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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SECRETARY'S GOVERNORS M I N U T E S C O N F E R E N C E April 1 to 4, 1929, Washington, D. C. those i n dues ited. we Wells S E (3 Martin ——— 29. y Attebery ALES 1)McConkey ~.._... (3Baill Lj i i i r a ¥ w RQ Gilm ore_ e t 0 L D R a e - = e 1) Hellocher __...... 4 Gtowmet 2 ti Nowe ri INDEX T O SECRETARY'S MINUTES GOVERNORS CONFERENGE APRIL 1 - 4, 1929, Paragraph i n Secretary's Minutes Advances b y F. R. Banks for cost o f pribting new size F.R.notes Amendment t o F. R. Board regulation J - = American Bill Market, Desirability o f developing Bailey, Absence o f Governor ~ < « Bank reserves, E f f e c t o f currency depots o n - = + Bankstocks, Development o f investment companies for purchase o f Bankers acceptances, Report o f sub-committee o f general com# mittee o n Bill market: Broadening o f Desirability o f developing American Governor Talley's memorandum on System policy i n relation t o broadening o f Chairman and secretary, Appointment o f Circular, Treasury, No. 9 2 Circulation of, N e w size currency Collateral for war loan deposits Committee: Bankers Acceptances, Subconmittee o f General Committee o n Credit Operations a n d policies, Committee t o study Insurance Committee Leased Wire Committee Open Market Investment Committee, revision of procedure Pension Committee Standing Committee o n Collections F. R. Banks acting as custodians o f securities, Committee t o study Computation o f member b a n k reserve requirements Conference w i t h F . R. Board Credit conditions and F. R. cre*it policies Credit conditions, Review o f - = https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Paragraph i n Secretary's Minutes Credit investigations o f member banks Credit operations, R e v i e w o f - - = Currency: Advances b y F. R , Banks t o cover expenses incident t o prepara- tion o f new F. R. notes Circulation o f specimens o f new size Currency depots Expense i n connection with printing ofnew F, R. notes F. R. note clearing Meeting o f currency operating officials with Treasury officials Possible effect o f failure t o provide small size National bank notes when currency i s changed Redemption fund for F. R. notes Credit situation, Stenographic record of discussion with F. R. Board concerning Custodians o f securities, P o l i c y o f F. R . Banks a c t i n g a s Deposits: Collateral f o r war l o a n Reserve against Government deposits i n member banks War l o a n limited t o Government securities Designations o f depository banks, Principles that should b e followed i n ~ - - Discount rates a n d o p e n market policies: Desirability o f establishing a hggher rate o f discount o n member b a n k collateral notes Funds f o r intermediate c r e d i t banks Report o f committee t o study Effect o f terms u p o n prices o f Government issues a n d cost o f Government financing F. R. Agents redemption fund, Elimination o f F. R , Board, Conference w i t h F. R. credit policies https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Paragraph i n Secretary's Minutes F, R. note clearing - - - - + F. R. notes, Redemption fund for Foreign banks, Relations w i t h Gold movements, Trend o f - Insurance committee, R e p o r t o f Intermediate credit banks, P o l i c y o f reserve banks i n purchasing debentures f r o m Investment policy o f member banks Investment companies, Development of, f o r purchase o f bank stocks 1 7 Leased wire committee, R e p o r t o f ~ < Meeting o f currency operating officials with Treasury officials Member banks: Credit investigations o f Investment policy o f Policy to be pursued by F. R. Banks i n asserting rights o n behalf o f depositors o f unremitted for transit items against receivers of insolvent Reserve requirements, Computation o f Monetary stabilization, Progress o f National bank notes: Continued circulation o f old size Possible effect o f failure t o provide small size notes when currency i s changed Norris, Memorandum o f Governor, concerning currency depots - = + Open market investment committee; Report o f <- Revision o f procedure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 Paragraph i n Secretary's Minutes Pension bill, Governors t o be provided with copy o f - - - - = - = 34 Pension committee, Report o f - ~ Policy o f F, R. Banks acting a s custodians o f securities + - - + 41 Policy t o be pursued b y F. R. Banks i n asserting rights o n behalf o f depositors o f unremitted for transit items against receivers o f insolvent member banks Possible effect o f failure t o provide small size National bank notes when currency i s changed Principles that should b e followed i n designations o f depository Progress o f monetary stabilization Redemption f u n d f o r F. R. notes « Rediscounting o f bills ----+- Regulation J, Desirability o f amending Relations with foreign barks Reports: Bankers Acceptances, Subcommittee o f General Committee o n - - - 37 Discount rates a n d o p e n market policies, committee t o study - - 44 Insurance committee - - - =~ Leased wire committee Open market investment committee Pension committee Standing Committee o n Collections Reserves: Against Government deposits i n member banks Effect o f currency depots o n bank Computation o f member bank requirements Self-insurance Resolution o f F. R. Board concerning designation o f reserve city 4 3 Review o f credit conditions Secretary and chairman, Appointment o f Self-insurance reserves https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - = Paragraph i n Secretary's Minutes Standing Committee o n Collections: Report o f Appointment o f J. S . Walden, J r . a s Chairman Resignation o f H. F. Strater a s Chairman Stenographiec record o n credit situation ~ - --«---++r--- - 32 System policy i n relation t o further development o f open market 1 0 Talley, Memorandum o f Governor, concerning development o f broader bill market Transfers requested b y non-member banks Treasury plan relative t o issue o f new U. S. currency Treasury circular No. 9 2 Walden, J . S . Jr., Appointment of, a s Chairman o f Standing Committee o n Collections War loan deposits, Collateral for https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONFIDENTIAL PRO G O V E R N O R S e d C O N F E R E N C E April d s 1929, Washington, D . C. as C R E D I T TRANSACTIONS AND POLICIES. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A. O p e n Market Operations. Ly R e p o r t o f Open Market Investment Committee. Be Q p e n Market Committee, S a n Francisco Recommendation o f Joint Conference o f Governors a n d Agents o f November, 1928, regarding suggested revision o f Open Market procedure. ( S e e paragraph 1 1 Secretary's minutes o f November,1928 conference, ) Be D i s c o u n t Rates and Open Market Policies. l. Desirability of establishing a higher rate f F . R. Board S a n Francisco of discount o n member bank collateral notes secured b y Government obligations. (See Board letter dated March 12, 1929.) 2. F u r n i s h i n g funds for intermediate credit banks. S a n Francisco 3. R e p o r t o f the committee appointed a t the N e w York November, 1928 conference t o study Federal reserve credit operations, i n - cluding effectiveness o f discount rate changes and open market operations i n controlling total volume o f Federal reserve credit. ( S e e paragraph 1 3 Secretary's minutes o f November, 1928 conference. ) C. B r o a d e n i n g Bill Market. Les E x p e r i e n c e and progress o f each F. R. Bank Dallas in distribution o f bills i n its district. ee W a y s and means o f encouraging further dis- Dallas tribution. 3. S y s t e m policy with respect t o the purchase N e w Yrok of bankers bills especially i n relation to thefurther development o f a n open market. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 De R e l a t i o n s with Foreign Banks. det R e p o r t , N (a) Operations. e w York (b) Progress o f monetary stabilization. (c) F o r e i g n exchanges and gold movements. Development o f Investment Companies for Purchase o f N e w York Bank Stocks. ( S e e paragraph 1 6 Secretary's minutes and pages 81-100 atenographic record o f November,1927 Governors conference; a l s o pares graph 4 1 Secretary's minutes a n d pages 327-333 stenographic record o f May,1928 Governors conference. ) COLLECTIONS AND CLEARINGS. A. R e p o r t o f Standing Committee o n Collections. B. P o l i c y to be Pursued b y F. R. Banks i n F . R. Board Asserting Rights o n Behalf o f Depositors o f Unremitted for Transit Items against Receivers of Insolvent Member Banks. ( S e e Board letter X-6263 dated March 14, 1929.) COIN, CURRENCY, A N D CIRCULATION A. C u r r e n c y Depots. i In view of requests received b y F. R. Board for Re. Board the establishment o f additional currency d e pots, conclusion h a s b e e n arrived a t that f r o m now o n practice m u s t b e considered a s a system matter rather than a regional one. ( f o r discussion.) (See Board letter X-625l-a dated February 26, 1929.) B. Federal Reserve Note Clearing. C l e v e l a n A revision o f the note clearing operation whereby all Federal Reserve Banks and Branches commence o n Monday, June 24, 1929 to cancel a n d forward f o r redemption a l l notes o f the present size issued b y other banks regardless o f condition. oy P o s s i b l e Effect o f Failure t o Provide Small R i c h m o n d Size hational B a n k Notes w h e n Other Currency is Changed. Ds R e d e m p t i o n F u n d f o r Federal Reserve Notes. Is there any need for two separate funds? N e w York d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 OPERATION AND ADMINISTRATION. A. P o s s i b i l i t y o f F. R. Banks acting a s custodians F . R. Beard of securities, including bankers bills, pledged to secure public deposits. ( F o r discussion.) (See Board letter X-6251l-b dated February 26, 1929.) Collateral for War Loan Deposits. R i c h m o n d Reserve against Government Deposits i n Member R i c h m o n d Banks. Treasury Circular No. 92. D a l l a s hie E f f e c t o f terms u p o n prices o f Government issues and cost o f Government finaneing. os P r i n c i p l e s that should b e followed i n "Designations o f Depository Banks," Investment Policy o f Member Banks. S t The growing tendency o f member banks when making investments not t o consider maturi- . Louis ties t o meet known o r anticipated demands from customers o r withdrawals o f deposits which results i n more o r less continuous rediscounting b y them, T h e statement o n the part o f some s u c h banks t h a t t h e y find it more convenient t o operate w h e n under rediscount than otherwise, a s they feel they have the right t o rediscount regularly i f within reasonable limits even though the funds obtained b y rediscounting are used t o make o r maintain investments instead o f being used t o accommodate customers, Credit Investigations o f Member Banks. S Report o f Leased Wire Committee, Report o f Insurance Committee. Report o f Pension Committee. Report o f Sub-committee o f General Committee on Bankers Acceptances. a n Francisco Ve SUPPLEMENTARY T O ICS. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A. C o m p u t a t i o n o f Member Bank Reserve Requirements, Richmond B. S h o u l d Self-insurance Resérves B e Carried B y F. R. Banks and I f So, H o w and For What Purposes Should They B e used and What Effect, I f F, R , Board Any, Should They Maye On the Cost of Fidelity orOther Insurance Carried b y the Banks? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis G O V E R N O R S April 1 C O N F E R E N C E - 4, 1 9 2 9 . Washington, D a Ce. First Day's Session, Monday, April 1. ava Morning ™m The meeting was called to order at 10:20 a. m. PRESEMT: Governor Calkins, Chairman, and Governors Harding, Harrison, Norris, Fancher,Black, McDougal, Martin,Geery a n d Talley. Deputy Governor Worthington. Mr. Strater, Secretary. Honorable R. A. Young, Governor of the Federal Reserve Board, was also present at the opening of the conference and stated that the Board would meet with the Governors at some con~ venient time t o discuss credit conditions and policies. There = upon the Chairman notified Governor Young that he would be advised when the conference was ready t o meet with the Board. On motion of Governor McDougal, i t was VOTED t h a t t h e Secretary prepare a n d send a suitable telegram t o Governor Bailey expressing t h e regrets o f the conference a t n o t seeing h i m present a n d their best wishes f o r a prompt recovery. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 TOPIC I. A- Open Market Cperations. 1. R e p o r t of Open Market Investment Committee» (See paragraph 47) At the suggestion o f Governor Harrison, t h i s topic w a s passed for later consideration a s the Open Market Investment Committee h a d not h a d a n opportunity t o meet prior t o the conference. TORIC. Decks O p e n Market Operations: ae p e n Market Committee. Recommendation o f Joint Conference o f Governors a n d Agents of November, 1928 regarding suggested revision o f Open Market procedure. The discussion of this topic brought out the fact that the Federal Reserve Board has not yet acted upon the recommendation of the joint conference o f Governers and Agents o f November, 1928, and i t was VOTED t o be the sense of the conference that it is still i n agreement with the recommendations o f the Federal Advisory Council, made a t its meeting i n September, 1928, relative t o the enlargement o f the Open Market Committee, a n d that the object o f those recommendations might effectively b e accomplished b y the adoption o f the procedure proposed t o the conference o f Governors i n November, 1928, a s amended and approved b y that conference and the joint conference o f Governors and Federal Reserve Agents. In discussing this subject, t h e conference further expressed the opinion that i t might b e helpful and advisable t o review (4) the functions of the Open Market Investment Committee, believing the committee c a n best serve its purpose b y continuing a procedure such as that referred t o by the Open Market Committee in its report o f January 7,.1929, a procedure which the conference has understood t o be the procedure followed i n the past. TOPIC I. B. D i s c o u n t Rates and Open Market Policies. Le D e s i r a b i l i t y : f o establishing a higher rate of discount o n member b a n k collateral notes secured by Government obligations. _ (See Board letter dated a r c h 12, 1929.) 2;Furnishing funds for intermediate credit banks. 3. R e p o r t of the committee appointed at the November, 1928 con-~ ference t o study Federal reserve credit operations, i n - cluding effectiveness of discount rate changes a n d open market operations i n controlli- ing total volume o f Federal reserve credit. At the suggestion o f Governor McDougal,these topics were passed for later consideration. TOPIC I. C. B r o a d e n i n g Bill Market. 1. Sxperience and progress of each F, R. Bank i n distribution o f bills i n its district. A general discussion participated i n by all o f the Governors present brought o u t the fact that although more o r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis less successful attempts h a d been made i n several o f the districts t o bring about a broader distribution o f bills, i n most https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 of the districts t h e attempts h a v e b e e n discouraging. A broad survey o f the experience o f the last ten o r twel vé years shows that there has never been a true bill market i n this country but that it has been sustained largely by the Federal Reserve Banks and by the foreign central banks investing through the Federal Reserve System, and that it is probable much of the buying of bills through other sources is also for the account o f foreign banks. There w a s a general discussion a s t o the desira- bility of rediscounting bils offered by member banks and the right o f a Federal Reserve Bank t o refuse such rediscounts. It appeared t h a t some o f the reserve banks, including N e w York and Boston, had recently rediscounted a small amount of bills for their member banks, t h e offerings being made, undoubtedly, a s a result o f t h e discount rates b e i n g lower than the bill wate. oro. t s C y B r o a d e n i n g Bill Market. Re W a y s a n d means o f encourag~ ing further distribution. (See paragraphs 6,7,9 & 10) While i t was the c o n s e n s u sfo opinion o f the Governors present t h a t t h e development o f a n American bill market i s desirable, a s brought o u t i n the discussions u n d e r preceding topics, appeared to be the sense o f the conference that there is little else that the Federal Reserve Banks can do under existing conditions t o facilitate a broader distribution o f bilis. it https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Talley read a memorandum prepared b y him and submitted t o the Board o f Directors o f the Federal Reserve Bank o f Dallas o n October 7, 1927. I n a s m u c h a s this memoran~ dum sets forth i n a concise way a sound policy with respect t o developing a broader bill market, the minutes o f this conference. i t was ordered made a part o f ( T h i s memorandum appears a s Exhibit A and i s made a part o f these minutes.) TOPIC L.-Cs B r o a d e n i n g Bill Market. 3. S y s t e m policy with respect t o the purchase of bankers bills especially i n relation t o the further development o f a n open market. (See paragraphs 6,7,8 & 9) This topic was passed without further discussion a s it had been covered i n the discussion o f the two preceding topics. The Chairman reported that Messrs. H. H. Bond and W.S. iediehine were prepared to discuss with the conference the progress m a d e b y the Treasury Department i n its program f o r the distribution o f the n e w s i z e o f currency a n d a s there w a s n o ob- jection,,an invitation was sent t o these gentlemen t o come before the conference a t 2:30 p. m. At 12:45 p e m . t h e conference adjourned t o reconvene at 2:30 DP me First Day's Session, Monday, April l. Afternoon The meeting was called to order at 2:45 p- m Mr. H. H e Bond, Assistant Secretary o f the Treas~ ury,, and Mr. W. S . Broughton entered t h e meeting a t this point and reviewed the progress that had been made i n the Treasury program o f printing new size currency. M r . Bond outlined t o the conference the Treasury plan for publicity i n advente o f the date set for the issuing o f the new size currency, a s follows: First, preparation of a moving picture film to be takken b y all of the companies and which would include certain features directing the public's attention t o some o f the characteristics o f the new currency i n connection w i t h which i t was thought desirable that the public be informed prior to its issuance. I t is plahned t o release this film i n June » Second, provide each bank and trust company in the United States with one set of actual specimens of the new size currency i n the one, two, five, and ten dollar denominations. I t i s planned t o supply these actual specimens a t approximately the same time the moving picture f i l m i s released. Mr. Bond then stated the Treasury stood ready to make delivery o f specimens t o all banks and trust companies direct and would not ask the Federal Reserve Banks t o bear the burden o f the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis distributions. H e had, however, communicated w i t h a number of the reserve banks t o find out i f they would prefer t o make the distribution themselves, M o s t o f the banks communicated with felt that they would prefer t o do so. M r . Bond assured the conference that the Treasury would b e delighted t o handle the matter i n this way i f i t met with the approval o f the Federal Reserve Banks. In response t o a question, Mr. Bona reported that the substituition o f the new size National bank currency was planned t o begin o n October 1 and t h e n e w notes would b e i n Process o f printing before J u l y 1 . A discussion o f this question brought out the point that the delay i n issuing the new size National bank notes might cause some embarrassment to the Treasury and t o the Federal Reserve Banks because during the interval between July 1 and October 1, there would b e a tendency for the present size National bank notes t o flow into the Federal Reserve Banks and that some plan would have to be worked out t o keep them i n circulations The Chairman suggested that i t would b e desirable to call a meeting o f the currency operating officials o f all of the reserve banks t o be held with officials o f the Treasury Department i n the near future t o discuss w a y s a n d means of meeting t h e difficulties w h i c h a r e likely t o arise a n d f o r the purpose o f adopting a It was thereupon https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis uniform policy i n dealing w i t h the problem. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VOTED t h a t a meeting o f currency operé.ting of- ficials of the Federal Reserve Banks be held with Treasury OFTICLAlS i n Washington o n M a y 2 , this date b e i n g gatisfactory t o the Treasury Department. LORIC IIL. C. P o s s i b l e Effect o f Failuze t o Provide Small Size Natzonal Bank Notes when Other Curren~ cy i s Changed. (See paragraph 13) This topic was passed without further discussion as i t h a d been covered i n the discussion w i t h Treasury o f ficials. SOFC t v D s R e l a t i o n s w i t h Foreign Banks. 1. Report. (a) _ Operations (b) Progress o f monetary stabilization (c) Foreign exchanges and gold movements Governor Harrison reviewed the various matters relating t o operations with foreign central banks,calling attan-~ tion to the total volume and changes i n the individual accounts. He also reviewed t h e progress o f monetary stabilization abroad during the past few years and the present condition o f foreign exchanges, and also explained the trend of gold movements. TOPIC I. Fe D e v e l o p m e n t o f Investment Companies for the Purchase o f Bank Stocks. Governor Harrison said that this topic had been u p before t w o previous conferences and was put o n the program now simply t o keep i t alive and i n the thoughts o f the different https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis banks until there was something definite that could b e done about it. T h e question a t present was more one o f moral influence being exerted b y the reserve banks against the practice and of having a uniform method of approach t o the problem. A general discussion followed o n the dangers inherent i n the purchase o f bank stocks b y investment companies a n d the growing tendency to establish widespread chains of banks comprising only a few members o f the Federal Reserve S y s t e m u p o n which t h e others would depend for accommodation a t the Federal Reserve Bank i n case o f need. The advisability o f making a formal recommendation a s to the dangers o f the situation w a s discussed,but i t was thought nothing useful c o u l d b e done a t this time. O n motion o f Gov- ernor N o r r i s , t i was VOTED t h a t the conference record that i t had discussed this topic and noted with concern the very widespread and rapid development o f corporations created for the purpose o f acquiring b a n k stocks. TOPIC II. C o l l e c t i o n s a n d Clearings. Ae R e p o r t o f Standing Committee o n Collections. Be P o l i c y t o be pursued b y Federal Reserve Banks i n asserting rights o n behalf o f depositors of unremitted f o r transit items against receivers o f insolvent member banks. ( S e e Board letter X-6263 dated March 14, 1929.) (See paragraphs 36 & 38) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 on L hese topics were passed for later consideration. TOPIC S11. C o i n , Currency, a n d Circulation. A. C u r r e n c y depots. (See paragraph 23) Governor Norris stated that outside of the Atlanta district, t h e Philadelphia district w a s t h e o n l y o n e which h a d currency depots, o r , a s t h e y call them, revolving funds. Governor Norris read a memorandum giving a n analysis o f the operation o f currency depots a n d copies w e r e distributed t o the Governors. Governor Calkins suggested that the analysis be read and studied and that the topic b e discussed o n the following day. TOPIC III. C o i n , Currency, a n d Circulation. Bs F e d e r a l Reserve Note Clearing. The Secretary explained the purpose o f the Cleveland bank i n placing this topic o n the program. I n view o f the con- ference o n May 2 of the operating currency men of all the banks, it was VOTED t h a t this topic b e submitted t o the operating conference with the request that they agree upon a procedure and fix a date, Answering a n inquiry from Governor Norris, t h e Chairman said that the Conference o f Counsel h a d adjourned t o reconvene at 5:00 p e m e , , a t which time t h e y were t o consider a majority a n d a minority report dealing with an amendment t o Regulation J. A t this point, the Secretary was instructed t o attend the Conference ( 2 1 ) Li of Counsel a n d t o notify t h e Chairman o f the conference t h a t the Governors w e r e r e a d y t o meet w i t h them, Governor Young, a s desired b y o n the following d a y a t 2:30 p. m. providing it was satisfactory t o counsel. Messrs. W. S. Broughton and H. H. Bond again came into t h e meeting a n d reported t h a t t h e tremendous undertaking of turning o v e r t h e o l d size currency i n t o t h e n e w smaller size has necessitated the purchase o f unusual amounts o f mater-~ ial i n advance a n d the employment o f extra labor t o complete the work by July 1. U n d e r ordinary conditions such advances are taken care o f b y appropriations for other classes o f money temporarily, which appropriations are r e somureee when payments are made for the completedFederal reserve notes. T h e present turn~over coming a s i t does a t the e n d o f the fiscal year, up- sets the usual procedure a s currency appropriations are practically exhausted a n d there i s n o revolving f u n d o f a n y kind from which advances f o r Federal reserve notes m a y b e made. Con- siderable delay i s also experienced i n the general accounting office i n getting credit passed t o the bureau a t this particular period and the large amount o f the bill involved makes i t imperative that the bureau b e reimbursed not later than July 1 . for the many advances for materials a n d t o provide for the necessary payroll demand. A the fact that expenditures general discussion biGaent o u t o n the part o f the Treasury f o r the new size Federal reserve notes were approximately $1,600,000 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis and i t was VOTED t h a t unless a n objection w a s raised b y the Federal Reserve Board, t h e Governors comply w i t h t h e request of the Treasury and make the following payments t o the Treasury t o cover expenses incident t o the preparation o f new Federal reserve notes; viz., $750,000 during the first part o f April and $750,000 on the first o f May. At 5:30 the conference adjourned t o reconvene a t 10:00 a. m. Tuesday morning. Second Day's Session, Tuesday, April R e Morning The meeting was called to order at 10:10 a. m. PRESENT: Governor Calkins, Chairman, a n d Governors Harding, Harrison, Norris, Fancher, Seay, Biack, McDougal, Martin, Geery and Talley. Deputy Governor Worthington. Mr. Strater, Secretary. TOPIC III. C o i n , Currency, a n d Circulation. A. Currency Depots. (See paragraph 19) A general discussion i n the light o f Governor Norris! memorandum distributed a t the afternoon sesSion o n Monday, disclosed the fact that the principal advantages o f currency depots was a Saving i n shipping charges which accrues t o the Federal Reserve Bank maintaining the currency depots, a n d the convenience t o the member banks i n the community where a operation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis depot i s i n T h e elimination of delay i n deliveries where the io mail service i s uncertain i s also a n important factor. T h e discussion further developed that there were points i n each Federal reserve district where currency depots might b e established b u t thedifficulty which w a s sure t o b e encountered if this service were extended, appeared t o be where t o draw the line. I t was the opinion o f the conference that i f there waS a n extension o f this plan, source o f embarrassment i t would probably become a t o the Federal ReserveBanks a s t h e y would b e likely t o receive numerous requests f o r the establish= ment o f them, many o f which, they might feel, could not b e granted. T h e effect o f these depots o n bank reserves was also considered. O n motion o f Sovernor Black, i t was VOTED t h a t i t is the opinion o f the conference that additional currency depots should n o t b e established except a s an emergency measure. i e TOPIC TIT. C o i n , Currency, a n d Circulation. D, Redemption fund for F. R. Notes. It was the consensus o f opinion that the present procedure o f maintaining t w o redemption funds w a s cumbersome a n d could be very much simplified b y the elimination of the Federal Reserve Agents redemption fund. O n motion o f Governor Harrison, it was VOTED t h a t the Chairman appoint a committee t o confer with Treasury officials andexpress t h e opinion o f the conference that a n effort should b e made t o do away with the Federal Reserve Agents fund if agreeable t o the Treasury. T h e r e u p o n the Chairman appointed Messrs. Rounds and Smead a committee t o take u p the matter with Treasury officials. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 TOPIC IV. B. Collateral for War Loan Deposits. The discussioncentered around a recommendation b y Governor Seay that the Treasury Department limit collateral for war loan deposits t o Government securities and the fact that present Treasury regulations permit new issues of Gov~ ernment securities t o be purchased and paid for b y credit. On motion of Governor Seay, i t was VOTED t h a t the conference renew its recommendation t o the Treasury that collateral for war loan deposits b e limited t o Government securities o r that a t least bills receivable b e eliminated. G o v e r n o r s Harrison, and Porcie voted in the negative. TOPIC Iv. Cc. Reserve against Government Deposits ( 2 6 ) in Member Banks. After discussion, o n motion of Governor Seay, i t VOTED t h a t this conference renew its endorsement of the conclusion adopted b y the report of the Federal Reserve Agents committee o n member bank reserves dated May 4, 1925, that "The exigencies o f war-time financing having now paseed, the committee feels that reserve should again b e required against all classe.s of Government deposits." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TOPIC IV. D. Treasury Circular No. 92. ( 2 ie E f f e c t o f terms u p o n prices of Yovernment issues and cost of Government financing. Be P r i n c i p l e s that should be fol- lowed i n "Designations o f depository banks." 7 ) 15 Governor Talley stated that this topic h a d been satisfactorily covered i n the discussion under Topic IV. B. a n d i t was thereupon passed without action. TOPIC IV. E- I n v e s t m e n t Policy o f Member Banks. After general discussion, this topic was passed without action» Upon motion of Governor Seay, the following supplementary topic w a s added t o the program a t this point: SUPPLEMENTARY TOPIC. C o m p u t a t i o n o f Member Bank Reserve “equirements. After discussion, i t was VOTED that the Federal Reserve Board be requested to consider a n amendment t o its regulations which will permit member banks t o compute their reserve requirements against deposits a s of the opening o f business o n any day instead o f theclose o f the day, t h e o n e being a quiring @ determined figure a n d t h e other usually r e - guess i n advance o f the close o f business. I n making this recommendation, t h e conference d o e s n o t w i s h t o imply a n y suggestion o f a change i n the present periods o f averaging re-~ serve requirements. TOPIC IV. F. C r e d i t Investigations o f Member Banks. After a general discussion, this topic was passed without action. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis TOPIC IV. D. Report of leased Wire Committee. Without discussion, i t was VOTED t h a t the report b e received, approved and filed. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 Stenographic Record o f the Discussion to be had with the Federal Reserve Board o n the Credit Situation. The Chairman stated that Governor Young had inquired as t o whether the conference thought i t would b e desirable t o have a stenographic r e c o r d o f the discussion during t h e meeting of the conference with the Federal Reserve Board, a n d as i t was the consensus of opinion that such a record would not be neces« Sary, i t was VOTED t h a t n o stenographic record o f the proceedings be taken. TOPIC IV. H. R e p o r t o f Insurance Committee. Without discussion, i t was VOTED t h a t the report b e received and filed. OrlG £ V s 1 . R e p o r t o f Pension Committee. After discussion, i t was VOTED t h a t t h e report b e received, approved, a n d the committees t attention called t o the fact t h a t i t h a d failed t o pro- vide the Governors with a copy of the new bill which it is planned to offer, a s requested a t the Governors! conference i n November, 1928. Adjourned at 1:00 p. ms to reconvene at 2:30 pe ms with Conference o f Counsel. iyg Second Day's Session, Tuesday, April 2. Afternoon The meeting was called to order at 2:40 p- m. with Goverkér Young and members of the Conference o f Counsel for the Federal Reserve Banks also i n attendance. Mr. Wyatt, Chairman of the Conference o f Counsel, made a brief report o f the conclusions reached b y the conference a n d stated that while counsel w e r e unanimous i n the opinion that uniformity of practice among the Federal Reserve Banks was https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis desirable, differences o f opinion a s to a recommendation t o amend Regulation J of the Federal Reserve Board had led to the preparation o f a majority report a n d a minority report. theg read t h e majority report adopted b y the conference vote o f eight t o four a n d t h e minority report signed b y sentatives of four of the Federal Reserve Banks. Governor Calkins t h e n called u p o n representatives s u p porting t h e majority v i e w a n d representatives supporting t h e minority v i e w a n d a general discussion followed. At 5:10 the conference adjourned and counsel were ex- cused. T h e Governors reconvened immediately and after a general discussion o f the two reports, t h e Chairman suggested that each Governor s t u d y t h e printed copies i n anticipation o f further discussion and action o n Wednesdays (Continued i n paragraph 36) Adjourned a t 6:00 p.m. on Wednesday. t o reconvene a t 10:00 a. m- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 18 Third Day.t's Session, Wednesday, April 3. Morning he meeting was called t o order a t 10:15 a. m. + TOPIC II. B. P o l i c y t o be Pursued b y F. R. Banks in asserting rights o n behalf o f depositors o f unremitted f o r tran- sit items against receivers of insolvent member banks. A further discussion o f counsels' majority and mine ority reports followed a n d o n motion o f Governor Norris, t h e following resolution was adopted, Governors McDougal, Geery, and Seay voting i n the negative: "RESOLVED, hat we approve in substance the majority report o f the Conference o f Counsel with the understanding that to assist the General Counsel of the Federal Reserve Board i n framing the exact language of any amendment that may be found neces~ - sary t o make t h e substance o f t h e report effective, each Federal Reserve Bank shall be at liberty to call his attention t o any local arrangement that might b e effected b y his amendment." ZOPIC. tVa. J s R e p o r t o f Sub-committee o f General Committee o n Bankers Acoeptances. After a brief discussion, i t was VOTED t h a t the report b e adopted with the sug~ gestion that a meeting o f the committee b e held i n the near future. T O P l i s K e R e p o r t o f Standing Committee o n Collections. (See paragraph 18) After a brief discussion o f the recommendations the Standing Committee o n Collectiams, i t was of ie VOTED t o receive and approve the report except that part o n page four recommending that telegraphic transfers o f funds b e accepted from and paid t o non-member clearing banks, which was disapproved. Appointment of Chairman and Secretary. The C h a i r m a n c a l l e d t h e a t t e n t i o n o f the conference o Novetber, 1928, tothe minutes of the Governors! conferencef in which i t appeared that the Chairman and Secretary were appointed f o r that conference a n d t h e next succeeding conference, and stated that i t was his impression that the appointment was https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis intended t o cover the year 1929. U p o n motion o f Governor Talley, it was VOTED that Governor Calkins be re-appointed Chairman and Mr. Strater appointed Secretary of the Conference o f Governors for the calendar year 1929. In response t o a n inquiry b y the Chairman, Mr. Strater asked t o be relieved o f his duties a s Chairman o f the Standing Committee o n Collections a n d expressed h i s willingness to serve a s a member o f the committee. t o continue T h e Chairman expressed the gratitude o f the conference f o r the work which Mr. Strater has done. n motion of Governor Fancher, it was VOTHD t h a t Mr. J. S. Walden, Junior, o f the Federal Reserve Bank of Richmond be appointed Chairman of the Standing Committee o n Collections i n place o f Mr. Strater. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 20 TOPIC IV. A. P o l i c y of Federal ReserveBanks acting a s custodians o f securities, including bankers bills, pledged t o secure public deposits. After a general discussion, Harrison, o n motion o f Governor i t was VOTED that the Chairman appoint a committee to review this whole question i n the light o f a n earlier report sub~ mitted by a committee appointed for that purpose, and in the light of further developments since that time. Thereupon the Chairman appointed Governors Geery, Fancher, a n d Harrison a s a committee t o study the question a n d report t o the next conference. The followingsupplementary topic was submitted b y the Federal Reserve Board: SUPPLEMENTARY TOPIC. S h o u l d self-insurance reserves be carried b y F. Rs Banks and if so, h o w a n d f o r what pur-~ poses should t h e y b e used a n d what effect, i f any, s h o u l d they have o n the cost o f fidelity o r other insurance carried b y the banks? After a brief discussion, i t was VOTED t h a t it is desirable that all FederalReserve Banks should s e t u p self-insurance reserves f o r sind purpose o f meeting any losses o f whatever nature not covered otherwise. It was t h e sense o f the conference t h a t this action would facili- tate a reduction i n the cost o f all types o f insurance. The Chairman placed before the conference the following communication: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis "Governor Calkins: Attached i s a resolution which h a s been introduced but not passed b y the Board and the Board would like to get the reaction of the conference a t its convenience. (Signed) R. A. Young. "RESOLVED, That the designation of 'reserve city' b e applied t o any city where the ratio o f 'due to', banks o f all member banks i n the city exceeds ten percent o f their total deposits, a n d that t h e designation o f .'reserve city’ b e terminated when the ratio o f .'due to! banks total deposits i s o r becomes less than ten percent." After a general discussion i n which i t was brought out that this question would require a great deal o f study before a competent answer could b e given, o n motion o f Governor Harding, it was VOTED t h a t the conference i s unable t o give any advice a t this time and would like t o have further time forconsideration. T h e conference desires, however, t o call t h e atten- tion o f the Federal Reserve B o a r d t o the fact t h a t i n many cases one o r two banks i n the c i t y might h a v e b a n k deposits while other banks d i d not, a n d suggests t h a t t h e Federal Reserve B o a r d consider t h e advisability i f t h e y desire t o carry o u t this p l a n of having this provision applied t o specific banks rather than to all bank i n the city. Re On LG be be D i s c o u n t Rates and Open Market Policies. 3. R e p o r t o f committee appointed at the November, 1928 conference t o study Federal reserve credit operations, including effectiveness o f discount r a t e changes a n d o p e n market opera-~ tions i n controlling total volume o f Federal reserve credit. ( S e e paragraph 5 ) Governor Harding, Chairman o f the cormmittee, stated that the committee had met in New York at the close of December and had discussed the matters which had been given t o it for study+ W h k l o tho committee had intended to prepare a formal written report,; nevertheless owing to the complexity of rapidly changing conditions, this had not been done i n time to submit to this conference. GovernorHarding presented a n oral report i n Which he stated it was his own personal views and dealt largely with conditions as they exist in the Boston district although he believed that these conditions were close t o and reflected con-~ ditions i n other districts. A f t e r a general discussion, Governors Harrison, Norris, a n d Seay concurred i n the opinion expressed b y Governor Harding. Governor Harrison suggested that if the committee could b e permitted t o continue i n existence, h e thought later on they could submit a full report which might b e helpful. Thereupon it was https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VOTED t h a t the committee appointed a t the November, 1 9 2 8 conference t o study Federal reserve credit operations including effectiveness o f discount r a t e changes and o p e n market operations i n controlling t h e total volume of Federal reserve credit, b e continued w i t h Governor Harrison substituted for Mr. McGarrah but still under the Chairmanship of Governor Harding. There was a lengthy discussion of the whole subject o f discount rates during the course o f which each Governor present expressed his views relative t o the effectiveness a n d desirability o f rate control o f credit expansion. Adjourned 1:10 p e m. t o reconvene a t 2:30 pe M e Third Day's Session, Wednesday, April 3. - Afternoon TOPIC I. B. D i s c o u n t Rates and Open Market Policies. 1. D e s i r a b i l i t y o f establishing a higher r a t e o f discount on member bank collateral notes secured b y Government obligations. (See paragraph 5) There w a s a general discussion o f this topic during which Governor Harding pointed o u t that t h e original Federal Reserve Act contained n o provision for the discounting o f fifteen-day notes w i t h Government collateral. I t further devel- oped that approximately s i x t y percent o f member b a n k borrowing was made o n collateral notes and forty percent o n rediscounts. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis On motion of Governor Harding, i t was VOTED t h a t i n the opinion o f the conference,it is not feasible a t the present t i m e t o establish a n y differ- ential between these two classes of paper, and that if such a change should b e made, consideration o f i t should be post- poned until after the Federal Reserve Banks areready to reduce r a t e s . TOPIC I. B. D i s c o u n t Rates and Open Market . Policies. ; 2. Furnishing funds for intermediate credit banks, (See paragraph 5) Therewas a general discussion o f t h e policy o f several o f the reserve banks i n regard t o purchasing deben~ tures from intermediate credit banks andthe topic was passed without a c t i o n . TOPIC I. A. O p e n Market Operations. 1. R e p o r t o f Open Market Invest~ C . (See paragraph 3) ASg overnor Harrison distributed copies of the report of the Secretary o f the Open Market Investment Committee t o the Governors' conference reviewing the transactions i n the Open Market Investment Account since the last Conference o f Govenors. He also r e a d t o the conference a rererandun outlining various factors i n the credit situation which had been considered by the Open Market Investment Committee a t its meeting o n April 1. Governor Harrison reported that in view of the fact that there was n o apparent n e e d just n o w f o r t h e purchase o f Government s e ~ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 curities a n d i n view o f the fact t h a t t h e committee n o w h a s authority t o sell Government securities, t h e r e w a s n o occasion f o r a n y further recommendation a t this time. discussion, After i t was VOTED that the oral report of the Chairmanf o the O p e n Market Investment Committee b e adopted a n d approved by the conference. A general discussion a s t o credit conditions a n d Federal reserve credit policies followed and the meeting ad« journed a t 6:00 p. m. t o reconvene a t 10:00 a e ns o n Thursday with the Federal Reserve Board. Fourth Day's Session, Thursday, April 4.: Morning The meeting was called t o order at 10:10 a. m i Governor Young presided. PRESENT: M e s s r s Platt, Hamlin, Cunningham, James, and Miller, a n d Governors Harding, Harrison, Norris, Fancher, Seay, Black,McDougal, Martin, Geery, Talley, a n d Calkins. Deputy Governor Worthington. Also Messrs. Goldenweiser, Smead, a n d McClelland o f the Federal Reserve Board staff. Mr. Strater, Secretary. At the request o f Governor Young, Governor Calkins reported the action taken b y the Governors! conference o n those topics submitted to it by the Federal Reserve Board. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 Governor Young requested each Governor t o express his views a s t o the general credit situation and after hearing from Governors Harding a n d Harrison, t h e meeting adjourned a t 1 : 5 0 p. nm. toreconvene at 2:45 p. m. (Continued in paragraph 61) F ourth Day's Session, Thursday, April 4. Afternoon The same attendance as atthe morning session with the exception o f Mir. Milicr, w h o was absent. Governor Young called upon the remaining Governors for an expression o f their views and the meeting adjourned a t 8:20 p e me (Exhibit A) (Extract from minutes o f meeting o f Board o f Directors o f Federal Reserve Bank of Dallas, October 7, 1927) During t h e past t w o o r three years a n d particularly during the past twelve months, t h e r e h a s b e e n a growing demand, especially on the part o f the small a n d medium-sized member banks i n this dis- trict, f o r liquid, short-time investments which could safely b e carried as a secondary reserve, I n response t o that demand, this bank pur~ chased for the account ef member banks during the twelve month period ended September 5 0 , 1927, bankers acceptances amoutiting t o approxi- mately $14,000,000, which i s i n addition t o the amount banks and other investors i n this district purchased directly from bill dealers and through correspondents. S i n c e a fairly good market for bills has been created i n this district, a few of our larger and better member banks have become more interested i n using their acceptance privilege and as a result have begun t o finance through bankers acceptance credits certain transactions which lend themselves t o that kind o f financing, Until recently some o f the accepting banks have not fully appreciated t h e advantage, b o t h actual a n d incidental, o f selling their bills into the open market and have been disposed t o offer them to us to be purchased outright o r carried under a sales contract o r repurchase agreement, a s soon as they were created. In some cases two member banks will accept bills, then exchange them with the thought that each will place its endorsement o n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 tne bills accepted b y the other i n order t o meet our technical requirements, a n d then immediately offer them t o us t o be purchased. Such bills are generally known as "swapped" bills. In other cases a member bank will accept under a n arrangement with its customers and immediately offer the bills t o us for purchase through a subsidiary o r controlled institution, which en-~ dorses them, In other cases bills bearing the endorsement o f subsidiary institutions are offered t o us under a repurchase agreement with the intention of renewing such agreement every fifteen days until or about the maturity o f the bills. Such bills a s I have mentioned, w h i l e t h e y a r e properly drawn, meet our technical requirements and are acceptable t o us from a credit standpoint, a r e , in our opinion, n o t being disposed o f i n accordance with well established principles when they are handled a s I have in- dicated. I n order to encourage some member banks to use their ac- ceptance privilege more freely i n financing the seasonal movement o f certain commodities, w e have f e l t that w e were warranted i n buying out- right, o r carrying under a repurchase agreement "swapped" bills a s well as bills bearing the endorsement o f an institution which i s virtually a subsidiary of the accepting bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 It is our feeling that w e should now take a somewhat different position i n dealing with transactions o f the character outlined, with the thought that accepting banks, a s well a s borrowers using acceptance credits, m a y fall into the practice o f disposing o f their bills i n the open market instead o f to us, s o the names o f acceptors may become well known t o investors i n this and other districts and the bills may b e readily sold a t prime rates. I t is our feeling also that i n cases where accepting banks a r e i n position t o carry their o w n bills t h a t instead of doing s o they should b e encouraged t o sell them i n the open market and purchase out o f the market a like amount o f prime bills accepted b y other banks. It is the general policy o f all Federal reserve banks t o purchase acceptances h a v i n g o n l y a short t i m e t o run, v e r y rarely more t h a n sixty t o ninety days, first because the reserve banks prefer early maturing bills and, secand, because dealers and others who carry a portfolio of bills, i n adjusting their position from time t o time usually sell the earliest maturing bills i n order t o get the benefit o f lower rates. I t is m y recommendation that i t should b e the general policy o f this bank not to buy bills as soon as they are created (commonly called "fresh" -bills) but t o buy early maturing bills a s far as possible, I t may b e necessary at times t o buy bills having more than ninety days to run, and https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis gach case will have t o b e handled o n its o w n merits, b u t I think w e should gradually g e t t o a point where o n l y short dated bills a r e pur- chased, It i s m y opinion t h a t this b a n k should discourage i n every way i t properly can, the swapping o f bills between accepting member banks, b u t I do not think that a rigid policy i n that respect should beadopted immediately, but rather gradually. I n the event "swapped" fresh bills are offered to us by member banks it is my recommendation that they should b e rediscounted a t the current rediscount rate applicable t o paper o f like maturity. It is my recommendation that bills accepted b y a member bank and offered to us by and with the endorsement o f a subsidiary in- stituion, should not be purchased outright under any circumstances. However, i t is my opinion that in some cases this bank might buy such bills under a sales contract running for not more than fifteen days at a rate equal t o the current rediscount r a t e f o r fifteen d a y paper. This would permit or encourage the sale of such bills i n the open market within a reasonable time, b u t i t is m y thought that the purchase o f such bills, even under a sales contract, should b e gradually discontinued. I t is my understanding that other Federal reserve banks do not look with favor upon "swapped" bills which are offered t o them and that they consistently decline t o purchase bills bearing n o other endorsement than that of a subsidiary of the accepting bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis It is m y further recommendation that this bank should continue t o buy prime bills when offered t o it by member banks o r dealers, provided they have been acquired i n a bona fide open market transaction, with the understanding that preference will b e given t o short-time bills a s indicated formerly. It is my recommendation also that prime bills should b e carried for bona fide dealers under sales contract pending reasonably prompt distribution o r sale inthe open market, In the event i t is evident that a dealer i s making n o particular effort t o distribute bills carried w i t h u s under repurchase agreement, o r is apparently attempting t o carry bills merely for the purpose o f making t h e difference between t h e bill r a t e a n d t h e sales contract rate, i t is my recommendation that the sales contract should be terminated a t its next maturity. In cases where bills being carried for a dealer under a sales contract, cannot b e readily disposed o f i n the market for one reason o r another, i t is m y recommendation that this bank should take steps t o inform itself concerning the standing and financial responsibility o f the drawer, acceptor and endorser o f each bill, a n d that after satisfying itself as t o the ultimate solvency o f such bills that i t buy them outright a t a rate which under the circumstances aopears applicable t o such bills. I t would naturally follow that i f this bank cannot satisfy itself a s to the solvency o f such bills that i t will neither purchase https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis them outright nor carry them for a dealer under a sales contract. In addition to the policies suggested with reference to particular acceptance transactions, i t is m y recommendation that i t should be the general policy of this bank to encourage the use of acceptance credits b y banks which w e think are competent t o properly handle acceptance transactions a n d whose bills could b e disposed o f without difficulty, a n d also help develop a broad discount market within the district with the view of assisting in the seasonable move~ ment o f commodities and a t the same time satisfying the increasing demand of member banks for liquid, short-time investments. I do not believe that we are yet ready t o suggest t o member banks, particularly the smaller ones, that they should endorse bills offered t o us which d o not already bear a satisfactory endorsement, a s i t i s o u r feeling that t o d o s o would probably arrest the development o f the discount market i n this district a t the point it has now reached, a n d i t would undoubtedly make i t more difficult to interest banks i n the purchase o f prime bills which were not ace customed t o making investments o f that character. I d o think, however, we should take a step i n that direction when the acceptance business in this district has reached a little more advanced stage, just as I am now suggesting that we take other steps a t this time i n view of the progress that has been made t o date. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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