been so deposited, which shall be the amount permanently required.
thirty_six months after said date the balance of the reserves may be held in its own
vaults, or in the Federal Reserve Bank or in national banks in reserve or central reserve cities as now defined by law."
As I stated yesterday, the Federal Reserve Board during the first two years of its
existence, devoted a great deal of careful study to reserve requirements and to the problem
of collecting checks and when the Board decided early in the year 1917 to recommend to
Congress a further reduction in reserve requirements and the elimination of vault cash as
a reserve, it had been determined by the Board not to permit items in transit or float to
be counted as reserve. Therefore, the bill which Was sent to Congress and whidh became
law on June 21, 1917, used in all three paragraphs relating to the amount of reserve that
was to be carried by the various classes of banks, the words "actual net balance."

I am Quite sure that if you will refer to the minutes of the Board and to the hearings by
the Committees on Banking and Currency of the House and Senate, you will find that there
is no doubt of the intention to prohibit by law the counting of "float" or uncollected
items as reserve.

Yours very truly,

W. P. G. Harding,


August 3, 1923.

Dear Governor Harding:
Thank you for your letter of August 2, enclosing copy of a letter of
the same date addressed by you to Governor Crissinger on the subject of the legality of the Claiborne-Adams scheme.

Our counsel has had the

visement for some time and is of the opinion that the proposal is in plain violation of the terms of Section 19 and of the spirit of the Federal Reserve Act.
Further, that any attempt by the Board to put it into effect by regulation would
not stand the test of the courts.
However, I think it inadvisable at this time to raise the questionof
strict legal right


The subject has been consistently dealt with by the Federal

Reserve Board in the past on grounds of policy.

See ruling of the Federal Re-

serve Board of September, 1921, Bulletin, page 1080, where the Board ruled on
the collection of demand bill of lading drafts.

The Board in that ruling said:

"If Federal reserve banks credited the reserve accounts
of their member banks immediately upon receipt of the items,
this evil.(i.e., the evil of the old system of banks counting
as part of their reserve deposits, items sent to reserve agents
but which were still in process of collection) would be perpetuated and to that extent the purpose of the Federal Reserve Act
would be defeated."
I think it better that the question be dealt with now on the same basis
as in this former ruling of the Board.
If the Federal Reserve Board should reject the Claiborne-Adams plan on
legal grounds, the effort would immediately be made by its proponents to get the
law amended by Congress so as to provide means by which it could be put into effect.



rnor Harding

August 3/23.

There are other reasons which I am sure are not unknown to you and
which in my judgment make it inadvisable to raise


strict legal


I need not assure you of my hearty concurrence in your views and my
desire to do all

in my power to gain the

end you seek.

Very truly yours,
tSigned) J. H. Case,
Deputy Governor.


Mr. W. P. G. Harding,
Governor, Federal Reserve Belnk of Boston,
Boston, Mass.




Mr, J. H. Case, Deputy
Federal Reserve Bank,

August 4, 1923.


New York, N. Y.
Dear Mr. Case:

I have your letter of the 3rd inst. and would say that the question of the legality
of the Claiborne-Adams scheme or at least that part of it which relates to
immediate credit and availability of transit items has already been raised

informally by


I should think that the Board would reject the plan on good sense and economic
grounds, but at the same time I do not think it is amiss to let the members
know that their rulings are being closely watched and that the Board cannot
make regulations except in accordance with the terms of the Act. I do not shate
In your apprehension that, if the Board should reject the Claiborne-Adams plan
on legal grounds, Congress might amend the law in order to provide means by which
it could be put into


The proposition would amount to this - that National banks and other member
banks of the country are not required to carry any cash reserves whatever and that
their entire legal reserve, which is now less than the amount which the National
banks were formerly required to keep in their can vaults, could be made up in
In case a serious effort should be made in Congress
whole or
to amend the Federal Reserve Act in this way, I feel sure that it could be
defeated. It would give opportunity to enlist the horse sense of the country
against this and other foolish schemes which the radical element may propose.

in part of float.

As to the effect which the Board's recognition of this legal principle may have
on present practices of the Federal Reserve Banks, I do not think that
it need be appreciable. Our deferred credits are now based on time schedules
which are more or less theoretical and, as a matter of fact, the consolidated
weekly reports of the System show that the banks have always carried a certain
amount of float. This is unavoidable, but when we bear in mind the well established legal axiom "de minimis non curat lex" I see no reason why we should feel


One of the older membrs of the Board is the Chairman of the Law Committee and he
is rather proud of his powers of conciliation. His method of dealing with a
noisy minority seems to be to ascertain what is wanted and to grant it. He is
not very well posted as to banking practices and it seems difficult to enlighten
him on this subject; but he has a legalistic mind and is always impressed by
suggestions of legal obstacles.


Mr. Cade


August 4, 1923.

As the matter now stands, the Board has passed the buck to the Advisory Council
thus giving Mr. Claiborne about six weeks in which to Agitate. To the average
member bank the idea of immediate credit is naturally attractive.
In 1915 this whole question was studied very carefully by the Federal Reserve
Board and the Governors of the Federal Reserve Banks. * Mr. Delano had an idea
at first that the collection system was a good deal like the car service
system of the railroads but he never suggested a one sided system of immediate
credit. The plan which he favored at first calledbbth for immediate credit
and immediate debit. Many of the banks liked the immediate credit part of it
but raised very valid objections to having their reserve accounts charged with
checks which they had not seen and of which they knew nothing. They insisted
upon their rights to have the checks presented and to make payment at their
respective places of business.
The Claiborne-Adams plan means the carriage of float by the Federal Reserve
Banks and the immediate availability of transit items as member banks reserves.
Yours very truly,

(Sgd) W. P. G. Harding

(In handwriting):

Mr. Delano said that it made no difference to the Wabash R.R. if 1,000 of its
freight cars were in service on other lines provided the Wabash had in use 1,000
cars belonging to other reads; and that it was not material to the banking system
it the San Francisco bank had one million dollars worth of checks on N.Y. and N.Y.
had an equivalent amount on San Francisco - for the money was in the banks and the
transfer was a mere matter of bookkeeping.

My answer was that in order to do business, railroads must have cars, and banks
must have money; that a car is a Car, but a check is merely an order for money,
and that the Wabash could not handle traffic on mere orders for cars.
He finally came around, and agreed to the views of Warburg and myself which are
embodied in the amendments of June 21, 1917.
My diary shows the dates on which I explained the reserve amendment to the House
Committee chairman, and to the Senate Committee, and states that the Senate Committee voted, before I left its room, to report the amendments favorably.
(See Fed.
Reserve Bulletin, Feby 1917, pp. 98-99 and Mch. 1917, p. 188).



August 6, 1923.

Dear Governor Harding:

I have your letter of August 4th.

when I wrote you on the third that you
Board the legal difficulties.

I was, of course, aware

had already pointed out to the

However, we are definitely


here to the policy of resisting the Claiborne-Adams scheme on grounds
of good sense and sound banking.
success can be had


There is

these lines.

substantial reason t/ think

As I suggested to you in my

letter of the third the Board has already ruled as

this proposal

in effect, a fact of which they are now not unmindful.

I think it ds quite

certain that under the


the question of strict technical right might better he left untouched,

at least for the time being. Hence I find myself unable to ,tin in
your protest on legal grounds,


notwithstanding my hearty concurrence

your views,

Very truly yours,

J. H. Case

G. darding, Esq.,
Governor, Federal Reserve Bank of

Boston, Mass.



Mr. Beyer:

Will you please write by hand the following letter to be signed by
Mr. Strong.

January 33, 1924.

Dear Harding:

It was only on my return from the South that I learned of the sad
tragedy which occurred in your family, and hasten to send this line of
Sincerely yours,

Mr. W.P.G.Harding,

37j kj-c(z-t


Boston, Mass.


Septserber 10, 1923.

Dear Governor Crissieger;

I aolcrowledge reosipt of your letter X-3883, dated eeptember 8, 1923,
with whioh you enclosed copy of letter from Hon. L. T. McFadden,
Chairman of the Coneressional Joint Committee of inquire on MemberI note your requeat that I furnish
ship in Federal Reserve Jy stem
tik Board with aeowers which I would individually make to the
questions propounded by tee Committee, and in accordance submit the
Sffect of the present limited membership of state ;Mules and
J. do not reeard the limited memberehie of these
institutions as being altogether unfortunate. euality should
wars oe oonsidered in the membership of the Sestau,
no doubt that there are some undesirable manbers. It is equalle
true, however, that there are many non-member banks whose acquisition
veauld be desirable. i oelieve that there is a eTadualle developing
sentiment among bank depositors throuehout the countre that the
safest and most reliable depositaries are the member banks. This
sentiment Oboe and flows but k, tins additional streeeth whenever
clouds appear Upon the financial horizon. In my opinioe, the
influeette of the Federal Reserve Board and the respective Federal
Reserve Seeks should be exerted upon the member banks in sea a
wa,y as to justify and foster the faith at the public in member
Trust Companies.

Advisability of attempting to Ixreao the raembership of the
I douut the wisdan of undertaking a set:Itemtic csenpaien along revival or campmeeting lines to increase the

Federal Reserve Sestem.

The reasons which actuate desirable non-mameer banks
to remain aloof should, however, be careful1y! analesee, and if array

Me mberahip.

of these reasons are well-founded, steps should be taken either tv
appropriate changes in the reeulations of the hoard or by amendment
of the Federal Reserve Act to remove au valid objections which mae

be ikard, and you will notice that I shall discuss this feature
further on and will make a pertinent suggestion.

Advice on the present financial conditions in the agricultural
sections of the Unitee States. I have already forwarded to the
Board a report on aonlitions in the most distinctive aevicultural
section of this district; viz, Aroostook County, Maine. I do not
know of any especial agricultural credit problems elsewhere in

Now Breeland. The Legislation of 1922 is, 1 Ti
opinion, an
admis::ion on the part of Congress that the admithatration of the
Federal Reserve eeetern under the law as it stood in the years 1920-1921


and I h


was not in any way responsible for the adverse conditions in
cultural sections, and I do not know of any further arnendreests to the

Federal 'Reserve ixt with respect to the agriculturel credits that ere
either necessary or desirable. Time should be allowed for testine
the efficacy of the amendments alreade made.

4, Reasons which actuate eligible State bunks and Trust oonneseies
in failing to become members of tee Federal Reserve eestan; what
administration measures, if ene, have boon taken and are 'Doke taken
to increase such membership; and whether or no t any chanees shoulci

be made in the axieting law or in the rules and reeulatiees of the
Interest on daily balexxoes of the Federal
Federal Reserve eoferd.

Reserve Sestets, couflict and competition now exietine between Betional
and etato bankine laws,

In this district there is little, if buy, disposition to criticise

the Federal "Reserve Board or the betainistration of this bank, and
except in the State of Connecticut, loeue laws do not operate against
State banks' membership in the :.-eztern. In Connecticut, however, the
law requires Nees:sine reserves to be carried by State banks and Trust
COMS1111e6, and does not admit of any muitificatioue is favor of 3tate
bank members.

Therefore, the few State breaks arid Trust OCIMIltrlieU

in Connecticut which are members of the eeetee work under the handicap of carryine double reserves in order to meet the requirements both
of the Connecticut law and tile Federal Reeerve eot. ii.'fforts have
been made repeatedly to induce the Connecticut Legislature to make the
&me concession as has bsee: made in other States in favor of State
bank membership, trat due to the efforts and influence or' one iudividual,
the President of a Trust Company, whe is also a etete eoeutor, and
Chairman of the Finance Committee of the Connecticut Seeate, these
offer ts have been unavailing. Further attempts will be made in
the succeeding sessions of the Connecticut Leeielature, which i hope
ultimately Oa successful.
During the early weeks of my LIGUMb040:i here I found that there Was a
stroeg sentiment among MIU14;i of the memeer banks, as well as the nonmember banks, that the Federal Reserve Beek should pae interest on

dopoeite I took some pains to joint eut hoeever that in order for
the bank to pay interest it must increase its eareinee very ooneidarable
and that in order to iecrease its eaeninee it would be oeliged to engage
so exteesivele in open mar'eet operations as to put it in ective
competition with member and noreememeer bunko, and that snoh a policy

would also destroy its character as a reserve bank, for by having its
assets actively employed at all times, it would have no means of assisting member banks in times of emereence.

These areuments have proved

effective and for some months paet I have heard of no sentiment in favor

of interest on deposits.
There is, however, a feeling that the Reserve eank is distinctly
a Government institution and that the member banks have no actual part
or interest in its affairs. No interest is taken in the election of
Class "A" and Class "B" directors, and there is absolutely no feeling of

proprietorship on the part of member banks,
4aite rsosntly the Boston Clearing Reele has inaugureted a movement

ta bring about a closer oontact and keener intorent on the part of
leer banks, believing that it is useless to attempt to bring in

non-member banks and State banks as long as there is an aleofness
and Pke wermness on the part of /ember banks, :II:W=1a= is oontagious
and whenever member banks become active partisans Of the eystam, State
bake will apple? for membership,

It has been suggested twit at tho next annual meeting of the :4w engiand
Bankers el:ow:dation, one session be set aside for a meeting of the
stockholders of the eakerel Reserve eank eeis meeting will elect
its own chairman ana will call for such information as at
asually receive at meetings, and will also elect for the term of one
year, an %xecutive Committee of seven. This oommittee will receive
complaints or suggestions frmn member banks and will take them up with
officers and directors of the seeerel Rooerve Aank, Being representative of the stookholders, conversations can be hold with this
committee by the officers of the Reserve Bank on questions of mutual
interest without fear of the imputation of favoritism, which might
be the case at present if the opinions of officers of two or three banks
were -ealght, In view of the fact that the Now neland Bankers
Association does not meet until next June, the Boston Clearing House
has requested the ereeleent of the Jan era ,aeociation of each State
in Aw I' lglanki to appint one member of a committee to serve until the
stockholders' meeting next June. eho eresieent of the eassaohnsette
Bankers Association has aepointed tee members of the committee, and one
member has boon or will be apeointe_ from ()echo! the other NOw englend

committee is expectoe to meet in the near future ant
will probably have some suggestions to make to the Neard before) the
meeting of 7ir. eeeeaden's Committee in rotober,

I mey say that there is a general feeling aneng the Now englana
bankers that 'election 7 Of the eoderal Renerve ect should be amended;
not with the view of depriving the Government of revalue) but rather
with the idea of making the eystema mutual one, It is argued that
as Section 7 now stands', there is AD reason why member banks should

take any particular interest in the eystene

he eividenee on their

stock at 6% per ;eneum are cumneetive and ae a fixed charge on the
not earnings, but the eovernment gets all the rest, even the eurplus

will go to the Government in the event of need liquidation. It has
bean pointed out that Congrsss has been more liberal in thir: respect
to the :arm Loan eaeks than it has to the ideml Reserve Beeks, esr
the capital of the earm Loan Be/lee lees supplied originally by the
Treasury of the :ftited states, although the Joint etook Land Bunks have
now relieved the Treasury of by ter the larger part of its stockholdings in the earm Lean Banks. earm Loan Banks are exempt from all
taxes except as to real-estate owno.44 their bonus as well es tore
of the joint etook land Banks are exempt from Income Texas., and. the
earnings are applies. to the payment of dividends to stockholders, to

the creation of a. surplus, anu the remainder is distribute:, to borrovere

as a rebate of interect,

In the ease of the venmel aeserve !Auks the capital was supplied
entirely by the member banks, which also furuish the deposits, The
aovernment's cola oontributiOn was 0100,000 which was appropriated

te pay the expenses of the erganieation Committee* of welch amount
$17.000 was turned beak into the eroasury. The Governsent has
received so far !e135,000,000 from the leieral Reserve eanks as
franchise taxes, and it hat) also had the benefit of their services
as eisoal Agents, the value of welch woula be hard to eattnate. It
is argued that the only reel contribution that the Government makes
to the eederal leserve eaeks is the neaumeleeseree note, and teet is
a contribution only to the extent to whioh the eederal Reserve note
is not specifically covered by a gold reserve.
There is endoubtedly a strong feeling througheut Now 71ng1and that
there should be an equitable division of the profits, if aey, Of the
Peeeral Reserve Banks. It has been pointee out that in the summer
of 1913, the Original Olase Bill as it passed the louse of Representa-

tives, provided. for 5% oumulative dividends to member banks, the
oration or a serplus equal to ase% of the eaeitel &took, and the
eivielon of any additional earnings between the Goveremeet and the
FO,oral Reserve Banks In the proportion of 60% to the Government as
a franchise tux and 40% to the Reserve Banks to be distributed by them
to their stockholders in propertien to the average reserve balanooe
oarriee during the year, The Owen Bill as it passea the eenate
providea for 6% emulative dividends, the creation of a 40% surplus, and
the payment of 50% of any earnings remaining as a franchise tax to
the Goverement, and the setting aside of the other 5O as a trust fume
for the payment of claims against insolvent member banks, This
introduce the principle of a guarantee of aeposits end would have
tended to put all member banks on the sumo footing. Barkers generally
protested and the Rouse conferees would not agree to tate provision,
?no differences 4etween the Senate and the House were compromised by
the Conference Committee and the bill as reported by that eommittoe,
and whioh finally boosae a law, prevideu for 8% cumulative dividends,
the creation of a surplus of 40%4 ane the payment of all additional earnDees to the Government as a franchise tax.

In 1919, Section 7 was alendee so as to proviae for a surplus /Neel
to 100 Of the subsoribea oapitalami tee retention by the banes as
a further additior to surplus of 10%, the remaining 0% to be paid to

the Goverement as e franohise tax, The surplus createu,however,
under the present law, goes to the Government when the banks are

finally liquidated.

I have made no effort to influenee banking sentiment in this distriot
but have taken sere pains to aseertain just what the sentient is, There
is no disposition to change the caaracter of the Federal Reserve Banks;
in fact most of the banks are anxious that they should ho continued as
Reserve Banks and mot as comae-tine balks,
There Is no longer arg
general sentient in tevor of Internet on deposits but there ilea strong
feeling that member banks should be &word° the benefits which useally
accrue to stockholders,

I think that balking sentiment in Nor enelana is in favor o f an peweefirst, for the payment to the

merit to Section 7 which would proviee:

-5Government of a specific tax by Federal Reserve Banks - a tax based
upon the uncovered portion of Federal Reserve notes outstanding, which

after all is the Government's real contribution to the Systeee I
have hoard sugi.;estions made that this tax be fixed at 2% which is the
same as national banks pay, and it has been pointed out that with this
tax in effect in 1919, 1920, and 1921, the Government would have
reeeived a large return from it, and the Federal Reserve Bunks would
have been well able to pay it. In 1924 when the reserves were large,
the earnings were small, and the tax would have been small. I believe
that riew Felgland bankers generally would like to see the 64; cumulative
dividends continued with no further additions to surplus, and that they
would like to have excess earnings, if any, after payment of taxes and
dividends, distributed to member banks in proportion to their reserve

This principle was recognized by the Glass Bill which passed

the house of Representatives in 1913.

I again repeat that I have hoard of no disposition whatever to
interfere with the administrative and regulatcry powers of the Federal
itoserve board, and that banking sentiment here is not actuated by a
desire for the actual profit but rather by a feeling that the present
provisions of Section V are not equitable in that the non-borrowing
bank gets no direct benefit wile its reserve is used often at a
profit by banks whioh are borrowers.

reading the diecussion of this mutter in
the last two issues, September 1 and September 6, of the United States
Investor, written by Ur. Frank P. Bennett, wne tells me that he made
the suggestions contained therein after discussing the matter with

I have been interested in

:nany bankers throughout New lingland.

b. Par collections. I have not hoard of any sentiment whatever

In this district against

that has been reported to
favorable sentiment.

the par collection system,

and everything

me by our field representative indicates a

I am advised else that there has been no general sentiment in favor of
abolishing the office of Gcmptroller of the Currency since Yarch 1921.

does not appear to be any desire on the part of any New Lngland


own town or city. in
bank to establish branches cutside of
metropolitan Boston which erabraces several municipalities, there are
two or three national banks, as well as several trust companies, which

have branches in varicus parts of the city and in the suburbs.


national banks which have branches have acquired them either by
establishing the while they wore operating under state charters as
Trust comianies or else through merger with convertee national banks

which had establish branches while they were trust companies.

One or

two other national banks are considering the question of establishing
branches, but if they do, will probably acquire them through mergers.

Sc far I have heard no talk of any national bunk surrendering its
charter for the purpose of establishing branches as a State institution; although it is probable that one large national bank would have

- 6 -

surrendered its Charter had it been unable to establish branches in
the manner above described.
In many large cities it appears that
the establishment of suburban branches is becoming more and more a
necessity for a down-town bank.
Very truly yours,

W.P.G. Harding!,


Hon. D. R. Crissinger, Governor,
Federal iteserve Board,













October 9, 1925.

Dear Governor Strong:

I have received your letter of the 8th Instant
nd have already looked over the statement which I received yesterday.
t seems to me that the adjustments proposed are equitable and I have
no changes to suF:gest.

I am Sending you today a copy of my 'book "The
Formative Period of the Federal Reserve System" which, as you will see,
deals with the work of the Federal Reserve Board rather than of the
and when you read it, I hope
banks during the period it covers.
that you will do so with a charitable frame of mind remembering that
it is my first attempt at authorship as it will be my last.

Sincerely y


Benjamin Strong, Governor,
Federal Reserve Bank,
New York, N. Y.





''')1"`) OFFICr




iJkJi la


Octoter 10, 1926.

Deer Governor Harding:

Thank you for your latter of



I shall certainly read the book *ith


greet deal

of interest, and it will require no charitable frame of mind
indeed, when T recoil the many difficulties and perplexities
which you ter e required to face during your administration.

I hope the book is favorably received, and that you

will aot be iecouraged vs in author.
Sincerely yours,

W. P. G. Harding, ,Esc.,
Governor, Federal Repervo Bank,



December 9, 1926.

Dear Governor Harding:

'hen 1 se. r Governor Strong he risked 7re to thank you very
muh for your kind. message of December 6.

AsI told you over the telephone this morning, the
governor is Touch improved but Is yet to reAk to undertate cor-

res2ondence, so he to takLng thia means of expressing his ap-


He ir shortly to go to Colorado for e period of re-

cuperation, and we hope he will gnin back his o16-t1me vigor.

Very truly yours,


D ruty Governor.

Mr. W. P. G. Hardin.,
Poston, Massachusetts.

eaerve Bank of Boston,












December 6, 1926.

Dear Governor Strong:

Upon my return a few days ago, I was very
I am glad to
sorry to learn of your severe illness.
hear, however, that you are now entirely out of danger
and that no serious consequences are likely to ensue.
I trust that you will soon be able to go
to a more genial climate where you can recuperate, and
I hope that you have a speedy restoration to health.

With kindest regards. I am
Sincerely yours,


Mr. Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.










September 22, 1927

My dear Strong:

I am sending you a letter which I dictated yesterday,
althouel I feel that Young's appointment has made the whole
question an academic one.
In this appointment I think I can
see the deftness of your touch and I congratulate you on the
excellent work you have done in putting him over and in
securing his acceptance.
I think the appointment of Young is"bully"in every
respect and to use an expression which has passed into
history - "I am deelighted".
Sincerely yours,

Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
New York, N. Y.


September 23, 197.

My dear Hardin:

I was glad to your various letters this morning.


confidential one of the 21st leads me to write you some further comments,
vinieh I shall hope to do so to-morrow.
I am so glad f..t your reaction to Youngle appointment. *Shen
the D fifil C.,' wee suegeeted enc.4. I heard of it

I placed no obstacles in the

as I did, you can be sure tnat


Young has always impressed me as an upstanding, two-fisted,

Irish-American, of the type no clearly expressed in that offhand remark
of his Lt the meeting, when he said that he never ley down in his life
unlash he 613 s knocked down.

You do net know how much anxiety this has

cleared out of my mind, for I have been worried a lot about the recent
developments and know that you and a lot of the others have been, too.
Some tint: I hope us rill have s chenoe to talk this al over.
Sincerely yours,

P. G. licrding,
Wo Federal Reserve Bank of Boston,
Eoston, Massachusetts.




September 28, 1927

My dear Strong:

/ have received your letter of September 24 which I have
read with the greatest interest.
It is evident that we are not very
far apart in our views.
/ am going over to New York Saturday on the one o'clock
train and will remain until 5 o'clock Monday afternoon.
I shall
call at the bank to see you some time Monday morning,and hope that
you can spare me a half hour or so for discussion of the situation

With kind regards, I am
Sincerely yours,

Mr. Benjamin Strong,
Federal Reserve, Bank,
New York, N. Y.


September 29,


Deer Governor fitirding:

I tm delighted to e,ot your note and 1oxi that you
sill be in Mel, York. If you e.,re

been .S.,turday

evening 8,.nd Monday mcirnios won't you t:-tephone me at Murray

We might have b_ little vielt uptcAm.

Sincerely youre,

Mr. W. P. G. Hardilg,
Federta Reeerve ink of Houton,
Boeton, Masa.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102