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S5M St lSs7 CALIFORNIA STATE BANKS ENTERING THE FEDERAL RESERVE SYSTEM An Address Delivered at eAnnual Convention of CALIFORNIA BANKERS ASSOCIATION https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis . DEL MONTE, CALIFORNIA Ma-) 24th, 1918 BY MR. JOSEPH F. SARTORI ‘President Security Trust and Savings Bank Security National Bank Los Angeles, California PUBLISHED BY CALIFORNIA BANKERS ASSOCIATION 326 MILLS BUILDING, SAN FRANCISCO CALIFORNIA STATE BANKS ENTERING THE FEDERAL RESERVE SYSTEM BY MR. JOSEPH F. SARTORI . PRESIDENT SECURITY TRUST AND SAVINGS BANK PRESIDENT SECURITY NATIONAL BANK LOS ANGELES . ■ To the Members of the California Bankers Association: The subject of this address being, “California State Banks Entering the Federal Reserve System,” the problem of Mutual Savings Banks and of State Banks and Trust Companies other than those of California are not considered, except in a general way. The expressed objects of the Federal Reserve Act are, “To provide for the establishment of Federal Reserve Banks, to fur nish an elastic currency, to afford means of rediscounting com mercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.” Among these other purposes may be mentioned the mob ilization and control of the gold reserves, and the eventual unification of the banking system of the country. The Reserve System has proven, since its organization, a tower of strength under the most trying conditions, has sup plied the great and increasing demand for additional currency and credit called for by extraordinary expansion of business due to war operations. In fact, it is accomplishing all of its purposes, except that it has not yet succeeded in mobilizing the gold reserves, or unifying the banking system of the coun try to the fullest extent. These two latter purposes can only be fully realized when practically all of the state banks and trust companies have joined, and contributed their gold reserves, and suitable legis lation has been enacted, both national and state, to justify and accomplish savings bank membership. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FEDERAL RESERVE ACT ITSELF OFFERS NO DIFFICULTIES As far as the Federal Reserve Act itself is concerned, and as it is now constituted, there appears to be no important reason why any capital stock savings bank, or State bank and trust company, doing a preponderance of commercial banking business, should not forthwith join, unless prohibited by the provisions of its State law or prevented by that same law from contributing materially to the gold coin reserve of the Federal Reserve Bank, and from practically enjoying the privileges of the System to a reasonable extent. The amendments to the Federal Reserve Act approved June 21st, 1917, while greatly improving its provisions for the benefit of all member banks and the entire system, were also designed to hasten and encourage commercial state bank and trust company membership. A particularly important provision reads as follows: “Subject to the provisions of this act and to the regulations of the board made pursuant thereto, any bank becoming a member of the Federal Reserve System shall retain its full charter and statutory rights as a State bank or trust company, and may continue to exercise all corporate powers granted it by the State in which it was created, and shall be entitled to all privileges of member banks.” Other important provisions were made to attract state bank membership in these June, 1917, amendments, too numerous to quote here, and with which, it is assumed, all California state bankers are familiar. On October 15, 1917, President Wilson, through the Fed eral Reserve Board, called upon all eligible non-member state banks and trust companies to join the Reserve System and said in part as follows: “It is manifestly imperative that there should be a complete mob ilization of the banking reserves of the United States. All who are familiar with financial operations must appreciate the importance of developing to the maximum our banking power and of providing finan cial machinery adequate for meeting the very great financial require ments imposed upon our country by reason of the war. “May I not, therefore, urge upon the officers and directors of all non-member state banks and trust companies, which have the required amount of capital and surplus to make them eligible for membership to unite (with the) Federal Reserve System now and thereby con tribute their share to the consolidated gold reserves of the count(r)y. I believe that co-operation on the part of banks is a patriotic duty at this time and that membership in the Federal Reserve System is a distinct and significant evidence of patriotism.” https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 This appeal of the President makes it the imperative patri otic duty of every eligible non-member state bank and trust company to at once apply for membership, unless prohibited or prevented by the provisions of its state law, as heretofore mentioned. FAILURE OF STATE BANKS TO JOIN—A BURNING QUESTION Up to April 1, last, state banks and large eastern trust com panies representing only about 40 per cent of the entire state banking resources joined the system. . Mr. Pierre Jay, Chairman, Federal Reserve Bank of New York, in an article on “State Institutions in the Reserve Sys tem,” made the following statement: “Thus far only 385 State institutions, with resources of 6% billion dollars, have joined the Federal Reserve System. Shall the system be able to give only 70 per cent of the financial support the war re quires because some eight thousand State institutions with resources of perhaps ten billion dollars, constituting the other 30 per cent, do not answer the President’s call to ‘share the burden and the privilege’? “That is the burning banking question of the hour. “Why do they not come forward? “In nearly every case, because of this single objection; that no in terest is paid on balances kept with Federal Reserve Banks.” I am not familiar with the provisions of the Bank Acts of many other states and have had no time or occasion of late to investigate the reasons why so many state banks, in states other than California, have not joined the system,. There must be in many cases and in some states, other impelling reasons than the one that the Reserve Banks pay no interest. In this connection it is important to say that the Counsel to the Federal Reserve Board has made an exhaustive inves tigation of all state banking legislation, and in a brief covering the subject he points out necessary legislation required in thirty different states, including California, in order “that the powers of all member banks may be co-ordinated as far as possible, and that their operations may be conducted subject to the same limitations and restrictions.” It is quite certain that Mr. Jay, commendably zealous as he is in the upbuilding and perfection of the Reserve System, would not have imputed this single objection to our California state banks, had he known, or thought of, our peculiar and https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 distinctive character of banking and the provisions of our Bank Act. This brings us to the direct consideration of our subject, “California State Banks Entering the Federal Reserve Sys tem.” ONLY THREE CALIFORNIA BANKS HAVE JOINED THE SYSTEM So far only three California state banks with total resour ces of about $6,049,232.59 have joined the Reserve System. 427 of our state banks with total resources of about $1,001, 781,007.28 have not yet joined. “Why do they not come forward,” and is it solely because the Reserve Bank pays no interest? During the month of February last, an official of the Reserve System wrote and inquired “why the following named state banks and trust companies in your district (that is, in California) have not entered the system. They are included in a group of the one hundred largest state banks and trust companies in the United States, one-half of which have joined the Reserve System. What our Committee wants to know is why the other fifty do not join. Is it that they are not eligible? etc.” Another official of the Reserve System, understanding the situation in part, writes: “I appreciate that until the provisions are amended of the California Bank Act regarding reserves, there is less pecuniary advantage to your institutions than there would be if the law were properly amended. Nevertheless, I believe that there would be definite advantage found in membership even with the law as it stands. In addition to this, your membership would add your quota to the strength of the Federal Reserve System.” Mr. Paul M. Warburg of the Federal Reserve Board, an swering an inquiry, recently said in part: “You have asked me to give you an outline of a possible basis upon which savings banks might establish a relationship with the Federal Reserve System—a relationship that to them must, of course, be of the highest value as it would afford them protection at times when abnor mal demands are made upon them. “This problem has been before the Federal Reserve Board almost continuously. While it has been clear to the board and the savings banks that a relationship should be established, the difficulty has been twofold; first, a great many savings banks having no capital stock upon which to base their subscriptions to stock in a Federal Reserve Bank are not in a position to make a capital contribution; and, second, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 the Federal Reserve System has not been in a position to offer to the savings banks a sufficient degree of relief on account of the lack of eligible paper that savings banks possess. Under the circumstances, savings banks did not see what they would gain by membership nor did the Federal Reserve Board see how under present circumstances it could offer relief to the savings banks. “As a matter of fact, the savings banks, without assets of a suffi ciently liquid character, would be more of an onus than a bonus.” These remarks of Mr. Warburg’s clearly indicate, what everybody should know: That the Federal Reserve System is at present entirely a commercial banking system, in no way constructed or designed for savings bank membership— whether mutual or capital stock, whenever and wherever such savings banks are not permitted by their state laws, to receive commercial deposits, or invest in acceptances and liquid com mercial paper, with the practical right to rediscount, in suffi cient quantity to justify membership. The June, 1917, Reserve Act Amendments, or the call of the President upon eligible non-member state banks and trust companies, do not contemplate nor invite such savings bank membership. In reply to one of the before-mentioned letters, addressed to the institution with which I am connected, I answered, in part, as follows: DEPARTMENTAL BANKS SHOULD BE CLASSED WITH SAVINGS BANKS “I notice that in your list of the large California state institutions which have not yet applied for membership in the Federal Reserve System, the banks mentioned in your letter evidently are being classed with the trust companies elsewhere in the United States because the word “Trust” appears in their titles. “The assumption is persisted in that we are doing a banking busi ness similar to that of the Guaranty Trust Company or Bankers Trust Company of New York, and the large trust companies of other eastern cities whose banking business is mostly commercial; whereas, in fact, the greater preponderance of our business is savings, similar to the sav ings business of the mutual savings banks in the eastern cities whose deposits are compelled by law to be invested in mortgages, bonds, securities of a specified nature, otherwise called fixed securities. It must be noted also that the trust departments of these California de partmental institutions are not permitted to receive deposits or do a banking business. In the case, for instance, of this, the Security Trust & Savings Bank of Los Angeles, more than nine-tenths of its deposits are savings and the greater bulk of its investments are in mortgages and bonds of the character specifically provided for by law.” https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 In other words, in this matter of joining the Federal Re serve System without necessary amendments to the State Bank Act, the departmental banks of this state doing a large pre ponderance of savings business should be classed with the mu tual savings banks in the east, rather than with the trust com panies. In determining eligibility for membership before amend ments to the state law are enacted, the necessary points for California state banks to consider, as far as the practical side of the question is concerned, are: 1st. By Commercial Banks, the reserve requirements of both Acts. 2d. By Savings Banks and Savings Departments of De partmental Banks. (a) The reserve requirements of both Acts. (b) The privilege of purchasing acceptances and commercial paper. (c) The right to rediscount for other purposes than the one mentioned in the Bank Act, and on a parity with National Bank mem bers. 3d. The possibility of contributing gold coin and gold certificates to the Federal Reserve Bank, and at the same time carrying in vaults the amount re quired by the state law. 4th. The possible conflict of jurisdiction under the terms of Section 56, California Bank Act, which under the circumstances is quite unimportant. OFFICIAL EEPOETS AS TO CLASSES OF STATE BANKS On February 23, 1918, the date of the last Statements of Condition made to the Superintendent of Banks, from which the latest complete and reliable information and data can be obtained, California state banks numbered and classified as follows: 7 Trust Companies doing no banking business; 92 Commercial Banks doing no savings business; 119 Savings Banks doing no commercial business; 212 Departmental Banks doing a commercial, savings and in some cases, a trust business. Total 430 Banks with 144 Branch Offices. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 It is particularly to be noted that in numbers, more than three-fourths of our state banks are savings and departmental. At the time of this statement, the total deposits, includ ing bank deposits, in all these Banks were: Savings..........................$642,939,362.91 Commercial................... 236,316,048.18 Total.............................. $879,25 5,411.09 Total reserves carried against these deposits, $138,058, 644.24, or about 15% per cent. Thus it will also be noted that about three-fourths of all the deposits in the state banks are savings, and although the figures have not been carefully compiled, it is safe to say that more than eight-tenths, if not quite nine-tenths, of all the de posits in state banks are in savings and departmental banks. As the large preponderance, about three-fourths, of the California state banking business is savings, and as the Re serve System is so far admittedly designed for commercial banking only, a good reason exists why the savings and de partmental banks of California are reluctant about uniting with the Reserve System without suitable State legislation. STATE AND FEDERAL RESERVE REQUIREMENTS COMPARED Member banks must keep on deposit with the Federal Re serve Bank the following percentages of their demand and time deposits: Country Banks ......................... 7% Demand 3% Time Reserve City Banks...................10% Demand 3% Time Central Reserve City Banks . .13% Demand 3% Time California state bank reserve requirements are as follows: For commercial banks 18%, 15% and 12%, according to the size of the city or town in which these banks are located. At least one-third of total reserves must be kept on hand in gold, gold certificates or U. S. notes, one-sixth in similar money, or other forms of currency and the balance may be maintained on deposit in prescribed banks or the Federal Re serve Bank. The reserves for savings banks or savings departments are 5% of deposits, as follows: 1%% gold, gold certificates and U. S. notes. 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis l%i% gold, gold certificates, and U. S. notes and other forms of currency. 2%% on deposit with banks, including reserve banks, or bonds of the United States. Provided, however, that no savings bank or savings depart ment shall be required to maintain cash reserves on hand in excess of $400,000.00, and balance to make up the required 5% on deposit with other banks. Eight savings banks or sav ings departments in the state, having savings deposit liabili ties of $16,000,000.00 or more, are therefore required to carry a $200,000.00 gold, plus a $200,000.00 other currency, cash in bank reserve. This interpretation of this proviso has been confirmed by our Superintendent of Banks. This February statement shows that all these California state banks carried cash on hand as follows: Gold, Gold Certificates ...............$30,438,185.22 Other forms of Currency............ 8,014,860.66 On deposit with Banks................ 99,605,684.06 $138,058,729.94 The calculation of gold needed to meet the reserve require ments of our state banks on the basis of the individual deposit liabilities reported in the call of February 23, 1918, made in the office of the Superintendent of Banks, with his approval, is as follows: commercial banks and commercial departments Total reserve required 18% “ “ “ 15% “ “ “ 12% Deposit Liability Gold Required $121,671,004.33 $ 7,300,260.00 32,173,239.51 1,609,661.00 73,716,272.87 2,948,650.00 Totals ................................... $227,560,516.71 $11,858,571.00 SAVINGS BANKS AND SAVINGS DEPARTMENTS Deposit Liability Gold Required 8 Banks having a deposit liability of $16,000,000 or more..................................... $314,233,536.79 $ 1,600,000.00 All other Savings Banks .... 316,546,830.84 3,956,835.00 Totals ................................ $630,780,367.63 $ 5,556,835.00 Grand Total Gold Reserve Required...................$17,415,406.00 8 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deducting this amount from $30,438,185.22, the total of all Gold on hand in all the State Banks on February 23d left a balance on hand of Surplus Gold to the amount of $13,022, 779.00. 1 U. S. Notes do not affect the result, as there were only $235, 885.00 of these Notes in all the Banks. This calculation shows that the State Banks on that date could have deposited in the Reserve Bank from twelve to thir teen million dollars of gold coin, or could have exchanged it for reserve notes. If not considered advantageous to deposit this excess gold. for credit, or to exchange it for reserve notes in order to main tain cash reserves, it may be sent to the Reserve Bank for the credit of a correspondent bank. The latter will then credit the account of the sending bank subject to usual rates of inter est. Since February 23d to date of this reading, $3,282,080.00 of this excess gold has found its way into the vaults of the Reserve Bank, leaving about $10,000,000.00 available for this purpose. ALL EXCESS GOLD RESERVES SHOULD BE DEPOSITED AT ONCE Without question, or delay, all this excess gold, except per haps a little margin for emergency purposes, should be sent to the Reserve Bank. Each bank will thus contribute its possible quota to the strength of the Reserve System. It is a patriotic duty to respond to the President’s call and aid as much as the law permits in this necessary gold coin mobilization. It is well to remember in this connection that reserve notes are payable in gold on presentation and there fore an encroachment on state gold reserves can always be restored on short notice, in order to avoid the prescribed pen alties. The conclusion is that California banks, if now members, could add no more to the reserve system than this excess gold, and state legislation is absolutely necessary to enable them to transfer any part of the $17,415,406.00 needed to meet the re serve requirements of the State. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 DUAL RESERVES In case of membership now, the requirements of both Acts would compel State Banks, as compared with National Banks, to carry reserves against commercial deposits, as follows: In reserve city banks of San Francisco and Los Angeles: State Banks ...................... 19 per cent National Banks .......................... 10 per cent In other cities in the State having population of 100,000 or more: State Banks........ .........................16 per cent National Banks........................... 7 per cent In cities from 50,000 to 100,000 population: State Banks ............................. 14% per cent National Banks ...................... 7 per cent In cities of less than 50,000 population: State Banks ................................ 13 per cent National Banks .......................... 7 per cent Reserves against savings deposits would be: State Banks .............................. 5% per cent National Banks ........................ 3 per cent Banking practice and conditions still require substantial balances with correspondent banks and this is true both as to commercial and capital stock savings banks. Considerable margins of cash must also be carried for the safe transaction of daily business. It is also well known that most of our savings banks re ceive much larger savings accounts than is customary in mu tual savings institutions and must therefore carry much larger cash reserves in vaults. They must also carry larger reserves than National Banks against time deposits, because the latter can invest all these time deposits in commercial paper with the unlimited and unrestricted right of rediscount. NEED OF LEGISLATION TO REMOVE DUAL RESERVE REQUIREMENTS These dual and unequal reserve requirements present an other and valid reason why our State Banks are reluctant about entering the system without legislation to remove these in equalities. This State legislation should require reserves for State member banks similar to those provided for National Banks by the Reserve Act. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 SAVINGS BANK INVESTMENTS AND REDISCOUNTING A prime and essential purpose of the Federal Reserve Sys tem is to afford means of rediscounting commercial paper. Without a legal right to invest savings deposits in such paper to a reasonable amount as compared with deposit liabilities, and the unqualified privilege of rediscounting the same with the Federal Reserve Bank on an equality with National Bank members, and without reduced gold reserve requirements, membership on the part of California savings banks would be of little value to themselves and of no value to the Reserve System, except as to the surplus gold which can now be con tributed to the Reserve Bank, without membership. NECESSITY OF ALLOWING MORE INVESTMENTS IN COMMERCIAL PAPER It has been suggested that the Reserve Act as well as State Bank Acts be amended to permit the rediscounting of other classes of securities by savings banks, but such legislation is improbable. The strength and utility of the Reserve System is in its gold holdings and the liquid character of its assets. Ad vances to savings banks on the security of bonds or real estate mortgages or collateral loans would be a burden to the system and contrary to all Reserve Bank practices. To bring about the unification of the banking business and enable savings banks to enter the system, it will therefore be necessary for State Legislatures to give savings banks a substantial right to invest in acceptances and commercial paper, with the right of rediscount, as well as the right to invest in the capital stock of the Reserve Bank. Section 67 of the California Bank Act permits the purchase of bankers’ acceptances to an amount not greater than five per cent of deposit liabilities, provided the acceptor is a bank or trust company having a paid in capital of $1,000,000.00, and of commercial paper of a restricted class to an amount not greater than five per cent of deposits. This privilege did not become effective until July, 1917. To the date of the last bank statement only $4,500,000.00 had been invested in this class of paper, due partly to the re strictive character of the paper provided for and partly to the conditions which made it either unprofitable, or almost impos sible, to sell securities or call in loans. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11 This amount so invested in this class of liquid securities is so small, as compared with the large sum of deposit liabilities, that it would be wholly ineffective for any rediscounting pur pose. MORE LIQUID ASSETS WOULD BE A DISTINCT ELEMENT OF SAFETY It is here again desirable to quote Mr. Paul Warburg. He says: • “The time when savings banks require liquid funds is most fre quently a time when securities can be sold only at a great sacrifice, if at all. It is an element of safety which savings banks can not afford to neglect to have a certain portion of their assets in absolutely liquid investments. Even if the question of establishing a relationship with the Federal Reserve System were not involved at all, I am strongly of the opinion that savings banks should cease to invest their funds exclusively in obligations of corporations, governments and municipali ties, and should somewhat distribute the risk by carrying a certain pro portion of their assets in liquid paper. “Some of the more progressive States have already enacted legis lation along these lines. * * * Especially is the California law well worth studying with respect to its provisions covering the commercial paper that savings banks may buy; its restrictions as to bankers’ ac ceptances appear too rigid.” To make California savings bank memberships perma nently beneficial and effective, the banks should be permitted to invest in acceptances of a less restricted character and to in vest a larger proportion than five per cent of their deposits in commercial paper, also perhaps of a somewhat less restricted character, so as to be able to avail themselves of a wider and more profitable market in both cases. Acceptances of large capitalized banks in normal times will be discounted at such a low rate of interest that they will prove unprofitable for savings banks to hold, and will probably yield returns slightly greater than interest on daily balances. Commercial paper will dis count at a higher rate of interest and will, no doubt, prove a more advantageous investment, therefore it would seem desir able to increase the percentage of commercial paper and reduce the $1,000,000.00 capital stock limit in case of acceptances. Although the provisions of our Bank Act defining the char acter of commercial paper which can be purchased by savings banks have been commended by good authorities, they are much more restrictive than those provided for in the Federal Reserve Act and by the regulations of the Reserve Board. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 12 It would seem that some slight modifications might be made to insure a wider market, without a sacrifice of the necessary element of safety. These are debatable questions, but some modification of the State law in these respects is necessary to enable savings bank membership to be permanently useful. STRINGENT PROVISION PRACTICALLY PROHIBITS REDISCOUNTING Section 62 of the Bank Act provides: “No savings bank shall borrow money, or pledge or hypothecate any of its securities, except to meet the immediate demands of its own depositors, and then only in pursuance of a resolution adopted by a vote of a majority of its board of directors, duly entered upon their minutes, wherein shall be recorded the ayes and nays upon each vote; also with the written approval of the superintendent of banks, and he shall have the authority to fix the amount to be borrowed, and the term and rate of interest thereon.” This provision wholly and effectively prohibits rediscount ing by any savings bank with the Reserve Bank, except for the sole purpose of meeting the demands of its own depositors, and even for this sole purpose provides a cumbersome formula to be followed. The purpose of rediscounting is to enable banks, when nec essary, to secure funds to serve their customers, and the com munity in which they operate, as well as to meet unusual with drawals on the part of depositors. One of the best ways to cause more unusual withdrawals is to refuse any and every legal loan offered, no matter how good the security. It has often been a source of speculation how a savings bank could operate, in case it was compelled to borrow money or rediscount under this provision. As it is interpreted, not a new loan could be made until withdrawal demands ceased and all borrowed money was paid off in full. How this section should be amended is also debatable, but it is quite certain that its provisions should be modified so that a modern capital stock savings bank, if a member of the Reserve System, can quickly and reasonably avail itself of the redis count privileges, as to acceptances and commercial paper held by it, in order to serve its customers, its community, meet with drawals and at the same time check withdrawals by making some good loans. 13 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Remedial legislation is absolutely necessary in this respect, otherwise California savings bank membership would be of lit tle value. REPORTS OF ECONOMISTS Economists and zealous financial experts are making undi gested reports, and giving offhand opinions based on academic, well-known and admitted principles, that California State Banks should at once enter the Reserve System, disregarding or lightly brushing aside these facts: 1st—That the Federal Reserve Act provides, so far, only for commercial banking, and that three-fourths of all California state banking is savings, with limited and restricted right to in vest in acceptances and commercial paper, and without any practical rediscount privileges. 2d—That membership would not enable any of these banks to shift their legal gold coin reserve to the Federal Reserve Bank, until there is proper State legislation. 3d—That State Banks must continue to obey the State law until amended. Their arguments and reports would have been more useful if they had been directed to the end that all excess or surplus gold held in vaults should at once be diverted to the Reserve Bank, as heretofore indicated. The critics of our State bankers, because they are awaiting remedial State legislation, may here properly be advised that on two different occasions committees headed by Mr. John S. Drum, Chairman of our California Bankers Association Legis lative Committee, and appointed by a group of the larger State Banks, held conferences with the Federal Reserve Board in Washington on the California situation. CONFERENCES WITH THE FEDERAL RESERVE BOARD At the first conference, held on November 12th and 13th, 1917, the committee was given the fullest opportunity to be heard and explained the “obstacles existing under the present Bank Act of California,” which “were fully appreciated.” It was understood and assented to at that conference that “the only method whereby these conditions can be remedied was to amend the present Bank Act.” https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 At the second conference, held on March 21 last, the pecu liar California situation was again discussed, resulting again in the prevailing opinion that, aside from shifting excess gold to the Reserve Bank, no insistent demands could properly be made upon California State Banks to enter the Reserve System, with out remedial legislation, but that this legislation should be pro vided at the earliest possible moment. On the occasion of this latter conference with the Reserve Board and numerous meetings with its Counsel, there was dis cussed certain suggested national legislation looking toward the eventual unification of the country’s banking business, by giving National Banks the right to do a regulated and segre gated savings and commercial business, and the right to do a regulated trust business to all those National Banks having a sufficient capital, and also authorizing State Banks to convert. Suggestions were made by the Committee, in view of its experi ence in departmental banking. All this is another subject of such importance that it can only be incidentally referred to at the present time. In the meantime, while anxiously awaiting suitable Califor nia State legislation, I may be pardoned for again emphasizing the importance of sending all excess gold to the Reserve Bank. It is the necessary thing to do until essential legislation is en acted. The patriotism of State Bankers will be measured by their performance in this respect. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 . Caltforma Santas Assadatwn Office of the Secretary 326 Mills Building, San Francisco Bulletin No. 164 Series 1917-1918 MAY 29, 1918 (this bulletin should be inserted in c. b. a. binder for reference) CALIFORNIA STATE BANKS JOINING THE FEDERAL RESERVE SYSTEM , To the Bank Addressed : Much has been said and written on this subject during the past year. The Trust Companies and State Banks in California have been repeatedly and strongly urged by the Federal Reserve Bank to affiliate with it. A conference of bankers was held in San Francisco, at which the subject was thoroughly discussed, and a committee was appointed to proceed to "Washington. There they were fully advised as to the desires of the Federal Reserve Board, and were enabled to set forth the reasons which deferred California State Banks from entering the Federal Reserve System, not withstanding their patriotic desire to be of greatest possible assistance to the Country. One of the members of that Committee was Mr. Joseph F. Sartori, who has for many years been an active member of the California Bankers Association Legislative Committee, and who, as President of the Security Trust G/ Savings Bank and President of the Security National Bank of Los Angeles, is widely known as a successful banker and close student of finance. At the annual Convention held last week at Bel Monte, Mr. Sartori contributed to the proceedings a masterful address on the subject of “California State Banks Entering the Federal Reserve System. It is a timely topic of vital interest to California Bankers. Mr. Sartori mar shalled the facts in logical sequence, made an impartial analysis of the problem, dealt with it in a fair, judicial manner, and pointed out necessary remedial legislation. At the close of the address the Convention extended a vote of thanks to Mr. Sartori, and directed that his address be printed and transmitted to each member of this Association. 'trust that the copy enclosed herewith will be carefully perused by the officers of your bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By direction of the Convention, Yours very truly, Frederick H. Colburn, Secretary We